New unfair contracts laws that apply to small businesses may result in exclusion and limitation clauses being unenforceable from 12 November 2016. Transport providers should review their standard forms before the new laws come into effect to see if amendments are required.
The Competition and Consumer Act 2010 (Cth) and Australian Securities and Investments Commission Act 2001 (Cth) have been amended to extend unfair contract protection laws to small business contracts.
Under the legislation, courts can declare that a term of a standard form small business contract is void if the term is considered unfair.
From 12 November 2016, standard form contracts that are entered into or renewed, or terms of existing contracts that are varied, will be subject to the new provisions.
What is a standard form contract?
Under the Act, a standard form contract is one:
- that is prepared before discussions between the parties;
- where one party was required to either accept or reject the contract as presented;
- where there is no opportunity to negotiate; or
- where the terms are not specific to one party or to the particular transaction.
These changes will have significant repercussions for the road transport industry because transport operators routinely rely on ‘standard form contracts’, usually set out in fine print on the reverse of consignment notes. These conditions usually seek to exclude liability for loss of or damage to goods, regardless of whether the damage was caused by the operator’s negligence.
What is a small business contract?
A small business contract is one where:
- at least one party employs fewer than 20 people; and
- the upfront price payable under the contract does not exceed either $300,000, or $1,000,000 if its duration is more than 12 months.
When can a term be declared unfair?
A court may declare a term to be unfair if the term:
- would cause a significant imbalance in the parties’ rights and obligations under the contract;
- is not reasonably necessary to protect the legitimate interests of a party; and
- would cause detriment (financial or otherwise) to a party to the contract.
In determining whether a term is unfair, a court may also take into account various factors including the extent to which the term is expressed in reasonably plain language and is presented clearly and readily to the party affected by it.
How will the changes affect transport operators?
From 12 November 2016, if goods are lost or damaged in transit or storage, a ‘small business’ customer may argue that certain common conditions of carriage are ‘unfair’ and therefore void, including terms that:
- exclude (or limit) liability for loss of or damage to goods in transit or storage or consequential loss;
- extend contractual benefits to subcontractors (Himalaya clauses); and
- reduce time limits for notification of claims under the contract.
Until the new provisions are considered by the courts, it is difficult to predict whether or not particular classes of clauses will be determined to be ‘unfair’.
What should transport operators do?
Transport operators should:
- consider their current customer base to determine the extent to which services are provided to ‘small business’ customers;
- consider whether their current insurance arrangements are adequate; and
- review their standard conditions of carriage to ensure that:
- any terms that might potentially be considered unfair are expressed in clear and unambiguous language; and
- any clauses that exclude or limit liability for claims associated with loss of or damage to goods are drafted so as to minimise the risk that a court will find the clauses to be unfair.
For example, the effect of such clauses should be summarised and highlighted at the time the parties enter into the contract.