Small business loses unfair contract terms protection

Small business customers take one backward step under the 2012 TCP Code

Mostly, the 2012 TCP Code offers stronger customer protections than its 2007 predecessor. One notable exception is the rules against unfair terms in telco contracts.  In the old Code, they applied in favour of both personal/residential customers and small business customers.  Under the new Code, small business loses the protections.

It works that way because the 2007 Code rules on this topic — which applied to business and non-business customers — have been removed.  In their place is a requirement that telcos comply with the Competition and Consumer Act rules about unfair contract terms.  And the CCA rules only apply to non-business customers.

It’s an important change between the two versions of the Code, so we’ll work through it in more detail.

 The 2007 Code position

The previous TCP Code provided that:

A term in a Consumer Contract must not be unfair.

And a ‘Consumer Contract’ was defined as:

an agreement between a Supplier and a Consumer for the supply of a [voice or data service].

And ‘Consumer’ was defined as:

(a) a person who acquires a  [voice or data service] for the primary purpose of personal or domestic use; or

(b) a business or non-profit organisation which at the time it enters into the Consumer Contract:

(i) does not have a genuine and reasonable opportunity to negotiate the terms of the Consumer Contract; and

(ii) has or will have an annual spend with the Supplier which is, or is estimated on reasonable grounds by the Supplier to be, no greater than $20,000,

other than a person acquiring a  [voice or data service] for resale.

So, a business organisation (of the described kind) was a ‘consumer’ and its contracts (of the kind described) were ‘consumer contracts’ and the ‘no unfair terms’ rules applied to them.

All that was removed from the 2012 redraft.

What happened to national consumer laws between the two TCP Codes

In 2010, the Federal Parliament passed the Competition and Consumer Act that included the Australian Consumer Law.  Most of the CCA and the ACL came into force on 1 January 2011.

For the first time, the ACL introduced a national law against unfair contract terms.  Before that, only Victoria had such a law.  There was a lot of talk at the time about whether the new national law should apply to B2B contracts as well as B2C.  The end result was that the ACL’s unfair contracts rules only apply to ‘consumer contracts’ as defined by the ACL:

Unfair terms of consumer contracts

(1) A term of a consumer contract is void if:

(a) the term is unfair; and

(b) the contract is a standard form contract.

And a ‘consumer contract’ means:

A contract for a supply of goods or services to an individual whose acquisition of the goods or services is wholly or predominantly for personal, domestic or household use or consumption.

So the ACL unfair contracts rules never apply in favour of a company, or in favour of an individual who buys mainly or wholly for business use.  For the rules to apply, both tests need to be satisfied:  the customer must be an individual, and they must buy wholly or predominantly for personal, domestic or household use or consumption.

That’s reinforced in the definition of ‘unfair’ in the ACL.  Actually, the word ‘unfair’ is not really defined.  What’s defined is ‘when a term in a consumer contract is unfair’.  That makes sense, since under the ACL it is only possible for a consumer contract term to be ‘unfair’.  A B2B contract isn’t subject to this part of the law.

(1) A term of a consumer contract is unfair if:

(a) it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and

(b) it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and

(c) it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

The 2012 TCP Code position

Instead of the 2007 rules on this point, the 2012 Code says:

A Supplier will not include terms which would be Unfair (within the meaning of the ACL) in its Standard Form Customer Contracts under the law.

And we now know that under the Australian law of unfair contract terms (ie the ACL) B2B contract terms can never be ‘unfair’.  It doesn’t apply to them.

The 2012 Code goes on to say (for instance) that it’s relevant to the unfairness test if a term:

permits the Supplier to unilaterally amend or vary the contract or any matters related to the contract, the characteristics of Telecommunications Products or price, during the term of a contract, in circumstances that would be inconsistent with the Unfair Contract Terms provisions in Part 2-3 of the Australian Consumer Law.

Again, we know that contract terms in a B2B agreement can never be ‘inconsistent with the Unfair Contract Terms provisions’ in the ACL.  Those provisions don’t apply to B2B contracts.

What’s the practical effect?

Under the 2007 Code, terms like the following were likely to be unlawful in telco contracts taken on by small businesses:

  • A term that permits the supplier to indefinitely suspend all services under the contract
  • A term that permits the supplier to charge the small business customer a reconnection fee for a  suspension caused by the supplier’s error or failure
  • A term that requires a small business customer to pay a fee for a breach that is not a  genuine estimate of the supplier’s likely loss
  • A term that permits the supplier to renew or extend a fixed contract period for a further fixed contract period without obtaining the small business customer’s express consent a reasonable time before the period expires
  • A term that excludes the governing law or jurisdiction of the courts of the State or Territory in Australia in which the small business customer ordinarily resides
  • A term that requires the small business customer to pay early termination fees, unbilled charges or similar payments within an unreasonable period after termination
  • A term that permits the supplier to avoid or limit the performance of its obligations under the contract, to the small business customer’s detriment
  • A term that imposes evidential burdens or limitations on the small business customer in legal proceedings.

Under the 2012 Code, none of these is banned as ‘unfair’ in B2B contracts any more.

Our take on it

In one way, the change makes sense. It means that business has the same unfair contract terms rights (ie nil) in telco contracts as it does in any other contracts.  At least it’s uniform.

In another, it is a pity to have taken a backward step.  Some of the most egregious examples of bad telco behaviour in recent years have involved small business victims customers.  So there was a case for maintaining unfair contract terms protections for them in the 2012 Code.

Hopefully, the removal of this protection won’t result in a move back to harsh contracts for small business customers.  As most service providers will tell you if you press them about extreme contracts from the ‘bad old days’, they never really used those aggressive clauses anyway.



About Peter Moon

A telco lawyer with a truckload of experience
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