The Federal Government recently released draft legislation which will extend the consumer unfair contract protections to small businesses.
If implemented, terms in standard form contracts with small business which are found to be unfair will be struck out and unenforceable. The new laws are likely to significantly impact the transport sector, where standard form contracts are common. Many settled and internationally accepted clauses in such contracts may be considered unfair under the new laws. If struck out, Carriers, logistics and marine service providers may find themselves unable to rely on many of the protections that they presently take for granted.
The new laws are expected to come into force in early 2016. All Carriers, logistics and marine service providers operating in Australia should review their bill of lading and standard trading conditions now, in order to ensure that they comply with the new laws.
What contracts are caught?
The draft legislation extends the unfair contract provisions to any standard form contract where:
- at least one party is a 'small business'; and
- the upfront price payable under the contract is less than $100,000 or, if the contract is for a term in excess of 12 months, $250,000.
A 'standard form' contract is, for example, a contract:
- prepared by one party prior to discussions with the other;
- presented on a 'take it or leave it' basis;
- presented without any effective opportunity to negotiate its terms;
- which is generic and not prepared specifically for the relevant transaction or counterpart.
Typical bill of lading contracts, company standard terms and conditions, marina and berthing agreements, ship repair agreements and road transport terms frequently employed in the transport sector will likely be found to be 'standard form' contracts.
A 'small business' is a business that employs fewer than 20 people. The head count will only include casual employees where they are employed on a regular and systematic basis. Most Carriers and logistics providers won't know in advance whether they are dealing with a small business, unless they enquire as to the number of employees that a customer employs. Many Carriers will presently provide services to freight forwarders which are small businesses. Similarly, many logistics and marine service providers will presently provide services to cargo and vessel owners which are small businesses.
Most common transport logistics and marine service contracts will be for less than $100,000.
As a result, the introduction of the new laws will potentially affect a significant proportion of business conducted in the transport sector.
Importantly, the small business unfair contract provisions will not apply to contracts for the carriage of goods by sea which are contained in a sea carriage document governed by the Australian Carriage of Goods by Sea Act. However, the exception appears expressly only to cover the sea leg. This means that the small business unfair contract provisions may still apply to any through transport before or after the sea leg and will apply to any ancillary customs broking, road transport, staging and delivery or advisory services which are commonly also provided by Carriers and logistics providers.
What terms are unfair?
Under the draft new laws, a term will be considered 'unfair' if it:
- causes a significant imbalance in the parties' rights and obligations under the contract;
- would cause detriment (whether financial or otherwise) to a party if it were to be relied on; and
- is not reasonably necessary to protect the legitimate interest of the party who would be advantaged by the term.
Examples of terms that might be found to be unfair are provided in the draft new laws. Importantly, these include terms that:
- permit one party to avoid or limit performance of the contract; and
- limit or have the effect of limiting one party's right to sue another party.
It is possible that terms which seek to exclude or limit liability (such as the standard weight/package limitation) may fall within the former. It is possible that terms which impose a time bar on the bringing of claims and/or mandate foreign dispute resolution may fall within the latter. Indeed, in a 2003 case under similar unfair contracts legislation in Singapore, it was held that the 9 month time bar clause contained in the Singapore Freight Forwarders Association Standard Trading Conditions was unfair and not able to be relied upon by the freight forwarder in question. Whilst similar cases in the UK have upheld 9 month limitation periods in logistics contracts, the position will be 'up for grabs' in Australia when the new laws come into effect.
If a term is found to be unfair, it will be struck out of the contract and will not be able to be relied upon.
Carriers, logistics and marine service providers operating in Australia will need to review their bill of lading contracts, company standard terms and conditions, marina and berthing agreements, ship repair agreements and road transport terms now, in order to ensure that they comply with the new laws before they come into force. Any contractual terms which may potentially be considered unfair may need to be amended, or measures introduced to bring them to the attention of the other party, along with an explanation of their operation.
Importantly, the new laws will not act to strike out any unfair terms which are otherwise expressly permitted under any other laws. Accordingly, it is now more important than ever that businesses ensure that they are taking the benefit of any limitations or exclusions of liability or other protections that are permitted under Australian law. Carriers, logistics and marine service providers should review their terms to ensure that such provisions are included in their standard terms, as we are aware of many instances where they are presently not.
Our Transport team have extensive experience in drafting and amending contract terms in the transport sector and are available to assist before the new laws are introduced in early 2016.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.