In 2014, the Australian Competition and Consumer Commission (ACCC) sought a declaration against Europcar’s rental terms and conditions deeming them unfair. The ACCC initiated the proceedings against one of the world’s largest car rental companies, and the Federal Court of Australia came to a decision and published the judgement this year. Although the Court passed the judgment before the introduction of the unfair contract terms in November 2016, their findings will shed insight on the meaning of unfair contract terms in light of the new laws.
The ACCC had commenced legal proceedings against Europcar as it was of the view that certain clauses in the rental terms and conditions were unfair – in particular, those relating to vehicle damage and third party loss. Under these terms, Europcar could make the customer unlimitedly liable for breach of contract and also for damage or theft, even when it’s not the customer’s fault. The ACCC tried these proceedings along with other proceedings relating to false and misleading statements on the Europcar website.
ACCC based their unfair terms claim on section 12BG and 12BF(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act). Together, they void a clause if it is unfair. The ASIC Act describes an unfair contract term to be one that:
- Causes significant imbalance in the rights and obligations arising under the contract;
- Is not necessary to protect the legitimate interests of the advantaged party; and
- It would cause detriment to the other party if the parties applied or relied on the term.
In coming to a decision about the unfairness of the terms, the Court made reference to the following:
- The “no fault” clauses that would limit their application only when the customer was to blame;
- The damage liability fee which required the customer to pay regardless of whether they were at fault; and
- The unlimited liability imposed on the customer for a breach of the contract no matter how trivial the loss by Europcar.
As the customer did not have the ability to impose the same liability on Europcar or to terminate for any breach by Europcar, the Court decided that these terms were unfair and void.
Before the Court made its orders, Europcar had already undertaken a re-issuing of new terms and conditions which became available from February 2015. Europcar had also rectified any information which the ACCC had stated was false and misleading. However, the Court still made the following orders:
- A pecuniary penalty of $100,000; and
- A requirement to publish an advertisement in newspapers throughout Australia.
Although the Europcar matter dealt with a standard form consumer contract and the new unfair contract laws deal with a standard form business contract, the same principles will apply in determining whether a clause is unfair.
Some key takeaways for small businesses include:
- Review standard form contracts so that you do not include unfair contract terms in the contract;
- The ACCC can prosecute if a contract is deemed to have unfair contract terms, even if the business has undertaken steps to change the contract terms;
- Not only can the court deem unfair contract terms void, but businesses can also be fined heavily for the presence of any unfair contract terms;
- The wording of clauses is significant. Ensure that you word the clause appropriately if you intend that certain clauses will only apply in certain situations;
- Consequences with regards to damage/breach should not be unlimited. The requirement to pay a fee should be proportionate to the damage caused by the party; and
- The court may find that limiting a party’s capability to negotiate can cause a significant imbalance.
This case is just one of the examples that highlight how unfair contract terms operate in practice in the consumer context. Small businesses should be aware and remain ready to make amendments to clauses in standard form contracts that the law may consider unfair. If you have any questions or need assistance reviewing your contracts, get in touch with our contract lawyers on 1300 544 755.