International companies that sell products online to Australia may ordinarily seek to rely on terms and conditions of sale that exclude liability and/or impose strict rules as to when remedies and refunds may be provided. Similarly, it is not uncommon for multinationals to roll out a generic set of terms and conditions for many jurisdictions without considering whether the local jurisdiction requires, as a matter of legal compliance, amendments to those terms and conditions.

In Australia, such an approach may be risky and may breach the Australian Consumer Law (ACL).

How does the ACL affect your terms and conditions?

The ACL prescribes certain implied terms and an associated remedy into supplies of goods and services to Australian consumers. The implied terms, called “consumer guarantees”, for goods include acceptable quality and fitness for purpose while the consumer guarantees for services include due care and skill. The remedy regime prescribes the circumstances in which a company must offer refunds and other remedies and when it can limit the forms of redress for breaching the consumer guarantees. 

A supply of goods or services is caught by these regimes if it relates to goods or services for less than $40,000 (and is not for resupply) or is above $40,000 but of a kind ordinarily acquired for personal, domestic or household use (and not for resupply).

The application of the guarantees to supplies of goods or services to consumers cannot be excluded or modified by contractual terms. Similarly, terms and conditions relating to remedies and refunds cannot be inconsistent with the remedy regime for breaches of consumer guarantees. 

If terms and conditions seek to do either of the above they may be misleading to Australian consumers and is likely to constitute a breach of the ACL which carries a maximum fine of AUD 1.1 million for companies.  The relevant contractual terms cannot be enforced but the statutory consumer rights and remedies will apply.

The recent Valve case

A recent decision of the Federal Court of Australia (ACCC v Valve Corporation (No 3) [2016] FCA 196) reinforces that terms and conditions of supply of goods or services to Australian consumers by international online businesses are subject to the ACL.

In that case, Valve Corporation (Valve) was an online business based in Washington, USA that did not have any physical retail presence in Australia. It provided downloadable computer games through its game-distribution website ‘Steam’. When consumers created an account or made a purchase on the Steam website, they were notified of Valve’s terms and conditions pursuant to the Steam Subscriber Agreement and Steam Refund Policy. 

The Steam Subscriber Agreement and Steam Refund Policy stated that consumers were not entitled to a refund. The Steam Subscriber Agreement also contained a “Limitation of Liability: No Guarantee” clause which purported to exclude guarantees of acceptable quality.

When consumers sought redress for products that were not of acceptable quality Valve relied on the terms of the Steam Subscriber Agreement and Steam Refund Policy which were not consistent with the non-excludable rights and remedies available to consumers under the ACL.

In light of the above, the Australian Competition and Consumer Commission (ACCC) commenced proceedings against Valve alleging that it had breached the ACL by engaging in misleading and deceptive conduct and making false and misleading representations to Australian consumers about the application of the ACL consumer guarantees.

What did the court say?

The Court found that Valve made the following false or misleading representations to consumers in particular versions of its Steam Subscriber Agreement and Steam Refund Policy:

  • consumers were not entitled to a refund (in any circumstances) for games purchased from Valve and downloaded via the Steam Website or Steam Client (when in fact and law they were so entitled under the ACL);
  • Valve had excluded statutory guarantees and/or warranties that goods would be of acceptable quality; and
  • Valve had restricted or modified statutory guarantees and/or warranties of acceptable quality.

In defence of the allegations, Valve submitted that the ACL did not apply to their conduct as Valve’s business was based in the USA and its standard form sales contracts contained jurisdiction clauses by which the purchaser agreed that “any dispute arising [under the agreement] shall be resolved in accordance with the law of Washington…you consent to the exclusive jurisdiction of such courts.”

Notwithstanding Valve’s jurisdictional clause and its foreign operating base, the Court stated that “… even without specifically being told that the consumer was in Australia, the downloading of [the product] in Australia and the agreement to Steam’s terms and conditions established a direct relationship between Valve and the Australian consumer. In selling online games to Australian consumers, Valve was involved in conduct in Australia or, in any event, was carrying on business in Australia.

Valve also submitted that the “No Guarantee” clause of the Steam Subscriber Agreement was not misleading as it was qualified by the inclusion of the words “this section will apply to the maximum extent permitted by applicable law.” The Court rejected this submission, finding that the clause was still misleading as a reasonable consumer would not know whether the expression “applicable law” referred to the consumer’s local jurisdiction. This was in contrast to a later version of the Steam Refund Policy which contained the qualifying expression “unless required by local law.” The Court held that this version of the Steam Refund Policy was not misleading as the clause would reasonably be understood by a consumer to mean the laws in which the consumer was located.

The penalty for Valve’s contraventions of the ACL is yet to be determined.

Significant penalties for breaches – the HP case

In 2013, the ACCC secured a $3 million pecuniary penalty and compliance orders against Hewlett-Packard Australia Pty Ltd (HP) for engaging in misleading conduct in relation to consumer guarantees under the ACL.

In that case, HP staff in call centres located around the world represented to consumers that their rights were limited to HP’s global terms and conditions and refunds policy. These terms and policies were inconsistent with the ACL and consumer guarantees.

What you should do now

The Chairman of the ACCC, Rod Sims recently confirmed that “consumer issues in the online marketplace are a priority for the ACCC and [the ACCC] will continue to take appropriate enforcement action to hold businesses accountable for breaches of the ACL.”

In light of this and the recent above decisions, foreign businesses selling to Australian consumers should:

  • check their terms and conditions of supply in Australia (in particular limitation of liability and refund clauses and policies) to ensure they are not inconsistent with the ACL.
  • properly train staff that may deal with consumer complaints to ensure they understand the rights of the consumers under the ACL so that the company is not found to be in breach of the ACL (false representations about consumer rights).
  • not rely on “jurisdictional or applicable law” clauses to exclude the operation of the ACL.