PayPal held to use unfair contract term

Justice Moshinsky of the Federal Court handed down orders, on 4 July 2024, declaring that, between 21 September 2021 and 7 November 2023 (Relevant Period), Paypal Australia Pty Ltd included an unfair contract term in certain standard form small business contracts in contravention of the unfair contract laws under the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).

As the products the subject of the contracts were financial products, the action was taken by ASIC under the ASIC Act rather than the ACCC under the Australian Consumer Law.

Under the infringing term, Paypal could retain any amount it overcharged a customer unless the customer notified Paypal of the overcharge within 60 days of the error appearing on the customer’s account statement.

Reasoning

Given the parties reached settlement, Justice Moshinsky needed only decide that the orders consented to by the parties were appropriate and with proper basis. In coming to that conclusion, Justice Moshinsky provided the following reasoning.

Significant imbalance

The term in question permitted Paypal to retain fees that it had erroneously deducted from the small business’s account unless the business notified Paypal in writing within 60 days of the erroneous charge appearing on the business’s account statement.

This led to a significant imbalance in the parties’ rights and obligations because:

• Paypal were permitted to retain fees which it had overcharged by reason of its own error;
• the term limited the rights of small businesses to claim a correction to or compensation for amounts that Paypal wrongly charged;
• Paypal was much better placed than small businesses to be able to identify whether there had been overcharges (this was because overcharges could not readily be identified on small business account statements. The method of calculation of Paypal fees was not apparent from the relevant agreements); and
• there was no corresponding right of small businesses to retain a benefit of Paypal undercharging or failing to charge fees, or a similar right to offset the obligation.

Reasonably necessary to protect Paypal’s legitimate interests

The presumption in s12BG(4) ASIC Act that a term is presumed not to be reasonably necessary to protect the legitimate interests of a party was not rebutted by Paypal.

Detriment

The detriment to affected small businesses if the term had been relied upon was said to be the amount of the fee retained by Paypal that the small business was never required to pay. Moreover, small businesses seeking to ensure that they were not overcharged were required to go to some lengths to ascertain whether the fees they were paying were in fact correct. That, and the need for the small businesses to notify Paypal within 60 days of the charge appearing on the account statements, was considered sufficient detriment.

Transparency

Having regard to the nature of the term and the length and complexity of the contracts, and the fact that the term was not brought to the attention of the small businesses, Justice Moshinsky considered the term was lacking transparency.

Other relevant matters

Paypal was not aware of, and ASIC’s investigation did not reveal that there were, any cases of small businesses suffering loss because of the term. Paypal fully cooperated in the investigation and agreed to withdraw the term from all of its contracts. The Federal Court declared that the term was unfair and void ab initio, and ordered that Paypal pay ASIC’s costs of the proceeding.

Importantly, the Relevant Period ended just before 9 November 2023, which was the date that significant amendments to the unfair contract laws under the ASIC Act came into effect, including the introduction of significant penalties. As such, no penalties were imposed in this case.