Small Business Wins Contract Dispute With PayPal

The Federal Court of Australia has ruled that a clause used by PayPal Australia Pty Limited in its standard form contracts with small businesses was unfair.

The Court found that the clause was unfair because it had the effect of allowing PayPal to keep the fees it had “erroneously charged” if the small business did not notify PayPal of the error within 60 days after the charge appeared on its account statement.

The disclosures apply to small businesses that opened a PayPal business account between September 21, 2021 and November 7, 2023. As of June 30, 2023, more than 600,000 small businesses had PayPal business accounts.

PayPal agreed that the clause was unfair and consented to the statements, having voluntarily removed the clause from its contracts on November 8, 2023.

The court declared the unfair term void from the outset of the contracts and ordered that PayPal is not permitted to apply, rely on or enforce the term in its contracts with small businesses.

Shortly after the July 4 hearing, Justice Moshinsky delivered his oral reasons. He concluded that, unlike PayPal, small businesses were not able to manage the risk of incorrect or excessive billing.

His Honour also found that each small business had only 60 days to inform PayPal in writing of any erroneous deduction of fees or charges in circumstances where the account statements did not describe the different types of fees – or how they were calculated – in a way that was readily reconcilable with how those fees were described in the product disclosure statement (PDS).

His Honour also found that PayPal was not aware of any instance where it had caused loss or damage to a consumer by relying on the error fee clause and ASIC’s investigation found no instance where PayPal had acted in this way.

“ASIC is dedicated to protecting consumers and small businesses from unfair contract terms and ensuring that all financial services providers use fair contract terms,” Deputy Chair Sarah Court said.

“Today’s decision is a reminder to all businesses that unfair contract terms in small business standard contracts will not be tolerated and that ASIC will take decisive action, where appropriate, to protect the rights of consumers and small businesses.”

The court also ordered PayPal to pay ASIC’s legal costs. PayPal has cooperated with and voluntarily assisted ASIC during its investigation and has also cooperated in the resolution of these proceedings.

The Court has not yet published its written reasons.