A business that sells digital advertising services to small businesses will be forced to defend itself in court after the Australian Competition and Consumer Commission initiated legal proceedings alleging the company engaged in unconscionable conduct.
The ACCC has commenced proceedings in the Federal Court against Multimedia International Services, which trades as The Community Network.
The Community Network sells advertising space to small businesses, which appears on branded LCD screens in locations such as fitness centres, newsagencies and shopping centres.
The consumer watchdog said in a statement today it will argue before the court that The Community Network acted unconscionably in relation to two small businesses, which it allegedly refused to release from contracts, despite not providing the services promised.
The ACCC alleges The Community Network then pursued the two unnamed businesses for non-payment, threatened legal action and in one case, called in debt collectors.
The Community Network is also accused of making false and misleading statements to small businesses, both expressly or implicitly.
The ACCC says potentially false and misleading representations included that the key contract terms were disclosed on the front of the contract; that the contract was for a fixed period of two years unless the businesses gave 12 months written notice to end the contract by registered post, when this was not the case.
The consumer watchdog also alleges that the location for the advertising was set out on the front of the contract but fine print on the document’s reverse side allowed for this to be changed.
The Community Network is also accused of misleading three small businesses about where their ads would be shown and the conditions under which this could be changed.
The company is also accused of wrongly taking payments from these three unnamed businesses when it knew it would not be able to provide the services at the specified location within a reasonable time.
The ACCC will seek pecuniary penalties, declarations, injunctions and costs from The Community Network.
ACCC deputy chair Michael Shaper said in the statement unconscionable conduct towards small businesses is a current priority for the regulator.
“In any contract with small businesses, the terms and conditions much be fully disclosed, particularly those which are onerous, such as terms restricting the small business from terminating the contract or automatically rolling over the contract for a substantial period,” Shaper said.
“Businesses should also be aware that they must not accept payment for goods and services from other businesses if they are aware or ought to be aware that there are reasonable grounds for believing that they will not be able to supply them in a timely manner, or at all.
“This is a breach of the Australian Consumer Law and may attract substantial penalties.”
Catherine Logan, principal at LegalVision, told SmartCompany the action by the ACCC is based on a combination of alleged misleading and deceptive conduct and unconscionable conduct in business transactions.
Logan says small businesses will soon be given more tools to prevent this type of thing being done to them when the federal government’s unfair contract protections come into effect in November 2016.
The changes will offer protections to small businesses with fewer than 20 employees, provided the value of the contract does not exceed $300,000 in 12 months or $1 million for multi-year contracts.
“Standard form contracts like this should be reviewed by providers during the grace period over the next 12 months to make sure one-sided unilateral terms like the ones referred to in the ACCC media release in this case are redrafted to reflect a fairer deal, because after that, they simply will not stand up,” Logan says.
SmartCompany contacted The Community Network but did not receive a response prior to publication.