Unfair Contracts Update: PayPal’s Small Business Contracts Contain Unfair Terms

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In November 2023, significant changes to laws governing unfair contracts came into effect. In essence, the changes expanded the scope and penalties of laws prohibiting the use of certain terms that are now deemed unfair in standard form contracts. Learn more here.

Now, in a recent decision, the Federal Court has declared that standard form contracts used by PayPal Australia Pty Limited in its small business accounts breached these laws. 

PayPal has over 600,000 Small Business Accounts in Australia

The term in question was included in PayPal’s standard terms for business accounts. The clause required account holders to notify PayPal of any billing error within 60 days of fees appearing in the account statement. If the account holder did not raise a dispute within 60 days, they were deemed to accept the account as rendered and PayPal was entitled to retain any fees that it had overcharged.

PayPal used this clause between 21 September 2021 and 7 November 2023. It removed the term one day before the new Unfair Contracts regime came into effect. 

ASIC argued that the term was unfair because it allowed PayPal to retain fees that it had erroneously charged. 

The Federal Court found the term to be void from the start of the contracts and ordered that PayPal be restrained from enforcing the term. 

The Court has not yet published its written reasons. It will be interesting to follow its arguments when it does. In delivering oral reasons, the Court noted that customers were not in the same position as PayPal to manage the risk of erroneous fees. This risk was heightened because the way fees were described in account statements did not correspond to how they were described in the Product Disclosure Statement, making it harder for customers to detect incorrect fees. 

The Penalties are Real

Because PayPal amended their terms before the new regime took effect, they escaped the more severe penalties that now apply. This is fortunate for PayPal, because now the maximum penalties for using an unfair contract term would be the greater of:

  • $50,000,000; 
  • three times the value derived from the relevant breach; or, if this cannot be determined
  • 30% of the company’s turnover during the relevant period.

Penalties for individuals are smaller but still substantial.

Businesses that use standard form contracts should review those documents immediately to see if they contain any potentially unfair terms. Aintree Group Legal will be happy to help. Contact us today.