Unfair contract reform will shake transport says lawyer


Logistics operators, customs brokers, freight forwarders, road and rail carriers among those to be affected by new small business provisions

Unfair contract reform will shake transport says lawyer
Andrew Probert raises contract issues for transporters.

 

The scope of transport and logistics contracts deemed unfair and being made void expands to smaller companies from November 12.

With this in mind, Colin Biggers & Paisley partner and transport lawyer Andrew Probert warns affected firms they should review their standard-form contracts to assess their risk.

Though some shipping contracts are exempt, the repercussions of the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act will be felt across freight transport modes and services.

"There will be a clear impact on such industries that have traditionally relied on standard form, ‘one sided’ exclusion and other clauses to limit their liability to customers and principal contractors," Probert says.

"Accordingly, those operators will need to review their terms to identify whether any clauses are at risk of being ‘unfair terms’ and therefore unenforceable."

His focus on freight transport is due to standard form contracts being common in the transport sector.

"Although the term is not defined in the legislation, it is clear that the transport sector is rife with standard form contracts, which would be subject to the new provisions," Probert says.

A court will be left to make its own determination, and the factors which it will take into account include the bargaining power of the parties, such as whether the service provider provides the contract on a "take it or leave it" basis, and whether the contract is a pro-forma, "which is often the case in the transport sector, for example with standard terms referred to on the reverse side of consignment notes and delivery dockets, rather than a specifically tailored arrangement".

Particular focus is likely to fall on the transparency and effect of liability exclusion clauses.

In considering whether a term is unfair, a court will gauge if it causes a significant imbalance in the parties' rights and obligations, would cause detriment to a party if it were to be relied on, is not reasonably necessary to protect the legitimate interest of the party who would be advantaged by the term, and if it lacks transparency in its formatting or the way in which it and the contract are presented.

Certain terms are excluded from being unfair, such as those which define the main subject matter of the contract, set the upfront price payable under the contract, and are otherwise required or permitted by law.

But in most cases, "it can be expected that a clause which excludes liability in all circumstances will likely be regarded as ‘unfair’ ".

Other cases include clauses that:

  • require the customer to indemnify the service provider for its own negligence or breach 
  • enable the service provider to amend the terms unilaterally without the consent of the customer
  • significantly reduce the standard limitation period for breach of contract/tort. It is common for the time-bar to be reduced to nine or 12 months
  • exclude liability in the absence of any notice of claim being issued within a prescribed time after the subject incident (often being within 7 or 14 days)
  • impose limitations of liability, such as package limitations which are available under the Carriage Of Goods By Sea Act (COGSA) ), but in circumstances where COGSA does not ordinarily apply (such as for solely inland road carriage)
  • extend contractual benefits in terms and conditions to third-party sub-contractors
  • impose foreign jurisdiction clauses.

Probert notes the likelihood of a pricing impact stemming from the reform, both between the service provider and the customer and between the service provider and its insurer, the latter due to the risk increase hitting premiums.

He advises the transport sector to:

  • consider whether an update or amendment of your contracts is required
  • review and update any standard form contracts before November 12 to adopt clearer language and where appropriate, remove or modify clearly unfair terms
  • in undertaking the review, and when considering individual terms, test whether the term is legitimate and extends no more than is reasonably necessary
  • to the extent that transport sector participants are able to rely upon limitation provisions in other legislation, standard terms should be amended to include them
  • adopt a fully open and transparent approach with all customers to ensure that terms and conditions are brought to their attention before any services being provided, and in particular the terms which are heavily weighted in the service provider's favour. 

"As an alternative, consider having different standard form contracts for small business and other business customers," Probert says.

"The imperative would be to identify, before a contract is entered into, whether the other party falls within the definition of small business; this may be difficult without alerting that customer to the disadvantaged position they may be in if they do not fall within the small business requirements and the protections given by the newly extended provisions."

The full advisory can be found here.

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