ASIC’s proceedings against PayPal: A reminder to businesses of new civil penalties for unfair contract terms
- Published 19.09.2023
The new civil penalties introduced by the Commonwealth Government in November 2022 for unfair contract terms become effective from 9 November 2023.
From 9 November 2023 businesses may be liable for civil penalties if they are found to be entering into or relying on unfair contract terms.
On 9 November 2022, the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (TLAA) passed which amended the Australian Consumer Law (ACL) and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).
One of the key amendments by the TLAA includes the introduction of civil penalties for those entering into or relying on unfair contract terms in their standard form contracts with consumers and small businesses.
Unfair contract terms
The amendments to the ACL do not expand the scope of what is an “unfair contract term”.
The test of whether a contract term is unfair remains unchanged and s24(1) of the ACL continues to state that a contract term is unfair if:
- it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
- it is not reasonably necessary in order to protect the legitimate interest of the party who would be advantaged by the term; and
- it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
Other notable aspects of the changes are:
- the capture of an expanded class of small business standard form contracts (achieved by increasing the small business definition thresholds to those employing up to 100 persons or with an annual turnover of $10 million);
- removal of the contract value threshold; and
- consideration that a contract may be standard form and subject to the regime despite there being an opportunity for:
- negotiations to terms that are minor or insubstantial in effect;
- selecting terms from a range of options; or
- a party to another contract negotiating terms of the other contract.
Penalties for unfair contract terms
The TLAA allowed a 12-month grace period for consumer-facing businesses to get their houses in order by reviewing and re-negotiating their standard contract terms and conditions to avoid unfair contract terms.
This grace period will expire on 9 November 2023, after which parties affected by unfair contract terms and Australian Consumer Law regulators (the ACCC and state and territory consumer protection agencies) may bring proceedings for compensatory relief under ss243A and 243B of the ACL.
These amendments will apply if one party to the contract:
- employs fewer than 100 persons; and/or
- has a turnover for the preceding income year of less than $10 million.
ASIC’s claim against PayPal
The Australian Securities and Investment Commission (ASIC) have continued their crack-down on the financial services sector in their latest action against PayPal, following suit from their legal actions earlier this year against Auto & General Insurance Company and HCF Life Insurance Company.
In their recent application to the FCA, ASIC alleges that a contract term that allows PayPal to retain fees that are incorrectly charged by PayPal to their business customers is an unfair contract term.
PayPal will avoid civil penalties given that ASIC’s action pre-dates the amendments to the ACL. None the less, it is worth watching this space as the decision will give more colour and guidance as to how the regulator views and enforces unfair contract terms.
A Reminder on Unfair Contract Terms
ASIC’s action against PayPal is a timely reminder to business owners to ensure they have reviewed their current contracts and standard terms to ensure they do not contain unfair contract terms ahead of 9 November 2023 to avoid being stung by the civil penalties.
This TurkAlert was prepared by Ratnadeep Hor, Partner and Declan Pluim, Lawyer from our Transaction and Commercial Advisory Team.