Buyer beware cause business is getting its way
With consumers already being let down so badly on grocery issues by Mr Rudd and his Competition Minister Craig Emerson, you’d think that they would do better on basic consumer law issues. Well, you’d be very disappointed as Minister Emerson has presided over a continual watering down of consumer rights in the vital area of unfair contract terms.
Unfair contract terms may prevent the sale of items like this
We know or should know about unfair contract terms. We more commonly know them as the “fine print” in consumer contracts. These are the nasty terms of the contract that stack the contract well and truly in favour of the larger party, commonly a big business. Banks use unfair contract terms as do mobile phone companies. Car hire companies and your local gym also try to stack the contract terms in their favour.
Unfair contract terms are also found in contracts that small businesses may have with larger businesses. Small businesses also deal with banks, mobile phone companies and car hire companies. In this regard, small businesses are also consumers of basic goods and services. Sadly, small businesses can also get hit with unfair contract terms in franchise agreements, retail leases and supply agreements.
Such laws are not “fluffy” or some socialist conspiracy. These laws have long operated successfully and without fuss in the United Kingdom, Europe and in our very own Victoria. Clearly, no one can say that commerce has come to a standstill in those places because of laws against unfair contract terms. So, let’s be clear that laws against unfair contract terms don’t threaten free enterprise, but rather strengthen it.
All too often consumers and small businesses are forced to sign standard form contracts where they have no ability to negotiate the terms of those contracts. Standard form contracts are “offered” on a take it or leave it basis. Have you ever tried to change the terms of a standard form contract? Ever suggested to the mobile phone company, bank, or car hire company that you would like to change contract terms? Well, try it some time and see what happens.
Of course, there will be those hardliners out there who will say that if you don’t like it you don’t have to sign the contract as you can simply go elsewhere. Well, what if the same unfair contract terms are found in all other contracts in the same industry. What then? The point is that unfair contract terms are like a cancer that spreads throughout an industry unless dealt with in an effective manner.
The reason is simply is that business generally don’t compete on most contract terms. So there is a market failure in relation to most contract terms as there is no competition on those terms. Yes, there is competition on key terms such as price, but on the remainder of the contract terms businesses like banks, mobile phone companies and car hire companies just act as cosy club where they merely copy one another’s contract terms.
As for the concept of “unfair” that has a legal meaning for the purposes of laws against unfair contract terms. Unfair is defined by reference to 2 key principles. Does the contract term represent a significant imbalance between the rights and obligations of the parties? In other words, is the contract term significantly lop-sided?
Secondly, does the contract term go beyond what is reasonably necessary to protect the legitimate interests of the larger party? Quite simply, the larger party can and is entitled to protect its legitimate interests, but cannot go further.
Despite such assurances and the considerable experience in the United Kingdom and more recently in Victoria, it’s very disappointing that the new national law dealing with unfair contract terms has been watered down by Minister Emerson from the longstanding Victorian law in the area.
The Victorian law, modelled on the United Kingdom law, represents best practice in dealing with unfair contract terms and should have just been copied at the Federal level. Instead, Minister Emerson has watered down the new national unfair contract terms law making it much harder to prove the existence of an unfair term. This watering down will clearly disadvantage consumers, and create business uncertainty as the national law differs in key respects from the Victorian law.
Businesses also could have been much better served by the new national unfair contract terms law. This author, for example, proposed the availability of “safe harbours” under the new national law. The provision of safe harbours would have enabled businesses to voluntarily approach the ACCC for approval of contracts or terms. Sadly, the Federal Government didn’t accept the proposal for safe harbours and, accordingly, the new national unfair contract terms law now fails both consumers and businesses.
One somewhat bright light on the issue of unfair contract terms emerged recently with Minister Chris Bowen’s decision to review the issue of unfair terms in insurance contracts.
While we certainly hope that Minister Bowen finally gets it right and knocks out unfair terms in insurance contracts, the sad reality is that Mr Rudd and his team have so far fumbled the ball very badly on consumer and small business issues.
With Labor having once been a pioneer on consumer law reform, it’s certainly time for Labor to get back on track and give consumers and small businesses the effective laws against unfair contract terms that they so urgently need.
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