The Federal Court has declared that Europcar Australia’s 2013 standard rental agreement contained a number of unfair terms and that it had made false and misleading representations about consumers’ liability in the event of vehicle damage.

The Decision

The Court held that:

  1. The terms of the car rental contract which enabled Europcar to terminate the contract for any breach and impose unlimited liability for loss or damage on the customer regardless of fault, caused a significant imbalance in the parties’ rights and obligations and were not reasonably necessary to protect the legitimate interests of Europcar.
  2. Europcar's representations were misleading because, contrary to the representations on its website regarding limited liability under the DLF, customers were held fully liable under the rental agreement for loss in circumstances where there was overhead, underbody or water damage to the rental vehicle. Therefore, members of the target audience were found to have been enticed into "the marketing web" by an erroneous belief engendered by Eurpocar’s communication.
  3. Europcar made misleading representations:
  • concerning the existence, exclusion or effect of a condition or right associated with the services (s 12DB(1)(i);
  • that a service was of a particular quality (s 12DB(1)(a)); and
  • that a service had a particular benefit that it did not have (s 12DB(1)(e)).

The Court ordered Europcar to:

  1. pay a pecuniary penalty in the sum of $100,000;
  2. publish within 21 days at its expense a corrective advertisement in the first ten pages of each Australian newspaper in each State or Territory that it has an outlet; and
  3. pay the ACCC’s costs of the proceedings fixed in the sum of $65,000.

Implications of the Decision

  1.  All standard-form contracts should be screened for potentially unfair terms and amended.
  2. Rental car consumers are afforded the full protection of the ASIC Act and where applicable, the Australian Consumer Law.
  3. The circumstances in which a consumer contract is entered into matters. In this case, the Court considered that vehicle rental contracts are complex in nature and are often entered into during time-sensitive situations, such as airport departures. Consumers have little time to properly assess their rights and obligations under such contracts and are given limited opportunities to negotiate their terms. Accordingly,
  4. The penalty imposed by a Court may be high notwithstanding any cooperation from the respondent. Despite both parties agreeing that Europcar’s conduct was not deliberate and the level of cooperation by Europcar was of a very high order, the penalty imposed by the Court was significant. It was fixed with a view of ensuring that the penalty is not to be regarded by Europcar and other rental car companies as an acceptable cost of doing business.
  5. The ACCC has taken, and has shown it will continue to take a strong position against businesses that act unlawfully against consumers regardless of how innocent their actions. The ACCC’s commitment has been met by similarly strong judicial decisions.

On a related note

From 12 November 2016, the unfair contract term law will also apply to unfair terms in standard form contracts with small business. A small business is a legal entity with less than 20 employees. Casual employees are only to be counted in this number if they are employed on a regular or systematic basis.

Background

Europcar Australia’s standard 2013 rental agreement stated that consumers were to be held liable for vehicle loss or damage when they breached the rental agreement, no matter how trivial the breach or whether it had any connection to the loss or damage caused. Consumers were also held liable under the contract for vehicle loss or damage regardless of whether the consumer was at fault.

Further, from December 2013 to July 2014, Europcar stated on its website that a consumers’ liability for vehicle accident damage would be limited to a “Damage Liability Fee” (DLF) of $3650, or less if the consumer purchased Europcar’s “extra cover” products. However, under the rental agreement, liability for overhead, underbody or water damage claims were not limited to the DLF, even in circumstances where “extra cover” products were purchased.

Unfair Contract Terms

The Court held that Europcar’s rental contract was a financial product. Therefore, Part 2 Div 2 Subdiv BA of the ASIC Act would apply instead of the Australian Consumer Law.

Under section 12BF of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), a term of a consumer contract is void if:

  1. the term is unfair;
  2. the contract is a standard form contract; and
  3. the contract is for a financial product.

Section 12BG of the ASIC Act defines a term to be unfair if it:

  1. causes a significant imbalance in the parties' rights and obligations under the contract;
  2. would cause detriment (financial or otherwise) to a party if it were to be relied on; and
  3. is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term.

In determining whether a term of a consumer contract is unfair, the court must also take into account the contract as a whole and the extent to which the term is transparent. A term is transparent if it is expressed in reasonably plain language and presented clearly to the affected party.

If a term is declared void, the remainder of the contract continues to bind the parties to the extent that it can operate without the unfair term.

False and Misleading Representations

Under section 12DA of the ASIC Act, a company must not in trade or commerce, engage in conduct that is misleading or deceptive, or likely to mislead or deceive. Further, a company must not make false or misleading representations in connection with the supply or possible supply of financial services, or in connection with the promotion by any means of the supply or use of financial services.

For a copy of the Judgment, click here.