• Internal Code :
  • Subject Code : LWN051
  • University : Queensland University of Technology
  • Subject Name : Consumer Law

Executive Summary

The Trade in Australia at first was looked after the Trade Practices Act of 1974. Later it was added to the Consumer Law of Australia. Part 2 of the Consumer Law of Australia is the scheduled provision of the trade practices acts under this law. It defined the unfair terms of the contract, its applications. The report gives a brief outline of the unfair terms in Contract present in the Consumer contract as per the Law of Australia and New Zealand. It gives an account of provisions related to the law of unfair terms in contract which are present in the standard form of agreement related to the small industries.

The report also summarizes the issues arising out of it. It portrays the difference between normal contracts and consumer contracts. It states the issues and also the options available for overcoming those issues. The report also contains the discussions regarding the options and certain recommendations for the addressed issued and the optional remedies available in respect of such issues arising out due to the usage of UCT in the standard form of contract.

Introduction

The Australian Consumers Law is for the protection of trade of Australia and New Zealand. Initially, it was the Trade Practices Act, 1974 which protected trade rights and legislation. Later the law of Trade Practices was added to the Consumers Law of Australia under Second Schedule of the Law. The Consumer Law of Australia protects consumers along with the obligations and responsibilities of Businesses all over Australia. The Act provides a code of conduct for the business organizations and their practices and the same for consumer agencies in Australia. It enforces the rights of consumers and their contractual obligations as well. (Pearson, 2017) A contract is a document which legally binds two parties, which gives certain obligations to both the parties as they are enclosed by the terms negotiated in the contract.

It involves a series of steps and elements required to be present within it which include proper offer and acceptance, consideration and the intention to create it. A contract might be written document or can be done virtually on electronic devices or can be done orally as well. The Australian Consumer Law states that the consumer contracts as those contracts which deal with the goods, its services provided and its supply as well. It deals with the services done by the goods and the sale or interest in land matters whether the purpose is for consumption, business or domestic, to an individual. The court of law has the power to declare the terms of a contract discriminatory. On being declared as unfair by the court, the contract will become invalid.

The penalties imposed by the law are done by the application of unfair terms in the contract. However, these penalties are not imposed upon the business which already relies on the unfair means of a contract. The Consumer Law in Australia is a way out for the providing protection to the rights of consumer. There are small business organizations which rely completely on unfair contract terms. A consumer always enters into a contract before the establishment of the business or the goods. The Australian Consumer Law makes sure that the business proceedings are fair and the rights of the consumers are well protected. (Bianchi, 2018) The goods and services provided by the goods also need proper regulations.

These have come down into the Australian Consumer Law, which came into enforcement from 2011, and merged with the Trade Practices Act of 1974. The Business organizations, if caught using unfair means, would have to pay a certain amount of compensation along with the declaration of the contract being un-operational. (Lewins, 2016) However, these businesses if relying on unfair means cannot be asked for the redressal of such terms. The contract is void or not shall be declared by the court itself.

Provisions of the Law

The term Unfair Contract Terms was introduced in the Trade Practices Law on the first day of July in 2010. The Trade Practices Act later got merged with the Australian Consumer Law under second Schedule . The provisions of the Unfair terms under the consumer law were mainly concerned with the goods, its services, the products and services of finance. (Simons, 2018) The Unfair terms in the contract under the Consumer Law is stated under part 2-3 of the law under sections 23-28 of the Law.

Section 23 of the Consumer Law of Australia defines the Unfair terms of contract. It says that any contract terms in the form of a consumer’s contract will be invalid. However, to be invalid, the contract must include certain terms which would make it void. The element which makes the contract void is the inclusion of Standardised form of Contract, it must be a contract of consumer and the terms should be unfair. A standard form of contract is usually made by one party, negotiating the terms and conditions of the contract with the other party having no authority to do so. It is more like a contract which one can either accept or does not take it at all. It is entirely upon the court of law to decide whether a contract is of a standard form or not.

However, Section 27 of the Australian Consumer Law lays down certain provisions which include certain points which should be looked at by court before its declaration. The points which should be considered by the court are the powers of relative bargaining by the parties, whether the formation of the contract was done before the discussions between them creating a situation of either accept or leave the contract and whether the other party was given a chance to give his terms as well. The same section defines Consumer Contracts as a contract of goods, services, land or interests whether for domestic, household, business or commercial use. (Freeman, 2018)

Under the Amendment of Section 23 of the Australian Consumer Law, a contract of small business includes those contracts related to land, goods, services and interest. It must also include employment of fewer than 20 people, the contract is valid for a year with prices not exceeding $ 1,000,000. The Amendment also includes the addition of a new section in the law which gives courts the power to declare the terms of the small business contract, unfair.

When will it be considered unfair?

As per Section 24 of the Australian Consumer Law, a contract can be declared unfair when:

  • The balance between the rights and obligations of the parties (business and consumer) will not be perfect.

  • There will not be any compulsion to protect the legal interests of the business

  • Would cause some kind of loss to the consumer if applied.

The Unfair Terms cause certain risks to the contract which includes the variation of contract in a single way. It also does not give consumers the power to change the terms of the contract or add any of it. The Consumer also does not get an option for the solutions of issues or disputes and increases the interest rates on the unpaid amounts.

Kinds of Unfair Contract

Section 25 explains the terms which can be used as examples in the unfair contract:

  • Any term which allows a party to enforce or limit the performance of the contract, and not the second party.

  • Any term which empowers a party to exit from the contract and not the other one.

  • Any term which allows a party to impose penalties the other party and not vice versa in case of breach of contract or exiting from the contract.

  • Any term which allows only one party to change or add or remove the expression of the contract and not the opposite party.

  • Any term which permits just a party to re-establish the terms of the contract.

  • Any terms which allow a party to bring changes in the upfront price of the contract and not allow the other party to terminate such contract.

  • Any term which allows one party to change the process or variations of goods and services, their supply and the interest of land unilaterally and does not allow the other party to do so.

  • Any terms which empower one party to decide the termination or breach of contract or its interpretation in a unilateral way.

  • Any term which limits the vicarious liabilities of one party or the agent of that party.

  • Any term or kind affecting a term or kind of the regulations and so on.

The Parts Where This Contract Is Not Applicable:

Section 26 and 27 of the Australian Consumer Law lays down the provisions dealing with the definitions of standard forms of contract and the upfront price along with the provisions of the subject matter of the contract of consumers or small business contracts which remains unaffected by the provisions of the law. There are various places where the provisions for the standard form of Contract and the Upfront price is not the same.

However, there are certain contracts where this part remains un-applicable. At various places, the provisions of this part do not remain the same as in other parts. In various instances, part 2 is not usually followed. The Commonwealth law has a separate provision for the contracts of the small business. The marine salvage does not follow the provisions of the Australian Consumer Law, Part 2. These contracts are:

  • Any contracts regarding Marine Towage or Salvage

  • Any contracts dealing with the Charter party of ship

  • Any contract which deals with the transportation of goods by ship.

  • This part does not apply to the contract if it is by the Constitution of the company, any investment organization or so.

  • This part is also not applicable to small business contracts, which are prescribed by the law of Commonwealth.

Shipping Contracts have a Legal comprehensive framework which deals nationally regarding the maritime contracts. These provisions also do not apply to Insurance Contracts, as they are regulated by the Insurance Contracts Act of 1984. (Latimer, 2016) However, there are certain insurance contracts which are not dealt with Insurance Contract Act such as the health insurance contracts, State and Commonwealth Government Insurance Contract and hence these are subjected to unfair terms.

Issues Identified

The enforcement of the Act and through its term in the Parliament, the government decided to review the extension of the unfair terms of Contract. The Government issues a discussion paper including the views, problems of the small business and its stakeholders and the impact of the unfair contract terms on small business and standard form of Contracts. There were certain issues which came up regarding the application of the Unfair terms of Contract. This extension of the unfair contract terms was done to protect small business organizations, reducing the risks exposed to these business and stakeholders. However, there the unfair contract term still prevailed.

In a survey conducted, it was found that most Australian small businesses opted for Australian small business and family enterprise ombudsman (ASBFEO) for the solution of their issues and disputes. The cases contained a small proportion of those small businesses which were concerned with the Unfair terms of Contract. Most of the small businesses were hardly aware of the fact of the extension of small business and did not even know what they were. The commencement of the protection of the unfair contract terms did protect a lot of small business organizations. (Van Der Westhuizen and Evans, 2019)

There are many unfair contract terms which were found in contracts of various industries which also consisted of the building constructions, agriculture, waste management, transportation and many more. The unfair terms include:

  • Any term in a unilateral way allowing the business to cancel or end any term of a contract.

  • Any term that allows a business to increase the prices or alter or bring variations in terms of contract.renewal of terms of business which binds small business to subsequent contracts unless the contract is cancelled.

  • Terms that limit a business's liability, or indemnify a business in unreasonable circumstances.

  • Any term which puts restrictions on the sale of products to alternative buyers.

The control of these terms would strongly reduce the risks of small business organizations and improve the management of such risks. Enforcement of such terms may increase the chances of financial and opportunity loss of small business organizations. The existence of the unfair contract terms can have a huge impact on small business, which are an integral part of the Australian economy. The increased risk to them may also impact the economy of Australia. There is an unfair proportion of risk which is borne by the small business organizations. These small businesses have also played a role in increasing the employment and services provided. The increased risks might have a decreased effect on the economy of Australia. The existence of the unfair contract terms by regulators, agencies, stakeholders, which can impact the small business organizations in a negative way. (Casson, 2016)

The review of the unjust contract terms gave an account of the existence of the unfair contract terms in small enterprise contracts. The issues arising out of it are:

Lack of Deterrence

The review held the current framework of the uncertain term of contract where it is not considered to be opposed to law and does not include penalty as well. They do not provide adequate incentive for their business for proper enforcement of a standard form of contract which does not include any terms unfair in nature. The court of law decides whether a standardised form of the contract containing unfair terms is void or not. However, the court plays no role in terminating the usage of such unfair terms in the contract. The business organizations can include any term which might be unfair and later on use it with the consequences of the term. The term will continue to be in use unless it is declared unfair by the Court, after which it becomes void.

There are unfair terms in the contract about the regulations as well. These also face deterrence with boundaries. The business organizations have their proceedings which can be a negative impact. However, the start of the proceedings can help the company to alter that term in a way so that it cannot be that much threatening in nature. As per the survey by the ASBFEO, the term is voidable only when it is found by the court of law and not before that. The declaration made by the court about the term is also limited to that very term which is unfair and not the other terms. Hence Business organizations could carry on the proceedings with the other terms stated in the contract as well because the term is void and not the entire contract.

The survey held across the industries which include agriculture, waste management, franchising and so on which includes the usage of unfair terms. The lack of Deterrence in the unfair contract terms of small business portrays that the parties issuing the contract do not want to focus on those unfair terms.

The case of JJ Richards & Sons Pvt. Ltd. were taken to the court by the Australian Commission of Competition and Consumer, as it was found that they used certain unjust terms in their standard form of contracts in small business. An estimate of 10 terms in their contract was declared to be unfair by the court of law. This proved that even such industries have been using the concept of unjust terms in their small business agreements of a standardised form.

Irrespective of the surveys and the cases which are brought to the court, there still lies deterrence for many small business organizations which uses such unfair terms in their contracts. The Commission of Australian Competition and Consumer brought several cases to the court since the case of JJ Richard and sons. Several waste management companies using unfair terms were brought before the court of law proving the existence of the unfair terms in the contract. However, there still lies some limits and boundaries over the deterrence in the unfair terms present in the standard form of a contract of small business organizations.

Lack of Awareness

Despite the regulations and the survey done by the Consumer competition commission and various other commissions in Australia, there are still a lot of people and organizations which are still not aware of the protection from the unfair terms of contract which are given to them. There are various educational programs, seminars, workshops where the consumer commissions have tried to educate and create awareness among small industries about such terms and how to protect the organizations from such terms. The Victorian small business commission also tried to portray the risks of the usage of unfair terms and stated in their survey that a lot of small business organizations were still unaware about these regulations and the predominance of the protection from such unfair terms of the contract.

Such lack of awareness increases the risk related to the small business organizations and their standard form of contract due to the presence of unfair contract terms. The Victorian Commission suggested the increase in the educational programs and workshops which can turn favourable in the case of small business organizations. These programs will give them the idea about the existence of unfair terms and how to protect their organizations from the risks which emerge from these terms.

Any small business organization, has a smallholding, preferably less number of employees and stakeholders. They usually do not know about the presence of the unfair contract terms while offering a standard form of contract to the employees. The organization may also accept terms which are unfair and refuse or decide not to negotiate the terms of the contract due to small enterprise and holdings. Along with this, they do not have the idea about the consequences which the terms may cause later on. Some small businesses accept and expose themselves to the risks without any protection. They address such contracts with unfair terms to their consumers as well. The consequences of those contracts are usually overlooked and not understood by small business organizations.

At times, these organizations accept the risks exposed to them through the contract despite knowing that the terms are unfair, exposing their weaker side. they are left with no other option other than to accept the terms of the contract to keep their business in progress and not face loss. At such times, it is important to understand the terms, whether it is unfair or not. The business organizations must also have an awareness that there are means of protection available to them from such unfair terms of the contract. As referred earlier, the only way is to create awareness between the small business organizations, to educate them, to make them understand the presence of such unfair terms present in the standard form of contract and the protection which they can get from that term to reduce their risk in the course of their business and the contracts with their consumers as well.

Options Available

There are various options available to overcome the issues identified from the usage of unfair terms in contract:

Option 1: Same status

This objective allows the existing laws to function normally as before. The unfair contract term would be present in the contract of standard form in small business organizations without the violation of law or the inclusion of penalties. The business would not take the burden and the Government would take the responsibility of protecting the small business organizations from the unfair contract terms. (McKeown, Mazzarol, Rice, Soutar et. al, 2018)

By keeping the Status quo, the small business organizations would face loss from unfair contract terms. The larger business organizations usually use such unfair terms until and unless those terms are challenged in the court of law. Such companies usually gain a lot of profit by introducing such terms in their contract. They also increase the risk of small business. They increase the competitive advantage and introduce fairer terms to small business consumers. The small enterprises are more likely to accept the discriminatory contract terms due to their lack of awareness and they usually do not negotiate the terms in the contract. Regulators should invest significantly even when it is declared discriminatory by the Judicial bench. The regulators would usually reduce the usage of unfair terms in the contract because eventually if challenged, the court may declare it unfair. The various Consumer Commissions are taking steps to ensure that the standard form of contract is as per accordance with the law.

Option 2: Strengthening Abidance and Implimentation Activities

This objective encourages manager to add additional funds for strengthening their compliances and activities of enforcement. These will help them to identify the potential of the unfair terms in contract in small business, when can it be challenged and how. This option also boosts the education and awareness of the stakeholders especially of stakeholders, and small business commissioners who target to create this very awareness. (Edwards, 2019)

The addition of resources would increase the awareness about the unfair contract terms, strengthen compliance. The Commission for the Australian Competition and Consumer have tried to raise awareness workshops and procedures, especially in the waste management industries which have resulted in those industries removing the unfair terms from their standard form of contract.

However, there are certain limitations to this option. The industries did not remove those terms unless it was challenged in court and the court declared it to be unfair. The resources of the regulators are also limited. Addition of the resources for strengthening might be costly for the small business which might result in removing expenses from their priority list. Along with this, there are certainly other challenges faced by a small business which cannot be overcome through this option as they will question the potential of the unjust terms in the contractual agreement and would accept the negotiation by the other party to the contract to escape the cost of resources which would be handled by the other party who is negotiating the terms of the contract.

Option 3: The Attachment of Penalties and Making the Unfair Contract Term Illegal

This option enables the court to decide whether a particular expression in a given contract is legal or not. If the expression is found to be unjust, then there will be a penalty attached to that term. The amount of penalty and its terms will also be decided by the court of law, as per the circumstances which the court would consider as a necessity.

In case of small business, the improved compliance with the protection of little business from the unjust contract expressions works in installing confidence in small industries which would help them to negotiate the terms in the contract of standard form and reduce the usage of unfair terms. However, any term if unfair in a certain contract, it is not necessary that the other contract would treat the term as unfair. it depends on the circumstances under which the terms were created. The Unfair Contract terms are more of a business of cost and this option reduces the cost of the small business. Illegalizing the unfair contract terms may increase the certain value of the contracts of small business as the risk distribution would not be the same anymore. This might result in an increase in the upfront price of small business as the larger business will have to clear their own. This will make small business increase their cost of services or products. Contract issuing business would also be at a loss since there would not be any transfer of risk to the small business through contract.

Option 4: Strengthened Power of Regulators

Infringement Notices: The option includes the prohibition of the unfair terms of the contract as well as the authority to the regulators to issue infringement notices which would increase the effect of deterrence. It is much more of a time and cost-efficient option. The regulators may issue infringement notices if they find that the business is using prohibited procedures. It also consumes fewer resources as compared to court procedures. The addition of penalties usually leads to the addresses the unfair contract terms more than the infringement notices. (Price, 2018)

Regulator Determinations: Few of the commissions suggest that the regulators should be given the authority to determine the fair nature of the terms in the contract. Several Stakeholders have also suggested the appointment of a certain authority who would decide the term of the contract to be unfair or not. The cost would be much less and can be taken back through business proceedings. This option can be beneficial to small businesses as they may have justice and can access it more quickly than before. However, certain commissions think that regulators should not be given this role of determining as it is a contractual term and it depends on situations and circumstances on which the contract was made. The regulators too do not have that many resources which can enforce a law.

Discussion

The various issues raised had certain options which would help to overcome such issues. Status quo is usually referred to by most of the parties but the use of status quo would declare that particular term void. This might place a small business in a place where it would suffer more than before. Such a thing would be a huge discouragement for small businesses. They would be compelled to accept the unfair term despite knowing the consequences arising out of it. This behaviour from the small business would be an encouragement for the larger business to impose more of such terms in their contract as the small business would accept it eventually. Hence, the Status quo is not the best option to overcome the issues arising as it would affect the smaller business in a much worse way than before.

Any term unfair in the contract is not void on its own. The term is very much valid and enforceable. For the term to become void, it must be challenged in the court of law. The court will determine if the term is fair in nature or not. If the Court of Law declared the term unfair, then the term will become void or else it will stand valid. This option empowers the court to decide the relief. The court can encourage the alteration to be added instead of the current negotiations of the contract. The declaration of the term as void might place the party issuing that term in a position where it might be an injustice to him, for example, the termination of the contract. The small business here has the burden of proof to show the detriment caused to it by that term of the contract.

The Regulators of the contract have been given fewer duties. Their involvement in the decision of the term as unfair or not could be a plus point for business too. Commissions are encouraging the role of regulators in determining the contract term as unfair or not. The cost of appointing a regulator to do so would be recovered in the course of business and would be preferable by both the parties to the contract. The regulator is already a part of the business organization, he would send notices or prohibit the usage of any term which is unfair at the time of negotiation which would help the regulator to understand the circumstances as well.

Recommendations

There are certain provisions which still makes the usage of Unfair Contract terms prevalent. The suggested method is making the regulator present at the time of negotiation of the terms of the contract, as this would make the regulator understand the circumstances as well. Making the usage of Unfair terms illegal can also be an improving step if the Government takes the responsibility of protecting the small business from the outcomes. The role of the regulator can be much enhanced in these proceedings as he may reduce the cost of the business which will be much more in case of court proceedings. The court proceedings will take time and would only declare that specific term void and not the whole contract. The Regulator might prevent the usage of unfair terms before the enforcement of the contract and would make it easier for the business.

Moreover, if the Regulator can have access to more of the resources of law, then the cost of court proceedings will not be there. The regulator himself would reduce the usage of any term which might be unfair in the situation and circumstances which gives rise to that term in the standard form of contract in small business.

Usually, the Status quo is preferred by businesses. However, the status quo puts the small businesses in a much worse position than they were in before. The larger business gets more benefit from the Status quo option rather than the small businesses. The strengthening of compliance and enforcement activities also might sum up to overcome the issues regarding the usage of unfair contract terms. But the lack of resources might make it quite expensive. Availability of resources would make this option much better than others, but usually, the holdings of small businesses are low in comparison. Hence, it would be quite expensive for small business to overcome the cost of the resources.

Penalisations of the usage of Unfair terms makes them not publicise it more than before. The penalties usually would cause the party not to increase the usage of such terms. However, there lies a burden of proof on the small businesses to show that they have faced detriment from that usage of unfair terms in the contract of standard form used preferably by the large businesses. The court proceedings would again make the cost of such business more.

The most appropriate way would be the increase in the duties of the regulator in the consumer laws which would prohibit the usage of the terms in the contract. But care must be taken that the regulator should know the circumstances before sending notices regarding the usage of the terms. As every unfair term might not be unfair as per the situation in which the contract arose.

References

Bianchi, L. (2018). Consumer law: Changes to Australian consumer law: Key benefits for vulnerable consumers. LSJ: Law Society of NSW Journal, (50), 71.

Casson, J. (2016). Small business and unfair contract terms: changes on the horizon. LSJ: Law Society of NSW Journal, (20), 76.

Edwards, L. (2019). Corporate power in Australian policy-making: The case of unfair contract laws. Australian Journal of Public Administration, 78(4), 516-529.

Freeman, A. (2018). Contracting with small businesses: include unfair terms in your standard form contracts at your peril. The APPEA Journal, 58(2), 550-552.

Latimer, P. (2016). Protecting consumers from unfair contract terms: Australian comparisons.

Lewins, K. (2016). Cruise Ship Operators, Their Passengers, Australian Consumer Law and Civil Liability Acts: Part Two. Austl. & NZ Mar. LJ, 30, 12.

McKeown, T., Mazzarol, T., Rice, J., Soutar, G., Hanson, B., & Adapa, S. (2018). Inspiring future workplaces: An Australian and NZ small business perspective. Small Enterprise Association of Australia and New Zealand (SEAANZ). www. seaanz. org.

Pearson, G. (2017). Further challenges for Australian consumer law. In Consumer Law and Socioeconomic Development (pp. 287-305). Springer, Cham.

Price, J. (2018). The regulator: Supporting small business. Company Director, 34(8), 32.

Simons, J. (2018). Unfair contract terms and small business contracts: Lessons from initial enforcement actions. Bulletin (Law Society of South Australia), 40(9), 17.

The Australian Consumer Law

Trade Practices Act, 1974

Van Der Westhuizen, C., & Evans, P. (2019). ACL Unfair Contract Terms and Standard Construction Contracts. U. Notre Dame Austl. L. Rev., 21, 1.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Australian Consumer Law Assignment Help

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