VIEWS: 4 PAGES: 3 POSTED ON: 4/26/2010
Not so unfair elsewhere
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
"Not so unfair elsewhere"