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Unfair Contracts And The Consumer Law

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Unfair Contracts And The Consumer Law

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Discuss about the Unfair Contracts And The Consumer Law.

The Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 will take effect from 12th November 2016 and this law make number of important changes to the ACL. The purpose of this Act is to extend the scope of provisions related to consumer protection to small businesses. Provisions of this law are previously applicable to individual consumers only. In this paper we answer the following questions:

What is unfair contract term under the new law and when will it apply?
What is the legal effect if a court decides a contract term is unfair?
Explain the doctrine of freedom of contract and conflict between unfair contract terms and this doctrine?
Explain the relationship between legislation and common law and which prevails?

At last, we conclude the essay with brief conclusion.   
Unfair contract terms:
Meaning and applicability of unfair contract terms:
In Australia, government introduced new legislation which deals with terms of unfair contract and covers small businesses. This new law is applicable from 12th November 2016, and the main purpose of this legislation is to extend the scope of Australian consumer Law. Any kind of unfair term will be void in standard form of contracts of small businesses which entered, varied or renewed after 12th November 2016.
The law was amended and now also applicable on unfair contract entered in small businesses[1]. This law is applicable on standard form of contracts which are entered, varied or renewed after 12/09/ 2016 in following type of contracts:

Any contract for supply of goods or services, for sale or for grant of an interest in land.
In contract it is necessary that one party of the contract must conduct small business.
It is necessary that upfront price of the contract is not more than $300 000 and in case contract is entered for more than 1 month than $ 1 million.

In case, terms of the standard form contract is changed on or after 12th November 2016, then this law is applicable only on varied terms of the contract not on complete contract.
In standard form of contract only one party of the contract prepared the contract and second party of the contract does not receive any opportunity to prepare the contract or varied the terms of the contract and such contract is offered on take it or leave it basis[2]. Following are the examples of unfair terms that are set out by law, and these unfair terms include:

Any term through which one party can limit or avoid their obligations under the contract, but other party cannot avoid or limit their obligation.
Any term which impose penalty on one party in case of breach or termination of contract, but does not impose any penalty on other party for same reason.
Any term which enable one party to change the provisions of the contract, but this opportunity is not available to the other party.

There are some contracts and terms also which are not considered unfair under this new legislation:
Following are the excluded contracts:

Those contracts which are entered before 12th November 2016, unless those contracts are renewed on or after this date.
Company’s constitution, investment schemes which are managed.
Types of insurance contracts.
Contracts which are exempted by the minister.

Following are the Excluded terms:

Provision of contract that states the subject matter of the contract and those terms which state upfront price payable.
Those terms which are allowed by the commonwealth law.

Legal effect of unfair contract term:
Term is unfair or not can only be decided by the court or tribunal (not ACCC), and any term which state upfront price payable of the contract are not fall in unfair terms ambit. Those terms are void which are find by court and tribunal unfair I the contract. Any unfair term is not binding on the parties to the contract, but remaining contract is binding on the parties to the extent contract can operate without that unfair term[3]. Court consider following factors in determining whether or not provisions of contract are unfair:

Court considers the complete contract.
Whether term is transparent or not.

If terms of standard form of contract is not transparent then it will create fluctuations in the rights and liabilities of parties to the contract. On the basis of following factors court consider the transparency of any term:

Whether term is expressed in simple language or not.
Whether term is presented in clear form
Whether term is legible.

Only court has discretion to decide whether term is transparent or not[4].
Doctrine of freedom of contract:
Law always respects the doctrine of freedom of contract, and this doctrine allows the parties to choose those terms and conditions which regulate the relationship of the parties. These doctrines states that parties to the contract have right to legally bind them, and it is concept which is judicial in nature. Provisions of the contract are choosing on mutual agreement and free choice. Therefore, such contracts are not get affected by any external factors such as government restrictions. This doctrine supports the concept that individuals are able to create their relations through private agreements.
The doctrine of freedom of contract states two concepts which are connected closely but also has different traits, and following are the concepts:

These types of contracts are based on the mutual agreement of the parties.
The contract is created on the free choice of the parties, and they are not affected by the external contracts such as government restrictions[5].

There are number of problems which are derived from the concept of this doctrine that states that all the terms in the contract are result of choice of the parties to choose the terms of the contract. Unfortunately, in these types of contract the bargaining power is not even, and one party state the terms of its choice and other party is forced to accept those terms. The term freedom of contract is not real in case when parties to the contract have uneven power of bargain[6]. There are number of small firms which are professional and even these firms are also not operate in those competitive markets where contracts are formed on the basis of accept it or leave it[7].
Traditional contract theory is based on assumption that people have freedom of contract. It is on the discretion of people to structure the terms of contract. In case person chooses poor terms then it is his choice and he has to face consequences of that choice. There is no relief for poor choice, and we can understand this with the help of case law that is Jessel MR in Printing and Numerical Registering Co v Sampson[8][9].
Relation between Common Law and unfair terms law:
In Australia, unfair contract terms provide a concise, timely and comprehensive overview of the new legislation Unfair Contract Terms Law in both the Acts that is Australian Consumer Law and the Australian Securities and Investments Commission Act 2001.
Court can consider whether terms in the contract are fair or not, and this is the major departure from the pre existed law which is related to non statutory doctrine of unconscionability and also with the statutory provisions related to unconscionability[10]. The major weakness of existing law is the intention behind the existing law is different but application of these laws in substantive cases and may be cause some unfairness. Therefore, in this context we can say it is totally the discretion of the court whether they consider the term unfair, and which law prevail common law or unfair contract terms.
In this report, we discuss the new legislation issued by the Australian government on 12th November 2016 and named as unfair contract terms. In this we first discus the applicability of unfair contract terms and these contracts are applicable on standard form of contract in small business. This act extends the scope of ACL. Next we state that any term which is unfair in the contract is void, but remaining contract is valid between parties. We state the freedom of contract doctrine and the conflict between this doctrine and unfair contract term, and in last a brief section on relationship between common law and unfair contract terms.
Australian Competition & Consumer Commission 2016, ‘Unfair contract terms’, Australian Competition & Consumer Commission, retrieved 9 September 2016 < https://www.accc.gov.au/business/business-rights-protections/unfair-contract-terms>.
Australian Consumer Law 2016, ‘Unfair contract terms’, Australian Consumer Law, retrieved 9 September 2016< https://www.accc.gov.au/system/files/Unfair%20contract%20terms%20-%20A%20guide%20for%20businesses%20and%20legal%20practitioners.pdf>.
Bant, E, ‘Statute And Common Law: Interaction And Influence In Light Of The Principle Of Coherence’,University of New South Wales Law Journal, vol. 13 
Carter Newell Lawyers 2016, ‘Small business unfair contract laws commence, Carter Newell Lawyers, retrieved 9 September 2016  < https://www.carternewell.com/page/Publications/2016/Small_business_unfair_contract_laws_commence_on_12_November_2016/>.
Consult Australia 2012, ‘ Australian Contract Law’, Consult Australia, retrieved 9 September 2016< https://www.consultaustralia.com.au/docs/default-source/contracts-liability/Consult_Australia_Response_to_AGD_Discussion_Paper_on_Contract_Law_-_July_2012.pdf?sfvrsn=0>.
Gray, A 2009,  ‘Unfair Contracts And The Consumer Law Bill’, Queensland University of Technology Law and Justice Journal, vol. 9, no.2, pp. 155-175.
Hibbert, B 2016 ‘New Unfair Contract Law Starts’, 12 November,  retrieved 9 September 2016 < https://www.wisewoulds.com.au/publications/new-unfair-contract-law-starts-12-november-2016>.
Law Teacher 2016, ‘The Doctrine Of Freedom Of Contract’, Law Teacher, retrieved 9 September 2016 < ttp://www.lawteacher.net/free-law-essays/contract-law/the-doctrine-of-freedom-of-contract.php>.
Paterson, J 2009, ‘The Australian Unfair Contract Terms Law: The Rise Of Substantive Unfairness As A Ground For Review Of Standard Form Consumer Contracts’, Melbourne University Law review, vol. 33, no. 3, pp. 934-956.
Sims, A 2013, ‘Unfair Contract Terms: A New Dawn In Australia And New Zealand’, Monash University law Review, vol. 39, no. 3, pp. 739-775.
Hibbert, B 2016 ‘New Unfair Contract Law Starts’, 12 November, retrieved 9 September 2016 < https://www.wisewoulds.com.au/publications/new-unfair-contract-law-starts-12-november-2016>.
Australian Competition & Consumer Commission 2016, ‘Unfair contract terms’, Australian Competition & Consumer Commission, retrieved 9 September 2016< https://www.accc.gov.au/business/business-rights-protections/unfair-contract-terms>.
Carter Newell Lawyers 2016, ‘Small business unfair contract laws commence, Carter Newell Lawyers, retrieved 9 September 2016 < https://www.carternewell.com/page/Publications/2016/Small_business_unfair_contract_laws_commence_on_12_November_2016/>.

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