The Supreme Court of Western Australia has recently considered the application of the unfair contract terms regime under schedule 2 to the Competition and Consumer Act (Cth) (“Australian Consumer Law”) to certain clauses in the 2011 General Conditions.

In OPR WA Pty Ltd v Marron [2016] WASC 395, the buyer under a contract of sale argued that:

1. a contract for sale of residential land for investment purposes was a “consumer contract”; and
2. clauses 24.3(a) and 24.6(d) of the General Conditions were unfair contract terms within the meaning of the Australian Consumer Law, and therefore void.

Consumer Contract

 The Australian Consumer Law is a statutory exception to the freedom of contract approach of the common law.

A consumer contract includes a contract for the “sale or grant of an interest in land … to an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption”.

Broadly speaking, a standard form contract is a contract offered by one party without providing the other party a reasonable opportunity to negotiate terms. Whether or not a contract is a standard form contract is always a question of fact, and a court may take into account any factors it considers relevant. However, if one party asserts the existence of a standard form contract, then there is a rebuttable presumption that the assertion is correct.

Under the Australian Consumer Law, a term is unfair if:

1. it would cause a significant imbalance in the parties’ rights and obligations;
2. it is not reasonably necessary to protect the legitimate interests of the party advantaged by the term.

It is also worth noting that, as of 12 November 2016, the unfair contract terms regime has been extended to “small business contracts” (a topic beyond the scope of this post).

On the facts of the case, the buyer did not dispute that the seller had validly terminated the contract of sale. However, the buyer opposed the release of the deposit to the seller, on the basis that there was a real risk the seller would rely on clause 24.6(d) of the General Conditions to the contract and keep the entire deposit or any excess in accordance with clause 24.6(d), and that this was an unfair term within the meaning of the Australian Consumer Law because of the potential windfall that may accrue to the seller on a resale.

Unfair

The Court also determined that clause 24.6(d) of the General Conditions was not ‘unfair’ under the Australian Consumer Law.

A consumer contract is ‘unfair’ if (among other things) it would cause a significant imbalance in the parties’ rights and obligations arising under the contract.

The Court held that clause 24.6(d) of the General Conditions is ‘transparent, in that is it expressed in reasonably plain language, legible, presented clearly and readily available to the party affected by it’.  In particular, the Sale Contract clearly stipulated that:

• if the sale contract had completed then the deposit would have been counted towards the purchase price; and

 

• if the sale contract was terminated as a result of the buyer’s default, then there is a risk of forfeiture of the deposit and in some circumstances, an ‘excess’ being kept by the seller upon resale, after taking into account the costs and expenses of the re-sale and the amount of the deposited which has been forfeited.

 Implications

The implications of this decision include:

• contract for the acquisition of residential land for investment purposes is not a “consumer contract” for the purposes of the Australian Consumer Law.
• contracts that are drafted using clear, simple and plain language have a much better chance of withstanding claims under the Australian Consumer Law.

 Does your standard contract contain unfair terms?

This case has shed some light on the effect of the unfair contract terms of the Australian Consumer law on standard type of contracts.

You should take this opportunity to revisit and standard type of terms and conditions you use in your business to see if it contains and provisions which may be contrary to the Australian Consumer Law.

 Disclaimer: This post has been prepared as a general summary only. It is not, and is not intended to be, legal advice with respect to any particular matter. This post should not be relied on with respect to any particular matter without taking legal advice. The author disclaims liability to any person who relies on this post.