With the enactment of the new Trade Practices Amendment (Australian Consumer Law) Act (No 1) 2010 (Cth), which will be referred from here on in as the ‘ACL’, I can already hear the reader sighing and muttering “not more legal hoops to jump through”! However, it can be argued that this legislation has not burdened business further, as the principles underpinning the new national consumer legislation are not new, existing in one form or another prior to this legislation being enacted. And further, there was no or little conformity between the different state’s consumer contract laws. Therefore, as a result of this conformity there are benefits for the consumer and business due to consumer laws being standardised across all state and territory borders. And without wanting to seem to enthusiastic about the new legislation, it does have the potential to offer clearer guidance to the marine business when reviewing their consumer contracts.
Who is not affected?
The ACL is not applicable in respect to:
- business to business transactions as one of the parties involved in the contract must be an individual, acquiring the product or service wholly or predominantly for personal, domestic or household use or consumption.
- certain shipping contracts-marine salvage or towage, ship charter parties, contracts for the carriage of goods by ship.
- contracts that are Constitutions of companies, managed investment schemes or other kinds of bodies
- contracts covered by the Insurance Contracts Act 1984
Therefore, as far as commercial agreements go between businesses the ACL has no effect and it will be smooth sailing for business.
Similarly, there are particular terms within a contract that are not covered by the ACL being:
- terms which define the main subject matter of a consumer contract. This includes those that define the product or service being supplied.
- terms that set the upfront price payable under the contract; provided it was disclosed before the contract was entered into.
- terms that are required, or expressly permitted, by a law of the Commonwealth or a State or Territory. For example for those that limit liability under the TPA.
Who is affected?
The aims of the ACL are to correct any imbalance of bargaining power that may exist between business and the consumer, where the consumer is given little or no opportunity to negotiate when entering into astandard form consumer contract (consumer contracts).
“The bottom line is that unfair terms in new, renewed or altered
existing consumer contracts on or after 1 July 2010 will be seen as void”.
Therefore, consumer contracts that are entered into prior to 31 June 2010 will not be affected unless the terms are altered or renewed.
So what does this mean for the marine business that sells to the potential new owner of a vessel? Business should be proactive and it would be a prudent marine business that gets its existing consumer contracts reviewed by a competent lawyer and any contracts the business wishes to alter or renew.
How does the business owner recognise what is a Standard Form Contract?
The ACL starts with the presumption that all consumer contracts are standard form contracts, so the range of contracts affected by this new law potentially is very wide. The task of proving that the consumer contract is not a standard form contract is then left up to the marine business wishing to rebut this presumption by presenting evidence to this effect. Therefore, the business should keep good written records of conversations, diaries and any other evidence that not only assists business generally with doing business but also in the event of a dispute.
The term ‘Standard form’ is not defined in the legislation however, it usually means that the same terms are offered to all without negotiation. If your business is concerned about being caught by the legislation the following suggestions may assist your marine business in the provision of non-standard customer contracts.
- Business should tailor their agreement to suit the client and
- Allow terms to be varied where possible and
- Allow flexibility in contracts and
- Tailor contracts to suit the customers individual characteristics such as income and ability to pay and
- Allow the boat owner to negotiate terms.
Please note these suggestions are not a definitive list as courts have discretion to take other matters into account. However, if the contract meets the above criteria it would be most likely that the contract was considered a non-standard customer contracts.
When will a term be deemed to be unfair?
If your contract is found to be in a standard form then the next question for the court is whether a term is unfair. While the court can rely on various factors there is a three limbed test for unfairness and each limbmust be proven on the balance of probabilities.
Therefore, when a marine business is considering drafting new or reviewing old contracts the terms of those contracts should be considered with respect to the following test;
A term will be deemed unfair where it:
- would cause a significant imbalance in the parties’ rights and obligations arising under the contract.Therefore, for business to avoid a term being considered unfair the customers circumstances such as income, financial and other relevant matters should be considered.
- is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term.Put simply are each of the terms in the contract absolutely necessary or required to protect the commercial interest of the marine business.
- would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.This question is far more difficult for business to pre-empt as the court is being asked to consider circumstances where there may be other forms of detriment such as delay or distress suffered by the consumer due to the unfair term and not merely financial detriment. Therefore, a business needs to be prudent when considering the circumstances of their customers before a contract is entered into.
Additional to the above test further relevant matters can also be considered and a Court must also take into account:
- the extent to which the terms are transparent; and
- the contract as a whole.
When are terms Transparent?
In reviewing consumer contracts a business should also consider whether the terms of their contracts are transparent. A contract is considered to be transparent if it is expressed in reasonably plain language, it is legible and it is presented clearly and is readily available to any party who may be affected by the term.
Note, a term which does not meet the transparency requirement will not necessarily be seen as unfair and transparency on its own account will not necessarily overcome any underlying unfairness that is already present in a term of a contract.
The contract as a whole
This emphasises the importance of context such as; when, where and how the contract was entered into. Whilst a term may be seen unfair in one particular contract, this does not automatically mean it is unfair to include it in another contract as it depends on the particular circumstances. The meaning of context is very difficult to define and the marine business will have to be prudent and consider each agreement and how it is entered carefully.
Effect of the legislation
While some of the above tests may seem overburdening there are some positives as the ACL encourages the use of Alternative Dispute Resolution (ADR), in order to attempt to resolve a dispute with a business before any legal action is taken. Therefore, the may be a cost saving benefit to business.
Further, if a term is found to be unfair it will be deemed to be void, however the contract will continue to bind the parties provided the remaining contract is capable of operating without that term. Therefore, it is important when reviewing your consumer contracts that the contract is considered from the perspective of being able to operate despite terms being considered void.
If a term in your contract is deemed unfair then business should be aware that either the ACCC, ASIC or individual parties to the contract may apply to the Court for a declaration that the term of the contract is an unfair term. And if a declaration is made by the Court that a term is unfair, it is a contravention of the ACCL to continue to rely upon, or apply the unfair term.
Finally, the importance of getting the contract right is highlighted further with the possibility of an application for compensation by consumers who have suffered loss as a result of an unfair term being included in a contract.
What to do now?
A business should get its standard form contracts reviewed and consider where possible using non-standard consumer (flexible) contracts where terms are tailored to suit the customer. In both these scenarios a competent commercial/contract lawyer will be able to assist.
Where a consumer contract has been entered into prior to the 1 July 2010 this contract will only be subject to the ACL if it is renewed or varied on or after the 1July 2010. Therefore, business does not have to consider reviewing until required that is;
- for renewed contracts the new laws will only apply to the contract as renewed, in relation to conduct that occurs on or after the renewal day.
- for varied contracts, the law will only apply to a term as varied, in relation to conduct on or after the date of variation.
The issues for marine business to consider are that it needs to be aware of the potential for a claim if the terms of its consumer contracts are unfair. And further, the risk from giving up rights under the contract and the subsequent financial losses that flow should be weighed against the cost of obtaining good legal advice.