A trust mark for fair contracts?

The Australia government yesterday announced a discussion paper on contract law reform.

Contract law raises a number of questions for consumers. The fundamental one remains what to do about one-sided, take it or leave it contracts. This is a question that has agitated legal thinkers, policy makers and consumers groups since the 1960s*.

Contracts are supposed to represent an agreement between both parties. But in the consumer market place there is no opportunity for consumers to influence the contract: it’s strictly take it or leave it. For the most part consumers trust that contracts with traders are fair and will deliver terms that they expect. For the most part they don’t read contracts. Can you imagine what would happen if you were first in line at an airport car hire desk with a dozen people in the queue and you decided to read the contract and perhaps raise a few questions? But even where cultural norms permit a leisurely read – for example when buying online – think of how much time would be wasted and productivity lost, think of how many fewer sales would be made while Australian consumers spent an extra half hour per day reading and trying to understand airline rules or software license agreements.

If every consumer read every contract before they entered into a sale the wheels of commerce would grind to a halt.

Every minute of the day a consumer will tick the box “I agree to the terms and conditions”. And every day they are lying. How can you agree to something you don’t know about?  What the consumer is really saying is “I don’t have time to read these agreements. I don’t feel confident I would understand the detail. Anyway none of that stuff is going to happen. I am prepared to take the risk that these terms and conditions are fair”. But sometimes that risk is not worth taking. The dice are loaded against the consumer.

So let’s get rid of the fiction that consumers “agree” to contractual terms. Instead let’s create a system where the consumer can rely on the fairness of terms. The introduction of unfair contract legislation is one approach, one that by all accounts to date seems to be working in the UK at least. Australia’s laws are somewhat weaker than those in the UK, but they have delivered some benefit.

But they don’t solve the fundamental problem that every one sided contract is a lie. An alternative approach proposed by Choice in its submission to the 2008 Productivity Commission review of Consumer Policy was for a system where contracts could be identified as conforming to standards of fairness. Taking that idea further, a Trust Mark could be awarded to contracts if they have been endorsed as fair by an independent body. Consumers would then be encouraged to prefer traders who offered certified fair contracts. Trust marks could also be awarded to standard wording for parts of contracts (for example warranty terms, terms around what happens for late payment, terms about using information collected from the consumer). Traders whose contracts were mostly certified as fair would then be entitled to use the mark so long as they clearly made the non complying terms available to consumers in plain English. This would encourage traders to explain to consumers why they had deviated from the norm – for example to provide a particular benefit, choice or price advantage.

A Trust Mark system would no necessarily involve the creation of a new or expanded government agency. A user pays system could work, as it does in many similar areas for example the Fair Trade project. The Trust Mark organisation establishes rules of operation and standards for fairness, Businesses that seek certification pay to be audited against those standards.

Gordon Renouf



* Grant Gilmore’s influential The Death of Contract (1974) is one of a number of studies published in the 1960s and 1970s.

1 Comment on "A trust mark for fair contracts?"

  1. This is a terrific idea. Well worth exploring more.

    As a person long invovled in consumer advocacy, I admit in the past to saying stupid things like: “read the contract, before you sign it”. It was a line that was never questioned, because it sounds reaonsable on the face of it .

    In reality of course, it is pretty useless advice.

    If you read a consumer contract, chances are you wouldn’t understand it. And if you did understand it, you can’t change it.

    What is the point?

    Instead of course, we have simply trusted that a business will do the right thing and that their contracts will be balanced. This has not been the case.

    Definitley something to throw into the policy mix.

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