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21 October 2020

Ombudsman applauds ACCC approach to tackle unfair contract terms

The Australian Small Business and Family Enterprise Ombudsman Kate Carnell has thrown her support behind ACCC Chairman Rod Sims’ tough stance on Unfair Contract Terms.

The Ombudsman welcomed Mr Sim’s National Press Club Address, calling on the Federal Government to make Unfair Contract Terms between big and small businesses illegal and subject to harsh penalties.

“It’s hard to believe that in 2020 it is still not illegal for a big business to impose unfair contract terms on a small business,” Ms Carnell says.

“Small businesses have been waiting for changes to level the playing field for too long.

“In November 2016, Treasury legislation amendment (Small Business and Unfair Contract Terms) Act 2015 took effect, that legislation was reviewed in 2018 and here we are, another two years on and small businesses continue to be adversely impacted by big businesses with legal impunity. It’s clear that change is long overdue.   

 “I wholeheartedly agree with Mr Sims’ statement that if we want unfair contract terms to stop hurting Australian small businesses, they need to be illegal and the penalties should be large enough to act as an effective deterrent.

“My office has been advocating for unfair contract terms legislation to be strengthened for a considerable time now - most recently in our COVID-19 Recovery Plan and our comprehensive submission to Treasury’s Review of Unfair Contract Term Protections for Small Business, in March this year.”

To date, ASBFEO has recommended:

  • Unfair Contract Terms be made illegal
  • Significant penalties and infringement notices to apply to breaches
  • Enforcement capabilities of regulators enhanced to determine if terms are unfair
  • Legislation extended to cover all contracts valued up to $5 million
  • Definition of a small business be changed to those with less than $10 million turnover

“Currently where a standard form contract contains an unfair contract term, the only way for a small business to take action is through the court system. And even if the term is proven to be unfair, there is no penalty to the big business,” Ms Carnell says.

“Phase I of our Access to Justice Inquiry found small businesses are unlikely to take action when faced with an unfair contract term in their standard form contract.

“Understandably, they are reluctant to damage commercial relationships, and lack the resources and time to pursue litigation.

“By making unfair contract terms illegal, the Australian Competition and Consumer Commission (ACCC) would be able to penalise big businesses.

“The sooner Unfair Contract Terms between big businesses and small businesses is made both illegal and subject to big stick penalties, the better.”