Contract certainty on shaky ground?

Contract certainty on shaky ground?

How do you know when you are having a good month business-wise? Well, you look at the sales, you look at the costs, you look at the bank account and you lick your finger and hold it up to the wind and say – she’ll be right. But wait – unless you work on cash, most of those sales haven’t yet been paid for by the customers. Or you might have a contract for the supply of goods or services in the future. You might think you can plan on that future income. Not in Australia you can’t – at least, not since the new, unfair contract terms and provisions in their equivalent of New Zealand’s Fair Trading Act came into effect on 1 July 2010, as part of the new Australian Consumer Law. Worse, having an unfair term in your contract can be a criminal offence.

The Australian provisions apply to consumer contracts – that is, a contract for the supply of goods or services, or the sale or grant of an interest in land, to an individual whose acquisition of any of these is wholly or predominantly for personal, domestic or household use or consumption. There is a grey list of terms which, according to the provisions, “may be unfair” - smooth words that really mean these terms are deemed to be unfair unless shown to be fair.

Any term is unfair if it would cause a significant imbalance in the parties’ rights and obligations arising under the contract, if it is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term, and it would cause detriment of some kind to a party if it were to be relied on (all three factors are required). And if a term is unfair, it is void, so it is unenforceable. Terms that define the subject matter of the contract or the upfront price of goods or services are excluded from being unfair.

The grey list is, in reality, a black list of terms - because who wants to go through the drama of proving that a term is fair with each consumer, one by one? Some of the grey-list terms might well be black-list items – such as “a term that permits, or has the effect of permitting, one party unilaterally to vary the characteristics of the goods or services to be supplied under the contract”. Hello! Don’t they have a Fair Trading Act equivalent?

Admittedly, it is the very act which is the foundation of the Australian Consumer Law. Of course in New Zealand we would not have a problem with those terms – the non-contractual guarantee of correspondence with description would give consumers a statutory remedy anyway.

But that is in the new Australian Consumer Law too, as I pointed out in my last column.

The unfair contract terms legislation has been in effect in Victoria for several years. As far as I am aware, there is only one court case on it (as against lots of tribunal decisions) and that case makes for scary reading – not because of the sensible conclusion that the judge came to, but because it took 56 pages of reasoning to conclude that the term could be fair. And that addressed only one term of one contract. Fifty-six pages of judgment, on one clause, in one contract - and then the case was sent back to the tribunal for a rehearing.

The Ministry of Consumer Affairs has proposed that we adopt this legislation in New Zealand. But here, the consumer could have gone to the Disputes Tribunal anyway, and it would have looked at the merits and justice of the case and come to a sensible conclusion. Do we need it? What price do you put on certainty of contract? It is the foundation of your business.

Rae Nield is a solicitor specialising in marketing law. This article is intended for general information, and should not be relied on as specific legal advice. You should consult a lawyer for advice relating to your own specific legal problems. Rae Nield can be contacted at

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