Cheese, butter and potatoes are on the menu as the ACCC focuses on unfair contract terms in the agriculture industry

The transition to the new financial year has been accompanied by a flurry of activity by the ACCC regarding unfair contract terms in the agriculture industry.

On 26 June 2018, the ACCC announced that it had instituted proceedings against the largest potato wholesaler in Australia, Mitolo Group Pty Ltd and a related entity (Mitolo) claiming, among other things, that terms in its standard form contracts with potato farmers were unfair contract terms.

The terms of concern in Mitolo’s agreements were provisions that allowed Mitolo to:

• Unilaterally determine or vary the price Mitolo paid farmers for potatoes;
• Unilaterally vary other contractual terms;
• Declare potatoes as “wastage” without a mechanism for review;
• Prevent farmers from selling potatoes to alternative purchasers; and
• Prevent farmers from selling their property unless the purchaser entered into an exclusive potato farming agreement with Mitolo.

Shortly after, on 2 July 2018, the ACCC announced that one of the largest milk processors in Australia, Warrnambool Cheese and Butter Factory Company Holdings Limited (WCB) has voluntarily agreed to amend certain terms in its supply agreements with farmers.

The potentially unfair terms in WCB’s agreements included terms similar in effect to the allegedly unfair terms in the Mitolo agreements, including terms which allowed WCB to unilaterally vary the milk price, unilaterally vary other contractual terms and restrict farmers from selling their farms.

Dairy wholesalers are encouraged to review the ACCC’s final report on its inquiry into the competitiveness, trading practices, and transparency of the Australian dairy industry. In this report, the ACCC lists a number of other terms in milk supply agreements it considers to be potentially unfair, including automatic renewal clauses, one sided termination rights, changes to supplier handbooks and excessive penalties for agreement termination.

In the ACCC’s media release dated 26 June 2018 about the Mitolo action, ACCC Deputy Chair Mick Keogh said “We believe that these terms have caused, or could cause, significant detriment to farmers, by passing a heavy burden of risk down to farmers, the most vulnerable player in the supply chain”. It remains to be seen how these actions may affect other contracting arrangements in the agriculture supply chain, such as those between wholesalers and supermarkets, where the unfair contract terms regime is unlikely to apply.

Wholesalers and purchasers of raw materials in other industries should also keep a watchful eye on these developments, given that it would not be unusual for supply agreements to contain equivalent terms such as the ability to unilaterally vary prices or to prevent suppliers from dealing with other purchasers.

The unfair contract terms regime is set out in the Australian Consumer Law (and in the Australian Securities and Investments Commission Act 2001 with respect to contracts for financial products and services). The effect under the regime is that a Court or relevant Tribunal can declare terms in standard form consumer contracts or small business contracts to be unfair and therefore unenforceable. A party to an eligible contract, the ACCC or the Australian Securities and Investments Commission has standing to seek a declaration that a term is unfair.

This article was written by Teresa Torcasio, Partner and Marian Ngo, Senior Associate.