1300 Australia to remove unfair contract terms from its ‘phone words’ agreements

In its never-ending battle to remove unfair terms from standard-form agreements with small businesses, the Australian Competition and Consumer Commission (ACCC) has notched up another victory.

In its latest victory, the ACCC has accepted a court enforceable undertaking from 1300 Australia Pty Ltd (owned by Uniti Group Limited) to replace terms which were unfair contract terms with new terms for termination, late payments, breaches and renewals.

1300 Australia licences customers to use ‘phone words’ which are telephone numbers that also spell words on a keypad. According to 1300 Australia, “A phone word is simply an alphanumeric translation of a phone number. For example, when dialling the word 1300 FLIGHT, you are actually dialling 1300 354448”.

1300 Australia promotes the use of ‘phone words’ as a “cost effective solution for marketing budgets for small, medium and large businesses … to ensure better advertising recall.”

Customers pay a fee to licence the use of a phone word, for an initial period of 12 months.

This is a comparison between the terms that 1300 Australia has agreed to replace and the new terms it has agreed to substitute in its agreements with small businesses:

Auto-renewal

Old term: The agreement automatically renews at the end of each 12 month term for a further 12 months, without 1300 Australia needing to notify the customer.

New Term: 1300 Australia must give the small business customer at least 30 days’ notice of the renewal date.

Comment: Small businesses need to be reminded that unless they give notice to cancel (terminate) the agreement before the term ends, the agreement automatically renews and a customer will incur a penalty for early termination before the end of the renewed term.

Early Termination

Old term: If a customer wants to terminate early, during a term, 1300 can charge the customer an early termination fee that is no less than 92.5% of the fees payable for the remainder of the term.

New Term: A small business customer can terminate early during a renewal term by giving 3 months’ notice. The customer will be liable to continue to pay the fee during the 3 months’ notice period, but not be liable to pay an early termination fee. If the agreement is terminated early other than by notice during a renewal term, the termination fee is capped at 3 months fees.

Comment: The old term is a classic illustration of an unfair contract term in that the termination fee is almost as much as the amount payable for the remainder of the agreement. The ACCC was right to insist that the old term was not reasonably necessary to protect the legitimate interests of 1300 Australia.

Time to Remedy a Breach

Old Term: 1300 Australia has 30 days to rectify a breach of the agreement before the customer may terminate the agreement. The customer has 14 days to rectify a breach of the agreement before 1300 Australia may terminate the agreement.

New Term: The small business customer also has 30 days in which to remedy any breach (including a non-payment breach) before 1300 Australia may terminate the agreement.

Comment: The old term is a classic illustration of an unfair contract term as it reflects a significant imbalance in the parties’ rights and obligations under the contract.

Third Party Use

Old Term: the small business customer must notify 1300 Australia if it has allowed a third party to use the phone word, otherwise 1300 Australia may terminate the agreement.

New Term: 1300 Australia may not terminate the agreement solely because the small business customer fails to notify it of the use of the phone word by a third party.

Comment: This term falls under the category of not reasonably necessary to protect the legitimate interests of 1300 Australia by insisting that its permission be given if the small business allows someone else to use the phone word.

Administration Fee for late payment

Old Term: 1300 Australia can charge an administration fee of an unspecified amount for late payment.

New Term: The administration fee is capped at $25 for late payment by a small business customer.

Comment: This brings the late payment fee into line with late payment fees which are charged by Banks.

A definition of ‘Phone word’

New Term: all new agreements are to contain a definition of ‘phone word’ to mean ‘the Licensed Number and any phone word specified on the front page of this Agreement and any name which incorporates, is derived from, or is similar to, that phone word’.

General Comments

Since 12 November 2016, the ACCC has been obtaining undertakings from businesses and has instituted legal proceedings against businesses to protect small businesses (defined as a business employing 20 people or less) from unfair terms in business-to business standard form contracts.

The legal basis is sections 23 and 24 of the Australian Consumer Law which provide that a term of a small business contract is unfair (and is therefore void) if:

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

1300 Australia has undertaken that for 3 years, it will amend current contracts to include the new terms and issue future contracts with the new terms, to place a corrective notice on its website and to institute a complaint review scheme and a compliance program.

1300 Australia will also refund excessive termination fees paid since November 2016.

In its media release, the ACCC says that it had received a number of complaints and decided to act because:

“Small businesses have less bargaining power, and we regularly hear concerns from small businesses about inequitable agreements with large businesses,” ACCC Deputy Chair Mick Keogh said.

“In this case, we had concerns about unexpected costs, or obligations, as a result of 1300 Australia’s contract terms.”

Marketing commentary by Michael Field from EvettField Partners

‘Phone words’ services have been around for a long time and once had a much more important role to play in the marketing mix.

However, with the advent of the internet, the increasingly powerful role internet search engines such as Google, and paid search such as Google AdWords coupled with the ‘click-to-call’ options where a web searcher can call a service provider directly from the search result on their smartphone, the value of ‘phone words’ as a marketing tool has diminished considerably.

As such, I can imagine a circumstance where a business that provides ‘phone words’ would be tempted to include onerous terms in their contracts that are designed to ‘rollover’ the contract without notifying the client and making it difficult and expensive for the client to cancel the contract.

The ACCC is right to have tackled this issue and I hope they continue to challenge companies that incorporate unfair terms in their contracts, especially with small businesses who may not have the experience or capability to challenge these terms on their own without costly legal advice, or without the assistance of the regulator.