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13 November 2017

Small business sector welcomes fair contracts law

The Australian small business sector has embraced and welcomed legislation that protects them from unfair contracts.

Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, said a recent survey showed high awareness among small business operators of the unfair contract terms (UCT) legislation, which has now been in force for one year.

The East & Partners SME survey* of 1280 businesses showed 49.6 per cent had relied on the UCT legislation to negotiate fairer terms in the previous six months and the awareness level was 78.2 per cent.

“There is no doubt this protection was badly needed,” Ms Carnell said.

“Protections for consumers were introduced as part of the broader Australian Consumer Law and fully implemented in 2011.

“From 12 November 2016, the unfair contract terms law was extended to cover standard form small business contracts.

“Regulators have been enforcing the law and small businesses have welcomed the protection.”

Ms Carnell said her office had handled more than 20 assistance cases involving unfair contracts.

One example involved a standard form commercial lease.

“With the assistance of my office, the small business was able to negotiate removal of potentially unfair contract terms in the agreement,” Ms Carnell said.

Earlier this year, the Ombudsman worked with ASIC and the big-four banks to ensure small business loan contracts were fair and easier to understand.

“This means that banks can no longer unilaterally vary a contract,” she said.

“They no longer have the power to terminate a loan for an unspecified negative change in the circumstances of the customer.”

Ms Carnell said she was encouraged that most big businesses understood their obligations and had acted to ensure compliance.

“I wrote to Amazon recently to ensure their Australian contracts conform with the legislation and received a positive response. I’ve also written to Ali Baba along similar lines,” she said.

“After a Federal Court ruling against the contracts used by JJ Richards I wrote to other waste management companies and received assurances of their compliance.

“If a court finds that a term in a standard form contract is unfair, the term is void. This means that the term is treated as if it never existed.

“The effect of this legislation has been to level the playing field for small business in dealings with large entities that have much greater financial power.”

Small business operators who believe that contract terms are unfair can contact the Ombudsman’s office for assistance, phone 1300 650 460.


*The question was asked as part of the East & Partners SME Transaction Banking survey, which examines and forecasts demand for transaction banking product lines and service offerings within Australia’s Small to Medium Enterprise (SME) segment (A$1-20 million turnover per annum).


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