Australia: ACCC report identifies widespread use of unfair terms in standard form contracts

Competition and Consumer Law Alert: 5 Apr 2013
Last Updated: 7 April 2013
Article by Brett Bolton

A report recently issued by the Australian Competition and Consumer Commission has raised concerns about the way in which standard form consumer contracts are used in some industries and by online traders.

Unfair Contract Terms: Industry Review Outcomes urges businesses that use standard form contracts to align their contracts with the requirements of the Australian Consumer Law or risk enforcement action by the ACCC.

Special counsel Brett Bolton discusses the key concerns raised in the report and explains the impact that its findings will have on businesses.

Key points

  • Unfair Contract Terms: Industry Review Outcomes summarises the outcomes of a recent ACCC review of standard form consumer contracts used in the airline, travel, telecommunications, fitness and vehicle rental industries, as well as some contracts frequently used by online traders.
  • The review identified eight key issues of concern to the ACCC. In the main, these issues involved the use of terms in standard form consumer contracts that were in breach of the unfair contract provisions in the Australian Consumer Law.
  • For the most part, businesses using standard form contracts containing terms that were of concern cooperated with the ACCC when those concerns were brought to their attention. However, some businesses chose not to cooperate (in the car rental industry, in particular) and may find themselves subject to enforcement action by the ACCC.
  • The report states that the ACCC is now moving from a compliance review focus to an enforcement focus when dealing with standard form contracts. There has never been a better time for businesses across all sectors to review their standard form consumer contracts to ensure compliance with the unfair contract provisions in the Australian Consumer Law.

What are unfair contract terms?

The Australian Consumer Law gives a court power to declare that a standard form consumer contract is unfair and therefore of no legal force or effect. These laws have been in place since 1 July 2010.

A 'consumer contract' is a contract for the supply of goods and services (or the sale or grant of an interest in land) to a consumer - someone who buys wholly or predominantly for personal, domestic or household use or consumption.

A standard form contract is a document prepared by one party and offered to the other on a 'take it or leave it' basis, without any negotiation.

A consumer contract will be 'unfair' if:

  • it would cause a significant imbalance in the rights and obligations of the parties under the contract;
  • it is not reasonably necessary to protect a party's legitimate interests; and
  • it would cause detriment to the other party if the term was used or relied upon.

For more detailed information about the unfair contract laws contained in the Australian Consumer Law, please see How the Australian Consumer Law will affect your business' transactions.

It is important to note that by virtue of the Australian Securities and Investments Commission Act 2001, similar unfair contract provisions apply to standard form consumer contracts for financial products and services.

Industry review outcomes: The eight key areas of concern

In addition to reviewing the standard form agreements commonly used in the airline, travel, telecommunications and car rental industries, the ACCC also reviewed (with the assistance of State and Territory Offices of Fair Trading) online standard form contracts used by online traders across a range of industries.

The review identified eight key issues of concern to the ACCC.

Issue 1: Contract terms that allow the business to change the contract without the customer's consent

These types of clauses were frequently found in standard form contracts used by mobile phone companies and others involved in the telecommunications industry. Such terms are likely to be considered unfair without an accompanying balancing right (for example, a term allowing the customer to withdraw from the contract or requiring the business to obtain the customer's consent before making any change).

These types of terms were also found in several contracts used by businesses trading online. Although it is not unlawful for such businesses to use standard trading terms that are available online, any ability the online trader has to change those terms and conditions during the life of the contract without the consent of the customer is likely to be in breach of the unfair contract provisions.

Issue 2: Terms that confuse a customer about agency arrangements or unfairly protect the agent from liability

The ACCC's review revealed that a number of travel agencies used standard form contracts that did not clearly explain the agency arrangements the travel agency had with the travel services provider, and did not make it clear whether the agent or the provider was responsible for any failure to provide the travel services to the customer.

The ACCC believes that such terms will breach the unfair contract provisions in the Australian Consumer Law unless they make it clear that the travel agent will accept liability where it is to blame for any failure to provide the travel services to the customer.

Issue 3: Terms that unfairly restrict the customer's termination rights

The ACCC's review identified the following terms that were likely, in its view, to breach the unfair contract provisions in the Australian Consumer Law:

  • Clauses that stopped the customer from terminating the contract after the supply of goods and services, even if the business was in breach of its obligations under the contract
  • Provisions imposing an early termination fee on a fixed term contract which are 'buried in the fine print'
  • The imposition of unnecessary or onerous pre-conditions on the exercise of a right to terminate the contract (eg a personal face-to-face meeting with the business before the customer is allowed to end the contract)

Issue 4: Terms providing for the suspension and termination of services

Terms giving the business a broad right to suspend or terminate the customer's access to the service without prior notice, and without any accompanying 'balancing' right for the customer (eg to seek a refund or some other remedy), are likely to be considered problematic by the ACCC.

The report acknowledges, however, that many businesses only intend to rely on such terms in certain circumstances, such as to prevent the customer from using the service for fraudulent purposes or to on-sell it for commercial gain.

The ACCC recommends that businesses seriously consider amending their standard form agreements to clearly set out the circumstances in which the business would seek to rely on a power to suspend or terminate services to the customer.

Issue 5: Terms making customers liable for things out of their control

The review highlighted the frequency of terms in mobile phone contracts which required the customer to pay for all charges and use of their mobile telephone service, regardless of whether they authorised that use or not.

Most of the telecommunications companies using such clauses in their standard form agreements agreed to amend or delete them after the ACCC raised its concerns. One telecommunications provider also agreed to include additional guidance for customers about how to guard themselves against the risk of unauthorised use of their mobile telephone service.

Similar provisions related to payment of charges were also found in many of the standard form car rental agreements reviewed by the ACCC. The report notes that none of the major hire car companies with whom the ACCC raised concerns adequately addressed those concerns.

Issue 6: Terms stopping the customer from relying on statements made by the business or its agents

The ACCC review found the widespread use of so-called 'entire agreement' clauses - broadly drafted clauses which seek to absolve businesses of responsibility for statements that they, or their agents, make to their customers.

Standard form contracts (especially in the telecommunications industry) are often long and complex, and as a result, customers often rely heavily on what they are told at the point of sale to gain an understanding of what they are being offered. The ACCC considers that, in these circumstances, a written term enabling the business to avoid all liability for any verbal statement made at the point of sale is unfair.

The ACCC notes that all businesses (once again, with the exception of the car rental companies) with whom it raised concerns about the existence of such 'entire agreement' clauses addressed those concerns to its satisfaction.

Issue 7: Terms limiting the customer's rights

The ACCC's review identified a number of contract terms, across many industries, that restricted a customer's right to refunds or warranties. These terms are unlawful because they mislead customers about their rights under the consumer guarantees provisions of the Australian Consumer Law.

Once again, these terms were commonly found in standard form mobile telephone contracts and, once again, the mobile telephone companies in question responded positively to the concerns the ACCC raised with them during the review.

Issue 8: Terms removing the customer's right to a credit card chargeback when buying through an agent

The review revealed that one (unnamed) travel agency was using a standard form consumer contract which purported to remove the customer's chargeback rights when buying travel services through the agency using a credit card. After the ACCC raised the matter directly with the travel agency, it agreed to delete the relevant provision from its standard form contracts.

Other concerns

The transparency and accessibility of a standard form consumer contract is something the court can consider as part of its overall assessment of whether such a contract breaches the unfair contract provisions in the Australian Consumer Law. The report notes that the industry reviews the ACCC carried out revealed a number of complex and lengthy standard form contracts that were neither transparent nor accessible, and recommends businesses adopt 'plain English' drafting techniques in the standard form consumer contracts they use.

What should businesses do now?

The report makes it clear that the ACCC's focus will now shift from compliance to enforcement, increasing the likelihood that it will take court action against businesses that continue to use standard form consumer contracts that contain unfair terms.

Businesses using standard form consumer contracts should take advantage of the transition period from compliance to enforcement to review their standard form contracts to ensure they are consistent with the unfair contract provisions in the Australian Consumer Law. Such a review can have the added benefit of highlighting (and correcting, if necessary) any business practices and behaviour not strictly complying with the broader consumer protection provisions of the Australian Consumer Law.

© HopgoodGanim Lawyers

Award-winning law firm HopgoodGanim offers commercially-focused advice, coupled with reliable and responsive service, to clients throughout Australia and across international borders.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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