Key Points:

By arguing an unfair contract is also false or misleading conduct, ACCC hopes to get a pecuniary penalty ‒ which can be as high as $1.1m per breach.

Businesses with standard form clauses in their contracts should take note that the ACCC is likely to pursue unfair contracts cases under the false or misleading conduct provisions of the Australian Consumer Law (ACL).

Why does this matter? The ACL does not permit the ACCC to seek pecuniary penalties under the unfair contracts provisions. The false and deceptive conduct provisions of the ACL, on the other hand, allow pecuniary penalties of up to $1.1 million per breach to be sought from the Court.

The ACCC has had two recent successes: first in the Chrisco Hampers case [1], and now in the recent Exetel case. Although the Exetel case was resolved without litigation, the ACCC again considered that a standard unilateral variation clause in a standard fixed term residential broadband agreement was not only an unfair contract term in line with established principles, but was likely to contravene or misleading conduct provisions of the ACL. 

Background to the Exetel case

In mid-2015, Exetel, Australia's largest independent internet service provider wrote to over 2,000 residential broadband customers on 12-month fixed contract to inform them that they were required to either terminate their Exetel service without a penalty, or to change their broadband plan. In doing so, it relied on a clause in its standard residential broadband agreement which provided that Exetel could vary any part of that agreement for any reason.

The ACCC alleged that this clause was an unfair contract term, and that Exetel's advertising of fixed term plans was misleading in breach of the ACL, because it falsely represented that customers would receive the service for 12 months on terms which were fixed.

Exetel co-operated throughout the ACCC's investigation and agreed to:

  • remove the offending unfair clause;
  • refund any additional monthly subscription costs for the remainder of the fixed term for customers who changed to a new plan; and
  • refund any activation charge previously paid by customers who terminated their Exetel service rather than change to a new plan.

What should business be doing now?

Exetel's actions to remedy the offending conduct show that there are potentially very serious financial consequences for companies who include or retain clauses which are unfair. In addition, regulator interest in these clauses can also have reputational implications.

The Exetel case, and other recent ACCC activity in the unfair contracts space such as the Chrisco Hampers case last year, show that ACCC is actively monitoring and enforcing compliance in this area, and will use the full scope of its powers, including pursuing businesses simultaneously for false or misleading conduct. This means a business which does not do its housework on unfair contract terms is running the risk of large penalties.

This increased regulatory focus is coming at a time when the unfair contracts provisions are about to be extended to apply to business-to-small business contracts (in addition to consumer contracts). This expanded application of the unfair contracts regime will come into effect in November 2016. Both the ACCC and ASIC are encouraging business to review their standard form contracts before the new laws take effect.

Sectors which commonly use standard form contracts with consumers and small business, such as telecommunications, retail, logistics, travel, health and leisure, and insurance, should be reviewing their standard contracts now. While there is immunity for contracts entered before the business to small business unfair contracts regime takes effect, contracts entered into, renewed or varied after November 2016 will be subject to the new laws. We can help you with this process.