Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015

I too rise to give support to the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 and credit to the government for bringing it forward. It helps conclude a process that has lasted almost a decade now. 

The then Treasurer Peter Costello sent an inquiry to the Productivity Commission in 2006 to look at Australia's consumer law and that inquiry came back with a recommendation to establish unfair contract terms. By the time that inquiry was considered by the government, there was a new Labor government and some of the recommendations were included in changes made to the then Trade Practices Act in 2010—and the Trade Practices Act became the Competition and Consumer Act at that time. But there was one crucial aspect that was missed when the then Labor government moved our consumer law from the Trade Practices Act to the Competition and Consumer Act and introduced unfair contract terms: the unfair contract terms of that time did not apply to small businesses.

My view is that for many small businesses in their dealing with larger businesses they are not dissimilar to consumers in their ability to negotiate and their ability to get across the detail and understand it. Small businesses are very much like consumers when they have to go and negotiate with a larger business and therefore deserve protections similar to those which exist for consumers. That is reflected in our existing competition law, at least as it existed before this review occurred.

We have unconscionable conduct provisions in our current competition law which apply to consumers and small businesses alike. Indeed, these unconscionable conduct provisions have been used by the ACCC recently to take action against Coles in particular due to some of its unconscionable practices vis-a-vis small businesses. Those who argue that unfair contract terms should not apply to small businesses—and the Labor Party did argue that when they introduced these changes a few years ago—have to ask: why do we have a situation where unconscionable conduct laws apply to small businesses? If they did not apply to small businesses, the ACCC would not have been able to take action against Coles last year in the Federal Court and we would not have had the outcome where finally I think we are getting a bit of a response, with some of the supermarkets changing some of their practices, which have clearly been inappropriate and have now been found to be unconscionable under our competition laws.

This piece of legislation finishes a process that has been a decade long and extends unfair contract terms to consumers. I would like to take a little while to explain why we should have unfair contract terms at all, including for consumers. There are a few reasons why we need to update our laws to include unfair contract terms. The first is that products and services in our economy have become increasingly complex. The average consumer now will probably sign up to hundreds of pages of legal contracts and legalese in their daily life each year—a case that probably did not exist decades ago. Anybody who uses the internet or a computer will often be subject to having to agree to large legal contracts, usually relating to end user licence agreements. Anyone who buys a mobile phone likewise will have large contracts that are complex and full of detail that average consumers and indeed small businesses may find it difficult to get across.

Most of us, of course—and I put myself in this bucket—sign these things without reading perhaps a word and certainly without reading the entire contract.

 

So it is easy for a larger business with teams of lawyers to potentially slip things through which are clearly unfair and which a reasonable consumer would not sign up for if they had the time and the wherewithal to be able to get across these things. That is the principal reason.

The other reason, though, is simply to reflect that there is an imbalance in negotiating positions and power between larger and smaller entities, and that gives rise to the possibility that that relationship can be abused to implement unfair arrangements. That can be ultimately counterproductive to the wider creation of those relationships and to market exchange, because we want to encourage people to come into those arrangements with confidence that they will be protected against unfair practices and protected against those unfair practices without having to be on their watch all the time or having to go to lawyers or bankers or other people or other agents to help them deal with every little mundane purchase in modern life. Having a law that provides this protection will allow consumers to have more confidence in the transactions that they enter into. After this law passes, small businesses as well will have the confidence to enter into contracts without being subject to abuse.

The other reason these laws should be expanded is that legal action in Australia has become increasingly costly. I support the comments that Senator Xenophon made just before me that access to justice is a real issue in regard to competition law as it stands at the moment. But it does not just relate to section 46 or other provisions of the Competition and Consumer Act; it also relates to the unconscionable conduct provisions as well. There are great similarities between unfair contract terms and unconscionable conduct. Many things that would be unfair would be unconscionable as well. 'Unconscionable' generally is taken to mean 'taking advantage of a relationship in an unreasonable way', and many of the terms of this bill go towards whether or not a larger business has used its power to impose obligations on contractors that would be unreasonable or perhaps unconscionable.

That gives rise to the question: why do we need this law in addition to the unconscionable conduct provisions we already have? That primarily goes to the fact that it has become extremely costly to proceed with an unconscionable conduct case. Indeed, it is extremely rare that a small business or consumer would actually do so. We have had the ACCC—and I give credit to Mr Rod Sims as the chair of the ACCC—be a little more assertive in taking those cases to the Federal Court or to litigation, and I believe that that has had some beneficial impact on the use of unconscionable conduct. But it is still the case that, as it now stands, primarily there is a need for the ACCC to be involved in taking any kind of action on an unconscionable matter. They did do that last year in regard to Coles where there was conduct that was clearly in breach of any proper standard of conduct. But it is a costly process and it is one that they cannot replicate over and over. So I believe we need these laws because unfair contract term laws are more definitive and less subject to detailed litigation debate. Therefore, they are likely to be implemented and acted upon by regulators and private individuals alike at a much cheaper cost and hopefully will develop into a much more detailed law.

I will just spend a little time explaining why the issues around unconscionable and unfair conduct remain very live in the context of the case last year against Coles. It is often put that if a business is acting in a way that is unfair or, indeed, unconscionable then the particular customer or business partner should leave that relationship and go and choose a different path. The problem with that analysis is that it does not take account of the fact that small businesses and consumers often have little choice in contracting with larger businesses. Those power relationships were played out very clearly last year in that Federal Court case in regard to Coles, because in that case it was revealed that the ACCC used its investigatory and subpoenaing powers to obtain internal documents from Coles that revealed conduct that I think every Australian would find contemptible.

Unfortunately, senior managers at Coles appeared to be engaged in a common practice of demanding extra contractual payments from their suppliers to meet certain internal revenue targets. For example, there was a case involving a household goods supplier who was emailed a request from their Coles buyer saying: 'You need to pay us'—I think it was a sum of just over $200,000—'by the end of the week or we may not have a relationship next year.' That is very sharp commercial practice. I would also suggest that it is actually quite unconscionable to demand from a business partner a payment that is completely outside of the contract, that does not rely on any particular breach of the contract by the supplier but is simply a use—and I would say abuse—of the particular power that a large business has over a smaller one.

I give credit to the ACCC in that they were able to take a case of that kind and bring that conduct to light. The fact that it has been brought to light—and it was brought to light only because the ACCC could use its powers to subpoena documents from Coles—does indicate to me that there is, I am sure, other behaviour that goes unreported and unnoticed that similarly would be unconscionable or unfair, and we should have laws in place that allow private individuals and actors to help bring a spotlight to that particular conduct and make sure it is not a common practice in our marketplace, because it will undermine confidence across a broader business and consumer sector if it is. That is what this law will help to achieve.

By expanding the law to small businesses I hope that we can create the conditions where the law will be used more. While unfair contract terms only apply to consumers there are limits on how much court action and how many claims will be made under this piece of legislation, because consumers generally only have smaller transactions and only have at risk smaller amounts of money in any particular dealings they have with larger businesses.

So if there is some type of unfair conduct—and I myself have sometimes felt that some of the contracts I have had with mobile phone companies and others have not gone exactly the way they should have and maybe are unfair—I personally would not have the incentive to take action on those things. I would generally just walk away, put it down to experience and the school of hard knocks and move on with my life. It is just not worth the hassle for me to take it up. But if everybody is like that there is no discipline in the marketplace against such conduct. That is why expanding this law to include small business contracts will hopefully provide that opportunity to a different group of participants in the marketplace—a group that have greater incentive to use this law and to take action if there are any issues, because obviously small businesses will sign contracts that are generally larger than consumers do, notwithstanding the fact that they often find themselves in the same powerless position as consumers.

That gives rise to the question of what we should define as a small business and how we should quarantine this only to those participants in the marketplace that find themselves in that position. I might be wrong on this, but I am told that there are something like 19 different definitions of a small business in Commonwealth legislation. I realise that that is perhaps not ideal, but sometimes life is messy. Sometimes you have to define the parameters of small business in accordance with what you are trying to achieve in this law. So I can understand why, in this law, the government chose the 20-employee limit, which is a common definition as it stands, and also used a contractual value amount to limit its scope to contracts that are under a certain amount. Of course, once you make any definition and draw any boundaries there are potentially exceptions beyond those boundaries that look anomalous.

I note that Senator Xenophon earlier raised issues around participants in the banking sector who may be very small companies but, nonetheless, deal with very large and sophisticated contracts. I would make two points on that. Firstly, this legislation only applies to what are known as standard form contracts. If those businesses are entering into complex contracts they are unlikely to be standard form, but I do not discount that there may be the odd occasion where standard form contracts continue to prevail. The other point I would make is that I have been a member of the Senate Economics Legislation Committee, which reviewed this particular piece of legislation, and that committee has recommended that a review process be conducted by the government after three years to ensure that issues like those that Senator Xenophon raised can be dealt with and looked at to see if these definitions are working effectively.

The second issue is around the definition of the threshold value in contracts, which has been set at $100,000 for an annual contract and, I believe, $250,000 for a contract that is longer than 12 months. The committee received a substantial number of submissions about those levels. Clearly those levels would restrict a number of small businesses from using this law, and I share some of the concerns that that will unduly limit access to these protections by businesses that are otherwise small but sign contracts above and beyond those particular threshold levels. Nonetheless, I understand that the government has had to come to some decision on this amount and has had to negotiate this amount with the various state and territory governments around Australia, given that it is an amendment to competition laws, which are harmonised and are subject to a COAG process. In my view those thresholds too should be part of that review after three years to see if they have unduly restricted access to this improvement in our law and, in particular, whether they have unduly restricted the ability of small businesses to take action in the courts. As I said earlier, one of the great advantages of this bill is that we will expand access to the law to a group of entities that can have the incentive and at times the resources to take legal action. But if these thresholds have mitigated those potential benefits they need, and deserve, to be looked at again.

I again commend the government for pushing this forward. With the limited time available I would also like to comment briefly, as Senator Xenophon did, on the effects test and other aspects of our competition law, because these issues are all interconnected. As I said, we partly need this bill because our unconscionable conduct laws are costly and hard to navigate. We also have in section 46 an issues of market power provision which, as I have said publicly, is not working and is certainly not used much any more, or at least has not been used successfully for more than a decade. That needs finetuning as well. We have some recommendations from the Harper review in regard to that. I broadly support those recommendations and would hope to see that something is done to provide not just greater access for small businesses to unfair contract terms but also greater access under the generic misuse of market power arrangements that exist in our Competition and Consumer Act. I also note that the National Party conference passed a motion on the weekend supporting that position, and I hope that the government does consider these issues as it responds to the Harper review in due course.

Finally, I would like to repeat that we would not have this law, we would not be making these amendments, if it were not for the fact that the coalition government was elected two years ago. It had been the policy of the Labor Party not to expand unfair contract terms to small businesses. They made arguments about that when we proposed putting unfair contract terms into our competition laws, saying that businesses do not need these protections, that it should only be quarantined to consumers. I believe that view is wrong. We should treat many small businesses similarly to consumers in our competition law. They should be protected not only because they can sometimes be the greatest victims of anticompetitive acts but also because they can be the greatest policemen in making sure that no more anticompetitive behaviour occurs than is needed.

I compliment the government, in particular Minister Billson, for bringing this amendment forward and taking it through the various processes you have to go through to get competition laws changed in this country. It will be a substantial improvement in our laws. It will be a greater protection for the millions of small businesses that exist around Australia, and it is another demonstration of how the Liberal and National parties support small business, want to see small businesses thrive and want to make sure that big business is not a protected species in this country but rather that big businesses are always and everywhere threatened by the emergence of new businesses that have better products and can make sure that consumers have diverse range of choice from those products.

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