The effect of the Unfair Contract Term Provisions on transport contracts

ATCO Power Australia (Karratha) Pty Limited v TNT Australia Pty Limited (2019/00289094) – “ATCO”
The Trustee for the Dave Dick and Erina Jacobson Family Trust and the Trustee for Tim Dick Family Trust & The Trustee for Aiden Perry Family Trust, trading as CMT Equipment v TNT Australia Pty Limited (2019/00329456) – “CMT”

For many Australian small businesses, exclusion clauses contained in transport contracts with large service providers have historically created significant barriers to receiving compensation in circumstances where goods are lost or damaged during transit. However, the incorporation of the unfair contract terms provisions in the Australian Consumer Law now means small businesses may have legal recourse in certain scenarios.

In a recent decision, the New South Wales Local Court has now weighed in on whether exclusion clauses contained in transport standard form contracts which seek to exclude all liability are unfair. The Court, in considering two claims heard jointly, decided that in both cases the relevant exclusions were unfair contract terms, and ordered the carrier to pay damages.

Background

The Australian Consumer Law provides protections for small businesses against unfair contract terms. The relevant provisions are found in Part 2-3 of Schedule 2 of the Competition and Consumer Act 2010 (the Act).

The unfair contract term provisions were created to provide protections in relation to standard form contracts (entered into or renewed on or after 12 November 2016) where:

  • The contract contains a term which is unfair;
  • The term causes a significant imbalance in the parties’ rights and obligations;
  • The term is not reasonably necessary to protect the legitimate interests of the party that would benefit from the term; and
  • The term would cause detriment to a consumer if the term was to be relied upon.

The Court’s Decision

The proceedings in both ATCO and CMT related to goods which had either been lost, or damaged, in transit. The carrier (TNT) had predominantly denied liability for the losses on the basis their terms and conditions of carriage precluded liability.

ATCO and CMT sought to contend that the unfair contract term provisions contained in the Act should apply and that, as a consequence, the relevant terms were void. The Court ultimately accepted that both ATCO and CMT were small businesses and the exclusion terms which the carrier sought to rely upon were unfair (and therefore void) in accordance with the Act.

Ligeti Partners acted for ATCO and CMT, and their respective insurer, both of whom were successful in recovering their losses from the carrier.

In reaching their decision, the Court found the following:

  • In each case, the exclusion clause was the type of clause contemplated in Schedule 2, Section 25(a) of the Act as being a term “that permits, or has the effect of permitting, one party (but not another party) to avoid or limit performance of the contract”.
  • The exclusion clauses were not reasonably necessary to protect the carrier’s interests.
  • Neither ATCO nor CMT were provided a corresponding right, thereby causing significant imbalance in the parties’ rights and obligations. No opportunity given to opt out of the contract term.
  • The effect of the other clauses contained in the terms and conditions was to reduce the statutory limitation period from six years to 14 days. It was the Court’s view that a term such as this clearly fits within the example of an unfair term provided in Schedule 2, Section 25(k) of the Act, being “a term that limits, or has the effect of limiting” a consumer’s right to sue the carrier.
  • The exclusion clause contained in CMT, which sought to exclude liability for any loss suffered for any reason whatsoever, could not be relied upon as it was considered too wide.
  • Both CMT and ATCO had suffered a detriment as a result of the clauses relied upon by the carrier.

The carrier contended the clauses contained in their terms and conditions were similar to clauses contained in other carrier’s terms of carriage. The Court stated that “it is irrelevant what other companies do because if those other companies’ contracts contain the same or similar terms, those terms are likely to be unfair too.”

Implications

The decision is an important outcome in a space where recovery can prove to be difficult for companies relying upon the services of large transport companies and their insurers. Whilst the decision is not binding upon other jurisdictions, it provides guidance as to how the Small Claims Division of the NSW Local Court is likely to approach such claims and demonstrates recoveries against carriers in similar circumstances may be possible.

There are some significant changes coming to the unfair contract terms provisions in 2021. Of particular relevance is the expansion of what businesses will be included in the definition of a “small business”. Amongst other things, the change will increase the eligibility threshold from less than 20 employees to less than 100 employees.

Ligeti Partners have developed strategies for their insurer clients given the decision and enhanced prospects of successfully pursuing recoveries in similar matters.

Should you wish to discuss the decision and its implications, or the unfair contract reforms, please contact Jessica Woods on (03) 9947 4510 or James Mulcahy on (03) 9947 4530.

Ligeti Partners Contacts

Picture of James Mulcahy.

James Mulcahy

Managing Director

Melbourne

Picture of Jessica Woods.

Jessica Woods

Principal Lawyer

Melbourne