Weathering the Stormy Seas of Unfair Contracts

Due to such an excellent response to the September publication of ‘Unfair contract terms’ this article will look specifically at unfair contract terms where the contract does not fall under the spotlight of the newTrade Practices Amendment (Australian Consumer Law) Act (No 1) 2010 (Cth), herein known as the ‘ACL’, that is where the contract isnot considered a ‘Standard Form Contract’.

ACL Refresher

To refresh your memories the ACL aims 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 a standard form consumer contract.

The term ‘Standard form’ is not defined in the legislation however; it usually means that the same terms are offered to all without negotiation. (For further information on ‘Standard form’ contracts please refer to the September issue of Marine Business or contact the writer’s office.)

Therefore, I hear you ask if the contract is not a ‘Standard Form’ and there have been negotiations between the parties in respect to the terms, how can these negotiated contracts be considered unfair?

General Contract

Not unlike the ACL, general contract law also derives its power from common law or judge made law, however unlike the ACL, general contract law principles are not enshrined in legislation and able to change as different matters are brought before the court. And while in this case action may be taken pursuant to the Contracts Review Act 1980 this article specifically deals with common law principles. Therefore, the concept of what is unfair will vary from case to case. And even though a one off contract appears to be negotiated in good faith there may still be room for one of the parties to claim that the terms were unfair. As the saying goes the list of potential scenarios and unfair terms is, ‘as long is a piece of string’. Having said that two enunciated principles will be dealt with using the following hypothetical as a point of discussion. The example which comes to mind is where one party is forced into accepting the terms of a contract as the following circumstances appear not allow any other option.

The Stage

It can be argued over recent years there has been a shift against acceptance of live-aboard boaties on Sydney harbour marinas. It is possible this change in acceptance has occurred as a result of numerous forces coming into play such as; difficulties over the years in gaining marina development approval which has placed pressure on existing marinas; political pressure as a result of the increased value of Sydney water front properties and their occupant’s expectations; changes to the use and commercial development of the Sydney waterfront and where marina development has been successful this development being at the upper end of the boating spectrum and pressure as a result of NSW Maritime Lease costing. However, the juxtaposition to all these forces is that not all boaties are millionaires and the ordinary live-aboard boatie exists regardless of the type of vessel. And while there are limitations imposed on these boaties with respect to staying on their vessel if not travelling between ports, the rules around staying on a marina are dependent on the agreement between the marina operator and the boat owner.

The Circumstances

In our scenario Norm and Jean an elderly couple, have been living on a marina for many years that is now earmarked for redevelopment. Rent is paid on a weekly basis and always paid on time. The previous owners of the marina had a genuine interest in boating, regardless of what vessel, and have been replaced with developers with no real interest or commitment to the average boatie. The new owners have approached Norm and Jean with a new contract whose terms stipulate amongst many other terms;

  • that no battery charging will be done while the owner is not on the vessel,
  • that every time the owner leaves the vessel all batteries must be disconnected,
  • the new marina owner will not be liable or responsible for any damage caused by it or its marina to the vessel owner or its vessel.
  • that the owner or any other person cannot stay on the vessel overnight or for extended periods of time.

Further, the new owners inform the couple that they have 7 days to negotiate any changes and sign the contract or otherwise vacate the marina.

While it is a general principle of Contract Law that the parties can included any term provided it is not unlawful the agreed terms have to be not only fair and reasonable to both parties but the circumstances which the parties enter the contract must be seen to be fair and reasonable. And in our hypothetical scenario it may be argued that the marina operator has not been fair and reasonable on both counts.

The First Count

One of the main issues is that the bargaining position is not equal between the parties with the new marina operator taking advantage of its position of power (procedural fairness) forcing the boaties hand, a form of duress, as:

  • The marina operator has been unreasonable in limiting the period for execution of the contract,
  • There is little time for receiving legal advice,
  • There is little time to negotiate and adding to this pressure may be the fact that Norm and Jean are fully aware of the lack of availability of marina births for his type of boat,
  • Norm and Jean’s age in this case may also be significant,
  • The fact that Norm and Jean have lived on the marina for numerous years and paid rent regularly,
  • And without a formal agreement.

The Second Count

The terms also may be viewed as unfair and unreasonable (substantive fairness) as:

  • Within in the marine environment it is a general accepted principle that battery charging is required on all vessels,
  • Within the marine environment batteries are generally left attached and an isolating switch is used,
  • The above practices are widely accepted at all other marinas,
  • In respect to the marina operator insurance it cannot contract out of its statutory responsibility,

However, when viewed in terms of the circumstances it appears the terms are not only unreasonable in respect to stopping living aboard but drafted to make Norm and Jean’s life unreasonably difficult given the terms relating to the battery connection and charging is beyond usual boating practice.

  • They have been living aboard for numerous years and there has been no significant change to the marina facilities,
  • The marina advertises that it has full service facilities i.e. toilets and showers.
  • The marina’s ability to host live aboard has not changed.

The reality is while it could be argued that the terms, rightly or wrongly, could be enforced when viewed in the circumstances the terms may be considered unfair and not enforceable.

While some may think the hypothetical is over the top each individual’s circumstances are relevant, and not unlike the Standard form contract, when a marine business is considering drafting a contract the terms should consider amongst other things the bargaining position of the other party.

The difficulty for business is to determine what is unfair, where a term may be seen unfair in one particular contract; this does not automatically mean it is unfair to include it in another, as it depends on the particular circumstances. In some cases determining whether a term is unreasonable or unfair is very difficult and marine business will have to be prudent and consider each agreement on its merit and how it is entered carefully.

Below is a general guide that may be considered when drafting general contracts;

  • Consider what terms are important for the business (non-negotiable)
  • Consider what terms are negotiable
  • Be prepared to negotiate
  • Be reasonable in negotiating
  • Allow flexibility in the terms where possible
  • Consider individual characteristics such as income and ability to pay by the other party.
  • Terms should be clear and transparent.
  • Contracts simple and well drafted
  • Terms should be drafted so that whole contract will not fail if individual terms fail
  • Forums for resolution should be made clear and
  • Processes of resolution spelt out
  • Parties should be allowed time for legal advice and
  • The contract should be signed by all parties and dated

Please note these suggestions are not a definitive list only a general guide and legal advice should be sought when reviewing or drafting new agreements.