Contracting out of Australian Consumer Law protections - Victorian Court of Appeal sounds a warning to businesses

People commonly associate the Australian Consumer Law (ACL) as primarily concerned with consumer protection across Australia.

However the ACL has progressively made its way from business-to-consumer relationships, into business-to-business relationships – particularly in the area of unfair contracts.

The recent Victorian Court of Appeal decision in Viterra Malt Pty Ltd v Cargill Australia Ltd [2023] VSCA 13 (Cargill Case) sounds a warning to businesses that an attempt to contract out of liability for misleading and deceptive conduct claims under the ACL will also be ineffective.

This article discusses the key take-aways from the Cargill Case on the concept of freedom of contract and the enforceability of contractual exclusions, against the backdrop of the ACL and public policy. We also flag some ways businesses can manage the risk of misleading and deceptive conduct claims when dealing with other parties.

What happened in the Cargill Case

In 2013 Cargill Australia Limited (Cargill) bought all the shares in Joe White Maltings (Joe White) from Viterra Malt Pty Ltd (Viterra) for A$420m. At the time Joe White was the largest maltster operating in the Asia Pacific region.

However business fell short of Cargill’s assessments of value and expected performance, with the result that Cargill claimed:

• that Viterra made misleading or deceptive representations about Joe White’s business practices in breach of the ACL*;  
• it had acquired Joe White in reliance on those representations and would not have proceeded with the acquisition had it not been misled or deceived. 

In its statement of claim lodged back in 2015 Cargill said it was forced to spend around A$30m million to bring the different malt plants in Australia up to industry standard.

Viterra denied the conduct and, amongst other arguments, alleged that the conduct did not cause Cargill any loss. Viterra also argued that it had contracted out of any liability arising from incorrect or misleading information as part of the Confidentiality Deed entered into as part of the initial steps of the transaction. Relevantly, the Confidentiality Deed included a provision which provided that Cargill “released” the Viterra parties (including Viterra’s parent company, Glencore International AG) from all liability in relation to the provision of any misleading information (the Exclusion)

In 2022 the Supreme Court of Victoria found that Viterra’s conduct was misleading and caused Cargill loss. The primary judge found that the Exclusion was not enforceable against Cargill as a matter of “public policy”. 

What does “public policy” mean and why does it matter?

There is a clear line of legal cases confirming a court’s ability to invalidate provisions in a contract if the contract is found to be against public policy. This is separate from whether legislation expressly or impliedly prohibits particular conduct or a contractual term, but instead is about whether excluding the operation of legislation (such as the ACL) would undermine what the legislation aims to achieve. Practically speaking, if the law does not expressly or impliedly prohibit the operation of a contract, it may still be unenforceable on the basis of public policy.

Public policy in this context means the principles adopted by the community as whole which govern how the community conducts itself, including how it conducts its commercial affairs. A court can look at a range of factors when determining whether contractual provisions are against public policy. 

What did the Court of Appeal decide?

On appeal, Viterra argued that  the primary judge was incorrect in finding that the Exclusion was unenforceable and that it was free to prospectively release itself from liability for misleading and deceptive conduct and deceit. The Court of Appeal considered whether the Exclusion was unenforceable to the extent it may be ‘associated with or in furtherance of an illegal purpose’, which included a look at whether the Exclusion is contrary to the policy and purpose of the ACL.

The Court of Appeal acknowledged that the ACL has a regulatory and protective purpose which is to ‘enhance the welfare of Australians through the promotion of competition and provision of consumer protection’. It was considered that a right to seek a remedy under the ACL is part of the range of mechanisms which protect the public interest and that the efficacy of the ACL would be undermined by excluding that right. In effect, the court determined that the ability to seek damages for misleading and deceptive conduct and deceit under the relevant section of the ACL serves a greater public purpose and indirectly benefits the community at large.
 
Accordingly, the Exclusion was held to have contradicted the principles of public policy underlying the ACL and would therefore be unenforceable.  Viterra has filed a special leave application with the High Court of Australia arguing against this finding and this issue may therefore be revisited.

Reducing the risk of misleading and deceptive conduct claims

The Cargill Case has demonstrated how misleading and deceptive conduct and fraud issues can unfold in the context of a substantial business acquisition. It is also an important reminder that the ACL applies beyond consumer-facing transactions. The decision confirms that public interest considerations may trump the right to strike a private bargain in certain circumstances. However, it should be noted that public policy is not a fixed concept and is influenced by changing social conditions.

Businesses making representations and disclosures to another party in their dealings should consider the following ways of mitigating the risk of claims for misleading and deceptive conduct:

• If your business is making a representation, ensure that the reasoning behind making the representation is made clear to the other party - it should be easily established the grounds on which a representation is being made.
• If there are any doubts as to the accuracy of a party’s representation, a specialist should be engaged to consider the representation and verify its accuracy.
• In the context of an important commercial transaction, ensure comprehensive commercial and legal due diligence is conducted. For a discloser, context should also be given to information disclosed.

Advice should always be sought when drafting releases to ensure that they operate as intended and do not carry the risk of being invalidated as a result of public policy. 

More information from Maddocks

For more information, contact Maddocks on (03) 9288 3555 and ask to speak to a member of the Commercial Practice Group.

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