Chrisco Hampered by Unfair Contract Term


The Federal Parliament has recently passed legislation extending the unfair contract term protections in the Australian Securities and Investments Commission Act 2001 (Cth) and the Australian Consumer Law (ACL)1 to small businesses in relation to some standard form contracts. Under the amended legislation the unfair contract provisions will apply to standard form contracts entered into by businesses that:

  • employ fewer than 20 employees; and
  • the upfront price payable does not exceed $300,000; or
  • if the contract has a duration of more than 12 months and the upfront price payable does not exceed $1,000,000.

The amendments are due to take effect from 13 November 2016, so it is worthwhile revisiting the provisions of the unfair contract term regime. The recent case of Australian Competition and Consumer Commission v Chrisco Hampers Australia Limited [2015] FCA 1204 serves as a timely reminder of the fundamental concepts behind these provisions.

Case summary

Chrisco Hampers Australia Limited (Chrisco), is a well-known company in Australia and conducts a business which allows its customers to purchase Christmas hampers by instalments throughout the year. In this case, the ACCC issued proceedings against Chrisco in the Federal Court claiming that three terms in its standard form contracts contravened provisions in the ACL.

Most of the judgment dealt with the ‘HeadStart’ term used in Chrisco’s contracts, which his Honour found was an ‘unfair term’ and therefore will be the focus of this summary. However, the judgment also provided some insight into:

  • section 97 of the ACL which deals with cancellation charges; and
  • section 96(3) of the ACL which deals with lay-by agreements.

The HeadStart term

Chrisco’s order forms, both online and in its catalogue for the 2014 year, contained a term which provided that where a customer had made full payment for an order in one year, the customer would automatically roll into a ‘HeadStart Plan’ for the next year. The term allowed Chrisco to continue withdrawing payments from a customer’s bank account or credit card and the money withdrawn could be applied towards any future orders made by the customer. If a customer did not place another order, the money would be refunded without interest. Chrisco’s contract gave customers an opportunity to opt out of the HeadStart plan.

His Honour found that this term was unfair and that it satisfied the elements of subsection 24(1) of the ACL because it:

  • caused a significant imbalance in the parties’ rights and obligations arising under the contract; and
  • was not reasonably necessary in order to protect Chrisco’s legitimate interests; and
  • would cause detriment to customers if it were to be applied or relied upon.

Also, in assessing the fairness of the term, his Honour considered the contract as a whole and whether the term was transparent. These elements are considered in greater detail below.

Subsection 24(1) of the ACL

When considering this subsection, his Honour focussed on whether the term caused a significant imbalance in the parties’ rights and obligations arising under the contract. He found that although the Headstart term gave Chrisco a right to withdraw money from the customer’s account the customer did not have any corresponding right under the contract. Chrisco’s Counsel made several submissions which included that the customer had a right to place an order for another Chrisco hamper and the payments would not be as large as they would have been without the HeadStart Plan. His Honour rejected that analysis considering that the overall payment for the goods would be the same and, when taking the time value of money into account, customers on the HeadStart Plan would be actually paying more as they would be making payments of the same overall amount but starting at an earlier point in time.

Chrisco’s Counsel also argued that there was no substantial imbalance in the parties’ rights because the sums of money lost by the consumers would be small. His Honour also rejected that argument and using a hypothetical example found that a customer could incur an additional cost of $25 on a hamper costing $185 on the HeadStart Plan which his Honour did not consider to be a small amount of money considering the overall cost of the hamper.

His Honour also had regard to the fact that:

  • Chrisco’s consumers were generally low to middle income earners; and
  • the goods contained in Chrisco hampers were generally priced above retail prices.

With these factors combined, his Honour made a finding that the HeadStart term did cause a significant imbalance in the parties’ rights and obligations and also would cause detriment to customers if applied or relied upon. Under the unfair contract term regime, the onus is on the party who would be advantaged by the term to establish that it is reasonably necessary to protect its interests. Interestingly, Chrisco did not make any argument in this regard.

Presumably the main purpose of the term was to assist Chrisco in retaining its customers in the following year.


His Honour found that the HeadStart term was not transparent enough for a number of reasons. He thought it could have been more clearly presented in the contract and also found that there was lack of transparency and certainty in the way the term would operate in practice. For instance, he found that the term:

  • did not identify the amounts that Chrisco would debit on the HeadStart Plan;
  • did not make clear as to how a customer could cancel the HeadStart Plan and obtain a refund; and
  • the ability to ‘opt out’ of the term was not clearly presented on the order form.

Contract as a whole

In considering the contract as a whole, his Honour took into account that the HeadStart term and the contract generally was designed to be convenient for consumers. He also considered the fact that there was no separate charge for the collection of instalment payments, packing, administration or delivery charges. However, on balance, his Honour still found that the HeadStart term was unfair.

Take home points

The analysis of the HeadStart term demonstrates the shopping list of factors the court will take into account when considering a potentially unfair term. Much of the Chrisco Case centred on the imbalance in the parties’ rights and obligations. But, of course, this was only part of the package. The detriment caused to customers, together with the lack of transparency of the term, wrapped up and delivered Chrisco its fate with a not-so-festive ribbon. Although the case decided the question of liability, the issue of penalties will be decided at a later date.

To ensure that your business is not hampered by the same problems, terms and conditions in standard form contracts which are directed at both consumers and small businesses, must be carefully reviewed in light of section 24 of the ACL and the corresponding provisions in the Australian Securities and Investments Commission Act 2001.

1Schedule 2 of the Competition and Consumer Act 2010 (Cth)


Graydon Dowd

Graydon Dowd is a leading commercial and litigation dispute resolution partner, providing expertise in litigation and mediation.

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