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
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
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
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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