One of Australia's leading home improvement companies, Bramalco Pty Ltd, has given court-enforceable undertakings to the Australian Competition and Consumer Commission to remove a clause from the fine print of its consumer contracts.
The ACCC alleged that the clause potentially misled consumers as to their rights when cancelling the contract.
"This action follows a complaint to the ACCC by a customer of Impulse Security Shutters, a business operated by Bramalco", ACCC Chairman, Mr Graeme Samuel, said today. "The complainants, a young couple in a rural South Australian town, raised concerns regarding an order for window security shutters valued at $2,942. When they attempted to cancel the order they were told a 20 per cent ($588) penalty may apply.
"It was pointed out to them that on the reverse of the sales contract was a list of 'Conditions of Sale', one clause stating that, in the event of cancellation after any applicable cooling off period, the buyer was liable to pay 'to the Seller the costs incurred by the Seller to the date of such purported cancellation or repudiation or delay in commencement (as the case may be) plus twenty (20) per centum of the total contract price stated herein as and by way of liquidated damages and not by way of penalty' ".
The ACCC considered that the arbitrary nature of the 20 per cent flat rate meant this clause could be a penalty clause and, to that extent, may go beyond Bramalco's right to claim an amount to cover the company's loss incurred as a result of a consumer breaking the contract.
The ACCC's view is that liquidated damages would encompass any losses incurred by Bramalco directly as a result of a cancellation but would not necessarily extend to a claim covering general business costs incurred by Bramalco, such as advertising or administration.
Given that, the ACCC is of the view that Bramalco's representation to consumers as to this right to a remedy in the event of a breach of contract may constitute a misrepresentation of a right that it does not have in every instance.
The ACCC acknowledges that Bramalco has not actively enforced the clause and, after the matter being raised by the ACCC, reviewed contracts to ensure such clauses are eliminated. Bramalco has also undertaken to develop a compliance program to ensure the company's continuing compliance with the Trade Practices Act 1974.
"In agreeing to amend its contract, Bramalco has demonstrated that legal compliance and customer satisfaction are very important to its business", Mr Samuel said. "Bramalco inserted the clause in its contracts many years ago on legal advice. However, it now accepts that times change and that contracts must be regularly reviewed".
Bramalco's undertakings will ensure its consumer contracts are free from potentially misleading clauses. This corrective action is a positive step towards ensuring future compliance.
"Companies faced with substantial ACCC allegations have two choices. One is to recognise that there is a problem, sit down and try to sort it out; the other is to deny the complaint and fight the ACCC down the line. Companies that approach the ACCC to say 'we’ve got a problem and we'd like to fix it' will find the ACCC receptive".