The recent Federal Court decision in ACCC v Chrisco Hampers Australia Limited highlights the importance of using transparent terms in standard form consumer contracts and demonstrates the court’s willingness to broadly apply the unfair contract terms regime under the Australian Consumer Law.
What you need to know
- With the unfair contract terms regime applying to small businesses from 12 November 2016, the ACCC continues to pursue unfair contract cases.
- In ACCC v Chrisco Hampers Australia Limited  FCA 1204, the Federal Court declared that a standard form contract provision allowing Chrisco Hampers Australia Limited (Chrisco) to continue withdrawing payments from consumers for potential future purchases constituted an unfair term under the Australian Consumer Law (ACL) and was therefore void.1
- The case highlights that the examples or categories of potentially unfair terms set out in s25 of the ACL are not exhaustive and the regime will have broader application. In particular, terms relating to automatic deductions should be scrutinised carefully to ensure they are associated with a customer benefit.
- The case also demonstrates that the “transparency” of a term will be critical when analysing “unfairness”. In particular, if a term is ambiguous, deficient in critical detail, in small font or isolated from other key terms and conditions there is greater risk that the term will be considered unfair.
- While pecuniary penalties are not available for unfair contract terms, as in this case the ACCC may simultaneously allege the same term or other provisions of the same contract contain false or misleading representations, which are associated with pecuniary penalties of up to $1.1 million per offence.
What is an Unfair Contract Term?
The unfair contract terms regime under the ACL applies to standard form contracts for the supply of goods, services or an interest in land to an individual for personal, domestic or household use or consumption.
From 12 November 2016 the regime will be extended to standard form contracts involving small businesses (having less than 20 employees) where the upfront price payable under the contract is no more than $300,000 (or $1 million if the contract is for more than 12 months).
In order for a term to be “unfair” it must:
- cause a significant imbalance in the parties’ rights and obligations under the contract;
- not be reasonably necessary to protect the interests of the party being advantaged by the term; and
- cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
Examples of unfair terms are provided in s25 of the ACL. In making its determination, the Court must take into account the contract as a whole and the extent to which the term is transparent.
For many years Chrisco has supplied customers with Christmas hampers, which can be paid for by advance instalments direct debited from a customer’s bank account.
Chrisco’s standard form contracts included a term that allowed it to continue withdrawing payments from the customer’s bank account even after full payment for the ordered goods had been made (the HeadStart Term). The additional payments would be applied to any future order made by the customer. The HeadStart Term applied unless the customer ‘opted out’ when submitting an order but customers could later request a refund of payments made under the HeadStart Plan.
The ACCC alleged that the HeadStart Term was an unfair contract term under the ACL.
Edelman J held that the HeadStart Term constituted an unfair term under the ACL and was therefore void.
The foremost reason for this conclusion was that the HeadStart Term caused a significant imbalance in the parties’ rights and obligations because the consumer did not receive anything in return for making the additional payments. On the contrary:
- a customer could place an order for a further hamper whether or not the HeadStart Term applied;
- in the event of a refund, Chrisco was not obliged to pay interest on the withdrawn amounts; and
- no discount was offered to a customer who subsequently chose to place an order for the following year.
The imbalance was also significant because the additional payments were likely to cause financial detriment to the customers against which they were applied.
In addition, the Court considered whether the HeadStart Term was transparent. Although it was not hidden and the ‘opt-out’ option was on the page opposite the HeadStart Term, there were several matters that reduced its transparency. Firstly, it was not in plain language because it:
- did not clearly identify the amounts that would be debited under the HeadStart Plan or how those amounts would be determined;
- was ambiguous – for example, it included the sentence “We will write to you to confirm your HeadStart Plan payments prior to commencing your direct debits” which could indicate that Chrisco would write to confirm the customer’s intention to proceed with the HeadStart Plan or the amount that would be deducted; and
- did not explain the means by which the customer could cancel the HeadStart Plan and obtain a refund.
Other factors taken into consideration included:
- The term could have been presented in a manner that was more legible, clear and more readily available to customers. Unlike other parts of the order form, the font size was very small and there was nothing about the term to draw it to the customer’s attention.
- Although the HeadStart Term and the opt-out provision were opposite each other within the catalogue, there was no cross-reference.
- The statement that payments made under the HeadStart Plan were fully refundable was not contained in the terms and conditions retained by the customer. This meant that, unless a customer made a copy of the order form, the customer did not retain a copy of the full terms and conditions outlining their right to a refund.
Finally, the Court noted that even though the HeadStart Term was not listed as an example or category of unfair term under s25 of the ACL, those examples or categories were not exhaustive.
What should you do now?
- You should ensure the critical terms of your standard form consumer contracts are transparent and in plain language – including being clear, comprehensive and not isolated from other key terms and conditions.
- If you have received complaints from consumers about not identifying key terms you are seeking to rely on for your benefit that may be a signal that such terms should be reviewed for transparency.
- Automatic deductions from consumers for future potential purchases may be at higher risk of being an unfair term, even with an opt-out provision.
If you have standard form small business contracts, you should review these for unfair terms before the new laws become operative from 12 November 2016.