Have you ever found yourself in a contract and wondered how you got there? Felt like the agreement was unfair and you didn’t have any power in the situation?
The Australian Consumer Law regulates unfair contract terms. Recently, the ACCC enforced those laws through its legal action taken in the Federal Court of Australia in the case of Australian Competition and Consumer Commission v Ashley & Martin Pty Ltd [2019] FCA 1436. In that case, a contract for a medical treatment program for hair loss entered into by a consumer gave an early termination right to the consumer but only on full payment of the contract fees.
The Ashley & Martin Medical Treatment Program
The subject medical treatment program commenced with a free consultation with a hair loss consultant. Once the patient confirmed they were financially prepared and willing to proceed, a legally binding standard contract was entered into between the patient (i.e. the consumer) and the consultant.
The second stage involved the patient engaging a nominated doctor of Ashley & Martin Pty Ltd as an independent contractor.
The term of the contract and the medical treatment program was 8 to 12 months and the costs ranged between $1,820 to $6,600.
The Subject Termination Clause
The termination clause of the contract varied at different times.
Until September 2016, if the contract was terminated by the consumer immediately after accepting the medical treatment program and before the consultation with the medical doctor, 25% of the total price was payable. If the termination occurred within 2 days of accepting the medical treatment program and after the consultation with the medical doctor, 50% of the total price was payable. If termination took place at any time after 2 days from accepting the medical treatment program and after consultation with the medical doctor, 100% of the total price had to be paid.
For contracts entered into between September 2016 and January 2017, the first part of the termination clause changed. Instead, 25% of the total price was payable if termination occurred immediately after accepting the medical treatment program but before the consultation with the medical doctor. The other parts remained unchanged.
For contracts entered into after January 2017, the second part of the initial termination clause was changed. 50% was removed and instead the contracts stated that termination could be immediate without charge only if this occurred within 2 days after consultation with the medical doctor and only by paying for the goods and services provided. However, an additional right was given to the consumer where in case the medical doctor determined that the consumer was unsuitable for treatment for the hair loss condition, the consultant would refund all monies already paid by the consumer.
Unfair Contract Terms
The Court found that there was an imbalance in the parties’ rights and obligations because refund under the contract was limited and a 2 day period for a consumer to decide whether to proceed was too short. Further, it was found that no explanation was provided to justify the increase in the termination charge from 50% to 100%. The patient could not make an informed choice about whether the treatment was suitable and suffered financially if the entire payment had to made. The consumer had to make a commitment for payment before getting any opportunity to receive and consider medical advice and make a decision as to whether to agree or refuse the medical treatment. These termination terms were caught by sections 23 and 24 of the Australian Consumer Law. Section 23 deemed the terms unfair and, accordingly, section 24 voided them.
Fair Termination Clause
Termination clauses in a contract must pass the ‘unfair contract term’ test. Consumers must be afforded the right to make an informed decision along with a reasonable period of time within which to make that decision. Lastly, termination fees must reflect the actual loss likely to occur after any breach of contract by the consumer.
Please contact Meghan Warren or Rosy Dean, on +61 3 9822 8588 for assistance in Australian, US or international advice, commercial transactions, litigation or alternative dispute resolution.
