Australian Consumer Law - Case Study Example

Commercial Law Name: Institution: Date: Introduction A contract refers to the agreement entered by two or more parties. This agreement is reached when one party accepts an offer or communicates the intention to accept from another party. The agreement may be oral or in writing, and is legally enforceable (Commonwealth of Australia 2010). The offer represents a party’s promise to be bound. The other party can accept this promise or present a counter offer. Similarly, the offeror has the right to withdraw an offer before it is accepted by the accepting party. However, the offeror has to communicate the withdrawal of the offer before the other party accepts the initial offer. Australian Consumer Law also states that the offer does not have to be made to a particular individual. The offer can be made to a group of people, a person or the entire world (Commonwealth of Australia 2010). The Issue In the case scenario, Kathy represented Speed Connect Pty Ltd that made offers to clients that sought Internet access services. Kathy presented the offer to Hamid. She stated the terms of the contract were a free Samsung tablet, two-year duration, and a penalty of $1,200 for breaking the contract. She was required to use a telephone translation service to help Hamid understand the terms of the offer. However, Kathy intentionally decided not to use the translation service because it would take longer to sell the contract to Hamid and attract other customers at the shopping mall. As a result, Hamid entered into a contract without understanding the full terms of the contract. He assumed that the Internet access service was provided without any penalty and that the contract would be terminated at one month’s notice without attracting a penalty. Three months later, Hamid found out that a notice was not sufficient to terminate a contract and that he would have to pay $1,500 to terminate the internet service. The issue is that the contract was unfair. Fairness is important in contracts. This is because it ensures that the obligations and rights of both parties are not infringed. Fairness is also important because it helps protect a business’ legitimate interest, ensures transparency, and reduces any risk of financial or non-financial detriment from enforcing the contract (Australia Competition and Consumer Commission [ACCC] 2014). A contract becomes unfair when it causes an imbalance between the obligations and rights of the parties to the contract. In addition, a contract becomes unfair when the terms are unreasonable, lack transparency or cause detriment to the offeror (ACCC 2014). Factors that make the contract unfair to Hamid are misrepresentation and undue influence. Lack of language translation exposed Hamid to negligent misrepresentation of the terms of the contract. Kathy’s failure to use the translation service meant that she could have misrepresented the price of the Internet access service and exclusion/termination clauses. This misrepresentation caused undue influence to the weaker party, Hamid. She used her English proficiency to take unfair advantage of Hamid’s language barrier. As a result, Hamid could claim that he did not intend to voluntary enter into the agreement with the Internet company. He could argue that he made a mistake when signing the contract document because he believed that the terms of the Internet service were different from what was presented. The Rule Schedule 2 of the Australian Consumer Law and The Competition and Consumer Act of 2010 provide the general principles of a contract (ACCC 2014). According to these legislations, a contract requires an offer, an acceptance, consideration, capacity, consent, and the intention to establish a legal relation. The offer and acceptance may be made orally or in writing. The Competition and Consumer Act contains provisions for protecting consumers in contract law (Commonwealth of Australia 2010). A legally binding agreement is also based on the assumption that there is consideration from the parties and that all of the parties involved have legal capacity to enter into the contract. Consent is an important element of a contract because it indicates that the parties have an adequate understanding of the agreement and free will to enter into the contract. This consent has to be genuine because lack of consent constitutes breach of contract. Consent could be affected if the parties make a mistake, are under duress, issue false statements, or are under undue influence to enter into a contract. On the rule of mistakes, a person can argue that he is not bound to a contract because he or she signed a document with a mistaken belief that it related to something different. The person could claim that the mistake means he/she is not bound by the contract. A person who cannot read can also claim that he signed a document based on what he was told. He could claim that the contract was not binding since he did not know what he was signing. The mistake assertion, however, does not protect an individual who signs a contract without reading the conditions and the terms of the agreement. Such a person cannot plead a mistake because he/she did not exercise due diligence to read the conditions and terms of the agreement prior to signing it (Commonwealth of Australia 2010). On the rule of false statements, a person can plead that the offeror made false statements that influenced his decision to enter into the contract. The false statement could be made when one party’s motivation to agree to the contract is based on untrue statements made by the offering party. The offering party may also exclude verbal statements from the written contract but give the impression that the verbal statements are included in the written agreement. Alternatively, a person can plead false statement when he signs a contract with false terms. When the contract has significant false statements, a court could hold void and unenforceable. In addition, the wronged party could claim for monetary damages caused by entering into a voided contract. Where the false statements are less significant, the court may hold that the contract is valid but allow the wronged party to reject the agreement and seek monetary compensation. The wronged party is still bound to the agreement even though he/she can plead monetary damages for losses arising from the false statements. The validity of the contract and enforceability of the terms would therefore be affected if the false statement is based on fraudulent misrepresentation, negligent misrepresentation or innocent misrepresentation (ACCC 2014). In fraudulent misrepresentation, the wronged party would have to prove fraud and plead that the court rescinds the contract and approves damages incurred from the consequences of the misrepresented statements. Innocent misrepresentation could occur when one party makes a false statement without any intention to mislead the wronged party. Alternatively, negligent misrepresentation could occur when a party fails to exercise duty of care. The wronged party would have to prove that the offeror made false statements without any duty of care (ACCC 2014). On the rule concerning undue influence, Consumer Protection Legislation recognizes that a party can enter into an agreement under undue influence. This influence occurs when one party takes advantage of another party so that the weak party enters into the contract involuntarily. This undue influence could be due to fraud by the stronger party or unfair exploitation of a confidential relationship between two parties (such as the relationship between a patient and a physician). The wronged party could plead undue influence to cause the contract to be voided (ACCC 2014). The Application Schedule 2 section 24.1 of the Competition and Consumer Act defines the unfairness test. The test states that a contract is unfair when it causes an imbalance between the obligations and rights of the parties to the contract. In addition, a contract becomes unfair when the terms are unreasonable, lack transparency or cause detriment to the offeror. These three aspects should be proven to qualify for the unfairness test and to enable the court to decide the fairness of a term in a contract (Commonwealth of Australia 2010). In the case, Hamid could plead that the contract is invalid because the contract causes an imbalance of his obligations and rights. He would have to provide evidence to claim that the contract caused an imbalance in his rights. He could assert that the explanation and presentation of the contract in a language that he is not proficient in causes an imbalance because it infringes on his rights. He could plead that the presentation of the contract terms without the use of a translation service caused the imbalance and exposed him to misrepresentation of the terms of the contract and caused him undue influence to enter into a contract with the company. To make the imbalance claim, Hamid would need to demonstrate that Kathy’s presentation of the contract terms lacked transparency and therefore caused undue influence. According to the Commonwealth of Australia (2010), lack of transparency in the terms of a standard consumer contract contributes to the considerable imbalance in the obligations and rights of the parties. Hamid could assert that the terms of the contract lacked transparency because they were explained in a language that he could not understand. In addition, he could assert that the terms of the contract on termination and penalties were not presented clearly to him before he signed the agreement. This is based on the assertion that a term is transparent when it is expressed in plain language, is presented in a clear manner, is legible, and is readily available to the involved parties (Commonwealth of Australia 2010, p.12). The court, however, would have to determine the transparent nature of a term to a contract. For instance, the court would have to decide whether terms that are stated in fine print or that are written in technical language constitute transparency (Commonwealth of Australia 2010, p.13). In addition, an Australian court would have to consider the requirements for transparency and the unfairness test of the terms of the contract. This consideration would include determining whether the wording of the clauses in the contract between Hamid and and the company were comprehensible to the customer and could be understood. Furthermore, the court would have to determine whether Hamid understood the clauses referring to the penalty for termination of the contract and appreciated the effect of those closes on his rights as the consumer. Hamid could claim that the termination clause is unfair because it seems to permit the company to terminate the contract but penalizes him for doing the same. He could assert that the terms to cancel the contract protect the firm’s legitimate interests in providing regular Internet service but are unfair to customers because the two-year restriction is too long. In the case of Doctor of Consumer Affairs v AAPT Limited [2006] VCAT 1493, the plaintiff asserted that the termination clause of the mobile phone contract for breaches had a broad application that could be termed as unfair. The court observed that any changes made by the customer (such as home address changes) constituted a breach of contract and allowed the mobile service provider to terminate the contract. The court held that the terms of the contract were unfair because the provisions were very broad. Hamid could plead that the terms of the contract were unfair because they undermined his right to cancel the contract at any time. He would have to prove that the terms of the contract hindered him from terminating the internet access services under any circumstances owing to lack of funds. He would have to show that the two-year limit and penalties were unfair because they infringed on his right to cancel the service at any time and imposed sanctions that were above those imposed by law. He could also assert that the penalties should have born reasonable relationship based on the losses the company would suffer rather than an arbitrary amount of $1,500. In addition to unfairness, Hamid could plea negligent misrepresentation of the contract terms by Kathy, owing to lack of a translation service, and lack of complete understanding of the clauses of the contract leading to undue influence. He could claim that Kathy used the language barrier to her advantage to cause Hamid to enter into an agreement that he did not completely understand. Hamid could therefore claim that the undue influence and misrepresentation caused him to make a mistake when signing the contract document since he believed that the terms of the Internet service were different from what was presented. Conclusion Based on consumer legislation, Hamid has a right to plea the court to make the contract void and unenforceable. He could assert that the terms of the contract were unfair because they were presented in a language that was not clearly understood. In addition, he could claim that the penalties and two-year limit were restrictive and therefore unfair because they caused significance imbalance to his obligations and rights as a consumer. Furthermore, Hamid could claim misrepresentation because the terms of the contract were not translated to his language. He could use this claim to show undue influence and plead the court to void the contract with the firm. References Australia Competition and Consumer Commission (ACCC) 2010, Unfair contract terms, viewed 9 January 2014, < https://www.accc.gov.au/consumers/contracts-agreements/unfair-contract-terms> Commonwealth of Australia 2010, ‘A guide to the unfair contract terms law’, Australian Consumer Law, Commonwealth Copyright Administration, Barton, ACT. Read More