The Treasury has called for submissions on the topic of unfair contract terms for small businesses – and AADA has responded.
The AADA has recently made a submission to the Treasury on behalf of Australia’s over 1500 new car dealers to fight for fairer contracts for the industry.
The Government’s consultation paper titled, Extending Unfair Contract Term Protections To Small Business, contends that ‘unfair contract terms are being included in standard form contracts involving small businesses.’
These are, according to the official Treasury website, having a negative impact throughout the community.
A standard form contract usually refers to a contract that is offered on a ‘take it or leave it’ basis, with minimal opportunity for negotiation – much like the Dealer Franchise Agreement. Meanwhile, unfair contract terms are defined as conditions that ‘cause a significant imbalance in the parties’ rights and obligations arising under the contract’. They are, according to The Treasury website, ‘not necessary to protect the legitimate interests of the party who would advantage by these terms.’
An example of unfair terms could involve larger businesses having the freedom to change prices without justification or consultation with other parties.
Submissions regarding the consultation paper, which was released on May 23, were open until August 6.
As part of AADA’s submission, the Association welcomed the Govt’s review of unfair contract terms and extending protection to small businesses. The AADA also drew attention to the consultation paper’s limited reference to franchisees as small businesses, despite over 70,000 franchisees operating in Australia.
These franchisees, the AADA contended, are often reluctant to address unfair contract terms in their agreements for fear of ‘reprisal, non-renewal of contract and access to justice being too slow, too expensive and too adversarial.’
As in other Government submissions, AADA also noted the current inconsistencies surrounding the definition of small business.The AADA suggested that the relative size of involved parties should be considered – highlighting that even the largest new car dealers in Australia are ‘small’ compared to the global vehicle manufacturers with which they’re trading.
As such, AADA strongly recommended that the ‘extension of unfair contract terms protections should be applied to all franchisees…[and] all business-to-business standard form contracts.’
The only exception to this is publicly listed companies as per the consultation paper requirements.
Included in its submission, the AADA also adopted the view that unfair contract terms provisions should provide protection to franchisees and other SMEs when they both acquire and supply goods and services.
Though the extension of these provisions will be dependent on the definition of small business that is adopted, AADA argued that these should encompass the contracts between franchisor and franchisee as well. The Association clearly argued that ‘motor vehicle dealers should be accorded the same degree of protection as extended to other SMEs.’
In its demonstration of unfair terms being encountered by members, the AADA highlighted issues like margins being adjusted based on consumer satisfaction scores (with no right of appeal) as well as unachievable objectives being set for Dealers with no consultation.
Other unfair contract terms raised, included Dealers being made to take damaged or late delivered stock (with no right of appeal), ‘cost shifting’ to Dealers when substantial warranty recalls arise and OEMs invoicing stock to Dealers where they have not ordered nor agreed to delivery.
In its final comments, AADA welcomed the opportunity to contribute further to the review and discussions surrounding this topic.
You will be able to follow the outcome of AADA’s submission in future Automotive Dealer issues.