Australian unfair contract laws relevant to consumers will be extended to include small businesses as of 12 November 2016.
A significant number of farmers and agricultural small businesses will be captured by the definition of a small business under the new laws. To highlight the importance of the new law in the agricultural industry, ACCC commissioner Mick Keogh issued a press release on 19 July 2016 specifically to ensure farmers and related small businesses were aware of the new laws.
The commissioner noted that “imbalances in bargaining power is particularly common in agricultural supply chains and the ACCC wants farmers to be aware of these new protections”.
The industry should be aware that the ACCC is placing a particular focus on agriculture. Therefore it would be prudent for industry participants to be mindful of their respective rights and obligations under the new law.
Unfair contract law
What is new?
Unfair contract laws are provided for in Australia under Australian Consumer Law (Competition and Consumer Act 2010) (ACL) for goods and services and under the Australian Securities and Investments Commission Act 2001 (ASIC Act) for financial products and services.
Presently, the laws only apply to consumers purchasing goods or services for personal use (not for business use), however the legislature has recognised that small businesses may also be compromised when agreeing to contract terms with larger businesses. Therefore, commencing 12 November 2016, small businesses who meet the following criteria will also be protected by the current unfair contract laws in the ACL and ASIC Act:
1. employ fewer than 20 employees; and
a) the upfront payable price under the contract is less than $300,000 in a single year; or
b) the contract has a duration of more than 12 months and the upfront price payable is less than $1,000,000.
Which contracts apply?
Relevant contracts are those that:
1. are for the supply of goods or services;
2. contain a term that is unfair; and
3. are in a standard form contract.
Supply of goods or services
The supply of agricultural products or services falls under this test, so long as the upfront price payable on the contract of $300,000 or $1,000,000 as relevant (see above) is not exceeded.
The upfront price payable most likely excludes future payments under a contract, such as protein payments in a grain pool contract, which are unable to be calculated with certainty at the time of contracting. However, future payment instalments that can be calculated with certainty on the date the contract is entered into would be included under the above monetary thresholds. This may include deferred price payment contracts or financial drawdown facility contracts.
An unfair term
A term is unfair if:
1. the term would cause a significant imbalance between the parties rights and obligations;
2. it is not reasonably necessary to protect commercial business interests of the beneficial party; and
3. it would cause detriment to the small business.
A standard form contract
A standard form contract is not merely a contract that requires a party to complete pre-filled details on a form. A standard form contract generally contains the following elements (however a contract is presumed to be standard form unless proved otherwise):
1. there is a lack of bargaining power of the small business;
2. the opportunity of the small business to negotiate the terms of the contract is minimal;
3. the larger business prepared the contract before any discussions with the small business; or
4. the small business was required to accept or reject the terms of the contact before a discussion.
What is an example of an unfair term?
A small business contract must not include terms that:
1. allow one party (but not another) to avoid or limit their obligations;
2. allow one party (but not the other) to terminate the contract;
3. penalise one party (but not another) for breaching or terminating the contract; or
4. allow one party (but not another) to vary the terms of the contract.
Do we need to review all of our contracts?
The below contracts are exempt from the unfair contract laws;
1. charter party of a ship;
2. contract for the carriage of goods by ship; or
3. small business contracts that are covered by an industry specific law (such as the Independent Contractors Act 2006 (Cth)).
Other industry contracts
If a farmer, consumer or service provider believes that they utilise standard form contracts, they will need to carefully consider if any supply contracts with small businesses contain unfair terms.
There is an increasing trend in the industry for producers to contract with buyers via “click through” contracts, where there is limited or no negotiation and the producer accepts all the terms provided on a website or app. Both buyers and sellers should ensure that these contracts do not contain any unfair terms and that all terms are readily available (for example, ensure that terms are not obscured in a hard to find hyperlink to a related page or website) to the smaller contracting party.
Financial products and services
The offering of financial products and service contracts may also require review, as the ASIC Act incorporates the same test of unfairness, taking particular care to ensure that all terms are transparent and easily understood. The terms must be expressed in plain language, presented clearly and made readily available to the small business.
Grain pool contracts
Grain pools vary widely in their offerings and growers should carefully review the terms to which they are agreeing to. Not all grain pool products incorporate the Grain Trade Australia (GTA) terms. This also means that the GTA dispute resolution terms and process are not incorporated into the pool agreement.
Conversely, pool providers should review their terms and conditions for the upcoming harvest season as terms that would previously been read as reasonable may be deemed unfair under the ACL post 12 November.
Provisions which may fall under the unfairness test are those that allow the pool provider to reject grain without proper reason, prevent the grower from taking action to recover costs from the pool provider where there is default or has strict terms for breach of contract and liability of the grower.
Consequences for using an unfair term
If a term is determined by a court to be unfair, it will be declared void and unenforceable, however the remainder of the contract will remain in force.
The disadvantaged party can apply for an injunction to prevent the larger party from relying on the unfair term. Further, they could also seek compensation from the larger party if the unfair term is applied in the course of business.
Before 12 November 2016:
Authors: Geoff Farnsworth & Terrie Morgan
Harry Kingsley, Partner
T: +61 3 9321 9888
Geoff Farnsworth, Partner
T: +61 2 8083 0416
Ron Eames, Partner
T: +61 7 3135 0629
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this publication is accurate at the date it is received or that it will continue to be accurate in the future. We are not responsible for the information of any source to which a link is provided or reference is made and exclude all liability in connection with use of these sources.
Published by Geoff Farnsworth