On 15 March 2013, the ACCC released a report of the outcomes of the review it undertook of particular industries using standard form consumer contracts.
The introduction of national unfair contracts laws (UCL) came into effect on 1 July 2010. The Australian Consumer Law (ACL) has provisions allowing a Court to determine that a standard form contract term is void because it is unfair.
A term will be considered unfair if:
- it would cause a significant imbalance in the parties’ rights and obligations under the contract
- it is not reasonably necessary to protect the legitimate interest of a party to the contract (the onus being on the party who is advantaged by the term to prove it is reasonably necessary), and
- it would cause detriment to a party to the contract if it were to be applied or relied upon.
The ACCC reviewed the airlines, telecommunications, fitness and vehicle rental industries, as well as some prominent travel agencies. In conjunction with Consumer Affairs Victoria, it also reviewed online retail contracts. The aim was to identify problematic contracts and terms and to work with businesses to make changes to standard form consumer contracts to benefit individuals.
The review identified eight key issues:
- Contract terms which allow the business to change the contract without consent from the individual;
- Terms that cause confusion about an agency arrangement that applies and seek to unfairly absolve the agent from any liability.
- Terms that unfairly restrict the individual’s right to terminate the contract.
- Terms that suspend or terminate the services being provided to the individual.
- Terms that make the individual liable for things that would ordinarily be outside of their control.
- Terms that prevent the individual from relying on representations made by the business or its agents.
- Terms seeking to limit individual guarantee rights.
- Terms that seek to remove the individual’s right to a credit card chargeback facility when buying the service through an agent.
In relation to issue 1, the ACCC found it most prominently in telecommunications standard form contracts. A number of businesses have now amended their terms so that a balancing mechanism was provided (e.g. a requirement that the business obtain consent to the contractual change or allowing the consumer to exit the contract in the event of an unfavourable variation).
Example of Issue 1 unfair term
“You must pay all subscription fees applicable to the plan for which you have registered. You understand that all fees and charges may be altered from time to time by us without notice, however we will not increase the subscription fee for your plan until the end of the Minimum Contract Term.”
The second issue identified was found in some standard form travel agency contracts, which did not clearly set out the agency arrangements applying between the travel agency and the service provider (e.g. airline, hotel) and which party was responsible for any failure to provide the services to the consumer.
With respect to the third issue, the ACCC engaged with a number of fitness centres which had long term standard form contract with exit fees. The ACCC also addressed the requirements in these contracts for consumers to attend the fitness centre in person to exercise their termination rights and reports that many businesses have now amended their contracts to remove such requirements.
The ACCC was concerned about issue 4 in the context of terms permitting one party but not the other to avoid or limit performance of the contract. Some telecommunications businesses were found to use standard form contracts containing broad suspension and termination clauses which the ACCC found problematic. These businesses amended or deleted the terms to either restrict their operation to limited (and well defined) circumstances or to provide clarification as to the circumstances in which the business would seek to rely on them.
Example of Issue 4 unfair term
“We may at any time, without notice and at our absolute discretion, suspend or disconnect your access to part or all of the service, or delete or deny you access to your data if we have reasonable cause to do so.”
In relation to issue 5, the ACCC focused on the online sector, the telecommunications industry and major hire car companies. Of note, it is reported that none of the hire car companies approached by the ACCC adequately addressed the concerns raised. Those companies should now be on the lookout for enforcement notices or other action by the ACCC.
Again, in relation to issue 6, the ACCC reported that it had achieved important compliance outcomes with businesses, including airlines and telecommunication companies, on ‘entire agreement clauses’, except those in the hire car business.
Example of Issue 6 unfair term
“You acknowledge that you enter into this agreement entirely as a result of your own enquiries and that you do not rely on any statement, representation or promise by us or on our behalf not expressly set out in this agreement.”
The ACCC identified a number of terms across various industries that sought to limit consumer rights to refunds or warranties, and some which misled consumers as to their rights. It can be expected that this will be an area of ongoing focus by the ACCC.
Example of Issue 7 unfair term
“All other terms, conditions, warranties, undertakings, inducements and representations, whether express or implied relating to the supply of the service and equipment are excluded.”
In addition to these 8 issues, the review also identified some broader issues, including complicated and lengthy contracts and terms seeking to limit the jurisdiction by which online contracts are governed.
It is apparent that the 8 issues identified in the review will remain top priorities for the ACCC and State agencies. Businesses are well advised to review their standard form consumer contracts and to be on the lookout for any terms which might fall within the 8 identified issues. Some techniques to consider employing if there are terms which may be problematic include:
- narrowing broad clauses so as to make specific the circumstances in which the term is to apply.
- making rights and obligations mutual.
- using clear, plain language
Businesses which have not taken the opportunity to voluntarily amend terms identified by the review as problematic should expect to receive attention. The ACCC has made it clear that its next step in this process is enforcement.