Posted by Elizabeth Gore-Jones
on 11 July 2024
In a significant legal development, the Federal Court of Australia has ruled against PayPal Australia Pty Limited (PayPal), declaring a specific contract term used in its agreements with small businesses to be unfair.
The contentious term in question allowed PayPal to retain fees charged erroneously if small businesses failed to notify PayPal of the error within 60 days of the fee appearing on their account statement. This provision shifted the burden onto small businesses to promptly identify and report errors in PayPal's fee assessments.
The court's decision affects those small businesses that opened a PayPal Business Account between the period of 21 September 2021 and 7 November 2023. During this time, more than 600,000 small businesses in Australia operated under these terms. PayPal acknowledged the unfairness of the term and consented to the court's declarations, subsequently removing the term from its contracts effective 8 November 2023.
Justice Moshinsky, presiding over the case, highlighted disparities in risk management between PayPal and small businesses. He underscored the limited 60-day window for reporting errors, compounded by account statements that lacked clarity on fee descriptions and calculations, making reconciliation difficult for small business owners.
The Court's decision voids the unfair term from the inception of the contracts and prohibits PayPal from enforcing it in any current or future contracts with small businesses. Despite no evidence found by ASIC of any consumer suffering loss or damage due to this term, the ruling emphasizes the importance of fair contractual practices.
Deputy Chair Sarah Court emphasized ASIC’s commitment to safeguarding consumers and small businesses from unfair contract terms. She stated that the "... decision serves as a reminder to all businesses that unfair contract terms within standard form contracts with small businesses will not be tolerated. ASIC will take decisive action where appropriate to protect the rights of consumers and small businesses.”
PayPal cooperated with ASIC throughout its investigation and in resolving the proceeding. Additionally, the Court ordered PayPal to cover ASIC’s litigation costs, underscoring the seriousness of the enforcement of fair contract terms.
This ruling is a crucial reminder for all businesses to review and ensure their contract terms are fair and transparent, particularly when dealing with small businesses.
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