By Russell Cocks, Solicitor
First published in the Law Institute Journal
Australian property law in general, and conveyancing in particular, were dominated for two centuries by the common law principle of caveat emptor (let the buyer beware) which gave very little protection to a purchaser against misrepresentations by the vendor. The age of the consumer, which began with protection against encyclopedia salesmen jamming their foot in the door in the 1960s and became serious with the Commonwealth Trade Practices Act of 1974 (TPA), has been chipping away at caveat emptor for nearly 50 years and, somewhat reluctantly, the states jumped on the consumer protection bandwagon with their respective fair trading Acts.
The Australian Consumer Law (ACL) is, to some extent, the culmination of that process and seeks to provide an Australia –wide template and has been adopted by all jurisdictions to govern most of the issues that arise in a consumer protection environment. Whilst there is a nominal jurisdictional limitation of $40,000, the Australian Consumer Law applies if the transaction relates to personal, domestic or household use and there are specific provisions in the Australian Consumer Law concerned with real estate contracts.
Understanding the application of the Australian Consumer Law is not made any easier by the method used to adopt the former Trade Practices Act principles as universal legislation. The Australian Consumer Law is a Schedule of the Competition and Consumer Act 2010, an Act primarily designed to establish the Australian Competition and Consumer Commission and it is not until s 130 of that Act (Part XI) that reference is made to the Australian Consumer Law as being Schedule 2 of the Act. The Australian Consumer Law was adopted by Victoria as the Australian Consumer Law (Vic) by s 9 Fair Trading Act.
Whilst the Commonwealth’s jurisdiction was limited to corporations acting in trade or commerce, the Australian Consumer Law (Vic) applies to corporations and individuals ‘carrying on business within Victoria’ or ‘persons ordinarily resident’ in Victoria (s 13 Fair Trading Act).
Off the plan contracts
Such contracts have traditionally been subject to the Trade Practices Act as they invariably involve corporations engaged in ‘trade or commerce’ and the Fair Trading Act as, irrespective of the corporate character, the vendor is ‘carrying on a business’. The ACL has prohibitions relating to ‘misleading and deceptive conduct’ (Part 2-1 s 18), ‘unconscionable conduct’ (Part 2-2 s 20) and ‘false and misleading representations’ in relation to the sale of land (Part 3-1 s 30) and each of these apply if the vendor is engaged in trade or commerce, as would be the case in an off the plan contract.
The adoption of the Australian Consumer Law was not meant to be a law reform process, more in the nature of consolidation, but the opportunity was taken to expand the application of the concept of ‘unconscionable conduct’ in two respects (second reading speech). No longer is it necessary to prove a ‘special disadvantage’ and statutory unconscionability, whilst based on the ‘unwritten law’, is not limited to the existing state of the law and may be expanded by the courts.
Shortly prior to the adoption of the Australian Consumer Law, prohibitions were introduced against unfair contract terms and these were adopted by the Australian Consumer Law (Part 2-3 s 23). Whilst it is intended that these provisions will regulate the relationship between business and consumers and therefore undoubtedly apply to off the plan contracts, the section, unlike the other prohibitions, makes no mention of ‘trade or commerce’ as a precondition.
Domestic contracts
The requirement for ‘trade or commerce’ meant that the sale of a domestic residence did not create any Trade Practices Act obligations on a domestic vendor. However the unfair contract terms prohibitions in the Australian Consumer Law appear to operate whether the transaction is in trade or commerce or not, and so it may be that those prohibitions apply to contracts of sale of domestic properties.
As such sales invariably utilise a standard form contract, usually based on the 2008 prescribed contract, the general conditions of which may be saved from scrutiny by s 26(1)(c) as provisions permitted by law (the regulations), any special conditions may be subject to attack.
Conclusion
Special conditions may offend the unfair contract terms prohibitions such as giving the vendor the right not to proceed with a contract, to change the layout of the property sold or to accelerate the purchaser’s liability to pay land tax all of which may appear in various contracts, including off the plan contracts.
Additionally special conditions that specify high rates of penalty interest or potential loss in the case of default that are common in domestic contracts may offend the unfair contract terms prohibitions.
Tip Box
Whilst written for Victoria this article has interest and relevance for practitioners in all states.