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17 December 2019

Ombudsman backs unfair contract term protections for small business

The Australian Small Business and Family Enterprise Ombudsman Kate Carnell has welcomed the opportunity to advocate for stronger unfair contract term protections for small businesses, as the federal government begins its next phase of consultation.

“The government has now released its regulatory impact statement, which broadly reflects the recommendations made by my office throughout this process,” Ms Carnell says.

“We look forward to continuing to champion improved protections for small business as part of this consultation process, but it’s been a long time coming.

“While we support this thorough process, the time for meaningful change can’t come soon enough.

“Small businesses have waited long enough, so we’d encourage the government to make this a priority.

“There’s certainly room for significant improvements to the current unfair contract term legislation to help level the playing field.

“While my office is able to resolve many contract disputes by using the unfair contract term provisions as a lever, on occasions when these negotiations fail, a small business is forced to seek a ruling through the courts.

“This can be very costly for small businesses and when a larger company has more resources to delay proceedings, this can lead to small businesses giving up or going out of business.

“That’s why it is our position that regulators should be given enhanced enforcement capabilities to determine and deal with unfair contract term cases.

“Unfair contract terms should be made illegal and penalties should apply to breaches.

“The legislation should be extended to cover contracts up to $5 million, as the most common standard form contract for a small business is with its financial services provider. This has also been supported by the Australian Financial Complaints Authority (AFCA) which has raised the cap for complaints it can consider to $5 million.

“Removing the current exemption for insurance contracts from the unfair contract term regime as recommended by Commissioner Hayne, also makes logical sense.

“My office will vigorously advocate for a change in how small businesses can challenge unfair contract terms outside the court system in our comprehensive submission to the consultation process.”