CONSUMER CONTRACTS

Question 1

Scope of the ACL

- when/what does it apply to ?

Answer 1

• Applies to ‘consumer contracts’ (although that definition differs between Parts)
○ contracts entered into on or after its commencement
○ contracts renewed on or after its commencement in relation to conduct occurring on or after the renewal day
○ contractual terms varied on or after its commencement in relation to conduct occurring on or after the variation day
• Does not apply to financial products or financial services – they are regulated by the Australian Securities and Investments Commission Act which largely mirrors the ACL for financial products or services

note: commencement 1 January 2011

Question 2

Unfair Contractual Terms (what section)

Answer 2

Part 2-3 ACL

Question 3

When is a term of a consumer contract void?

Answer 3

section 23(1)

(a) the term is unfair; and
(b) the contract is a standard form contract

Question 4

3 questions to ask to determine if a term is void for unfairness

Answer 4

1. Is the contract a consumer contract?
2. Is the contract a standard form contract?
3. Is the term unfair?

Question 5

Is the contract a consumer contract (for unfairness - part 2-3)?

Answer 5

□ (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
□ Note: must be an individual
□ Note: Focus on the actual purpose; not limited to goods of a personal, domestic or household nature

Question 6

Is the contract a standard form contract?

Answer 6

§ Presumption towards the existence of a standard form contract: if the party (ie. the consumer) challenging the unfair term alleges the term to be in a standard form contract, the onus is then on the other party to prove it is not a standard from contract
§ 27(2) non exhaustive list of matters for the court to take into consideration when deciding if it is a standard form contract:
□ Whether one party has all/most the bargaining power
□ Whether the contract was prepared by one party before discussion with the other party
□ Whether contract was offered on a ‘take it or leave it’ basis
□ Whether there was an opportunity to negotiate
□ Whether the terms take into account specific characteristics of the particular transaction
□ Any other matters prescribed by the regulations

Question 7

Is the term unfair?

Answer 7

§ Three part test - s24(1): All three elements must be proved:
□ A term which would cause significant imbalance between the parties’ rights and obligations under the contract
□ The term is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term (presumption that it is not reasonably necessary; onus on party claiming it is)
□ The term would cause detriment (financial or otherwise) to a party if it were to be applied or relied upon
□ Note:
® (2) In determining whether a term of a consumer contract is unfair under subsection(1), a court may take into account such matters as it thinks relevant, but must take into account the following:
◊ (a) the extent to which the term is transparent;
◊ (b) the contract as a whole
® (3) A term is transparent if the term is:
◊ (a) expressed in reasonably plain language
◊ (b) legible
◊ (c) presented clearly
◊ (d) readily available to any party affected by that term
◊ Note: Lack of transparency may indicate significant imbalance in parties’ rights – but term is not unfair only because it is not transparent; nor is it a term fair only because it is transparent

Question 8

Exception: Where s23 does not apply to a consumer contract?

Answer 8

• Is a specific essential term outlined in section 26
§ Defines main subject matter of the contract
§ Sets the upfront price payable under the contract
§ Is a term required, or expressly permitted, by a law of the Commonwealth, a State or Territory
• Is a type of contract excluded by section 28
§ Contract of marine salvage or towage
§ Charterparty of a ship
§ Contract for the carriage of goods by ship

Question 9

Effect of an unfair term

Answer 9

• If the contract can operate without the unfair term: the contract continues to exist but the unfair term is removed
  
  • If the contract cannot operate without the unfair term: the entire contact is void

Question 10

Remedies Available for an unfair term

Answer 10

• There are a range of remedies available to regulators or consumer s in response to the use of that term by traders (per Part 5-2):
  ○ injunction (s.232)
  ○ compensation order in favour of injured party (s.236)
  ○ order to redress loss suffered by non-party consumers (s.238)

Question 11

Consumer Guarantees: Part 3-2 ACL

Answer 11

○ ACL imposes (implies) mandatory terms (guarantees) into contracts for the supply of goods/ services to consumers (Part 3-2, Division 1 of the ACL)
○ The consumer guarantees are mandatory and cannot be excluded, restricted or modified by contract
○ Consumer guarantees under the ACL are typically invoked by a consumer, where the goods or services supplied are in some way not up to a satisfactory standard and the supplier denies liability – so the consumer alleges a breach of one of the guarantees

Question 12

Can a consumer guarantee be excluded, restricted or modified by a contract?

Answer 12

NO

Question 13

• Reasons for introducing the mandatory quality standards

Answer 13

○ Apply to address the ‘information asymmetry’ between supplier and consumers
○ suppliers have superior knowledge about good being sold; services being supplied
○ consumer often not in a position to verify goods / services attributes before purchase
○ Mandatory standards of quality address this information asymmetry by giving consumers a right of redress in the event that the goods / services they have purchased prove to be faulty or defective

Question 14

To determine if a consumer guarantee applies:

What type of contract is it?

Answer 14

○ Goods
○ Services
○ A supplier in trade or commerce (most guarantees will apply) or a private supplier (less guarantees apply)
○ A particular type which is excluded: service guarantees are not implied into insurance contracts, or transportation/storage of goods contracts for the purposes of a business, trade, or profession (s.63)

Question 15

If the contract is for goods, ask two questions.

Answer 15

If goods:

• is the contract with a consumer?
• if the contract is with a consumer, what guarantees can be applied?

Question 16

Is the contract with a consumer (goods)?

Answer 16

§ Less than $40,000 or
§ Goods of a kind ordinarily acquired for personal, domestic or household use or consumption
§ Note: Ordinarily means regularly not principally: Bunnings Group Ltd. V Laminex Group Ltd [2006]

Question 17

2. If the contract is with a consumer, what guarantees can be applied? (Goods)

Answer 17

○ Guarantees in all supplies of goods to consumer:
§ S.51: guarantee as to title - seller has a right to dispose of the goods
§ S.52: guarantee to undisturbed possession
§ S.53: guarantee of freedom from securities, charges, etc
○ Guarantees in supplies of goods to consumer in trade or commerce other than by auction:
§ S.54: goods are of acceptable quality – defined in ss 54(2) – 54(7)
§ S.55: goods are fit for any disclosed purpose
§ S.56: goods correspond with their description
§ S.57: goods correspond with sample; reasonable opportunity to compare goods with sample; goods free from defects not apparent on examination of sample
§ S.58: availability of repair facilities and spare parts
§ S.59: compliance with any express warranty given by manufacturer or supplier
§ avenue for pre-contractual representations to take effect as a consumer guarantee that cannot be excluded by contract (eg., entire agreement clause)

Question 18

If the contract is for services, ask two questions

Answer 18

1. Is the contract with a consumer? (s3(3))

2. If the contract is with a consumer, what guarantees can be applied?

Question 19

1. Is the contract with a consumer? (s3(3)) (services)

Answer 19

§ Less than $40,000 or,

§ Services of a kind ordinarily acquired for personal, domestic or household use or consumption

Question 20

2. If the contract is with a consumer, what guarantees can be applied? (services)

Answer 20

○ S.60: services will be rendered with due care and skill
○ S.61: services will be fit for disclosed purpose / result
§ does not apply to the supply of professional services by a qualified architect or engineer
○ S.62: services will be supplied within a reasonable time

Question 21

Exclusions: ss.60-62 do not apply to:

Answer 21

○ Insurance contracts
○ Transportation or storage of goods used in business (s.63)

S.61 does not apply to professional services by qualified architect or engineer

Question 22

Limitation Liability Clauses - can liability be limited.removed?

Answer 22

• Sections 64 and 64A combine to mean that liability under consumer guarantees in ss.51-53 (i.e. those that apply to all sales of goods to consumer) cannot be limited by contract
• Contracts for the supply of goods not ordinarily acquired for personal, domestic or household use or consumption may limit liability for failure to comply with a guarantee (other than a guarantee under ss.51-53) to (per s.64A(1)):
○ replacing the goods or supplying equivalent goods;
○ repairing the goods; or
○ paying the cost of replacing, supplying equivalent, or repairing, goods
• Contracts for the supply of services not ordinarily acquired for personal, domestic or household use or consumption may limit liability for failure to comply with a guarantee to (per s.64A(2)):
○ supplying the services again; or
○ paying the costs of having the services supplied again.
• Note s.64A(3) – limitation terms do not apply if consumer establishes that reliance on the term is not fair or reasonable

Question 23

Remedies for non-compliance to a guarantee: Part 5-4

Answer 23

• Supplier’s liability:
○ If failure to comply with guarantee is not major and can be remedied - consumer may require supplier to remedy failure within reasonable time and, if supplier fails to do so, claim the cost of remedial action
○ If failure to comply with guarantee is major or cannot be remedied - consumer may terminate contract and claim compensation for diminution in value and foreseeable loss
○ Supplier can claim indemnity from manufacturer

• Manufacturer’s liability re guarantees in ss.54, 56, 58 and 59:
○ “affected person” can claim damages from manufacturer for diminution in value and other foreseeable loss