There are few cases that have considered the provisions concerning unfair contract terms in the Australian Consumer Law (UCT provisions) in detail. One decision is the recent Federal Court case of ACCC v Chrisco Hampers Australia Limited (Chrisco). The decision addressed three matters: UCT provisions; the interpretation of s 97 of the Australian Consumer Law (ACL) which concerns termination of lay-by agreements; and s 29(1)(m) which concerns false or misleading representations concerning conditions, warranties, guarantees, rights or remedies. This article will consider only the UCT provisions.
Of late, there has been increased interest in UCT provisions due to the imminent extension of the provisions to transactions involving small businesses by the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth), which received Royal Assent on 12 November 2015 and will commence on 12 November 2016. For now, the UCT provisions are limited to consumer transactions, but due to the imminent extension, the decision in ACCC v Chrisco should be noted by businesses transacting with small businesses.
Section 24(1) of the ACL provides that a term is “unfair” if it fulfils the following three requirements.
- “[I]t would cause a significant imbalance in the parties’ right and obligations under the contract”.
- “[I]t is not reasonably necessary … to protect the legitimate interests of the party … advantaged by the term”. Unless proven otherwise, a term is presumed to fulfil this requirement.
- “[I]t would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.”
Section 23(1) renders an “unfair” term void if it is in a “consumer contract” and that contract is a “standard form contract”. The phrase “consumer contract” is defined by s 23(3) of the ACL as a contract for the supply of goods/services or the sale/grant of an interest in land to an individual who makes the acquisition “wholly or predominantly for personal, domestic or household use or consumption.” Come 12 November 2016, the UCT provisions will also apply to “small business contracts”, as that term is defined in s 23(4) of the ACL.
The phrase “standard form contract” is defined in s 2 of the ACL as having the meaning given in s 27. Section 27 of the ACL provides that whether a contract is standard form is a question of fact to be determined by the Court after taking into account certain matters referred to in s 27(2). Importantly, s 27(1) creates a presumption that a contract is standard form if it is alleged to be so.
Section 25 provides “examples of the kinds of terms … that may be unfair”. In ACCC v Chrisco, Edelman J noted that that the explanatory memorandum that introduced the UCT provisions states that the examples in s 25 “provide statutory guidance on the types of terms which may be regarded as being of concern” and “do not prohibit the use of those terms, nor do they create a presumption that those terms are unfair”.
Facts of Chrisco
Chrisco sells Christmas hampers containing goods that are usually priced above retail prices.  Customers paid for the hampers by instalments paid over a period of up to one year. The hampers are usually packed and delivered between 1 November and 10 December each year. The hampers were principally offered through catalogues available in soft copy via Chrisco’s website or in hard copy. There was some evidence that customers of Chrisco were low-to-middle income earners.
Chrisco published a pro forma order form in soft copy via its website and also in hard copy. It published terms and conditions for orders in its catalogues and via its website. Orders could be placed by completing the order form in hard copy or online or by placing an order via telephone. Once an order had been placed, Chrisco sent the customer an “Order Confirmation” form.
The terms and conditions on the website of Chrisco provided, among other things, that:
- a customer may change their order up until a date specified in late October;
- if a customer missed a payment, Chrisco will automatically increase their future payments so that their order is fully paid by the final payment date;
- if a customer misses several payments, Chrisco will reduce their order so as to make the remaining payments easier for the customer to make; and
- if a customer is unable to continue making payments, Chrisco will provide the customer with products or vouchers to the value of what they have already paid.
The terms and conditions in the hard copy catalogue contained terms to the same effect as the first two points referred to above. As for the final two points, the terms and conditions in the hard copy catalogue contained a more general term, which said that if a customer is unable to continue making payments, they should contact a Chrisco representative to discuss their options.
In 2014, Chrisco offered customers a “HeadStart Plan” which was embodied in the “HeadStart term”. According to the plan, after a customer had paid off their order for 2014, Chrisco would continue to make deductions from their bank account or credit card which would go towards any order that the customer placed in 2015. The payments made under the plan were fully refundable. A customer could opt out of the HeadStart Plan by ticking a box in the order form. They were automatically included in the plan unless they opted out. The HeadStart Plan did not grant the customer a discount and any refund to the customer would be without interest.
A significant imbalance in the parties’ rights and obligations
It was common ground that the agreements between Chrisco and its customers were “consumer contracts” and “standard form contracts” within the meaning of the ACL. Chrisco made no submission that the HeadStart term was reasonably necessary to protect its legitimate interests and hence it was presumed that it was not reasonably necessary, as dictated by s 24(4) of the ACL.
Edelman J said the “essential issue” was whether the HeadStart term caused a significant imbalance in the parties’ rights and obligations arising under the contract. This is one of the elements of the definition of “unfair” contained in s 24(1) of the ACL and noted above. The parties proceeded on the basis that “significant imbalance” had the meaning given by Lord Bingham in Director General Fair Trading v First National Bank Plc  1 AC 481. In considering reg 5(1) of the Unfair Terms in Consumer Contract Regulations 1999 (UK), Lord Bingham said a “significant imbalance” exists if “a term is so weighted in favour of the supplier as to tilt the parties’ rights and obligation under the contract significantly in his favour.” His Lordship said that this may arise due to the supplier being granted a “beneficial option or discretion or power” or by imposing on the consumer “a disadvantageous burden or risk or duty.”
Edelman J proceed on the basis that the lack of negotiation of the contracts between Chrisco and its customers was irrelevant to whether the HeadStart term caused a “significant imbalance” and that when assessing this requirement, one must consider the parties’ other rights and obligations under the contract.
When determining whether a term is “unfair”, the court may “take into account such matters as it thinks relevant” but must consider the extent to which the term is “transparent” and the “contract as a whole”. Hence, there are discretionary and mandatory factors to consider when determining unfairness.
Edelman J took into account the following discretionary factors:
- the customer could opt out of the HeadStart Plan; and
- the plan gave Chrisco the right to continue making debits from the customer “without any substantial corresponding right to the customer.”
Edelman J gave greater consideration to the second factor. Chrisco submitted that the HeadStart Plan gave the customer the right to place an order or receive a full refund. His Honour did not consider this amounted to granting the customer a right because the customer could place an order in the absence of the plan and the right to obtain a refund was not “substantial” because Chrisco would not provide interest on the refund and the refund assumed the continuing solvency of Chrisco.
Chrisco submitted that the plan conferred a right on the customer by allowing them to make smaller weekly or monthly payments because these payments would be made over a longer period of time than if the plan did not exist. Edelman J did not accept this conferred a right because the total price of any hamper that the customer ordered would not change (the customer did not receive a discount for adopting the plan) and taking into account the “time value of money”, the customer would actually pay more because the payments were made over a longer period. Edelman J rejected Chrisco’s submission that the amount of money lost by customers due to the interest free payments would be very small. His Honour considered an example of a customer purchasing a $185 hamper by weekly payments of $3.60. Edelman J said that “[i]t takes only a little reflection, and a calculator, to see that in the hypothetical example above the Chrisco withdrawals could cost this hypothetical consumer up to $25 in interest.” The reasons do not include the calculations of how his Honour arrived at the amount of $25. It appears that his Honour assumed the customer would be making weekly payments of $3.60 by credit card (even though the ACCC’s case only focused on payments by debit from a bank account rather than a credit card) and that interest was compounded monthly. His Honour also noted that hampers could be as expensive as $2,249 and multiple hampers could be ordered, in which case the weekly payments may be significantly higher than $3.60. No evidence was presented concerning the average size of an order.
Overall, his Honour concluded that the withdrawals from the customer’s account “involved a significant detriment to the consumer.” Edelman J appears to have placed particular emphasis on the fact there was no obligation on Chrisco to pay interest on any refund if the customer decided not to place an order, and no discount would be granted to a customer if they ultimately decided to place an order.
As noted above, the Court must consider the extent to which the term is “transparent” and the “contract as a whole” when determining unfairness. Section 24(3) provides that a term is “transparent” if it is expressed in “reasonably plain language”, legible, “presented clearly” and “readily available to any party affected by the term.”
When considering “transparency”, Edelman J noted the following.
- In the hardcopy catalogue, the HeadStart term was at the bottom of the order form but was next to the column for the total price and above the signature panel.
- The HeadStart term did not clearly identify the amounts that would be debited or the means by which they would be determined.
- It was unclear whether Chrisco would write to a customer to confirm that it would proceed with the HeadStart Plan before doing so.
- The HeadStart term did not explain to the customer how they could cancel the plan and obtain a refund.
- Would the debits continue after the customer had paid an amount that exceeded the value of the hamper they ordered in the previous year?
- Would a customer be charged a termination fee, which would be deducted from the refund of the debits, if they ultimately chose not to purchase a hamper?
- The HeadStart term “could have been presented in a manner which was far more legible, much clearer, and more readily available to the customer.” In this regard, his Honour noted that the font size for the term was less than half that of the main heading and there was nothing that particularly drew it to the customer’s attention, such as a larger font, italics, bold or different colours. These techniques had been employed by Chrisco in other parts of its catalogue.
- The provision that payments made under the HeadStart term were fully refundable was not contained in the catalogue but in the order form that the customer would send to Chrisco. Hence, the customer would not have a record of this provision unless they retained a copy of the order form.
Overall, his Honour concluded that the HeadStart term was not “wholly lacking in any transparency” as it was not hidden and the option to opt out of the term was in a place “where it might be noticed.” However, Edelman J considered that all but the first of the eight factors noted above “reduced its transparency.”
When considering the “contract as a whole”, Edelman J took into account the following factors:
- the HeadStart term and contract as a whole were “designed to be convenient to the customer”;
- this convenience included the hamper being packed and delivered without any additional charge, except in the case or delivery to remote areas or the delivery of oversize items; and
- the HeadStart term did not fall within any of the examples listed in s 25 of the ACL.
Overall, Edelman J concluded that the HeadStart term caused a “significant imbalance” in the rights and obligations of the parties arising under the contract. His Honour acknowledged that it was not necessarily determinative that no substantial right was granted to the customer or duty imposed on Chrisco that corresponded to the duty imposed on the customer by the HeadStart term.
Whether the term would cause detriment
Even if a term causes a “significant imbalance” in the rights and obligations of the parties arising under the contract, it will only be “unfair” if it would also cause detriment (whether financial or otherwise) to a party if it were applied or relied on. Edelman J concluded that such detriment would occur since the customer could incur interest costs of $25 or more as noted above. Accordingly, all requirements for the HeadStart term to be “unfair” under s 24 were fulfilled and it was rendered void.
It remains to be seen whether Chrisco will appeal Edelman J’s decision. On one view, the imbalance in the parties’ rights and obligations created by the Headstart term was not significantly greater than the imbalance created by the usual terms on which a customer purchased a hamper. Edelman J said that “[i]n effect, the HeadStart term involved a savings plan by which … consumers were required to save, interest free, with Chrisco, towards the purchase of Chrisco’s goods in 2015 which were generally priced above retail prices and which the consumers might not decide to purchase.” The same observation could be made about the usual terms on which a hamper was purchased. In both cases, the customer was made to save on an interest-free basis. Also, in both cases, the customer was likely to have been financially better off if they placed the periodic payments they made to Chrisco in an interest-bearing account and then used the total saved funds plus accrued interest at Christmas time to purchase the goods contained in a hamper themselves. However, this ignores the convenience to customers of the service provided by Chrisco and that customers were perhaps “unsophisticated” and may not have had the “discipline” to budget for a lump sum payment close to Christmas. The HeadStart term did commit customers to an interest-free saving plan unless they opted out of the plan at the time they placed their order, but they could later withdraw from the plan and receive a refund. Perhaps the material difference between the Headstart term and the usual terms was the comparative lack of clarity of the Headstart term. As noted above, Edelman J made several conclusions about the lack of transparency of the Headstart term. Perhaps if the Headstart term was expressed with greater clarity and detail, a different outcome may have resulted.
This article was originally published in (2016) 32(1) Competition and Consumer Law News 151.
 Ibid -.
  FCA 1204. See also ACCC v ACN 117 372 915 Pty Ltd (in liq) (formerly Advanced Medical Institute Pty Ltd)  FCA 368 and Ferme & Ors v Kimberley Discovery Cruises Pty Ltd  FCCA 2384.Back to article
 This definition was created by the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth). At the time of writing, the most recent consolidation of the ACL was yet to incorporate it.Back to article
  1 AC 481, 481 . This same passage was quoted in ACCC v ACN 117 372 915 Pty Ltd (in liq) (formerly Advanced Medical Institute Pty Ltd)  FCA 368, .Back to article
 Orders were made on 26 November 2015 that the time for filing an appeal be 21 days after orders for pecuniary penalties and other relief are made. A hearing regarding penalties and other relief is listed for 1 March 2016.Back to article
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