Recent ACAT Decision: Doubt cast on the ability to charge one term’s fees in lieu of sufficient notice

The ACT Civil & Administrative Tribunal (ACAT) has determined that a clause in a School Enrolment Contract requiring one terms’ fees in lieu of advance written notice of withdrawal of a student at the end of the year constitutes an unfair contract within the meaning of the Australian Consumer Law (ACL). The Enrolment Contract was found to be a standard form contract, meaning the ACL was relevant.

Senior Member Elspeth Ferguson handed down the decision in the matter of Brindabella Christian Education Ltd v Respondent on 5 May 2022. Interestingly, the notice term could still reasonably be applied to children withdrawn during the course of the school year after resources based on student numbers for that year had been committed.

Payment of One Term’s Fees Clause

Clause 25 of the Enrolment Contract, which includes the notice term, is set out in full below:

  1. I/we agree that:
    a) the Administration Fee paid by me/us is not refundable;
    b) all College fees are payable within two weeks of issue of each fee statement;
    c) one full College term’s notice in writing to the Principal is required for the intended withdrawal of the child, otherwise a full term’s fees will be charged. The written notice must be received by the College by the first day of the term. Any Notice received after the first day of term will render parents/carers liable for that term and the subsequent term in lieu of notice.

Unfair Contract Findings

The Enrolment Contract was found by ACAT to be unfair, as the School could unilaterally vary fees by publishing such variation without prior notice and without giving parents an opportunity to withdraw their child from the School without penalty. Parents that found the changes unacceptable must pay at least one and possibly two term’s fees following the variation, depending on when such variation takes effect. However, as noted above, the notice was less likely to be an unfair contract if a student was withdrawn during the School year, rather than at the end of the term four.

To be unfair for the purposes of section 23(1) of the ACL, a term of a consumer contract must meet all the following criteria under section 24(1):

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

Significant imbalance

ACAT found there was significant imbalance under s24(1)(a) because the notice term, in the context of the Enrolment Contract, has the effect of permitting the School, but not the parents, to vary the terms of the contract; and of permitting the School to alter the upfront price payable under the Enrolment Contract without giving the parent a corresponding right to terminate the Enrolment Contract.

Not reasonably necessary

It was not clear from the terms of the Enrolment Contract that enrolment at the School was ongoing. The Senior Member of ACAT found that the School would have sufficient time to plan allocation and teaching resources for the following year when a student was withdrawn at the end of term four and could thus mitigate any loss occasioned by the termination of the Enrolment Contract.

‘Reasonably necessary’ in the context of section 24(1)(b) requires the term to be both reasonable ie ‘fair, proper, or moderate under the circumstances’ and necessary. The notice term was found to operate in the context of a rolling contract which permits the School to unilaterally vary the terms of the Enrolment Contract, including fees, without giving the parents a right to terminate without penalty. As such it was found to be neither reasonable nor necessary.

Cause detriment to a party if the clause were relied upon

If the notice term were relied upon the parents would suffer detriment because they would be required to pay school fees for a service that they neither wanted nor received. The extent of detriment suffered by the parents in this case is immaterial.

How Moores can help

Moores can advise whether this decision is binding on your school, and review your Enrolment Contract to ensure transparency of the terms of enrolment and how to lessen the impact of this decision on your ability to still require one term’s fees in lieu of notice. The increase in claims relating to periods of remote learning simply underscores the need to review your enrolment terms and conditions to ensure they still achieve key commercial outcomes.

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Please contact us for more detailed and tailored help.

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