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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 Roberts, Principal at Burke & Associates Lawyers on mwarren@burkelawyers.com.au and rroberts@burkelawyers.com.au or +61 3 9822 8588 for assistance in Australian, US or international commercial transactions, litigation or alternative dispute resolution.

Contacts

Meghan Warren

Principal

Meghan Warren

Principal
LL.B GAICD B.Bus (FinPlan)
Meghan is one of the few lawyers in Australia admitted in the State (Victoria) and Federal jurisdictions of Australia, and as an Attorney at Law to the New York State Bar in the United States.

Rosy Roberts

Principal

Rosy Roberts

Principal
LL.B (Hons) B.A GAICD
Rosy has extensive experience in Litigation & Alternative Dispute Resolution having represented clients in all Victorian State Courts and the High Court of Australia. She is also a VCAT appointed Administrator.

Kristy Muhlhan

Principal

Kristy Muhlhan

Principal
LL.B (Hons) GRAD DIP. L.P., GAICD.
Since 2014, she has been an owner and Principal of the firm and has mastered a broad range of essential commercial and business skills which go hand in hand with the work she does for...

Anthony Burke

Consultant

Anthony Burke

Consultant
B.A LL.B DIP.FIN. MGT
Tony is an LIV accredited business law specialist and a VCAT appointed Administrator. In 2008 he was President of the Law Institute of Victoria and served for two years as a director of the Law...

Stewart Davis

Associate

Stewart Davis

Associate
LL.B (Hons) B.Com
As well as property law, Stewart has had exposure to VCAT administration matters and commercial law, particularly servicing developer clients.

George Hanger

Associate

George Hanger

Associate
LL.B BA
George was admitted to legal practice in May 2015 after completing a Bachelor of Arts at the University of Melbourne and a Bachelor of Laws at Monash University.

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