Commerce Commission Chief Executive, Vanessa Horne, says for six years broadband and power companies CallPlus Services, Orcon and Switch Utilities, trading under the Slingshot and Orcon brands, inadequately disclosed that a fee ranging between $130 to $250 would apply if customers cancelled their fixed-term contracts early.

The companies entered into fixed-term agreements via uninvited direct sales – sales that are made door-to-door or over the phone.

“Under the Fair Trading Act, businesses making uninvited direct sales must clearly disclose the total price to be paid and any other consideration in a written copy of the agreement. The agreement must be provided to customers within five working days of the sale,” Ms Horne says.

“These obligations are in place to ensure consumers receive clear and accurate information about the total cost of their services, so they can make an informed decision about what they are signing up to."

The Commission’s investigation found that the fixed-term contracts included a clause stating if customers cancelled their contracts early, a termination fee ‘may apply’. However, the fee amount was not disclosed.

Following proceedings filed about this matter in 2021, the High Court found that the amount of the early termination fee should have been disclosed under the Fair Trading Act because it falls under the total price payable and other considerations.

“In total, 4,277 customers had early termination fees applied to their accounts, and 2,636 of those customers paid the fees – a total of $473,688 – leaving them out of pocket for payments the companies were not entitled to.” Ms Horne says.

As a result of the High Court’s finding, the companies have now entered into a settlement agreement with the Commission agreeing to refund affected customers the fees they have paid. The companies will provide the Commission with interim and final reports to demonstrate delivery of their refund commitments.

Customers who are entitled to a refund can expect to be contacted within the next six months.

More information including a copy of the High Court judgment and the settlement agreement is available in the case register on the Commission’s website here.

Background

In October 2021, the Commerce Commission filed civil proceedings in the High Court, alleging the companies failed to adequately disclose early termination fees as required under the Fair Trading Act when entering into uninvited direct sale agreements between 17 June 2014 and 20 June 2020.

The Commission sought declarations that the companies’ conduct breached the Fair Trading Act, and orders directing the companies to refund early termination fees to affected customers.

In 2022, the Commission and the companies agreed that if the High Court found the amount of the early termination fees had to be disclosed in the agreements, the companies would enter into a settlement agreement with the Commerce Commission to refund the affected customers.

The High Court found in favour of the Commission and in August 2023, a settlement agreement was negotiated and signed resulting in the companies agreeing to refund customers.

Uninvited Direct SalesUninvited direct sale agreements are defined as contracts that result from a business approaching a consumer to sell goods or services costing more than $100 by an uninvited phone call or visit to the consumer’s home or workplace.

Businesses who make uninvited direct sales are subject to specific rules under the Fair Trading Act. The rules cover what businesses must tell consumers when negotiating the sale, what information they have to disclose and how. There are also rules around cancellation during the compulsory cooling off period, and when contracts formed this way can be enforced.

The current case concerned uninvited direct sale agreements entered by telephone.  However, if sales are made door to door, consumers should also be aware that they can direct people to leave (or not enter) their residential property if they are there to negotiate uninvited direct sale agreements. These include consumer credit contracts in some cases.