COVID-19 has meant that weddings, parties and celebratory events are being cancelled all over the country. In many cases these events are merely postponed, but if you are a caterer, party planner or event manager, the question you need answering is ‘do I have to refund the deposit?’
Let’s start with your terms and conditions – you do have terms and conditions?
Refunds and the Australian Consumer Law
The Australian Consumer Law (ACL) governs ‘standard form’ consumer contracts for the supply of goods and services. These standard form contracts are usually:
- Prepared by the business;
- Contain a set of generic terms and conditions;
- Are not negotiated between parties; and
- Are presented on a ‘take it or leave it’ basis.
Even if both parties have read and signed the contract, ACL protects consumers against unfair terms in standard form consumer contracts. Generally, a contract term is ‘unfair’ if:
- The contract is one-sided and greatly favours the business over the consumer;
- There is no satisfactory commercial reason why the business needs such a term; and
- The consumer will suffer financial loss, inconvenience or other disadvantage if the term is enforced.
Are your terms ‘unfair’?
Unfair terms include refund clauses that require consumers who breach the contract or end it early to pay an excessive amount in compensation or cancellation charges.
Not all refund clauses are unfair. Whether a refund clause is unfair or not depends upon the facts. Factors a court may consider may be:
- What percentage of the total contract price does the non-refundable portion represent?
- When was the cancellation made – 12 months before the wedding or within thirty days of the scheduled event?
- How much work has the business undertaken in preparing for the cancelled event?
Generally speaking, the actual amount the trader is allowed to retain depends on the circumstances. The monies should compensate the trader for the time and expense devoted to the transaction but should not be so high as to constitute a penalty.
If the non-refundable deposit or cancellation fee was not stipulated in the written agreement, the business is required to refund the full amount that the consumer has paid.
Who decides if a contract term is unfair?
Only a court or State’s Civil and Administrative Tribunal (Tribunal) can decide if a contract term is unfair.
The court or Tribunal must consider:
- Whether the term meets the three conditions of unfairness (outlined above);
- How the term was expressed in the contract (for example, was it written in plain language or legal jargon? Was it hidden in the fine print or brought to the consumer’s attention?); and
- The contract as a whole (is the term reasonable when all the contract terms are considered).
The party seeking to rely on the disputed term has the onus of showing that the clause is necessary to protect its legitimate commercial interests at the time the contract was entered into. Ideally, the thought process in establishing the legitimacy of the clause is recorded in documentation and easily accessible when required. Something along the lines of:
‘This deposit is non-refundable because by entering this contract you are securing a particular date that we are not able to offer another party and we will be maintaining resources from now until then so that we are able to fulfil our obligations at that time. We consider the non-refundable deposit to be a reasonable estimate of the costs associated with maintaining this booking.’
If a court or Tribunal finds that a contract term is unfair, it is void. The term is treated as if it never existed and cannot be enforced or relied on. However, if the unfair term is removed, the contract still stands.
What law governs my terms?
You should also note that certain states have particular legislation relating to frustrated contracts.
How we can help
- We can prepare standard form terms and conditions that comply with the ACL
- We can help you if your terms and conditions are being disputed
- We can help you if you believe the non-refundable deposit clauses in a standard term contract are unfair.
Call us on 1300 654 590.