The High Court has released its reasoning for declaring terms used by Bachcare Limited (Bachcare) in its standard terms and conditions to be unfair contract terms under the Fair Trading Act 1986 (the Act). 

Bachcare owns and operates a digital platform through which guests can book holiday accommodation. By making a booking through Bachcare’s platform, guests agreed to be bound by Bachcare’s standard terms and conditions. 

In April 2023, the Commerce Commission filed proceedings seeking a declaration that terms relating to cancellation and property unavailability across four different versions of Bachcare’s terms and conditions were unfair. The clauses included:

• terms meaning that guests could lose up to 100% of the amount they paid if they cancelled their booking, regardless of how far in advance the booking was cancelled;
• terms that allowed Bachcare to avoid offering refunds to guests if Bachcare found another property that can accommodate their booking; and
• in some cases, terms that allowed Bachcare to retain its service fee even when the booking was cancelled by Bachcare or the property owner.

Unfair contract terms

The unfair contract terms regime in the Act applies to standard form consumer and specified trade contracts. Consumer contracts are contracts where a consumer agrees to acquire from another person acting in trade:

• goods or services of the kind ordinarily acquired for personal, domestic or household use and are not acquired for the purpose of resupplying them or for use in production; or
• an interest in land for personal, domestic or residential purposes.

A specified trade contract is a contract between two parties engaged in trade, where the trading relationship does not exceed the annual value threshold of $250,000. However, in the case of a contract between a regulated grocery supplier and its supplier for the acquisition of goods intended for consumer use, the annual value threshold is increased to $1 million.

Standard form contracts

The Act allows the court to determine that a consumer contract or a specified trade contract is standard form if its terms have not been subject to effective negotiation. There is no prescriptive list of what constitutes a standard form contract, but the following factors will be taken into account:

• whether one of the parties had all or most of the bargaining power; 
• whether the contract was prepared by one party before any discussion took place about the transaction; 
• whether a party was, in effect, required to accept or reject the terms of the contract in the form in which they were presented; 
• the extent to which the parties had an effective opportunity to negotiate the terms of the contract; and
• the extent to which the terms of the contract take into account the specific characteristics of the parties.

Importantly, if a party to a proceeding alleges that a contract is a standard form contract, it will be presumed to be standard form unless the other party proves otherwise.

When a term can be declared an unfair contract term

If a contract is a standard form consumer, small trade or grocery supply contract, the Court may declare a term to be unfair if the term meets the following requirements:

• the term would cause significant imbalance between the parties’ rights and obligations arising under the contract; 
• the term is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by it; and
• the term would cause detriment to a party if it were applied, enforced or relied on.

In determining whether a term is unfair, the Court must also consider the extent to which the term is transparent and consider the term in the context of the contract as a whole. However, the Court may not declare any term that defines the main subject matter of the contract or sets the upfront price payable to be an unfair contract term, as well as any terms which are required or expressly permitted by an enactment.

High Court decision

The Court agreed that the relevant terms in Bachcare’s terms and conditions caused a significant imbalance between the parties’ rights and obligations, for reasons including:

• the terms were not drafted with sufficient clarity to make the consequences of cancellation clear; 
• the terms did not sufficiently distinguish between early and late cancellations by the customer and were without sufficient balancing provisions to mitigate situations where this resulted in unfair outcomes for the customer; 
• the customer had limited or no rights to have accommodation costs refunded even where a property was re-let for some or all dates of the original booking;
• the customer had limited or no rights to be refunded where the property was unavailable through no fault of the customer; 
• the liability of the owner and Bachcare were excluded where the booking was cancelled by the owner or Bachcare; and
• a lack of transparency regarding the location and wording of the relevant terms.

Bachcare accepted that the relevant terms were not necessary to protect a legitimate business interest. The Court considered the detriment to be readily apparent as customers would suffer financial loss if they wished to cancel or were unable to obtain a refund following cancellation by Bachcare or the owner. The Court also identified that there would be non-financial detriment if the customer was shifted to a property less suited to their requirements without any option of a refund.

The effect of the Court’s declaration is that section 26A of the Act now prevents Bachcare from including the unfair terms in their standard form terms and conditions, and prevents Bachcare from applying, enforcing or relying on the unfair terms. 

Our view

The High Court’s decision provides useful guidance on terms that the Court may declare to be unfair contract terms. We recommend that businesses revisit their standard form contracts to identify any terms that:

• limit the ability of customers to receive a refund on cancellation of the contract. Businesses should consider if the refund terms sufficiently reflect matters such as which party is terminating and why, the timing of the cancellation and the business’ ability to recover costs via other means. Businesses should also consider if refunds are automatically applied or if the business requires customers to take action to receive the refund; 
• limit a customer’s remedies where the business cannot provide the goods or services under the contract; 
• allow the business to alter the goods or services to be provided without offering the customer a right to cancel and obtain a refund; or
• permit the business to cancel the contract unilaterally without providing a full refund or adequate compensation.

The Court’s decision indicates that such terms may create a significant imbalance between the parties. If a business’ contracts include any of these terms, the business should assess whether these terms are protecting a legitimate business interest, and whether the terms are clearly explained and brought to the customer’s attention.

If you have any questions in relation to the decision or would like to discuss how the decision may affect you or your contracts, please contact one of our experts. 

This article was authored by Joel Molloy, a solicitor in our Corporate and Commercial team.