Senate Committee rubber stamps draft unfair contracts law

approvedThe Senate Standing Committee on Economics has received, and noted, strong submissions that part of the proposed new unfair contracts law can’t be right. 

But so what ?  The Committee majority finds no fault with the reasoning of law Professor Frank Zumbo, or the Consumer Action Law Centre … but it has still rubber stamped the Bill, virtually guaranteeing its passage into law.

And yes, the problem wording is the part we described as the Bill’s ‘bonkers bit’ back in June 2009.  It’s disappointing that the Senate Committee system hasn’t been able to deliver a sensible outcome.

The problem

We described it at length in an earlier post.  But in a nutshell, it’s this:

The new law will say that a contract term is unfair if it creates imbalanced rights or obligations without good reason.  And it goes on to say that in assessing that, the court must consider how ‘transparent’ (i.e. clear and obvious) the term is.

So the exact same imbalanced term, effectively forced by the exact same dominant supplier on the exact same customer with the exact same minimal bargaining power might be (a) unfair, if it is on page 21 of the contract in ordinary print but (b) fair, if it is on page 1 in bold type.

How does the page, or font size, affect whether a term creates imbalanced rights ?  How do they affect whether there’s a good reason for including an imbalanced right ?  It is, as they say in the classics, a non sequitur.  Transparency forms no part of the definition of ‘unfairness’ offered by the Bill.  So how can it be a factor in deciding if a certain case falls within the definition ?

The Zumbo view

Associate Professor Frank Zumbo submitted to the Committee:

… That the bill’s reference to whether or not a contract term is transparent in section 3(3) should be deleted. As with the ‘detriment’ provision, he argued that the test for transparency should be distinct from whether or not the contract term is unfair. Indeed, he argued that a contract term may be transparent but drafted by the larger party in a way that represents a significant imbalance in contractual rights of that party and which goes beyond what is reasonably necessary to protect its legitimate interests.

Consumer Action Law Centre view

Consumer Action Law Centre submitted:

… That the transparency clause is ‘the only part of the Bill’s definition of ‘unfair’ that was not in the MCCA-agreed model for UCT provisions and was not foreshadowed in the consultation information paper of February 2009′. The two other matters in subsection 3(2) of the bill – detriment and the contract as a whole – are both ‘reasonable and in accord with the MCCA model’.

The Centre explained that the unfair contract laws are a negotiation problem (a substantive issue), not a disclosure problem (a procedural issue). In this context, the availability, legibility and presentation of contract terms is irrelevant: the key obstacle is the inability of consumers to negotiate the terms of standard form contracts proposed by suppliers.

The Centre feared that despite the government’s good intentions in introducing the ‘transparency’ test, the test may substantially undermine the operation of the provisions. It could mean that the courts will regard a term as:

…’less unfair’, and thus possibly not unfair at all, if it has been clearly typed out in the contract, regardless of whether it is realistic to expect the consumer to have read, understood or negotiated over that contract term, and regardless of the extent of the unfairness of the content and effect of that term. Despite the EM’s statements, the provision is not drafted in terms of a court being required to take into account the extent to which a term is not transparent but the extent to which it is.

The majority Committee position

Professor Zumbo and Consumer Action Law Centre are plainly correct on the transparency question.  The Committee majority didn’t find otherwise.

But some Senate Committees have a real brief to critique, while others seem to consider themselves a rubber stamp.  In this case, the majority simply approved the Bill, including this obvious mistake.

The minority Committee position

Senators Alan Eggleston and Barnaby Joyce made some separate comments of a rather confused kind:

In relation to … whether a term is ‘transparent’ in the context of matters to which a court must have regard in deciding whether a term is unfair, Coalition senators are attracted to the arguments of the Consumer Action Law Centre and Professor Frank Zumbo that the “transparent” element is superfluous in this clause and should be removed.

Coalition senators recognise that difficulty and unease these concepts have caused from the evidence of a number of witnesses. We are however satisfied, based on the UK and Victorian experience and Treasury and other evidence, that these elements, in their context of “matters to which a court must have regard,” are not impassable.

Coalition senators note with satisfaction that the experience in the UK is that the key role in enforcement of the UK Regulations has been with the regulator and not the courts.

As far as we can tell, they ended up in support of the majority position, although if the final paragraph means what it seems to (that Parliament needn’t worry so much about how an Act directs courts if it considers that there won’t be many court cases, because a regulator will sort most things out), the Senators need their mouths washed out.

One logical and strong position

It was up to independent Senator Nick Xenophon to stand up for logic in legislation:

Courts’ consideration of … ‘transparency’

As it stands, courts have the discretion to consider all aspects of cases before them, and should not be constrained to focus on ‘transparency’ and ‘detriment’ specifically when it comes to determining whether or not a contract is unfair. The mandatory requirement for the Court to focus on transparency and detriment will require the court to address these specific questions and will effectively turn these mandatory requirements into tests in themselves and in a manner that negatively impacts on the consumer.

National Legal Aid argues that the concept of ‘transparency’ implies that consumers are able to make informed choices about contract terms, however it stated in its submission that their case work would suggest the opposite.

… because most consumers do not read contracts – most rely on a notion that traders will act in a fair and reasonable way when it comes to enforcing their rights. Even when they read contracts, consumers do not often understand how a particular clause will operate in practice. And, even when a contract is read and understood, standard clause contracts are nonnegotiable – it is a falsity to think that consumers can somehow bargain their way through amending or deleting a clause in a contract that is unfair but transparent.

Associate Professor Frank Zumbo also argued in his submission that a term can be considered ‘transparent’ but may still be ‘unfair’.

…on the simple, but objective basis that the larger party’s bargaining power allows the larger party to draft and impose a contract term in such a way as to (i) represent a significant imbalance in the contractual rights and obligations in the larger party’s favour; and (ii) in a manner that goes beyond what is reasonably necessary in order to protect the legitimate interest of the larger party.

Our take on it

It seems to us that this was an extreme case of law making gone wrong. 

  • The transparency ‘test’ forms no logical part of the definition it is supposed to test for.
  • That problem was clearly pointed out to the Committee.
  • So were its practical consequences.

But somehow, it was all OK by everyone except Senator Xenophon.

About Peter Moon

Peter Moon is a commercial lawyer with 20 years experience in the tech and telco industries.
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