When can notice terms in School Enrolment Contracts be unenforceable?

This case shows the importance of school enrolment contracts that are drafted fair and enforceable, or they risk unexpected financial liability.

When can notice terms in School Enrolment Contracts be unenforceable?

Simply because a parent has signed a school enrolment contract does not mean the terms of the contract are always enforceable upon that person. Schools must take care to ensure that the terms of their enrolment contracts are reasonable, and do not breach the Australian Consumer Law consumer protections.

The ACAT case of Brindabella Christian Education v Respondent XD 561 of 2021 (Civil Dispute) [2022] ACAT 37 (5 May 2022) exhibits this principle in action – where specific terms in a school’s enrolment contract were deemed unfair and unenforceable against the student’s parents, despite the parents having read and signed the enrolment contract.

 

Facts

The parents (Respondents) of a child signed an enrolment contract with Brindabella Christian Education (“the School”) for the provision of educational services and schooling. The enrolment contract relevantly stated ( “the notice term”): (emphasis added)

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 2019, the parents withdrew their child from the School without providing the required written notice. Instead, they claimed they had informed the teachers of their intention to withdraw at the end of year meeting, filled out an online withdrawal form, and emailed the administration and enrolments department of the School.

The School pursued the parents for one full term’s worth of fees relying on the notice term to ground the action. The parents claimed the notice term was unfair under the Australian Consumer Law’s (“ACL”) consumer protections, and sought to have the Tribunal declare the term as being void and unenforceable against the parents.

 

Issue

The Tribunal considered:

  1. Whether the parents had admitted to partial liability in the amount of $1,900.00 during the course of the proceedings; and
  2. Whether the notice term in the enrolment contract was void and unenforceable against the parents in accordance with s 23(1) of the ACL;

 

Unfairness

In assessing unfairness, the Tribunal considered the elements of ACL s 23(1):

  • Whether the contract was a “consumer contract”;
  • Whether the contract was in “standard form”; and
  • Whether the term was “unfair”.

 

Consumer Contract

ACL consumer protections only applied to standard form contracts. These are “a contract for the supply of goods or services…[1] to an individual whose acquisition of the goods [or] services… is wholly or predominantly for personal, domestic or household use or consumption.”[2] Relevantly, “services” was defined in the ACL as “any rights,…benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce…”[3]

Although the School claimed that whether the ‘provision of educational services’ could be considered as occurring ‘in trade or commerce’ for the purposes of the ACL was unsettled law, the Tribunal drew its conclusion from decisions in Hearn v O’Rourke and Wright v Christ College Trust. As the conduct occurred in circumstances that had a trading or commercial character,[4] and recent decisions recognized that providing education in exchange for fees was itself of a commercial nature,[5] the contract occurred in trade and commerce, was for services, and was therefore a consumer contract.

The Tribunal rejected the School’s alternative argument that since the parents were not the ones using the educational services (which were for the benefit of their children), the parents were not entitled to ACL protection. If that argument was allowed, anyone who acquired services for their kids would not be entitled to the consumer protections, which was not the ACL’s intent.

 

Standard Form

A contract must be a standard form contract within the meaning of ACL s 27 to attract consumer protections. Whilst no party made formal submissions on this point, the Tribunal inferred it was standard form by the parents’ reference to the contract as “stock standard” and that the parents had no chances to negotiate the contract’s terms.

The Tribunal also considered mandatory considerations under ACL s 27(2), finding the parents would not have had a say in the contractual terms[6] and that the contract was offered to the parents on a take-it-or-leave-it basis.

 

Unfairness

To be “unfair”, the notice term:[7]

  • Would need to cause significant imbalance in the parties’ rights and obligations arising under the contract;
  • Would not be reasonably necessary to protect the legitimate interests of the School (who was advantaged by the term); and
  • Would cause the parents detriment if the School was permitted to rely upon the term.

The Tribunal considered various factors under ACL ss 24(2) – 24(4).

 

Significant Imbalance?

The Tribunal found that a number of terms in relation to the enrolment policy, curriculum, acceptance of the Fee Schedule, and the notice term evidenced significant imbalance to the parties’ rights in the School’s favour. The School could unilaterally vary contractual terms and change the upfront price payable under the contract without providing the parents’ complimentary termination rights without incurring financial loss (a term expressly considered as unfair ACL s 25),[8] and the contract did not state this clearly. The Tribunal also found the contract was not sufficiently clear as to its intentions to remain as an ongoing contract. Whether the parents should have eventually deduced the contract was an ongoing one, or whether the parents’ decision to withdraw stemmed from the School varying the enrolment contract, was irrelevant as fairness and transparency is assessed at the time of contract formation.

 

Reasonably Necessary to Protect Legitimate Interests?

The School was required to prove the notice term was reasonably necessary to protect its legitimate interests. If the notice term was not a genuine pre-estimate the loss the school would suffer from unexpected student withdrawal, it would be considered a penalty and therefore enforceable.

The School tried to rationalize the full-term fee by outlining that the school budgeted all classes and set teacher numbers and class alignments in Term 4, and there was potential inability for the school to find a replacement student without incurring financial burden for the leaving student.

However, the Tribunal stated that, in the context of the notice term’s operation within the contract as a whole, the notice term had to be both “reasonable” and “necessary”. The term allowed the school to unilaterally vary contractual terms without allowing the parents the ability to terminate, and therefore this term was not reasonable or necessary to protect the School’s interests. Further, the Tribunal indicated that these rights could be better balanced and the School validly protected from unexpected financial loss if the contract required the School to let parents know in advance of any proposed contractual amendments and the parents to notify the School by a particular date in term 4 whether the child would return the following year. The School could not sufficiently show that the notice term was reasonable.

 

Detriment Suffered

The “Detriment” criterion of the claim was easily applied, as the parents would suffer loss in the form of paying school fees if the School was allowed to rely on the notice term.

 

Conclusion and Takeaway

The Tribunal found the notice term satisfied the elements of ACL s 24(1) and was an unfair term that could not be enforced against the parents. Therefore, the Application by the School was dismissed.

This case shows the importance for schools to ensure the terms of their enrolment contracts are fair and therefore enforceable, or they risk incurring unexpected, and potentially unrecoverable, financial liability.

 

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We offer a fixed fee for school enrolment contract reviews. Call our office today on (07) 3252 0011 and speak with our education team to find out more.

This article was written by Jackson Litzow & Jessica Lipsett.

 

Footnotes

[1] ACL s 23(3)(a)

[2] ACL s 23(3).

[3] ACL s 2(1).

[4] Hearn v O’Rourke

[5] Wright v Christ College Trust

[6] ACL s 27(2)(d).

[7] ACL s 24(1).

[8] ACL ss 25(d), (f).