Unfair Contract Terms and Misleading Representations in the Car Rental Market

Unfair Contract Terms and Misleading Representations in the Car Rental Market

In a recent alert, we commented on the ability of unfair contract terms legislation to change the basis upon which various industry sectors contract with their customers.

Two very recent examples involving the car hire industry illustrate this point. The instances involve Hertz Australia Pty Ltd and Europcar Australia. 

Hertz case

On 5 April 2016, the Australian Competition and Consumer Commission (ACCC) accepted a court enforceable undertaking from Hertz following its investigation into Hertz’s vehicle damage charging process.  Hertz had two main difficulties. Hertz made representations to some customers that:

  • damage to vehicles hired occurred during the customer’s period of rental, when in fact damage was pre-existing. Hertz incorrectly invoiced those customers for the damage
  • the amount charged to repair damaged vehicles was the actual repair cost to Hertz, when it was not. Hertz received repair discounts which it did not disclose nor did it rebate those discounts to customers.

As part of the enforceable undertaking, Hertz acknowledged that its conduct was likely to contravene the Australian Consumer Law relating to prohibitions on misleading or deceptive conduct and false and misleading representations. As part of the undertaking, Hertz agreed to refund affected consumers and to take other steps to address ACCC’s concerns.

Europcar case

The second decision is the Europcar case. That involved allegations of “unfair contract terms” as well as allegations of false or misleading representations.  The ACCC commenced action against Europcar in the Federal Court of Australia in 2014 seeking a series of declarations. ACCC reported in a Media Release issued on 19 April 2016 that the Federal Court had declared a number of the terms in Europcar’s 2013 standard rental agreement to be unfair and therefore void. Europcar was also ordered to pay a penalty of $100,000 for making false or misleading representations about consumers’ liability in the event of vehicle damage.  The particular offending clauses in the Europcar agreement included:

  • holding consumers liable for vehicle loss or damage regardless of whether the consumer was at fault
  • holding consumers liable for vehicle loss or damage when they breached the rental agreement no matter how trivial the breach was or whether it had any causal connection to the loss or damage caused
  • misrepresenting the extent of customers’ liability for vehicle accident damage in particular by representing that a “damage liability fee” of $3,650 was the extent of customers’ liability, when in fact it was not where there was overhead, under body or water damage to the vehicle involved.

In the words of ACCC Deputy Chair Dr Michael Schaper:

“The decision is an important one, as it makes it clear to car rental companies that they cannot simply rely on contractual terms to hold consumers liable for any and all damage that may occur during a rental period, regardless of the circumstances. Terms in standard form rental agreements must be fair.”

Europcar has amended its standard rental agreement to remove these unfair terms and changed its website (Australian Competition and Consumer Commission v CLA Trading Pty Ltd [2016] FCA 377. The likely effect of these two decisions will be that car rental companies will re-examine their standard terms and conditions of rental and excise from those terms any provisions similar in nature to the offending provisions in both the Hertz and the Europcar cases, as well as any other terms that may be considered to be unfair.