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
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
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
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.
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
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
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
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
Administration Fee for late
Old Term: 1300 Australia can charge an
administration fee of an unspecified amount for late
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
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’.
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
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)
- it would cause a significant imbalance in
the parties’ rights and obligations arising under the
- 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
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
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 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.