In a not-so-joyous result for Christmas hamper company Chrisco,
on 3 March 2016 the Federal Court ordered that the company pay a
penalty of $200,000 for making a false and misleading
representation that its customers could not cancel a lay-by
agreement after making final payment.
The case also provides a good analysis of the unfair terms
provisions, within the meaning of section 24 of the Australian
Consumer Law (ACL). The Federal Court also found
that certain terms in the Chrisco contract were 'unfair' as
they caused a significant imbalance in the parties' rights and
obligations arising under the contract. The relevant customers had
signed up for Chrisco's "HeadStart" plan, under which
payments for Christmas hampers could be made over the course of up
to a year in instalments direct debited each month. Even after that
year's hamper was fully paid and delivered the contract
contained a term that allowed Chrisco to keep debiting a
customer's account (unless they opted out) as payment for the
following year's hamper.
Chrisco in fact argued that this payment method was an advantage
for its customers. Chrisco argued that the demographic of its
customers, some of whom were described as
"unsophisticated" (there was evidence that the customers
were from lower income households) were advantaged by this
"savings plan". This appeared to backfire, as the Court
took a negative view of the removal of money from customers'
accounts without interest, and without any discount on the end
product. If the customer opted out, the money would be returned,
but without interest and in the meantime there was evidence that
some customers may have incurred high interest on their credit
In determining that the term in the HeadStart contract was
unfair within the meaning of the ACL, the Court made the following
Both parties accepted that the HeadStart contract was a
consumer contract and a standard form contract within the meaning
of the ACL (both necessary preconditions).
The sums of money lost by the automatic debit from the
consumer's account, without payment of interest and with no
discount for the consumer on the end product, involved a
significant detriment to the consumer. That detriment was not
balanced by any substantial corresponding right that the consumer
obtained against Chrisco.
The language of the term was not plain, and did not clearly
explain the amounts that would be taken on an ongoing basis or
explain the means by which the consumer could cancel the HeadStart
Plan and obtain a refund.
The term in question could have been presented in a manner
which was far more legible, much clearer and readily available to
the consumer. Instead, the font size was very small, and there was
nothing to draw a consumer's attention to it.
Whilst the HeadStart term is neither listed as an example of an
unfair term in section 25 of the ACL nor does it fall into any of
the categories of potential unfair terms described in section 25,
the Court pointed out that neither of these categories were
Chrisco made no submissions to suggest that the term was
reasonably necessary to protect its legitimate interests which the
Court needed to factor into its decision.
The decision shows that the Court can take a liberal
interpretation of significant imbalance, and that businesses
therefore need to review their contracts in the context of their
particular customer base. Additionally, the obligations can be
broader than the examples outlined in the ACL. This commentary is
also important for businesses who use standard form contracts to
keep in mind in the lead up to the
extension of the unfair terms provisions to small business
contracts in November 2016. The Australian reported on
4 March 2016 that 'the sheer enormity of [the changes] is now
starting to be understood in the business and government
communities' but 'there is going to be a scramble to catch
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