Unfair Contract Terms and the Risk for Carriers
The Federal Court has ruled that a Fee Error Term in standard form contracts will be considered an unfair contract term if it allows companies to retain fees wrongly charged to a customer without the customer’s knowledge and limits the time within which the customer can dispute the fee.
What makes a term an unfair contract term?
An unfair contract term is one that:
a) causes a significant imbalance in the parties’ rights and obligations;
b) is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by such a term; and,
c) would cause detriment, whether financial or otherwise, to a party if the term were to be applied or relied on.
Fee Error Term
In Australian Securities and Investments Commission v PayPal Australia Pty Limited,[1] a Fee Error Term was employed in PayPal’s standard form contract to allow the retention of fees wrongly charged to customers if the customer failed to notify the error to PayPal within 60 days. This Fee Error Term was included on all standard form contracts entered into between PayPal and small businesses clients between the period of 21 September 2021 and 7 November 2023. It was voluntarily removed by PayPal on 8 November 2023. The account statements that provided to customers contained insufficient details of the fees charged which the court found made it difficult for customers to easily check and identify any errors within the 60-day time frame. The Federal Court held this was a breach of section 12BG of the Australian Securities and Investments Commission Act 2001 which prohibits and renders void unfair contract terms in standard form contracts (see also, s 23 Competition and Consumer Act 2010 (‘CCA’)). In determining whether a term of a consumer contract is unfair, a court may take into account the extent to which the term is transparent and the contract as a whole.
What does this mean for Aviation & Transport businesses?
Standard form contracts are commonly used by many carriers. Including unfair contract terms in your contracts exposures your business to potentially substantial penalties under the CCA.
In Australian Competition and Consumer Commission v JJ Richards & Sons Pty Ltd (‘JJ Richards’),[2] the Federal Court found that eight terms in the standard form contract used by JJ Richards were unfair and void. The Court found that “the Impugned Terms tend to exacerbate each other, increasing the overall imbalance between the parties and the risk of detriment to JJR Customers”. Clauses in relation to automatic renewals, no reliance, assignment without consent, unequal limitation of liability, liquidated damages regimes and termination for convenience without appropriate compensation, are a significant risk under the unfair contract terms regime.
In Australian Competition and Consumer Commission v Employsure Pty Ltd,[3] the ACCC argued that no provision for early termination, unilateral price increases on automatic renewal and a penalty provision amounted to unfair contract terms. The Federal Court held that Employsure’s contract terms were not unfair and were necessary to protect its legitimate interests. Employsure was obliged under these terms to give its customers written notice prior to automatic renewal providing an opportunity to opt out. This is a contrast to Australian Competition and Consumer Commission v Servcorp Limited (‘Servcorp’),[4] where the Federal Court found that a clause which allowed Servcorp to automatically renew the contracts of customers at a higher rate without notice was deemed to be an unfair contract term due to significant imbalance in the rights and obligations of the parties.
The PayPal case illustrates it is unfair to present invoices or accounts in a manner where it is difficult to ascertain whether the fees charged are legitimate within a confined limitation period for dispute. The JJ Richards and Servcorp cases also highlight the risk of not providing a customer with adequate notice of onerous obligations, an exposure that was avoided in the Employsure case by ensuring proper notice was given.
These cases illustrate the fine line between acceptable and unfair contract terms, and the importance of providing notice and a reasonable time to respond.
[1] [2024] FCA 762.
[2] [2017] FCA 1224.
[3] [2020] FCA 1409.
[4] [2018] FCA 1044.
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