The Federal Court of Australia today found that some fees imposed by banks amount to penalties at law, and as a consequence are invalid.

The case was brought in a class action against the ANZ Bank by approximately 34,000 ANZ customers who were funded by litigation funders. The Court rules that late fees on credit cards were invalid, but ruled that other bank fees were not penalties and remained valid.

The Age Newspaper is quoting a figure of $18million as the potential value of incorrectly charged late fees, but this is an issue which the Federal Court will address next year.

Where a Court determines something is a penalty at law it is invalid and the party making the claim is not entitled to recover these amounts.

Most business people will at some point sell their business. The most common way to do this for small business owners is to engage the services of a licensed real estate agent or licensed business broker.

There are a number of things that you should know when dealing with a business broker / agent:

Term of Appointment

All contracts with business brokers and agents will have a minimum period of appointment, with an additional period called a continuing period after this time. You should consider appointing an agent for a set period with no additional or continuing period, this will make your agent work harder and will help you avoid being locked into a relationship which isn’t working.

Commissions

Business brokers and agents almost always charge their commission on a variable basis, for example 5% of the sale price, but often charge additional fees / charges. You should be clear to find out, before signing an agreement, whether this is the total of the agent or business broker’s fee, or whether there are additional advertising and retainer fees payable. If you don’t ask this question, it can be a costly mistake.

Contracts

Finally when you find a buyer and the deal is ready to be done, you need to sign a contract of sale of business (and in some cases a share sale agreement). Many business brokers and agents use a standard form document, while these documents are generally suitable for a very small number of businesses, they can’t always address the complexities of each individual sale. You should never rely on a business broker or agent to prepare a contract for you, lawyers commonly see a number of mistakes that business brokers and agents make, for example:

1. they change the standard form contracts, which can lead to unintended consequences;

2. in most cases special conditions need to be drafted, business brokers and agents are not lawyers, they do not understand the legal complexities of contracts and are not qualified to draft special conditions – lawyers have seen many examples of poorly drafted clauses which have the reverse legal effect to what the client had actually wanted;

3. clients suffer severe tax consequences as a consequence of contracts that do not properly consider tax and corporate planning issues.

Before you sell your business you should always speak to your lawyers and accountants to obtain the right advice.

How careful are you when it comes to contracts? Do you always check to make sure you’re agreeing to something that is fair for you? If you sign up for a credit card without finding out the card’s terms and your responsibilities, you’re not being careful with contracts. Yes, a credit card agreement is the same as any other legal contract.

When you apply for a credit card, think past the low interest rate or your high limit. What happens at the end of the low interest term? Or if you make a late payment? Or if you go over that high limit? You can find all this information in your credit card agreement.

If you don’t see the answers to these basic questions, STOP! Look through the information the credit card company sends you. If you still can’t find the answers, call the credit card’s customer service department. The representatives should be able to answer your questions, but if they can’t, ask to speak to someone who can. When you get an answer, ask where you can find the information in your printed material. You’ll want to make sure you have the details in writing.

Find out as much information as you can before you apply for the credit card. It’s better to find out something you don’t like before you go through the trouble of filling out an application than after you’ve received your card. Closing out credit card accounts can lower your credit score, so be careful when you choose a new credit card. You’ll want to keep the account open for a long time.

Sometimes credit card companies make changes to their terms, and they will send you a notice. Be sure to read any notices you receive about your credit cards. Ask questions if there?s something you don’t understand. Surprises are nice but not when it comes to credit cards.

Another helpful bit of Credit Card advice from Credit Cards Heaven. Because no-one understands Credit Cards like we do.

We are currently working on some new business law articles and hope to bring them to you shorty.

If you have a special request for a business law article please let us know.

The Businesslaw.com.au Team

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By Peter Moon, Partner, Logie Smith Lanyon Lawyers

People are often confused about the effect of clauses that say ‘You acknowledge that we have made no other promises or representations to you.’ Often you see such clauses quoted in support of an argument that a claim for misrepresentation cannot succeed where a contract contains this clause.

But that ain’t necessarily so.  In fact, it ain’t normally so.

‘Entire agreement’ clauses

Typically they read something like this:

This document is the entire agreement between you and us and you acknowledge that we have made, and you rely on, no promise, representation or warranty to you that is not set out expressly in this document.

What they are supposed to achieve

In theory, an ‘entire agreement’ clause prevents you from claiming that you relied on something a salesperson told you, or otherwise sits outside the document.

But the law sidesteps them with ease

The law sees it this way:  If a person was told something misleading that caused them to decide to enter a contract, then their entry into the contract was obtained ‘on false pretences’.  That taints the contract from the moment of its inception.  It is, and always was, a contract obtained by misrepresentation.

So, when the law comes to the ‘entire agreement’ part of that tainted, flawed contract it reasons that it cannot operate as its black & white words suggest it does.  It simply won’t be enforced so as to wipe out the misrepresentation.

So are ‘entire agreement’ clauses irrelevant ?

No, they can have effect.

In deciding whether a person was induced into entering a contract by some external misrepresentation, the court must decide:

• what was actually said or otherwise represented
• whether it was true or false
• if it was false, whether the person would not have entered the contract has they known the truth.

This third element, often called the ‘reliance question’, is frequently overlooked by lay people.  They think that they can avoid a contract if they can show there was a misrepresentation leading up to it.  But they need to show more: they must show that they relied on the misrepresentation as a material factor in entering the contract.

A court can take an ‘entire agreement’ clause quite seriously as evidence that a person did not rely on some external representation.  It can say ‘We accept that a misrepresentation may have occurred, but in judging whether you relied on it we give weight to the fact that you signed a piece of paper saying that you didn’t.’

A high water mark example

Let’s say you sign a short contract after getting legal advice, and it contains a clear ‘entire agreement’ clause.  A court might well say:

• it’s a short contract
• the clause is clear
• you obtained legal advice
• you actually signed the document
• you must have very clearly considered the clause and chosen to assent to it -

so we are satisfied that you did not rely on the external representation you now complain about.  We accept that it was made, and that it was untrue.  But in all the circumstances including the ‘entire agreement’ clause, we don’t accept that you relied on it.

An example at the low water mark

At the other end of the scale, let’s say you sign up for a mobile phone service in store.  The provider uses a Standard Form of Agreement, which you don’t actually see before signing up.

Even if you did see it, it would be dozens of pages long and the ‘entire agreement’ clause is buried on page 24.

The only ‘advice’ you get about the deal is from the commission salesperson.

In those circumstances, if you can later point to a material misrepresentation, the court will sidestep the ‘entire agreement’ clause in a blink.  You did not carefully and consciously assent to the proposition that there was nothing more to the deal than what’s in black & white.

Section 52 of the Trade Practices Act

This must be the most quoted piece of consumer law on CSP Central.

A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

In virtually every section 52 claim that involves a contract, there is an ‘entire agreement’ clause.  If such clauses could lock out misrepresentation claims, there’d be very few contract cases based around section 52.

But just take a stroll through these cases and you’ll see how many there have in fact been.

Myth busted

‘Entire agreement’ clauses can be important and effective.  But especially in consumer situations where the deal moves fast, the contract is not focused on and there’s no independent advice, they are no sure defence to a misrepresentation or section 52 claim.