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How much could your unfair contract terms cost you?

March 08, 2016


Senior Associates Sarah Lee

Advertising Unfair contract terms


In mid-2015 an Australian telecom company, Exetel, relied on a clause in its standard residential broadband agreement to tell 2,000 of its customers to either change their broadband plan or terminate without penalty.  As a result, those customers were forced to pay more costs; either by changing to a new plan, or switching to a different provider (and paying an activation charge to switch).

The 'clause'

The problem clause gave Exetel the right to vary any part of their agreement for any reason. Exetel then used this clause to target customers with excessive internet usage, asking them to upgrade or leave.

Was this wrong?

The Australian Competition and Consumer Commission (ACCC) thought this was wrong, in two ways.

First, ACCC thought the problem clause was "unfair" under the Australian Consumer Law. Secondly, ACCC also thought that the advertising of the fixed term plans was likely to be misleading as it represented the customers would receive the service for the entire 12-month duration.

In response to the ACCC's concerns, Exetel agreed to:

  • remove the problem clause from their agreement;
  • refund any additional monthly subscription costs incurred for the remainder of the fixed term by changing to a new plan; and
  • refund any activation charges incurred by customers who terminated their service with Exetel.

The above remedial actions meant that the affected customers were put back in the position they would have been in had Exetel not acted on the unfair contract term.

What does this case mean for you?

In New Zealand, our unfair contract terms regime came into force on 17 March 2015 (read our previous article here. If you have an unfair contract term in your standard consumer contract (eg Terms of Sale), beware that this could come at a cost to you.

We are aware that the Commerce Commission has been investigating businesses in New Zealand. If you have any doubts as to whether your consumer contracts may include an unfair contract term, just give us a call. We are always happy to help.