Unfair contract terms: what’s there to ‘wine’ about?

The Australian Consumer and Competition Commission (ACCC) has recently released a report following their inquiry into wine grape sector contracts – and it’s not looking ‘grape’ (read: “great”).  The inquiry has found that there is a substantial bargaining power imbalance that exists between the grape growers and winemakers, which has led to harmful market practices.

Unfair contract terms examples found by the ACCC include lengthy payment terms (sometimes grape growers would be waiting between nine to 12 months for payment from winemakers), unilateral rights for the winemakers to vary agreements, and other sub-optimal terms that winemakers relied on to the detriment of the growers.  This stems (no pun intended) from the winemakers having significantly greater bargaining powers due to having the benefit of information asymmetries, ability for winemakers to access a relatively homogenous product from various sources, and the fact that grapes are perishable and have a historical oversupply.

The ACCC will follow the progress of the industry to see whether winemakers adopt their recommendations to ensure fairer contracts for grape growers, however it may make a recommendation to the Federal Government to implement a code of conduct for the wine industry.  Note that unfair contract terms are not illegal (although this idea was floated by the Labor party in early 2019), and therefore ACCC cannot impose penalties to prevent businesses from including these terms in the first place.

While this particular inquiry targets the warm-climate wine region, this is a reminder for all business that it’s a good idea to revise your contracts and ensure they they’re still appropriate.  Take a look at whether there is a term in there that may be perceived to be too “one-sided”, to avoid disputes arising in relation to that contract.  This is particularly the case if the goods or services you’re supplying or purchasing are continually changing.

What are unfair contract terms?

The laws governing Unfair Contract Terms are contained in the Australian Consumer Law s 23 Australian Consumer Law (ACL).

Unfair contract terms in consumer law apply in relation to standard form contracts for consumers as well as small businesses.   A standard form contract is a contract that has been prepared by one party and the other party has limited or no opportunity to negotiate the terms of that contract.  A small business contract is one where at least one party to that contract employs fewer than 20 people (not including casual employees) and the upfront price payable is less than $300,000, or if the contract has a duration of more than 12 months, $1 million.

A term is considered unfair under section 24 of the ACL if the term:

  1. Would cause a significant imbalance in the rights and obligations of the parties under the contract, for example all the risks fall to one party, one party has unilateral rights to vary or terminate the contract or determine if a breach has occurred, or if one party has unilateral rights to determine quality;
  2. Is not reasonably necessary to protect the interests of the party who is advantaged by the term, the ACL presumes that a term in a standard form contract will not be reasonably necessary to protect legitimate interests and the onus falls on the party who wrote the contract to prove otherwise;
  3. Would cause detriment (financial or otherwise) to a party if it were relied on, for example lose a sale, not receiving payments for months, or have to re-do work due to a term being unilaterally changed.

Key Takeaways

If a term is considered unfair, the courts can declare the term void, although the remainder of the contract will be continue to be binding and enforceable, unless the contract is incapable of operating without the unfair term.  So in essence, including unfair contract terms within your standard form contracts, while not illegal and will not incur any penalties, could have the effect of completely de-railing your contract.

The moral of the story: if your standard form contract terms aren’t fair for the party you’re contracting with, they’re probably not ‘vine’ (read: “fine”) and it’s probably time to review and revise your contracts.

If you have any concerns about how these recent updates might affect your contracts or you’re concerned about unfair contract terms in your agreements, please contact our Business & Commercial team to see how we can help.

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