29 Mar 2012

Root and branch reform, or just a tidy-up? Federal Government looks at reforming contract law

by Scott Crabb

A potentially very far-reaching reform of Australian contract law could be in the pipeline, but at this stage no concrete proposals have been made.

A potentially very far-reaching reform of Australian contract law could be in the pipeline, with the release of the Commonwealth Attorney-General's discussion paper "Improving Australia’s Law and Justice Framework: A discussion paper to explore the scope for reforming Australian contract law".

At this stage, the Government is not putting forward any specific proposals for reform; nor are the options for implementing change limited, either by restatement, simplification, or reform.

Instead, it is seeking views on what, if anything, causes problems and any possible solutions.

Comment on the discussion paper must be in by 20 July 2012.

What's prompted this?

The paper says:

"The complex relationship between common law, equity and legislation and the large number of cases and statutes involved may make it difficult to discover the applicable law or to predict the outcome of a particular case. Some important issues—such as what material can be used when interpreting written contracts—remain unsettled. Contract law also may need to adapt to new technologies and ways of doing business, such as electronic contracting."

It identifies ten drivers for reform:

Accessibility: Parties to contracts, and lawyers who don't specialise in contract law, would understand the law better, which could make contract formation easier and cheaper.

Certainty: Legal certainty makes long-term planning and risk allocation easier, and disputes less likely, although there is the potential for unfairness.

Simplification and removal of technicality: "Rules which are out of step with current commercial practice and expectations undermine predictability because they can later emerge to surprise parties who have acted on the basis of common sense assumptions."

Setting acceptable standards of conduct: "Standards of acceptable conduct should be unambiguous, simple to understand and take particular account of the needs of people from different cultural backgrounds or experiencing disparate circumstances."

Supporting innovation: Some limitations on parties' freedom to contract might be unjustifiable and prevent them from creating terms and conditions which are best suited to their particular circumstances.

Maximising participation in the digital economy: "Ensuring that Australian contract law adapts to innovations in technology is one way in which participation in the digital economy can be better facilitated."

Suitability for small and medium-sized businesses: This sector is less likely to craft bespoke contracts, or be able to get specialised advice.

Elasticity: "Introducing increased elasticity into the law may help support relational contracts; that is, long-term contracts which support successful continuing relationships."

Harmonisation: "Differences in contract law between different jurisdictions increase the risks and costs involved in cross-border transactions."

Internationalisation: Harmonisation could take the form of an internationalisation of Australian contract law, which could make trade and investment, as well as the use of Australian law to govern contracts, more attractive.

How far will the Australian Government's review of contract law go?

At the moment, the answer is "Who knows?".

The Government's intention is to open the debate. Presumably at some point there will be a narrowing of issues and reform proposals, but that seems some way down that track.

Eight questions have been set out in the discussion paper to prompt discussion:

  • What are the main problems experienced by users of Australian contract law?
  • Which drivers of reform are the most important for contract law?
  • Are there any other drivers of reform that should be considered?
  • What costs, difficulties, inefficiencies or lost opportunities do businesses experience as a result of the domestic operation of Australian contract law?
  • How can Australian contract law better meet the emerging needs of the digital economy? In what circumstances should online terms and conditions be given effect?
  • To what extent do businesses experience costs, difficulties, inefficiencies or lost opportunities as a result of differences between Australian and foreign contract law?
  • What are the costs and benefits of internationalising Australian contract law?
  • Which reform options (restatement, simplification or substantial reform of contract law) would be preferable? What benefits and costs would result from each?
  • How should any reform of contract law be implemented?
  • What next steps should be conducted? Who should be involved?


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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.