The Australian Competition and Consumer Commission has instituted proceedings in the Federal Court against ByteCard Pty. Limited (ByteCard) alleging that a number of clauses in the ByteCard standard form consumer contracts are unfair contract terms and should be declared void.
ByteCard (better known as Netspeed Internet Communications) is an Internet Service Provider that provides internet connectivity, domain registration, hosting and web design.
“This is the first time the ACCC has commenced legal proceedings based exclusively on the new unfair contract terms provisions of the Australian Consumer Law,” ACCC Chairman Rod Sims said.
The alleged unfair contract terms:
- enable ByteCard to unilaterally vary the price under an existing contract without providing the customer with a right to terminate the contract;
- require the consumer to indemnify ByteCard in any circumstance, even where the contract has not been breached, and the liability, loss or damage may have been caused by ByteCard's breach of the contract; and
- enable ByteCard to unilaterally terminate the contract at any time with or without cause or reason.
The ACCC alleges that these clauses in ByteCard’s standard terms and conditions are unfair and contravene the unfair contract terms provisions of the Australian Consumer Law (ACL). It also considers that these clauses are not reasonably necessary to protect ByteCard’s legitimate business interests.
The ACCC is seeking declarations that these clauses are unfair and void pursuant to section 23 of the ACL. The matter has been filed in the Federal Court’s Fast Track List and is listed for a scheduling conference in Melbourne on 13 June 2013.
The ACCC recently undertook an industry review and engagement which examined consumer contracts in the airline, telecommunications, fitness and vehicle rental industries, as well as some contracts commonly used by online traders and travel agents.
On 15 March 2013, the ACCC released the report, Unfair Contract Terms Industry Review Outcomes, which identified a number of problematic terms in standard form consumer contracts.
Background
The national unfair contract terms laws came into effect on 1 July 2010. The ACL provides that a court may determine that a term of a standard form consumer contract is unfair and therefore void.
Under the ACL, a ‘consumer contract’ means a contract for the supply of goods and services or the sale or grant of an interest in land, to an individual who acquires it wholly or predominately for personal, domestic or household use or consumption.
Although the unfair contract terms provisions do not define a ‘standard form contract’, they outline a number of factors that the court must take into account in determining whether a contract is a ‘standard form contract’. In broad terms, it will typically be one that has been prepared by one party to the contract and is not subject to negotiation between the parties – that is, it is offered on a ‘take it, or leave it’ basis.
The unfair contact terms laws do not apply to a contract to supply goods or services from one business to another for business use.
Similar unfair contract terms provisions exist under the Australian Securities and Investments Commission (ASIC) Act in relation to standard form consumer contracts for financial products and services.
A test consisting of three elements is used to determine whether a term is unfair.
A term of a consumer contract 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 (note that the party who would be advantaged by the term must prove that it is reasonable necessary), and
- it would cause detriment to a party to the contract if it were to be applied or relied upon.
All three elements of the test must be proved in order for a court to find that a term is unfair. In determining whether a term is unfair in accordance with the test, the court must take into account the extent to which the term is transparent, and the contract as a whole.