Contract Law: When Do Agreements Override Legislation?

Contract law is a complex area of legislation, and while freedom of contract is a basic principle in Australia, there are many laws that may affect a contract's enforceability. For example, the Competition and Consumer Act can override contracts in whole or part, restrict their operation, or insert mandatory terms. In addition, certain terms are implied by law into contracts, and these cannot be excluded. For instance, there are important obligations to a consumer that are placed on a trader and are implied by statute into consumer contracts. In some cases, a party can contract out of statutory rights, as demonstrated in the High Court of Australia's decision in Price v Spoor, where a party can, by agreement with another party, waive or renounce a right that it has under legislation. However, this is not always the case, and it is important to seek legal advice when dealing with contractual matters.

Consumer rights

Contracts can sometimes preempt aspects of state law, but this is dependent on the specific circumstances. In the case of Price v Spoor, the High Court of Australia clarified that parties can "contract out" of statutory rights by agreeing to waive or renounce a right under legislation. However, this is not always permissible, and legal advice should be sought to determine if such a term is enforceable.

In Australia, the Australian Consumer Law (ACL) provides for certain basic terms to be part of a contract, and these cannot be excluded. The ACL protects consumers from certain unfair behaviour by businesses and guarantees consumer rights to a repair, replacement, refund, contract cancellation, claiming compensation for damages and loss, and warranties. Consumers have rights under consumer law for home care services, and businesses selling funeral products and services must not mislead consumers or offer contracts with unfair terms.

In some cases, consumers may waive their rights if they receive something in return, known as "valuable consideration". However, if the waiver is due to pre-printed language in the contract that the consumer could not negotiate, the court may consider the contract language unconscionable and the waiver involuntary and void.

Additionally, contracts that go against "public policy", meaning they are vastly unfair or illegal, are not allowed. For example, a contract that requires something unlawful in the jurisdiction it is made in would not be considered a contract.

Contractual terms

When a term is implied by legislation, the Act will also specify whether the parties can choose to exclude that term. If the Act states that they cannot, then the term will remain part of the contract, even if both parties agree that it will not apply. For example, parties cannot agree that the Australian Consumer Law will not apply to them. Such an agreement would have no effect.

In Australia, a key contract law concept is that a contract is a meeting of minds of the parties so that an accord is created between those parties. This means that only a party to a contract is bound by it and acquires rights - this is the privity of contract rule. There are limited exceptions to the privity rule. For instance, in Price v Spoor, the High Court of Australia clarified when a party can "contract out" of its statutory rights, i.e., when a party can, by agreement with another party, waive or renounce a right that it has under legislation.

Additionally, legislation such as the national Competition and Consumer Act can override contracts in whole or part, restrict their operation, or insert some mandatory terms. The Competition and Consumer Act and sale of goods and fair trading legislation in Australia's states and territories also allow parties to limit or exclude liability for breaches of contract. However, the party relying on an exclusion or limitation of liability clause must convince the court that the relevant clause, properly construed, is as that party contends.

It is important to note that courts will not enforce an illegal contract. Money paid or property transferred under an illegal contract cannot usually be recovered. However, there are exceptions. For example, if a contract is made illegal by a statute passed for the protection of a class of people, a member of that class can recover money paid or property transferred under the contract.

Contractual disputes

Causes of Contractual Disputes

• Unclear or vague contract terms: Contracts filled with ambiguous language or terminology can lead to differing interpretations and unmet expectations.
• Breaches of contract: This includes non-performance, where a party fails to fulfill their contractual obligations, such as missed deadlines, skipped payments, or substandard deliverables.
• External factors: Market shifts, supply chain disruptions, or unexpected events (force majeure) can make contract fulfillment challenging or impossible.
• Non-compete violations: Disputes may arise when employees leave for competitors, especially in industries with high employee mobility.
• Property-related issues: Undisclosed defects, lease violations, or purchase agreement breaches are common sources of real estate litigation.
• Confidentiality breaches: Commercial agreements often involve sensitive information, and unauthorized disclosures can lead to disputes.
• Delivery and payment terms: Conflicts may arise over delays in delivery, missed deadlines, or disputes regarding payment schedules.

Resolving Contractual Disputes

To resolve contractual disputes, parties can take the following steps:

• Informal complaint and negotiation: Identify the issue and bring it to the other party's attention, aiming for cooperation and a mutually agreeable solution.
• Escalation: If tensions mount, negotiations may escalate, leading to more assertive tactics such as formal demand letters outlining the nature of the dispute and desired resolution.
• Mediation: Parties may opt for mediation or arbitration to resolve their disputes with the help of a neutral third party.
• Legal action: If negotiations fail, the aggrieved party may seek damages through legal channels, provided the contract includes such provisions.

Preventing Contractual Disputes

To minimize the risk of contractual disputes, it is essential to prioritize effective contract management and clear communication. Here are some specific strategies:

• Use contract management software: This helps track contract milestones, receive timely reminders, and manage contractual obligations effectively.
• Ensure contract clarity and specificity: During the drafting phase, use precise definitions and language to avoid ambiguous terms that could lead to differing interpretations.
• Include clear force majeure clauses: Clearly define force majeure events and their applicability to prevent disputes arising from unexpected events.
• Understand statutory implied terms: Be aware that certain terms may be implied by legislation and cannot be excluded, such as the Australian Consumer Law.
• Seek legal advice: When in doubt about the enforceability of certain contract terms or statutory rights, consult with legal professionals.

Statutory rights

In certain cases, rights that are covered by both contract and statute will overlap. For instance, some employees may have a contractual period of notice that is longer than the statutory minimum. Similarly, some employees may have a contractual holiday entitlement that is more generous than the statutory minimum.

In the case of a dispute between statutory and contractual rights, statutory rights will always take precedence. If a person is a party to a contract that purports to waive or renounce their statutory rights or another party's statutory rights, they should take legal advice as to whether that term of the contract is likely to be enforceable and consider how that may affect their commercial position.

Contractual freedom

The history of contractual freedom in Australia has evolved significantly over time. Initially, it was heavily influenced by English common law, which emphasised autonomy and mutual agreement in contract formation. English law professor Patrick Atiyah notes that the concept of contracts being based on consent gained prominence after 1770, which he refers to as "the age of Freedom of Contract".

While contractual freedom grants parties the flexibility to shape the terms of their contract, there are legal regulations and social norms that must be observed for the protection of all parties involved. For instance, a contract cannot be illegal or cause harm to someone else. Additionally, certain terms may be automatically implied into a contract by law, even if the parties are unaware of this. These implied terms, such as those found in the Australian Consumer Law, cannot be excluded by mutual agreement.

In certain cases, parties may attempt to contract out of their statutory rights or obligations. However, this is not always permitted, as demonstrated in the High Court of Australia's decision in Price v Spoor. The Court clarified that contractual arrangements cannot defeat a statutory purpose or a right conferred in the public interest. Therefore, it is essential to seek legal advice when dealing with contractual matters to understand the enforceability of specific terms and how they may impact one's commercial position.

Frequently asked questions