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Australian Commercial Law System Add in library

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Question:

Hamid is a refugee from Afghanistan who was recently released from the detention centre in PNG and is currently living in Adelaide. While walking in Rundle Mall one day he was approached by Kathy who was selling internet access contracts for a newly formed internet company Speed Connect Pty Ltd. Hamid speaks very little English and Kathy is aware of this. Kathy explains the terms of the contract which is essentially that Hamid would be bound to a 2 year contract and if he breaks the contract anytime before the 2 years he will incur a $1,200 penalty. The contract comes with a free Samsung tablet. Kathy uses some technical language to explain the terms to Hamid, aware that he doesn’t understand the full extend of the contract terms.There is a telephone translation service available but Kathy chooses not to use this as this translation service usually takes twice as long. Kathy works on a commission basis. The more contracts she sells the more she earns. She wants to sign up this contract quickly as she is keen to sign up three more contracts before close of business.Hamid has been thinking of getting internet connection as he wishes to Skype his family back home in Afghanistan and also to do a free on-line English course. He is under the impression that he can terminate this contract anytime he wants without any penalty and all he has to do is give Speed Connect one month’s notice and return the tablet.Three months into the contract Hamid finds that he is unable to cope with the financial demands of this contract as there are many hidden costs which he was unaware. When he contacted Speed Connect to give his termination notice he was shocked to learn that there is a $1500 penalty.Advise Hamid if this contract with Speed Connect is valid? Can he get out of this contract?

 

Answer:

Contract Case: The given case is regarding a contract between a released refugee Hamid and an internet company Speed Connect Pty Ltd. The discussion in the case would be elaborated in accordance with the Issue, Rule, Application and Conclusion method.

Issue: The issue in the given case is regarding the validity of the contract between Hamid and the internet company Speed Connect Pty Ltd. The case reflects the presence of ambiguity in the terms of the contract. Due to the presence of these ambiguities it is to be analyzed whether the contract is void or voidable or valid.

Rule: With regard to the given case firstly the concept of consensus ad idem should be discussed.[1] This concept of consensus ad idem forms a basic foundation of any contractual agreement.[2] According to this concept, for a valid contract it is extremely essential that all parties to the contract should agree to the same thing in the same manner without any discrepancies. This is extremely essential in the point of law for making the contract Dickinson v Dodds (1876) LR 2 Ch D 463, 473.[3] The existence of this concept of consensus ad idem in the Australian commercial law is neither new nor controversial. However, there does exist some complexities in the application of this principle to the facts. It was held in the case of Taylor v Johnson (1983) 151 CLR 422, 428[4] that establish that consensus ad idem in any contract there are two tests, namely the subjective test and the objective test. The High Court also held that there is a clear distinction in the two tests.

According to the subjective test the intention of the parties in the contract are to be considered from the perspective of the parties and whether they had a common intention. Unless and until there is a genuine meeting of minds as understood by all parties, no valid contract can be formed.[5]This subjective approach representing the intention of the parties who enter into a legal relation was discussed in the case of The Crown v Clarke.[6] The court had held in this case that intention of the offeree can usually be understood from the external demonstration of the intention. However, later exception was made to the general rule. This case was extremely significant as it depicted an example where the court had accepted the objective approach but made an exception depending in the facts of the case to proceed with the subjective approach.[7]The other approach is the more prevalent approach where the existence and the content of the contract is interpreted in the objective manner. Justice Gleeson in the case of Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540,549[8] stated that the test of objective approach has a enveloping influence in the law of contract.In the case of Equuscorp Pty Ltd v Glengallen Investments Pty Ltd. the High Court held that contractual relationship cannot be ruled by the subjective belief of the parties and what concerns is the words and conduct of the parties that would lead a reasonable man to believe in the party. Further it was stated that the legal rights would be those that are reasonably conveyed to the other party. According to the objective approach the court will recognize the existence of consensus ad idem as the same thing understood in the same manner and not the true meeting of mind. In the case of Smith v Hughes[9], this approach was applied to the facts.

 

Another rule of contract that needs to be mentioned in accordance to the given case is the unconscionable conduct rule in Australia. These conducts include the presence of hidden costs in an agreement of contract. Such a contract is considered to be unenforceable since no reasonable or informed person would have agreed to it. Also with regard to the given case another rule may be mentioned which is given under section 18 of the Australian Consumer Law dealing with misleading or deceptive conduct.[10]

Application

Referring to the given case of the validity of the contract between Hamid and the internet company Speed Connect Pty Ltd. the above rules and laws of contract may be applied. Firstly, while explaining the terms of the contract Kathy the representative of the internet company knew that Hamid did not understand the terms of the contract but did not make an attempt to explain it to him. So even while signing the contract there was a lack of consensus ad idem between the parties as they did not agree to the same thing in the same manner which is essential to both the tests of the concept of consensus ad idem. Hence in this contract the fundamental part of the contract which is consensus ad idem is missing.

 

Further even when Kathy had the opportunity to clear the ambiguity in the contract she did not do so. This led to mislead Hamid for entering into the contract. Hence section 18 of the Australian Consumer law, due to this reason the contract suffers from deceptive conduct and leads to a breach of contract.Additionally, the presence of hidden costs in the contract implies that contract also suffers from unconscionable conduct.[11] Since some of the costs were hidden the party cannot be considered to be bound by such terms and hence the enforcement of the contract would be unfair for the party that would seek to escape from the contract.

Conclusion

Keeping in mind all the above criteria the advice to be given to Hamid is that the contract is not valid and unenforceable under the laws. Since the contract itself is invalid the question to pay a penalty of $1500 does not arise. The contract between Hamid and the internet company Speed Connect Pty Ltd is invalid and he can escape from the contract.

Bibliography

Carter J, 'Good Faith In Contract: Why Australian Law Is Incoherent' SSRN Journal

Davis J, Contract (Thomson Lawbook Co 2006)

O'Sullivan J, 'Consensus Ad Idem: Essays On The Law Of Contract In Honour Of Guenter Treitel. Edited By F.D. Rose. [London: Sweet & Maxwell. 1996. Xl, 301, And (Index) 7Pp. Hardback. £60.00 Net. ISBN 0–421–57780–0.]' (1997) 56 The Cambridge Law Journal

Richards P, Law Of Contract (Pearson Longman 2007)

Turner C and Trone J, Australian Commercial Law (Lawbook Co 2013)

Wright T, Ellinghaus M and Kelly D, 'A Draft Australian Law Of Contract' SSRN Journal

Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR

Crown v Clarke (1927) 40 CLR

Dickinson v Dodds (1876) LR 2 Ch D

Smith v Hughes (1871) LR 6 QB

Taylor v Johnson (1983) 151 CLR

 

[1] Janet O'Sullivan, 'Consensus Ad Idem: Essays On The Law Of Contract In Honour Of Guenter Treitel. Edited By F.D. Rose. [London: Sweet & Maxwell. 1996. Xl, 301, And (Index) 7Pp. Hardback. £60.00 Net. ISBN 0–421–57780–0.]' (1997) 56 The Cambridge Law Journal.

[2] J. L. R Davis, Contract (Thomson Lawbook Co 2006).

[3] Dickinson v Dodds (1876) LR 2 Ch D.

[4] Taylor v Johnson (1983) 151 CLR.

[5] Paul Richards, Law Of Contract (Pearson Longman 2007).

[6] Crown v Clarke (1927) 40 CLR.

[7] Clive Turner and John Trone, Australian Commercial Law (Lawbook Co 2013).

[8] Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR.

[9] Smith v Hughes (1871) LR 6 QB.

[10] Ted Wright, M P Ellinghaus and D StL Kelly, 'A Draft Australian Law Of Contract' SSRN Journal.

[11] John Carter, 'Good Faith In Contract: Why Australian Law Is Incoherent' SSRN Journal.

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