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Life's not fair! How do I know if my contract's not fair either?

The Australian Competition & Consumer Commission (ACCC) recently won its test case for small businesses under the new unfair contract terms regime. This is an exciting win for small businesses including agribusinesses.

The ACCC successfully argued that JJ Richards & Sons Pty Ltd (JJ Richards) entered agreements with unfair terms which may cause significant financial detriment to small businesses.

This is an exciting win for small businesses including agribusinesses who may be bound by unfair terms in their contracts.

What is an "unfair" term?

"Unfair terms" are terms that go beyond protecting the legitimate commercial interests of each party.

In a standard-form contract between a small business and a larger company (Company), an example of an "unfair" term would be unlimited indemnity in favour of the Company.  This means you, as the small business, would be liable for 100% of all damages flowing from someone else's conduct, even if it's damage incurred by the Company or damage that could have been avoided or mitigated.

Example of an "unfair" indemnity clause: "[Your company] indemnifies the Company against all loss, damages, claims, liability, expenses, payments or outgoings incurred by or awarded against the Company arising directly or indirectly from (a) any breach by the Contractor of this agreement; (b) any act or omission of the Contractor (including any negligence, unlawful conduct or wilful conduct) by the [your company] relating to this Agreement or arising as a consequence of the performance or non-performance of the Services.”

How could this be made fair? If there was a corresponding benefit for [your company] to claim an indemnity from the Company in certain circumstances or to not be liable where the damage was not [your company's] fault or could have been avoided by the Company.

Consider your contracts for unfair price variation terms which allow the Company to unilaterally change the agreed prices for any reason (eg: simply to increase revenue) without your company being able to terminate the contract or change the scope of services.

Example of an "unfair" price variation clause: "The Company reserves the right to unilaterally vary the price payable under this contract with written notice to [your company]."

How could this be made fair? If there was a corresponding right given to [your company] to terminate the contract or obtain a change in the scope or scale of the service provided by the Company or a lower price.

Exclusivity clauses may also be unfair if the exclusivity is not necessary to protect the Company's legitimate business interests.

Example of an "unfair" exclusivity clause: Until such time, if any, as this Agreement is terminated pursuant to this Agreement, [your company] shall not solicit or negotiate or enter into any agreement with any other Person with respect to or in furtherance of any sale of [goods/ services/produce]."

How could this be made fair?  If there was the ability for [your company] to contract with other companies from time to time.

While terms such as the ones above may not be unfair on their own, when considered together they might be, particularly if the smaller party is unable to terminate the contract.  For example, in JJ Richards the termination clause was as follows:

No termination without final payment.  Payment in full of all monies outstanding must be made before this agreement can be terminated.  The equipment will not be removed until such payment is made and rental for the equipment may be charged if delays in payment of the final account occur.

We will launch the Unfair Contract Term Survey on Friday 1 December 2017 on the AustralianFarmers website.

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

Related content: Shining a light on unfair contract terms in the agriculture sector

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