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AustralianFarmers

This spud is a dud: Potato wholesaler Mitolo to pay $240,000 penalty for unfair contract terms

The Australian Competition and Consumer Commission (ACCC) has successfully brought an action against the Mitolo Group, Australia’s largest potato wholesale and packing company, for breaches of the Horticulture Code of Conduct and unfair contract terms regime. 

The Mitolo Group must pay a pecuniary penalty of $240,000 for contraventions of the Horticulture Code of Conduct in relation to 19 contracts entered into with potato growers. The Horticulture Code is a mandatory set of regulations applicable to all written agreements between growers and traders of horticultural produce. This is the first case in the agriculture sector brought under the new Horticulture Code, which came into effect in April 2018.

The unfair contract terms included the right to:

  • unilaterally determine or vary prices;
  • unilaterally vary contractual terms;
  • reject produce without a proper review mechanism; and 
  • prevent farmers from selling their goods unless the purchaser entered an exclusive supply contract with the Mitolo Group. 
fresh organic potatoes in the field

Mitolo Group also breached the Horticulture Code by failing to specify the method or formula (in writing) to determine the price before or upon delivery.  The Mitolo Group entered into contracts before or during planting season for a fixed volume with the price being determined at harvest. 

The ACCC amended Mitolo’s standard form contracts and clarified the scope of compliant terms for the purposes of the Horticulture Code which included the following:

Price determination and variation clause
Mitolo was required to specify a formula to determine the price and establish a review mechanism so the parties can renegotiate the determined price prior to or a reasonable time after delivery.  The exact price may be determined after entering into the contract, but Mitolo was required to give at least 3 weeks written notice to the producer prior to scheduled delivery. 

Unilateral determination of wastage 
Mitolo’s contracts now include:

  • reasonable times for Mitolo to reject any consignment or any part of a consignment; 
  • an obligation to provide written reasons for the rejection; 
  • the specifications of the quality of the produce; and 
  • a review mechanism so the producer may dispute Mitolo’s determination of wastage in good faith negotiations. 

Unilateral rights to variation
Mitolo must provide 4 weeks written notice to vary the contract.

Exclusivity
The contract may include an exclusivity clause but must also permit the rejected produce (ie produce which failed to meet the specifications) to be sold to third parties at the ‘reasonable discretion’ of Mitolo. 

The ACCC continues to investigate contracts in the agricultural industry under the unfair contract regime.

MinterEllison

MinterEllison

MinterEllison is an international law firm, headquartered in Australia and regarded as one of the Asia-Pacific's premier law firms.

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