19
ACCC POWERS
ACCC also has broad powers:
- Statutory demands for documents and information - Voluntary requests
- Examination under oath o No right to silence - Substantiation notices
- Search warrants / telecommunications interception warrants - Codes of Conduct may provide further powers
TOPIC 5A: UNFAIR CONTRACT TERMS
Under s23(1) ACL, a term of a consumer or small business contract (K) is void if the term is unfair and it is a standard form K. [P] may argue that [UNFAIR CONTRACT TERM] (‘term’) is an unfair K term and that the term should be voided (s.23 ACL). The K will continue to bind the parties if it is capable of operating without the unfair term (s23(2)). A party to a consumer or small business K may apply to the court for a declaration that (term) is unfair (s250(1) ACL).
CONSIDER IF ANY OF THE CLAUSES ARE EXCLUDED:
Note: Part 2-3 doesn’t deal with ‘core terms’ (i.e. upfront pricing and subject matter of contract) (s26). This clause relates to the (below) and s23 does not apply to it (s26). Hence, this cannot be an unfair term under s23.
- upfront price of the good or service provided under the contract (s26(1)(a)),
a. Upfront price is the consideration that: is provided for the supply, sale or grant under the contract;
and is disclosed at or before the time the contract is entered into (s26(2)).
- the main subject matter of the contract (s26(1)(b)), and - contract terms required or permitted by law (s26(1)(c)).
STEP 1: CONSUMER OR SMALL BUSINESS CONTRACT
The K that contains the unfair term must be a consumer or small business K per s23(1), for [D] to have breached s23.
A. CONSUMER CONTRACT
s23(3): A consumer contract is a contract for:
(a) a supply of goods or services; OR (b) sale or grant of an interest in land
to an individual whose acquisition of the goods, services or interests is wholly or predominantly for personal, domestic or household use or consumption.
- Individual is a natural person (not body corporate).
- Permanent Custodians: Loan was taken out that was primarily used to purchase a home, a business operated from that house. Must consider the substance of the transaction, what was actually done with funds rather than the circumstances preliminary to the entering into of the transaction. Funds were used to purchase a house and is therefore a personal use.
20
B. SMALL BUSINESS CONTRACT
A K is a small business K if (s.23(4)(…)):
(a) The K is for the supply of goods or services, or a sale or grant of an interest in land; AND
(b) At the time the K is entered into, at least one party to the K is a business that employs fewer than 20 persons; AND
a. NOTE: This excludes casual employees unless they are employed on a regular and systematic basis (s.23(5) ACL)
(c) One of the following applies:
a. (i) The upfront price payable under the K does NOT exceed $300,000;
b. (ii) The K has a duration of more than 12 months and the upfront payable does NOT exceed $1M.
STEP 2: STANDARD FORM CONTRACT?
Per s23(1)(b), the K must also be a standard form K. Per s27(1), the K will be presumed to be a standard form K unless [D] can prove otherwise.
The court may consider any matter it thinks is relevant in deciding if the K is of standard form, but per s27(2) it must consider:
(a) Whether one of the parties has most of the bargaining power;
(b) Whether the K was prepared by one party before any discussion relating to the transaction;
(c) Whether another party was, in effect, required to accept or reject the terms in the form they were presented (i.e. take it or leave it basis);
(d) Whether another party was given an opportunity to negotiate the terms (no opportunity points to SF);
(e) Whether the terms of the K take into account the specific characteristics of another party or the transaction;
a. Are there any specific characteristics – e.g. that price changes per tenant? Then consider on balance if this is enough.
(f) Any other matters prescribed by the regulations.
STEP 3: IS IT AN UNFAIR TERM?
[P] will need to establish the three elements in s.24(1) to prove that the term was unfair.
A. SIGNIFICANT IMBALANCE
*CONSIDER ‘OTHER MATTERS’ BELOW
Firstly, the term is unfair if it would cause significant imbalance in the parties’ rights and obligations under the K (s.24(1)(a)). The court will consider whether the term delivered benefits to one party at the expense of another.
This requirement is met if a term is so weighted in favour of the supplier as to tilt the parties’ rights and obligations under the contract significantly in its favour’ (ACCC v CLA Trading).
- Is it grossly unequal?
- ACCC v CLA Trading: Concerned limitations of liability provisions in EuropCar’s car hire agreements. Hire agreement placed liability on customers for damages to the car even if it wasn’t their fault. There was also unlimited liability for any breach of the contract. Terms were held to be unfair by Federal Court.
Two (or three) tests which can be applied:
21
1. Prudent consumer test: Would a prudent person in [consumer]’s position accept the term IF they were aware of its consequences and had reasonable negotiating power? (Malbon)
2. Mirror image test: Is there a particular protection or advantage for one party without equivalent protection for the consumer? (ACCC v Chrisco Hampers per Edelman J)
a. Consider though if any other clauses try to balance out the unfair clause that confers right to P. Does it fully balance it (or reasonably compensate)?
b. Does it apply equally to all parties?
(a) If so though, if D drafted it then it is likely it is for their benefit.
3. Consumer expectation test: What are the consumer’s expectations when entering into the K? (Willett) Imbalance of any term must be considered in context of the contract as a whole (Jetstar v Free per Cavanough J, s24(2)(b) ACL)
- It’s useful to compare the effect of the K with and without the term (CLA Trading).
Here, the imbalance is/is not “significant in magnitude”, or “sufficiently large to be important”, “being a meaning not too distant from substantial” (ACCC v CLA Trading) and therefore this is/is not satisfied.
B. LEGITIMATE INTERESTS
Secondly, it must be reasonably necessary to protect [D]’s legitimate interests (who was advantaged by the term) (s.24(1)(b)). There is a presumption that the term was not so, thus [D] bears the onus of disproving this presumption (s.24(4)). They will argue that there is a legitimate interest in…
- What are the business interests in including that term?
o E.g. protection from damaged goods, protect business model, time to organise storage/transport, allows co to predict future cash flow, operational costs etc.
- Are there any inherent risks in the transaction that they must be protected from?
They will argue that the term is reasonably necessary to protect that interest as…
- Is it a proportionate response to the risk/interest it is seeking to address?
- Consider also industry norms – are there ways to do it that are less burdensome to the consumer or small business?
Jetstar Airways v Free: Jetstar charged a high fee to change the names on JetSaver tickets. Held that Jetstar had a legitimate business interest in protecting from letting everyone change their JetSaver fee when people paying for JetFlex were paying additional fir this advantage. Without the fees, customers could buy tickets months in advance and resell or transfer them later, creating a potential secondary market (and changing Jetstar’s business model which was to charge different fares and less for flights in advance).
- Court considered the low price paid and choice of Free in picking these tickets and not the more expensive ones. However, original ticket price was less than the amendment price (almost double).
C. CAUSE DETRIMENT
Thirdly, the term would cause detriment (financial or non-financial) to a party if it were to be relied on (or applied) (s.24(1)(c)).
[P] has suffered financial/non-financial detriment in…
22
D. OTHER MATTERS
*TRY TO KNIT THIS INTO ABOVE*
In determining whether a term of K is unfair, the court must also consider the extent to which the term is transparent (s24(2)(a)) and the K as a whole (s24(2)(b)).
I. TRANSPARENT
A term is transparent if it is (s.24(3)(…)):
(a) Expressed in reasonably plain language; and
a. Terms must be intelligible to ordinary members of the public, not just lawyers (b) Legible; and
a. Style and size of font must be legible (c) Presented clearly; and
a. Consider the number of the clause - Is it lost in the other paragraphs (ACCC v Chrisco Hampers)?
b. Complements legibility – consumers shouldn’t be distracted from reading the terms, and the terms should be presented such that it facilitates them being read (not impeded)
c. Example: sufficient degree of white space between paragraphs and around the words to allow C/SBs to focus on content of words; no distracting promo material in same space as K terms
(d) Readily available to any party affected by the term
a. Traders must take the (standard form) terms available to C/SBs even before K is concluded.
ACCC v Chrisco Hampers: HeadStart term allowed Chrisco to take debits from customer’s bank accounts even after layby payment. Term was not lacking in transparency, BUT there are matters which reduce transparency (language not plain, terms could’ve been presented more legibly, clearly, and readily available to consumer, larger font size, nothing that drew customers’ attention to it beyond the other 20 paragraphs in the page).
II. CONTRACT AS A WHOLE
The impact of the term in the context of the K as a whole must be considered (s.24(2)(b)).
- No need to consider each and every term, just the ones that might reasonably be counterbalancing the unfair term (Jetstar).
- Note that while price and subject matter cannot themselves be unfair terms (s26), you can take into account these things in determining if something is unfair (Jetstar v Free).
- “… decision maker [must] have regard not only to the term in question but also to the rights and obligations of the parties under the K as a whole” (Jetstar Airways v Free per Cavanough J).
III. EXAMPLES
The court may turn their mind to s.25 which outlines terms that may be regarded as unfair. Here, (term) may fall under the s25(…) example as it is a term that permits (or has the effect of permitting), one party (but not another party):
Exclusion clauses - (a): to avoid or limit the performance of the K - (i): to limit the vicarious liability for its agents
23
- (k): to limit one party’s right to sue another party Unilateral right to vary
NB: (d), (f) and (g) have similar effect.
- (b): to terminate the K
- (d): to vary the terms of the contract - (e): to renew (or not renew) the K
- (f): to vary the upfront price payable under the K without the right of another party to terminate the K
- (g): to unilaterally vary the characteristics of the
goods/services to be supplied, or the interest in land to be sold or granted, under the K
- (h): to unilaterally determine whether the K has been breached or to interpret its meaning
- (j): to assign the K to the detriment of another party without that other party’s consent
Penalty clauses - (c): to penalise the other party for a breach or termination of the K
Disadvantages in litigation - (k): to limit one party’s right to sue another party - (h): to unilaterally determine whether the K has been
breached or to interpret its meaning
- (l): to limit the evidence one party can adduce in proceedings relating to that K
- (m): to impost the evidential burden on one party in proceedings relating to the K
(a) to avoid or limit the performance of the K (b) to terminate the K
(c) to penalise the other party for a breach or termination of the K
a. Paciocco v ANZ: Credit card late payment fees charged by ANZ were not unfair, as they were not penalties. The fees were not "extravagant, exorbitant or unconscionable" when considering ANZ's interest in the performance of the K, or "out of all proportion to the interests said to be damaged in the event of default", because it included operational costs from late payment, and extended ANZ’s interest in avoiding loss provisioning and increasing regulatory capital costs.
b. Parking Eye v Beavis: Charge imposed for overstaying in a car park is not an unlawful penalty (i.e. not an unfair term). Parking Eye had a legitimate interest in charging the fees to motorists who
overstayed, which extended beyond the recovery of any loss (other retail outlets, customers and general public couldn't use the parking spot
c. Vulnerable to challenge:
i. Forfeiture provisions that purport to allow the provider to retain all of the cost of the service under the K without discount for early termination (ACCC v ACN)
ii. ACCC v CLA Trading: Europcar's standard rental agreement were unfair. Held customers liable for vehicle loss/damage regardless of fault and also in cases of breach, regardless of how trivial the breach or whether it had any connection to the loss/damage to the car.
(d) to vary the terms of the contract (e) to renew (or not renew) the K
(f) to vary the upfront price payable under the K without the right of another party to terminate the K
24
(g) to unilaterally vary the characteristics of the goods/services to be supplied, or the interest in land to be sold or granted, under the K
(h) to unilaterally determine whether the K has been breached or to interpret its meaning (i) to limit the vicarious liability for its agents
(j) to assign the K to the detriment of another party without that other party’s consent (k) to limit one party’s right to sue another party
(l) to limit the evidence one party can adduce in proceedings relating to that K (m) to impost the evidential burden on one party in proceedings relating to the K (n) a term of a kind, or a term that has an effect of a kind, prescribed by the regulations.
NOTE:
- S.25 doesn’t prohibit the use of these terms, or create a presumption that these terms are unfair (Chrisco Hampers).
STEP 4: CONCLUDE
If you concluded it was an unfair term:
- The contract continues to bind the parties if it’s capable of operating with the unfair term (s.23(2)) - The contract is rendered void if it’s incapable of operating with the unfair term (s.23(2))
If you concluded it was fair term:
- The contract remains enforceable IF MORE THAN ONE CLAUSE:
- Then consider total effect on K – can the K still operate?
TOPIC 5B: UNCONSCIONABLE CONDUCT
S20: Unconscionable conduct within the meaning of the unwritten law
(1) A person must NOT, in trade or commerce, engage in conduct that is unconscionable, within the meaning of the unwritten law.
(2) S20 does NOT apply if the conduct is prohibited by s21.
S21: Unconscionable conduct in connection with goods and services (1) A person must NOT, in trade or commerce, in connection with:
(a) the supply or possible supply of goods or services to a person; OR (b) the acquisition or possible acquisition of goods or services from a person;
engage in conduct that is, in all circumstances, unconscionable.
A. UNCONSCIONABLE CONDUCT UNDER THE UNWRITTEN LAW
**CONSIDER SECTION 21 FIRST – Section 20 will not apply if the conduct is prohibited by s21 (s20(2)).
**DON’T CONSIDER THIS IF YOU CAN’T SEE A SPECIAL DISABILITY OTF
