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Commercial Law Assignment: Contract Laws

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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 choses 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 contract 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?
 
Use the IRAC (Issue, Rule, Application & Conclusion) method to answer your question.

 

 

Answer:

Issue

In the particular context, we notice that the central plot is based around Hamid, an immigrant from Afghanistan who was under suspicion put behind the bars for a considerable period of time in the PNG Detention Centre. At present, Hamid is approached by Kathy, a sales agent with the newly formed internet services company called Speed Connect Pty Ltd. Hamid does not understand English properly, and taking advantage of the situation, Kathy engaged in transferring of communication of information about the product and its terms and conditions to Hamid in English despite having the option of using the telephone translation services. The actual contract with Speed Connect came with a lot of hidden costs, and along with a 2 year contract which came with a violation penalty of $1,200. The violation penalty would arise if a customer would leave the services before the completion of 2 years, and along with the internet services came along a free Samsung Tablet.

 

Kathy, despite the knowledge that Hamid would not understand the technicalities of the contract and its terms, spoke in technical languages with Hamid about the contract, therefore not being able to deliver the terms and conditions of the contract to Hamid correctly (purposefully). Also, Kathy states that the telephone translation services would consumer double the time, and hence she chose not to use it. Moreover, the fact worth noting was that Kathy works on a contractual basis and hence wanted to close the deal as soon as possible as she had to sell more three packages, before putting a full stop to the business.

It must be noted that the issue herein is that Hamid is under the impression that the contract he is about to enter into can be terminated anytime with a 1-month-notice to the Speed Connect Pty Ltd, wherein all he has to do is return the tablet to the company. There is no knowledge about the inclusion of the $1,200 penalty which comes along with the termination of the contract before 2 years. Within three months, Hamid finds it difficult to cope up with the other hidden costs included in the service cost per month, and is communicated to charge a penalty of $1,500 when he goes to stop the service to the company. 

Rule

The primary rule to structure a contract is the presence of offer and acceptance, by two or more parties to the contract. This is the first prerequisite to validate any contract as per the Australian Contract Law (Clarke 2012). The decision of the standard form consumer contract is governed by the three-limbed test for ‘unfairness’ governed under Sch 2, s24(1) of the Competition and Consumer Act 2010 (Cth) and s. 12BG of the ASIC Act (Commonwealth of Australia 2010).

1. A massive imbalance is created in the obligatory rights of any party to contract
2. One or more of the conditions is not mandatory enough to be constituted as a condition, in favour of the legitimate interests of any party to the contract.
3. It would be resultant in a financial loss to one of the parties, in case such a condition is applied.

The rule which would be relevant herein would be in the context of pre-contractual misrepresentations which may provide contractual remedies to the consumer through the Competition and Consumer Act 2010 (Cth), which was previously known as the Trade Practices Act 1974 (Cth). The Australian Contract Law is the guiding law suit which would be relevant herein, and the relevant sections are sections 23 and 24. Section 23 defines the unfair terms of consumer contracts whereas section 24 deals with the meaning of unfair in the context of section 23 (Clarke 2013).

 

The provisions of a consumer contract being unfair also state that if certain information is not passed on to the consumer, in a manner which is clear to the consumer, whether be it financially rewarding or detrimental, it results in an imbalance in the information provided. The ACL clearly prohibits transactions or dealings which are unconscionable, and these are transactions which are clearly unfair and unreasonable. Any term which penalises one of the parties to the contract, and remains to be biased toward the other party in case of a termination of contract is said to be unfair in nature. The penalty so imposed must not be in the arbitrary interest of just one party. Also, any variation in the contract by one party only renders it to be an unfair contract. 

Application

Now, if there needs to be the applicability of the Australian Contract Law’s guidelines as mentioned in the Competition and Consumer Act 2010 (Cth) on the given case of Hamid, we would have to analyse whether it was a case of unfair grounds or not. Herein, it is clearly mentioned that the unclear communication of information makes the contract unfair, as per s. 25(1)(c) of the Competition and Consumer Act 2010 (Cth). Kathy did not take the heed to make sure that she would make Hamid understand the intricate details of the contract, rather than that she took advantage of the situation that Hamid, having lack of knowledge about understanding English, sold him the product with the misrepresentation of terms and conditions.

 

Moving on to the application of the given guidelines in the Competition and Consumer Act 2010 (Cth), the provisions ensure that Hamid can move the Australian courts of law, and file a case against the Speed Connect Pty Ltd, for the unfair grounds in which the terms & conditions were expressed to Hamid by Kathy. The governance of Sch 2, Part 5-2, s. 250 of the Competition and Consumer Act 2010 (Cth) and s. 12GBA of the ASIC Act provide Hamid with the option to file a case against Speed Connect in the Australian courts of law. The case stands strong in favour of Kathy considering that the telephone translation services from Kathy’s instruments were not put to use to ensure that the communication of information was made on honest grounds, because it would require double the time to make the deal with Hamid otherwise. Also, it must be noted that the deal would not have materialized had the translation services been used considering the heavy penalty charges of $1,200 if the contract is terminated within 2 years. Thus, overall, the contract remains strongly in the favour of Hamid, since the unfair grounds of misrepresentation of product/service information was put to use by Kathy to convince Hamid to buy the internet services from Speed Connect Pty Ltd. Moreover, the variation of the penalty from $1,200 to $1,500 by Speed Connect also makes it an unfair act.

Hamid has the options of nullifying the entire contract since the grounds on which the contract was formed by Kathy are “unfair and unconscionable”. Therefore, on the presence of the right form of witnessed and proofs, Hamid stands strong to terminate the contract with Speed Connect without having to pay any amount of penalty.

 

Conclusion

I would like to conclude the assignment by restating the above mentioned acts, statuses and presenting key facts from the case of Hamid vs. Speed Connect. First of all, one could question the valid contract forming between Kathy, representing Speed Connect Pty Ltd. and Hamid, a refugee from Afghanistan who barely understands English. The medium of interaction is unreliable and thus, the contract is in the first glance based on ill grounds. It has clearly been mentioned, as well as one could notice the absence of the application of telephone translation services which were at the disposal of Kathy while making the new contract between Hamid and Speed Connect, against the purchased internet services by Hamid to brush up his English speaking capabilities, as one of the reasons.

Therefore the provisions of the Australian Consumer Laws through the Consumer and Competition Act 2010 (Cth) and the ASIC (Australian Securities and Investment Commission) are present to assist Hamid in reversing the contract, since it was made out of ill reasons and does not stipulate to be based on moral grounds. Thus, Hamid does not have to pay any penalty. 

 

References

Attorney-General’s Department (2015). Contract Law and Consumer Law. [Online], available at Attorney-General Australia Website: https://www.ag.gov.au/Consultations/Documents/ReviewofAustraliancontractlaw/Contractlawandconsumerlaw.pdf (Accessed January 17, 2015)

Attorney-General’s Department (2015). Contract Law and Small Business. [Online], available at Attorney-General Australia Website: https://www.ag.gov.au/Consultations/Documents/ReviewofAustraliancontractlaw/Contractlawandsmallbusiness.pdf (Accessed January 17, 2015)

Clarke, J (2013). Carlill vs. Carbolic Smoke Ball Co. [Online], available from Australian Contract Law Website: https://www.australiancontractlaw.com/cases/carlill.html (Accessed January 17, 2015)

Clarke, J (2012). Agreement. [Online], available from Australian Contract Law Website: https://www.australiancontractlaw.com/law/formation-agreement.html (Accessed January 17, 2015)

Clarke, J (2013). Misleading or deceptive conduct. [Online], available from Australian Contract Law Website: https://www.australiancontractlaw.com/law/avoidance-misleading.html (Accessed January 17, 2015)

Clarke, J (2010). Overview of Australian Contract Law. [Online], available from Australian Contract Law Website: https://www.australiancontractlaw.com/law.html (Accessed January 17, 2015)

Clarke, J (2013). Australian Contract and Consumer Law. [Online], available from Australian Contract Law Website: https://www.australiancontractlaw.com/ (Accessed January 17, 2015)

Commonwealth of Australia (2010). A guide to the unfair contract terms law. [Online], available from Consumer Law Website: https://www.consumerlaw.gov.au/content/the_acl/downloads/unfair_contract_terms_guide.PDF (Accessed January 17, 2015)

Flitzroy Legal Services. (2013). Elements of a contract. [Online], available from The Law Handbook Website: https://www.lawhandbook.org.au/handbook/ch12s01s02.php (Accessed January 17, 2015)

Monash University (2015). Commercial Law. [Online], available from Monash University Website: https://guides.lib.monash.edu/contract-law (Accessed January 17, 2015).

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