Are your warehouse terms enforceable?
You offer great warehouse pricing, but its on the basis that you are not liable for damage to the goods. The customers can obtain their own insurance and enjoy your low “all care no responsibility” pricing – it seems like a win-win scenario. However, the ACCC has concerns with this and has released a statement regarding the enforcement of unfair warehouse contracts terms.
In light of the ACCC statement it is important to review your warehouse terms and conditions to ensure that you are comfortable that they are enforceable should things go wrong.
What contracts are covered
In Australia, warehouse operators and their customers can generally agree to whatever terms they like. However, the Government has passed legislation that provides that unfair contract terms in standard form contracts with small business and consumers are unenforceable.
A standard form contract is one presented on a “take it or leave it” basis. Whenever you use standard T&Cs without the customer having the opportunity to negotiate it will be a “standard form contract”. A “small business” is a business with 20 or less employees. However, there is talk of increasing this to 100 employees at some point in 2021.
Terms that are unfair
If you are using standard T&Cs with small business customer, you need to think about what terms are unfair. The ACCC recently published some guidance on this point for warehouse operators. The ACCC investigated GrainCorp’s standard warehousing T&Cs and found that the negligence exclusion clause was likely to be “unfair”.
The original clause capped GrainCorp’s liability for negligence at $100,000. The ACCC considered that this was unfair as the customer’s losses could be well in excess of $100,000.
The ACCC approved an amendment whereby there was no liability limit for GrainCorp’s gross negligence, fraud, criminal conduct or wilful misconduct. Its liability cap for general negligence was raised to $200,000.
Most readers will be thinking that their warehouse T&Cs do not accept any level of liability – let alone $200,000.
If you have a negligence exclusion in your warehousing contract, the ACCC may consider it unfair if:
- there is any exclusion of liability for gross negligence or intentional losses;
- there is not a high level of liability accepted for general negligence
Most warehouse contract will totally exclude liability. This may mean that the term is unfair and unenforceable against a small business.
What to do
As a first step it is worth assessing the extent to which you deal with small businesses and consumers. If almost all customers are large businesses (above 20 employees) the unfair contract provisions will generally not apply.
If you do deal with small businesses there are a number of options available:
- have different contractual terms for large businesses and small businesses
- the terms with smaller businesses could accept liability for deliberate acts or gross negligence
- liability caps could be in place for general negligence. The liability cap could either exclude:
o certain types of damages (such as loss of profits)
o damages from certain causes
o damages over a certain amount
Alternatively, there could be a shrinkage provision whereby, rather than capping losses, the first portion of losses in a particular year will be excluded and the warehouse operator will be liable for losses over the shrinkage provision.
Another option is to genuinely permit negotiation of terms so that the contract is not a “standard form contract”.
Any other terms to worry about
Exclusions of liability are the starting point for the ACCC, however there are many other terms that can be potentially unfair, including
- indemnity clauses
- any clauses that impose penalties
- automatic renewal clauses
- clauses that allow the warehouse operator to avoid performing the services
- clauses that limit the time periods in which a claim can be made
Start by reviewing your terms and conditions and considering what terms are at risk of being unenforceable. If a term is unenforceable, is there an amended, fairer, version that will still meet your commercial needs?
CGT Law specialises in contracts relating to supply chain services. Please contact us if you need assistance with your warehouse terms and conditions.