Unfair telco powers breach the TCP Code

Fair or unfairMost telco standard agreements say that the service provider may vary the contract. Some even say they can do so 'at any time and without notice, as we see fit'. But clauses like that aren't always enforceable, and they can even be illegal if they breach the anti unfair contract terms law. And a breach of that law also breaches the TCP Code.

Here's what you need to know if you want to be able to change the rules … legally.

Business customers vs residential customers

The answer to the questions is different, depending on whether the customer is a business customer or not. The difference will become clear as we go on.

The first hurdle: the unfair contract terms law

Think about it. A contract term that says, “I can change the rules whenever I like” does seem a bit unfair, doesn't it? Well, Australia has a law against unfair terms in some kinds of contract. If a contract is with a non-business consumer, and it's a standard form contract, unfair terms are banned.

What makes a term unfair under that law?

The test has three parts:

  1. Does the term cause a significant imbalance between the telco and the customer?
  2. Is the term reasonably necessary to protect the telco's legitimate interests?
  3. Would it cause detriment to the customer if the telco applied the term?

If the answers are YES-NO-YES, the term is illegal.

So what about a term that says “We can change the rules at will?”

It is almost certainly illegal.

The first test – imbalance – is clearly a YES. If one side can change anything in the contract, at any time, as they like, and the other cannot, that's pretty imbalanced.

The second test – reasonably necessary – is almost certainly a NO. It requires a court to accept that you can't safely run a telco business unless you can change any term in the contract instantly, leaving the customer stuck with the new arrangements. You might be able to justify the right to vary very particular aspects of a deal, but anything you like? Any way you like? We don't think so.

The third test – customer detriment – is an obvious YES. Since the term could be relied on to to anything (eg double the prices, halve the time for payment, reduce plan entitlements, etc) it can clearly operate to their detriment.

In a telco's consumer Standard Form of Agreement (SFOA), a term that says the telco can change any term, in any way, at any time, is almost certainly illegal.

What about business SFOAs?

The unfair contract terms law doesn't apply to B2B contracts. In limited circumstances, another law called 'unconscionable conduct' could come to the aid of a business customer who was treated really badly. But for the most part, business SFOAs can include a term that allows a telco to change the contract as it likes. The anti unfair contract terms law doesn't apply to B2B contracts.

It was different under the 2007 version of the TCP Code. That version extended parts of the unfair contract terms law to small business customers, including limits in unfair terms. But as we have explained in another article, the 2012 version of the Code deletes the previous protections for small business and only includes the consumer protections.

Unless you use a variation power very unfairly, in particular circumstances, it's OK for your business SFOA to include a broad right to change the contact.

Getting back to consumer contracts … is it ever OK to include a power to vary the terms?

Yes, it can be. But you need to know what you are doing. There are two possible approaches.

First, you can focus on limiting your variation powers to aspects and situations where there's a good case that you need the power to protect a legitimate interest that you can identify. Adopting this approach, you must be able to say (with good reason) “If we can't vary this or that part of the contract, our legitimate interests will suffer.”

Second, you can soften and balance up the term by adding some balancing rights. The most common example of this is a no penalty early termination right. So instead of just saying, “We can change the deal whenever we like” you say “We can change the deal whenever we like, but we'll give you fair notice, if you don't like it we won't hold you to your contract.” If this kind of balance is appropriately added to the clause, it can be legal.

What do you mean by 'appropriately' added?

You need to think about the particular circumstances. Let's say you sign up a customer on a 24 month mobile broadband deal where you bundle a $700 iPad. A month later you change the terms and say, “If you don't like the change, feel free to pay out the balance on your iPad and cancel the contract.” Well, hold on. The customer suddenly has to fork out nearly $700 up front for the iPad when they had budgeted to pay it off over the contract term. Maybe you need to add some further balanceing factor (a discount?) to make the term fair.

Summing up

It's pretty easy to include a broad contract variation power in a telco-to-business standard contract. It's much more difficult to do in a telco-to-consumer contract. If you're not careful, your variation power will offend that unfair contract terms law.

And if your telco-to-consumer contract already contains a bare “We can change this contract any time, any way” clause, you're almost certainly in breach of the anti unfair terms law, and that puts you in breach of the 2012 TCP Code, because it mandates compliance with that law.


About Peter Moon

A telco lawyer with a truckload of experience
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