Bernie Ripoll (Oxley, Australian Labor Party, Shadow Minister Assisting the Leader for Small Business) Share this | Hansard source

Labor does support the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015. That said, there are some issues that stakeholders have raised with the opposition, and I am sure also with the government, regarding the bill. I want to take this opportunity to highlight those issues to the government, in addition to the concerns the opposition has. No doubt the minister will be aware of these concerns, as many of them were raised during the consultation period and again following the exposure draft.

This bill amends the Australian Securities and Investments Commission Act 2001 and the Australian Consumer Law, which is set out in the Competition and Consumer Act 2010, to extend the unfair contract term protections currently available to consumers to cover businesses with fewer than 20 employees agreeing to standard form contracts valued at less than a prescribed threshold. The bill does this by amending the Australian Consumer Law, which is in schedule 2 of the Competition and Consumer Act 2010, and the Australian Securities and Investments Commission Act 2001 to cover standard form contracts that are valued below a prescribed threshold.

The prescribed threshold applies when one party to the contract is a small business with fewer than 20 employees—that is done by a headcount approach applied when defining what a small business is—and the up-front price under the contract does not exceed $100,000, or $250,000 if its duration is more than 12 months. The up-front price is defined in section 12BI(2) of the ASIC Act. It must be disclosed at or before the time that the contract is entered into. Part 2 of the ASIC Act contains provisions that protect consumers from unfair contract terms. This chapter extends these provisions to also cover small business contracts. The existing concepts of 'unfair' and 'standard form contract' can be found in sections 12GB and 12BK of the ASIC Act. The ASIC Act and the ACL currently contain minor consumer unfair contract term protections. The ASIC Act's requirements apply to financial services and products, and the ACL applies to the supply of goods and services other than financial services or products and the sale or grant of an interest in land.

The government has indicated the Australian Competition and Consumer Commission were provided with $1.4 million in the 2014-15 budget to support the implementation of this bill. However, what is of concern to many stakeholders is the government's own estimates of the additional compliance costs that will be carried by business. The government's own explanatory memorandum states:

Persons who offer contracts to small businesses may incur a once-off transitional cost (including seeking legal expertise) to implement any system changes and ensure contract terms comply with the unfair contract terms law. This cost is estimated to be $50 million in the first year …

There are many in the business community who rightly feel this estimate is on the conservative side and claim this will add many millions of dollars in red tape compliance costs for business. The explanatory memorandum also notes:

Businesses that offer low-value standard form contracts to small businesses may need to review and amend their contracts to ensure they are compliant with the new protections.

I have received many representations from the business community, who have noted their strong concerns about these costs, along with other substantive issues, which I will note in my contribution this morning. There is no doubt that much of the small business sector in Australia sees this bill as being the answer to many of their problems, or issues they deem to be problems. For some time now, small business representative groups and stakeholders have lobbied governments on both sides of politics to have unfair contract terms currently available to consumers extended to small business.

I have heard many stories, told in many ways, from small businesses and small business groups that small businesses, like consumers, are offered contracts on a 'take it or leave it' basis and often lack the resources to understand or negotiate contract terms. This can result in a risk to the parties, mostly the small business party, who are often less able to manage these risks. As we all know, the costs of obtaining legal advice, particularly for low-value contracts, are often prohibitive and sometimes disproportionate to the potential benefits. These views are strongly held and have been imparted to me by various characters from peak representative groups in many different ways. This is what our democracy allows for, and that is a good thing. I get that, and I understand that this issue is very real for many small business people.

Equally, and as importantly, when a change of this nature and significance is being considered, there will undoubtedly be those who have an opposite view—that the consequences of such a change will have an equally negative impact on their business. I am very conscious that there are many concerns within the business community over what some see as the far-reaching impacts of applying unfair contract protections to standard form contracts between business-to-business interactions. Many have expressed the view that, while the laws would provide some protections to small businesses, extending them would also expose small businesses to claims from other small businesses regarding unfair terms.

I think it is also important here to note that, in the government's consultation regulatory impact statement, RIS, which was issued by Consumer Affairs Australia and New Zealand, the Office of Best Practice Regulation observed that the RIS acknowledges (1) there is limited empirical evidence about the scope of the problem being experienced by small business; and (2) the benefits and cost of the options are difficult to measure. Yet it is clear from the commitment made by the minister before the last federal election, and again in the government's options paper, that the minister was intent on bringing in legislation that would extend the UCT provisions to standard form contracts involving small business. The government's own consultation paper even notes option 3, the legislative option, as the preferred option, with option 1, the status quo, and option 2, a light touch or non-regulatory response, which was already ruled out.

I can inform those opposite—that is, the government—that it was not only the Labor Party that noted the government was then seeking evidence that such an extension was justified. The problems are that some stakeholders see this bill as having the potential to seriously damage business confidence and certainty. It is for this reason that I am highlighting these concerns here today. It is often said that without proper and rigorous analysis we end up with laws that are not fit for purpose. On this side of the House, we seek to prevent that where possible.

By way of general comment, I would like the minister to take seriously the feedback from stakeholders. Labor is aware there remain serious concerns in some quarters about the inclusion of retail leases in the bill, and there have been concerns expressed to the opposition by those from the finance and banking sectors, from the automotive industry and even from the franchise sector. The minister is on the record many times about Australia being well down the rankings for government regulatory burdens placed on business and industry, yet here in this bill it seems the government is adding another layer of compliance, regulation and burden. It is not Labor's position one way or the other to support or oppose the views of stakeholders, but it is proper for me to bring forward these concerns here, particularly so as to prevent adverse outcomes for all parties once the legislation becomes law. As I said earlier, Labor will support the bill but, at the same time, we want to ensure the legislation does not end up creating a situation where both parties to an agreement lose out because of what may in the end be well-intentioned but ill-conceived legislation. This is why Labor is flagging these concerns, in the hope that the Senate economics legislation and references committees closely scrutinise these matters when reviewing the bill.

It is also important to recognise that it was a Labor government that introduced a national law to regulate unfair terms in contracts between individual consumers and businesses in 2010, as part of the reforms underpinning the Australian Consumer Law. The Australian Consumer Law regulates unfair contract terms. It provides that a term of a standard form consumer contract is void if the term is unfair. A term is unfair if: (1) it would cause a significant imbalance in the parties' rights and obligations arising under the contract; and (2) it is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and (3) it would cause detriment, whether financial or otherwise, to a party if it were to be applied or relied on. These reforms commenced on 1 January 2011, and are set out as a schedule to the Competition and Consumer Act 2010. It is worth noting that the unfair contract provisions for consumers have only been in place since 2010, so any view on their effectiveness in such a short time is not yet available. Indeed the Minister only announced a review of the Australian Consumer Law last month; nevertheless, we will observe any findings from the review closely. I will also note that, at the time of the changes to the ACL back in 2010, Treasury flagged that the extension of the unfair contract terms to business-to-business contracts could result in increased costs to businesses. The bill confirms Treasury's concerns.

In terms of the current laws, the status quo means a small business has no legal protection if a term in a standard form contract is unfair, unless there is some other factor, such as unconscionable conduct or misleading or deceptive conduct occurring in the context of the contract. In lay terms, small businesses do not have recourse to the protections set out in the Australian Consumer Law which render void unfair terms in standard form contracts entered into by individual consumers. Labor is aware there is support for the bill from key small business stakeholders and interest groups. It is for this reason Labor will support the bill. However, it is prudent to highlight in this place the concerns of all the stakeholders, and some very significant ones at that.

Labor is also of the view, given the significance of the change and the impact this legislation will have, that the government should commit to a two-year-post-implementation review of the legislation to measure its effectiveness for all businesses. This is consistent with good practice and with the government's recent announcement to review the Australian Consumer Law. A two-year-post-implementation review acknowledges the concerns raised by some stakeholders, regarding the high costs of compliance and the red-tape burden imposed by the bill, whilst providing support for the majority of small business stakeholders in favour of the bill. It is well known the coalition went to the last election committing to extend unfair contract protections to small business, but it is equally important for the coalition, now they are in government, to hear and act on the concerns of all stakeholders when serious issues are raised in relation to small business. Labor supports the bill.

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