A New Zealand hamper supplier whose terms and conditions were completely up-front has faced ACCC litigation alleging an unfair term because the condition was not highlighted in bright colours to make it stand out better to customers.
Chrisco Hampers Australia P/L directly debited its customers’ bank accounts for payment instalments over periods up to 12 months prior to delivery of their goodies in November or December each year.
It marketed the hampers – at prices up to $2200 – to low and middle income demographics mainly through catalogues sent by post or available on its website.
The hampers contained food, beverage and household product items selected by customers – more than half of whom were from regional areas – from the catalogues which displayed the (“usually above retail”) price of each item.
The company’s 2014 terms permitted it to continue debiting customer’s bank accounts even after full payment had been made, for a possible future order for Christmas 2015. If a customer decided not to re-order, the overpayment was fully refunded on request but without interest.
The business model came under the scrutiny of the Federal Court in Brisbane whose task was to determine whether or not that provision was “unfair” within the meaning of ACL s 24.
Defending such allegation, Chrisco claimed the so-called “HeadStart” term provided its “unsophisticated” customers the “advantage of having the money removed from their accounts” on a regular basis.
Indeed it claimed that many customers “who did not have the discipline to budget” had fed back to the company that “they wouldn’t be able to manage without such help”.
In any event, the order form contained a re-order “opt out” option.
The company did not dispute that agreement with its customers was a “consumer contract” within the meaning of ACL s 23 (3) and a “standard form contract” within the meaning of ACL s 27. All its customers were consumers.
Was it an “unfair” term?
In his 35 pages of written reasons, Justice James Edelman explained that ACL s 24 – which has only been part of the law of Australia since 2010 – is a “guided form of open-ended legislation”, because it does not state a precise or universal test for its application.
He was referring to the manner in which the three s 24(1) “incremental criteria… elaborate through the elements of unfairness”.
All three requirements that must be evaluated to assess whether a term is unfair are: that the term would cause a significant imbalance in the party’s rights; that it is not reasonably necessary in order to protect the legitimate interests of the party; and it would cause detriment to the other party if it were to be applied or relied on.
In deciding whether the first criteria was met, the court ruled that it should follow the approach of UK courts to consider the term “unfair” if it is “so weighted in favour of the supplier as to tilt the party’s rights and obligations under the contract significantly by granting to the supplier a beneficial option, discretion or power; or by imposing on the consumer a disadvantageous burden, risk or duty”.
Judge Edelman concluded that the value lost to consumers by having funds taken from their account without receiving any interest thereon or any discount on subsequent orders was a significant detriment that was “not balanced way any substantial corresponding right that the consumer obtained against Chrisco”.
Thus the third of the three necessary criteria to establish the term as being “unfair” was already made out.
Whether or not this detriment amounted to a “significant imbalance” was, ruled the judge, partly dependent upon the extent to which the term was “transparent”, ie expressed in reasonably plain language; legible; presented clearly; and readily available to the consumer (as specified in ACL 24 (3)).
While the explanation of the HeadStart term was by no means “hidden” and the “opt out” clause was noticeable, the term’s language was somewhat unclear and “there was nothing that drew it to the consumer’s attention beyond any of the 20 other paragraphs on the same page”.
The “opt out” tick box was not optimally placed in relation to the explanation of HeadStart and Chrisco did not use any of the techniques – eg bright red colours – it had used for example in its “Customer Guarantee”, to bring the issue more readily to the reader’s attention.
For these reasons, his honour ruled the “significant imbalance” criteria – the first is the s 24 (3) list – had been satisfied.
Because ACL s 24 (4) creates a presumption – that Chrisco made no attempt to rebut – that a term is presumed not to be reasonably necessary in order to protect the interests of the party who would be advantaged by it, the remaining criteria was also met.
The matter will return to court in the coming months for a decision of the penalties and compensation that Chrisco must pay for the deployment of the unfair term in its business.