Home security provider to refund customers and remove unfair terms

On 4 November 2020, the Australian Competition and Consumer Commission ("ACCC") accepted a court enforceable undertaking from home security provider Tyco Australia Group Pty Ltd, trading as ADT Security ("ADT"), to refund consumers who were incorrectly invoiced, and to remove or vary certain unfair contract terms from its residential customer service agreement.

Since 2016 ADT's standard form 'customer service agreements' with residential consumers for the supply and installation of home security systems ("Agreement") included a provision allowing customers to terminate the Agreement at the conclusion of the initial term of the contract by giving 30 days' written notice.  It was ADT's process, however, not to act on this written notice until the company had spoken directly with the customer.  If ADT was not able to contact the customer after five days, ADT disregarded the notice and treated the Agreement as if it remained on-foot.  After the notice period elapsed ADT continued to supply services and invoice the customer for those services.

Misleading representations and conduct

The ACCC considered that by continuing to issue invoices once a customer had terminated their agreement, ADT had:

• made false or misleading representations to consumers that it had a right to payment for services when in fact ADT had no such right in contravention of the ACL's prohibition on false representations concerning the existence or exclusion or effect of any condition, right or remedy (section 29(1)(m) of the Australian Consumer Law ("ACL")); and
• also engaged in misleading or deceptive conduct in contravention of the general prohibition on such conduct (section 18 of the ACL).

Unfair contract terms

Additionally, the ACCC alleged that the Agreement contained the following unfair contract terms (which are deemed by the ACL to be void and unenforceable):

• Fee Increase Clause: which allowed ADT to unilaterally increase any fee payable under the contract after the first 12 months of the initial term; and
• Unilateral Variation Clause: which allowed ADT to vary the Agreement after providing one month's written notice to the customer.

The ACCC considered that the Fee Increase and Unilateral Variation Clauses were unfair because they caused a significant imbalance in the parties' rights and obligations, were not reasonably necessary to protect ADT's legitimate interests and caused detriment to customers if ADT relied on them. 

Exit fee

Further, the Agreement:

• required customers who terminated their Agreement within the initial term to pay an Exit Fee, calculated according to a formula set out in the Agreement; and
• provided, in some instances, that where a customer terminated the Agreement the customer had to pay a decommissioning fee for ADT equipment installed at their home (Decommissioning Fee). The quantum of the Decommissioning Fee was not set out in the Agreement.

The ACCC considered that the costs associated with the Exit Fee and Decommissioning Fee were not adequately disclosed to customers prior to entering into the Agreement, or prominently stated in the terms of the Agreement itself.

Undertakings

To resolve the ACCC's concerns, ADT provided a three year court-enforceable undertaking to the ACCC in which it admitted the above contraventions and undertook to, among other things:

• implement and maintain a redress program for affected customers;
• amend the Agreement to rectify the existing unfair terms and improve transparency;
• inform affected customers that ADT will waive the Exit Fee and Decommissioning Fee; and
• implement a compliance program.

Comment

Businesses should carefully review their standard form contracts for compliance with the unfair contract term regime and examine their internal processes for managing those contracts with customers entering into standard form contracts with customers, to ensure they are not including or attempting to rely on potentially unfair terms, or employing misleading or deceptive practices to retain customers.  The ACCC is very active in this space – it has taken a number of enforcement actions against companies who use standard form contracts with terms it regards as unfair.  Further, the Australian Government is actively pursuing reform of the current unfair contract term provisions to make unfair contract terms unlawful and give courts the power to impose a civil penalty, rather than the current regime which merely deems such terms void and unenforceable.

With thanks to Veronica Murdoch of Ashurst for her contribution.