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Coding for dummies – The new Horticulture Code in Brief

If you are a farmer growing fruit or vegetables and sell through an agent or to a merchant (Traders) you will be familiar with the "Horticulture Code" (the Code). The Code has had a number of issues affecting its usefulness.

The Code is a mandatory set of regulations, applicable to growers and traders of horticultural produce since 2006.

The Australian Competition and Consumer Commission (ACCC) recently visited a number of forums where it presented information to the Horticulture Industry about the Code, seeking feedback about how it operated in practice and how it could be improved.  A summary of this process was captured in the ACCC report titled 'Perspectives in horticulture and viticulture – Industry views on completion and fair trading issues' dated 27 October 2016.  

Having received this feedback, the Code was reviewed and updated  –  the updated Code has applied from 1 April 2017.  If you trade in horticulture produce on or after this date under a new or updated contract, you must comply with the Code.  A 12 month transition period applies to existing contracts.

Be aware that some parts of the new Code apply straight away.  Those are:

  • the obligation to deal in good faith, and
  • the dispute resolution procedure.

New civil penalties have been added to many parts of the Code, including to the parts applicable straight away.  You should be aware that this enforcement option may now apply to you.  

Does the Code apply to me?

The Code requires that:

(a)    there is a written contract between the grower and Trader;
(b)    a trader cannot act as both an agent and a merchant under the one contract;
(c)    traders must accept horticulture produce delivered under a contract, except where the contract permits them to reject it;
(d)    if a trader rejects horticulture produce, they must notify the grower that the produce has been rejected within 24 hours of rejecting the produce;
(e)    traders must exercise reasonable care and skill in handling and storing the growers horticulture produce that is under their control;
(f)    traders must give the grower payment for horticulture produce within the specified payment period;
(g)    agents must act in the best interests of the grower when selling horticulture produce and not sell a grower’s horticulture produce, other than on 'an arm’s length basis'; and
(h)    traders must give a statement to growers setting out the details of transactions.

The Code does not apply to purchasers of horticulture produce who sell directly to consumers.

New requirement to act "in good faith"

The Code now requires that growers and Traders act in "good faith" when dealing with one another.

This is a "civil penalty" provision, meaning that if you are found in breach of the Code, you will have to pay a penalty (currently, up to $63,000).    

What does "good faith" mean? 

The Code outlines certain matters that a court may consider when determining whether a party has acted in good faith, being whether the party:

  • acted honestly and not arbitrarily; and
  • conducted the trading relationship without duress; and

The Court may also consider any other matter it considers relevant.

What parts of the transaction does it apply to?

The obligation to act in good faith extends to all aspects of the relationship between the grower and Trader, including:

  • pre-contractual negotiations;
  • performance of the agreement;
  • dispute resolution;
  • the end (including termination) of an agreement; and
  • potentially the period after a horticulture produce agreement ends.

Any contract you enter into cannot limit or exclude this obligation of good faith.  Contract terms attempting to do this will be unenforceable.

Have I acted in good faith?

In determining whether you have acted in good faith, you may want to ask yourself the following questions:

  • Have you been honest with the other party?
  • Have you considered the other party’s interests?
  • Have you made timely decisions?
  • Have you consulted with the other party regarding issues/proposed changes?
  • Do you have a contractual right to act in that way?
  • Are you imposing any conditions on the other party? Are those conditions necessary to protect your interests?
  • Where a dispute has arisen, have you attempted to resolve the dispute (either directly with the other party, or through mediation)?
  • Are you acting for some ulterior purpose?

If you are not familiar with the changes to the Code, we suggest you familiarise yourself.

MinterEllison has strong agribusiness credentials, read more about our clients here and what we can do for you here.

Authors: Andrew Gill (Partner) and Anna Crowley (Associate) at MinterEllison, Canberra.

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