An article by Suzy Cairney, Partner – Sparke Helmore
From sole-traders to multi-national enterprises, Australian farmers are the backbone of our economy, but they are often at a disadvantage when it comes to contract negotiations. Given the wide range of challenges farmers already face—including volatile commodity prices, extreme weather events, and increasing input costs—unfair contract terms can have a draconian effect on the industry, leading to financial hardship, stress, and even bankruptcy.
These are amongst the issues the Australian Government attempted to tackle in passing the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) (UCT Amendments), which will reinforce the existing UCT regime embedded in the Australian Consumer Law (ACL) and Australian Securities and Investments Commission Act 2001 (Cth).
These laws come into effect on 9 November 2023 and farmers need to be ready.
What contract term is considered unfair?
A contract term might be unfair if it:
- would cause a significant imbalance in the parties’ rights and obligations under the contract
- is not reasonably necessary to protect the legitimate interests of the advantaged party, and
- would cause detriment (financial or otherwise) to a party if applied.
What are common examples of UCTs?
Common terms that might be UCTs include terms that:
- allow businesses to unilaterally vary the contract terms, including the price of goods or services, which can leave farmers vulnerable to price manipulation
- give businesses the right to terminate the contract at any time, without penalty, which can for example leave farmers with unsold produce, and
- exclude or limit the liability of businesses for breach of contract, which can leave farmers with no recourse if they are financially harmed by the other party’s breach of contract.
Whether a term is a UCT or not will depend on the specifics of the contract and only a court can finally determine this. For instance, the above examples may not be unfair if they are necessary to protect a party’s legitimate interests. It all depends on the circumstances.
What contracts fall within the UCT regime?
“Standard form contracts” are contracts prepared by one party and presented to the other party with little or no opportunity to negotiate (’take it or leave it’). This might include for example freight hauler’s contracts, or contracts between farmers and food processors.
Do any monetary thresholds apply?
No, monetary thresholds do not apply. The maximum price threshold will be abolished as of 10 November 2023. The UCT regime will apply to a standard form contract irrespective of the contract price.
What constitutes a “small business”?
The UCT Amendments expand the scope of the regime to cover more small businesses, now defined as businesses with under 100 employees or under $10 million in annual turnover. Employee numbers are calculated on a full-time equivalent basis at the time the contract is signed.
What happens if the contract contains a UCT?
If a court finds a contract term unfair, the term is void. What happens to the contract depends on the contract as a whole; for example, a “severability” clause may allow the rest of the terms to remain enforceable.
Are there penalties for contravention?
Yes, penalties can be imposed against individuals or businesses that propose, use, or rely on UCTs in a standard form contract. Under the new UCT regime, the maximum monetary penalties for a company are the greater of:
- $50 million
- three times the value of the “reasonably attributable” benefit gained from the UCT, (if it’s ascertainable), or
- 30% of adjusted turnover during the breach period (if the benefit is not ascertainable).
These maximum penalties apply for each contravention, so they could mount up quickly.
When do the UCT Amendments come into effect?
The UCT Amendments apply to new, renewed, or varied standard form contracts from 10 November 2023. Existing contracts are unaffected unless renewed or varied on or after that date.
What should farmers do now?
Review your lists of customers and suppliers to see if any of them are small businesses. If you don’t know, ask.
Check your standard form contracts (including purchase orders) to ascertain if they are:
- written in plain language, and easy to understand
- free of jargon that could confuse or mislead the other party
- complete, with all relevant documents (including schedules and appendices)
- fair and balanced, with no one-sided clauses
Contract terms that are transparent (as above) are less likely to be unfair.
If your contracts contain any one-sided clauses, ask yourself if they are necessary to protect your legitimate business interests and if not, remove or amend them.
If you know you are a small business, you might consider whether it is worth delaying some contracts until 10 November 2023 to take advantage of the new regime.
This is just a general guide, not legal advice. What counts as an unfair contract term can vary. If you’re not sure, ask a legal professional. We would love to help you.