The Unfair Contract Terms (UCT) regime is being updated to broaden its application and impose penalties for breach.
In short, the new UCT regime will apply to standard form contracts concerning the supply of goods or services:
- to an individual for or personal, domestic, or household use; or
- where at least one party to the contract employs fewer than 100 people or has an annual turnover of less than $10 million.
The new UCT regime commences on 9 November 2023. If you haven’t already, it is essential that you review your terms and conditions to ensure enforceability and avoid significant penalties.
It is common for operators in the transport and logistics industry to conduct business pursuant to standard terms and conditions which are incorporated into each consignment or other service engagement. This means that those standard terms and conditions need to be amended or adaptable to ensure that they do not contravene the UCT regime when incorporated into a consumer contract or small business contract.
This article sets out some examples of key issues to look out for and change that will help you comply with the new UCT regime. A previous article summarising the changes and outlining the key concepts of the UCT regime can be found here.
Exclusion of liability
It is common for suppliers of transport services to exclude liability for loss or damage even where the loss or damage is caused by the supplier. However, where the UCT regime applies, the terms may need to be modified to reduce the scope of the limitation of liability so that it doesn’t apply to loss or damage wrongfully caused by the supplier.
For example, SmallCo Pty Ltd is a small business and enters a contract with FastForward Pty Ltd to provide freight forwarding services. The contract incorporates FastFoward’s standard terms and conditions which state:
“To the fullest extent permitted by law, FastForward will not be responsible for loss or damage of any kind whatsoever arising out of the provision of its services to the customer (whether caused by negligence, wilful default or otherwise by FastForward).”
This is likely to be an unfair term for the purpose of the UCT regime. FastForward should consider changing its terms and conditions so that the exclusion of liability only applies to the extent that the loss or damage was not negligently or wrongfully caused by FastForward.
Broad indemnities will carry similar issues as the exclusion of liability above. However, indemnities can be even higher risk as liability under an indemnity can exceed the value of any goods that were damaged or the costs of the services provided.
For example, SmallCo Pty Ltd enters a contract with RoadRunner Pty Ltd to provide road transport services for SmallCo’s goods. The contract states:
“The customer agrees to indemnify RoadRunner for any loss or damage directly or indirectly caused by or to the Goods.”
This is likely to be an unfair term for the purpose of the UCT regime. RoadRunner should consider changing its terms and conditions so that the indemnity does not apply to the extent that the loss or damage is caused by the wrongful or negligent act or omission of RoadRunner. It may be appropriate to offer an equivalent indemnity to the customer.
A unilateral right to change the contractual terms will usually be problematic unless it only goes as far as is necessary to allow the business to achieve its legitimate business interest or gives the customer a right to exit the contract without penalty where the change could be materially detrimental to the customer.
For example, SmallCo Pty Ltd enters a contract with PortHouse Pty Ltd under which PortHouse Pty Ltd provides warehousing services for SmallCo’s goods in various locations for a monthly fee. The contract states:
“PortHouse reserves the right to vary these terms immediately on notice to the customer.”
PortHouse’s broad ability to vary the contract is likely to be unfair unless the circumstances enabling unilateral variation and the type of terms that may be unilaterally varied are narrowed in scope, and/or SmallCo is given reasonably notice of the variation and a right to terminate the contract if it does not agree with the varied terms.
If you recognise any of the above issues in your standard form contracts and you, or your customers, meet the thresholds for a consumer contract or small business contract, then we recommend you update those clauses as soon as possible.
There is no conclusive list of clauses that will be unfair. Instead, your terms and conditions must be evaluated in the context of your commercial arrangements.
There are, however, some common strategies that may make an onerous term less unfair:
- Add balance – A term is less likely to be unfair if both partiers have the benefit of a right or remedy.
- Beware broad discretion – Clauses that are unnecessarily broad are more likely to be unfair since there is a greater possibility that those terms could be used in a way that is not reasonably necessary to protect your legitimate interests. Tailoring a clause to your specific circumstances may protect you from penalties under the UCT regime while preserving the key areas of protection for your business.
- Preserve consumer rights under the ACL – Terms must not be inconsistent with statutory rights under the Australian Consumer Law (where applicable). Express warranties and entire agreement clauses require careful attention.
- Clarity – Avoid technical jargon, unnecessarily long documents, fine print and other strategies to conceal onerous terms. Consider using font, size and colour of text to emphasise important information as this may weigh in your favour during an evaluation of your terms.
If you require assistance to review and update your terms and conditions or other contracts to ensure compliance with the UCT regime, please contact a member of our Corporate & Commercial or Transport & Logistics team.
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