TIO Annual Report 2006/07

Case study - Capacity to contract

The complaint

A 17 year old went with her father to a mobile phone outlet and, translating for him, helped him sign a $49-a-month plan, which included $230 worth of calls.

She claimed to have been told that the service could be barred when the credit expired. She called customer service to arrange this and then proceeded to use the service.

She advised the TIO that the service had not been barred when the cap was reached, as she had expected, but that she did receive a text from the service provider when $1,000 in charges had accrued. Her father’s bank account was then debited $587, after which he received a bill for $1,600. The service was subsequently suspended. She then contacted the TIO.

TIO response

The service provider told the TIO that the girl had not been advised that she would be notified when her cap was reached. Instead she had been told how to check her usage online. It said that although the father had not appeared to understand all of what was said at the point of sale, he had acknowledged that he understood the terms and conditions (as translated to him) by signing the contract.

It advised the TIO that the complainant would be released from the contract, but that the charges would stand. The TIO did not believe that this represented a “fair and reasonable” outcome, so decided to investigate further.

The TIO then queried why the service had not been suspended earlier. On a $49 cap, this would have been an acceptable credit control measure when $587 had accrued. However, the service was not restricted even at $1,000, at which time the service provider was certainly aware of the charges. Additionally, we pointed out that the Prices, Terms and Conditions Code (See Industry codes, page 68) advised companies that they should take extra measures to make sure that non-English speakers and people with disabilities understood the contract.

The company responded that this was a matter that should be addressed by the father and the daughter. It believed that discrimination may have been suggested had the contract been refused. Furthermore, it argued that the father was aware that his daughter had a history of high usage and ought to have taken this into account.

The TIO considered two alternatives with regard to the liability of the company. Firstly that, as the service provider had no way of knowing what had actually been said to the father, it should not have allowed the contract to take place at all. Secondly, it was possible that the daughter had not passed on all of the information to her father correctly, or had passed it on selectively, and that she (at least) had not been misled at the point of sale.

The outcome

The TIO concluded that the contract should not have been created as the account holder may not have been aware of all of the relevant details and his daughter was too young to agree to a mobile phone contract. It was also taken into account that the account holder was unemployed and his daughter was a student, neither of them having the means to pay the disputed charges.

To settle the matter, the service provider agreed to refund the $587 debited, and to waive the rest of the charges once the handset had been returned. The complainant agreed to pay $98, the contractual amount for the two months for which the service was connected and in use.

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