Fair Contracts: Termination in Consumer Contracts

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?

Australian Consumer Law regulates unfair contract terms. Recently, the ACCC enforced those laws through action 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 Medical Treatment Program

The medical treatment program initiated 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 (the consumer) and the consultant.

The second stage of the procedure involved the patient engaging a nominated doctor of Ashley & Martin Pty Ltd as an independent contractor.

The term of the contract and the medical program was 8 to 12 months and the costs ranged between $1,820 to $6,600.

The 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 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 hair loss condition, the consultant would refund all monies already paid.

Unfair Contract Terms

The Court found that there was an imbalance in the parties' rights and obligations because refund 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 agree or refuse the medical treatment.  These termination terms were caught by section 23 and 24 of the Australian Consumer Law. Section 23 deems the terms unfair and, accordingly, section 24 voids 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 Principal or Rosy Dean (nee Rosy Roberts), Principal at Burke Lawyers on and or +61 3 9822 8588 for assistance in Australian, US or international commercial transactions, litigation or alternative dispute resolution.

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