Earlier this year, a class action was filed in the Federal Court of Australia, against Thorn Australia Pty Ltd t/as Radio Rentals (Radio Rentals) on behalf of customer and lead plaintiff, Ms Casey Simpson, alleging that Radio Rentals' published various misleading or deceptive advertisements promoting its 'rent, try and buy' product offering. It is estimated that this class action may cost Radio Rentals as much as $50 million with up to 200,000 financially vulnerable consumers affected across Australia.

What's happened?

Radio Rentals is an Australian company in the business of renting, leasing and selling household and electrical goods. It operates a national network of 90 outlets across Australia. Since at least 28 March 2011, Radio Rentals has advertised and promoted its ‘Rent, Try, $1* Buy’ offering to consumers in pamphlets, posters and online (Marketing Material).

The claimants allege that in its Marketing Material, Radio Rentals repeatedly represented that consumers could rent specific goods under a rental contract, try those goods and then buy those same goods for $1 at the end of the contract period (Representation). This Representation was repeated in the rental contract, however, the terms and conditions of the contract did not automatically entitle consumers to buy the goods that they were renting for $1. Rather, the rental contracts provided that the consumer could buy ‘similar’ goods, with the onus being on the consumer to make a written offer to Radio Rentals to purchase the goods (for a price agreed by Radio Rentals), failing which the consumer could be charged rental for the goods indefinitely. In some cases, the rental payments charged by Radio Rentals are said to have exceeded the retail value of the goods by up to 700 percent.

Contraventions of the ASIC Act 2001

The claimants assert that this conduct contravened a number of provisions of the ASIC Act 2001:

• Misleading and deceptive conduct — the claimants allege that they were misled or deceived by the Representation, which caused them to enter into their respective rental contracts with Radio Rentals

• Unfair Contract Terms — the claiments allege that terms in the rental contract dealing with the ‘right to buy’ are unfair given that they allegedly:
  • caused significant imbalance between the parties, particularly where Radio Rentals was permitted to vary the contract unilaterally in a number of circumstances, including terms dealing with the amount, and frequency, of payments
  • targeted vulnerable consumers (largely those who were recipients of Centrelink Payments)
  • were not reasonably necessary to protect Radio Rentals legitimate interests
  • caused detriment to each claimant given the costs of goods were significantly inflated
  • were not transparent about the length of the rental contract and the effect of the Representation.

• Unconscionable Conduct — the claimant allege that Radio Rentals’ conduct in entering into the rental contracts was unconscionable due to:
  • the unequal bargaining position of the claimants and Radio Rentals
  • many of the claimants were vulnerable
  • Radio Rentals targeted vulnerable consumers by providing an opportunity to ‘cater for consumers who may find themselves in challenging circumstances,’ as disclosed in its 2014 Annual Report
  • Radio Rentals took advantage of the vulnerable consumers by using unfair tactics in its dealings including the use of lengthy and complex contract documents and making the misleading Representation
  • the unfair contract terms were not necessary to protect Radio Rentals' interests.
  • requiring the claimants to enter contracts that were inconsistent with the Representation.

The claimants are seeking compensation and refunds, a declaration that the unfair terms of the rental contract are void and orders varying the terms of each rental contract to enable each person that has entered such a contract to purchase the goods at $1.

Legal implications

This is one of (if not the) first class action in Australia dealing with unfair contract terms and unconscionable conduct. As such, it will be interesting to see how the Court deals with the claim and, if the claimants are successful, how it will use its wide remedial powers to address any unfairness or unconscionable conduct. If both of these claims are made out then, in our view, the Court will seek to remedy the effect of the conduct by attempting to place the claimants in the position that they would have been in if the rental contract had matched the Representation. In some cases, that will mean significant refunds to consumers.

As to whether Radio Rentals will be able to successfully defend the claim, at the time of writing, Radio Rentals hadn’t yet filed a defence. As such, it is difficult to predict what approach it intends to take when responding to the claim. In our view, a number of the allegations made, however, seem likely to be made out, including that:

• the Representation was made
• there was a significant imbalance in the parties' negotiating power
• any ‘fine print’ qualifications in the contract lacked transparency, came too late and did not do enough to counter the very belief in the minds of consumers created by the Representation.

Whether or not this is enough for the claimants to succeed on all aspects of their claim remains to be seen. Nonetheless, the case is an excellent example of the risks that can arise if businesses are not fully transparent with its customers or where they seek to rely on unusual, unexpected or unfair terms in their consumer contracts.

The first case management hearing will be held in the Federal Court in Sydney on 16 August 2017.