Insights / July 11th, 2024

PayPal Escapes Civil Penalties Under the New Unfair Contract Terms Regime!

A term within PayPal Australia Pty Limited (PayPal) standard form contracts has been declared by the Federal Court to be an unfair contract term.

On 4 July 2024, the Federal Court declared a term used by PayPal Australia Pty Limited (PayPal) in its standard form contracts with small businesses to be unfair. Just two months before the introduction of the new unfair contract terms regime, ASIC commenced proceedings against PayPal alleging a term that required PayPal business account holders to notify PayPal within 60 days of any fees mistakenly charged to be unfair.

In his oral reasonings, His Honour Moshinky J found that PayPal small business accounts (over 600,000) were not placed in a position where they were able to appropriately manage the risks of incorrect charging or overcharging as the account statements they were provided did not break down the various fees charged nor how they were calculated. In effect, small businesses were at a disadvantage in managing these risks in comparison to PayPal. The term also allowed PayPal to retain erroneous fees for failure to report errors within 60 days. His Honour’s written reasons have yet to be published.

On November 8, 2023, PayPal agreed that the term was unfair and voluntarily removed the term from its contracts after consenting to the court’s declarations. The Court declared the term void and restrained PayPal from applying, relying on, or enforcing the term in its contracts with small businesses. PayPal is also to pay ASIC’s litigation costs.

Key Takeaways

The recently amended unfair contract term regime brings with it significant financial penalties for non-compliance. It is crucial for businesses, regardless of size, to carefully assess the terms of their standard form contracts to steer clear of unfair terms. For assistance reviewing contracts and for more information about the types of contracts and clauses that may be captured under the new regime, please contact Katie Pote, Steven Slimming or another member of our Corporate and Commercial team.

This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice.  You should not act upon the information contained in this publication without obtaining specific professional legal advice.  No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.

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