ASIC PURSUING POTENTIAL UNFAIR CONTRACT TERMS
On 9 November 2023, changes to the Competition and Consumer Act 2010 (Cth) which includes the Australian Consumer Law (“ACL”) and the Australian Securities and Investments Commission Act 2001 (Cth) (“ASIC Act”) came into effect which impose substantial penalties on people that are found to have made unfair contract terms (“UCT”).
Pursuant to the ACL, UCT occur if:
- a person makes a contract that is a consumer contract or small business contract;
- the contract is a standard form contract;
- a term of the contract is unfair; and
- the person proposed the unfair term.
A similar definition of UCT applies to a term if the contract is for a financial product or service, pursuant to the ASIC Act.
Since the reforms to the UCT regime came into effect, the Australian Securities and Investments Commission (“ASIC”) and the Australian Competition and Consumer Commission (“ACCC”) have brought cases before the Federal Court of Australia, showing that compliance with the UCT regime is a priority for ASIC and the ACCC.
The UCT reforms introduced significant penalties for contraventions of the regime under both the ACL and the ASIC Act.
The penalties under the ACL are:
- for an individual – $2,500,000.00;
- for companies – the greater of:
- $50,000,000.00; or
- if the court can determine the value of the benefit, three times the value of the benefit obtained from the conduct; or
- if the court cannot determine the value of the benefit, thirty percent (30%) of the company’s adjusted turnover during the breach turnover period.
The penalties under the ASIC Act are:
- for an individual – the greater of:
- 5,000 penalty units (currently $1,650,000.00); or
- if the court can determine the value of the benefit, three times the value of the benefit obtained from the conduct;
- for companies – the greater of:
- 50,000 penalty units (currently $16,500,000.00); or
- if the court can determine the value of the benefit, three times the value of the benefit obtained from the conduct; or
- if the court cannot determine the value of the benefit, ten percent (10%) of the company’s annual turnover capped at 2,500,000 penalty units (currently $825,000.000.00).
Recent developments in ASIC’s proceedings for UCT include the proceedings against Auto & General Insurance Company Limited and PayPal Australia Pty Limited.
Australian Securities and Investments Commission v Auto & General Insurance Company Limited [2024] FCA 272
The proceedings were brought by ASIC in the Federal Court of Australia for alleged UCT in an insurance contract by Auto & General Insurance Company Limited (“Auto & General”). ASIC alleges that since 5 April 2021, the insurance contract has a contract term that constitutes a UCT as the term requires the customers of Auto & General to notify if anything changed about their home and contents.
ASIC alleges that the term is unfair as the obligation to notify contained within the term is so broad that it is unclear what the customers are required to do to comply with the obligation and is unclear what their rights are when making a claim.
On 22 March 2024, the Federal Court of Australia found the term was not unfair under the ASIC Act and dismissed the proceedings. In April 2024, ASIC then appealed the decision of the Federal Court of Australia and the appeal will be heard by the Full Federal Court of Australia on a date to be determined.
Australian Securities and Investments Commission v PayPal Australia Pty Limited [2024] FCA 762
ASIC commenced proceedings against PayPal Australia Pty Limited (“PayPal”) in the Federal Court of Australia on 6 September 2023 alleging that its standard form contracts with its small business customers contained a UCT.
The term gave PayPal business account holders 60 days to notify PayPal of any errors or discrepancies in the fees that PayPal has charged them, failing which the fees are accepted as being accurate.
ASIC alleged that the term was unfair as the term allowed PayPal to retain fees in circumstances where it had incorrectly charged if the small business did not notify PayPal of the error within the 60 day timeframe commencing when the fee appeared in the customer’s account statement.
On 4 July 2024, the Federal Court of Australia found the term was unfair as the effect of the term was to allow PayPal to retain fees that it has erroneously charged in circumstances where a small business failed to notify PayPal within the 60 day timeframe of the error.
The Court declared the unfair contract term to be void from the commencement of the contracts and PayPal is restrained from applying, relying on or enforcing the term in its contracts with small businesses. The Court ordered PayPal to pay ASIC’s legal costs.
These cases should serve as a warning to businesses of the importance of undertaking thorough reviews of their contract terms within their standard form contracts to ensure that they do not contain terms that breach the UCT regime.
We will continue to follow the developments in relation to the UCT area.
You can contact our Associate Nicole Hodkinson for further information on this article.
