Legal Analysis Of A Contract Between A Refugee And An Internet Provider

Issue

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.

Issue: In the present case, the issue that needs to be decided is if Hamid has a valid contract with Speed Connect and at the same time is it possible for Hamid to terminate the contract. Hamid had very little knowledge of English language and on the other hand, Kathy who was aware of the fact that Hamid does not know English well, but in his efforts to sell the maximum number of contracts, fails to fully explain the terms of the contract. At the same time, she does not use the translation service that is available to her but makes Hamid entered a contract without completely understanding the terms of the contract. After three months, Hamid finds out that he cannot pay all the money under the contract due to the reason that several hidden costs were involved in it. However when Hamid wanted to terminate the contract, he came to know that they will have to pay a penalty of $1500 in case he wanted to end the contract. 

Rule: A contract can be explained as an agreement that is present between two or more parties and is legally enforceable. In this way, a contract is created when an offer is made by one party and the same is accepted by the other party (Griggs, 2005). The unfair contract terms law is applicable to the consumer contracts that have been defined by the Competition and Consumer Act, 2010 and also by the ASIC Act. The Competition and Consumer Act provides that a consumer contract is a contract that is related with the supply of goods or services or is related with the sale or grant to an individual, of interest in land. A somewhat similar definition has been given to a consumer contract by the ASIC which applies to the financial products and services. In this regard, it needs to be noted that the unfair contract terms law is not applicable in case of a contract for supply of goods or services by one business to another.

Rule

It also needs to be noted in this regard that a standard form contract has not been defined by unfair contract terms law. But broadly speaking, the standard form contract is a contract that has been prepared by one party only and has not been subjected to the negotiations that may take place between the parties (Zumbo, 2005). In this way, a standard form contract is offered to the other party on "take it or leave it basis". Generally, the use of standard form contracts is seen in case of supply of goods and services in a number of industries like telecommunications, travel, domestic building, motor vehicles and finance. In order to decide if a contract can be termed as a standard form contract, among other factors, a court may be required to consider the below mentioned things. For example it needs to be considered if under the transaction, most of the bargaining power is enjoyed by one party alone; If only one party has prepared the contract without any discussions with the other party; if the other party only had the choice to accept or reject the contract, that too in the same way in which it is presented to such party; if other party had an opportunity to negotiate regarding the terms of such a contract and if the specific characteristics related with the other party or that particular transaction have been taken into account (Howell, 2006). 

In this regard, it also needs to be noted that there are certain contracts that have been excluded from the operation of unfair contract terms the decision. For example, contracts related with shipping, managed investment schemes, the constitutions of companies and insurance contracts do not fall within the purview of this legislation (Nottage, 2009).

Application: A major question that needs to be decided in such cases is that when a term can be considered as 'unfair'. If the court comes to the conclusion that the term is unfair and as a result void, it means that the term can be considered as it has never existed. But at the same time it also needs to be noted that the rest of the contract continuous combined the parties to the extent to which it can operate in the absence of the unfair term (Tucker, 2003). The law provides in this regard that a term of the contract can be considered as unfair if such term results in a considerable imbalance in the rights and obligations of the parties that may arise under the contract. Similarly a term can be considered as unfair if such term is not reasonably necessary in order to protect legitimate interests of such party that will be advantaged by including the term in the contract and if the term would result in a detriment to the other party if such term is applied or relied upon (Treasury, Australian Government, 2009). In the present case, if the term is imposed, it will result in a detriment to Hamid. At the same time, the term related with penalty is not necessary for protecting the interests of Speed Connect. On the other hand, the presence of the term results in a major imbalance of rights and obligations under the contract between Hamid and Speed Connect.

Application

In order to decide if the term in a standard form contract can be considered as unfair, a three stage test is applied by the court to see unfairness. Section 24(1) of the Competition and Consumer Act provides that the term of a consumer contract can be considered as unfair if such term would result in a major imbalance in the rights and obligations of the parties and if such term is not reasonably necessary to provide protection to the legitimate interests of that party which would be one days by it and if they turn would result in a detriment to the other party if it is applied or relied upon (Nahan and Webb, 2013). It is required that all the three limbs of the unfairness test have been established that may allow the court to arrive at the conclusion that a particular term can be held as unfair. In the present case also, Kathy had used the standard form contract for creating a contract between Hamid and Speed Connect.

First of all, the court is required to consider if a term in the consumer contract may result in considerable imbalance among the rights and obligations of the parties under the contract. For this purpose, a factual assessment needs to be conducted of all the available evidence. For the purpose of this part of the test, the claimant has to establish that a particular term of the contract would result in a major imbalance in the rights and obligations of the parties as provided by the contract (Radin, 1996). According to the next part of the test for unfairness of a term of the contract, a court is required to consider if such term is reasonably necessary for providing protection to legitimate interests of that party which has inserted the term in the contract. Under the third part of this test, the court has to find if the term would result in a detriment to the opposite party if it is applied. In this regard it needs to be noted that such detriment can be financial or otherwise (Eisenberg, 1995).

In order to decide if a term of the standard form consumer contract can be considered as unfair or not, any method may be taken into consideration by the court as it thinks fit. However, for this purpose, the court must consider the transparency of the term and at the same time it should also consider the contract as a whole (Slawson, 1971). In case of a lack of transparency in a term, significant imbalance may be created in the rights and obligations of the parties to the contract. A term of the contract can be considered as transparent if such term has been expressed in plain language. At the same time, it is also required that such term should be legible, it should be presented clearly to the other party and similarly it should be readily available to such party. After evaluating the present contract, it appears that there was a lack of transparency regarding the terms of the contract with Speed Connect.

In this regard it needs to be noted that a term may not be considered as transparent by the court if such term is hidden in fine print or if such term has been phrased in technical or complex language. At the same time, the fairness of a particular term of the contract cannot be decided in isolation but it needs to be evaluated by considering the contract as a whole.

Conclusion: In the present case, Kathy had not explained to Hamid, the terms of the contract despite the fact that she was aware that Hamid was not well versed in English language. On the other hand, she used technical language for explaining the contract knowing fully well that Hamas will not completely understand the terms of the contract. At the same time, Kathy decided against the use of telephone translation service. The reason was that if they wanted to sell the contract quickly because she wanted to sign three more contracts as she worked on a commission basis.

Therefore in the present case it can be said that although there is a valid contract between Hamid and Speed Connect, the terms of the standard form contract were not explained to Hamid. In the same way, there was not sufficient transparency in the terms of the contract. As a result, these terms can be considered as void by the court and Hamid can terminate the contract.

References 

Frank Zumbo, 2005, ‘Dealing with Unfair Terms in Consumer Contracts: Is Australia Falling Behind?’ 13 Trade Practices Law Journal 70

Luke Nottage, 2009, ‘Consumer Law Reform in Australia: Contemporary and Comparative Constructive Criticism’ 9 Queensland University of Technology Law and Justice Journal 111, 121–6.

Lynden Griggs, 2005, ‘The [Ir]rational Consumer and Why We Need National Legislation Governing Unfair Contract Terms’  13 Competition and Consumer Law Journal 51

Margaret Jane Radin, 1996, Contested Commodities (Harvard University Press)

Melvin Aron Eisenberg, 1995, ‘The Limits of Cognition and the Limits of Contract’ 47 Stanford Law Review 211

Nicola Howell, 2006, ‘Catching Up with Consumer Realities: The Need for Legislation Prohibiting Unfair Terms in Consumer Contracts’ 34 Australian Business Law Review, 447

Nyuk Yin Nahan and Eileen Webb, 2013, ‘Unfair Contract Terms in Consumer Contracts’ in Justin Malbon and Luke Nottage (eds), Consumer Law & Policy in Australia & New Zealand (Federation Press) 129, 131

Philip Tucker, 2003, ‘Unconscionability: The Hegemony of the Narrow Doctrine under the Trade Practices Act’ 11 Trade Practices Law Journal 78.

Treasury, Australian Government, 2009, ‘The Nature and Application of Unconscionable Conduct Regulation: Can Statutory Unconscionable Conduct be Further Clarified in Practice?’ (Issues Paper) available at

https://archive.treasury.gov.au/documents/1676/PDF/Unconscionable_Conduct_Issues_Paper.pdf Accessed 26 January

W David Slawson, 1971, ‘Standard Form Contracts and Democratic Control of Lawmaking Power’  84 Harvard Law Review 529