ASIC has commenced proceedings against PayPal Australia Pty Limited (PayPal) alleging that its standard form contracts with small business customers contain an unfair contract term.

The case involves a contract term that gives PayPal business account holders 60 days to notify PayPal of any errors or discrepancies in fees that PayPal has charged them, or else accept those fees as accurate.

ASIC alleges the term is unfair because the effect of the term is to permit PayPal to retain fees it has overcharged or wrongly charged if the small business does not notify PayPal of the error within 60 days of the fee appearing in its account statement.

ASIC Deputy Chair Sarah Court said, ‘ASIC has commenced this action to protect the interests of small businesses. We allege this term is unfair because it allows PayPal to escape the consequences of its own errors in overcharging small businesses, and places additional burdens on small businesses to detect and correct charging errors.’

ASIC further alleges the contract term is unfair within the meaning of s12BG of the ASIC Act as the term:

• causes a significant imbalance in the parties’ rights and obligations under the contract
• is not reasonably necessary to protect PayPal’s legitimate interests, and
• would cause detriment to PayPal business account holders if the term were relied on.

ASIC is seeking declarations that the term is void. ASIC is also seeking injunctions and corrective orders.

Background

The term appears in PayPal’s User Agreement, one of several documents that form the contract between PayPal and its Australian business account holders.

Since 1 July 2010, the unfair contract term regime contained in the ASIC Act has applied to standard form consumer contracts for financial products and services. On 12 November 2016, the unfair contract term regime was expanded to include small business contracts.

On 9 November 2022, the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 was assented to. Among other things, this Act will introduce civil penalties under the ASIC Act for breaches of the unfair contract term prohibition from 10 November 2023.

On 4 April 2023, ASIC issued proceedings against Auto & General Insurance Company Limited, alleging that its standard form home and contents insurance contracts contain unfair contract terms (23-088MR).

On 12 May 2023, ASIC issued proceedings against HCF Life Insurance Company Pty Limited, alleging that three types of insurance policies issued by it contain unfair contract terms and could mislead the public (23-123MR).

Editor's note 1:

A case management hearing has been listed for 11 March 2024.

Editor's note 2:

The case management hearings listed on 11 March 2024 and 19 April 2024 were vacated by consent. The next case management hearing has been listed for 15 May 2024.

Editor's note 3:

The case management hearing listed on 15 May 2024 was vacated by consent. The next case management hearing has been listed for 22 May 2024.

Editor's note 4:

A case management hearing was held on 22 May 2024 before Justice Yates of the Federal Court. Timetabling orders for the management of the proceeding were made and the matter is scheduled for a hearing estimated to last 2 hours on a date to be fixed.

Editor's note 5:

The matter has been listed for a hearing on 4 July 2024 before Justice Moshinsky.