Accrue Membership Pty Ltd v Suntana (Civil Claims) [2018] VCAT 1403 (14 September 2018)

Last Updated: 18 September 2018

VICTORIAN CIVIL AND ADMINISTRATIVE TRIBUNAL

CIVIL DIVISION

CIVIL CLAIMS LIST

VCAT REFERENCE NO. C4405/2018

CATCHWORDS

Contract for the provision of services around the acquisition of real estate for investment purposes – claim for fees – Australian Consumer Law sections 23, 24, 25, 26 – ACCC v JJ Richards & Sons Pty Ltd [2017] FCA 1224.

APPLICANT	Accrue Membership Pty Ltd ABN: 43 399 889 494
FIRST RESPONDENT SECOND RESPONDENT	Wanlapa Suntana Taweesak (Alex) Poparisut
WHERE HELD	Melbourne
BEFORE	Deputy President I. Lulham
HEARING TYPE	Hearing
DATE OF HEARING	10 September 2018
DATE OF ORDER	14 September 2018
DATE OF REASONS	14 September 2018
CITATION	Accrue Membership Pty Ltd v Suntana (Civil Claims) [2018] VCAT 1403

ORDER

The Applicant’s claim is dismissed.

I. Lulham Deputy President
APPEARANCES:
For Applicant		Mr. E. Spateri, company representative
For Respondents		In person, with interpreter Ms. N. Phengpan

REASONS

1. This is a case about unfair contract terms.

2. The Applicant’s position is that it has a written contract with the Respondents pursuant to which it agrees to provide services over a period of 10 years, in return for a contract price of $6,545.00. The Applicant has received a deposit of $1,000.00, remains ready willing and able to supply the services, and sues for the balance of $5,545.00.

3. The Respondents say that they are content for the Applicant to keep the $1,000.00 in full satisfaction of its claim – although they doubt it has performed services to that value – but that they should not be held liable for the balance. This is put on several different bases, which can be summarised as follows:

(a) the written contract is complex and the Applicant’s representative Ben did not adequately explain it before having the Respondents sign;

(b) the substance of the agreement was that the Applicant would provide advice about acquiring real estate for investment purposes, and that whilst the Applicant suggested two possible properties to the Respondents, those properties were most unsuitable;

(c) in order to purchase the properties the Respondents would borrow money. Part of the represented benefit of the investment was that this borrowing would create “negative gearing”, allowing the Respondents to deduct the cost of interest from their taxable income, whilst anticipating a capital growth in the value of the property. When an application for finance was prepared by the Applicant, the Respondents found that it was prepared on the basis that the Respondents would mortgage their own home, and not just the investment property, and that some important details in the application were incorrect. As a result the Respondents did not sign the application;

(d) the Respondents have advised the Applicant on a number of occasions that they wish to terminate the agreement. The Applicant has not responded, and has instead issued this Tribunal proceeding.

4. In reply to these points, the Applicant says that its representative Ben is required to strictly adhere to a template in terms of the information to be given to potential clients, and that by following the template Ben gave adequate explanations and did not make any inappropriate representations^[1]. Further, where the Respondents say that the properties recommended to them were unattractive or that the application for finance was incorrect, the Respondents have overlooked the fact that these services were provided by other companies and not by the Applicant.

5. It is quite clear that the Applicant’s contract documents have been professionally prepared and that they contain text which has been carefully drawn to protect the Applicant. If the law was purely concerned with the express terms of contracts, the Applicant could expect to succeed. However the law on unfair terms in contracts is highly relevant to the proceeding.

6. Leaving aside that legislation, though, one is compelled to ask why, commercially, an entity which promises to provide services over a period of 10 years insists on payment of 100% of the consideration on the day the contract is entered into. Why would it not charge 10 annual fees each of 10%? Or fees for specific services? Or monthly fees?

The contract

7. The contract is set out in the form of a bound booklet. The heading of the booklet is “Accrue Membership”. The use of the word “membership” is interesting, in that the Applicant is selling services for a fee, whereas “membership” connotes that the consumer is a member of a club. “Membership” is an inaccurate description of the relationship between the Respondents – consumers – and the Applicant.

8. On pages 1 and 2 of booklet there is a description of the 11 membership benefits promised by the Applicant. They all relate to potential investment in real estate. Some of them are access to services to be supplied by third parties. Unless those third parties are particularly special, this provision of access is an illusory benefit, because the Respondents could simply pick up the telephone and find any number of suppliers. Some are to the effect that the Applicant will pay the fees of third parties for the provision of services to the Respondents. The 11 benefits are:

1. referral by the Applicant to a third-party provider who may supply to the Respondents coaching in how to use software to monitor the Respondents’ liability to the secured lender;

2. payment by the Applicant of the fees charged by an affiliated solicitor or conveyancer in respect of the acquisition of investment properties “through Accrue membership”;

3. payment by the Applicant of the fees charged by an affiliated quantity surveyor in preparing a depreciation schedule for one year;

4. payment by the Applicant of one year’s premium on a landlords’ insurance policy, in respect of one investment property purchased “through Accrue as part of your membership”;

5. “access to a selection of investment properties that are not usually available on the open market”;

6. a risk assessment by a financial adviser on the Applicant’s panel;

7. access to the Applicant by phone or email;

8. regular emails with property news information;

9. regular newsletters;

10. access to an independent third party financial adviser for a review of the Respondents’ current superannuation position; and

11. referral to an independent third-party consultant for a free annual portfolio review.

9. The payment of charges by the Applicant under benefits 2, 3, 4 would be to the advantage of the Respondents. The provision of advice under benefits 1, 6, 10, 11 apparently at no charge, would also be of value.

10. Page 3 of the booklet is a sheet headed “Membership Agreement and Application Form”. It contains some information in favour of the Respondents, being a 10 day cooling off period, and a recommendation that the Respondents read the Membership Agreement and Terms and Conditions carefully and ensure they understand them, and seek advice from a lawyer financial adviser accountant before signing.

11. The same page also contains 3 options in relation to the payment of the Applicant’ fees: full payment of $6,545.00 including GST after 10 days; a deposit of $1,000.00 after 10 days then $5,545.00 within a further 45 days; or a deposit of $1,000.00 after 10 days then 3 monthly payments of $1,848.00. On first reading it seems to be in the Respondents’ interests to

pay as slowly as allowed, because the fee remains the same (and in fact the last option is $1.00 cheaper than the others) so that it is as if the Respondents are receiving an “interest-free loan” by deferring full payment of the fee. Clearly the deferral of payment until after 10 days is designed to allow the consumer to cool off before having made any payment to the Applicant.

12. Terms and Conditions commence on page 7. Of concern here are the following:

(a) Clause 1.2 which allows the Applicant to amend the terms from time to time, and give the Respondents no claim against it by reason of any changes. This is repeated, essentially, in clause 6.

(b) Clause 3.1 which says:

Your Membership will commence on the Start Date for an initial commitment period of 12 months (“Minimum Commitment Period”), upon the expiry of which the commitment period will automatically renew annually for a maximum period of 10 years (“Maximum Commitment Period”), unless your Membership is terminated in accordance with this Agreement. At the end of the Maximum Commitment Period your membership will terminate indefinitely.

“Start Date” is not defined. I interpret it to mean the date the contract is signed, and not the potentially later date on which the consumer pays the fee. This is because clause 3.2 envisages the Applicant performing some services before it receives payment.

(c) Clause 3.2 which provides that the Respondents could cancel the membership –

within 10 business days starting on the date you sign the Agreement (“Cooling Off Period”). If you do so, we will refund any Membership Fees which we have received from you during this period. If you have used your membership during the Cooling off Period, we will refund the amounts set out above less a reasonable administration charge.

Whilst it is noted that the fees to be refunded under clause 3.2 are only those received by the Applicant during the cooling off period, the Membership Agreement and Application Form anticipates fees being paid only after the cooling off period has expired. In this case the

Respondents signed the contract on 12 July 2017 and paid their deposit of $1,000.00 on 27 July 2017, after the cooling off period had expired. There is no indication of what a “reasonable administration charge” would be.

(d) Clause 4.1 which includes –

the Membership Fees are set out in the Membership Application Form. Other than as stated in clause 3.2, the Upfront Fees are non-refundable and are payable by you when you sign the Agreement. [The Applicant] may at their sole and absolute discretion elect not to process the Upfront Fee before the expiry of the Cooling off Period.

“Upfront Fee” is not defined. I interpret it to mean 100% of the fee, whether it is paid in one payment or in instalments.

(e) Clause 4.2 which says if the Respondents do not pay the membership fees the Applicant has various rights, including charging penalty interest and suing the Respondents, and that the Respondents indemnify the Applicant in respect of all charges incurred.

(f) Clause 5.1 which says –

The Membership entitles each member to claim the Membership Benefits, which [the Applicant] elects to make available to you from time to time.

The Membership Benefits are:

(a) provided to you by [the Applicant] as referrer/agent for third parties (“Provider”); and

(b) subject to availability and the terms and conditions of the Providers.

(g) Clause 5.3 which says the Applicant makes no guarantees regarding the goods or services supplied by Providers.

(h) Clause 9 which provides that if the membership is terminated by mutual agreement or because the Respondents are in breach of a term, all money paid to the date of termination is deemed to be the exclusive property of the Applicant.

(i) Clauses 11 and 12 which seeks to exclude the Applicant from liability, to the extent the law allows.

The facts

13. The facts are simple and require little description. The Respondents received a “cold call” from a marketing company – not directly from the Applicant - and subsequently on 16 June 2017 the Respondents met an “in home consultant”. That person met the Respondents in their home, and on their instructions made an appointment for them to meet Ben of the Applicant on 12 July 2017. The “in home consultant” worked for Active Consulting Pty Ltd, which charged the Respondents $275.00 for arranging the appointment with Ben. The $275.00 fee was non-refundable. Active Consulting Pty Ltd had the Respondents sign a contract with it, which contained 9 express clauses under the heading Statement of Acknowledgement of Understanding. Active Consulting Pty Ltd gave the Respondents a checklist of the information they were to gather together before they had their meeting with Ben – most of this information relating to their assets, income and liabilities.

14. On 12 July 2017 the Respondent had a meeting of approximately 2 hours’ duration with Ben, in which he presented the services offered by the Applicant. The Respondents signed the contract and paid their deposit of $1,000.00 on 27 July 2017.

15. On 28 July 2017 Accrue Real Estate Pty Ltd – which the Applicant’s representative emphasises is a different entity – wrote the Respondents what the Applicant calls a “letter of congratulations”, congratulating the Respondents on their decision to become Accrue Members and welcoming them as valued clients. The letter said that the Respondents had elected to pay $1,000.00 immediately and the outstanding balance on 27 October 2017.

16. Enclosed in the letter was a four-page brochure entitled “So What Happens Next?”, setting out 14 matters. Included in this document were clauses saying that a property consultant will email the Respondents so that the Respondents can engage the consultant to start sourcing and introducing properties (para 3); the property consultant will arrange a tour of 2 or 3 different types of properties, to be shortlisted for the Respondents’ consideration (para 5) – “Some of these properties will be recently completed, some under construction and some may be just about to start construction” – ; and, assist the Respondents to make a written offer for a property, if the Respondents choose to do so (para 6). In paragraphs 7 and 8 the document explains that Accrue Real Estate does not own any property that may be introduced to the Respondents, and that any construction time frame that Accrue Real Estate gives is only a guide, and the time is governed by the relevant building contract.

17. In September 2017 All Access Finance, a financial advisor – which the Applicant’s representative emphasises is a different entity to the Applicant – presented to the Respondents for signature an application to a bank for finance. The Respondents gave evidence that they did not sign the document because they considered that it had some incorrect details in it. In short, if signed it would be seeking a loan facility of $449,000.00 as a variable rate residential investment home loan then at an interest rate of 5.8% per annum, on a 30 year term.

18. On 13 September 2017 the Respondents wrote to the Applicant seeking to terminate the contract. Whilst they received some replies from the Applicant, they were fairly standard form reminders about the fees, rather than correspondence which engaged with the question of whether the contract was to be terminated. On any view, the Respondents’ correspondence to the Applicant was too late to trigger any rights under the cooling off period.

19. Accrue Real Estate prepared two small booklets on two properties which were suggested for the Respondents, a three-bedroom dwelling in a new estate in Tarneit at a price of $452,405.00, and a three-bedroom townhouse in an Owners Corporation in Wyndham Vale at a price of $399,000.00. The Respondents were taken on a property tour, and did not consider either of these properties to be attractive. They were concerned that the dwelling was incomplete and that construction of the townhouse had not commenced and so could only be purchased “off the plan”. They were concerned that the dwelling was in an estate of hundreds of properties, which they considered might make it difficult to rent.

20. And so, the parties are in the position where the Applicant says it is entitled to its fee and that it stands ready to provide services over the 10 year term of the contract, whereas the Respondents say they have received no value and that whilst they are prepared to allow the Applicant to retain their deposit of $1,000.00 they want the contract to be terminated.

21. The Applicants did not call any expert evidence in relation to the suitability of the two properties suggested to them by Accrue Real Estate. The Tribunal is in no position to form a view on whether the prices of $452,405.00 or $399,000.00 represented good value. Nor can the Tribunal reach any conclusion on whether either property would be hard to rent – the Respondents being concerned with the amount of potential competition from other properties, but the Applicant referring in its written material to

the planned population growth of the outer west of Melbourne. Similarly, whilst it is legitimate to ask what value is given to a “member” by receiving referrals to service providers, when a potential investor in real estate is perfectly capable of finding its own estate agents mortgage brokers and the like, the membership benefits numbered 2, 3, 4 and 1, 6, 10 and 11 seem to provide some value to the Respondents. It certainly cannot be said that the Respondents have been conned into parting with money for no benefit.

Unfair contract terms

22. Section 23(1) of the Australian Consumer Law (Victoria) provides that a term of a consumer contract or small business contract is void if the term is unfair and the contract is a standard form contract.

23. In some contexts under the Australian Consumer Law (Victoria), the basis on which the consumer acquires goods or services can be important. Provisions which protect persons who buy items for household use may not protect a business proprietor who buys items for resupply by the business. However, because section 23(1) applies to both consumer contracts and small business contracts, the Respondents are not disadvantaged because they were considering investing in real estate.

24. “Standard form contract” is defined in section 27, and I have no doubt that the Applicant’s contract falls within the definition. It is presented in a bound booklet, and was presented by Ben as a document which could be accepted by being signed but whose terms could not be renegotiated.

25. Sections 24 and 25 define what is meant by unfair. Section 26 provides that a term that defines the main subject matter of the contract is unaffected by the provisions. This means that the price agreed to be paid cannot of itself be attacked as being unfair under these provisions: see in particular sections 26(1)(b) and 26(2). It is not a matter of a Tribunal coming to the view that a consumer has done a bad deal, and then setting aside that deal on the basis that it is unfair.

26. Section 24(1) says:

A term ... is unfair if

(a) it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and

(b) it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and

(c) it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on. (emphasis added)

27. The words I have set out in italics all leave room for analysis and argument: as to whether a clause causes an imbalance which is not significant, whether a clause is necessary but not reasonably necessary, or whether it protects an interest which is not legitimate.

28. Section 25 sets out 13 examples of unfair terms.

29. In ACCC v JJ Richards & Sons Pty Ltd^[2] the Federal Court of Australia considered whether a waste disposal company had included unfair terms in its contracts with its customers. The case was decided on the basis of agreed facts and admissions, and was directed to a civil penalty being imposed on Richards. It is different in form, then, from the current case in which the Respondents defend the Applicant’s claim for fees. The Federal Court held that clauses in Richards’ contract to the following effect were unfair: amongst others, an automatic renewal clause; a price variation clause which enabled Richards to vary the price; an indemnity clause in which the customer indemnified Richards in respect of any liability arising from its performance of its services; and a clause which provided that the customer could not terminate the contract if it owed any money to Richards.

30. Turning to the Terms and Conditions commencing on page 7 of the Applicant’s booklet, to which I referred above, I conclude as follows:

(a) clause 1.2 and clause 6, which allow the Applicant to amend the terms from time to time, and give the Respondents no claim against it by reason of any changes, are unfair. As Moshinsky J said in ACCC v JJ Richards at paragraph [56] in relation to a clause that allowed Richards to unilaterally increase the price of its services for any reason – “It creates a significant imbalance because there is not a corresponding right given to the customer to terminate the contract or obtain a change in the scope or scale of the service provided by JJ Richards or a lower price”. Clauses permitting unilateral variation are one of the examples given in section 25 (d) of the Australian Consumer Law.

These two clauses, which allow the Applicant to amend the terms of the contract but give no corresponding right or compensation to the Respondents, are self-evidently unfair.

(b) Clause 3.1 has the 12 month Minimum Commitment Period, and the automatic renewal annually for a maximum period of 10 years is unfair.

This clause is somewhat strange given that the Applicant’s representative in the hearing consistently referred to the contract as a “10 year contract”. Perhaps the Applicant or its advisers thought a 10 year contract term would be bound to be struck down as being unfair, and so used the device of renewable periods. In any event, Moshinsky J said in ACCC v JJ Richards at paragraph [56] that the automatic renewal clause in that case could result in Richards’ customers inadvertently missing the opportunity to terminate the contract and therefore remaining contracted to Richards for extensive periods with no opportunity to change to an alternative supplier during the term of the renewed contract. In the context of the whole contract, the automatic renewal clause created a significant imbalance in the respective rights and obligations of the parties. So it is in the current case. I conclude that clause 3.1 is unfair.

(c) Clause 4.2 which says if the Respondents do not pay the membership fees the Applicant has various rights, including charging penalty interest and suing the Respondents, and that the Respondents indemnify the Applicant in respect of all charges incurred. This clause is clearly unfair, because it would permit the Applicant to retain Melbourne’s most expensive QC to act in a proceeding seeking the fee, and then require the Respondents to pay the legal fees. It is not to the point that the Applicant did not engage a legal practitioner in this case. The indemnity clause is unfair.

(d) Clause 5.1 which says the Respondents could “claim” the Membership Benefits which the Applicant “elects” to make available from time to time.

Frankly, clauses which state that one party may “elect” what to give the other party have been unenforceable since long before legislation on unfair terms^[3]. This sort of clause is given as an example of an unfair term, in section 25(g) of the Australian Consumer Law. It is unfair.

(e) Clause 5.3 which says the Applicant makes no guarantees regarding the goods or services supplied by Providers.

The unfair terms provisions make clear that the contract must be looked at as a whole. The benefits which the Applicant is selling to the Respondents includes referrals to third-party suppliers. If one reads clause 5.3 with clause 5.1(b), the benefit becomes illusory. Clause 5.3 is unfair.

(f) Clause 9 which provides that if the membership is terminated by mutual agreement or because the Respondents are in breach of a term, all money paid to the date of termination is deemed to be the exclusive property of the Applicant.

Clause 9 is unfair. At common law, if a contract is terminated because one party commits a serious breach, the innocent party is entitled to damages. As such, the common law may result in a service provider being able to retain fees as compensation for a client inappropriately terminating a contract of retainer. However clause 9 provides that the Applicant retains all of the money even if the contract is terminated by agreement. It is unfair.

(g) Clauses 11 and 12 which seeks to exclude the Applicant from liability, to the extent the law allows. These clauses have been carefully drafted. I do not propose to dwell on them because nothing has happened which would arguably trigger their use. If, for example, the Respondents had purchased as an investment property some real estate in an outer suburb, which they could prove to have been purchased for too high a price and which was unsuitable as a rental property, and which led to the Respondents incurring damages, then there may be a point in considering whether the Applicant was excluded from liability. But those issues have not been raised in this case.

31. Sections 23(1) & (2) provide that the unfair terms are void, but that the contract continues to bind the parties if it is capable of operating without the unfair terms.

32. I conclude that the parties’ contract is incapable of operating once the unfair terms are recognised as being void. Clause 5.1 ceases to entitle the Respondents to anything – even the services which the Applicant purportedly elects to make available. Clause 3.1 ceases to create a term during which the Respondents are entitled to member benefits. Clause 9 ceases to sanction the Applicant keeping the Respondents’ money.

33. The Respondents did not bring a counterclaim and said on several occasions during the hearing that they were content for the Applicant to keep their $1,000.00 deposit. In those circumstances I do not interfere in relation to that sum. I will, however, order that the Applicant’s claim for the $5,545.00 be dismissed.

I. Lulham Deputy President 14 September 2018

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^[1] Ben did not attend the hearing but by affidavit swore he had not made any inappropriate promises to the Respondents.

^[2] [2017] FCA 1224.
^[3] See for example Bailes v Modern Amusements Pty Ltd [1964] VicRp 56; [1964] VR 436 – concerning a promise to repay a loan when the debtor considered it was in a position to do so.