contract notes

51 Pages • Complete Study Notes • Year: Pre-2021

contract notes for the whole sem including Unfair Contract Terms Provisions – Part 2-3 of ACL Important extracts in ACL Part 2-3: ss. 23-28 • Outline of the UCTL • Standard Form Consumer Contracts • The Scope of the UCTL • Persons regulated • Test of an Unfair Term • Factors to consider in determining an Unfair term • Examples of Unfair Terms under Statute • Effect of an Unfair term  Outline of Unfair Contract Terms Law (UCTL) The UCTL renders void a term in a consumer contracts if: • Term is unfair and • It is within a standard form contract Note that the UCTL applies only to standard form consumer contracts. Hence, the UCTL also need the court to take into consideration 6 factors when determining whether a contract is a standard form contract. This is listed in ACL s 27(2). Following this, the definition of a consumer contract is found under the ACL s 23 (3). Term is considered to be unfair if it satisfies 3 elements (ACL, 24 (1)): • Causes significant imbalance in rights and obligations of the parties and • Is not reasonably necessary to protect legitimate interests of [D] • The particular term would cause detriment to consumer if relied on. Factors that must be considered by the court concerning a term: • Transparency. How transparent the particular term is. • Consider contract as a whole Indicative examples of unfair terms- indicate what may be unfair • The UCTL provides the list in the ACL s 25(1) Result of unfair term The term will be void. Also, different forms of remedies are available under the ACL Pt 5-2: • Injunctions (Div 2) • Compensation orders and (Div 4) • Compensation orders for non-parties (Div 4)  Standard Form Consumer Contracts The UCTL only applies to a standard form consumer contract. The UCTL does not provide the definition of a standard form contract. More importantly, the contract is presumed to be a standard form contract unless another party to the proceeding proves otherwise. Hence, the defendant (corporation) has the burden of proof and has to show that it is not a standard form contract. The plaintiff (Consumer) only has to allege that it is a standard form contract. The UCTL states that when a court is determining a standard form contract, the court “may take into account such matters as it thins relevant but must take into account the following list of specified factors: (ACL s 27 (2)) (a) whether one of the parties has all or most of the bargaining power relating to the transaction; (b) whether the contract was prepared by one party before any discussion relating to the transaction occurred between the parties; (c) whether another party was, in effect, required either to accept or reject the terms of the contract (other than the terms referred to in section 26(1)) in the form in which they were presented; (d) whether another party was given an effective opportunity to negotiate the terms of the contract that were not the terms referred to in section 26(1); (e) whether the terms of the contract (other than the terms referred to in section 26(1)) take into account the specific characteristics of another party or the particular transaction; (f) any other matter prescribed by the regulations. Standard form contract is normally understood to be a document provided by a trader of goods (or services) and is routinely used by the trader in all of the transactions. The contract is widely accepted to settle without negotiation. Commonly said to be contracts presented by trader to consumer on a “take it or leave it” basis. Hence, these ideas are presented in the list above. This is quite a broad interpretation and it is up to the court to make a decision. Under the ACL s 23(3), a consumer contract: (3) A consumer contract is a contract for: (a) a supply of goods or services; or (b) a sale or grant of an interest in land; to an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption. The definition of a consumer contract for the purposes of the UCTL looks to the actual purpose for which the interest in land, goods, or services were acquired not their price or ordinary purpose. Consequences if not consumer contract: • ACL Part 2-3 (UCTL) does not apply • Apply term as at common law (incorporation/interpretation rules only)  The Scope of the UCTL There is some exclusion to the application of the UCTL. This can be found under the ACL s 26(1). (1) Section 23 does not apply to a term of a consumer contract to the extent, but only to the extent, that the term: (a) defines the main subject matter of the contract; or (b) sets the upfront price payable under the contract; or (c) is a term required, or expressly permitted, by a law of the Commonwealth, a State or a Territory. Main subject Matter: Examples: • Falcon has no SatNAv, but Hyundai has • Mobile contract: Nokia “free” “Iphone” $300 • Whether builder clears up afterwards The UCTL provides under ACL s 26(2), that the upfront price payable is: (2) The upfront price payable under a consumer contract is the consideration that: (a) is provided, or is to be provided, for the supply, sale or grant under the contract; and (b) is disclosed at or before the time the contract is entered into; but does not include any other consideration that is contingent on the occurrence or nonoccurrence of a particular event. Basically means can’t complain about the price. Provided that they have already dealt with that and it’s pretty transparent. Other contracts such as shipping and insurance are also excluded from the application of the UCTL because they are regulated by other Acts.  Persons regulated “Defendants” (not called defendant in the act) Groups that are caught by the Act. Corporations: • CCA 2010 is a Cth Act: Constitutional restriction • S.130 restricted to conduct of corporations in interstate trade or commerce • ACL s.2A includes Crown carrying on business Basically, the people that are caught by the Cth Act are corporations dealing with individuals. Businesses (NOT corporations, eg sole traders): This is where the state legislation replicating the Cth ACL becomes relevant. • Fair Trading Act 1989 (Qld) Part 3: “Australian Consumer Law (Queensland)” For example S.4A Application of 1989 Act (1) This Act applies to and in relation to— • persons carrying on business within Queensland; or (c) persons ordinarily resident in this jurisdiction Consumer [e.g. sells to another consumer?] Would apply if dealing with consumer to consumer. The ACL may extend to this however we will not be looking at it in this course. Plaintiffs - (P is not defined, but can look at s.23(3) “Consumer contract” ) Persons who are protected by the act. Examples of Contract type by corporations • Supples of goods/services; • Sells grant of interest in land To an individual only [not corporation, or partnership] • mall businesses not included, unless eg sole trader, Individual use must be • Wholly or predominantly • For personal, domestic, or household use/consumption Here is a different definition of the people who can take advantage of this provision, it is narrower, than the definition of a consumer of statutory guarantee. (With statutory guarantee you can have cooperation to businesses, and the business could take advantage of the act in the list of transaction) Here the P has got to be an individual acquiring the goods for predominantly house hold goods and consumption. So even if you are a sole trader and you enter in a contract with cooperation, you are an individual but you can’t utilise those provision unless your goods are used predominately for household use. Example John is a builder trading in his own name and buys Ute for personal use. It would be a consumer contract, if it was wholly or predominately for household use. However, if he entered into his business books for tax reduction, it will make it harder to say it was household use and probably won’t apply.  Test of an Unfair Term The UCTL test for an unfair term consists of three elements. Under the UCTL (ACL, s 24(1)) a term is unfair if: (1) A term of a consumer contract is unfair if: (a) it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and (b) it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and (c) it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on. Consumer to show : a)A significant imbalance (question of fact, most straight forward element) Concerning this element, there is two matters to be considered: • If the term would cause an imbalance in the rights and obligations of the parties arising under the contract • If the imbalance is significant This has also been explained by Lord Bingham (in respect of the UTCCR – the England version of UCTL) : An imbalance may be found in “the granting to the trader of a beneficial option or discretion or power, or by the imposing on the consumer of a disadvantageous burden or risk or duty” (Director General of Fair Trading v First National Bank [2002] 1 AC 481, [17]. The imbalance may be thought to be significant if that imbalance would detract from the rights of consumers under the common law or from the reasonable expedition of consumer as to the likely distraction of rights and obligations under the contract c) Detriment Must be shown by the consumer that they would have some sort of detriment. Not just hypothetical detriment, either financial or otherwise. Defendant to show b) Not reasonably necessary in order to protect the legitimate interest of the trader The UCTL provides for the purposes of this test, “a term of a consumer contract is presumed not to be reasonably necessary in order to protect the legitimate interest of [the trader], unless that [trader] proves otherwise (ALC, 24 (4) Because of this, the burden of prove is on the business for the second limb of the unfairness test. If the business can show despite that there was imbalance and detriment, if it can show that the clause is reasonable to protect its legitimate interest, then it is not unfair. Step one: It must be shown that the term protects a legitimate interest of the trader. Typically, this requirement will be satisfied by showing that the term protects the trader from business risks inherent in the transaction, as opposed to being an attempt to appropriate gains not contemplated as part of the original bargain. Step two: It must be shown that the term is “reasonably necessary” to protect the trader’s legitimate interest. Typically, a term will only be reasonably necessary to protect the legitimate interest of the trader where the term represents a proportionate response to the risk it seeks to address Examples of clause that such as time limit or limited liability. This is the counter balance of the industry that the business itself has to prove. If there is any doubt that it hasn’t been satisfied that the clause will be considered as unfair.  Factors to consider in determining an Unfair Term The UCTL also requires that in determining whether a term is unfair under the specified test, the court must also take 2 factor s into consideration under ACL s24(2). (2) In determining whether a term of a consumer contract is unfair under subsection (1), a court may take into account such matters as it thinks relevant, but must take into account the following: (a) the extent to which the term is transparent; (b) the contract as a whole. The UCTL also provides the definition of transparency under ACL s 24(3) (3) A term is transparent if the term is: (a) expressed in reasonably plain language; and (b) legible; and (c) presented clearly; and (d) readily available to any party affected by the term. The requirement of transparency is only a supplement to the substantive test of unfairness under statute. Because a fair term should typically be expressed and presented in a way that makes it accessible to consumers Plain language Means that there needs to be care in expressing the contract in ‘plain’ language. Hence, specialist legal terminology should be avoided. Legibility Requires style and size of the font used in the contract should enable terms to be easily read. Eg, if the notice’s font is too small and stuck up very high it is not considered to be very legible. Presented Clearly The terms should be presented in a way that facilitates, rather than impedes, them being read. E.g. form contract with all capital letters is inconsistent with the requirement of clear presentation. Readily Available For instance, it will be an issue if the terms are presented in an office very far away. Consequences if is transparent Is not automatically fair [Explanatory Memorandum]. Does not mean it’s automatically fair. This is just procedural fairness. Consequences if not transparent Court cannot ignore this factor, however, it also does not say automatically unfair if not transparent. It can be an indicator to unfairness. This factor is mainly to affect contract drafting. Hence, in the end all those procedural factors would point to it being fair or unfair.  Examples of Unfair Terms under Statute The UCTL sets out a list of examples of the kind of terms of a consumer contract that may be unfair under the ACLs25(1) . They are an indication if your term is in that list, that it is unfair. However, don’t think of it as presumptions, they are just examples. Note that any term similar to these examples still need to be assessed with regard to the test specified in the UCTL. Without limiting section 24, the following are examples of the kinds of terms of a consumer contract that may be unfair: • a term that permits, or has the effect of permitting, one party (but not another party) to avoid or limit performance of the contract; • obvious imbalance here • a term that permits, or has the effect of permitting, one party (but not another party) to terminate the contract; • e.g. the phone company can terminate in 6 months when the contract is for a year and you cant do it. • a term that penalises, or has the effect of penalising, one party (but not another party) for a breach or termination of the contract; • at common law, there is also restrictions of penalties • e.g., 100000 fee for being one minute late for a phone bill (d) a term that permits, or has the effect of permitting, one party (but not another party) to vary the terms of the contract; (e) a term that permits, or has the effect of permitting, one party (but not another party) to renew or not renew the contract; • e.g. at the end of 12 month phone contract, if Optus say that they are going for another year and you are bound for another year. (f) a term that permits, or has the effect of permitting, one party to vary the upfront price payable under the contract without the right of another party to terminate the contract; • e.g. if Optus says that they are varying the contract because of the economic crisis, there might be a clause letting them to do that, it may be unfair, if you don’t have the right to change that (g) a term that permits, or has the effect of permitting, one party unilaterally to vary the characteristics of the goods or services to be supplied, or the interest in land to be sold or granted, under the contract; • e.g. say will supply a car with electric door mirror, can gives a manual electric door operating mirror. (h) a term that permits, or has the effect of permitting, one party unilaterally to determine whether the contract has been breached or to interpret its meaning; (i) a term that limits, or has the effect of limiting, one party’s vicarious liability for its agents; (j) a term that permits, or has the effect of permitting, one party to assign the contract to the detriment of another party without that other party’s consent; • We don’t look at the assignment of contract in this course (k) a term that limits, or has the effect of limiting, one party’s right to sue another party; • Term that specify that you can Only sue at a particular place and time (l) a term that limits, or has the effect of limiting, the evidence one party can adduce in proceedings relating to the contract; (m) a term that imposes, or has the effect of imposing, the evidential burden on one party in proceedings relating to the contract; • If it said that the evidence have to be a particular form or the burden of prove is on a party that it wouldn’t have originally been. (n) a term of a kind, or a term that has an effect of a kind, prescribed by the regulations. • Suggestion of government can add other examples that certain terms are completely prohibited, so the government can’t say complete prohibited, and more examples • I.e. Gov can add other examples • [a provision allowed totally “prohibited terms” was deleted in debates]  Effect of an Unfair Term The effect of a term in a standard form consumer contract being unfair will be void. (ACL s 23(1)) When and unfair term is void, the “The contract continues to bind the parties if it is capable of operating without the unfair term.” (ACL s 23(2)) There are a range of remedies potentially available to the consumer in response to the use of that term by traders. These remedies are: (ACL Pt 5-2) • Injunctions (Div 2) • Compensation orders and (Div 4) • Compensation orders for non-parties (Div 4)

This document is FREE