By Katarina Klaric (Principal) and Emma Contebardo (Lawyer), Stephens Lawyers & Consultants
Negative or disparaging online reviews can result in substantial damage to a business’ reputation and also loss of revenue. Where reviews are false, defamatory or not genuine, businesses can take legal action to have the reviews taken down and claim compensation.
Some businesses have resorted to the use of non-disparagement clauses in consumer contracts and small business contracts to stop the publication of damaging reviews. However, the Australian Competition and Consumer Commission (“ACCC”) views such clauses as “unfair “ contract terms under the Australian Consumer Law if they prevent or limit a customer from making genuine, relevant and lawful public comments about goods or services.
The ACCC recently accepted a Court enforceable undertaking from Wisdom Properties Group Pty Ltd (“Wisdom”) to not enforce or rely upon non-disparagement clauses in its existing home building agreements and not to include such clauses in future agreements for a period of three (3) years.[i] Wisdom admitted that the clauses were unfair terms within the meaning of sections 23 and 24 of the Australian Consumer Law.
The alleged unfair contract terms
Since about October 2008, Wisdom has been providing customers with a standard form Home Building Agreement which contained non-disparagement clauses, which prohibited Wisdom’s customers from publishing any material about the services provided by Wisdom under the agreement without first obtaining Wisdom’s consent and the content being approved by Wisdom. The agreement also required the customers to indemnify Wisdom for any losses arising from unauthorised publications.
Wisdom relied upon these clauses to prevent customers from publishing reviews on an online website, ProductReview.com.au. Wisdom also claimed that ProductReview.com.au and any other websites that were publishing customer reviews about the services provided by Wisdom, were aiding and/or abetting customers to breach non-disparagement clauses of the Home Building Agreement.
ACCC’s considerations about Wisdom’s non-disparagement clauses
The ACCC considered that the non-disparagement clauses were unfair contract terms as they prevented / limited customers from making any negative public comments about their experiences with Wisdom with the building of their homes.
The ACCC Commissioner Sarah Court has stated that “consumers are increasingly relying on reviews when making purchase decision and businesses must not prevent consumers from seeing genuine, relevant and lawful reviews by their customers through standardised contract terms”[ii] (emphasis added).
She also stated that “any standard form contract terms that prevent or limit a customer from making public comments about goods or services are likely to be unfair under the Australian Consumer Law”[iii].
The Australian Consumer Law’s unfair contract term provisions
Section 23 of the Australian Consumer Law provides that a term of a consumer contract or a small business contract is void if the term is unfair and the contract is a standard form contract. The contract will continue to bind the parties if it is capable of operating without the unfair term.
A contract will be a “consumer contract” if it involves the supply of goods or services or a sale or a grant of an interest in land to an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption[iv].
A contract will be “small business contract” if it involves the supply of goods or services or a sale or grant of an interest in land and at least one party to the contract is a business which employs less than 20 persons and either:
- The upfront price payable under the contract does not exceed $300,000; or
- The contract has a duration of more than 12 months and the upfront price payable under the contract does not exceed $1million[v].
A term of a standard form contract will be “unfair” if:
- The term would cause a significant imbalance between the parties’ rights and obligations arising under the contract; and
- The term is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term (i.e. the business); and
- The term would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.[vi]
Balancing the competing interests of businesses and consumers
Although the ACCC has warned businesses that the use of contract terms that prevent consumers from making public comment will attract ACCC attention, whether a court will hold a non-disparagement clause to be an “unfair” term under Australian Consumer Law is still to be determined.
Businesses should be able to protect their business reputation from the publication of on-line reviews that are false or defamatory or not genuine. A business’ reputation and associated goodwill is a legitimate business interest that businesses should be able to protect whether by contract or taking appropriate legal action. This needs to be balanced against information being available to consumers, so that they can make an informed purchasing decision. Reviews that are not genuine, relevant and lawful do not serve such purpose.
Consumers using online forums to publish online reviews about products or services expose themselves to possible legal action for defamation or the tort of injurious falsehood, where their review is false, defamatory or not genuine.
Disclaimer: This Article is not intended to replace obtaining legal advice.
Copyright: © June 2018, Stephens Lawyers & Consultants
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[i] Wisdom Properties Group Pty Ltd s. 87B Undertaking to the ACCC dated 5 June 2018 <https://www.accc.gov.au/public-registers/undertakings-registers/wisdom-properties-group-pty-ltd>.
[ii] ACCC, ‘Wisdom to remove unfair contract terms’ (Media Release, 104/18, 6 June 2018).
[iii] ACCC, ‘Wisdom to remove unfair contract terms’ (Media Release, 104/18, 6 June 2018).
[iv] S23(3) ACL
[v] S23(4) ACL
[vi] ACCC, Unfair Contract Terms, Australian Competition and Consumer Commission <https://www.accc.gov.au/consumers/contracts-agreements/unfair-contract-terms>.