Action against Mitolo for alleged unfair contract terms

26 June 2018

The ACCC has instituted proceedings against Mitolo Group Pty Ltd and a related entity (together, Mitolo) alleging that several terms in Mitolo’s standard form contracts with potato farmers are unfair contract terms, and that Mitolo has breached the Horticulture Code in its dealings with farmers.

“This is the first court action the ACCC has taken under the newly introduced Horticulture Code and our first unfair contract terms action in the agriculture industry,” ACCC Deputy Chair Mick 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.”

Mitolo is the largest potato wholesaler in Australia and a major supplier to supermarkets.

Mitolo enters into exclusive supply contracts with potato farmers for a specified volume of fresh potatoes each season. These contracts are generally entered into before or at the time of planting, but Mitolo does not determine the price it will pay until the potatoes are ready for harvest.

The contract terms which the ACCC alleges are unfair include terms that allow Mitolo to unilaterally determine or vary the price Mitolo pays farmers for potatoes, unilaterally vary other contractual terms, declare potatoes as “wastage” without a mechanism for proper review, and prevent farmers from selling potatoes to alternative purchasers.

Mitolo’s contracts also contain a term preventing farmers from selling their own property unless the prospective purchaser enters into an exclusive potato farming agreement with Mitolo, which the ACCC also alleges is an unfair contract term.

“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,” Mr Keogh said.

“We believe that these terms have caused, or could cause, significant detriment to farmers, by passing a heavy burden of risk down to farmers, the most vulnerable player in the supply chain,” Mr Keogh said.

The ACCC also alleges that Mitolo is trading with potato farmers under contracts that do not comply with the pricing requirements of the Horticulture Code, by:

  • failing to specify in its contracts whether the price for the produce will be determined by a method or formula, or before or upon delivery; and
  • failing to agree with growers on the price to be paid (or a pricing formula) for produce, in writing, before or upon delivery.

The ACCC is seeking declarations that the relevant clauses in Mitolo’s contracts are unfair contract terms and void, declarations that Mitolo breached the Horticulture Code, penalties for breaches of the Horticulture Code, injunctions, compliance program orders and costs.

Background

Mitolo’s contract terms came to the ACCC’s attention via complaints from industry associations and farmers in engagement work conducted by the ACCC’s Agriculture Unit and followed its wider review of standard form contracts in the agriculture sector after the business-to-business unfair contract terms provisions in the Australian Consumer Law came into effect in November 2016.

Contracts covered include those between businesses if one of them employs fewer than 20 people and the up-front price payable does not exceed $300,000 (or up to $1 million for contracts running for more than a year).

The Horticulture Code is a mandatory industry code prescribed under the Competition and Consumer Act 2010. It came into full effect on 1 April 2018 and replaced the old Horticulture Code. The Horticulture Code’s purpose is to improve the clarity and transparency of trading arrangements between growers and wholesalers trading in horticultural produce.

The Horticulture Code prohibits growers and wholesalers from trading in horticulture produce without a written agreement that complies with the requirements of the Horticulture Code. Traders are exposed to penalties of up to $63,000 for each instance of trading without a Horticulture Code compliant agreement.

Release number: 
117/18
ACCC Infocentre: 

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