Often you see such clauses quoted in support of an argument that a claim for misrepresentation cannot succeed where a contract contains this clause.

But that ain’t necessarily so.  In fact, it ain’t even normally so.

‘Entire agreement’ clauses

Typically they read something like this:

This document is the entire agreement between you and us and you acknowledge that we have made, and you rely on, no promise, representation or warranty to you that is not set out expressly in this document.

What they are supposed to achieve

In theory, an ‘entire agreement’ clause prevents you from claiming that you relied on something a salesperson told you, or otherwise sits outside the document.

But the law sidesteps them with ease

The law sees it this way:  If a person was told something misleading that caused them to decide to enter a contract, then their entry into the contract was obtained ‘on false pretences’.  That taints the contract from the moment of its inception.  It is, and always was, a contract obtained by misrepresentation.

So, when the law comes to the ‘entire agreement’ part of that tainted, flawed contract it reasons that it cannot operate as its black & white words suggest it does.  It simply won’t be enforced so as to wipe out the misrepresentation.

So are ‘entire agreement’ clauses irrelevant ?

No, they can have effect.

In deciding whether a person was induced into entering a contract by some external misrepresentation, the court must decide:

• what was actually said or otherwise represented
• whether it was true or false
• if it was false, whether the person would not have entered the contract has they known the truth.

This third element, often called the ‘reliance question’, is frequently overlooked by lay people.  They think that they can avoid a contract if they can show there was a misrepresentation leading up to it.  But they need to show more: they must show that they relied on the misrepresentation as a material factor in entering the contract.

A court can take an ‘entire agreement’ clause quite seriously as evidence that a person did not rely on some external representation.  It can say ‘We accept that a misrepresentation may have occurred, but in judging whether you relied on it we give weight to the fact that you signed a piece of paper saying that you didn’t.’

A high water mark example

Let’s say you sign a short contract after getting legal advice, and it contains a clear ‘entire agreement’ clause.  A court might well say:

• it’s a short contract
• the clause is clear
• you obtained legal advice
• you actually signed the document
• you must have very clearly considered the clause and chosen to assent to it -

so we are satisfied that you did not rely on the external representation you now complain about.  We accept that it was made, and that it was untrue.  But in all the circumstances including the ‘entire agreement’ clause, we don’t accept that you relied on it.

An example at the low water mark

At the other end of the scale, let’s say you sign up for a mobile phone service in store.  The provider uses a Standard Form of Agreement, which you don’t actually see before signing up.

Even if you did see it, it would be dozens of pages long and the ‘entire agreement’ clause is buried on page 24.

The only ‘advice’ you get about the deal is from the commission salesperson.

In those circumstances, if you can later point to a material misrepresentation, the court will sidestep the ‘entire agreement’ clause in a blink.  You did not carefully and consciously assent to the proposition that there was nothing more to the deal than what’s in black & white.

Section 18 of the Australian Consumer Law

This must be the most quoted piece of consumer law on CSP Central.

A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

In virtually every section 18 claim that involves a contract, there is an ‘entire agreement’ clause.  If such clauses could lock out misrepresentation claims, there’d be very few contract cases based around section 18.  (You should be aware that, until 1 January 2011, a nearly identical provision appeared in the old Trade Practices Act 1974, which has since been upgraded and re-named the Competition and Consumer Act 2010.)

But just take a stroll through these cases and you’ll see how many there have in fact been.

Myth busted

‘Entire agreement’ clauses can be important and effective.  But especially in consumer situations where the deal moves fast, the contract is not focused on and there’s no independent advice, they are no sure defence to a misrepresentation or section 18 claim.

To demystify the topic, here’s a dowloadable SFoA backgrounder that overviews what they are and why they can improve CSP business processes, with the compliments of CSP Central and Logie-Smith Lanyon Lawyers

You should also check out this post about complying with the SFoA Summary notification regime.

Businesses that contract with Telstra and Optus need to understand why the coming law could give the telco giants such grief.

The beefs

Optus says:

• It is ‘highly concerned’.
• The planned law ‘suggests a lack of understanding of the nature of business-to-business transactions, which would impose enormous additional (and entirely unjustifiable) compliance costs on companies such as Optus, and would fundamentally undermine the effectiveness and efficiency of how business-to-business transactions are conducted.’

And Telstra reckons:

• ‘Significant uncertainty, unnecessary disruption and immense costs will result for small and large businesses alike.’

The planned law

The proposed law certainly will shake up contracts in Australia, as we explained back in February.

It will apply to ‘standard form contracts’ of the ‘not negotiable – take it or leave it’ variety.  Seriously unbalanced terms in such contracts will be void unless they are reasonably necessary to protect a party’s legitimate interests.

But it isn’t just a ‘consumer’ law

Here’s a serious problem for mega-wholesalers like Telstra and Optus.  The law will apply to B2B contracts as well as B2C. 

In other words, a standard Telstra wholesale agreement could fall within the protection of the law if it wasn’t genuinely negotiable.

‘Draft – for discussion purposes only’

We’ve all seen those massive Telstra contracts with ”Draft – for discussion purposes only’ in the header of every page.  And a lot of us have realised that it’s Telstra-speak for ‘Not negotiable – don’t even ask.’

Under the new ‘consumer’ law, these and other B2B contracts, and the processes around them, will come under pressure.  Sham negotiations may not be sufficient to carve them out of the ‘standard form contract’ regimes.

No wonder the major B2B suppliers are concerned.

Yet time and again, CSPs pretend (the polite legal word is ‘purport’) to limit liability when they can’t.

Take Dodo’s current standard contract, for instance …

Dodo’s ‘doh! doh!’ clause

Here’s a copy & paste from Dodo’s consumer contract:

6. Liability

… 6.2  Where it is fair and reasonable to do so, We limit Our liability to re-supplying, repairing or replacing relevant goods or services, or the payment of the cost of re-supplying, repairing or replacing the goods or services.

The legal problem

It’s illegal.

Why it’s illegal

The lawyer who wrote this seems to imagine that section 68A of the Trade Practices Act 1974 is relevant.  Here’s section 68A and we’ll highlight the words that give the lawyer’s idea away:

Limitation of liability for breach of certain conditions or warranties

(1)  Subject to this section, a term of a contract for the supply by a corporation of goods or services other than goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption is not void under section 68 by reason only that the term limits the liability of the corporation for a breach of a condition or warranty … to:

(a)  in the case of goods, any one or more of the following:

(i)  the replacement of the goods or the supply of equivalent goods;

(ii)  the repair of the goods;

(iii)  the payment of the cost of replacing the goods or of acquiring equivalent goods;

(iv)  the payment of the cost of having the goods repaired; or

(b)  in the case of services:

(i)  the supplying of the services again; or

(ii)  the payment of the cost of having the services supplied again.

(2)  Subsection (1) does not apply in relation to a term of a contract if the person to whom the goods or services were supplied establishes that it is not fair or reasonable for the corporation to rely on that term of the contract.

The ‘magic words’ are that a liability limitation ‘a term of a contract for the supply by a corporation of goods or services other than goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption is not void under section 68 by reason only that …’. 

So section 68A has no relevance to ‘goods or services of a kind that are ordinarily acquired for personal, domestic or household use or consumption’.  The limitation of liability it countenances can never apply to such goods or services.  And the exclusion in subsection (2) is by definition irrelevant since the condition to which it serves as an exception cannot occur.

Why can’t it occur ?

Because Dodo’s contract itself proclaims that it only applies to services acquired for ‘personal,  domestic or household use’,  section 68A can never apply. 

The bottom line

Clause 6.2 of Dodo’s standard contract (a) can never apply and (b) is misleading to include in such a contract (because it can never apply) and (c) breaches section 53(g) of the Trade Practices Act if it makes a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy.

When you wish upon a star …

Wishful legal thinking about section 68 abounds.  Dozens of CSPs – including many with lawyers on staff – get it wrong.  So here’s how it works:

If you supply goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption, you cannot limit your liability for a breach of a condition implied by Division 2 of Part V of the Trade Practices Act 1974.  Don’t bother trying.  Can’t be done.  Offence against the Act to tell folks otherwise.

Clue … there’s a Communications Alliance Code that’s relevant, and a TIO policy.

 Answer

• Your main obligation is to try and get all current charges onto the current bill – see clause 6.5.4(a) of the Comms Alliance Telecommunications Consumer Protection Code.
• But the TCP Code does allow a CSP to bill charges up to 190 days after they were incurred by the customer – see clause 6.5.4(d) of the Code.
• White Pages directory charges are a special case.  They can be billed up to 220 days after the directory’s public closing date – clause 6.5.4(e) of the Code.
• And the TIO won’t necessarily argue with late charges for mobile roaming calls and international reverse charge calls.  According to its policy:

These types of calls are not limited to any backbilling period because the Australian carrier is unable to force a foreign carrier to bill for charges within the 190-day period. … When handling complaints that involve these exceptions, the TIO will judge each case on its merits.

For consumer and small business contracts, that simply isn’t true.  If there’s nothing more to it, the credit management rules in the Telecommunications Consumer Protection Code preclude a CSP from immediate action.

Not much commentary required on this one … we’ll let the TCP Code speak for itself.

CSP obligations before disconnection

A Supplier must:

(a)    make reasonable attempts to Inform a Customer of a decision to Disconnect the Customer’s Service, at least 7 Days prior to Disconnection;

(b)    in Informing the Customer:

(i)    indicate the earliest date on which the Disconnection could occur; and

(ii)    include the date of issue of the correspondence, if they are Informed in Writing;

(c)    at the Customer’s request, promptly review its decision to Disconnect;

(d)    send a separate Disconnection notice, not just a Bill, in Writing to the Customer prior to Disconnecting the Service, unless the Customer was previously advised in Writing under clause 7.4.7 or 7.4.9(a);

(e)    prior to Disconnecting, make reasonable attempts to Inform the Customer and any Guarantor:

(i)    of all consequences to them of non-payment;

(ii)    that default information may be used for internal purposes;

(iii)    of any process enabling Customers to arrange a repayment plan for outstanding amounts following Disconnection, prior to the Supplier commencing external recovery or legal action;

(iv)    in Writing that:

(A)    their telephone number may no longer be available after Disconnection;

(B)     default information may be disclosed to external parties or a Credit Reporting Agency;

(C)     the debt may be referred to an external collection agent; and

(D)     legal action may be taken to recover the unpaid debt.

Got it ?  Instant disconnection is not a standard option.

CSP obligations before suspending or restricting service

A Supplier:

(a)    may only Suspend or Restrict a Service without Informing the Customer if the Supplier:

(i)    assesses that the Customer or the account status presents an unacceptably high credit risk to the Supplier; or

(ii)    reasonably suspects Fraud or attempted Fraud.

And in case you were wondering:

‘Inform’ means advise:

(a) in Writing; or

(b) verbally and confirm and record to provide an auditable record.

‘Writing’ means a document sent by the Supplier to the last known:

(a)    address; or

(b)    email address or facsimile number the Customer has agreed to use instead

of the Customer or, where relevant, the Guarantor, in the Supplier’s records.

So there’s a lot more to it than (to paraphrase some ‘knowlegable’ Whirlpool user) if you don’t pay on time they’re entitled to cut you off.

Many ISP and telco contracts contain a term to the effect that the service provider can change the contract at will.  It’s normally followed up by something like ‘so you must check this T&C page frequently.’

The truth:  In consumer and small business contracts, this kind of term isn’t permitted.

A typical example

Consider these clauses, from TPG‘s current standard terms:

The Customer agrees to be bound by TPG’s Standard Terms and Conditions as displayed at the TPG Internet web site www.tpg.com.au. The Customer understands that TPG’s Standard Terms and Conditions can be amended from time to time and the Customer should visit the TPG Internet web site regularly to be aware of any changes.

Customers should note that these Standard Terms & Conditions and the additional Package Conditions may be revised at any time by way of update on the TPG Internet web site – www.tpg.com.au. Customers are bound by any revisions as at the date they are displayed and should regularly examine the current Standard Terms & Conditions and the additional Package Conditions displayed on the TPG Internet web site.

What’s the problem ?

Well, there are two.  (And if TPG operated under a Standard Form of Agreement, there’d be three.)

The relevant laws are:

• the Telecommunications Consumer Protection Code
• in Victoria, the Fair Trading Act.

TCP Code

This is a Federal code that applies to contracts between ISPs / telcos and their consumer/ small business customers.

It includes protections against unilateral and immediate contract changes.

Clause 5 of the TCP Code says: ‘A clause in a consumer contract must not be unfair.’  ‘Consumer’ is defined to include small business for this purpose.

Then it goes on to indicate kinds of terms that will be unfair, including terms that:

permit the Supplier to unilaterally amend or vary the characteristics of goods or services, including price, in a Consumer Contract with a Fixed Contract Period without:

(A) at least 21 days Written Notice to the Consumer;

and

(B) offering the Consumer the right to terminate the Consumer Contract within 42 days of the date of the notice without incurring charges, other than usage or network access charges to the date the Consumer Contract ends and outstanding amounts for installation or for equipment compatible with other Suppliers’ services.

There are limited exceptions, but the general rule is clear.  A CSP just can’t say: ‘We can change the deal instantly by changing the web site, and you remain bound by it.’

The Victorian Fair Trading Act

Part 2B of this Act is a statutory rule against unfair terms in consumer contracts.  The regulator Consumer Affairs Victoria (CAV) used this law to punch up AAPT in 2006.

CAV is convinced that a clause which allows uncontrolled unilateral variation of a contract is unfair within the meaning of its Act.  It takes an even harder line than the TCP Code on this point.  It won’t even agree to an exception for minor variations.

If CAV required TPG to change its variation term for Victorian contracts, and TPG refused, you can bet your socks that CAV would take them to court.

The AAPT decision

Victoria’s VCAT Tribunal agreed with CAV on this point.  Here’s the relevant AAPT contract term, and what the Tribunal said about it:

The AAPT term:  ‘We may vary any term of this Agreement at any time in writing. To the extent required by any applicable laws or determinations made by the Australian Communications Authority (ACA), we will notify you of any such variation.’

The Tribunal judgment:  ‘This term is unfair because it permits  AAPT , but not the customer, to change the contract unilaterally. The term has the effect of permitting  AAPT , but not the consumer, to avoid or limit the performance of the contract: see section 32X(a) of the Fair Trading Act.

AAPT  pointed to the fact that it has no mobile phone network of its own, but simply resells services supplied by Telstra, Optus and Vodaphone. Under the terms of  AAPT ‘s supplier contracts, terms may be imposed upon  AAPT  on relatively short notice, which might make it commercially necessary for  AAPT  to seek changes consequential upon new terms imposed on  AAPT.

Be this as it may, it provides no justification for a term as broad as clause 1.3, which permits  AAPT  to vary any term of the agreement, at any time, for any cause.

Worse, you may commit a criminal offence under the Trade Practices Act – of misrepresenting peoples’ legal rights.

Dodo’s most recent brush with the law caused us to take a look at its ‘liability limitation’ clause.  All we can say is ‘Wow !’  What planet’s legal system generated this weird stuff ?

First, a refresher

Before we go any further, let’s re-read an earlier article about liability limitation.

Next, take a look at Dodo’s clause

As Your service is provided to You for the primary purpose of personal use, We do not accept liability for losses that result from the use of Your service in connection with the conduct of a business.

We are liable to you for breach of contract or negligence.

However, We will accept that liability if it cannot be excluded under any legislation.

If that liability cannot be excluded but can be limited under any legislation, We limit Our liability to resupplying, repairing or replacing the relevant goods or services, or payment of the cost of resupply, repair or replacement, where it is fair and reasonable to do so.

What did they get wrong ?

Umm, this is a hard call.  Which do you rank first … the potential criminal offence or the apparent omission of the word ‘not’ ?

Let’s start with the potential offence

The statement that ‘As Your service is provided to You for the primary purpose of personal use, We do not accept liability for losses …’ is bizarre.  From our earlier article, you’ll understand that the ‘primary purpose’ of supply is as relevant as Dodo’s left foot.  Dodo can’t deny liability for a service it provides on that basis.

It just isn’t lawful to (try and) do that in Australia.

And trying to do it may breach section 53(g) of the Trade Practices Act:  ‘A corporation shall not, in trade or  commerce, in connexion with the supply or possible supply of goods … make a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy.’

Section 75AZC of the TPA goes on to make that an offence … with a maximum penalty of over $1 million.

Now let’s look at the ‘not’ problem

It’s pretty obvious that Dodo did not mean to say ‘We are liable to you for breach of contract or negligence.’  The next sentence reads:  ‘However, We will accept that liability if it cannot be excluded under any legislation.’  You don’t begin a sentence with ‘However, we will accept that liability’ when the previous sentence already says ‘We are liable to you for breach of contract or negligence.’

It looks like some careless dork has left out ‘not’.  Maybe it was intended to say ‘We are not liable to you for breach of contract or negligence.’  Then it would make sense for the next sentence to begin with ‘However, We will accept that liability …’.

And there’s a second, different liability clause in the same document

We won’t dwell on it, but there’s a second clause about liability that works differently.  It also mis-states the law, though.

Our take on it

If anyone takes Dodo on in court, claiming heavy losses, the company will have to rely on a court reading this mish-mash with sympathy.  Good luck, Dodo.

The smaller the company, the more likely it was to get the requirement wrong.  But Adam Internet, Crazy John’s and Soul Mobile all got it wrong, too.

The benchmark requirement

We wanted something so simple and clear that it doesn’t take a law degree to get right.  So we chose clauses 5 and 6 of the Telecommunications (Standard Form of Agreement Information) Determination 2003.

Under this Determination, a CSP with a ‘Standard Form of Agreement’ under Part 23 of the Telco Act is required to offer a summary of the contract in a particular format.

Clauses 5 and 6 simply say:

• The summary must include the heading ‘Important Customer Information: Your Rights and Obligations’ or equivalent.
• The heading must be in a prominent position.
• If the heading is not in a colour that’s different from the rest of the summary, it must be bolded and at least two points larger than any other typeface.

Is that so difficult ?  It was for our test selection.

Our method

• We chose 36 CSPs pretty much at random by googling ‘sfoa summary’.
• We located the online version of their summary via the Google results.
• We checked for compliance.

The results

We awarded ‘passes’ only to CSPs that got everything right.  Several others were very close, but after choosing such a simple test we thought it was fair to adopt a strict standard.

• Some CSPs omitted the required heading completely.
• Others used the same font size and colour as other headings in the document.
• One just used body text, and located the heading very ‘non-prominently’.
• One used larger text, but didn’t bold it.

Full results are set out at the foot of this post.

What’s going on here ?

We doubt that ACMA will be keelhauling the CSPs over this issue.  But we’re mystified as to why such a simple, clear regulatory requirement trips up so many players.

Maybe there’s just too much regulation for CSPs to cope with.

Full results

Perhaps unsurprisingly, they get the law seriously wrong when it comes to implied warranties and liability.

Here’s what BBA got wrong, and how to avoid the same mistake.

The law in a nutshell

Let’s begin by summarising a key part of the Trade Practices Act 1974 (‘TPA’).

First, though, a note.  We’re going to talk about goods, to simplify things.  But very similar law applies to services as well.

Goods that you buy may fall into one of three categories.

• The first category is goods of a kind that are ordinarily acquired for personal, domestic or household use or consumption, regardless of their cost. We’ll call those ‘PDH Goods’.
• The second category is goods that cost under $40,000, but are not ordinarily acquired for personal, domestic or household use or consumption. We’ll call those ‘Non-PDH Goods’.
• The third category is good that both cost more than $40,000 and are not ordinarily acquired for personal, domestic or household use or consumption. We’ll call those ‘Non-consumer Goods’.

Let’s dispense with Non-consumer Goods

For present purposes, the TPA has nothing to say about Non-consumer Goods.  You’re free to buy or sell them on any liability terms you agree on.

That leaves us with PDH Goods and Non-PDH Goods.

What PDH Goods and Non-PDH Goods have in common

PDH Goods and Non-PDH Goods are both protected in a special way by the TPA.  It says that all agreements to supply them always include a promise that they’ll be of ‘merchantable quality’.

You can’t exclude that promise.

How PDH Goods and Non-PDH Goods differ

It’s simple.

• For Non-PDH Goods, although you cannot exclude the promise of ‘merchantable quality’, you are allowed to limit your liability if the promise is breached. Basically, you may limit it to replacing the goods, or paying the cost of replacing them.
• For PDH Goods, you can’t exclude the promise of ‘merchantable quality’ and you can’t limit your liability for breaking the promise.

Repeat:  If you sell goods, and they are PDH Goods (i.e. they are of a kind that are ordinarily acquired for personal, domestic or household use or consumption) you cannot limit your liability in any way if they are not of merchantable quality.  Not at all.  Not a whisker.  Not a sausage.

It’s not quite as bad as it seems

The general law places certain limits on what a person can be sued for.  You always have the protection of those limitations.  But for PDH Goods, you can’t try to use contract terms to reduce your potential liability even further.

So how does Best Buy Australia get this wrong ?

First, note that BBA sells goods like cameras, garden tools and baby high chairs.  Its product range looks like it’s 100% made up of products that are of a kind that are ordinarily acquired for personal, domestic or household use or consumption – ‘PDH Goods’.

And what does its contract say about its liability ?

We will not be liable for any loss of income, loss of profits, loss of contracts, loss of data or for any indirect or consequential loss or damage of any kind howsoever arising and whether caused by tort (including negligence), breach of agreement or otherwise.

Our maximum summative liability for any Product supplied to you whether in contract, agreement, and tort (including negligence) or otherwise shall in no circumstances exceed the amount payable by you to us in respect of the Product(s) in question.

Under the Trade Practices Act 1974 (“Act”), where implied conditions and warranties cannot be excluded, any liability in Best Buy Australia for breach of such conditions and warranties … shall be limited, to the option for Best Buy Australia to replacement of the Product(s) or the re-supply of the same Product(s).

Sorry, guys, but you have it wrong

We’ll say it again.  For PDH Goods, any purported contractual limitation of liability is void. Dead in the water.  Doesn’t work.

But worse – it may be a criminal offence, as well

Section 53(g) of the TPA says:  ‘A corporation shall not, in trade or  commerce, in connexion with the supply or possible supply of goods … make a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy.’

And section 75AZC of the TPA goes on to make that an offence … with a maximum penalty of over $1 million.

The ACCC notices these things

For its 2004 report Shopping online: rights and obligations when trading over the internet, the ACCC reviewed the trading terms of 1,000 Australian consumer websites and concluded that in over half of the cases, contract terms were likely to breach the TPA by including exclusion clauses, limitations of liability and disclaimers that aren’t valid.

Quoting from the report:

• Businesses are increasingly using online terms and conditions to try to exclude statutory warranties and conditions. This is likely to mislead consumers about their rights and therefore risks breaching s. 53(g) and s. 52 of the TPA.
• The issue of warranties was the second highest conduct complained about to the ACCC in 2002-03, amounting to 13 per cent of overall complaints.
• Misrepresentations about the availability of warranties and the rights of consumers under s. 53(g) was ranked fourth in the top 10 conducts where the matter may breach the Act, with 713 complaints in 2002-03.
• Online conduct is a priority for the ACCC.

So here’s what you should be doing

Do you sell goods (or services) that are of a kind that are ordinarily acquired for personal, domestic or household use or consumption, regardless of their cost ?

If ‘yes’, check your T&Cs.  Do they say that:

• your liability is limited in any way ?
• you can’t be sued for consequential or indirect loss, etc ?
• you only have to replace or refund on the goods if faulty ?

If ‘yes’, you probably have a serious problem.  Get those terms legally reviewed a.s.a.p.