Principles of Business Law Semester 2 2024 PDF

Principles of Business Law Semester 2 2024 TOPIC 9: CONSUMER LAW UNFAIR CONTRACT TERMS Unfair contract terms: Overview  The common law is largely unconcerned whether terms are “fair”.  Under the doctrine of freedom of contract, it is “fair” to hold the parties to whatever they agre...

Principles of Business Law Semester 2 2024 TOPIC 9: CONSUMER LAW UNFAIR CONTRACT TERMS Unfair contract terms: Overview  The common law is largely unconcerned whether terms are “fair”.  Under the doctrine of freedom of contract, it is “fair” to hold the parties to whatever they agreed to.  However, consumers and small businesses often lack bargaining power. It is also well-known that people often sign contracts without reading them.  Businesses know this, and thus know they can include one-sided/”unfair” terms in the contract without being concerned that such terms will be noticed.  L’Estrange v F Graucob  Ch2, Pt 2-3 of the ACL provides that unfair terms in ‘consumer contracts’ and ‘small business contracts’ are void. Unfair terms regime: Overview  S 23: declares ‘unfair’ terms contained in standard form consumer contracts and standard form small business contracts void.  S 24: defines ‘unfair’ and lists factors relevant to determining whether a term is unfair.  S 26: excludes terms that define the main subject matter or upfront price from the reach of the regime.  S 28: excludes certain types of contracts from the reach of the regime. Contracts to which the unfair regime does not apply: s 28 The unfair term regime does not apply to:  Contract of marine salvage or towage: s 28(1)(a)  Charterparty of a ship: s 28(1)(b)  Contract for the carriage of goods by ship: s 28(1)(c)  Contract that is the constitution of a company, managed investment scheme or other kind of body: s 28(3)  Contract for the supply of financial services or financial products – they are regulated by the Australian Securities and Investments Commission Act 2001 (Cth): s 131A Australian Competition and Consumer Act 2010  Section 15 Insurance Contracts Act 1984 (Cth)  unfair terms regime does not apply to terms that are regulated by this Act Terms to which the unfair terms regime does not apply: s 26(1) The unfair term regime does not apply to a term of a consumer contract or small business contract to the extent, but only to the extent, that the term: a) defines the main subject matter of the contract; or b) sets the upfront price payable under the contract; or c) is a term required, or expressly permitted, by a law of the Commonwealth, a State or a Territory. The ‘upfront price’: s 26(2) The upfront price payable is the consideration that: a) is provided … for the supply, sale or grant under the contract; and b) is disclosed at or before the time the contract is entered into but does not include any other consideration that is contingent on the occurrence or non-occurrence of a particular event. Unfair contracts terms regime: s 23 Section 23 ACL (1) A term of a consumer contract or small business contract is void if: (a) the term is unfair; and (b) the contract is a standard form contract. (2) The contract continues to bind the parties if it is capable of operating without the unfair term. Section 23(3): Consumer contract A consumer contract is a contract for: a) a supply of goods or services; or b) a sale or grant of an interest in land; to an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption. Section 23(4) Small business contract NOTE: The ACL was amended on 10 November 2023. A small business contract is a contract for: a) a supply of goods or services or a sale or grant of an interest in land; and b) at least one party to the contract satisfies either or both of the following conditions: the party makes the contract in the course of carrying on a business and at a time when the party employs fewer than 100 persons; and/or the party's turnover for the party's last income year that ended at or before the time when the contract is made, is less than $10,000,000. Standard form contract  The ACL does not define the term ‘standard form contract’.  ACCC Guidelines “In broad terms, a standard form contract will typically be one that has been prepared by one party to the contract and is not subject to negotiation between the parties – that is, it is offered on a ‘take it or leave it’ basis” Section 24: unfair Section 24 provides a definition of ‘unfair term’. A term of a consumer contract is unfair if it: (a) would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and (b) is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and (c) would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied upon Section 24(2) in determining whether a term is unfair, the court may consider any matter it thinks relevant but it must consider: (d) the extent to which the term is transparent; (e) the contract as a whole. Unfair terms: NRM Corporation v ACCC FPBCL p 395-6 Facts  NRM acquired AMI  AMI employed doctors as ‘indirect contractors’ to prescribe AMI products to patients and directed the doctors to recommend that AMI products be used for periods of 12 to 18 months  The contract between AMI and its customers included a term which:  defined the length of the contract by reference to the period recommended by the doctor  allowed the consumer to cancel the treatment program by giving 30 days’ notice, but if they did so they had to pay a cancellation fee equivalent to 15% of the entire cost of the treatment program Unfair terms: NRM Corporation v ACCC Issue  Was the cancellation term invalid under the unfair terms regime? Decision  The cancellation term was invalid Reason (does the unfair term regime apply to this type of contract?)  The contract was a consumer contract – the consumer acquired the goods and services for personal use  The contract was a standard form contract – it was prepared by AMI and presented to consumers on a take-it or leave-it basis Unfair terms: case example: NRM corporation v ACCC Reason (is the term unfair?) The term was unfair  Significant imbalance: AMI would not face similar consequences if it decided to terminate the contract  Not reasonably necessary: the term was too broad – it applied irrespective of the reason for termination – it would apply even if the consumer stopped treatment because of adverse side effects  Cause detriment: consumer must pay a penalty for terminating the contract