On 4 July 2024 the Federal Court of Australia handed down its judgment in Australian Securities and Investments Commission v PayPal Australia Pty Ltd [2023] FCA 762, finding that a ‘Fee Error’ clause contained in PayPal Australia Pty Limited’s (PayPal) standard form contract with ‘Business Account’ owners (Contract) amounted to an ‘unfair contract term’ and was void at the commencement of the Contract.
The ‘Fee Error’ clause effectively meant that, where businesses failed to notify PayPal in writing of an error in fees charged within 60 days of the fee being listed on its account statement, PayPal would retain the fee, even if the fee was initially charged in error. The Federal Court ultimately found that this clause created a significant imbalance in small businesses’ obligations and was therefore an ‘unfair term’ and void pursuant to various sections of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).
Interestingly, the Australian Securities and Investments Commission (ASIC) continued the proceedings despite
This case comes as a timely reminder for companies to review their standard form contracts to ensure there are no unfair terms, as having unfair terms, even if these are not relied upon, could lead to costly litigation and reputational damage.
On 6 September 2023, ASIC commenced proceedings against PayPal for a ‘Fee Error’ clause in their standard form Contracts (Proceedings). The ‘Fee Error’ clause was titled ‘Your responsibility to notify PayPal of pricing or fee errors’ and read as follows:
“Your responsibility to notify PayPal of pricing or fee errors. Once you have access to any account statement(s) or other account activity information made available to you by PayPal with respect to your business account(s), you will have 60 days to notify PayPal in writing of any errors or discrepancies with respect to the pricing or other fees applied by PayPal. If you do not notify PayPal within such timeframe, you accept such information as accurate, and PayPal shall have no obligation to make any corrections, unless otherwise required by applicable law…”.
The clause affected all small businesses who chose to open a PayPal Business Account between 21 September 2021 to 7 November 2023. As at July 2023, this comprised approximately 608,275 accounts.
ASIC commenced the Proceedings seeking:
The Federal Court found that the ‘Fee Error’ clause was an ‘unfair term’ for small businesses and was void at the Contracts commencement.
In particular, the Federal Court found that the ‘Fee Error’ clause created a significant imbalance in small businesses’ obligations and rights under the Contracts. It was found the clause was unfair to small businesses because small businesses are often unable to manage the risk of errors in fees.
Further, the Federal Court found that PayPal’s account statement did not describe the type of fees or their method of calculation as matching the product disclosure statement, such that the term was in PayPal’s favour and unfair to the small businesses.
ASIC’s Media Release can be found on their website (Linked).
This case acts as a timely reminder for corporations to review their standard form contracts to ensure there are no ‘unfair terms’, as the presence of an unfair term can be costly, even in circumstances where the company does not practically rely on the term.
Companies should ensure processes are in place for standard form contracts to be periodically reviewed, and legal advice to be obtained, to ensure contracts are compliant and up-to-date with recent laws. Such company processes mitigate risks, most relevantly, risks of costs from legal fees if the company were to be sued by a customer or ASIC, and mitigates risk of reputational damage from the same.
For any advice on the ASIC Act, unfair contract terms or for a review of standard form contracts, please contact Iain Freeman, Partner in Lavan’s Litigation, Dispute and Resolution team.
