We cancelled a SaaS subscription but are still being charged "three months’ fees after cancellation". Is that clause in the terms of use valid?

Question

阿部国際法律事務所 · Accepted Answer

Not automatically. For consumers, fees above the average loss are void; between businesses, unfair clauses in standard terms are deemed not agreed.

A clause in SaaS terms of use saying "three months' fees are payable after cancellation" is neither automatically valid nor automatically void. If the user is a consumer, any part of a cancellation charge that exceeds the average loss the provider would suffer is void (Consumer Contract Act, Art. 9(1)(i)). Between businesses, if the terms are "standard terms" under the Civil Code, a clause that one-sidedly harms the other party's interests is deemed not to have been agreed (Civil Code, Art. 548-2(2)). The starting point is to check the wording of the terms, how they were agreed to, how the cancellation was made and which period the charge covers.

When this becomes an issue

・The company cancelled a SaaS product it no longer used, but charges keep arriving in the following months.
・On rereading the terms, they say "fees for three months from the month after notice of cancellation are payable".
・A customer of the company's own SaaS product disputes charges made after cancellation.
・The terms were revised to make cancellation stricter, but nobody remembers seeing a notice of the change.

1. What to check first

Whether post-cancellation charges are justified depends on the form of the contract and the content of the clause. Sort out the following.

・Form of contract: a negotiated written agreement, or simply acceptance of online terms of use
・Content of the clause: does it set a minimum term, a notice period for cancellation, or a cancellation fee?
・Cancellation procedure: when and how was cancellation requested, and did that follow the method in the terms?
・Content of the charge: for which period and which service is payment being demanded?

"Three months" can mean different things. A notice-period clause ("give notice three months in advance") is analysed differently from a cancellation-fee clause ("pay three months' fees after cancelling"). Read the wording carefully and compare it with the breakdown on the invoice.

2. Where the user is a consumer

The Consumer Contract Act applies to contracts between consumers and businesses. A "consumer" is limited to an individual, and excludes an individual contracting as or for the purposes of a business (Consumer Contract Act, Art. 2(1)).

The following rules apply to consumer contracts.

・A clause that fixes damages or a penalty on cancellation is void to the extent it exceeds the average loss the business would suffer from the cancellation of contracts of the same kind (Consumer Contract Act, Art. 9(1)(i)).
・When a business claims such damages or a penalty and the consumer asks for an explanation, the business must endeavour to explain the outline of how the amount was calculated (Art. 9(2)).
・A clause that restricts the consumer's rights or increases their obligations compared with non-mandatory statutory rules, and that one-sidedly harms the consumer's interests contrary to the principle of good faith, is void (Art. 10).

A SaaS product ordered online may also be a mail-order sale under the Act on Specified Commercial Transactions. In that case, the final confirmation screen for the order must show, among other things, the price, the timing of payment and matters concerning cancellation of the contract (Act on Specified Commercial Transactions, Art. 12-6(1) and Art. 11, item 5).

3. Between businesses (B2B)

Where the user is a company, the Consumer Contract Act does not apply (Consumer Contract Act, Art. 2(1) and (2)). Nor do the mail-order provisions of the Act on Specified Commercial Transactions apply to contracts concluded for business purposes (Art. 26(1)(i)).

Between businesses, the key rules are those on "standard terms" (teikei yakkan) in the Civil Code. Standard terms are the set of clauses prepared by one party, to form the content of the contract, in a "standard transaction": one with an unspecified large number of counterparties where uniform content is reasonable for both sides (Civil Code, Art. 548-2(1)). Terms of use for a SaaS product offered to many users on the same terms will often fall into this category.

The following rules apply to standard terms.

・Where the parties agree that the standard terms will form the contract, or the provider has indicated this in advance, the other party is deemed to have agreed to each individual clause (Civil Code, Art. 548-2(1)).
・However, a clause that restricts the other party's rights or increases their obligations, and that is found to one-sidedly harm their interests contrary to good faith in light of the type and circumstances of the transaction and common sense in trade, is deemed not to have been agreed (Art. 548-2(2)).
・Before agreeing, or within a reasonable time after, the user can ask to be shown the content of the terms. If the provider refuses this request before agreement, the deemed-agreement rule does not apply unless there is a justifiable reason such as a temporary communications failure (Art. 548-3).
・The provider can change the terms unilaterally only if the change suits the general interests of users, or does not run counter to the purpose of the contract and is reasonable. It must also set an effective date and publicise the change and the revised terms by the internet or other appropriate means (Art. 548-4).

A contract whose terms were negotiated individually is treated as an ordinary contract rather than standard terms. A penalty is presumed to be an agreed amount of damages (Civil Code, Art. 420(3)), and terms contrary to public order or morals are void (Art. 90).

4. What a user company should do when charged after cancellation

When a charge arrives, it is safer not to decide straight away whether to pay or refuse, and to proceed in this order.

First, ask the provider in writing to identify the clause it relies on. If the terms are not readily available, the company can ask to be shown their content (Civil Code, Art. 548-3(1)). This does not apply if the provider has already supplied the terms in writing or as an electronic record (proviso to Art. 548-3(1)).

Next, check whether the terms at the time of contracting are the same as the current ones. If cancellation became stricter in revised terms, the question is whether the revision met the requirements of Article 548-4 and its publicity procedure.

Then, for any part whose validity is doubtful, raise an objection with reasons. Stopping a direct debit or card payment unilaterally may be treated as non-payment under the contract. Before stopping payment, check how the contract treats unpaid amounts and late-payment charges.

5. What SaaS providers should watch in their terms

For providers too, cancellation clauses are a common source of disputes. Reviewing the following makes it easier to justify charges.

・Show the minimum term, the cancellation procedure, and whether and how much a cancellation fee applies, clearly on the order screen.
・For consumer plans, keep cancellation fees within the average loss and be ready to explain the basis of calculation.
・When changing the terms, set an effective date and publicise the change in advance.
・State how to cancel in the terms, and do not make the actual procedure unreasonably difficult.

6. Internal management to prevent cancellation disputes

In user companies, departments often sign up for SaaS products separately, and no one keeps track of the cancellation terms. Many post-cancellation charges arise because notice was given after the deadline in the terms, or not by the method the terms require.

Keeping a list of each SaaS product with the service name, contract date, renewal date, minimum term, cancellation notice deadline, cancellation method and the person in charge helps prevent this. When the company decides to cancel, it should give notice by the method in the terms and keep the confirmation email or screen.

What you can do now

・Save the terms of use as at the time of contracting and the current version, and compare the cancellation clauses.
・Keep records (screenshots, emails) showing when and how cancellation was requested.
・Check the invoice breakdown to see which period and which charge is being billed.
・If you do not have the terms, ask the provider to show their content.
・If your company is the provider, check that the cancellation conditions shown on the order screen match the terms.

When to consult a lawyer

・The post-cancellation charge is large and the company disagrees with the provider about whether the clause is valid.
・The provider has sent a letter saying it will take legal action if payment is not made.
・The terms were changed without the company noticing, and it wants to challenge the change.
・A user of the company's own SaaS product demands a refund of cancellation fees, or the company is planning to review its terms.

Frequently asked questions

Q. Having accepted the terms of use, must we always pay charges after cancellation?
Not always. If the user is a consumer, a cancellation charge above the average loss is void (Consumer Contract Act, Art. 9(1)(i)). Between businesses, if the terms are standard terms and the clause one-sidedly harms the other party, it is deemed not to have been agreed (Civil Code, Art. 548-2(2)).

Q. Is a company that signs up for SaaS protected by the Consumer Contract Act?
No. A "consumer" under that Act is limited to individuals, and excludes contracting for business purposes (Consumer Contract Act, Art. 2(1)). For companies, the Civil Code rules on standard terms and other general rules apply.

Q. The terms changed without our noticing. Are we bound by the new conditions?
A provider can change the terms unilaterally only where the requirements of Article 548-4(1) of the Civil Code are met. A change that does not suit users' general interests has no effect unless it is publicised before its effective date (Art. 548-4(3)).

Q. Is a notice period for cancellation different from a fee payable after cancellation?
Yes. A notice period governs by when cancellation must be requested, while a post-cancellation fee requires payment after the contract ends. Which one a clause is affects whether it should be treated as a penalty, so check the wording carefully.

Q. What is the "average loss" that matters for consumer cancellation fees?
It is the average loss the business would suffer from the cancellation of contracts of the same kind, for each category of cancellation reason or timing set in the clause (Consumer Contract Act, Art. 9(1)(i)). It is assessed as an average across contracts of that kind, not as the loss from a particular user. The part of a cancellation fee above that amount is void.

Q.We cancelled a SaaS subscription but are still being charged "three months’ fees after cancellation". Is that clause in the terms of use valid?

Related Questions

Q. Our AI-generated logo was rejected for trademark registration. Can AI-generated works not be trademarked?

Related Articles

Entering Japan as a Foreign Company: Representative Office, Branch or Subsidiary, and the Governing Law of Your Contracts

Japan APPI Data Breach Reporting for Foreign Companies: Extraterritorial Reach, Deadlines and Notifying Individuals

Free Tools