Transport companies and unfair contract terms in standard terms and conditions – The new UCT regime and implications

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By Frazer Hunt, Partner

Transport companies, road carriers and logistics services providers should be aware of major changes to the Unfair Contracts laws introduced by the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (the Act) which establishes a civil penalty regime prohibiting the use of unfair contract terms (UCT) and will expand the classes of contracts affected by the regime, taking effect from 10 November 2023.

The changes to the Act will:

1. expand the scope of the existing UCT laws so they will apply to a broader range of small business, namely those:

  • where the ‘upfront price payable’ under the agreement is no more than $5,000,000 (excluding interest); and where at least one party to the agreement:
  • is a business that employs less than 100 persons; or
  • has a turnover (at the time the contract is made) of less than $10,000,000.

To be clear, these changes to the UCT regime that has been in place since 2016 will apply 99% of Australian businesses from 10 November 2023, so you can safely assume that the UCT regime will affect your business, if it does not already.

2. for the first time introduce significant civil penalties which may be imposed on carriers if they breach the UCT laws. i.e. if their standard terms and conditions (STCs) are found to contain terms that are unfair; and

3. mean that a Court will not be required to find that the customer has suffered any loss before the Court finds that the documents are unfair or before imposing penalties on a transport company. In other words, a Court may impose large civil penalties and find terms in finance documents to be unenforceable, merely because the transport company proposed terms in STCs and are subsequently found by a Court to be unfair.

Recommendations

Prior to the commencement of these changes in November, transport companies should review their STCs and related processes to consider whether they may be unfair. The relevant tests for this are whether any terms in the STCs:

  • would cause a significant imbalance in the parties’ rights and obligations arising under the STCs;
  • are not reasonably necessary to protect the legitimate interests of the carrier,
  • would cause detriment (financial or otherwise) to the customer if they were to be applied or relied on.

Having regard to the above, transport companies should also ensure that customers are given ample opportunity to review and negotiate agreements. Customers should consider any requests for amendment having regard to the above tests.

The following clauses are at risk of falling foul of the UCT regime:

  • clauses that exclude all liability for loss or damage to goods, even if due to the wilful misconduct or reckless of the carrier;
  • entire agreement clauses;
  • broad indemnification clauses;
  • ‘deeming’ clauses e.g. where a transport company’s-appointed surveyor’s findings on the extent of the loss are final and not open to challenge
  • certain types of events of default clauses such as those triggered by inaccurate representations;
  • material adverse change clauses;
  • unilateral variation clauses;
  • assignment clauses.

The changes do not mean that these clauses are no longer enforceable, only that such clauses will now need to be more carefully drafted to ensure that the parties’ rights and obligations are more fairly-balanced.

For example, re-drafting exclusion of liability clauses so that they carve out the exclusion of liability for loss of or damage caused by the carrier’s wilful misconduct or reckless and also introducing capped liability for claims i.e. a cascading liability regime, will reduce the liability of your STCs being challenged.  Further, depending on the sort of goods carried and the profile of your customer base i.e. consumers purchasing goods online, and added complementary “always-on” insurance cover for low-value amounts that are sufficient to compensate your customers for their losses may reduce the likelihood of your STCs being challenged.

Beyond the liability clauses, there are invariably other clauses in a transport company’s STCs that up to now, have stood the test of time, but will no longer cut the mustard. Accordingly, a full legal review of your STCs prior to November 2023 is recommended.

The future?

At this point, no Australian cases that have considered the enforceability of UCTs have involved transport/carriers/forwarders/logistics service providers. Other industries such as waste collection (JJ Richards), leasing office equipment (Fujifilm) and serviced offices (Servcorp) have been considered, where other considerations may be relevant.

However, the UK cases which consider the exclusion clauses in transport contracts in the context of the UK Unfair Contract Terms Act 1977, which has a reasonableness test, may be instructive where the courts have found that industry practice and the availability of insurance have been persuasive in the context of enforceability of exclusion clauses.  Time will tell whether a transport operator’s STCs are challenged in Australia, but now is the time to review your STCs to ensure that you are not the ‘crash test dummy’ in a test case where your company’s name ends up in the legal textbooks.

For further information, please do not hesitate to contact us.

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