(a) Would the HeadStart term cause a significant imbalance in the parties' rights and obligations arising under the contract?
47 Both parties proceeded on the common ground that the approach to be taken to this element was the approach taken by Lord Bingham in Director General of Fair Trading v First National Bank Plc [2001] UKHL 52; [2002] 1 AC 481, 481 [17]:
The requirement of significant imbalance is met if a term is so weighted in favour of the supplier as to tilt the parties' rights and obligations under the contract significantly in his favour. This may be the granting to the supplier of a beneficial option or discretion or power, or by the imposing on the consumer of a disadvantageous burden or risk or duty.
48 These remarks were made by Lord Bingham in the context of regulation 5(1) of the Unfair Terms in Consumer Contract Regulations 1999 (UK) which was a response to the European Community's Council Directive 93/13/EEC on unfair terms in consumer contracts. Regulation 5(1) provided:
A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer.
49 I proceed on the basis that Lord Bingham's definition is an appropriate meaning to be given to the notion of "significant imbalance". But the focus remains on the terms of the section. This is particularly the case in circumstances in which the UK regulations are not identical to the terms of s 24 and, as I have explained above, were not intended to be identical.
50 I also proceed on the basis that the lack of individual negotiation of the contracts between Chrisco and its customers is not relevant to whether the HeadStart term caused a significant imbalance in the parties' rights and obligations arising under the contract: see Jetstar Airways Pty Ltd v Free [2008] VSC 539 [112] (Cavanough J); Paciocco v Australia and New Zealand Banking Group Limited [2014] FCA 35 [331] (Gordon J).
51 An assessment of this first element of unfairness requires consideration of the HeadStart term together with the parties' other rights and obligations arising under the contract in order to assess whether the HeadStart term causes a significant imbalance in the rights and obligations arising under the contract.
52 The first point of note about the HeadStart term, which I consider to be a "relevant matter" under s 24(2), is that the HeadStart term is a term from which the consumer could "opt out". Although the Headstart term required the consumer to permit Chrisco to remove money from the consumer's account for an order that might never be placed, the consumer had the power to opt out of that obligation.
53 The second point of note is that the HeadStart term gave a right to Chrisco to withdraw money from the consumer's account, after the conclusion of the consumer's order, without any substantial corresponding right to the consumer. A right is the correlative of a duty. But what duty is imposed upon Chrisco which corresponds to the consumer's duty to permit Chrisco to withdraw money from his or her account?
54 Several possible formulations of a consumer's corresponding right can be considered.
55 One formulation by senior counsel for Chrisco was that the HeadStart term gave the consumer (ts 112) "a right to place an order for delivery of a hamper of their choosing within the amount … contributed at any time up to the delivery date and they retain the option to get their money fully back if they do not place that order".
56 But this is no right at all. A consumer had the power to place an order for a delivery of a hamper whether or not the HeadStart term applied. The consumer could place an order for an amount which would otherwise have been collected under the HeadStart term, or an amount more or less than that. I do not accept that the consumer obtained a substantial corresponding right to be repaid upon demand, prior to placing an order, without interest, and assuming the continuing solvency of Chrisco, the same sum of money that Chrisco had withdrawn earlier. As I explain below, there is also a lack of clarity about the operation of any such "right".
57 Another attempted formulation of a right of a consumer under the HeadStart term corresponding to the obligation to have money withdrawn from the consumer's account was that the consumer had a right to place an order for a Chrisco hamper without having to pay the larger weekly or larger monthly contribution if the payments were made over a shorter period. But the "larger weekly" or "larger monthly" contribution was not a larger overall payment because the price of the hamper did not change. In fact, taking into account the time value of money, this alleged "right" is for the consumer to pay more, by making payments of the same total amount but starting at an earlier point in time.
58 In effect, the HeadStart term involved a savings plan by which (unless they opted out or sought a refund) consumers were required to save, interest free, with Chrisco, towards the purchase of Chrisco's goods in 2015 which were generally priced above retail prices and which the consumers might not decide to purchase.
59 At various points in oral submissions both counsel proceeded from the assumption that the consumers involved suggests that Chrisco's consumers were generally from low to middle incomes. The limited evidence concerning the demographic of consumers supports that as a general, although not universal, matter. There was evidence describing anecdotal information that this was Chrisco's class of consumer (TB 794). Chrisco's "Customer Guarantee" also described how "thousands of customers … tell us they wouldn't be able to manage without our help".
60 Senior counsel for Chrisco submitted that there was no imbalance, or no substantial imbalance, in the parties' rights because the sums of money lost as a result of the consumers' payments being interest free were likely to be small. Even if the assumption were made that the sums of money involved were likely to be small (which I do not accept, for reasons explained below at [65]-[68]), I do not accept that there would be no imbalance in the parties' rights as a result of the interest free transfer of the consumer's money to Chrisco.
61 Chrisco's assumption of very small sums of money being lost as a result of interest free payments can be tested with an example. The example might be a consumer who orders Chrisco's Australia Zoo Family pass hamper for $185 from the 2014 Chrisco catalogue. This requires weekly payments of $3.60 rather than a lump sum payment or larger payment, before 24 October 2014, of $185 (which Chrisco's general acknowledgment in its marketing material might be an amount which is more than retail prices).
62 The submission by Chrisco was effectively that such an "unsophisticated" consumer who did not have the "discipline" to budget to pay $185 for the purchase of the same hamper for the following Christmas, in December 2015, would benefit from Chrisco's savings plan at very little cost to the consumer. In other words, this unsophisticated consumer, who cannot budget for himself or herself to save $3.60 per week, would not suffer any significant financial disadvantage by having Chrisco withdraw that amount of money from the consumer's account on a monthly basis after 24 December 2014.
63 In oral submissions, senior counsel for Chrisco accepted that a hypothetical consumer might have credit card debt which would accumulate at a greater rate due to Chrisco's withdrawals. But, he submitted, it might only be 25% of these small sums that would have been incurred as a cost (ts 114).
64 The example given by senior counsel for Chrisco is based on the assumption that consumers who provide Chrisco with a direct debit authority might have a credit card debt. That is an appropriate assumption. The possibility that a consumer might have credit card debt is a matter upon which judicial notice could be taken just as easily as the judicial notice invited by Chrisco that low interest rates are paid on savings accounts. Indeed, Chrisco's own terms and conditions provided that an order can be paid by credit card and that "Credit Cards will be debited on the 15th of every month". Although the ACCC's case focused only upon the direct debit payments rather than the credit card payments by consumers, Chrisco's intention to debit credit cards as well as savings accounts provides a further basis for the inference that Chrisco's customers might have credit card debt.
65 It takes only a little reflection, and a calculator, to see that in the hypothetical example above the Chrisco withdrawals could cost this hypothetical consumer up to $25 in interest. This calculation is made using only monthly compounding. In other words, in the hypothetical example, the "unsophisticated" consumer who did not have the "discipline" to budget $3.60 a week, could incur an additional cost of $25 on a $185 purchase. Although this is only a hypothetical example, and might be the outer limit of cost to the consumer, it illustrates that the sums of money involved due to the interest free nature of a consumer's payments over periods of up to 11 months is not necessarily a small amount in relation to the hamper purchase.
66 In any event, I do not accept the assumption by Chrisco that only small sums of money were involved in the expenditure on Christmas hampers.
67 First, although senior counsel submitted that the average hamper cost was between $80 and $750, there were certainly hampers that cost more than $750. For instance, at page 34 there was a "Mega Christmas" hamper for $962. At page 40 there was a large foldout of a "Summer holiday" hamper for $2249. There was no evidence concerning the average size of an order.
68 Secondly, the assumption that orders would be in the lower end of a range of $80 to $750 is based upon the premise that consumers would order only one hamper. But the order form permitted a consumer to order multiple hampers. Indeed, the considerable number of boxes to complete on the order form for different hampers (see instruction number 5), and the provision for a "quantity" of each different hamper, suggests that an order of more than one hamper might not have been unusual. Gift hampers could also be ordered for other people.
69 Ultimately, it suffices to say that the sums of money lost by Chrisco's withdrawals from the consumer's account, without any obligation upon Chrisco to pay interest and with no discount for the consumer who subsequently chose to place an order, involved a significant detriment to the consumer. That detriment was not balanced by any substantial corresponding right that the consumer obtained against Chrisco.
70 By itself, it is not necessarily determinative that there is no substantial right to a consumer, or duty upon Chrisco, that corresponds with the consumer's obligations under the HeadStart term. The evaluative exercise involves consideration of the contract as a whole to determine whether there is a significant imbalance in the parties' rights and obligations arising under the contract. I have mentioned the particular importance of the provision which permits the consumer to opt out of the HeadStart term. The evaluative exercise also requires consideration of the extent to which the HeadStart term was transparent.
71 I turn to a consideration of the extent to which the HeadStart term was transparent and the terms of the contract as a whole.
72 The Explanatory Memorandum to the Trade Practices Amendment (Australian Consumer Law) Bill (No 2) 2010 (Cth) at [5.38] described a lack of transparency in the terms of a consumer contract as a matter that may be "a strong indication of the existence of a significant imbalance in the rights and obligations of the parties under the contract".
73 Dr Harder has argued that a lack of transparency might go further and "itself cause an imbalance": S Harder "Problems in interpreting the unfair contract terms provisions of the Australian Consumer Law" (2011) Aust Bar Rev 306, 317. He gives as an example of this a situation in which the parties' rights and obligations directly depend upon the acquirer being aware of the term such as a fixed-term contract that provides for an automatic extension unless one of the parties gives notice.
74 It is unnecessary to decide whether a lack of transparency could itself create an imbalance which does not otherwise exist. However, in the example given by Dr Harder it might be thought that the term itself could potentially involve an imbalance (assessed in the context of the contract as a whole) because of its weighting of the extension in favour of the supplier. Whether that imbalance is significant in the context of the whole of the contract might depend upon an assessment of the extent to which the term is transparent.
75 The considerations relevant to assess the extent of transparency of the HeadStart term involve whether it is expressed in reasonably plain language; legible; presented clearly; and readily available to the consumer.
76 As for catalogue orders, the location of the HeadStart term, which can be seen in Annexure 1 to these reasons, is at the bottom of the Chrisco Customer Guarantee page under the heading "How does a HeadStart Plan Work?" The Chrisco Customer Guarantee was one of only four removable pages in the middle of the Chrisco Christmas catalogue. In the catalogue, the HeadStart term was directly opposite the box to be ticked by a consumer to opt out of the HeadStart Plan. That box was at the bottom of the Hamper Order Form, next to the column for the total price (which the consumer would need to calculate) and above the signature panel.
77 As for website orders, the location of the HeadStart term can be seen in Annexure 2 to these reasons. Although described as the 2013 order form, the relevant year for the unfair contract terms is orders placed prior to 24 October 2014. Again, there is an "opt out" clause on the order form in a similar place to the catalogue order form and the HeadStart term is under the subheading "HeadStart Plan" in a section entitled Payments.
78 I do not consider that the HeadStart term in the catalogue or on the website was wholly lacking in any transparency. The matters I have described above show that the term was not hidden, and that the option to opt out of the clause was in a place where it might be noticed.
79 However, there are matters concerning the HeadStart term that reduce its transparency.
80 First, the language of the HeadStart term is not plain in three respects.
81 The first respect in which the HeadStart term is not plain is that, as the ACCC set out in its amended pleading at [13A], the HeadStart term does not clearly identify the amounts that will be direct debited by Chrisco under the HeadStart term or the means by which those amounts would be determined.
82 The HeadStart term provides that payments to Chrisco from the consumer's account will "continue accordingly". It is the taking of these payments without any corresponding right that the ACCC alleges caused the significant imbalance between the rights of the consumer and the rights of Chrisco. But what are the payments that will be taken? The HeadStart term contains no information on this point. The direct debit request to be completed by the consumer does not resolve this lack of transparency because it does not provide for any particular amount to be debited. It provides only that Chrisco "will give notice to the Customer if it proposes to vary any of the direct debit arrangements".
83 The lack of transparency on this point might have been easily resolved by reference to the contract as a whole if the amount to be withdrawn from the consumer's account is clearly provided elsewhere in a contemporaneous document. But, prior to the "Order Confirmation" (which is part of the contract although it is not expressed in that way), it was not clear what the amount would be that would be withdrawn from the consumer's account to "continue" the payments. For the notion of "continuing" payments to be transparent the consumer must be able to know what payment was being "continued".
84 One possibility is that the payments being "continued" were the payments that the consumer had made immediately prior to the order being fully paid. But, there was also a term that permitted Chrisco "slightly [to] increase your future payments" if the consumer skipped a payment or missed a payment. It is also unclear whether the amount of the increase would include Chrisco's "dishonour fee" of $3.50 for a missed payment which was said "to cover charges we incur".
85 Senior counsel for Chrisco submitted that a proper construction of the term was that the payments that would "continue" would not be the previous higher payments but the lower, earlier payments. I am prepared to accept that this may be the best construction. But the point would not be plain to a consumer. At the very least, it is very difficult to describe the lower payments as "continuing" from the series of higher payments. There also remains the difficulty, not addressed in submissions, of whether the lower, earlier payments would also apply in a circumstance where the consumer missed several payments and Chrisco adjusted the consumer's order to be a smaller order (see [21] above).
86 The second respect in which the HeadStart term is not plain is closely related to the first. It concerns the sentence in the catalogue and website terms and conditions which provided "We will write to you to confirm your HeadStart Plan payments prior to commencing Direct Debits". It would not be plain to a consumer whether this was an indication that Chrisco would write to confirm whether the consumer intended to proceed with a scheme of having his or her account debited before an order was placed or whether it was an indication that Chrisco would write to confirm the amount of the payments that it would take.
87 The Order Confirmation, when it was subsequently received, would have revealed to any consumer that it was the latter. Only at this time would any doubts be removed concerning the precise amount of payments for the consumer who had not opted out of the HeadStart Plan. But, at this later time, the consumer would also discover that the "confirmation" was effectively a formal notice rather than a request by Chrisco to withdraw the money from the consumer's account.
88 The third respect in which HeadStart term was not plain was that, as the ACCC pleaded, it did not explain to the consumer "the means by which the consumer could cancel the HeadStart Plan" and obtain a refund. Numerous uncertainties might arise:
(1) Could the consumer cancel the HeadStart Plan at any time prior to the final order date in October the following year?
(2) What would happen if the consumer did not do so? (It appears that Chrisco developed a practice of "auto-converting" a HeadStart Plan to an order in February or March the next year: See exhibit MD 8, question 29, scenario 3).
(3) Would direct debit payments continue even if the payments for the previous year's hamper had been made over a short period (say, from August 2014) so that the total amount of the 2014 total payment had already been collected by January 2015?
(4) In (3), if Chrisco assumed that the consumer intended to order a larger hamper and continued the direct debits then how long would those direct debits continue?
(5) Could Chrisco, as the ACCC asserted, "charge the consumer termination charges in the event he or she cancels the HeadStart Plan after it has been converted to a new order without the benefit of having a 21 days Cooling off period"? If so, could the same termination charges apply where Chrisco "auto-converts" the HeadStart Plan into an order by the consumer for similar goods as the consumer had ordered the previous year?
89 Secondly, the HeadStart term could have been presented in a manner which was far more legible, much clearer, and more readily available to the consumer. The font size of the HeadStart term was very small. It was less than half of the size of the main heading "About your payments". There was nothing about this term that drew it to the consumer's attention beyond any of the 20 other paragraphs on the same page.
90 In comparison, in the catalogue order form and "Customer Guarantee", Chrisco employed various techniques to bring other matters specifically to the attention of the consumer. For instance, a bright red colour was used to the statement "Add up total order value". Blue italics, and a larger font, was used for the request "Please provide at least two forms of contact details". And a box in white starkly against a yellow background, and bold font, was used for statements like "We guarantee our products are good quality". The HeadStart term, which permits money to be withdrawn from the consumer's account, without interest, and before any order is placed, is in the same font as every other term on the densely packed page of small print terms and conditions.
91 Another difficulty with the legibility, clarity and availability of the HeadStart term is that although the HeadStart term and the opt-out provision were opposite each other in the four pages of the catalogue there was no reference in either to the other. The opt-out box to be ticked did not refer to the HeadStart term on the previous page nor did it explain what was involved in the HeadStart Plan. And the HeadStart term on the previous page did not refer to the possibility of opting out.
92 A further difficulty with the legibility, clarity and availability of the HeadStart term is that the provision that the "HeadStart Plan is fully refundable" is not contained in the terms and conditions in the catalogue at all. Instead, this term is contained in the opt-out box on the form which would be sent to Chrisco. Unless the consumer made a copy of the order form, the consumer who consulted the terms and conditions would not be aware that the HeadStart Plan is fully refundable. Although the ACCC did not allege that Chrisco had breached s 97(1)(b) by failing to ensure that "a copy of the agreement is given to the consumer to whom the goods are, or are to be, supplied", s 97(1)(b) emphasises the lack of transparency that arises due to the absence of this term being in the possession of the consumer who orders by catalogue.
93 In considering the contract as a whole (s 24(2)(b)), Chrisco also pointed to the provision in the Order Confirmation (Annexure 3) that "Unless you've advised us otherwise, we'll keep your payments going for any fully paid Hamper 2014 order, so that you can keep saving for next year's order. Please see above for your final payment date."
94 As I have explained, the Order Confirmation was one of the communications that constituted the contract. It was a communication of a contractual obligation upon the consumer to make payments to Chrisco. It provided the consumer with some additional clarity. But the communication did not remind the consumer that the continued payments can be refunded, without penalty, at any time that the consumer wishes before placing an order. It did not inform the consumer that the consumer could immediately notify Chrisco, if he or she wished, to cease taking payments from the consumer's account, without penalty. The lack of availability of this information in the Order Confirmation is not assisted by the use of the past tense in the statement that payments would be continued "unless you've advised us otherwise" (emphasis added).
95 I have focused above upon the considerations particular to the HeadStart term as pleaded. This was the primary focus of the parties in submissions. The evaluative exercise, however, requires the HeadStart term to be considered in the context of the contract as a whole in order to determine whether it would cause a significant imbalance in the parties' rights and obligations arising under the contract. I take into account that both the HeadStart term and the contract as a whole were designed to be convenient to the consumer. In many respects a consumer who entered into the contract with Chrisco may have sought this convenience, particularly given Chrisco's acknowledgement that the prices were generally more than retail prices. This convenience also included the lack of a charge for the collection of instalment payments and the lack of any separate packing, administration, or delivery (other than to remote areas or for oversized or overweight items) charge for items that could be selected for inclusion in a Christmas Hamper.
96 I also take into account that the HeadStart term is neither listed as an example of an unfair term in s 25 nor does it fall into any of the categories of potential unfair terms described in s 25. But neither those terms, nor those categories, are exhaustive.
97 Overall, for the reasons I have expressed, and as an evaluative assessment of all the circumstances relevant to the HeadStart term including its transparency and the contract as a whole, the HeadStart term caused a significant imbalance in the parties' rights and obligations arising under the contract.