The Australian Consumer Laws (ACL) has indeed changed the marine business seascape with amongst many changes; contractual terms and consumer guarantees being discussed below with a view to helping your business navigate its way with some practical tips.
Part 1
What sort of contract should my business use?
Apart from purchasing a home purchasing a boat is the second largest purchase of most prospective owners. But unlike the laws and legal processes that control and guide the home purchasing process, such controlling laws do not govern purchasing a vessel. Here in lies a quandary for the marine industry, how not to loose the sense of fun and freedom that the purchaser experiences while still protecting your business.
The commissioning a vessel may be as simple as an on the spot purchase through to a long drawn out detailed plan and it’s this variety in circumstances that will dictate the level of contractual appropriateness your business requires.
A risk that business faces under the ACL, is using a standard form contract inappropriately being where the fixed terms may be considered unfair. 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. Given this presumption and so as to avoid the task of proving that the consumer contract is not a standard contract, an individual contract drafted specifically for those large purchases will save the business a lot money in the long run.
- Therefore, a rule of thumb could be the more expensive the purchase, the more flexible and individualised the contract should be.
However, if it’s the practice to sell mid-size costly items such as engines and runabouts using fixed contracts 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 these contracts:
- Be certain that there is no requirement (practically) to tailor your agreement
- Keep good records of all discussions
- Get signatures from clients
- Keep all emails and correspondences
Or:
- 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.
When will a term be deemed to be unfair?
If your contract is found to be in a standard form then the next question is whether a term is unfair. While the court can rely on various factors there is a three-limbed test for unfairness and each limb must 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, hence the importance of keeping good records. 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.
Part 2
Consumer Guarantees
A main consideration for the marine business to understand in regards to the consumer guarantees under the ACL is the 180 degree shift away from considering goods from the business’s perspective, with terms such a ‘trades-man-like-manner’, to viewing goods from the consumers perspective using terms such as ‘acceptable quality’.
This shift can be viewed where under the ACL an ‘affected person’ may pursue damages against a manufacturer of goods, if the manufacturer has, in trade or commerce, supplied goods to a consumer that are not of ‘acceptable quality’. Goods here aren’t just referring to the finished product, but also include any accessory or component parts. This means a consumer is able to sue a person who makes, assembles or simply applies their own name, brand or mark on goods or imports goods, where the quality is not acceptable. A claims under the ACL means a claim against either an individual or a company.
Acceptable Quality
So what is ‘acceptable quality’ as with most things in law its not black and white. The question is would a reasonable consumer still have purchased the goods had they known about the flaw at the time of supply. In making this determination, the court will look at the nature and price of the goods, statements or representations made about the goods by the manufacturer, as well as any other relevant circumstances. These include whether the goods:
- were fit for all the purposes for which they are commonly supplied, free from defects
- are of acceptable appearance and finish
- are safe
- and finally are durable to the extent that a reasonable person would regard as acceptable.
Safety Defects
One significant difference between the old TPA and the new ACL is that the TPA was silent on the safety of services with legal action only available in regards to the safety of a product. The legal test in relation to safety defects is, ‘are the goods (products and services) not as safe as a person is generally entitled to expect?’ Again, there is no definitive answer as this is an objective standard of safety based on community knowledge and expectations.
However, the assessment decision is not all lost in the wash at sea, there is some guidance in the act which states the court should consider:
- the circumstances including the manner and the purposes for which the goods have been marketed
- any instructions or warnings in relation to the goods issued a the time of purchase
- what use might reasonably be expected.
A significant feature of the ACL that can assist business as to whether a guarantee should be honoured is how the goods were treated, for if it can be shown that the goods were abused or not used as originally intended the guarantee will be void. However, in some case guarantees can be extended where goods should have lasted longer than the prescribed period.
The issue for your business to understand in respect to the ACL is that the balance has swung toward the customer which, can have serious outcomes if business is not proactive in considering how it does business. Whether, assessing the type of contract that is required or considering its products and services in respect to guarantees, by understanding the changes and seeking the right advise future difficulties will be minimalized ultimately saving the business much cost and heartache.