CLA Trading Pty Ltd trading as Europcar v Dahlen Lee [2011] NSWLC 16 | Case summary

Contracts Review Act 1980 23The defendant seeks relief under section 7 of the Contracts Review Act 1980. The Act provides the Court with the discretion to refuse to enforce any or all provisions of a contract in circumstances where the Court finds that the contract is unjust. 24Section 32 of the Local Court Act 2007 provides this Court with jurisdiction to refuse to enforce any or all of the provisions of a contract under section 7(1)(a) of the Contracts Review Act 1980. 25The Contracts Review Act confers beneficial rights to a person seeking relief from obligations under a contract that go beyond those provided by common law. 26In Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343 at [87]; (2008) 252 ALR 55 at 75, the Court of Appeal (per Campbell JA) approved the following statement by Brereton J in Riz v Perpetual Trustee Australia Ltd [2007] NSWSC 1153 at [51] as to relief under the Contracts Review Act : "Proceedings for relief under Contracts Review Act, s 7, involve two steps. The first is whether the contract was unjust in the circumstances in which it was made, having regard to the factors referred to in s 9. This is a conclusion of fact, albeit one of ultimate fact involving a broadly based value judgment...The second, which arises only if the first is resolved in the affirmative, is whether any and if so what relief should be granted; this involves the exercise of a judicial discretion..." 27McHugh JA in West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 620-622 stated that the circumstances giving rise to "unjustness" in a contract may involve substantive unjustness where the contract imposes an unreasonable burden upon a party or procedural unjustness where there is unfairness in the methods used to make the contract. 28Section 9(2) of the Act outlines the following relevant matters to be taken into account by the Court when determining whether a contract is unjust: (2) Without in any way affecting the generality of subsection (1), the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following: (a) whether or not there was any material inequality in bargaining power between the parties to the contract, (b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation, (c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract, (d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract, (e) whether or not: (i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or (ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented, because of his or her age or the state of his or her physical or mental capacity, (f) the relative economic circumstances, educational background and literacy of: (i) the parties to the contract (other than a corporation), and (ii) any person who represented any of the parties to the contract, (g) 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, (h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act, (i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect, (j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act: (i) by any other party to the contract, (ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or (iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract, (k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and (l) the commercial or other setting, purpose and effect of the contract. 29The Court is of the view that sections (9)(2)(a), (b), (c), (e)(i), (g), (i) and (j) are factors that are relevant to the existence of unjustness in the present case. 30The use of the term "Full Protection Package", while not being a misrepresentation in the legal sense, has the potential to mislead an individual who does not carefully read the entire document. The circumstance in which this contract is formed, as outlined below, discourages the renter from thoroughly reading the document. 31The contract is unreasonably complex. The contract consists of Part A which is a single document. Part B of the contract is 4 pages. The contract is long, contains provisions that are relevant only to a rental in New Zealand, is littered with acronyms that hinder rather than help the reader and for the lay person it would undoubtedly be confusing. It is written in language that is legalistic. Even for an experienced legal practitioner I would expect that it would be necessary to spend at least 20 minutes to read and fully comprehend the terms and conditions that apply. Notwithstanding this, it is a document that was required to be signed by Mr Lee at a service counter. The plaintiff creates an environment that is not conducive to a proper reading of a contract of this complexity. 32The practice of pre booking of vehicles without providing notice of the precise terms of the contract places unfair pressure upon the renter who subsequently attends the rental office to accept whatever terms are offered. The terms and conditions of the contract are provided to the renter at the time when they attend Europcar's office to collect the vehicle. According to the evidence of Ms Beh, customers will often book the vehicle by telephone or by the internet ahead of time to ensure its availability. In the present case Ms Beh states that Mr Lee had already made a booking in relation to the vehicle. In the circumstances where the renter has made a booking to secure the availability of the vehicle and then attends to collect the vehicle there is already a high degree of commitment to proceed with the rental agreement by the renter. Often the hire is for a specific purpose that has been prearranged. In this instance, Mr Lee sought the rental vehicle to move personal furniture. No doubt it would have been difficult for him to back out of the transaction once he attended Europcar's office. 33Part A of the contract contains a printout of the particulars of the rental charges and options selected by Mr Lee. It outlines the "Full Protection Package" daily fee of $25.45 per day. Mr Lee states that he elected to take the "Full Protection Package" during the process of completing the hire documentation. It is not clear what information was available to Mr Lee at the time of making these selections. It is unsatisfactory that Mr Lee was required to make decisions regarding the options available without first having the entire written contract terms available. Presenting the contract at the conclusion of the transaction discourages any renegotiation of the terms of the contract even if that was possible. Many renters, having nominated the "Full Protection Package" prior to seeing the final contract would no doubt simply assume that the written contract reflects whatever understanding they may have of the effect of this package. 34In this context, a renter is unlikely to undertake more than a cursory review of the contract. A renter would likely to conclude, as Mr Lee did, that the term "Full Protection Package" would provide a complete or comprehensive coverage of insurance. That is the ordinary and natural connotation of the term. 35The contract does not readily disavow the reader of any misunderstanding of the term "Full Protection Package". The term appears only once in Part B of the contract in clause 1. It does not appear in the provisions of clause 8. The special condition contained in Part A of the contract does nothing to clarify the issue of liability. The special condition contains the words "renter responsible for vehicle and 3 rd party damage resulting from overhead, underbody & reversing contact driving on unsealed roads". This sentence is poorly drafted and grammatically flawed. It verges on being nonsensical. In any event this condition is followed by the reference to the renter accepting the "Full Protection Package". I accept the defendant's submission that by placing reference to "Full Protection Package" under the Special Conditions, the rental agreement suggests that those special conditions are subject to any protection afforded by the "Full Protection Package". 36The fee of $25.45 per day for the "Full Protection Package" is an additional amount paid in addition to the cost of hiring the vehicle. The fee equates to an annual fee of $9,289.25, an amount significantly higher than most private motor vehicle comprehensive insurance premiums. It is a substantial fee representing 25% of the daily hire cost and one that a renter would reasonably consider to be commensurate with substantial protection. 37These are matters that give rise to procedural "unjustness". The use of the term "Full Protection Package" combined with the complexity of the document, the environment in which it is presented and the manner in which it is presented means that there is a high likelihood that the renter would either not read or, if the renter did, he or she be unlikely to understand the terms of the contract or the potential risk of liability to which they are exposed. Although Mr Lee was an educated person, who had undertaken some legal studies, the form of the contract and methods used to induce the agreement leads me to the view that all but the most prudent of renters would not query the extent of the risk to which they were exposed under the contract. I am satisfied in the present case that the factors unreasonably inhibited Mr Lee from making an informed decision to enter into the contract. 38There also exists substantive injustice through the unreasonable burden imposed on the renter by the contract. Even if Mr Lee did know the extent of the exclusions that existed under the contract he is placed in a difficult position. At the late stage that he becomes aware of the risks associated with the hire he cannot arrange for such risk to be insured either by the plaintiff or through some alternative insurer. In cross examination Mr Lee admitted, with complete candour, that even had he known of the extent of his risk then he probably would have run the risk and proceeded with the rental agreement in any event. His comments in this regard reflect the lack of true bargaining power in the hands of Mr Lee. He is presented with a standard contract, where Europcar determines what type of damage is excluded from protection and the degree to which the renter may reduce their potential liability. Mr Lee has the choice to either take the limited protection offered by Europcar or cancel the transaction. He makes that choice without any details as to the maximum value of the damages that might arise in the event of a collision. 39The burden of risk placed upon Mr Lee by the contract is substantial. In this instance, the cost of repairs to the roof damage is $6,666.00 not including GST. The cost to a potential renter could be higher if the roof was damaged beyond economic repair. He also bears the cost of Europcar being unable to obtain a profit from the vehicle whilst it is being repaired. 40The contract does not provide protection against damage to the overhead section of the vehicle caused by overhanging objects. No doubt Europcar declines to offer protection to renters in these circumstances due to the high risk of this type of damage. Large vehicles, such as the Mitsubishi Canter hired by Mr Lee, are often hired to renters who are inexperienced with driving vehicles of this size and height. To make matters more difficult for the renter no details of the necessary height clearance of the vehicle appear in the contractual documents. 41Even without reference to clause 8.3(f) Europcar carves out a substantially broader exclusion with respect to liability under clause 8.3(d). Under that subclause any damage caused "deliberately, carelessly or recklessly" by the renter, any other driver of the vehicle or a passenger within the vehicle renders the renter liable to the full extent of the damage. 42The inclusion of the term "carelessly" effectively means that a renter remains wholly liable for any damage caused to the vehicle by reason of his own negligence irrespective of any loss damage waiver or "Full Protection Package". The protection offered by the loss damage waiver or "Full Protection Package" appears largely illusory. The protection seems to apply only in circumstances where damage is caused wholly by the act of a third party (not being a driver or passenger in the vehicle) and then only subject to the qualification that other exclusionary provisions of clause 8.3 do not apply. 43Europcar formulates it contracts to pass to the renter the risk that it is unwilling to bear or to insure against. While Europcar more than adequately protects its own interest, the contract has little regard for the interests of the renter. 44The renter of a vehicle is a bailee. As such, where damage occurs to the vehicle, the renter has no control over the decisions made in relation to repair of the vehicle. Whereas the owner responsible for repairs may make pragmatic decisions whether to fix minor cosmetic damage, or make arrangements for the most economic repairs, the renter has no such control. The renter bears both the risk of damage and the uncertainty as to the extent of liability. 45Section 9(1) of the Contracts Review Act requires the Court to have regard to the issue of public policy when exercising the discretion provided under the Act. There is a strong public policy in Courts binding parties to the contracts that they sign. The High Court in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 180-181 re-affirmed the importance of the act of signing a contractual document when determining the rights and liabilities of contracting parties. In a joint judgment the Court said at 42: "Consistent with this objective approach to the determination of the rights and liabilities of contracting parties is the significance which the law attaches to the signature (or execution) of a contractual document. In Parker v South Eastern Railway Co (1877) 2CPD 416 at 421, Mellish LJ drew a significant distinction as follows: 'In an ordinary case, where an action is brought on a written agreement which is signed by the defendant, the agreement is proved by proving his signature, and, in the absence of fraud, it is wholly immaterial that he has not read the agreement and does not know its contents. The parties may, however, reduce their agreement into writing, so that the writing constitutes the sole evidence of the agreement, without signing it; but in that case there must be evidence independently of the agreement itself to prove that the defendant has assented to it.' 46A signature on a contract is a representation by the person signing of acceptance of the terms of the agreement. There is a strong policy consideration of ensuring that parties are bound by their signature to ensure certainty to commercial transactions. However, there is a countervailing public policy that signatures on contracts should be obtained through methods that are open, fair and reasonable. Where signatures are obtained through methods that discourage an understanding of the terms being accepted then the quality of the representation made by the signature is diminished. 47The Court is of the view that from a public policy perspective, the circumstances in which Mr Lee signed the contract were unjust. The Court is satisfied that relief should be granted to the defendant under section 7(1)(a) of the Contracts Review Act by declining to enforce Clause 8.3 of the contract.

CLA Trading Pty Ltd trading as Europcar v Dahlen Lee

At a glance

Court

Decision date

Source

Judgment (6 paragraphs)

Parties

Legislation Cited (4)

Cases Cited (5)