Australia: Customs brokers/forwarders – Your terms and conditions may not be enforceable

E-alert
Last Updated: 24 November 2016
Article by Russell Wiese and Lynne Grant

The low pricing and tight margins of customs brokers and freight forwarders are based on a business model that passes as much risk as possible onto the customer. Unexpected costs, damaged goods, delay – these are all the responsibility of the customer. However, new legislation limits the ability of brokers and forwarders to rely on one sided contracts with customers. This is crucial for brokers and forwarders. Consider how your business would work if you couldn't pass on the costs of an airport strike or you couldn't seek repayment of customs duty paid on behalf of your client. If your terms are not updated, you may lose protections you need.

What is changing and how it will impact customs brokers and forwarders

What is an unfair term?
There is a legal test, but as a rule of thumb, if the clause allows you to act unreasonably or excuses your negligence, it is likely to be unfair. Under the legal test, an unfair term is one that (1) would cause a significant imbalance in the rights and obligations of the parties; (2) is not reasonably necessary to protect the legitimate interest of the customs broker/forwarder; and (3) it would cause detriment to the customer if it was relied on. Examples are exclusions of liability clauses, indemnity clauses and clauses that allow the customs broker/forwarder to vary the price of the contract.

What is a small business?
Any business with 20 or less employees. This is based on the company you are contracting with. You may be providing services to a large international brand, but the Australian company you are dealing with may only have a handful of employees.

What is a standard form contract?
This is a contract that is presented on a 'take it or leave it' basis. Customs brokers/forwarders most often present their terms and conditions in a fixed form which only their most prized customers can negotiate.

Contracts for the carriage of goods by sea are excluded

Here is the good news. The unfair contracts legislation will not apply to contracts for the carriage of goods by sea. This will significantly benefit freight forwarders. However it does not mean you are off the hook. The following contracts will still be covered:

  • Airfreight
  • Customer clearance and advisory
  • Domestic road/train transport
  • Storage of goods.

The above activities carry a lot of risk and you need your terms and conditions to apply.

How does it work?

If a term is unfair it will be difficult to enforce. In fact, a Court can sever the term from the contract. The Court will not rewrite the term for you and try to produce a fair version of the term. The outcome will be all or nothing.
We recommend that customs broker/forwarders review their terms and conditions and identify potentially unfair terms. With those potentially unfair terms you need to decide whether you need them and if you do, consider whether you can redraft the term in a way so that it is not unfair.

Consider the below examples:

Indemnity clauses – Standard indemnity clauses are inherently unfair. The customer is effectively required to insure the customs broker/forwarder against any cost they may incur in performing the services. Even if that cost is caused by the negligence of the customs broker/forwarder. An indemnity clause that is too one sided and may be severed completely. Our suggestion is to edit the indemnity so that the customer is not covering the customs broker/forwarder's negligence or wrongful act. This means the indemnity can still be enforced for costs for which it is fair that the client pay.

Exclusion clauses – A blanket exclusion of liability clause is likely to be unfair. It is hard to justify that you can be grossly negligent and the customer has no rights against you. An option is to try exclude liability for indirect losses such as loss of profits or events over which you have no control. As this is new law, the limits of what the Court will allow you to exclude are not yet developed.

Clauses where you do not have to act reasonably – Many clauses in customs broker/forwarder terms and conditions allow you to act unreasonably or do acts at your complete discretion. An example would be selling goods without notice to the customer or destroying dangerous goods, whether or not they posed an actual risk to other goods. An unfettered right to do these acts may be unfair and mean you cannot reply on the clauses even when you are acting reasonably. The clauses may become enforceable simply by inserting a requirement that you have to act reasonably – which you would no doubt do anyway.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Russell Wiese
 
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