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 cards.
In determining that the term in the HeadStart contract was unfair within the meaning of the ACL, the Court made the following points.
- 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 exhaustive.
- 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 up’.
Authors: Dan Pearce & Emily Booth
Melbourne Dan Pearce, Partner
T: +61 3 9321 9840
Brisbane Trent Taylor, Partner
T: +61 7 3135 0668
Disclaimer The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.