Judi Moylan (Pearce, Liberal Party) Share this | Hansard source

When I was interrupted yesterday, I was following the member for Oxley and I commented that last year the committee that the member for Oxley chairs looked into sustainable long-term practices in franchising. He did a very good job of that. It is a pity that that was completed last year and we still do not have a response from government. I think there is an urgent need to do something about the parlous state of franchise agreements in this country. The government is, frankly, dragging its heels. We have a perfect opportunity in the Trade Practices Amendment (Australian Consumer Law) Bill 2009, which we are debating today. I understand that initially the Minister for Competition Policy and Consumer Affairs, Chris Bowen, and federal cabinet had agreed that both consumers and small businesses would be covered by the proposed new unfair contracts terms framework. Of course, this has not happened. Minister Emerson decided to remove small business from the unfair contract proposal. I personally find that very disappointing. From the evidence that was given to the committee which looked into franchise agreements, it is very clear that there is a pressing need to tidy up the arrangements between franchisors and franchisees.

The initial instinct to include small business in this legislation was right, I think. That was certainly supported by Associate Professor Frank Zumbo, from the University of New South Wales. Large corporations can, not just in the franchising sector but in other sectors, have considerable power over small contractors. This can impact on small businesses in terms of retail leases, franchises and supply agreements. When the exposure draft came out, the Productivity Commission supported business-to-business contracts as well as consumer contracts being included in this legislation. They said:

Small businesses have a dual role in consumer policy: as well as being suppliers of goods and services, they are consumers in their own right. Indeed, in their dealings with larger businesses, small businesses can face many of the same issues as individual consumers, particularly relating to unequal bargaining power and the lack of resources to effectively negotiate contracts.

It is certainly clear that by not including business-to-business contracts in this legislation small businesses are the losers.

When this matter went to the Senate, it is true that a variety of views were expressed by senators, but Senator Eggleston, who chaired that Senate committee, observed that Western Australia had voiced its opposition to the minister’s decision to remove business-to-business contracts without consulting with the states, which would appear to suggest that the government may not have engaged in adequate consultations with the states through the Council of Australian Governments process.

I support this bill, but I find that small business has been left out of the equation. There was some talk about the fact that there had not been time to consider the inquiry into franchising and another inquiry that is going on, but I would put it to you, Mr Deputy Speaker, that the inquiry into franchising was finalised around October last year and there has been plenty of time to make sure that those issues that were raised, particularly with regard to franchising, are addressed in this bill in the business-to-business contracts provisions.

In any event, going back to the essence of this bill, as business operations grow, inevitably more businesses are also turning to standard form contracts for time and cost efficiency. Standard form contracts are a powerful business tool which makes doing business simpler for both business and consumers in many instances. However, because they are contracts which are not negotiated between parties and are offered on a take it or leave it basis, there is potential for consumers to be disadvantaged by unfair contractual terms. This concern is exacerbated, as the evidence suggests that for many consumers the thought of reading, let alone comprehending, a contract that has been designed to cover all situations is all too much. Standard form contracts are commonly used in the sale of everyday products from telecommunications and energy to car hire and software sales. Whilst I think Australia has made very good protections for Australian consumers, there are, as the Productivity Commission noted in its 2008 Review of Australia’s consumer policy framework, which I just referred to, definite areas with room for improvement. It says that the protection of consumers from unfair terms in standard form contracts is one such area.

The bill has been a long time coming. There has been extensive debate and many rounds of consultation, albeit short ones. A number of concerns have been addressed, but there are still some troubling aspects that are causing anxiety to the Australian business community. There can be no doubting the significance of these changes, and it is important that we take the time to get them right before they are unleashed onto the business community, with far-reaching consequences. Our shadow minister has, quite rightly, put forward some suggestions as to how this bill might be improved. We definitely need to have consistency, but this does not have to result in complexity.

As we seek to legislate against unfair contractual terms, it is necessary to first consider what is actually meant by ‘unfair’. It is the kind of term that is by its very nature subjective, meaning different things to different people. In the context of this legislation, it refers to contractual terms which cause a significant imbalance between parties’ rights and obligations and where such a term is not reasonably necessary to protect a legitimate business interest. In the current Victorian equivalent there is no reference to the protection of legitimate business interests and the focus is instead on whether the term is contrary to good faith. Where a term is deemed to be unfair, it will be rendered void and the contract will continue to bind the parties as though the disputed term never existed, although in some cases where an essential term is found to be unfair the contract will no longer be operative.

It is important to consider at this point that the court is compelled to consider both the rights and obligations of the parties to a contract. In isolation, a term may seem unfair but the contract may also provide the consumer with considerable rights elsewhere. This has a notable impact where consumers view that a term imposing an additional charge is unfair. However, in many instances such a charge will only arise where a consumer exercises one of their rights under the contract. This matter was considered in the recent case of Jetstar v Free, where the Victorian Supreme Court considered the state legislation and found that the additional charge was related to a customer exercising their right to vary passenger details on an air ticket purchased at a discounted price—no doubt a case that is familiar to you, Mr Deputy Speaker. Consumers and businesses alike must take a holistic approach to interpreting the contract, as this will ultimately determine if the single term is considered unfair.

Where the contract must be considered as a whole, it is utterly inappropriate that, by regulation, a minister is able to prescribe prohibitive terms. The power to create per se prohibited terms is unsuitable and unnecessary. Within the last six years that the Victorian law has been operating this prohibition power has not been used. As I mentioned, it is the contract as a whole and the context in which it operates that will determine if the term is unfair. A term that is unfair in some circumstances, as I said, may not be in others. Allowing a supplier to unilaterally amend service provisions may be more acceptable in some industries than others. The power to prescribe prohibited terms should be removed from the legislation to ensure that the decision as to whether a term is unfair is made in the context of the contract as a whole.

Most businesses are willing to accept these changes but it would seem that one of the greatest fears is that they are going to be exposed to a new wave of disputes. I think that is a very real fear—having to expend considerable time and energy to defend claims that can be instigated by a disgruntled consumer under a low threshold in this legislation. It is not right that businesses have the onus of proof in terms of proving both that the disrupted contract is not a standard-form contract and that the term is reasonably necessary to protect their legitimate business interests. I have always had a bit of concern about turning the onus of proof rule on its head, and it does give me some concern in relation to its application in this bill to small businesses.

In their submission to the Senate inquiry into the legislation, Brambles noted that the unduly low threshold for bringing a claim was likely to result in a significant number of unmeritorious or frivolous claims. We saw this kind of caper—when I first came into this parliament—over unfair dismissals and, on speaking to some authoritative people, there were a number of frivolous, unmeritorious claims that locked small business up in long hours of preparing to defend their position. I think we always have to make sure that we balance off the tensions between the responsibility of small business to consumers and the difficulties they face from frivolous claims. I can understand the rationale for reversing the onus of proof, in that business will have better access to information to defend the claim than a consumer may have to make it. However, such a position exists elsewhere in law and I believe the greatly extended investigative powers of the regulators will be able to override the necessity for these presumptions. We risk doing more harm than good if the presumption remains.

Given the significance of the proposed changes and the number of amendments that have been made—and hopefully will continue to be made—since the draft exposure was first released, businesses will be under a great deal of pressure to make the necessary changes before the proposed starting date of 1 January 2010. David Bell, the Chief Executive Officer of the Australian Bankers’ Association, has said that the start date is simply unworkable because of the extent of the changes that need to be made, all in the context of other far-reaching legislative changes such as the new credit protection package. This change is not necessarily because there is the extensive use of unfair terms, but rather because changes to the computer system, staff training and arduous reviews will need to take place.

Clearly, we would like to be able to protect consumers as soon as it is possible but it is in the best interests of all involved that the transition to this new legislation be smooth and well-informed. A start date of 1 July 2010 will mean that businesses have a reasonable period of time to review their procedures.

This debate also highlights the need for consumers to be aware of the contracts they are signing. We need to encourage businesses to further embrace the trend of using clear, readily understandable language in their contracts. At the moment many consumers do not bother to read their documents, because the language is intimidating and confusing.

Australian contract law is rooted in the history of freedom of contract. While parties may not always be of equal bargaining power, they are free to enter into any contract so long as it is not illegal. For the sake of business efficacy, the contracts that we make need to be upheld. Consumers need to be empowered so they do not enter into contracts they do not understand, and that has undesired consequences. If businesses do not have confidence in the contracts they sign, this risk will be passed onto the consumer. If consumers do not have confidence to read and compare contracts then the market is ultimately impaired.

Consumer protection laws are undoubtedly necessary because of a small number of operators who rely on unfair contract terms but it is equally necessary to educate consumers as to the choices available to them. No doubt, Mr Deputy Speaker, like me, you come across cases fairly regularly within your constituency. I recall one such case recently where a rather elderly person had entered into a financial contract. The legal requirements are that the bank has to get them to sign that they have received both legal advice and financial advice that is independent. That advice was sought. It was a very complex kind of contract. The advice, no doubt, was lengthy and difficult to understand. This person entered into the contract, to later on find that the circumstances had changed and that there was a very severe penalty attached to breaking this contract early.

So there is a great need to educate the consumer, to make sure they understand what they are signing and if they do not understand it to seek independent advice so that the terms of the agreement are absolutely clear and they know, for example, what the penalties might be if they decide to break the terms of that contract early and the various other circumstances that present in contract law. Having been involved in teaching contract law as it relates to property for many years, I know the difficulties and the many complexities of such contracts. It is not easy for people who have even a very good education to find their way through those contracts with ease.

Ahead of us is a far-reaching reform process for a raft of different consumer protection laws, and this is the first step. Businesses and consumers must have confidence that the process will be rolled out with enough time to adjust if the rest of the reform agenda is to be implemented. There seems to be widespread support for the legislative aims behind these changes. There is a strong bipartisan approach to protect consumers from the few businesses that may disadvantage consumers by relying on unfair contract terms. We should recognise that most businesses value repeat business. They want to do the right thing by consumers but, as always, a few spoil it for the whole and that is why we have the job that we have to do in this place—that is, to review the law at regular intervals and alter it accordingly. (Time expired)

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