Unfair terms in motor vehicle supply contracts

Motor dealers and manufacturers in New South Wales will need to review their contracts for a new measure of unfairness in light of the new Motor Dealers and Repairers Act 2013 (NSW) (Act). The legislation commenced on 27 November 2013 and deals with unfair terms and unjust conduct in contracts for the supply of motor vehicles by manufacturers to motor dealers.

Under the Act, a term of a supply contract, which is likely to include a dealership agreement, is unfair if it:

• would cause a significant imbalance in the parties’ rights and obligations arising under the contract;
• is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
• would cause detriment to a party if it were to be relied on.

The Act has been criticised for being inconsistent and unnecessary in light of the Franchising Code of Conduct (Code). The Code deems dealership agreements to be franchise agreements and itself provides for extensive regulation of such agreements and arrangements, including dispute resolution.

While the legislation was enacted to cut red tape in the industry, it appears that it might in fact increase the burden on motor dealers and manufacturers and impinge on their rights to enter into contracts on their own terms.

Examples under the Act of unfair terms include terms that have the effect of permitting one party but not the other to:

• avoid or limit performance of the contract;
• terminate the contract; or
• vary the terms of the contract.

The Act gives further examples of unfair terms including terms that unreasonably limit assignment by the motor dealer of the motor dealer’s rights under the contract or the sale of a motor dealer’s business or terms that allow either party to unilaterally vary the characteristics of goods to be supplied under the contract.

The examples provided for in the Act are often found in dealership agreements to cater for the nature of the industry and common arrangements with third parties such as manufacturers.

Jurisdiction to hear matters relating to unfair contract terms and unjust contracts is conferred on the Consumer, Trader and Tenancy Tribunal. The Act allows a motor dealer, a motor industry group or the Small Business Commissioner to apply to the Tribunal for a declaration that a term of a supply contract is unfair or that the conduct of a manufacturer is unjust.

If the Tribunal determines that a term is unfair, it has the power to make:

• an order declaring the contract to be void in whole or in part;
• an order varying any term of the contract;
• an order directing a party to the contract to take, or not take, specific actions relating to the subject matter of the contract;
• an order directing a party to the contract to pay an amount of compensation to the other party; or
• any other consequential or ancillary orders it thinks fit.

New South Wales motor dealers and manufacturers should be aware of the new measures and ensure their contracts aren’t unfair or unjust.

For more information, please contact a member of our team.