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Assignment On Commercial Law
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1. Advise Hamid if this contract with Speed Connect is valid? Can he get out of this contract?
2. Use the IRAC (Issue, Rule, Application & Conclusion) method to answer your question?
Answer - Issue:
The issue that arises in this case is related with the presence of a legally enforceable contract between Hamid and Speed Connect Pty Ltd. and it also needs to be seen if the contract can be terminated by Hamid before the expiry of the term of the contract. In this case, Hamid did not knew English well and on the other hand, Kathy the representative of Speed Connect knew this fact but did not make any efforts to explain all the terms of the contract to Hamid because Kathy wanted to sell more contracts as she was paid on a commission basis by the company. Although a telephone translation service was available but Kathy decided not to use the service as it took more time. In this way, Hamid enters into the contract without being aware of all the terms of the contract. After a few months, Hamid finds that it is difficult for him to pay the money under the contract as a number of hidden costs were imposed by the company. But when Hamid expressed his desire to terminate the contract, he was told that according to the contract, a penalty of $1500 has to be paid by him if he wanted to terminate the contract before two years.
The Competition and Consumer Act, 2010 defines the term consumer contract. According to this legislation, a consumer contract is related with the supply of goods or services or it can also deal with the sale or grant of land to the other party. At the same time, the ASIC act also defines a consumer contract and this definition is applicable in case of financial products and services. However the unfair contract terms legislation does not apply to the contracts for the supply of goods or services from one business to another (Zumbo, 2005). The unfair contract terms legislation does not define a standard form contract however it can be broadly defined as the contract that has been created by one party alone and no negotiations have taken place between the parties regarding the terms of the contract (Griggs, 2005). Standard form contracts are generally used in several industries like finance, telecommunications, motor vehicles, travel and domestic building. For deciding the issue that the contract is a standard form contract or not, there are certain factors that need to be decided by the court including the effect if one party to the contract enjoyed most of the bargaining power (Radin, 1996). It also needs to be considered if the terms of the contract have been decided only by one party and they were not discussed with the other party; if the other party only had the option to accept or reject and no amendments could have been made in the terms of the contract. It also needs to be seen if the other party had any opportunity to negotiate these terms and at the same time, it also need to be seen if the specific characteristics of the other party have been considered or not (Nottage, 2009).
At the same time, there are some contracts that do not fall within the purview of unfair contract terms legislation. These contracts include the contracts dealing with shipping, insurance, investment schemes and the constitutions of companies.
In this case, it needs to be decided if the terms mentioned in the contract between Hamid and Speed Connect can be considered as unfair or not. In case it is decided by the court that a particular term in a contract is unfair and therefore void, in such a case, it is considered that the term never existed between the parties. But in such a case, the rest of the contract, if it is able to operate without that particular term continues to bind the parties to such extent. According to the law, a particular term of a contract is viewed as being unfair if it creates an imbalance in the rights and obligations that are enjoyed by the parties under the contract (Howell, 2006). In the same way, any term of the contract is viewed as unfair if the term is not reasonably necessary for the purpose of protecting the legitimate interests of the party that has included such term in the contract. Similarly, if the term will cause a detriment to the other party, if such term is applied by the court or relied upon, it is also considered as being unfair (Nahan and Webb, 2013).
For example, in the present case if the term according to which Hamid has to be a penalty of $1500 if he wanted to terminate the contract before the expiry of two years, will result in a significant detriment to Hamid. In the same way, although this term is not required to protect the legitimate interests of speed connect, this term will cause a major imbalance in the rights and obligations of Hamid and Speed Connect under the contract.
At least a test has been provided by the law for deciding the fairness of the terms of a contract. In this regard, section 24, Competition and Consumer Act requires that a particular term of the contract has to be seen as unfair if the term causes inequality among the rights and obligations that are enjoyed by the parties under the contract and if the particular term cannot be said to be reasonably necessary for protecting the legitimate interests of the party that would benefit from the insertion of such term in the contract and at the same time, if such term is applied by the court, it would cause detriment to the other party (Tucker, 2003). In such a case, all the three parts of the test used for deciding the unfairness of a term have to be established so that the court can hold that such term is unfair. For example in the present case, a standard form contract has been used by Kathy for the purpose of entering into a contract with Hamid. No chance was given to Hamid to negotiate the terms of the contract. Moreover, these terms were explained in a complex technical language by Kathy although she knew that Hamid had not understood the terms completely.
In such a case, it also needs to be seen if the particular term present in the consumer contract may cause imbalance in the rights and obligations that are enjoyed by the parties. Therefore a factual assessment has to be made of the evidence available in this regard. Similarly, it also needs to be established by the claimant that a particular term has imbalance their rights and obligations. As a part of the next stage of the test used to decide the unfairness of a term, the court has to consider it the term can be said to be reasonably necessary for safeguarding the interests of the party that has included such a term (Treasury, 2009). Therefore, in such a case, the court has to see if the term will cause a detriment to the other party if such term is applied by the court. In such a case, the detriment suffered by the other party can be a financial nature or otherwise.
Another important factor in this regard is the transparency of the term. For this purpose, the contract needs to be considered as a whole. If it is found that any particular term lacks transparency, it may imbalance the rights and obligations that are imposed on the parties under the contract. On the other hand, a particular term can be considered as transparent if it has been expressed in the contract using plain language. It is also required that the term should be legible and presented clearly (Slawson, 1971). In the present case, the terms of the contract were explained to Hamid using technical language despite the fact that Hamid had little knowledge of English.
For creating the contract between Hamid and Speed Connect Pty Ltd., Kathy had used complex technical language although she knew that Hamid understood very little English. Kathy also failed to use the telephone translation service that was available to her but she decided against the use of this service because in such a case it would have taken more time to explain the contract. Kathy was in a hurry to sell the contract because she had to conclude two other contracts and she was paid by the company on a commission basis.
On the basis of above-mentioned discussion of the relevant rules of law and their application, it can be said that despite the fact that a valid contract has been created between Hamid and Speed Connect Pty Ltd., all the terms of the contract cannot be said to be reasonable as these terms present in the standard form contract have not been completely explained to Hamid. On this ground, it can be said that the terms were not sufficiently transparent. Therefore, the terms of the contract can be held as void by the court and therefore the contract can be terminated by Hamid.
Frank Zumbo, 2005, ‘Dealing with Unfair Terms in Consumer Contracts: Is Australia Falling Behind?’ 13 Trade Practices Law Journal 70
Luke Nottage, 2009, ‘Consumer Law Reform in Australia: Contemporary and Comparative Constructive Criticism’ 9 Queensland University of Technology Law and Justice Journal 111, 121–6.
Lynden Griggs, 2005, ‘The [Ir]rational Consumer and Why We Need National Legislation Governing Unfair Contract Terms’ 13 Competition and Consumer Law Journal 51
Margaret Jane Radin, 1996, Contested Commodities (Harvard University Press)
Melvin Aron Eisenberg, 1995, ‘The Limits of Cognition and the Limits of Contract’ 47 Stanford Law Review 211
Nicola Howell, 2006, ‘Catching Up with Consumer Realities: The Need for Legislation Prohibiting Unfair Terms in Consumer Contracts’ 34 Australian Business Law Review, 447
Nyuk Yin Nahan and Eileen Webb, 2013, ‘Unfair Contract Terms in Consumer Contracts’ in Justin Malbon and Luke Nottage (eds), Consumer Law & Policy in Australia & New Zealand (Federation Press) 129, 131
Philip Tucker, 2003, ‘Unconscionability: The Hegemony of the Narrow Doctrine under the Trade Practices Act’ 11 Trade Practices Law Journal 78.
Treasury, Australian Government, 2009, ‘The Nature and Application of Unconscionable Conduct Regulation: Can Statutory Unconscionable Conduct be Further Clarified in Practice?’
W David Slawson, 1971, ‘Standard Form Contracts and Democratic Control of Lawmaking Power’ 84 Harvard Law Review 529
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