Actions that got Sensis got into trouble - and how they remedied them

Suddenly, the famous yellow pages advertisement line that boosted sales has been turned back on its promoter, Sensis.

“Not happy Jan!” Suddenly the famous yellow pages advertisement line that boosted sales between 2000 and 2003 has been turned back on its promoter, Sensis.

Sensis classified advertising contracts in yellow and white pages directories have been deemed “unfair” by the Australian Competition and Consumer Commission and the company has now completely rewritten them and will offer compensation to the 10,000 or so people likely to have been badly treated.

Sensis contracts are similar to millions of other contracts issued by large Australian enterprises including many Australian banks where overdraft contracts issued to small enterprises are now in chaos.

The Sensis capitulation and the bank mess are illustrations that the large legal firms in Melbourne and Sydney have become bloated. They have not made sure their clients adjusted their small business contracts to what was an enormous change in company law passed by the Parliament in November 2015 and which came into operation 12 months later in November 2016. There are some eight million of these bad contracts requiring drastic change because many sections are void once the contracts are renewed.

Large companies need to look seriously at seeking legal advice from firms who keep up to date.

To the great credit of Sensis it accepted that it had wronged its customers and has issued an extensive set of legally binding undertakings. In 2014 Telstra sold 70 per cent of Sensis to the US Private equity group Platinum for $450million. At the time of the “Not happy Jan!” advertisements Sensis was worth billions.

So let’s look at the actions that got Sensis into trouble and how they remedied them.

In 2015 and 2016, the Yellow Pages and White Pages bundled print directory and online packages had a monthly fee with a 12-month minimum contract period. But the contracts concealed (it was hard to find) that:

• the bundled packages automatically renewed for a further 12 months unless cancelled by the customer; and

• if during the next twelve months the customer wanted to exit then they would be charged a cancellation fee equal to the remaining cost of the contract. In other words once the contracted rolled over you could not exit without paying the total amount “owing”

Sensis gave poor prominence to the automatic renewal terms and the linked penalties so small enterprises were easily trapped.

Commenting on this aspect of the Sensis situation ACCC Deputy Chair Michael Schaper says:

“Traders who fail to adequately disclose key terms in their contracts risk misleading their customers and breaching the Australian Consumer Law.”

Sensis acknowledged that its conduct may have contravened the law so has undertaken to refund affected customers and maintain improvements to its processes to ensure its automatic renewal and cancellation processes are clearly disclosed to customers.

But is goes further. Most of the eight million contracts that need to be changed include clauses that the large legal firms routinely inserted allowing a big business to unilaterally terminate a contract without reasonable cause. In other words the small enterprise is locked in but the large enterprise can exit or change the rules at any time.

Nor surprisingly Sensis’ lawyers inserted one these standard clauses in yellow and white pages contracts. Sensis has agreed to qualify its right to terminate a customer’s contract to circumstances where Sensis is “acting reasonably” and in order to protect its legitimate interests.

Schaper warns the big legal firms who specialise in these clauses:

“The ACCC has serious concerns about the use of wide-ranging termination clauses that allow a business to unilaterally terminate a contract without reasonable cause.”

“Businesses which continue to use such terms in their standard form contracts with small businesses risk ACCC enforcement action, which may include court proceedings to have those terms declared unfair,”

Sensis acted quickly. Life for those in the slow lane with bad lawyers will get tougher.

Readers will know I gave written many commentaries on this subject. Here are two:

• Big business needs to get with the contract overhaul program

• ACCC losing patience over small business contracts