What the transport and logistics industry needs to know about the updated unfair contract terms regime

The Unfair Contract Terms (UCT) regime has been updated to broaden its application and impose penalties for breach and has been in effect since 9 November 2023.

Application

The new UCT regime applies to standard form contracts concerning the supply of goods or services:

• to an individual for personal, domestic, or household use (consumer contract) ; or
• where at least one party to the contract employs fewer than 100 people or has an annual turnover of less than $10 million (small business contract).

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 under 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.

Maritime exception

The UCT regime does not apply to certain contracts. Significantly, a contract for the carriage of goods by ship is excluded from the UCT. A contract for the carriage of goods by ship includes any contract covered by a sea carriage document within the meaning of the amended Hague Rules (and more specifically described in section 7(a) of the Carriage of Goods by Sea Act 1991 (Cth)).

For example, terms and conditions associated with a bill of lading for the carriage of goods by ship will not be subject to the UCT.

So, while contracts regarding the carriage of goods by sea are excluded from the UCT, contracts for goods that are transported by other means – such as air, road or rail – may still be subject to the UCT.

What you should do

Businesses should not delay reviewing all applicable standard form contracts with consumers or small business counterparties to ensure compliance with the new UCT.

Businesses that routinely use standard form contracts — including standard terms and conditions attached to transport or logistics agreements or to purchase orders — should identify, review, amend and improve their contracts to ensure that they comply with the expanded UCT. Failure to do so can carry serious and costly consequences.

Where the UCT applies, you must review your standard form contracts for unfair terms. Unfair terms must be amended if the term:

• causes a significant imbalance in the parties’ rights;
• would cause detriment to a party if relied upon; and
• is not reasonably necessary to protect a party’s legitimate interests.

Penalties

From 9 November 2023, Courts will have the power to impose significant penalties on:

• individuals of up to $2.5 million; and
• companies, the greater of:

– $50 million;

– three times the value of the benefit derived from the contravention of the UCT (that is if the Court can determine the value of the benefit obtained from the contravention); or

– 30% of the company’s annual turnover for the 12-month period prior to the contravention (that is if the Court cannot determine the value of the benefit);

for each unfair term in the same contract.

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:

“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.

Indemnity

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 the Goods or the carriage of 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.

Unilateral variation

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 reasonable notice of the variation and a right to terminate the contract if it does not agree with the varied terms.

Recommendations

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 parties 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.

Contact us

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.