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Unfair Contract Term in Lay-by arrangement

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By Jack Newton, Law Graduate, MST Lawyers

This morning the Federal Court of Australia found that a term in a contract used by Chrisco Hampers Australia Pty Ltd (Chrisco) was unfair.

Chrisco is well known for its Christmas hampers and advertises widely on television, internet and in print.

Chrisco had in place a lay-by agreement (the Contract) which was effectively a direct debit prepayment arrangement to allow customers to lay-by their order with Chrisco.

However, notwithstanding that customers had fully paid for their orders by a certain date, the Contract imposed an obligation on the customer to “opt out”  of the direct debit, or else Chrisco would continue debiting the account. In other words, the Contract allowed Chrisco to debit customers’ accounts even though the order had been fully paid for.

The obligation to “opt out” was found by the Federal Court to be unfair.

The Court further found that Chrisco had engaged in misleading and deceptive conduct by representing that customers were unable to cancel their lay-by arrangement after making the final payment. The Australian Consumer Law provides customers with the ability to terminate a lay-by arrangement prior to delivery of the products.

This step was the first in the ACCC’s action against Chrisco. The case will now proceed to a penalty hearing, where the ACCC will seek pecuniary penalties, declarations, injunctions and costs.

Given now that the unfair contracts regime will apply to small businesses (see https://www.mst.com.au/small-business-unfair-contracts-regime/), businesses that regularly deal with individuals as customers (and small businesses) must ensure their contracts do not contain terms likely to be found to be unfair, misleading or deceptive.

For a review of your contract terms or to discuss consumer law matters more generally, please contact our Corporate Advisory and Franchising team at corporate@mst.com.au or on +61 3 8540 0200.