The Federal Court has found that Paypal Australia Pty Ltd (Paypal) has used an unfair contract term in its standard form contracts with small businesses.
The term gave Paypal business account holders 60 days to notify Paypal of any mistakes in the fees charged by Paypal in their account statement. If they failed to do so, they will be deemed to have accepted the fees charged as accurate. The Court found that the term was unfair as it, in effect, allowed Paypal to retain any erroneously charged fees against small business account holders.
Justice Moshinsky, in finding that the term was unfair, reasoned that small businesses, unlike Paypal, were not in a position to properly manage the risk of being incorrectly charged or overcharged. Additionally, His Honour also found that the 60 days notification period was inadequate in circumstances where the account statement did not sufficiently describe the various types of fees or the manner in which the fees were calculated.
Prior to the judgement being made, Paypal had already agreed that the contract term was unfair. Paypal had voluntarily removed the term from its standard form contract from 8 November 2023. The Court’s decision will only impact small businesses that signed up for a Paypal business account between 21 September 2021 to 7 November 2023. As of 30 June 2023, there were over 600,000 small businesses with PayPal business accounts. Despite this, the Court had found that PayPal was not aware of any incidents where it has caused a small business to suffer loss or damage by relying on the unfair term. ASIC’s investigation also did not uncover any instance of Paypal relying on the unfair term to the detriment of consumers.
The Court has made orders that declared the term ‘ab initio’ or void from the start of the contracts. The Court has also ordered that Paypal be restrained from applying, relying on or enforcing the terms in its contracts with small businesses. Despite this, Paypal will escape any civil liabilities as the proceedings commenced in September 2023, two months before the introduction of pecuniary penalties for the use of unfair contract terms in standard form contracts entered into with small businesses.
What does this mean for your company?
This litigation serves as a timely reminder of the recent changes to the unfair contract terms regime. From 9 November 2023, if a company relies, or purports to apply or rely on, an unfair contract term in a standard form consumer or small business contract they may be liable for a penalty of the greater of $50,000,000 or three times the value of the “reasonably attributable” benefit obtained from the conduct.
What do you need to do?
Given the significant penalties that may be imposed and the broader application of the new unfair contract terms regime, we recommend that all businesses obtain legal advice in relation to all standard form consumer and small business contracts.
More information
If you have any questions or would like further information regarding this article, please contact:
| Justin Hill Principal M: 0418 578 701 E: justinhill@pageseager.com.au |
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| Esther Chai Law Graduate T: (03) 6235 5196 E: echai@pageseager.com.au |
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Published: 26 July 2024
