Is it time for an Australian Contracts Act?

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"Contract law forms one of the most important elements of any legal framework. It is the bedrock of modern economies and the basis of many everyday interactions. It is therefore of the utmost importance that Australian contract law maximises the simplicity, efficiency and utility of market interactions for the benefit of all Australians."

Introduction

The Attorney-General yesterday released a discussion paper sure to provoke interest and discussion from many stakeholders across a broad range of industries in Australia. Essentially it asks, is Australian contract law in need of reform?

In this country, contract law principles come mainly from common law (stemming from English common law), influenced also by equity and various Commonwealth, State and Territory legislation. It is not easy to navigate the matrix of principles and precedents that apply, and there is no one source to consult for guidance on contract law conundrums. This is not the first time that the issue of contract law reform has been considered, but perhaps now, as we grapple with the impact of the digital economy and globalisation of markets in other areas of the law, the time is ripe to also reconsider this fundamental area of law that impacts so many of our daily interactions.

If it ain’t broke, why fix it?

Well, maybe on closer inspection it is “broke”? Or at least there is room for improvement.

The discussion paper notes that a key incentive for potential contract law reform is the need for Australia to align with its international trading partners and to improve Australia’s efficiency and competitiveness in the global market. It points out that some of our key trading partners (such as China, Japan and the Republic of Korea) apply very different systems of contract law. Perhaps there is an opportunity through contract law reform to improve Australia’s position and economic performance as a global player.

As mentioned above, contract law in Australia is complex and comes from several sources. To make matters trickier, some of these sources (ie. State and Territory legislation) differ between the various jurisdictions within Australia. If we can bring the principles of contract law together into one place and reduce the need to trawl through old case reports, we may be able to achieve greater certainty in trade and even reduce contract-related disputes.

The discussion paper also considers the need for the law to keep up with changes in technology, the impact of increased online transactions and the complications that this can bring about. Finally, the discussion paper points out that it may be fairer for smaller and perhaps less sophisticated players who may not be able to get legal advice in all their dealings to have a more accessible system of contract law. We have seen similar motivation for law reform in the recent introduction of unfair contracts provisions as part of the Australian Consumer Law.

What is the answer?

At this stage, there are more questions than answers.

  • Should we restate existing contract law, simplify it, or reform the actual substance of contract law?
  • Should reform be by way of legislation (if so, there are constitutional heads of power considerations) or non-binding codification?
  • Do we adopt an opt-in, opt-out or mandatory model for reform?
  • Should the reform (in whatever form it takes) be drafted at a detailed level, or at a higher “principle” level?
  • Would it apply to all contracts, or only limited categories of contracts (eg. international contracts)?

There is some guidance available from our international neighbours that already have codified contract law systems, such as China, Japan and USA. Several international projects have also addressed problems associated with transacting across borders, such as the United Nations Convention on Contracts for the International Sale of Goods, the UNIDROIT Principles of International Commercial Contracts and several EU initiatives.

What’s next?

The Attorney-General’s Department has called for submissions on the discussion paper by Friday 20th July 2012. The forum has been opened and we will continue to monitor and provide updates.


The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.


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Eugenia Kolivos

Partner. Sydney
+61 2 9210 6316

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