Returns of Product – Merchant HPAs

4 December 2017 –

This circular is being sent to all Traders (wholesalers) who have been provided with the FMA’s standard format (template) Merchant Horticulture Produce Agreement (HPA) documentation.

The purpose of this circular is to address an issue raised by the Australian Competition and Consumer Commission (ACCC) following concerns, apparently raised by one or more Grower representative organisations, in relation to the interpretation of Clauses 12 and 13 of the HPA in circumstances involving the return of produce by a Buyer to a Trader and a subsequent claim by the Trader of a credit/refund from the Grower.

While the issue of claiming a credit or refund from the producer of goods where produce sold by them was out of specification or defective is generally standard practice in commercial transactions, the ACCC has expressed some concerns about the clauses in question. These concerns appear to relate to how these clauses may be applied by Traders, and ensuring that any claim made is both justified and fair.

Accordingly, the following information is being provided to:

  • Highlight how the return mechanism under Clause 13 is to work (see paragraphs 1 to 3 below).
  • Emphasise that the only circumstances in which a Trader can rely upon Clauses 12 and 13 is when the produce is “non-complying” under the contractual obligations and warranties given and standards/specifications applying to the HPA in place between the Grower and the Trader. Where produce is complying, all risk passes in accordance with the HPA.
  • Highlight that if a Trader applies the provisions incorrectly, you will do so at your own risk. FMA and your State Chamber will not support Traders who incorrectly apply these clauses and make unjustified claims against their Growers. Furthermore, if you do so you may also be exposing yourself to liability under the HPA you have entered with the Grower as well as the Code in relation to any compliance action taken by the ACCC.
  • Highlight that, under Australian Consumer Law, Traders need to be careful not to have “unfair” contract terms in their HPA’s (for example, requirements which may require the grower to indemnify the Trader in an “unreasonably broad range of circumstances”.

Although the points above are largely self-explanatory, in relation to the first dot point and the application of Clauses 12 and 13 of the HPA, the following matters are highlighted:

  1. These clauses should only be relied upon where produce supplied by a Grower and on-sold by a Trader is subsequently shown to be out of grade/specification, is not as described by the Grower (e.g. on the carton in which the product was supplied), or has inherent quality issues/defects which were not visible at the time of purchase by the third party Buyer of the produce. That is to say, the produce is “noncomplying” for the purposes of the HPA.
  2. These clauses cannot be relied upon to accept the return of “complying” produce. That is to say, a Trader cannot claim a credit against a Grower for a refund which relates to produce which was returned to the Trader for reasons other than the produce being out of specification/grade, not as described by the Grower and/or because of an inherent quality issue. In this scenario, the Trader must bear any cost associated with their acceptance of the product returned by a Buyer.
  3. A Buyer wishing to return produce to a Trader which is out of specification/not as described/has an inherent quality defect must do so within a reasonable period of time, having regard to the nature of the produce in question, noting that fresh produce is perishable and will deteriorate quickly if not stored in an appropriate environment.

It also needs to be noted that these clauses are intended to ensure that a Trader recovers only the losses they have incurred in the normal course of trade as a direct result of the supply by a Grower of non-complaint produce. That is to say, a Trader cannot claim any amounts from a Grower unless the loss or damage has actually been incurred by the Trader.

While noting that Traders seek to have strong and ongoing commercial relationships with their Grower suppliers, these matters are highlighted to address issues which the ACCC has raised.

Accordingly, all Traders are expected to apply the clauses fairly and in compliance with the Code, and to act in good faith at all times. If you have any questions or concerns, please contact your State Chamber representative, as highlighted below.

Brismark / Phone: 07 3915 4222 / Email: [email protected]

Newcastle Chamber / Phone: 02 4923 3700 / Email: [email protected]

South Australia Chamber / Phone: 08 8262 1122 / Email: [email protected]

FMA Secretariat / Phone: 07 3915 4222 / Email: [email protected]

Fresh State / Phone: 03 9408 6627 / Email: [email protected]

Freshmark / Phone: 02 9764 3244 / Email: [email protected]

Market West / Phone: 08 9455 2742 / Email: [email protected]