ASIC takes unfair contract terms action ahead of impending reforms

By James Deady and Mark Lebbon 

The Australian Securities and Investments Commission (ASIC) has commenced proceedings against PayPal Australia Pty Limited (PayPal) alleging that a standard form contract entered into by PayPal with small businesses contains an unfair contract term (UCT).

The relevant contract term contained in PayPal’s User Agreement provides that if PayPal business account holders do not, within 60 days, notify PayPal of any errors or discrepancies in fees that PayPal has charged them, they are deemed to have accepted the accuracy of those fees.

ASIC is seeking declarations that the term is void as well as injunctions and corrective orders.

This action follows a number of other cases which ASIC and the Australian Competition and Consumer Commission have pursued recently in relation to UCT in small business contracts.

Unfair terms are likely to remain an area of focus for regulators as new changes to these laws, including the introduction of significant civil penalties, commence in November 2023.

In summary, the key changes introduced by the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) include:

1. Application to more contracts – an expanded definition of ‘small businesses’ (less than 100 employees or less than $10 million annual turnover), which means more business-to-business contracts will be covered by the UCT protections.
2. New penalties – the introduction of significant maximum penalties (previously UCT terms were simply void), being the greater of $50 million, three times the benefit or 30% of turnover during the ‘breach turnover period’ (which may be longer than 12 months) applying per contravention. Penalties for individuals will also apply up to a maximum of $2.5 million.
3. Expanded powers – expanded power of the court to void, vary or refuse to enforce UCTs, and even prevent a person from entering into future contracts which contain a declared UCT or relying on an UCT in any existing contract (whether or not that contract is before the court) where terms are found to be unfair.

The changes commence on 9 November 2023.

Businesses should take note of the recent action from regulators regarding unfair contract terms, and proactively review relevant contracts to determine whether the UCT regime applies, and amend contract terms where appropriate to avoid potential penalties and regulator scrutiny.

For more information about the new changes, please see our article, Significant changes to unfair contract terms laws to affect more business-to-business contracts: six-month countdown to penalties, which sets out the amendments in further detail or visit our Unfair Contract Terms Resource Centre.