I. INTRODUCTION
The role and limits of transparency in consumer law has been much discussed in recent years;Footnote 1 but this discussion must continue. Firstly, it is of significant practical importance for consumers. Are they protected from substantively unfair terms even when these are clear? Is transparency used effectively, for example, in aiding access to justice? Secondly, it is of theoretical importance to understand the roles played by transparency. Indeed, this theoretical significance extends beyond the area of contract terms. Regulation of contract terms goes to the core of the trader–consumer relationship; so an understanding of the approach to transparency in this particular context is an important part of the larger picture when it comes to the values of consumer law and policy.Footnote 2 Third, it is a particularly appropriate time to raise these issues, as many of the rules affecting them have been the subject of suggested or actual reform recently in both the UK and Australia. In the UK, the Law Commissions have proposed a unified regime to replace the Unfair Terms in Consumer Contracts Regulations (UTCCR) 1999Footnote 3 (which implement the EU Unfair Terms in Consumer Contracts DirectiveFootnote 4 (UTCCD)) and the Unfair Contract Terms Act (UCTA) 1977.Footnote 5 There is also now a proposal for a new EU Consumer Rights Directive (CRD) covering unfair terms.Footnote 6 Further, the law on transparency and disclosure has been affected substantially by the Consumer Protection from Unfair Trading Regulations (CPUTR) 2008,Footnote 7 which implement the EU Unfair Commercial Practices Directive (UCPD).Footnote 8 In Australia, there have been a number of developments over the last few decades. These have included the New South Wales Contracts Review Act; the Victorian Fair Trading Act; and various important judgements. Then, following proposals in 2009, a new federal law on unfair terms was passed in 2010.Footnote 9
It is argued here that the UK position on the role of transparency in legitimizing substantively unfair terms is uncertain and unstable. Of course, some terms are actually treated by the legislation itself as ineffective based entirely on their substantive effects (so that transparency clearly does not perform a legitimizing function in these cases). However, these terms apart, the issue depends on the proper interpretation of the general test of unfairness. Under this test it can be said, on the one hand, that the combination of the indicatively/presumed unfair approach and regulatory practice supports the idea that transparency cannot legitimize sufficiently substantively unfair terms. On the other hand, the stability of this position is threatened by the presence of the ‘good faith’ concept in the unfairness test. In short, in dealing with this concept, the problem is that the House of Lords (now the ‘Supreme Court’) has never indicated clearly that transparency cannot legitimize sufficiently substantively unfair terms.
In Australia, the story is of a change over time. In the case of the earlier provisions, it seems fairly clear that transparency probably could legitimize substantively unfair terms. By contrast, under the Victorian Fair Trading Act 1999, it seems that transparency was not understood as having this effect. Now under the new federal law, what we find is at least a small degree of uncertainty. The government commentary on the new federal test seems to confirm that transparency is not intended to be able to legitimize terms that are sufficiently unfair in substance. However, the test itself does not make this clear, so the position remains uncertain. Protection against the substantive effects of terms is also weakened by the decision not to ban outright a number of terms.
Apart from addressing the question as to whether transparency can legitimize substantively unfair terms, I argue that transparency has other roles to play, ie in recognizing a right to a chance to understand terms, in furthering market discipline and in relation to post contractual access to justice. In order to achieve these goals it is necessary to require that all voluntarily used terms are transparent. The UK and Australian approaches to this could be improved by reference to the previous model in the State of Victoria and the current approach taken by the European Commission's Draft Common Frame of Reference. It is also necessary to require disclosure of certain important legal rights; and in this context EU law may have brought a significant advance in the UK that does not exist in Australia.
II. TRANSPARENCY AS A LEGITIMATING FACTOR VERSUS IRREDUCIBLE SUBSTANTIVE RIGHTS
Terms are transparent when they are available at the point of contract; there is a reasonable opportunity to become acquainted with them; they are in clear, jargon free language and decent sized print; the sentences, paragraphs and overall contract are well structured; and appropriate prominence is given to particularly important terms (whether those that significantly reduce the rights of consumers or those that impose significant burdens on consumers).
These are the sort of criteria that tend to be insisted upon in relation to transparency in previous, existing or proposed legislative measures and by courts and regulators.Footnote 10 Our question here is regarding the significance of meeting such criteria. To what extent are terms made fair—to what extent are they legitimized—when they meet these standards of transparency? To the extent that transparency is required, and is then treated as a legitimating factor, the idea seems to be to prioritize the notion of (assisted) informed freedom of choice. Consumers are helped (by transparency) to better understand the terms; and, if they agree to them, they are bound on the basis that they have made an informed choice.
An alternative approach is to hold that transparency does not legitimize terms that cross a certain threshold of substantive detriment.Footnote 11 To some extent this approach can be said to be based on the view that transparency is not usually capable of genuinely informing consumers. This is because consumers are unlikely to read terms even when they are transparent. There are a number of reasons for this. First of all, there may be a large quantity of information to be processed prior to the decision to enter the contract;Footnote 12 meaning that consumers focus only on the core aspects of the transaction. Further, consumers may suffer from being overly optimistic and an inclination to discount future risks.Footnote 13 This may be because of factors such as the very positive general marketing messages; prior psychological commitment to purchases;Footnote 14 the way in which certain risks and benefits are ‘framed;Footnote 15 and the ‘normal’ experience of routine, non-problematic performance by both parties, with terms (and their possibly negative consequences) not usually coming into play.Footnote 16 Also, consumers will know that traders will be unlikely to agree to any changes in any case; and may even believe that the terms have a legal sanction and represent ‘the law’.
All of these factors make it unlikely that consumers will attempt to get to grips with the terms even when they are transparent. As such, transparency of terms cannot be viewed, in practice, as producing the level of pre-contractual understanding that would make for real informed freedom of choice. This perspective is increasingly supported by behavioural scientists.Footnote 17
However, if the inability of transparency to produce informed consent was the only issue, then no standard terms would be legitimized by transparency: the substantive features of the terms would not matter. If and when transparency does not legitimize terms, it is obvious that a key rationale must be that consumers should be protected from terms that impose unacceptable substantive risks and burdens on consumers. Often, as we shall see below, the agenda seems to be the protection of certain ‘irreducible rights’:Footnote 18 for example, to be compensated for negligence and to goods that meet certain quality standards.
In the following section it is argued that there is uncertainty in both the UK and Australia as to just how far we have moved from the ‘assisted informed freedom of choice’ model to one recognizing irreducible substantive rights.
III. UK AND AUSTRALIAN APPROACHES TO TRANSPARENCY AS A LEGITIMIZING FACTOR
An introductory point is required here. In both the UK and under the new Australian federal regime, core price terms are excluded from the test of unfairness.Footnote 19 So, in relation to such terms, a freedom of contract approach applies. However, the focus here is on the values that apply in the case of the non-core, ancillary terms to which the tests of unfairness applies.
A. The UK
There is a category of terms where it is quite clear that transparency is not viewed as sufficient, ie terms that are not even subject to a general test of unfairness, but are deemed wholly ineffective based purely on their substantive features. In the UK this applies to terms excluding or restricting liability for negligently caused death or injury; and (in consumer cases only) for goods supplied in breach of the implied terms as to description, quality and fitness for particular purpose.Footnote 20 At present, no terms are wholly ineffective in this way under the general EU unfair contract terms regime (the UTCCD); although the Sales Directive (similarly to the aforementioned UK approach) renders ineffective exclusion or restriction of the liability for non conforming goods.Footnote 21 Further, the CRD would introduce a list of terms ‘which are in all circumstances considered unfair’.Footnote 22 This (like the UK) would include terms excluding or restricting liability for death or injury.Footnote 23 However, it would go further and cover terms by which traders deny responsibility for commitments undertaken by their agents.Footnote 24 There would also bans on terms that in varying ways interfere with consumer access to justice.Footnote 25
However, beyond these bans, our question as to the role of transparency as a legitimating factor must be answered by reference to the applicable general tests of unfairness. First of all, there is the ‘reasonableness’ test under UCTA 1977. This applies to terms excluding liability for negligence causing losses other than death or injury,Footnote 26 breach of contract,Footnote 27 and misrepresentation;Footnote 28 and to terms requiring consumers to indemnify tradersFootnote 29 and terms allowing traders to render a performance substantially different from that reasonably expected or no performance at all.Footnote 30 In applying this reasonableness test, transparency has been considered as a relevant factor in several business to business cases;Footnote 31 but seems to have been given little consideration in consumer cases. In the only House of Lords decision involving a consumer contract the focus was on the substantive impact of the term and the related questions as to justifications for its use (ie whether the service in question was a particularly difficult one and who was best placed to insure); along with the procedural questions as to the relative bargaining positions of the parties and whether a reasonable choice was available to the consumer. Taking these matters into account, the term (which excluded liability for a negligent survey) was found not to be reasonable.Footnote 32 The term does appear to have been relatively transparent and known about by the consumers; so it would appear that transparency was not considered to be a legitimizing factor.Footnote 33
However, the significance of the UCTA case law is extremely limited for two reasons. First, UCTA is a purely private law regime; there being no power for courts or regulatory bodies to prevent traders using unreasonable terms (only a power for courts to declare a term ineffective in a private law action between the parties). So, even if we assume that the courts would continue to take the view that transparency cannot necessarily legitimize terms under the UCTA test, this will only have any impact in those very few instances of individual consumer litigation that will arise. It will not lead to such terms being cleared from the market. Secondly, UCTA only applies to exemption clauses and not to terms imposing unfair obligations or liabilities on consumers or granting unfair powers and rights to traders where this does not, as such, amount to an exclusion or restriction of liability within the meaning of UCTA. So, the approach to exemption clauses under UCTA tells us nothing as to what attitude is likely in the case of these other types of terms.
Of much greater practical significance is the regime under the UTCCR. This covers exemption clauses and these other types of term. In addition, it has a real impact on the use of terms, as regulatory bodies are empowered to take preventive action against unfair terms.Footnote 34 A very considerable body of work against unfair terms has been done by the Office of Fair Trading (OFT) using these powers.Footnote 35
Under the UTCCR (following the UTCCD, which they implement) a term is unfair if:
[C]ontrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer'Footnote 36 (This same test is used in the proposed CRD).Footnote 37
Before turning to the detail of this test, it is important to recognize that there is currently an ‘indicative and non-exhaustive list of the terms which may be regarded as unfair’.Footnote 38 This includes those mentioned above that would, in future, be blacklisted by the proposed CRD.Footnote 39 It also includes terms inappropriately excluding liability for breachFootnote 40 (obviously breaches other than those mentioned above that are affected by the blacklist); binding the consumer, but not the trader;Footnote 41 requiring consumers to pay for goods or services not received;Footnote 42 allowing traders to retain deposits when consumers do not perform, without allowing for equivalent compensation for the consumer in the opposite situation;Footnote 43 imposing disproportionate compensation on consumers that are in breach;Footnote 44 allowing traders, but not consumers, to terminate at will;Footnote 45 allowing traders to terminate contracts of indeterminate duration without reasonable notice, except on serious grounds;Footnote 46 automatic extension of contracts where the deadline expressed for the consumer to express a desire not to extend is too early;Footnote 47 allowing for alteration of the terms or performance without valid reasons;Footnote 48 allowing price to be fixed at the time of delivery or increased, without there being a corresponding consumer right to cancel if the final price is too high;Footnote 49 and allowing transfer of consumer rights (where this would reduce consumer rights) without consent.Footnote 50
Of course, this list only being ‘indicative’, it must still be established that such terms are unfair by applying the general test of unfairness. The proposed CRD would retain this list (absent those mentioned above that would actually be blacklisted). However, the balance of protection would be shifted further towards consumers by providing that these terms are no longer simply indicatively unfair; they would, rather, be ‘presumed to be unfair’ (unless proven not to be unfair under the general test of unfairness).Footnote 51 Putting this in another way, the presumption would be against transparency (or, indeed, anything else) operating as a legitimizing factor in the case of these terms.
In applying the current test, the regulatory practice of the OFT certainly appears, routinely, to be to find many of the terms on the indicative list to be unfair based on their substantive features.Footnote 52 In other words, transparency is not viewed as legitimizing the use of such terms. Of course, terms such as exemption clauses come in such a huge variety of forms and some will be much less unfair in substance than others. However, even in the context of exemption clauses, it is clear that the OFT view many as unfair however they are presented. So, for instance, the OFT generally views terms as unfair where they completely exclude a particular liability that would otherwise arise; or where they significantly limit liability (eg limitation of the damages claimable so as not to cover consequential losses).Footnote 53 The extent to which a limitation of liability is acceptable also appears to depend upon whether the effect is to allow the trader to escape liability in cases where there is an element of fault.Footnote 54 None of these approaches appear to be qualified by any notion that the term is acceptable as long as it is transparent.Footnote 55 At the same time, the stability of this position in relation to these terms, and more generally, is ultimately dependent on the general test itself; and how it is interpreted by the courts. This is the issue to which we now turn.
There is a fairly broadly accepted view that the concept of ‘significant imbalance in rights and obligations to the detriment of the consumer’ is fundamentally focussed on the substantive features of the terms.Footnote 56 The idea, which seems to reflect various national traditions, as well as national understandings of the UTCCD test,Footnote 57 seems, broadly, to be that terms may violate this element of the test by allocating the substantive rights and obligations in ways that are unduly detrimental to the consumer (eg by adding to the responsibilities of the consumer by comparison with the legal default position or subtracting from the responsibilities of the trader relative to the default position); where there cannot be said to be a counterbalancing substantive benefitFootnote 58 for the consumer (whether in the term itself or in another provision of the contract or another contract on which this one is dependent).Footnote 59
Then we turn to the ‘good faith’ element of the test. There is a view to the effect that it has no role that is independent from significant imbalance, ie that the only question is whether there is a significant imbalance; and that if there is such a significant imbalance then there is also automatically a violation of good faith.Footnote 60 This view is something of an elaboration of the view that a key reason for good faith being used as a part of the test was simply to reflect those national traditions that were tied to the good faith concept; so that good faith can be viewed simply as a label that ‘explains’ to these national traditions what is meant by the significant imbalance/detriment concept. There is, however, a difficulty with this view given that there appear to be positive guidelines on good faith in the preamble to the UTCCD. It is said that
the assessment … of the unfair character of terms … must be supplemented by a means of making an overall assessment of the different interests involved; whereas this constitutes the requirement of good faith; whereas in making an assessment of good faith, particular regard shall be had to the strength of the bargaining position of the parties, whether the consumer had an inducement to agree to the term and whether the goods or services were sold or supplied to the special order of the consumer; whereas the requirement of good faith may be satisfied by the seller or supplier where he deals fairly and equitably with the other party whose legitimate interests he has to take into account.Footnote 61
The key word above seems to be ‘supplemented’. If the assessment as to unfairness is to be ‘supplemented’ by these various criteria that are germane to good faith, it seems impossible to avoid the conclusion that violation of good faith is, at least something of, an independent requirement (whether independent from significant imbalance or, with the same practical result, playing some independent role in determining when an imbalance is ‘significant’).Footnote 62 Now, it does not obviously follow from this that transparency has a potential role to play in legitimizing terms. It is true that transparency is a recognized element of good faith in certain systems.Footnote 63 It is also true that the references to ‘dealing fairly and equitably’ and taking into account ‘legitimate interests’ could both be viewed as an indication that transparency is a necessary element of good faith under the UTCCD; and also (and crucially for our enquiry) as an indication that transparency is (or, at least, can be) sufficient in establishing good faith. However, transparency is not mentioned in this recital and the ‘fair and equitable’ and the ‘legitimate interests’ concepts could, plausibly, refer to a further review (building on the significant imbalance/detriment question) of the degree of unfairness in substance. Also, of course, even if these concepts cover transparency, one view might be that, while transparency is necessary for fair, equitable, legitimate interest respecting (good faith) behaviour, it is never enough; or, at least, certainly not where there is a sufficient degree of unfairness in substance.
However, the problem is that the issue is left unclear; so that the fundamental question as to the role of transparency is unclear. There is, in other words, considerable scope for debate as to whether a high degree of unfairness in substance can ever be legitimized by transparency.
The proposed CRD would retain the Preamble reference to the above good faith criteria, but remove the reference to the idea that the test is ‘supplemented’ by these criteria.Footnote 64 However, it would also provide, expressly, that, in assessing whether a term is unfair, account should be taken of whether there has been transparency.Footnote 65 It is not made clear whether the intention is simply that a lack of transparency can make a term unfair where, otherwise, there would not be sufficient unfairness in substance; or whether, in addition, transparency can legitimize a term that is particularly substantively unfair.
Certainly, the understanding in some civil law countries is that transparency is not necessarily a legitimizing factor under the test in the UTCCD. One German scholar has strongly criticized what he views as an undue fixation with the procedural aspects of good faith at the expense of the substantive aspects.Footnote 66 Indeed, the German law implementing the UTCCD arguably emphasizes that transparency is not necessarily a legitimizing factor in two ways. There are actually separate provisions on ‘surprising’ terms (aimed at lack of transparency) and ‘review of subject matter’.Footnote 67 The latter refers to whether the terms ‘contrary to the requirement of good faith, … place the [consumer] at an unreasonable disadvantage’. This good faith/disadvantage test goes on to provide that an unreasonable disadvantage ‘may also result from the fact that the provision is not clear and comprehensible’. Obviously the primary purpose here is to indicate that an unreasonable disadvantage may be caused by a lack of transparency, even if the term is fair in substance. However, the implication of the word ‘also’ is that, in addition (and this being the normal and more typical situation), such an unreasonable disadvantage may be caused by unfairness in substance, irrespective of transparency, ie transparency does not necessarily legitimize.
However, the issue remains uncertain in the UK. This uncertainty can be found in the approach of the House of Lords in Director General of Fair Trading v First National Bank.Footnote 68 First of all, let us unpack some basics about the approach of the House of Lords to the test. In broad terms the approach was that there needs to be significant imbalance/detriment and, separately, a violation of good faith. This certainly represents the approach of Lord Bingham and, to a large extent, the other judges;Footnote 69 although, there was also recognition of a ‘large area of overlap’ between the imbalance/detriment and good faith elements.Footnote 70 The view was certainly that the significant imbalance/detriment element is essentially about substantive rights and obligations. Lord Bingham said that:
The requirement of significant imbalance is met if a term is so weighted in favour of the supplier as to tilt the parties' rights and obligations under the contract significantly in his favour. This may be by the granting to the supplier of a beneficial option or discretion or power, or by the imposing on the consumer of a disadvantageous burden or risk or duty.Footnote 71
Lord Bingham said that the indicative list of terms provided guidance as to unfairness in substance.Footnote 72 He also said that whether a term caused a significant imbalance to the detriment of the consumer was a question that involved looking not only at the term in question but also at the contract as a whole, ie at the other terms of the contract.Footnote 73 Lord Steyn also thought that ‘significant imbalance’ related to matters of substantive unfairness.Footnote 74
Turning to good faith, Lord Bingham equated this with ‘fair and open dealing.Footnote 75 He said that ‘openness’ meant that terms should be ‘expressed fully, clearly and legibly’; not containing ‘concealed pitfalls or traps’; and being given ‘appropriate prominence’ where they might ‘operate disadvantageously’ to the consumer.Footnote 76 ‘He said that ‘fair’ dealing:
[R]equires that the supplier should not, whether deliberately or unconsciously, take advantage of the consumer's necessity, indigence, lack of experience, unfamiliarity with the subject matter of the contract [or] weak bargaining position … .Footnote 77
This may mean simply that consumers (as a class) are presumptively treated as suffering from the various weaknesses listed (ie these are weaknesses relative to the trader); and that traders are to be viewed as taking advantage of these if they use terms that are unduly detrimental in substance to consumer interests. In short, a reasonable level of fairness in substance is required for ‘fair’ dealing. If this is the case then, given that fair dealing is expressed as a separate requirement to ‘open’ dealing (fair and open), the suggestion would be that (for Lord Bingham) transparency cannot legitimize terms that are sufficiently unfair in substance. However, the difficulty is that it is far from clear that the above quotation does refer simply to unfairness in substance. It might be argued, for instance, that there is only ‘advantage taking’ where there is some positive procedural impropriety and/or the consumer is especially vulnerable in some way. In other words, it is not possible to say for certain that Lord Bingham viewed fairness in substance as an entirely free standing requirement.
Lord Steyn approved Lord Bingham's views as to good faith.Footnote 78 However, he also said that: ‘Any purely procedural or even predominantly procedural interpretation of the requirement of good faith must be rejected’.Footnote 79 This does not state explicitly, but does strongly suggest, that procedural fairness (including transparency) cannot legitimize a term that is sufficiently unfair in substance. However, there was no positive support from the other three judges for this. They did not reject any of Lord Steyn's judgment; but simply referred to their approval of the judgment of Lord Bingham.Footnote 80 In fact, the House of Lords did not need to answer the question as to the legitimizing function of transparency; because they did not accept that the term in question actually caused a significant (substantive) imbalance in rights and obligationsFootnote 81 (so, whether unfairness in substance could be legitimized by transparency did not arise).
The Court of Appeal did take the view that certain terms could be sufficiently unfair in substance as to violate good faith irrespective of procedural fairness. Peter Gibson LJ cited the following comment by Hugh Beale:
I suspect good faith has a double operation. First it has a procedural aspect. It will require the supplier to consider the consumer's interests. However, a clause which might be unfair if it came as a surprise may be upheld if the business took steps to bring it to the consumer's attention and to explain it. Secondly, it has a substantive content: some clauses may cause such an imbalance that they should always be treated as being contrary to good faith and therefore unfair.Footnote 82
However, the position of the House of Lords (now the ‘Supreme Court’) remains unclear on this crucial point. The position of lower courts is also unclear. Terms providing for substantial commission to be paid to an estate agent for minimal services in return have recently been held to be unfair by the High Court.Footnote 83 These were considered to cause a significant imbalance to the detriment of the consumerFootnote 84 (ie to be unfair in substance). It was also found that these commissions were not given sufficient prominence as to satisfy the requirement of good faith.Footnote 85 The suggestion, certainly, is that a greater degree of prominence might have sufficed. Now, it does not necessarily follow from this that the court would take the view that some terms might not be able to be legitimized (via the good faith concept) by transparency. Equally, there was certainly no express indication of such a view.
It does, as stated above, seem routinely to be taken by the OFT that certain terms are unfair and must be made fairer in substance, irrespective of transparency.Footnote 86 However, the stability of this position remains unclear as long as the position of the Supreme Court remains unclear.
It should also be noted here that the proposal of the English and Scottish Law Commissions to replace the good faith/imbalance test with a ‘fair and reasonable’ testFootnote 87 would not, in itself, resolve this question. This, as we have seen, is a question that arises because of the reference to ‘good faith’ in the test. However, this being a test deriving from a European Directive (the UTCCD), EU law requires that the national measures implementing the test be interpreted so as to give effect to its meaning.Footnote 88 In other words, good faith (whatever it means in terms of the role of transparency) must be read into any new UK test (whatever terminology it uses). Further, the proposed ‘fair and reasonable’ test would actually refer explicitly to transparency as a key factor to be taken into account.Footnote 89 It is true that the view of the Law Commissions is that the test be should be viewed as one under which a term can be sufficiently unfair in substance to be held to be unfair whatever the circumstances in which the agreement is madeFootnote 90 (which I take to include the question as to transparency). However, such a possibility is not provided for expressly in the test; so it would remain uncertain as to how the courts would approach the issue.
One suspects that it may well ultimately be accepted by the House of Lords/Supreme Court (whether under the current test or a new ‘fair and reasonable’ test) that a sufficient degree of unfairness in substance cannot be legitimized by transparency. However, even if it is, there remains the question as to whether the presence of transparency as a relevant factor in the test will mean that a greater degree of unfairness in substance will be taken to be required where there is transparency than would be the case where transparency played no role in the test. In short, transparency might be treated as a legitimating factor in relation to terms that it would not be viewed as legitimating if it was not mentioned in the test.
The ECJ might be read to take the position that terms can be sufficiently unfair in substance as to be unfair (transparency notwithstanding). The ECJ has said that if there is no benefit at all to the consumer (this presumably referring to substantive benefit) then it is prepared to conclude that the term is unfair.Footnote 91 However, in the case involving the term to which the ECJ was referring,Footnote 92 no argument seems to have been raised as to transparency; so, as with the English courts, the position of the ECJ remains unclear on our core question.
B. Australian Approaches to Transparency as a Legitimizing Factor
Essentially, what we find in Australia is a change in approach over time. The story begins with a series of provisions under which it seems that transparency probably could legitimize substantively unfair terms. In contrast, in the case of the more recent Victorian Fair Trading Act, the understanding seems to have been that transparency could not legitimize a term that was sufficiently unfair in substance. Now, under the new federal law, what we find is at least a degree of uncertainty.
The first element of the picture here is the equitable doctrine of unconscionability as understood by the Australian courts. The well known Amadio caseFootnote 93 offered some hope that the doctrine of unconscionability might be understood in a broad enough way to address at least some of the modern unfairness problems arising in relation to standard form contracting. This is because there was actually specific mention of such contracts as putting the other party (such as a consumer) at the type of ‘special disadvantage’ required for a finding of unconscionability.Footnote 94 However, it was still emphasized in Amadio that more than a ‘special disadvantage’ was required; it was also necessary that ‘unfair or unconscientious advantage should then taken of the opportunity thereby created’,Footnote 95 ie created by the special disadvantage. These requirements continued to be insisted upon by the Australian courts.Footnote 96 For our purposes, a key point is that it became clear that unconscientious advantage taking is not taken to exist simply by virtue of a party having taken advantage of a superior bargaining position.Footnote 97 So, for instance, it could not, apparently, be said that a trader had behaved unconscientiously by taking advantage of his superior bargaining position to impose substantively unfair terms. Of course, it seems that there would possibly be unconscientious advantage taking where the weaker party was in such a position as not to be able to assess his best interests and the nature of the transaction.Footnote 98 However, even if this applies to the situation affecting a consumer in the face of the lack of transparency often to be found in consumer contracts, the implication would be that (for the courts) this problem could be cured, whether by legal advice or (one imagines) by a sufficient degree of transparency.
In 1986, a statutory form of unconscionability was introduced by section 51 AB of the Trade Practices Act (TPA) 1974. This (like the common law notion of unconscionability) can apply much more broadly than in relation to the terms of a contract as such. However, it does certainly apply to terms; and, in particular, the measure of fairness in substance is whether terms are ‘reasonably necessary for the protection of the legitimate interests of [the trader]’.Footnote 99 There are also a variety of procedural criteria: the relative bargaining positions of the parties,Footnote 100 whether there was undue influence or pressure,Footnote 101 the availability of alternative price/term packagesFootnote 102 and, importantly, for our purposes, ‘whether the consumer was able to understand any documents.’Footnote 103 What is vital for our purposes is the attitude of the courts to the interplay between these procedural criteria (particularly the issue of transparency) and the substantive features of the term. Essentially, the courts appear to have taken an approach that requires a degree of procedural unfairness. The line taken by the Full Federal Court in recent cases such as Hurley v McDonald's Australia Ltd Footnote 104and Australian and Competition and Consumer Commission v Lux Pty Ltd Footnote 105 is that there must be something more than the terms themselves that makes reliance on them unconscionable. This suggests that unfairness in substance is not enough in itself. It would be logical, then, to say that transparency can legitimize substantively unfair terms (unless, of course, but this is not our present concern, there is some other form of procedural unfairness).
Next we turn to the New South Wales Contracts Review Act 1980.Footnote 106 Section 7 (1) allows for a variety of sanctions against an ‘unjust’ contract; while section 9 provides a variety of criteria (going to the substance of the term and procedural matters) to be taken into account in assessing whether a contract is indeed unjust. Transparency is one of these factors in that section 9 (2) (g) refers to: ‘where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed’. As early as 1986, it became evident that there would rarely be a finding of an unjust contract without there being procedural unfairness. In West v AGC (Advances) Ltd Footnote 107 McHugh J said that: ‘Most unjust contracts will be the product of both procedural and substantive injustice’.Footnote 108 Earlier, he seems to go further by saying that: ‘I do not see how that contract can be considered unjust simply because it was not in the interest of the claimant to make the contract or because she had no independent advice.’Footnote 109 More recently in Elkofairi v Permanent Trustee Co Ltd the court said that the trend of authority since the West case was to look beyond the substantive terms to the circumstances in which the contract was made.Footnote 110
So, as with the other approaches considered so far, it has not been accepted that terms can be unfair on substantive grounds alone; the corollary being that transparency would often be viewed as legitimizing terms (subject, of course, to there not being some independent procedural impropriety).
In 2003 the State of Victoria introduced a new Part 2B into the 1999 Victorian Fair Trading Act. This provision has now been repealed and replaced with a new federal law that we shall turn to below. Prior to its recent repeal, s. 32W of the Victorian Fair Trading Act (which was clearly based on the UK/EU test) provided that:
A term in a consumer contract is to be regarded as unfair if, contrary to the requirements of good faith and in all the circumstances, it causes a significant imbalance in the parties' rights and obligations arising under the contract to the detriment of the consumer.
In fact, not very long before repeal, this provision had been amended and no longer contained any reference to ‘good faith’. However, what we are interested in here is how good faith was approached in Victoria while it was still part of the test. In brief, the answer is that the view seems to have been that transparency could not necessarily legitimize a term that is sufficiently unfair in substance.
It will be recalled that the UK/EU test is elaborated on in the preamble to the UTCCD; adding weight to the view that violation of good faith is a requirement that is separate from the existence of imbalance/detriment; this, in turn, raising the possibility that transparency can prevent there being a violation of good faith, potentially legitimizing terms no matter how unfair in substance they may be. The Victorian test did not elaborate on the concept of good faith. Nevertheless, it was held that the concept was not ‘mere surplusage’.Footnote 111 The approach taken was one of those we discussed above as being possible to countenance in relation to the UK test, ie that whether there was a violation of good faith was relevant to whether any imbalance was ‘significant’;Footnote 112 so that the good faith question performed what was described as an ‘adjectival role’ in determining whether the term caused an imbalance that is significant.Footnote 113 Of course, it is the other alternative that seems to have been taken up in the UK, ie that violation of good faith is a separate requirement from significant imbalance/detriment. Nevertheless, as suggested above, the practical result seems the same, ie that there is some positive content to good faith; content that would not be there if the reference was simply to significant imbalance/detriment.
The key, of course, is as to what this positive content is. In the AAPT case, the court reviewed the approach of the House of Lords in First National Bank (as to ‘fair and open dealing’Footnote 114 and ‘community standards of decency, fairness and reasonableness in commercial transactions’)Footnote 115 and other views of good faith. These included the German approach, which is more focussed on the substantive terms, in that it is concerned with terms causing an ‘unreasonable disadvantage’;Footnote 116 and the views of Sir Anthony Mason to the effect that good faith comprised requirements of cooperation, honesty and reasonableness having regard to the interests of the other party.Footnote 117 Although these were all deemed to be helpful perspectives, there was no strong commitment to any of them as such; and the overriding emphasis was as to good faith as an adjectival ‘touchstone’ to help determine the significance of the imbalance and, therefore, the overall question of unfairness.Footnote 118
However, for our purposes the most significant element of the judgment was where the court specifically approved the view of Hugh Beale referred to above.Footnote 119 (This, of course, was also approved by the English Court of Appeal, but not commented on by the House of Lords).Footnote 120 First, this confirms the view of the court that the presence of good faith in the equation means that transparency is a relevant consideration. However, it also, of course, confirms the view that if there is enough unfairness in substance then there is unfairness, transparency notwithstanding, ie that transparency cannot legitimize terms in such cases.
There is now a new federal law. This replaces the Victorian provisions on unfair terms, which no longer apply. Under the new federal law, a term is unfair if it would cause: ‘a significant imbalance in the parties’ rights and obligations arising under the contract; and … it is not reasonably necessary in order to protect the legitimate interests of the [trader]; and … it would cause detriment … to .. [the consumer] if it were to be applied or relied on.'Footnote 121
We can immediately see that this contains no reference to ‘good faith’. The first consultation (ie the document initially proposing a new regime) referred to the view of the Productivity Commission that good faith is subject to differing interpretations and that other definitions may be equally apt.Footnote 122 At the time of the first consultation the exclusion of the good faith concept seemed to confirm that there was no place for the notion of transparency as a legitimizing factor. Certainly, a simple reference to ‘significant imbalance/detriment’ without any ‘good faith’ gloss would generally be read to be referring simply to the substantive rights and obligations. This impression would be strengthened, first of all, by the specific choice not to use the prior Victorian model with its reference to good faith. It would also be strengthened by the reference (in the test outlined above that was finally adopted) to whether the term is ‘reasonably necessary to protect the legitimate interests of the supplier’. After all, it is surely the substantive content of the term that is relevant to protection of these legitimate interests. So a trader might argue, for instance, that it is necessary to restrict a particular liability because, otherwise he would be exposed to too much potential (substantive) liability. By contrast, it is hard to see how the transparency of a term protects the interests of a trader.
However, matters are not so simple. After setting out the basic test, the new federal law goes on to provide that in determining whether a term is unfair, consideration must be given to whether it is ‘transparent’;Footnote 123 ie whether it is plain language, legible, clearly presented and readily available.Footnote 124 The idea, presumably, must be that (even without good faith as an adjectival guide) the ‘significance’ of a substantive imbalance is viewed as being affected by whether or not there is transparency. The question then arising is whether any such transparency can legitimize sufficiently substantively unfair terms. The government view seems to be that it cannot. In the second consultation it was stated that:
The extent to which a term is transparent is not determinative of the unfairness of a term … and transparency, on its own account, cannot overcome underlying unfairness in a contract term. The transparency of a term is simply a consideration that a court must take into account when considering whether a term is unfair.Footnote 125
The suggestion, then, seems to be that transparency cannot legitimize a term that is sufficiently unfair in substance; but (and presumably this is where it comes into play) a lack of transparency can render a term unfair where the term would not otherwise be sufficiently substantively detrimental to be found to be unfair. However, it is unfortunate that this is not made clear in the actual legislative text; and the possibility must always remain that courts will not follow this analysis and will, sometimes, find significantly substantively detrimental terms to be fair on the grounds of transparency.
The first consultation also proposed what would have been a separate (very clear) rejection of the ‘informed freedom of choice’ model by banning a large number of terms outright;Footnote 126 (and we shall outline these shortly). However, the final law simply provides a list of examples of terms that ‘may be unfair’;Footnote 127 an approach similar to the ‘indicative list’ approach in the UK/EU (although not going as far as the approach in the proposed CRD, which creates a presumption of unfairness for such terms). The second consultation had proposed that there would be provision for future regulations to be made to ban terms outright.Footnote 128 However, the final law only appears to provide powers to add to the list of terms that ‘may’ be unfair.Footnote 129 As in the UK/EU, there have long been bans on terms excluding or restricting liability for negligently caused injury and for non conforming goods; and, going further than in the UK/EU, there is a ban on terms excluding or restricting liability for negligence causing any losses, ie extending beyond death and personal injury and including, for example, loss of, or damage to, property.Footnote 130 These bans are retained under the new Australian law.Footnote 131 However, to reiterate, the main approach under the new Australian law is simply to have an illustrative list of terms that ‘may’ be unfair.
Broadly, this illustrative list covers similar sorts of terms to those on the UK/EU list outlined above. So, it covers, for example, exclusion/limitation clauses and terms allowing scope for traders to vary, terminate or renew the contract.Footnote 132 It also covers various terms that in some way hinder access to justice, ie by limiting the right to sue or the evidence that can be brought or by imposing an evidential burden on the consumer.Footnote 133 However, certain particular terms compromising access to justice would actually have been banned outright under the proposals in the initial consultation.Footnote 134 Terms excluding liability for statements made by agents are also on the illustrative list;Footnote 135 but, again, these would have been banned outright under the initial proposal.Footnote 136
In fact, the illustrative list says nothing at all about certain other terms that would have been subject to an outright ban under the initial proposal. First of all, here, I am referring to another sort of term affecting access to justice, ie a term in a building contract stipulating for full, or substantially full, pre-payment. A key issue here is that such terms compromise the ability of consumers to persuade traders to rectify defects; and such terms would have been banned under the initial proposals.Footnote 137 Secondly, I have in mind terms allowing for onerous and disproportionate enforcement by the trader. So, under the initial proposals, there would have been bans on terms retaining title (for the trader) where this would allow the trader to remove from consumers' premises, goods that cannot be removed without damage;Footnote 138 terms imposing flat or fixed early termination fees on consumers;Footnote 139 terms requiring consumers to pay trader enforcement costs irrespective of the reasonableness of the amounts;Footnote 140 and terms allowing retention, debit or set-off of disputed amounts.Footnote 141
In sum, then, not only does the new Australian federal test contain uncertainty as to the scope for transparency to legitimize terms under the general test, but it has also made a very significant number of terms subject to this uncertainty, when the initial plan was to ban these terms altogether.
IV. OTHER ROLES FOR TRANSPARENCY
Quite apart from whatever scope there is for transparency to legitimize terms, it is submitted that it has quite separate roles to play.Footnote 142 First of all, it may be viewed as a basic social right that consumers should be placed in a position that they have at least a chance of understanding what they are agreeing to. In other words, there is a right to have the chance to exercise informed consent; notwithstanding whether this opportunity will, realistically, be taken up by most consumers.
Second, transparency can be viewed as being important in furthering market discipline. Even if the average consumer cannot take advantage of transparencyFootnote 143 there may be a section of consumers who have the time, resources and education to overcome the lack of transparency and gain a good understanding of the terms and their implications. This so-called ‘active margin’ of consumers may then exert market discipline on traders with the result that terms are more substantively fair and/or that there is improved choice.Footnote 144 Of course, this all depends upon there being a sufficiently large margin of consumers that reads and digests terms and makes market choices on this basis.Footnote 145 It must be seriously questionable as to whether such a margin will often exist. It seems more likely that many of those who are ready and able to take positive steps to protect their interests will tend not to do so until there is a dispute. Such consumers may well scrutinize terms and/or seek advice as to their meaning when the trader seeks to rely upon the terms. This may enable such consumers to persuade traders to agree a compromise that is more favourable than what will be achieved by those who do not scrutinize and question the terms.Footnote 146 However, these will be individual victories and will not serve to discipline what traders offer in general. Nevertheless, there seems to be no reason why the chance of market discipline should not be increased by insisting on transparency.
Finally, transparency can be viewed as independently important in helping consumers to protect their interests' post contractually, potentially enhancing their access to justice, when there is some form of dispute. Even if there is little chance that consumers will ever really make much real pre contractual use of transparency, behavioural science research seems to suggest that consumers are much more likely to make use of information at the post contractual phase.Footnote 147 This is perhaps not so surprising. At this point they are at least not affected by distracting factors such as the psychological commitment to the purchase and the positive advertising signals. In addition, they do not have the other decisions to make as to the basic desirability of the purchase. Further, there is a need to find some solution to the problem; so there may be more likelihood that consumers will focus on reading terms to discover what rights they have.
All of the above goals seem to require that there should be transparency when it comes to terms voluntarily used by the trader that actually give rights to consumers. Here, I have in mind, for example, terms more or less reflecting the legal default position (or possibly improving on it), eg terms describing the consumer's right to claim damages or terminate for improper performance or terms describing a statutory right to cancel. Obviously, these rights need to be clear to consumers if they are to be able to understand them and be more likely to take advantage of them at the dispute stage. However, they should be clear to consumers at the pre-contractual stage if we believe in a basic right to transparency to give the opportunity for informed decision making; given that part of what is important to a decision are the rights that will be gained by making it. Such rights also need to be clear to further the market discipline agenda; so as to encourage traders to compete to offer better rights.
Then, of course, there are terms that in some way deviate from the default position to the detriment of the consumer. So, the term might exclude or restrict obligations or liabilities that would normally be owed by the trader to the consumer; or it might add to the obligations or liabilities that the consumer would otherwise owe to the trader. This, of course, is the sort of term that is potentially going to be viewed as being unfair in substance. However, even if we do not believe that such a term can necessarily be legitimized by transparency, the ‘opportunity for informed consent’ agenda demands that consumers at least be in a position to know of the risks pre-contractually; and the market discipline agenda requires that such terms be clear so as to encourage competition that might result in fewer risks being loaded onto consumers (or at least in a range of choices as to degrees of risk). Further, as far as the access to justice agenda is concerned, it may be of post contractual assistance to consumers that the term is very clear, so that they can see what the trader is claiming the right to do.
Indeed, all of the above agendas are likely to be best served if the terms deviating from the default position to the detriment of the consumer are not only transparent per se; but if there is also a requirement to give a clear indication as to the way in which the term is altering the position relative to the default position, eg by stating the default position in clear terms and then indicating what is being provided for as compared with this. This improves pre- and post-contractual consumer understanding, because it highlights what consumers are having taken from them. Such awareness arguably enhances the potential for an informed decision to enter the contract. It may also make for a more aggressive active margin of consumers; fuelled, as they may be, by a greater sense of ‘informed resentment’ towards those traders that seek to offer them less than the default protections. Also, post-contractually, the awareness as to the default position might prompt consumers to challenge the trader for seeking to rely on the term.
It might also help if there was actually a requirement to indicate that the terms are subject to a test of unfairness. There is almost certainly a wide spread, deep seated notion amongst even intelligent, educated consumers that they are bound-full stop-by the terms in contracts with traders. This is only partly addressed by requiring the default position to be disclosed; as, although this does lay down a reference point, it does not make it clear that the terms are actually subject to review. Making this clear would mean giving a fuller picture to all consumers, pre and post contractually; it would possibly be likely to affect the behaviour of the active margin; and it might actually induce more consumers to challenge terms pre- and post-contractually.
Enhancing post contractual self protection and access to justice also leads us to focus on terms that give the consumer a right to, in some way, self protect against other provisions that may be detrimental. So, for instance, a term may be included that gives the trader the right to increase the price from the initially agreed price. At the same time, it may also be provided, whether in the same term or elsewhere in the contract, that if this power is exercised, the consumer has the right to respond by cancelling the contract. In fact, if there is not such a balancing provision then the term allowing for the price increase may well be viewed as unfair in substance.Footnote 148 However, the point for present purposes is that it is vital for the consumer to be able to be aware of the right to respond to a price increase by cancelling; so it is vital that this right is clearly expressed in a way that connects it easily to the price increase issue.
There is another way in which consumers can be helped to self protect and obtain access to justice in post contractual dispute situations. We have just been discussing contractual rights that can help consumers self protect, ie the right to respond to a price increase by exercising a contractual right to cancel. However, it may be that there are legal rights that could, in a broader sense, protect the consumer from the effects of the term. So, for example, there might be a term that results in consumers owing some onerous financial obligation to the trader. At the same time, quite apart from court powers to assess the fairness of the term as such, there might be a power available to a court to review the general financial circumstances of consumers and, possibly to reduce what they must pay and/or to give a longer time to pay it. Such a power might reduce the severity of the impact of the term in question. It is therefore a power that (from a fairness point of view) we might wish to be transparent to consumers, so as to increase the chances that they will ask for it to be exercised. It may also be important for consumers to be aware of certain generally applicable legal rights, e.g. as to the quality of goods and services and the relevant remedies.Footnote 149
The question, then, is to what extent UK and Australian approaches require both beneficial and detrimental terms to be transparent; and require disclosure of relevant legal rights. In the discussion to follow it is argued that, in relation to the first form of transparency, the UK and Australian approaches to this could be improved by reference to the previous approach in the State of Victoria and the model in the European Commission's Draft Common Frame of Reference. In relation to the second form of transparency, it is argued that EU law may have brought a significant advance in the UK that does not exist in Australia.
V. AUSTRALIAN AND UK APPROACHES TO THE OTHER ROLES OF TRANSPARENCY
A. Transparency of Voluntarily Used Terms in Australia and the UK
In Australia, there has long been the general prohibition (under section 52 of the Trade Practices Act 1974)Footnote 150 of conduct that is ‘misleading or deceptive or is likely to mislead or deceive’. The view seems to have been that this covered the use of (both detrimental and beneficial) terms that are insufficiently clear;Footnote 151 but it was never been systematically applied in such a way as to address the issue.
In the state of Victoria, there was a provision that was more clearly focussed on the particular issue of term transparency. (This certainly covered terms whether they were detrimental or beneficial to consumers in substance, so catching the sort of term that gives rights, but in a misleading way). It provided that consumer documents must be ‘easily legible’; if printed or typed, it must use a minimum 10 point times new roman font or a minimum font of an equivalent size; and be ‘clearly expressed’.Footnote 152 This was obviously a much more tailored approach than one reliant on the general misleading and deceptive conduct provision as in federal law. As such, the initial unfair terms consultation asked whether federal law should introduce a similar approach for consumer documents as that taken in Victoria.Footnote 153 However, the Victorian provision has itself been repealed and no equivalent provision appears in the new federal law.
As far as the UK is concerned, regulatory practice has made a huge stride in requiring terms to be transparent. This has applied both to terms that are detrimental in substance and to those that might be beneficial, but are misleading. The OFT insists on decent sized print, clear language, eradication of jargon, clear structuring etc.Footnote 154 As far as terms that are substantively detrimental are concerned, the conceptual basis for this is very clear. The OFT powers are to act against terms that are ‘unfair’, ie terms that fail the test of good faith/significant imbalance/detriment.Footnote 155 Terms that are substantively detrimental to consumers can be viewed as causing a significant imbalance in (substantive) rights and obligations; if they lack transparency, they can be viewed as violating the (other) good faith element of the test (which, as we saw above, requires transparency); such terms are, therefore, unfair and the OFT is entitled to take action against them.
The approach is more convoluted in the case of terms that give rights, but that are misleading, eg the sort of term that gives consumers the right to cancel in response to a price increase, or that is simply more favourable than the default position in some respect, but that is not clearly expressed. The OFT only have power to act where terms are ‘unfair’. There is no power to act simply on the basis that terms lack transparency, except to the extent that this can, indeed, be said to make the term unfair. However, non-transparent terms giving rights to consumers are treated as unfair by the OFT. There is a requirement that written terms be in ‘plain and intelligible language’.Footnote 156 This requirement does not appear to be enforceable as such. However, it is also provided that if there is doubt as to the meaning of the term, the interpretation most favourable to the consumer should prevail.Footnote 157 At the same time, it is provided that this does not apply to preventive action.Footnote 158 The OFT take this to mean that the least favourable interpretation should be found, ie the most negative interpretation that the average consumer might (because of the lack of transparency) place on the term. Where terms are not transparent, the OFT view is that consumers might not understand that they are actually being given rights. Indeed, they might believe that rights are being taken away. On this basis it can be said that the term causes (from the point of view of the average consumer) a significant imbalance in rights and obligations (and the lack of transparency also violates the good faith requirement).Footnote 159
A more straightforward approach to the whole issue would be simply to have an enforceable requirement that all terms must be transparent. The proposed CRD (in addition to the plain language and interpretation ruleFootnote 160 and the unfairness testFootnote 161) contains a separate article containing ‘transparency requirements’.Footnote 162 Unfortunately, there still appears to be no sanction for non compliance. The better model appears to be that in the Draft Common Frame of Reference (DCFR) that has recently been published as (at least in the consumer sphere) a set of model rules and definitions for the European Commission to make use of in revising existing Directives and drafting new ones.Footnote 163 In addition to a general test of unfairness,Footnote 164 the DCFR provides expressly that terms should be plain and intelligibleFootnote 165 and that a term supplied in breach of this duty of transparency ‘may on that ground alone be considered unfair’.Footnote 166 This, of course, reflects the German provision cited above;Footnote 167 under which terms can be unfair on the basis of a lack of transparency, without the need for unfairness in substance.
B. Disclosure of Legal Rights in the UK and Australia
Apart from requiring transparency in relation to all terms voluntarily used by traders, it was argued above that disclosure of certain legal rights might be needed if there is to be market discipline and access to justice; and if the regime is to be said to respect a consumer right to transparency. In particular, I referred to disclosure of the legal rights that a term removes; disclosure of the right to challenge terms; disclosure of legal rights that might, in some other way, mitigate the impact of the term on the consumer; and disclosure of important generally applicable legal rights.
Of course, there are many specific instances in which there must be disclosure of legal rights. So, for example, in hire-purchase contracts in the UK, there must be disclosure of the consumer's right to terminate and of the restriction on the creditor's right to repossess protected goods;Footnote 168 in distance selling contracts there must be disclosure of any cancellation rights that may exist;Footnote 169 and the Australian credit legislation requires disclosure of certain consumer statutory rights.Footnote 170 In addition, a recent UK White Paper outlined plans for a publicity campaign to inform consumers as to key legal rights. Specifically mentioned were the implied terms as to description, quality and fitness of goods; and the implied term as to reasonable care and skill in service contracts.Footnote 171
However, what we are really interested in here is what happens where there is no specific requirement to disclose any given legal right. To what extent can an argument for disclosure be made under a more general principle? This could be very important in practice. It would allow for action to be taken (without the need for legislation) where research shows that there is a case for requiring disclosure of certain particular legal rights.
On a general test of unfairness that takes transparency as a requirement (whether or not it is sufficient) there is at least scope to argue that fairness may sometimes require disclosure of such rights. So, under the UK/EU approach, where good faith is relevant, and given that good faith requires transparency,Footnote 172 failure to disclose rights relevant to the term might conceivably amount to a violation of good faith.
However, the good faith concept probably does not provide a solid enough foundation for the sort of ‘disclosure of legal rights’ duty under discussion. The issue as to disclosure of rights arose in the First National Bank case. Here, the House of Lords considered whether a term was made unfair (at least in part) by the failure of the Bank (at the stage of seeking a judgment in relation to consumer debts) to draw the attention of consumers to certain court review processes. These review processes would only take place if the consumer asked for them expressly; and would (potentially) have protected consumers from the effects of the termFootnote 173 (a term allowing the bank to recover contractual interest on top of the amount awarded in the judgment). The Court of Appeal had taken the view that the term was indeed unfair without such disclosure.Footnote 174 However, the House of Lords (in denying that any such obligation existed) said that such disclosure was not a common practice, it was not required by independent rules of law and that what was needed was that the law be reformed so that the consumer be informed of these matters independently.Footnote 175
This serves to highlight a key feature of a concept such as ‘good faith’ that makes it an unsuitable foundation for a disclosure of legal rights approach. It is clear that ‘good faith’ involves an objective analysis of the appropriate degree to which the interests of the consumer (procedural and substantive) should be protected. However, this analysis certainly also seems to involve account being taken of the extent to which traders should be expected to go to protect consumers. Indeed, as we saw above, the preamble to the UTCCD says, expressly, that good faith involves an ‘overall evaluation of the different interests involved’.Footnote 176 Once this is clear, it is not implausible to say that the sort of factors looked at by the House of Lords are relevant. What one can be expected to do in terms of disclosure might, at least on some views, be said to be affected by what is normally done in the trade and by whether the law sends a clear signal that this must be done. We might (as did the Court of Appeal and the House of Lords) disagree as to where the appropriate balance lies; in particular, whether these ‘trader sided’ factors were given too much weight over consumer needs for the information. However, it cannot be denied that the trader sided factors are a legitimate part of the mix. This being the case, there is always the possibility that they will be taken to outweigh the consumer sided interests. The same seems to be true of an open textured ‘fair and reasonable’ test (such as suggested by the UK Law Commissions).Footnote 177Again, it might always be argued that whether it is ‘fair and reasonable’ to require disclosure of legal rights requires account to be taken of what can reasonably be expected of the trader; including, for example, what is normal market practice.
Now, however, there is a UK concept that seems to focus exclusively on the consumer side of the equation. The CPUTR (implementing the UCPD)Footnote 178 gives powers to bodies such as the OFT and local trading standards authorities to seek enforcement orders against unfair practices, including misleading actions and ‘omissions’.Footnote 179 It is provided that:
A commercial practice shall be regarded as misleading if, in its factual context, taking account of all its features and circumstances and the limitations of the communication medium, it omits material information that the average consumer needs, according to the context, to take an informed transactional decision and thereby causes or is likely to cause the average consumer to take a transactional decision that he would not have taken otherwise.Footnote 180
It is hard to see how the sort of trader-sided considerations mentioned by the House of Lords have any place under a test based on consumer ‘need’, which must surely focus squarely on the importance of the information to the consumer and the ability to access it if it is not provided. It is true that the above test refers to ‘factual context’, ‘features and circumstances’ and the ‘limitations of the communication medium’. However, it seems that these factors are to be taken into account in determining the needs of the consumer, rather than as possible justifications for traders not to disclose information, even although it is needed by consumers.
This being the case, it is certainly arguable that consumers may ‘need’ the sort of information under analysis in the First National Bank case in order to make an informed decision, ie a decision as to whether to ask for a review that might significantly reduce their liabilities. More generally, the consumer need test may provide a platform for regulators to develop a disclosure of legal rights approach.Footnote 181 (As indicated above, this could be a very useful, flexible tool to enable regulators to respond to research findings as to what information is most needed by consumers).
There is no such test in Australia. The main basis upon which a disclosure requirement might be built would be the general misleading practice concept.Footnote 182 Certainly, omission of information has traditionally been able to amount to a misleading practice.Footnote 183 The accepted test seems to have been whether, in all the circumstances, there is a reasonable expectation of disclosure of the information in question.Footnote 184 In practice, such an expectation has generally found where there has been some statement that represents a ‘half truth’ or was originally true, but has been rendered untrue by a change of circumstances.Footnote 185 It is fairly self evident that this sort of approach does not provide a solid foundation for routine insistence on disclosure of legal rights.
VI. CONCLUDING COMMENTS
A key element of my argument has been that there is uncertainty (in both the UK and the Australian approaches to unfair terms) on the key question as to whether transparency is capable of legitimizing terms that reach a certain level of unfairness in substance. This is an issue of great practical importance when it comes to the enforceability of contract terms. It also reflects a deeper theoretical tension between an ethic of (assisted) informed freedom of choice and a more protective ethic that gives priority to granting certain ‘irreducible substantive rights’ to consumers. Indeed, given the centrality of standard contract terms to the overall trader-consumer relationship, the approach to regulating standard terms tells us a great deal about the balance between values of freedom of choice and values of protection in this overall trader-consumer relationship.
The uncertainty as to the scope for transparency to legitimise substantively unfair terms arises in the case of all those terms that are subject to the general tests of unfairness in the two jurisdictions; ie those terms that are not treated as ineffective in all circumstances. Of course, most terms are not treated as ineffective in all circumstances; and are, therefore, subject to the general tests of unfairness. In other words, the uncertainty as to the role of transparency (and the practical and theoretical issues this raises) is something that applies in the case of very many types of term. The problem of uncertainty derives from the tests making reference to ‘good faith’ (which can be interpreted as including an enquiry as to transparency) (UK); and to ‘transparency’ itself (Australia). The uncertainty, then, surrounds whether transparency is not just a necessary requirement; but can also play the role of legitimising terms even where these terms display a significant degree of unfairness in substance.
Given the practical and theoretical importance of this issue, it is surely undesirable that there should be such uncertainty. As such, what is arguably needed is for the legislative test in both jurisdictions to be amended in such a way as to make it clear that transparency is not necessarily sufficient to legitimise a substantively unfair term (so long, of course, as this does indeed reflect the intentions of legislators). It was suggested above that the German legislation seems to have this effect. However, an even better approach may be to say quite explicitly (which the German approach does not do as such) something like: ‘terms can be found to be unfair on the basis of their substantive features alone’ or ‘transparency does not necessarily prevent a term from being unfair’.Footnote 186
The other main theme of the article has been as to the quite separate roles of transparency in giving at least some better opportunity to understand terms; in furthering market discipline; and in relation to post contractual access to justice. One key conclusion here was that, in order to best serve these agendas, the requirement must be that all voluntarily used terms are transparent. The UK and federal Australian approaches to this could be improved by reference to the models in the European Commission's Draft Common Frame of Reference; or by the previous approach in the State of Victoria.
Another aspect of the discussion was as to the importance of transparency in relation to certain consumer (legal) rights. It was concluded that the UK (EU based) ‘misleading omissions’ concept provides a better foundation for insisting on transparency in relation to legal rights than does the ‘misleading practice’ concept used in Australia. It will be important to observe how the misleading omissions concept is unpacked by regulators in the UK (and the rest of the EU) when it comes to disclosure of legal rights. It will also be important to see how the courts react to arguments as to whether failure to disclose certain legal rights could amount to a misleading omission.Footnote 187 This will tell us how useful a tool the misleading omission concept can be in this regard; and may inform opinion in Australia as to whether a similar concept should be introduced.
