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					                                                                                                         to investigate whether other regulatory
                                                                                                         measures are necessary. It has largely
                                                                                                         been accepted, both in Australia and
                                                                                                         overseas, that consumer protection
                                                                                                         in the realm of business-to-consumer
                                                                                                         contracting is appropriately achieved
                                                                                                         through legislative intervention. To this
                                                                                                         end there is much we can apply here
                                                                                                         from the approaches taken in the UK and




                                                                                         tamara graham
                                                                                                         US to unfair contract terms.

                                                                                                         How wet are we?



Not so unfair
                                                                                                         In Australia unfair contract terms are
                                                                                                         consistently inserted into business-to-
                                                                                                         consumer contracts to the detriment of
                                                                                                         the consumer. Such terms include, for




elsewhere
                                                                                                         example, that a consumer must continue
                                                                                                         to pay for gym membership despite being
                                                                                                         unable to attend the gym, that a hire car
                                                                                                         going in reverse will not be covered by
                                                                                                         the rental company’s insurance, and that
Progress on regulating unfair contract terms                                                             it’s okay for a business to unilaterally
is slow — but we can learn much of value, says                                                           alter the terms of the contract at a later
                                                                                                         date.
SIMONE WATSON, from similar reform paths taken                                                               On the positive side, Victoria has
                                                                                                         introduced, by amendment to the
in the UK and US.                                                                                        Fair Trading Act, provisions to protect



T
                                               exemplify the type of contracting                         consumers against unfair terms. These
       he deluge of unfair contract terms
                                               relationship envisaged by those who                       do not, however, provide protection
       continues to grow. It does not
                                               developed the theory of contract.                         against terms contained in consumer
       discriminate nor is constrained to
                                                   The traditional theory, known as                      credit contracts. Australia does not
any particular type of industry nor to a
                                               freedom of contract, is based on the                      have any other legislation that provides
particular type of consumer. The ‘El Niño’
                                               idea of two parties who were able to                      effective and specific protection against
industries that are currently being blamed
                                               negotiate on an equal footing, voluntarily                unfair terms.
for the flood of unfair terms include the
                                               agree on all terms, and reduce their                          There are other pieces of legislation
car hire, mobile phone, fitness and
                                               understanding to a written form                           that offer elements of protection on
financial services industries. These
                                               intended to embody their full agreement.                  an individual basis — for example,
industries are currently the most visible,
                                               It may just be that the last contract that                where, apart from an unfair term, there
but it would not be difficult to find unfair
                                               fitted this model was signed prior to the                 are circumstances which bring into
contract terms in a number of others.
                                               turn of the 18th Century.                                 question the fairness of the way the
    Those caught without shelter include
                                                   This idea is certainly a far cry from the             deal was done. This is called procedural
all kinds of consumers, from the most
                                               realities of today’s fast paced, take-it-or-              unfairness.
literate (linguistically and financially) to
                                               leave-it environment where consumers
the poorest. Unfair terms do not
discriminate. Regardless of the individual
                                               regularly enter into contracts they are                   The UK approach
                                               actively discouraged from reading or                      Regulation of unfair contract terms in
characteristics of the consumer, everyone
                                               negotiating and which are written in                      the UK is achieved through two primary
is getting wet. Australia’s current laws do
                                               indecipherable language anyway.                           pieces of legislation — the Unfair
not provide an effective shelter from this
                                                   The effect is common law based on a                   Terms Act 1977 and the Unfair Terms in
downpour.
                                               modern day myth. The law of contracts                     Consumer Contracts Regulations 1999.
Shaky foundations                              was not designed for and does not cover                   The Unfair Terms Act is largely concerned
                                               the problems encountered in everyday                      with terms that exclude or restrict
The main issue with business-to-
                                               business-to-consumer contracting.                         liability whereas the Unfair Terms in
consumer contracts is they really don’t
                                                   Where established law fails to                        Consumer Contracts Regulations regulate
                                               adequately provide for the rights and                     unfair terms.
Simone Watson is senior research assistant
                                               obligations placed on parties, and this                      The Regulations were initially enacted
with the Centre for Credit and Consumer Law
at Griffith Law School.                        is detrimental to society, it is necessary                in 1994 and have been through a series


                                                                                                                                 SUMMER 2006 27
 of amendments, the most recent being           Regulatory action in the UK
 1999. The objective of the Regulations
 is to:                                                                Complaints      Regulatory Action
 •	 harmonise the laws in EU member                                    about unfair    Terms           Number of        Undertakings
     states with respect to unfair contract      Year                  contracts       abandoned       businesses       given
     terms;                                      2003–2004             1102            1541            117              116
 •	 ensure that contracts concluded with         2002–2003
     consumers do not contain unfair                                   1310            1649            na               142
                                                 (Jan 02–Mar 03)
     terms;                                      2002–2003
 •	 protect acquirers of goods and                                     1055            1487            na               na
                                                 (Apr 02–Mar 03)
     services against the abuse of power         2001                  1167            654             na               na
     by the seller or supplier, in particular
                                                 2000                  1205            758             na               na
     against one-sided standard contracts
                                                 1999                  1359            na              na               na
     and the unfair exclusion of essential
     rights in contracts.                        na: not available
     This was to be achieved by the
 Regulations rendering invalid any              “contrary to the requirement of good           practical outcomes for consumers in the
 unfair terms in standard-form consumer         faith, it causes a significant imbalance in    UK over 1999–2004.
 contracts. The Regulations have the            the parties’ rights and obligations arising        The most successful challenges — that
 potential to apply to a wide variety           under the contract, to the detriment           is, where the user has provided an
 of contracts. Their scope is limited to        of the consumer”. When determining             undertaking not to use the term — were
 contracts that are:                            whether a term is unfair these matters         clauses that purported to:
 • between a seller or supplier and a           will be considered:                            •	 exclude or limit a trader's liability for
     consumer, and                              •	 the nature of the goods or services to          breaches of the contract;
 • have not been individually negotiated.           be provided under the contract;            •	 apply financial penalties that were not
     A consumer is defined to mean “any         •	 all of the circumstances surrounding            a genuine pre-estimate of damages;
 natural person who … is acting for                 the conclusion of the contract. This       •	 disclaim liability for statements made
 purposes which are outside his trade,              assessment is to be made at the time           by employees;
 business or profession”. Seller or supplier        of conclusion of the contract;             •	 make unfair price variations.
 has been defined to mean “any natural          •	 all other terms of the contract;
 or legal person who … is acting for            •	 the terms of any other contract on          The US approach
 purposes relating to his trade, business           which the contract in question is          In comparison to the harmonised
 or profession, whether publicly owned or           dependent.                                 regulation of the UK and EU, the US
                                                                                               operates under a more state-based
                                                                                               system with overarching doctrines and
There is much we can apply here from the                                                       uniform codes. The two underlying
                                                                                               doctrines that underpin many of the US’s
approaches taken in the UK and US to unfair                                                    unfair contract terms regulations are the
                                                                                               obligation of good faith and fair dealing
contract terms.                                                                                and the doctrine of unconscionability.
                                                                                               State laws are often drafted around these
 privately owned”. The Regulations do not           A non-exhaustive and indicative list       two basic doctrines.
 provide a definition of ‘contract’ although    of terms that may be regarded as unfair            Good faith may mean “honesty in
 it is likely they apply to both written and    (e.g. unilateral rights of termination), is    fact as far as the conduct or transaction
 oral contracts.                                also included in the Regulations. This list    is concerned”. In the case of a merchant
     The Regulations specifically exclude       is supplemented by bulletins produced by       good faith means “honesty in fact and
 individually negotiated contracts and          the Office of Fair Trading (OFT).              the observance of reasonable commercial
 terms that are in plain, intelligible              If a term is unfair then either the        standards of fair dealing in the trade”.
 language that define the main subject          consumer, the OFT or a qualifying body         As this definition incorporates the
 matter of the contract or which concern        is empowered to take action in relation        notion of fair conduct it can apply to
 the price or remuneration for the goods        to an unfair term. If the Director of the      curb the use of unfair terms in consumer
 or services obtained. Also excluded are        OFT considers a term to be unfair then         contracts. For example, in one instance
 specific types of contracts such as those      the OFT may apply for an injunction            it was recognised that good faith may
 for employment, incorporation and              preventing the use of that term or have        act to limit a bank’s discretion when
 organisation of companies.                     the party enter into an undertaking to         setting fees under bank-depositor
     A term will be regarded as unfair if       that effect. The table above illustrates the   contracts.


 28 CONSUMING INTEREST
    The doctrine of unconscionability       4. there must be a likelihood of
enables the courts to refuse to                consumer surprise at the effect of
enforce or strike out terms that               the terms of the contract.
are unconscionable. The principle           Here is a summary of terms that are          The Consumers’ Association uses the
has been stated to be one of “the              likely to be able to be challenged in     media to debate important consumer
prevention of oppression and unfair            the UK and the US:                        issues in the public arena. Here are some
surprise … and not of disturbance           1. terms that take a consumer by             recent press clippings and coverage …
of the allocation of risks because of          surprise by reducing existing rights
superior bargaining power”. In looking         or protections;
at unconscionability the court must         2. unknown prices or prices that can         Concern over trail commissions must
have regard to issues such as the              change;                                   extend to superannuation
commercial setting, purpose and effect      3. a term that allows the trader to          Commenting on the investigation into trail
of the contract.                               change the terms of the contract          commissions by the Australian Consumer
    Following these guidelines, a              unilaterally;                             Association, released today, Industry Super
                                                                                         Funds spokesperson Garry Weaven said, ‘The
term contained in a contract for the        4. any term that permits the trader
                                                                                         Australian Consumers’ Association has done
sale of goods may be considered                to withhold the consumer’s money
                                                                                         all Australians a real favour. By investigating
unconscionable if the consumer                 regardless of non-performance.            trail commissions paid to financial planners
does not have a meaningful choice,          5. any term that provides for an             by fund managers they have highlighted a
the terms favour the seller when               automatic renewal of the contract         real issue consumers may not be aware
consideration is had to commercial             without providing the consumer            of. We would like the Australian Consumer
standards and the consumer is likely           with a reasonable opportunity to          Association to go one — significant — step
to be surprised by the operation of the        cancel the contract;                      further and investigate trail commission
terms.                                      6. exclusion terms in respect of             arrangements in superannuation.’
    It is the usual case that damages          personal injuries or death;                 Media release, Industry Fund Services Pty Ltd,
will not be awarded but that orders for     7. penalty clauses;                                                                6 October
restitution will be made and the term       8. any term that limits basic legal
rendered unenforceable.                        rights. Such terms may include            Look into my eyes
                                               an express waiver of the property         Jackson says that it is official that obesity is
US and UK together                             protection provisions in the case of      a problem of western society. Jackson asks
While the formulations in the UK and           bankruptcy.                               who is at fault? Clare Hughes from [ACA] says
US legislation appear different, upon                                                    … there is a smoke and mirrors campaign
analysis they are extremely similar. In     Now apply it here!                           that is highlight[ing] the healthy aspects and
the UK only standard-form contracts         While the laws in both jurisdictions         ignor[ing] the nasties of food.
are covered — and the US law is             are strikingly similar the greatest                     Media Monitors, ABC 936 Hobart with
activated where the consumer lacks          point of difference is in respect to their                     Trevor Jackson, 10 November
a meaningful choice. The result is the      administration. In the UK the OFT
same — the consumer is presented            operates as a central administering          Why our kids are getting deeper
with a “take it or leave it” proposition.   body with the power to take action           in debt
   The “no net harm or detriment”           to prevent unfair terms in business-         Nick Coates … has real concerns that
requirement is also present in both         to-consumer contracts. In the US it          the youth market is a target for financial
                                                                                         institutions pushing credit, singling out the
jurisdictions. The UK and US law            is largely up to the consumer to seek
                                                                                         ‘mini’ credit card.
require that all other terms of the         to have an individual term declared
contract must be considered when            invalid. Due to the small amounts of                       Julie Macken and Joyce Moullakis,
                                                                                          The Australian Financial Review, 12 November
analysing the overall effect of the         money in issue this is often not cost-
contract.                                   efficient.
   Both the UK and US laws require              The US system, therefore, is not
                                                                                         Rise of e-shopping
consideration of the following factors      as effective as the UK system in             Lisa Tait … says that, with precautions,
when making a determination of              bringing about widespread changes            online shopping can be a good option …
                                                                                         The important thing is to look for that little
unfairness:                                 in the terms of standard business-to-
                                                                                         padlock [on the bottom right-hand side of the
1. the consumer is disadvantaged as a       consumer contracts. If Australia is to
                                                                                         browser status bar] because that’ll let you
   result of the provisions;                introduce wider unfair contract terms        know that the company has taken precautions
2. the provisions must unreasonably         regulation then it is essential that the     to make sure it’s safe from hackers.
   favour the trader;                       laws are consistent across states and
                                                                                            Owen Thomson, The Sydney Morning Herald,
3. the consumer must not have a             that a central administering body has                                        5 November
   reasonable choice in relation to the     power to police and take action on
   terms of the contract;                   unfair terms.                           ci

                                                                                                                      SUMMER 2006 29

				
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