(Small Business And Unfair Contract Terms) Bill 2015 (UCT Bill) Referred To Senate Inquiry

On 13 August 2015 the UCT Bill was referred to the Senate Economics Legislation Committee (the Committee) for inquiry and report by 14 September 2015. Readers will recall that AADA previously responded with written comments on 1 August 2014 and 12 May 2015 to the Treasury consultation paper and exposure draft legislation. AADA has also accepted the Committee’s invitation to lodge a further submission by 28 August 2015.

The Bill extends the unfair contract term protections currently available to consumers to cover businesses with less than 20 employees agreeing to standard form contracts valued at less than a prescribed threshold. The explanatory memorandum  explains that a contract is a small business contract if, at the time it is entered into, at least one party to the contract is a business that employs fewer than 20 persons, and the upfront price under the contract does not exceed either $100,000, or $250,000 if its duration is more than 12 months.

AADA agrees with the policy objective to provide a level playing field for small medium businesses (SMEs) when interacting with other businesses through standard form contracts. AADA again noted there was very little discussion in the consultation paper about the application of the unfair contract terms protections to franchise agreements given that there are around 73,000 franchising units in Australia and the general reluctance of a franchisee to address unfair contract terms and unjust conduct for fear of reprisal, non-renewal of contract and access to justice being too slow, too expensive and too adversarial. A motor vehicle dealership agreement is a franchise agreement.

While we understand that the proposed legislation can apply to franchise agreements, and it is interesting to note the Franchising Council of Australia, for reasons of its own, finds it “very hard to justify the inclusion of franchise agreements in the unfair contracts regime”. The Business Council of Australia is of the view that the definition of small business “should be limited to businesses that are vulnerable or in a comparable position to consumers”.

On the other hand the Council of Small Business Australia (COSBOA) states “our area of greatest concern is around the threshold for the initiatives of the legislation to take effect. We consider these thresholds to be too low as it will not pick up some of the worst contracts imposed upon small business from big businesses including leases, newsagent contracts and franchises.” Moreover, the COSBOA in its submission to the Senate Inquiry stated:

“The argument put forward by some big business representatives is that the small business person must do their own due diligence and seek legal advice. This opinion fails when a person’s financial health is dependent upon their business; when a large company provides a “take or leave it” contract the reality is that the small business person has to make a decision to either walk away from their business and face a very uncertain future or try and work through what is often an impossible business situation”.

MTA Queensland in its submission noted “It appears inconsistent that standard form contracts involving final demand and personal use goods and services that contain unfair terms can be challenged yet those that involve SMEs in business to business transactions with similar contract clauses are in fact quasi-consumers are excluded from similar recourse. The Bill addresses this inconsistency and the unequal bargaining power providing a regime of fairness to a sector that may not afford justice remedies.”

AADA’s submission to the Senate Inquiry proposed that UCT protections could be enhanced for business generally by extending the provisions to include contracts between franchisors and franchisees regardless of the proposed definition of a small business contract. AADA also drew attention to the myriad definitions of SMEs based on different thresholds giving rise to inconsistency and complexity in Commonwealth, State and Territory statutes.

In this context AADA made reference to the Motor Vehicle Dealers and Repairers Act 2013 (NSW) which regulates the relationship between NSW motor vehicle Dealers and motor vehicle manufacturers concerning unfair contracts and unjust conduct. This act applies to a motor vehicle dealership agreement without reference to any threshold tests. It embodies the concept of relative size in business to business transactions and AADA submitted the UCT Bill should extend those protections to franchise agreements generally.

AADA awaits the outcome of the Senate Inquiry.

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