- The ACCC has recently released a report into the Australian wine industry, which has identified a significant imbalance in the bargaining power of growers and winemakers.
- This imbalance has resulted in growers agreeing to supply contracts which contain potentially unfair and uncertain contract terms.
- The ACCC will be investigating these types of contracts further and has recommended that all winemakers review their standard form contracts with growers, in order to identify and remove or amend any unfair terms.
Unfair contract terms
Unfair contract term protections for small businesses apply to standard form contracts entered into, amended or renewed on or after 12 November 2016.
A ‘standard form contract’ is one that has been prepared by one party to the contract and which the other party has limited or no opportunity to negotiate the terms. That is, it is offered on a ‘take it or leave it’ basis.
Only a court can determine whether a contract term is ‘unfair’. When making this decision, the court will consider the fairness of a term in the context of the contract ‘as a whole’. A term is considered ‘unfair’ if it:
- would cause a significant imbalance in the parties’ rights and obligations under the contract;
- would cause financial or other detriment (e.g. delay) to a party if it were to be relied upon;
- is not reasonably necessary to protect the legitimate interests of the party who would benefit from the inclusion of the term.
If a term is found to be unfair, it will be void and unenforceable – but the rest of the contract will continue to bind the parties if it is capable of operating without the unfair term.
In September 2019, the ACCC released its ‘Wine grape market study – Final Report’ (Report) into various aspects of wine industry supply chains, which is available at: https://www.accc.gov.au/system/files/1612RPT_Wine%20Grape%20Growers%20Final%20Report_D03.pdf.
In this Report, the ACCC found that most wine grape supply agreements are ‘standard form contracts’ (see Part 5.4). This appears to be (at least in part) due to the nature and structure of the wine industry, which has resulted in a significant imbalance in bargaining power between winemakers and growers.
Potentially unfair terms
The Report indicates that the ACCC is now assessing certain contract terms in the context of the unfair contract term protections, and it may investigate winemakers who continue to have unfair terms in their standard form contracts.
The types of terms that the ACCC has specifically identified as potentially being unfair fall into the following categories:
- certain first right of refusal clauses, including the first right to purchase excess grapes and the first right to renew the supply agreement;
- terms that give winemakers broad rights to unilaterally terminate or vary terms of the agreement (including variations in price and quality);
- terms that provide for a long period of time before growers receive final payment;
- terms that give winemakers broad scope to make unilateral and detrimental determinations or reject grapes.
The Report indicates that many of these types of terms are common in wine industry supply agreements. Lengthy payment periods are particularly common, with many supply agreements providing that winemakers do not have to pay growers in full until nine to twelve months after taking delivery of the grapes. Despite the fact that such terms are common, they may still be unfair.
Review your supply agreements now
In the circumstances, the ACCC has recommended that winemakers, regardless of size or region, review their standard form contracts and remove or amend any unfair terms. Long payment terms in supply contracts offered by large winemakers are particularly at risk.
If you require any assistance with reviewing your contracts, we are happy to help.
By Claire Ramsay and Paul Mallon