Background.

Over the past year we have been acting on behalf of a group of small business owners against a number of finance companies.

Each business was approached by a sales rep from a Telco offering telephone services and “free” equipment. The Telco rep offered the customer “free” incentives such as Plasma TV screens and telephone handsets to enter into a telephone services contract. What the Telco did not disclose was that the goods were financed to a finance company at a vast mark up. For example the Telco would buy a TV for $1500 and then arrange finance for say $10,000.

The business owner therefore wasn’t getting a free TV at all but had unwittingly signed a rental contract, sometimes tying them up for 5 years.

Everything seemed to be fine until the Telco went broke and could no longer provide the telephone service. When the business owner stopped paying the monthly accounts the finance companies then demanded payment of the total money due under the rental contract.

Trade Practices Act – Section 73.

We believe that the contracts with the finance companies may be unenforceable because of section 73 of the Trade Practices Act which relates to “linked credit providers”. Indeed in some cases the business owners may be able to recover payments made to the finance companies.

The Dilemma.

The small businesses that have been caught by the Telco scam face a dilemma. When they are sued by the finance company the cost of fighting the case in the courts can be prohibitively expensive. If the Telco is claiming $20,000, the legal costs to fight might well exceed that amount several times over. However, if nothing is done then they will end up having to pay the claim in full plus costs.

Our experience shows that the finance companies are using the courts to pressure business owners to settle by agreeing to pay a sizeable percentage of the money that the finance company demands.

Some owners are continuing to make payments to the finance companies even though they are no longer receiving telephone services as they are concerned that their credit rating will suffer if they stop the repayments.

Our Test Case.

We are running a number of cases in the Federal Court of Australia that rely upon section 73. Our claim is that far from owing the finance companies anything the

finance companies are liable for losses our clients have sustained plus their legal costs.

If the case goes to hearing it is hoped a precedent will be set that could be used to defend claims on behalf of hundreds of small businesses caught by the Telco scam.

It is possible that the matter may settle prior to hearing. This would mean that a decision would not be made by the Court which other victims could rely upon to fight their claims.

Should the government be doing something?

Many of our client’s feel that these contracts should not be allowed to be enforced. We have tried to get the Telecommunications Ombudsman, Financial Services Ombudsman, Office of Fair Trading, Federal and State police and ACCC to step in.

So far only the ACCC have indicated any willingness to act. They are considering our application to intervene in the test case and argue in support of our s73 argument. However we still need to run the test case to trial and that process has to be privately funded.

Ways we may be able to assist you;

1. If you are still paying for the telephone services you are not receiving because you are concerned about your credit rating we can advise you of your options including how to stop making payments.
2. If you are being sued by a finance company then we can file a defence and cross-claim based on s73 of the Trade Practices Act. That claim would use similar arguments to those that we are using in the matters before the Federal Court. The cost of preparing the defence and cross claim will be less than you would expect to pay if you had to start from scratch.
3. In some cases where the finance company may be vigorously pursuing businesses in the Local Court it may be appropriate to apply to have the matter transferred to the Federal Court. This should be avoided if possible as the cost of the filing fee for an application alone is $1881.
4. Should the transfer be necessary then as we have already prepared similar applications the legal costs should again be considerably less than they would be if starting from scratch.
5. If there are a number of businesses that are being pursued by the same finance company a joint application could be made which would have the effect of reducing the cost to each business.
   

Please direct all enquires to lawyers@doylewilson.com.au and we will then contact you.