Contract Law (NSW)

A contract is an agreement that is made between two or more parties and is legally binding. Certain elements must be present for an agreement to be a legally binding contract. A legally binding contract must have certainty as to its terms, it cannot relate to an illegal subject and parties to the agreement must have intended to create legal relations. This article outlines the principles of contract law in New South Wales.

Elements of a contract

The elements of a valid contract are as follows.

Offer

One of the parties to the agreement must offer a good or service in exchange for something else;

Acceptance

The offer of a good or service must be accepted by the other party or parties to the contract;

Consideration

Something of value, usually money, must be given in exchange for the offered good or service.

Certainty

There must be certainty as to the terms of the agreement.

Intention to create legal relations

The parties must have intended their actions to create a legal relationship

Does a contract have to be written?

A contract can be contained in writing or agreed to orally. Where possible, it is best to record a contract in writing, as this can reduce the risk of misunderstandings arising if something does not go as planned under the contract. As a general rule, people have the freedom to contract and according to this principle can enter into any deal they choose. However, there are some exceptions to this rule.

The common law governs contract law in Australia. This means that the law relating to it is found within case law.  In addition to the common law, certain pieces of legislation may impact contract law.

Standard form contracts and the Australian Consumer Law

Many contracts are written in a standard form. This means that they contain a set of terms and conditions that are the same in every case that the goods and services are sold. The contracts are prepared by the company providing the goods and services. There is no negotiation between the parties entering into the contract on what is to be included in the agreement. The Australian Consumer Law applies to these contracts when they are made in Australia. The Australian Consumer Law is a set of laws that protect consumer rights. This law is contracted in the Competition and Consumer Act 2010.

Two ways in which the Australian Consumer Law impacts Australian contract law, including contract law in NSW, is that it addresses situations where there has been misleading and deceptive conduct, or where an unfair contract term has been included in the contract.

Contract law NSW: Misleading and deceptive conduct

Under the Australian Consumer Law, businesses or persons providing goods or services must not mislead or deceive their customers into purchasing their products. This means they cannot create a false impression about their goods or services’ quality, value, or price. Remedies available to consumers that have entered contracts where misleading or deceptive conduct has been present include damages, injunctions or compensation. Further, a provider can be liable to pay a civil penalty for engaging in misleading and deceptive conduct.

In deciding whether a provider of consumer goods or services misled or deceived its customers, the provider’s intention is not relevant. What is important is what the impression was created for its intended audience.

Unfair contract terms

The Australian Consumer Law provides that contracts must not include unfair terms. If the following three conditions are met, a term in a contract may be considered to be unfair:

• The contract favours the provider over the consumer; and
• There is not a sufficiently good reason for the provider including such a term; and
• As a result of the term being enforced, the consumer is likely to suffer a disadvantage, inconvenience or financial loss.

If a term in a contract is found to be unfair by a court or a tribunal, the term will then become void. The remaining part of the contract will continue to operate and bind the parties so far as this is possible.

More information about the Australian Consumer Law, how it relates to Australian contracts and contract law NSW, and how to make a complaint under it, can be found in this article.

Other legislation relating to contract law NSW

One particular piece of legislation related to contract law NSW is the Restraints of Trade Act 1976. which deals with restraints of trade clauses. In general, a restraint of trade clause is written into a contract to prevent one party from engaging in their trade where they have a specialised skill for a certain period of time.

These clauses are most often found in employment contracts or contracts relating to businesses, e.g. where one of the owners leaves the company. Under the Restraints of Trade Act 1976, in contract law NSW, any restraint of trade clause needs to be reasonable for it to be considered valid. In determining whether a restraint of trade clause is reasonable, according to contract law NSW, the following can be considered under the Restraint of Trade Act 1976:

• The period for which the restraint is to operate;
• The geographical area to which the clause is to relate.
• The former position the person to be restrained had at the employer or company they are leaving.

Under the Restraints of Trade Act 1976, in contract law NSW, a court or tribunal can make an order reducing the scope of the restraint of trade to what is reasonable. For example, a restriction that seeks to restrain an individual from engaging in a specific business type for twelve months may be reduced to six months. Alternatively, a court or tribunal may reduce the geographical area to which a restraint of trade clause applies.

If you require legal advice or representation in any legal matter please contact Armstrong Legal.