UNFAIR/UNJUST CONTRACTS

Penny Quarry

Summary

 

Contracts can be unjust/unfair due to “procedural unfairness” or “substantive unfairness”, or because they don’t comply with legislative requirements.

Procedural unfairness relates to the circumstances surrounding the signing of the contract – e.g. did the borrower get independent legal advice; was the contract signed at the borrower’s kitchen table; did the lender know that the borrower was illiterate.

Substantive unjustness involves the terms of the contract itself, being unfair.; Unfair terms can include excessive cancellation fees; penalty clauses; and terms that incorporate other terms into the contract, when the borrower/consumer has not actually seen these terms.

As is the case with most judge-made law, what constitutes unfairness is constantly being refined by the Courts.

A summary of some of the legislative provisions relating to unjust contracts is set out below. These include the Contracts Review Act (NSW), ss 7 and 9; the Trade Practices Act (Cth) ss. 51AA, 51AB; and the Fair Trading Act (NSW) ss.42, 43 and 44. The Consumer Credit Code also has provisions which are aimed at protecting consumers from unfair contracts (ss. 70, 72, 119, 144).

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The following extracts do not set out the law in full. Dotted lines mean that segments have been taken out. Commentary is in square brackets or capital letters.

CONTRACTS REVIEW ACT 1980

- As at 6 April 2005

Set out below is a summary of some of the most important sections of the Act.

PART 2 - RELIEF IN RESPECT OF UNJUST CONTRACTS

7. Principal relief
8. Ancillary relief
9. Matters to be considered by Court
10. General orders

[Note: this Act does not apply in relation to contracts entered into for the purpose of business undertakings, other than farming undertakings – s.6. 

[An order made under section 7 (1) (b) or (c) has no effect in relation to a contract … constituted by a land instrument … registered under the Real Property Act 1900 .– s.19

BUT THE COURT CAN MAKE ORDERS IN RELATION TO LAND, UNDER s. 7(d) OF THE ACT (SEE BELOW)]

Section 7 Principal relief

(1) Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following:

(a) it may decide to refuse to enforce any or all of the provisions of the contract,

(b) it may make an order declaring the contract void, in whole or in part,

(c) it may make an order varying, in whole or in part, any provision of the contract,

(d) [The Court may, in relation to a land instrument, vary, terminate, etc. the effect of the land instrument by requiring the execution of another document].

Section 9 Matters to be considered by Court 

1. In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, ………………………..

(2) ….  the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following:

(a) whether or not there was any material inequality in bargaining power between the parties to the contract,

(b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation,

(c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract,

(d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract,

(e) whether or not:

(i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or

(ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented,
because of his or her age or the state of his or her physical or mental capacity,

(f) the relative economic circumstances, educational background and literacy of:

(i) the parties to the contract (other than a corporation), and

(ii) any person who represented any of the parties to the contract,

(g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed,

[Note; although the Act purports to apply to procedural unfairness, this provision seems to envisage suggest that the Courts can look at substantive unfairness]

(h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act,

(i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect,

(j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act:

(i) by any other party to the contract,

(ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or

(iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract,

(k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and

(l) the commercial or other setting, purpose and effect of the contract.

(3) For the purposes of subsection (2), a person shall be deemed to have represented a party to a contract if the person represented the party, or assisted the party to a significant degree, in negotiations prior to or at the time the contract was made.

(4) In determining whether a contract or a provision of a contract is unjust, the Court shall not have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the contract was made.

(5) In determining whether it is just to grant relief in respect of a contract or a provision of a contract that is found to be unjust, the Court may have regard to the conduct of the parties to the proceedings in relation to the performance of the contract since it was made.

Schedule 1 - Ancillary relief
Section 8 (1)

Where the Court makes a decision or order under section 7, it may also make such orders as may be just in the circumstances …. including orders for …..:

(a) …. any disposition of property,

(b) the payment of money ….. to a party to the contract,

(c) the compensation of a person who is not a party to the contract and whose interest might otherwise be prejudiced by a decision or order under this Act,

[it is arguable that this could include partners or children of a borrower]
…………………………………………………
 (f) the sale or other realisation of property,

(g) the disposal of the proceeds of sale or other realisation of property,

(h) the creation of a charge on property in favour of any person,

(i) the enforcement of a charge so created,

(j) the appointment and regulation of the proceedings of a receiver of property,
…………………………………………………….
(k) and such orders in connection with the proceedings as may be just in the circumstances.

(4)
In this Schedule:

"disposition of property" includes:

(a) a conveyance, transfer, assignment, ….. , payment, ….. or discharge of mortgage,

(b) the creation of a trust,

(c) the release or surrender of any property, and

(d) the grant of a power in respect of property,
whether having effect at law or in equity.

"property" includes real and personal property and any estate or interest in property real or personal, and money, and any debt, and any cause of action for damages (including damages for personal injury), and any other chose in action, and any other right or interest.

section 16 Time for making applications for relief

(a) …. 2 years after the date on which the contract was made,

(b)  ….. 3 months before or 2 years after the time for the exercise or performance of any … obligation under……the contract, and

(c) …[while there are legal proceedings already pending].

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Unconscionable conduct

 

What is unconscionable conduct?

Unconscionable conduct includes the knowing exploitation by one party of the special disadvantage of another.  However, “a person is not in a position of .. disadvantage simply because of inequality of bargaining power … (The lessees in this case) suffered from no lack of ability to judge or protect their .. interests… rather there was a lack of ability to get their own way.  That is a disability that affects people in many circumstances in commerce, and in life.  It is not one against which the law ordinarily provides relief.”  ACCC v C G Berbatis Holdings Pty Ltd (2003) 77 ALJR 926

TRADE PRACTICES ACT 1974 (Cth)

[ss. 51AA and AB deal with unconscionable conduct by corporations, (but NOT in relation to financial services - s.51AAB).

What is a financial service? 
In summary, a person provides a financial service if they provide advice about financial products. 

What is a financial product?

In summary, a financial product is a facility by which a person makes a financial investment.  By way of example, an insurance contract is, usually, not a financial product, but a managed investment scheme is.

Section 51AB

 

(1)
A corporation shall not, in trade or commerce, in connection with the supply …  of goods or services to a person, engage in conduct that is, in all the circumstances, unconscionable.

 

(2)
…   the Court may have regard to:

 (a) the relative strengths of the bargaining positions of the corporation and the consumer;

(b) whether, as a result of conduct engaged in by the corporation, the consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the corporation;

(c) whether the consumer was able to understand any documents relating to the supply or possible supply of the goods or services;

(d) whether any undue influence or pressure was exerted on, or
any unfair tactics were used against, the consumer or a person acting on behalf of the consumer by the corporation or a person acting on behalf of the corporation in relation to the supply or possible supply of the goods or services;  ………

[In deciding whether a corporation has contravened this section, the Court shall not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention – s. 51AB(4)(a)

 

Business consumers

[Section 51AC has special provisions in relation to what it calls “business consumers”.
It deals with unconscionable conduct in business transactions, although NOT in relation to financial services - s.51AAB.

 

Section 51AC does not apply to goods valued at more than 3 million dollars

The things a court will look for in relation to whether a corporation has engaged in unconscionable conduct with a business consumer, are similar to those set out above under s.51AB; but they do include the additional elements set out below.  [See s.51AC(3) of the TPA)].

 â€¦â€¦â€¦
(f) the extent to which the supplier's conduct towards the business consumer was consistent with the supplier's conduct in similar transactions between the supplier and other like business consumers; and

(g) the requirements of any applicable industry code; and
…………………………… 
(i) the extent to which the supplier unreasonably failed to disclose to the business consumer:    …………………………………………………………

 (j) the extent to which the supplier was willing to negotiate the terms and conditions of any contract for supply of the goods or services with the business consumer; and

(k) the extent to which the supplier and the business consumer acted in good faith.

 

Consumer Protection (Part V TPA)

s.52 deals with misleading or deceptive conduct.

s. 53 deals with false or misleading representations.

This Part does not apply to financial services (s.51AF)

What is misleading and deceptive conduct?
“This is a question of fact to be determined in the context of the evidence as to the alleged conduct …” Miller’s Annotated Trade Practices Act,  20th edition, LBC, at p. 294

What is a misleading representation?

In short, a misleading representation is one in which the corporation making the representation does not have reasonable grounds for making it.

If legal proceedings are brought by a consumer under this part, a corporation is DEEMED not to have had reasonable grounds for making a misleading representation about a future issue, unless it brings evidence to the contrary. 

What kinds of things can a Court do under the Trade Practices Act?]

TPA  orders

 

s.87(1)
Where……..the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in…………… a contravention of a provision of Part IV, IVA, IVB, V or VC, the Court may, whether or not it grants an injunction under section 80 or makes an order under section 82, 86C or 86D, make such order or orders as it thinks appropriate against the person who engaged in the conduct …… if the Court considers that the order or orders concerned will compensate the first-mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage.

(1A)
Without limiting the generality of section 80, the Court may:

(a) on the application of a person who has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in in contravention of Part IVA, IVB, V or VC; or
…………….
make such order or orders as the Court thinks appropriate ……………..if the Court considers that the order or orders ………….will:
……..
(c) compensate the person who made the application, …….in whole or in part for the loss or damage; or
(d) prevent or reduce the loss or damage suffered, or likely to be suffered, by such a person.

 (1CA)
An application under subsection (1A) may be made at any time within 6 years after the day on which the cause of action that relates to the conduct accrued.

(1D)
For the purpose of determining whether to make an order under this section in relation to a contravention of Part IVA, the Court may have regard to the conduct of parties to the proceeding since the contravention occurred.

(2)  The orders referred to in subsection (1) and (1A) are:

(a) an order declaring the whole or any part of a contract made  …..  to be void…………….;
(b) an order varying such a contract……………………;
(ba) an order refusing to enforce any or all of the provisions of such a contract; ……..

FAIR TRADING ACT (NSW)

 

Part V of the Fair Trading Act is headed “Fair Trading”.

s. 42 Misleading or deceptive conduct
(similar to TPA s 52)

(1) A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

s.43 Unconscionable conduct
(similar to TPA s.51AB);

relates to unconscionable conduct by suppliers to CONSUMERS, therefore is inapplicable to farmers as business people; but it remains applicable to farmers as ordinary consumers (i.e., people buying goods for household or domestic purposes)

s. 44 False representations
(similar to TPA s 53)
A person shall not, in trade or commerce, in connection with the supply or possible supply of goods or services ……

(a) falsely represent that goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use,
………………………..

 (e) represent that goods or services have  …………. performance characteristics, accessories, uses or benefits they do not have,
………………………………………..
(g) make a false or misleading representation concerning the price of goods or services,

……………………………………….
 (k) make a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy,  …….

s. 45 False representations and other misleading or offensive conduct in relation to land
(similar to TPA s 53A)

(1) A person shall not, in trade or commerce, in connection with the sale or grant, or the possible sale or grant, of an interest in land or in connection with the promotion by any means of the sale or grant of an interest in land:
……………………………..

 (b) make a false or misleading representation concerning the nature of the interest in the land, the price payable for the land, the location of the land, the characteristics of the land, the use to which the land is capable of being put ……

Provisions of contracts which contravene the Fair Trading Act, are severable – s.89 (2)

62 Offences against the Fair Trading Act 
(similar to TPA s 79)

(1) A person who: (a) contravenes the Act,  ……….  [or knowingly allows someone else to contravene the Act] (other than re ss.42 or 43)  is guilty of an offence against this Act.

(2) A person guilty of an offence against this Act for which a penalty is not otherwise provided is liable:

(a) in the case of a person …. to a penalty not exceeding 200 penalty units, or

(b) in the case of a body corporate — to a penalty not exceeding 1,000 penalty units.

 (7) Where a person is, by any conviction or order of a Local Court, adjudged to pay a fine, penalty, sum of money or costs in respect of an offence against this Act, the Court …… may, on the application of the Minister or the Director-General, order that the amount unpaid be recoverable as if it were a judgment debt payable by the defaulter to the Crown ….

(8) Where an order is made under subsection (7):

…….. (b) the conviction or order ceases to be enforceable by imprisonment.

 

s.63

1. Proceedings for an offence against this Act may be taken and prosecuted only by the Director-General …..

[ in a Local Court or Supreme Court]
………………
s. 63(5) ……the maximum monetary penalty that may be imposed by a Local Court … is 100 penalty units or the maximum monetary penalty provided by this Act for the offence, whichever is the lesser.

s.63(6) Proceedings for an offence against this Act may be commenced within 3 years after the alleged commission of the offence.

63A Compensation orders by Local Court on conviction of person
(1) If:

(a) a person is convicted by a Local Court of an offence against this Act  …. and ….. the Court is satisfied that another person has sustained loss …  as a result of the conduct of the convicted person,
the Court may, in addition to any penalty it may impose in respect of the offence, order the convicted person to compensate the other person for the loss or damage.

(2) The amount of compensation a Local Court may order to be paid under this section is not to exceed $40,000 or such other amount as is specified for the time being in section 12 (1) of the Local Courts (Civil Claims) Act 1970 .
……………….
(b) a reference to loss or damage does not, if the loss or damage arises from a contravention of Part 5 (section 43 excepted), include a reference to… [ death or personal injury]

[Note: under s.64, penalty notices can be issued by authorised officers.

Under s.65, injunctions can be granted].

s. 66A Show cause action may be taken by Director-General 
………………………

1. If the Director-General is satisfied that a person has, in trade or commerce, engaged in any unlawful conduct on more than one occasion  ……………. the Director-General may, by notice in writing served on the person, call on the person to show cause why the person should not, for the reason specified in the notice, be prevented from carrying on a business of supplying goods or services.

…………………………….
s.68 Actions for damages  ( similar to TPA s 82)

(1) A person who suffers loss or damage by conduct of another person that is in contravention of a provision of Part … 5 (section 43 excepted), [NOTE s.43 relates to unconscionable conduct]…… may recover the amount of the loss or damage by action against the other person or against any person involved in the contravention.

(1A) [Sub-section (1) above does not apply to death or personal injuries actions]

(2) An action under subsection (1) may be commenced at any time within 6 years after the day on which the cause of action that relates to the conduct accrued.
(2A) Subsection (2) does not apply to [ personal injury actions etc]

s.72 – Other orders (FTA) (similar to TPA s.87)

[Under s.72, the Court has the power to make virtually any order it wants to].

 

Produced by Redfern Legal Centre.
This factsheet is no substitute for legal advice. If you have a problem please seek legal advice from your local community legal centre