ACCC takes first enforce­ment action under ​“unfair con­tract” laws in the Aus­tralian Con­sumer Law

In Brief- Don’t be caught in the ACC­C’s crosshairs

The Aus­tralian Com­pe­ti­tion and Con­sumer Com­mis­sion (ACCC) has start­ed to take enforce­ment action against stan­dard form con­sumer con­tract terms that it con­sid­ers to be unfair and unenforceable.

Nation­al laws pro­scrib­ing unfair con­tract terms, includ­ed in the Aus­tralian Con­sumer Law (ACL), came into effect on 1 July 2010.

Since then, and until recent­ly, the ACCC, in its role of con­sumer pro­tec­tion enforce­ment, has not tak­en any pub­lic action, or oth­er­wise shown any signs that the news laws are a pri­or­i­ty for enforce­ment activ­i­ty. All of that changed on 22 April 2013. 

The ACCC has sued Byte­craft (an ISP and inter­net ser­vices provider) in the Fed­er­al Court of Aus­tralia alleg­ing that the com­pa­ny stan­dard terms of con­tract for con­sumer inter­net ser­vices are unfair, can­not be enforced by the com­pa­ny and must be declared void. The court case is the first enforce­ment action based exclu­sive­ly on the new unfair rules and so is a case that will be fol­lowed by many with interest.

The law pro­vides that a court may deter­mine that a term of a stan­dard form con­sumer con­tract is unfair and there­fore void. Under the ACL, a ​‘con­sumer con­tract’ is a con­tract for the sup­ply of goods and ser­vices or the sale or grant of an inter­est in land, to an indi­vid­ual who acquires it whol­ly or pre­dom­i­nate­ly for per­son­al, domes­tic or house­hold use or con­sump­tion. In broad terms, a stan­dard form con­tract will typ­i­cal­ly be one that has been pre­pared by one par­ty and is not sub­ject to nego­ti­a­tion – that is, it is offered on a ​‘take it, or leave it’ basis.

A term of a con­sumer con­tract will be con­sid­ered unfair if each of the fol­low­ing is present:

1. it would cause a sig­nif­i­cant imbal­ance in the par­ties’ rights and oblig­a­tions under the contract
2. it is not rea­son­ably nec­es­sary to pro­tect the legit­i­mate inter­est of a par­ty to the contract
3. it would cause detri­ment to a par­ty to the con­tract if it is applied or relied upon.

In deter­min­ing whether a term is unfair the court must take into account the extent to which the term is trans­par­ent, and the con­tract as a whole.

Whilst these rules do not apply to a con­tract to sup­ply goods or ser­vices from one busi­ness to anoth­er for busi­ness use, they apply to all stan­dard form con­tracts used for the sale of per­son­al, domes­tic or house­hold goods or ser­vices, irre­spec­tive of their value.

At the same time, the ACCC has under­tak­en a detailed review into stan­dard form con­tracts used in the air­line, telecom­mu­ni­ca­tions, fit­ness and vehi­cle rental indus­tries, as well as some con­tracts com­mon­ly used by online traders. The Com­mis­sion has con­clud­ed that are num­ber of stan­dard terms used in those indus­tries are ​“unfair”. We can expect the ACCC to con­tin­ue to focus on these issues, and to launch fur­ther pros­e­cu­tions, giv­en those find­ings. It is high­ly like­ly that any busi­ness that is using stan­dard con­sumer con­tract terms in the online envi­ron­ment, or in any of the indus­tries stud­ied by the Com­mis­sion, will attract a high lev­el of inter­est from the ACCC, and is like­ly to be a target.

It is clear that this issue is one that the Com­mis­sion is focus­ing on, and that it will con­tin­ue to mon­i­tor that mar­ket, engage with busi­ness­es to seek changes to terms the Com­mis­sion con­sid­ers unfair and, ulti­mate­ly, take action to have the terms declared void. It is now time­ly for exist­ing stan­dard terms and con­di­tions for indi­vid­ual access or use of a web­site, or for the pro­vi­sion (whether by sale, rental or oth­er­wise) of any goods or ser­vices that are, or may be sup­plied to an indi­vid­ual whol­ly or pre­dom­i­nate­ly for per­son­al, domes­tic or house­hold use or con­sump­tion, to be reviewed, in light of the changed law, and, equal­ly impor­tant­ly, the recent Com­mis­sion report. This will ensure that, as far as pos­si­ble, all of the terms of those agree­ments can be prop­er­ly con­sid­ered to be fair, and ful­ly enforce­able. This sim­ple pro-active step will sig­nif­i­cant­ly reduce the risk of sig­nif­i­cant dis­lo­ca­tion and expense in deal­ing with an ACCC inves­ti­ga­tion or Court enforce­ment proceedings.

These reviews are some­thing we have already under­tak­en for a num­ber of clients in busi­ness­es like­ly to be tar­get­ed by the ACCC and that rely heav­i­ly, if not sole­ly, on stan­dard con­tract terms where there is lit­tle if any nego­ti­a­tion of the main con­tract terms. In many of those busi­ness­es it is not fea­si­ble (or prac­ti­cal) to allow every pur­chas­er a rea­son­able oppor­tu­ni­ty to nego­ti­ate the terms of the con­tract. As a result, a dif­fer­ent solu­tion, so as to remove the risk of the terms being held to be unen­force­able is need­ed. We have devel­oped an excel­lent under­stand­ing of the issues, and the ways to draft enforce­able claus­es that meet the ACL tests.

If you would like us to review and amend your exist­ing terms so as to respond to this impor­tant issue, and ensure that you are con­fi­dent that the terms will con­tin­ue to be enforced, if nec­es­sary, please let me know. 

In the longer term, we will mon­i­tor the ACCC pro­ceed­ings and let you know of any devel­op­ments that may impact on stan­dard con­sumer con­tract terms gen­er­al­ly. If you think it use­ful, we can also pro­vide advice that is spe­cif­ic to an indi­vid­ual busi­ness’s stan­dard con­sumer con­tract terms. As the mat­ter has only recent­ly start­ed, we expect that it will be some time before any­thing mean­ing­ful can be gleaned from the case, but we will con­tin­ue to keep our clients up to date.

In the mean­time, as always, if you want to dis­cuss any aspect of the mat­ter, or have any par­tic­u­lar ques­tions, please let us know.