The ACCC has stepped up its campaign against unfair contract terms in 2013. If your business supplies goods or services to consumers using standard form contracts, now is the time to double check that they comply with the Australian Consumer Law.

The ACCC commenced court proceedings against ByteCard Pty Ltd on 19 April 2013 alleging contraventions of the unfair contract terms provisions of the Australian Consumer Law (ACL).

Businesses should take note of this case for two reasons:

  • it is the first time the ACCC has instituted proceedings based solely on alleged breaches of the unfair contracts provisions of the ACL; and
  • it represents a new front in the ACCC's national ACL enforcement program.

The national unfair contract provisions of the ACL came into force on 1 July 2010 and are still relatively new and untested. These provisions apply to standard form consumer contracts, sometimes colloquially referred to as "take it or leave it" contracts.

The proceedings against ByteCard follow the ACCC's recent investigation into unfair contract terms and are the clearest sign yet that potentially unfair terms in standard form consumer contracts are well and truly on the ACCC's enforcement agenda.

If your business supplies goods or services to consumers using standard for contracts, it is important to ensure terms are drafted appropriately to minimise the risk of breaching the ACL. Terms dealing with price changes, liability and variation/termination should be a particular focus.

The consequence of including an unfair contract term in a standard form consumer contract is that a court can declare that term to be void, which means it will have no force or effect. This could have significant ramifications for businesses which supply services to large numbers of consumers under those standard terms and conditions.

ACCC's case against ByteCard

ByteCard is an Internet service provider which trades under the name NetSpeed Internet Communications and provides services such Internet connectivity, domain registration, hosting, mobile and fixed-line telephony and web design.

The ACCC examined ByteCard's standard terms and conditions and identified several terms which it considers are unfair because they:

  • permit ByteCard to unilaterally vary the price without giving the consumer a right to terminate the contract;
  • require the consumer to indemnify ByteCard in circumstances where the consumer has not breached the contract and ByteCard may have caused the loss;
  • allow ByteCard to unilaterally terminate the contract at any time without cause or reason.

The ACCC is seeking a declaration from the Federal Court that these clauses are unfair and void. This would mean that these specific terms have no force or effect and cannot be relied on by ByteCard.

What is an "unfair" contract term?

Under section 24 of the ACL, a term in a standard form consumer contract is "unfair" if it:

  • it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
  • it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
  • it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

This is the statutory test which the Federal Court will apply in determining whether ByteCard's standard terms and conditions contain clauses which should be declared unfair and void.

Was this a surprise?

The ACCC's focus on the unfair contract terms provisions of the ACL is not a surprise and follows an investigation the Commission recently undertook into various standard form consumer contracts in the airline, telecommunications, fitness and vehicle rental industries, as well as some contracts used by online suppliers.

The ACCC published a report in March this year after concluding its investigation and said that "the report marks the end of the compliance emphasis with the ACCC’s unfair contracts terms work and the transition to a more enforcement focused approach".

The ACCC has stated publicly on a number of occasions that consumer protection is one of its enforcement priorities for 2013. The ACCC's unfair contract terms work forms part of a broader national project designed to educate consumers about their ACL rights and investigate businesses which may be contravening the ACL.

A timely reminder to check standard form consumer contracts

The proceedings against ByteCard are a timely reminder for business to review standard form consumer contracts to ensure they comply with the ACL.

In many cases, the ACCC can get hold of standard form consumer contracts without too much difficulty by attending retail stores or surveying the websites of businesses who publish their standard terms and conditions online. It is likely that the ACCC will continue to play an active role in this area during 2013, particularly given its intention to pursue more cases where the outcomes may be less certain.