ACCC and Federal Court crack down on unfair contract terms

06 August 2013 Topics: Competition and consumer law, Compliance and corporate governance

The Australian Competition and Consumer Commission (ACCC) and Federal Court have recently demonstrated that they will take a strong stance against businesses that use unfair terms in their standard form consumer contracts.

The transition from a compliance-based focus to an enforcement-based approach has been in action since the March 2013 ACCC report on unfair contract terms, where the ACCC set out a number of problematic commonly used terms that it would focus on as a priority this year.

The ACCC illustrated its enforcement-based approach in its recent action against ByteCard Pty Limited (ByteCard), an internet service provider. The ACCC instigated proceedings against the company alleging that a number of provisions in its standard form consumer contract were unfair and prohibited by the Australian Consumer Law (ACL).

Section 23 of the ACL outlines that the terms of a contract for the supply of goods or services to a person will be void if the terms are unfair and the contract is a standard form contract. Standard form contracts are contracts where the terms and conditions are set by only one of the parties to the contract, and the other party has no ability to negotiate more favourable terms.

The Federal Court declared that a number of provisions in the ByteCard consumer contract were unfair and therefore void and ineffective. The Court found that the contract terms were unfair as they:

  • enabled ByteCard to unilaterally vary the price under existing contracts with consumers, and failed to provide the customer with a right to terminate the contract;
  • required the consumer to indemnify ByteCard in any circumstance, even where the contract had not been breached by the customer, as well as in situations where liability, loss or damage resulted from a breach of contract by ByteCard; and
  • gave ByteCard unilateral rights to terminate the contract at any time with or without cause or reason, and without giving compensation to the consumer.

The Court found that the terms were unfair on the basis that:

  • they created a significant imbalance in the parties’ rights and obligations under the consumer contract;
  • ByteCard failed to prove that the terms were reasonably necessary to protect its legitimate business interests; and
  • if the contract was relied upon by ByteCard, it could cause financial detriment to the customer.

The proceedings initiated by the ACCC against ByteCard are the first that the ACCC have taken based solely on a breach of the ACL unfair contract terms provision, and indicate that it will be important for businesses that deal with customers and use standard form contracts to review their provisions and ensure they would not be considered unfair under the ACL.

Businesses that fail to do this run the risk that proceedings may be brought against them to make such terms void and ineffective.

If you require any further information or assistance relating to this issue, please contact David Grace on (07) 3231 2421 or Gabrielle Honey on (07) 3231 2436.

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