Does your enrolment contract contain unfair terms?

We have previously written about the importance of ensuring your school enrolment contact is clear, concise, and regularly checked. The importance of having clearly worded and well structured enrolment contracts has been highlighted in a recent decision from the ACT Civil & Administrative Tribunal (the Tribunal) which confirmed that enrolment contracts fall under Australia’s consumer protection laws.
 
Failure to undertaking regular reviews of your enrolment contract to ensure that clauses are drafted in a balanced and reasonable manner could expose your school to costly legal action, including having your enrolment contract found to be unfair within the meaning of the Australian Consumer Law and the contravening clauses declared void.

Unfair Contract Terms

The Tribunal’s recent decision mentioned above dealt with a clause of an enrolment contract that imposed tuition fees in lieu of sufficient notice of student withdrawal. The decision called into question the application of the Unfair Contract Terms within the Australian Consumer Law and affirmed that those terms do in fact apply to school enrolment contract.

What are the Unfair Contract Terms provisions of the Australian Consumer Law?

In basic terms, they are a set of provisions that protect the rights of consumers against terms in ‘standard form contracts’ that are unreasonably harsh or one-sided.  A standard form contract is one that has been prepared by one party to the contract and where the other party has little or no opportunity to negotiate the terms; that is, it is offered on a ‘take it or leave it’ basis.

The assessment of whether a term in a contract is ‘unfair’ involves three elements. A term of a contract will be found to be unfair if it:

• Would cause a significant imbalance in the parties’ rights and obligations under the contract; and
• Is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by it; and
• Would cause detriment (financial or otherwise) to a party if it were to be applied or relied on.

If a term of a contract is deemed by a court or tribunal to be unfair, then that term is void and treated as if it never existed. The remaining contract will remain in operation without the unfair term (if possible and practical) and it will still be binding on the parties.

For a more detailed discussion of the Unfair Contract Terms provisions, see our previous article here.

CASE STUDY

Brindabella Christian Education Ltd ACN 100 229 669 v Respondent XD 561 of 2021 (Civil Dispute) [2022] ACAT 37

Contentious Term
 
The provision under scrutiny in this matter was a notice term whereby the school could claim one (1) terms fees if sufficient notice of a student’s withdrawal was not provided to it. The notice term provided as follows:
 
One full College term’s notice in writing to the Principal is required for the intended withdrawal of the child, otherwise a full term’s fees will be charged. The written notice must be received at the College by the first day of term. Any notice received after the first day of term will render parents/carers liable for the fees for that term and the subsequent term in lieu of notice.
 
In this matter, the school claimed school fees in lieu of notice from the parents of children whom they withdrew from the school at the end of the 2019 school year without giving one (1) full term of notice in writing. The school claimed full fees for each child for the first term of 2020 pursuant to the notice term. 
 
Outcome
 
The Tribunal concluded that the notice term of the enrolment contract was void as unfair under the Australian Consumer Law. In reaching this conclusion, the Tribunal found, amongst other things, that:

• The enrolment contract was a consumer contract because it was for the provision of educational services in trade or commerce, noting recent court decisions which have recognised the essentially commercial nature of the provision of education in return for the payment of fees, and services acquired by parents for the personal use of their minor children.
• The enrolment contract was a standard form contract because the parents would not have any say in the terms of the contract which was drafted by the school and offered to them on a take it or leave it basis.
• The notice term would cause significant imbalance in the parties’ rights and obligations arising under the contract for two essential reasons. First, it has the effect of permitting the school, but not the parents, to vary the terms of the contract, and of permitting the school to alter the upfront price payable under the contract without giving the parent a corresponding right to terminate the contract. Second, it is not sufficiently transparent because the restriction of the parents right to withdraw without penalty if the school varies the terms of the contract puts them at a significant disadvantage and therefore must be explicitly stated.
• The notice term was for the benefit of the school and was neither reasonable nor necessary to protect its legitimate interests because interest of the school in forward planning are capable of being balanced with the rights of the parents by requiring the school to notify parents in advance of changes to the terms of enrolment for the following year, and requiring parents to notify the school by a specified date in term 4 if they accept those terms and intend their children to return the following year so as to allow the school to undertake necessary planning. In this scenario, the school would have sufficient time to plan allocation and teaching resources for the following year and could thus mitigate any loss occasioned by the termination of the contract.
• If the notice term were relied upon the parent would suffer detriment because they would be required to pay school fees for a service that they neither wanted nor received.