ACCC accuses potato wholesaler of ‘egregious’ contract terms
Competition & Consumer Protection June 26, 2018 4:18 pm By Miklos Bolza | Sydney

The Australian Competition and Consumer Commission has brought an unprecedented court action against Australia’s largest potato wholesaler Mitolo Group, as it continues to ramp up enforcement over unfair contract terms.

The case is the first to fall under the Horticulture Code, which came into effect on April 1, and is the first court proceeding based on unfair contract terms within the agricultural industry.

Mitolo could face penalties of up to $63,000 for each instance of trading under an agreement which is not compliance with the Horticulture Code.

The potato wholesaler, which supplies potatoes to major supermarkets, enters into exclusive supply contracts with potato farmers for a fixed volume each season. The ACCC alleges that the terms in these contracts, which are entered into before or during planting, are unfair because they allow Mitolo to determine the price it will pay at harvest. This breaches the Horticultural Code by failing to specify how the prices will be calculated and failing to provide a written account of the price prior to delivery, the regulator said.

The contract also allows the company to unilaterally vary other contract terms, declare potatoes as “wastage” without proper review mechanisms, and bar farmers from selling potatoes to other buyers. It also contains a term preventing farmers from selling their own property unless the purchaser then also enters into an exclusive farming relationship with Mitolo.

“These are some of the most egregious terms we have seen in agricultural contracts, and are key examples of the contracting practices in the sector that we want to address,” ACCC deputy chair Mick Keogh said.

The terms could cause “significant detriment” to potato farmers, the most vulnerable actors in the supply chain, by passing the risk down to them, Keogh said.

“The issues in this case go to the heart of concerns about unfairness in the agriculture sector that led to the establishment of the ACCC’s dedicated Agriculture Unit, which is investigating agricultural supply chains and engaging with the sector.”

The Commission is seeking declarations that the relevant clauses in Mitolo’s contracts are null and void as well as penalties, injunctions, compliance program orders and costs.

Mitolo Group did not respond to requests seeking comment on Tuesday.

The lawsuit comes as the ACCC continues to probe standard form contracts in the agriculture sector after a new unfair contract law took effect in 2016.

In March, Australia’s largest agribusiness, AWB Harvest Finance Pools Pty Ltd, agreed to make changes to the contracts it uses with farmers after the ACCC flagged terms of its contracts for being unfair.

Grain marketing organisation AWB’s grain pool contracts originally gave it the power to unilaterally increase fees to growers and introduce new fees after the contracts were signed, as well as reject grain at its discretion.

The new contract terms agreed to by AWB following an ACCC investigation ensures fees will not vary and new fees will not be imposed after contracts are accepted, and that grain will only be rejected in limited circumstances.

The ACCC said the new contract terms would provide greater protection to small farmers working with multinational agribusinesses like AWB. Cargill Australia bought part of the Australian Wheat Board’s assets in 2008 following the deregulation of the country’s grain industry.

The new unfair contract law seeks to protect small businesses from unfair terms in standard form contracts, including terms giving unilateral rights to only one party, including rights of termination and the right to vary the contract or limit obligations under the contract.

The ACCC won its first case over unfair contract terms in October, when the Federal Court found that JJ Richards’ standard small business contracts contained eight unfair terms and were void for it.

The terms allowed the waste management giant to unilaterally increase prices and charge customers for services not performed, among other things. The commission has a second case proceeding in court, this one against office space provider Servcorp Ltd and two subsidiaries. Especially problematic of the 19 allegedly unfair clauses in Servorp’s small business contracts, the ACCC says, are those that allow the publicly traded company to unilaterally terminate agreements, charge onerous termination fees and automatically renew contracts.

In November, lawyers told Lawyerly to expect ramped up enforcement from the ACCC after companies were given plenty of notice about the new unfair contract law.

“I think it’s getting to the stage where they are going to get heavier,” said Jones Day competition lawyer Prudence Smith. “Parties not interested in rectifying their contracts, the commission will take them on.”

Many companies, including Uber, Fairfax Media, Jetts Fitness, Lendlease Property Management and Sensis, have agreed to fix their standard small business contracts after the ACCC raised concerns.

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Miklos Bolza

Miklos Bolza has been a journalist for three years. He has written for a variety of publications, including NZ Lawyer, HRD Australia, and Australian Broker. He is currently the Sydney court reporter for Lawyerly.