15 June 2009

Cyberspace July 2009

On 17 February 2009 the Federal government released a document "An Australian Consumer Law. Fair markets - Confident consumers" (http://www.treasury.gov.au/documents/1484/PDF/An_Australian_Consumer_Law.pdf). In May it released "The Australian Consumer Law – Consultation on Draft Provisions on Unfair Contract Terms" These, together with a recent agreement by all State & Federal governments to have one national consumer affairs law, signal impending major changes in consumer law.

The February report notes

"Unfair terms are more likely to be found in standard form contracts, presented to consumers as a 'take it or leave it' offer... such contracts are increasingly used in relation to online services."

How does this affect technology? If you've ever read an End User Licence Agreement from Apple, Microsoft, EBay, and many other technology companies you will see that they contain some outrageous terms. But, if you want the product or service then you simply must agree to it. For example, I'm going to pick on Apple. The iTunes Store Terms & Conditions (http://www.apple.com/legal/itunes/au/terms.html#SALES) is a rather fragmented document which states in the Terms of Sale:

"IF YOU DO NOT AGREE TO THESE TERMS... DO NOT USE THE SERVICE... YOU MUST ACCEPT AND ABIDE BY THESE TERMS AS PRESENTED TO YOU;"

"CANCELLATION POLICY All Sales and rentals (as applicable) are final... you will not have a right to cancel your contract once the service commences."


That's it. Bad luck if the software is buggy, or the music is poorly recorded. The term may also be contrary to Div 2 Part V of the Trade Practices Act or the Fair Trading Act. Buried much further down in another agreement (Terms of Service) in 19 c is a term which deals explicitly with the TPA. However, the"cancellation policy" appears in the first few centimetres of the Terms of Sale agreement and the TPA clause is a long way down and only refers to the Terms of Service, not the Terms of Sale!

And there's more:
"Termination by iTunes. If ... iTunes suspects that you have failed to comply with any of the provisions of this Agreement ... iTunes, at its sole discretion... may... terminate... your account."
"iTunes reserves the right to change the terms and conditions of sale at the iTunes Store at any time."

The proposed Australian Consumer Law will introduce a national unfair contract terms provision which will apply to standard form contracts. The law can be invoked even if there is only significant likelihood that detriment will occur. The paper notes a number of types of terms that "are likely to cause consumer detriment", including some familiar(!) ones:

  • clauses that attempt to exclude implied terms for consumer goods and services.
  • clauses that prevent the consumer from cancelling a contract.
  • clauses that permit the supplier to unilaterally determine whether a breach of the contract has occurred.
  • clauses that permit the supplier to unilaterally vary the terms of the contract.

Remedies will be available where a claimant or class shows actual or substantial likelihood of detriment, not limited to financial detriment. Non-financial detriment could arguably include the inability to purchase and use the software or service. Civil penalties will be able to be imposed (distinct from the now largely criminal) as well as compensation claims on behalf of consumers. Disqualification orders can ban or restrict individuals from participating in organisations for a time without the need for a criminal conviction. An interesting reform is the ability for a consumer regulator to issue a Substantiation Notice requiring a supplier to substantiate claims it makes in relation to goods and services.

Vendors do need to protect their rights. However, these standard form contracts have swung so far in their favour that we now need legislation to remedy it. The Consumer Law may commence on 1 January 2010, so now might be a good time to help your clients draft better agreements, or perhaps dust off your class action skills.