Australia: Automatic renewal needs to be transparent: Sensis undertakes to amend contract terms

Last Updated: 19 May 2017
Article by Dan Pearce and Emily Booth
Most Read Contributor in Australia, August 2018

Following an investigation by the ACCC, Sensis Pty Ltd (Sensis) has provided a court enforceable undertaking to more clearly disclose its automatic renewal and cancellation terms and to refund customers affected by the previous terms.

Summary of the ACCC's concerns

The ACCC raised concerns that the above clauses in the Sensis standard form agreement may be 'unfair' under the unfair contract terms provisions in the Australian Consumer Law (ACL). Sensis also acknowledged the conduct may have contravened the ACL prohibitions on misleading and deceptive conduct and false and misleading representations with regard to price. A breach of unfair terms provisions often goes hand in hand with such contraventions, which have potentially high penalties.

Automatic renewal - benefits

Automatic renewal clauses are often drafted into business to business contracts, with great advantages for both supplier and (potentially) customers. The process of negotiating a contract and agreeing on legal and commercial terms can become drawn out and is a big time investment for sales and procurement personnel. A key advantage of automatic renewals is that, come the time of renewal, if it ain't broke, let it roll on; the supplier doesn't need to chase the customer to 'sign' a new contract.

Sensis' standard form agreement

In its standard form small business contracts for Yellow and White Pages, Sensis had terms that stipulated the advertising contract would automatically renew for further 12 month periods at the then current price. Customers had to notify Sensis in writing at least 30 days before the renewal date if they wanted to cancel their package. The ACCC had received a large number of complaints from small business customers when the contracts automatically renewed without further notice and they were required to pay a large early termination fee to cancel the contract after this renewal had occurred.

The ACCC also raised a separate concern that the ability of Sensis to terminate or cancel the standard form contract was too broad and needed to be qualified. Sensis agreed to amend the relevant terms to limit these circumstances to where it is "acting reasonably" and to protect its legitimate business interests.

Are automatic renewal terms in small business contracts "doomed"?

Certainly, the result is not "doomsday" for automatic renewal terms. Sensis has agreed to amend its terms to make its automatic renewal terms more transparent and to include an obligation on Sensis to remind customers of the pending automatic renewal. A reminder does not necessarily mean a customer has to agree in writing to a new minimum term, but provides a customer with more opportunity to act to prevent the renewal if circumstances have changed.

An alternative approach

Other options suppliers have include having the contract automatically renew on a month to month basis, so that if a customer does need to cancel in this period the cancellation fee will not be substantial. This may only be an option for suppliers whose products have low cancellation costs in the renewal term, compared with a supplier like Sensis which provides the benefit upfront by printing the advertisement in a hard copy directory. Of course, reducing the minimum renewal term is no substitute for transparency at the beginning, but a term such as month-to-month renewal should also be more palatable to customers when signing the original agreement.

The findings are consistent with previous interpretations of unfair contract terms, which were extended to small business contracts in November last year. Terms that may provide an advantage to a supplier such as automatic renewal can be acceptable so long as they are transparent and customers are not unfairly disadvantaged in practice.

A learning from this outcome is that businesses should not simply rely on 'black letter' lawyers to draft legal terms to be 'hidden away' from the customer. A business should always think about the contracting process as part of the overall customer experience, and seek to create a contracting process that is transparent and customer friendly. A potential benefit may well be better sales and retention, and less customer complaints.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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Authors
Dan Pearce
Emily Booth
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