Kim Carr (Victoria, Australian Labor Party, Shadow Minister Assisting the Leader for Science) Share this | Link to this | Hansard source

I would like to speak on the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015. The opposition will be supporting this bill and I must say, while the Senate report has only just in the last few minutes been tabled, it is unusual in that we do not have sufficient time to study the detail of that report. I note that a number of stakeholders have raised with the Senate committee report—and I think that in the few minutes I have had to look at this it is quite apparent that there have been issues of concern raised with the economics committee and the senators directly. It is important to acknowledge those issues, and I note that the opposition has a number of additional comments in this report which reflect the concern that has been expressed in the course of the Senate inquiry.

This bill amends the Australian Securities and Investments Commission Act 2001—the ASIC Act—and the Australian Consumer Law, which is set out in the Competition and Consumer Act 2010. It extends the unfair contract term protections currently available to consumers, so that they also cover businesses with fewer than 20 employees, where these businesses agree to standard form contracts for transactions valued at less than a prescribed threshold. Under this bill, the applicable threshold for contracts is $100,000, or $250,000 if its duration is more than 12 months. Contracts above these thresholds would continue to be treated in the current way. The up-front price for contracts is defined in the ASIC Act. It must be disclosed at or before the time the contract is entered into.

Part 2 of the ASIC Act contains provisions that protect consumers from unfair contract terms. This bill 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 Act and the Australian Consumer Law currently contain minor consumer unfair contract term protections. The ASIC Act applies to financial services and products, while the Australian Consumer Law 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 was provided with $1.4 million in the 2014-15 budget to support the implementation of this bill. However, what concerns many stakeholders is the government's own estimate of the additional compliance costs for business. The government's explanatory memorandum point out that:

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 …

Many businesses have informed senators and informed the Senate inquiry that they feel that this estimate is on the conservative side and they 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.

Labor senators have received many representations from the business community who have noted their strong concerns about these costs, along with other substantive issues. These issues are contained in the additional comments made by Labor senators in the report that has just been tabled. They include the narrow definition of what is a small business; the lack of a comprehensive disclosure regime to encourage small businesses to seek professional and legal advice before entering into a contract with another business; the lack of a reasonable time limit within which a small business can advise if they consider part or all of the contract is 'unfair' to ensure contract certainty; the definition of 'up-front price'; the short time period for businesses to change their contracts before the legislation takes effect; the $100,000 up-front price threshold for a small business contract; the inclusion of retail leases in the bill; and the inclusion of franchised businesses operating under the Franchise Code of Conduct. These are matters that we believe the government has an obligation to take on board.

The Senate Economics Legislation Committee—which I know is extraordinarily overworked—has managed to examine these matters, and there is no doubt that there will be those that will welcome the measures in this bill; however, there needs to be attention paid to the concerns that are being expressed about the detail regarding the implementation of this legislation.

Labor understands 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 some risk for small businesses, which are often less able to access legal and other advice to help them manage risk. In addition, the costs of obtaining legal advice are sometimes disproportionate to the benefits that any legal advice of this type will provide. Peak representative groups have expressed their concerns about this matter in many different ways and in a wide range of fora.

Labor appreciates that this issue is a very real one for people directly affected. Equally, and as importantly, when a change of this nature, a change of this significance, is being considered, there will undoubtedly be those who have opposing views, and the consequences of such a change will have a negative impact on their business. I think their concerns need to be directly addressed.

We are conscious that many in the business community have concerns about what they see as the far-reaching impacts of applying unfair contract protections on business-to-business interactions. They have expressed the view that, while these measures outlined in the bill would have some protections for small business, extending them would also expose other small businesses to claims from other small businesses themselves regarding unfair terms.

It is important to note here, in response to the regulation impact statement that the government has issued for the consultation, that the Office of Best Practice Regulation observed that the regulation impact statement acknowledges, firstly, there is limited empirical evidence about the scope of the problem being experienced by small business and, secondly, the benefits and the costs of options are difficult to measure. It is clear from this that the coalition's commitment prior to the election—and, again, once in government, in its option paper that it was intent on bringing in this legislation—needs to be assessed against their own statements in the Office of Best Practice Regulation.

The Labor Party was not the only one that, at the time that the option paper was released, noted it appeared to be doing little more than seeking evidence to support an extension of an unfair contract term protection to small business through legislation. The result of this approach is that some stakeholders see this bill as having the potential to seriously damage business confidence and business certainty. That is why we are highlighting the concerns today. It is often said that, without proper and rigorous analysis, we can end up with laws that are not, in fact, fit for purpose. On this side of the chamber, we are seeking to prevent that, where possible.

Labor is also aware that there remain serious concerns in some quarters about the inclusion of retail leases in the bill. There have been concerns expressed to the opposition by those from the financing and banking sectors, the automotive industry and even the franchise sector itself. The opposition would like the minister to take seriously the concerns that are being expressed. It is not Labor's position, one way or another, to support or oppose the views of the stakeholders. We are not saying necessarily that the evidence is there to sustain that claim, but there is no doubt the claims are genuinely felt. But it is important for us to acknowledge that these are concerns that call on the government to continue a dialogue with those who are making those criticisms.

As I said at the outset, 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 the way in which the implementation of a well-intentioned but ill-conceived proposition occurs.

It is important to recognise that it was under a Labor government that we introduced a national law to regulate unfair terms in contracts between individual consumers and businesses in 2010—I think it was a process commissioned by Mr Bowen, when he was the minister responsible for small business in 2009. We saw that as an important part of Australian Consumer Law reform. It is also worth noting the unfair contract provisions for consumers have only been in place since 2010, so any view on their effectiveness in such a short time would need to be viewed with some caution. Indeed, the minister only announced the review of the Australian Consumer Law last month. Nevertheless, we will observe any findings of that review and we will study them very closely.

In terms of the current laws, the status quo means that a small business has no legal protections if a term in the standard form contract is unfair, unless there is some other factor such as an unconscionable conduct, or misleading or deceptive conduct, occurring in the context of the contract. For most people, that means a small business does not have recourse to the protections set out in Australian Consumer Law which render unfair terms in standard form contracts void when they are entered into by an individual consumer. The key small business stakeholders and various interest groups strongly back the changes that address this issue, and that is why we are supporting the bill.

However, given the concerns that I have outlined, Labor is of the view that the government should commit to a two-year post-implementation review of the legislation to actually judge its effectiveness for those directly concerned.

This is consistent with good practice and with the government's recently announced review of 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, while providing support for the majority of small business stakeholders who are in favour of the bill. It is well known that 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 will support the bill. I understand there are some amendments being proposed, and we will give serious consideration to those when they are moved.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

The Greens also support the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015. We not only had a policy in 2012-13 going to the election to introduce similar legislation; we actually had legislation drafted back in 2013 to do similar. We have long been a supporter of small business in this country, and giving them as level a playing field as possible in terms of broader competition policy and tax breaks, instant asset write-offs and small business commissioners. Recently we have stood in this chamber and debated the Australian Small Business and Family Enterprise Ombudsman Bill 2015, which was brought forward by the government, which the Greens also supported and we also had similar legislation drawn up while we were in government with Labor in 2013. So we will be supporting this bill.

We will be moving some amendments, which I can go into more detail on when we government in committee. We also agree with the Labor Party that it would be useful to have a review mechanism put in place now so that these bills can potentially be finetuned and the concerns that have been raised—and a number of them are valid concerns—can be quantitatively and qualitatively assessed over the first couple of years of operation of these laws. We would like to see the thresholds extended to include a larger number of small businesses. On our calculations, around 80 per cent of small businesses will be covered by the $100,000 up-front price payable. In recent weeks we have been meeting with stakeholders who would like to see that extended. So one of the amendments we will be moving will be to increase that to $300,000. On our calculations, that would capture about 95 per cent of small businesses under the definition in this bill. When we go in committee, I will raise some issues with the minister about why that definition was used.

We do not believe that that increase would be any problem in terms of any complications with the legislation that is before us, but it would capture a larger number of small businesses in their contract negotiations—if you could even call them negotiations. It has been made very clear in the explanatory memorandum that a number of small businesses in these situations—whether it is lease payments or negotiating the provision of goods and services or the purchase of goods and services—do not classify these things as negotiations. They get 'take it or leave it' contracts. Some of them know that these contracts are unfair but they do not have the resources to appeal them, and if they do not take what they are given they are very easily put out of business. The Australian Newsagents Federation, ANF, made a submission to the Senate Economics Legislation Committee in which they talked about how difficult it is for some of their members when there are only one or two suppliers of the goods and services that they need to conduct their businesses, how the contract terms can unfairly disadvantage them and also about the limited rights of repeal they have in relation to these contract terms.

We believe in small business because small businesses are people. Small businesses are your mums and dads, your cousins and the person down the street. Nearly five million people are employed by small business across this country; nearly two million small businesses are registered. Most of them are operated by one or two people. They are often stalwarts of our local communities, and they are often disadvantaged when compared with big business in terms of their resources and the conditions they operate under. We believe in giving them a fairer go by doing things such as lowering their tax, and the Greens wanted to have tax lowered to 28 per cent. We have seen something similar to that from the government. We want to give them advantages in terms of instant asset write-offs, and we want to strengthen competition powers.

It would be wrong if I were not to mention that at this time we are very disappointed with the federal government, which seems to be dillydallying on an effects test in this country. An effects test is critically important for competition policy. It has long been the Holy Grail for a number of small business groups and for farmers in this country—the ability to at least have a provision that provides a better level playing field. I would not say it is a silver bullet in terms of making the playing field more competitive in this country, but it is better than what we currently have.

I know Minister Billson has been out there advocating for an effects test. It was recommended under the government's own Harper review, albeit a watered-down version of an effects test. We would like to have seen a stronger version of that, like the initial publication in the consultation paper, but it is better than what we have now. At least it will allow in future the potential for these things to be challenged by small business groups if they feel that they are being unfairly disadvantaged or shut out of the market by big business such as the duopoly. Certainly farmers' groups have also been calling for a change to competition policy in this country. While we support what is coming before us today, and it is something that my party has long advocated for, we still urge the government—while they have this opportunity and the Greens in the Senate who will support an effects test provided that the legislation is sound and delivers in line with what we have been discussing—to bring the legislation to the Senate soon so that we can get this passed into law before the next election. We support an effects test, like we support business-to-business contract terms similar to what we have seen in place for consumer-to-business contracts.

On that point, I asked Choice, who I happened to meet with very recently, how things had gone with the consumer-to-business laws that were put in place over the Competition and Consumer Act. They said that these things had gone very well and that the ACCC has been quite successful and robust in its prosecutions of unfair contract terms under the Consumer Law. They felt that the system has worked fairly well. There are some complications. We are comparing apples with oranges here in terms of small business to big business contracts versus consumer-to-business contracts, and we will need to go into some of that detail in committee. It is something, I agree with the Labor Party, that should be reviewed without taking away from the certainty of giving small business better competition policies and better tools to tackle unfair contract terms.

The Bills Digest spells a lot of this out in detail for us, but I would say—and I noticed that Senator Carr did not go so far as to mention this—that we probably should have had at least a day in committee for an inquiry on this. This did not go to an inquiry. While there is a lot of information that has been well set out here by the economics committee, we really probably should have had an inquiry into this.

Sean Edwards (SA, Liberal Party) Share this | Link to this | Hansard source

We did—a couple of hours in Melbourne.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I must have missed that. This probably could have done with a bit more than a couple of hours. I think it is quite important, given some of the potential complications and the concerns that have been raised by, for example, the franchise holders in this country. It would have been good to get a bit more information around that. Nevertheless, I have read all of the information that we have been given. As I mentioned earlier, the Greens have had a longstanding position to extend these unfair contract terms and to legislate to give small business a much stronger, much more level playing field in terms of negotiating these contracts, especially when we are dealing with the situation where a lot of them are, 'take it or leave it'. But we will be proposing a number of amendments in committee and we are glad that the government is standing up for small business.

While this Senate is in place, I would still urge them to bring an effects test before this parliament so we can do something more for farmers in this country who have long suffered under the power of the supermarket duopoly with their market concentration. Of course that is what COSBOA and other small business groups have been advocating for.

Sean Edwards (SA, Liberal Party) Share this | Link to this | Hansard source

I also rise in respect of the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015. I certainly appreciate the comments made by the other senators—Carr and Whish-Wilson—and the important indication that they are largely in support and they have flagged that they might want to make some comment in committee. However, it would appear that this initiative from Minister Billson has received fairly universal acceptance.

Just for the record, there was an inquiry into this bill, which was conducted in Melbourne several weeks ago by the Senate Economics References Committee of which I am deputy chair, and we heard from a number of stakeholders in this space who raised concerns about the various drafts of the bill. Those concerns were discussed with the minister formally and informally, as you would expect in these environments, to a point where we will table a report later on this afternoon, I suspect, to which members will be able to talk, if they would like.

This bill gives effect to an election promise which was made prior to the last election to provide what was termed a 'fair go' to small businesses by extending the unfair contract term protections which already are in place for consumers but not for the small business sector.

In framing this bill, the government has consulted widely. I think there was a 10-week consultation process which was to gather information about the extent of the problem and canvass the views which, as I say, culminated in a Senate references hearing in Melbourne.

The government received 80 submissions, and there were about 300 survey responses. Also included in the consultation were Commonwealth, state and state and territory consumer affairs ministers and they formally agreed to amend the Australian Consumer Law in April. They have been in the loop and that is obviously required under intergovernmental agreement for Australian Consumer Law.

This legislation has been far and wide, and I must say it is world-leading legislation and, from the positive comments from those opposite and on the crossbenches, it would seem quite popular.

In line with the Corporations Agreement of 2002, the Commonwealth has notified the states and territories that these legislative protections would be mirrored in the Australian Securities and Investment Commission Act of 2001. There were certainly no objections raised at that time. Based on those consultations, the public was invited to comment in May. There has been quite a lot of input into the drafting of this bill. I note that Senator Whish-Wilson will be make contribution during the committee stage and I think that is healthy, given everybody's positive sentiment.

Overall, the feedback showed that small businesses across a wide range of industries across this land have concerns about unfair terms and, like those in the consumer protections, they were looking for it.

There are some two million small businesses in Australia, and they are vulnerable to the inclusion of unfair terms in standard form contracts because, just like consumers in rental agreements at the electrical stores and those types of things, they do not often have the time or the expertise—and certainly nobody has lawyers in house at that level of business—to critically analyse a lot of the contracts that are offered to them. For example, it could be a lease on a property or it could be a banking contract. This legislation is about providing those two million businesses out there in Australia with a bit of an umbrella when it comes to the kinds of contracts that you would expect as a normal part of business. The feedback that was received will seriously guide the implementation of this law once it comes into effect, which is set down to be six months from the time of assent.

This legislation will extend the unfair contract terms protections to cover standard form, small business contracts that are valued below a prescribed threshold. It contains amendments to Australian Consumer Law, which will flow on to the Australian Securities Investment Commission Act. This will enable a court to declare void an unfair term. This relates to a unilateral change in price and, if you are dealing with a duopoly in, say, the retail supermarket sector and you are a small business supplying into that sector, it will mean that you have some recourse available to you.

This applies to a contract where at least one party was a business with fewer than 20 employees when it agreed the contact—so fewer than 20 employees when the contract was entered into; not pre-empting the growth of a business—or the contract value does not exceed $100,000 or, if the contract is for more than one year, it does not exceed $250,000. The size of a business will be determined by a head count, and that is a reasonable position to take. The head count measure has been found by the Australian Bureau of Statistics to provide a good proxy for small business and the figure of 20 full-time equivalent employees has served government policy well over time. The size of a business is important, but so too are the threshold limits for day-to-day transactions.

Where advice on a contract's terms may be disproportionately high, the onus is on a small business to undertake due diligence for high-value contracts fundamental to the success of their business. So this legislation does not obfuscate the obligation on small businesses to undertake due diligence on contracts of a higher value. There can be significant differences between high-value contracts and those day-to-day contracts that are thrust before small businesses. It is certainly not the role of our government—and this has been a mantra of this government—to be a nanny to small business. It is reasonable for small businesses and large enterprises to seek advice on larger contracts. It is my experience that responsible small businesses and ones that are somewhat entrepreneurial understand this responsibility.

This bill is an important reform that will have significant positive impact on Australia's two million small businesses. Before I complete my contribution here this morning, I want to outline two concerns that were raised at the hearings by stakeholders and that were taken to the minister. The first issue concerns the lack of a comprehensive disclosure regime to encourage small businesses to seek professional legal advice. This policy was designed to address the take-it or leave-it contracts only. Contracts that involve the need for diligent negotiation were not included because those contracts are not standard-form contracts. So that is quite a reasonable position that the minister has taken.

The second issue which came up was the contention by some of the larger stakeholders, mainly the Australian Bankers' Association, that the period for implementation at six months was too short. But, having discussed that, the transition period for implementation of the new protections does follow the input from the majority of stakeholders. Some parties have argued for a longer transition period and some have argued for a shorter transition period. Those small businesses that would be direct beneficiaries of this have argued for a shorter time frame. The ones which have to make substantial changes have argued for a longer time frame, and that is not unusual. The government considers that the transition period balances these priorities. When you have such world-leading legislation, it is always hard to find a position which will give happiness, peace and order to every stakeholder.

In order to assist businesses to comply, the ACCC will work with businesses and industry groups to identify any kind of problematic terms which come about and they will encourage compliance. This approach was taken for consumer protections and led to most businesses choosing to delete or amend any of the problematic terms. In order to address this the ACCC has been provided with resources. An additional $1.4 million has been provided to support businesses to comply with these extensions of protections. This will obviously include the ACCC releasing guidance material at the start of the six-month transition period. Information will be key to the implementation of this and communication has been resourced. Those small businesses will be set to enjoy the benefits of this legislation in the shortest possible time frame. For the bigger businesses, where it is problematic for them to make the transition in a quick manner—they move a little more slowly—they will also enjoy the support of the ACCC through a transition period.

I am pleased to see this legislation come before the chamber. I am pleased to hear the conciliatory remarks about it and I look forward to the committee session.

Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

I support the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill. At the outset I want to congratulate the work of the Minister for Small Business, Bruce Billson. We do not see eye to eye on all issues, but I think he has brought a lot of energy to that portfolio. He has done a lot of good work for small businesses and I think he has been a very good small business minister. I know in this place you tend not to say anything nice about someone who is not on your side of politics. In fact, sometimes people do not say very nice things about other people on their own side of politics.

Matthew Canavan (Queensland, Liberal National Party) Share this | Link to this | Hansard source

You are exaggerating.

Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

I do not think so, Senator Canavan. I am just making the obvious point that Minister Billson has been doing a lot of very good work and he should be congratulated for the energy and the diligence that he has put into the work that he has been doing. I disagree with him in one respect about the effects test, in terms of section 46 of our competition laws. The proposed changes—which seem to have been sidelined or put on hold or in cryogenic freeze by the coalition party room, or the Liberal Party room in particular—should go further. Having a substantial lessening of competition fettered to the proposed changes would, I think, render that cause largely ineffective.

These changes in terms of small business and unfair contract terms are definitely welcome. The genesis of these changes, the background to this bill, was in May 2009. I will refer to the Senate Economics Committee report. I did not participate in that particular committee report. With Senator Edwards as Chair of the Economics Legislation Committee—and he is deputy chair of the references committee—as usual, the committee did a very good and thorough job of analysing the legislation, more than ably assisted by a very capable secretariat, of course. The committee report says:

In May 2009 then Minister for Consumer Affairs, the Hon Chris Bowen MP—

in the Rudd government—

issued draft legislation to prohibit unfair contract terms. The proposed law, which ultimately became the Australian Consumer Law, covered business to business as well as consumer to business contracts.

I am referring here to paragraph 1.21 of the committee report. It goes on:

In relation to business to business contracts, the then Minister said:

Standard-form contracts are used by parties irrespective of the legal status or nature of the party to whom the contract is presented, and without any effective opportunity for that party to negotiate the term. In such cases, it would be invidious to suggest that the same term, which may be considered unfair in relation to a contract entered into by a natural person, would not be similarly unfair in relation to a business, where neither of them is in a position to negotiate the term.

However, disappointingly, the former government put that to one side, put it in the too-hard basket, for a number of reasons. I do not want to be unduly critical of them but I think they made a mistake by not including the protections for business-to-business contracts, because that is essential. It is not a level playing field when a small business is negotiating with a multibillion dollar corporation. When a business that might have a turnover of a few million dollars a year is negotiating with a big company, if there is a dispute, there is no level playing field.

So these changes are welcome. I do have some reservations in respect of some parts of the bill. I worry that the definition of 'small business' is—

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

Problematic.

Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

It is problematic. Thank you very much, Senator Whish-Wilson. I think that the current thresholds that have been proposed are too low. If you have a truck-driving contract—and I know Senator Sterle, who is in the chamber, could relate to this—with a business and it is over $100,000 a year, then you will not be covered. The Australian Greens have put up some amendments to increase those thresholds significantly, but not in a way that goes against the spirit of it applying to small businesses, so I think those amendments deserve support and need to be looked at. The onus is on the government to indicate what they will do about that, because I think we will emasculate this piece of legislation unless there are higher thresholds.

The second issue, and Senator Edwards referred to it, quite fairly, is the concerns of the Australian Bankers Association in terms of a business which has 20 employees or fewer, where that business might be involved in merchant banking, it might be involved in derivatives, it might have a multibillion dollar a year turnover and it might be a subsidiary of a parent company such as a major bank. I would have thought that a business like that was big enough, given its financial transactions, to look after itself. The Australian Bankers Association has made some reasonable points about the bill applying in these circumstances, but I would like to hear from the government in the committee stage of the bill about those concerns, because I think it could be anomalous if we put our energies into covering businesses such as those, which might have a multibillion dollar a year turnover, and not those genuine small businesses that need the support and the framework of protection in this bill.

The Council of Small Business of Australia in its submission of 27 August 2015 to the Senate Economics Legislation Committee made a very reasonable point, saying:

We agree with the approach of the legislation and understand the need for this ground breaking legislation to perhaps tread carefully in its first flush.

Our area of greatest concern is around the threshold for the initiatives of the legislation to take effect. We consider these thresholds to be too low as it will not pick up some of the worst contracts imposed upon small business from big businesses including leases, newsagent contracts and franchises.

That is picked up in the Greens amendments. If we are going to do this, let us do it properly. Let us deal with all contracts with small businesses, such as for newsagents and in leasing arrangements, where clearly there can be unfair contract terms. I think that is something that needs to be done. I know, Mr Acting Deputy President Bernardi, what a great supporter you are of small business. If you enter into a lease in a Westfield supermarket, it is well over the threshold that this bill is proposing. These are matters that the government needs to address.

The government also needs to address another broader issue, and that is access to justice. If you are involved in a commercial dispute before the courts in this country, even if it is in a lower court—not in the Federal Court or a supreme court of a state, or even if it is in a district court or the magistrate's court—you could be risking many tens of thousands, indeed hundreds of thousands, of dollars in order to try and enforce your rights. There is something fundamentally wrong with our system of access to justice in this country, because there are so many small businesses in particular, with respect to commercial disputes, that are terrified of exercising their rights. Even if they are told by their lawyers that they have a pretty strong case, but it is not 100 per cent, they are scared of running that case because of that 10 per cent risk factor where they could lose the case and lose everything—lose their business, lose their home. We have a legal system in this country; we do not have a justice system.

I would like to ask the government whether it considers that these changes will make it easier and more cost-effective for Australians to access justice in circumstances where they are involved in a commercial dispute, because, clearly, removing unfair contract terms will tip the balance and level the playing field in favour of small businesses, which are a significant driver of jobs growth in the economy. That is why I think we need to look at incentives for small businesses, as well as to ensure that they can compete fairly with big businesses in this country.

The final comment I want to make goes to the issue of a very big business, and that is defence procurement—making submarines and naval ships in this country. The significance of ensuring that we maximise procurement in this country for Australian content cannot be understated in terms of its impact on small businesses.

In South Australia, we have the worst unemployment rates in the nation. We are looking, I am afraid, at double-digit unemployment figures unless there is urgent action in terms of the transformation of our automotive sector, from which we will see the departure of General Motors Holden, Ford and Toyota as car makers in this country by the end of 2017.

I know that Senator Kim Carr, who is in the chamber, has been a passionate supporter of this industry, but we also need to be passionate supporters of having the best transition plan to grow jobs in other sectors of the automotive components sector—the small businesses in the automotive aftermarket industry which Senator Ricky Muir has been a great advocate for, or the motor trades associations around the country, where there are many tens of thousands of jobs in retraining and skills to grow that sector. Cars need to be serviced, preferably by locally trained workers. The Federation of Automotive Products Manufacturers has now merged into the VACC in Victoria, but all their manufacturers—small, medium and large businesses—are desperate for a transition plan to help them do other things in the economy. Of course, we need a transition plan for the existing car makers to ensure that the R&D and the engineers stay in this country so we can still be a driver of innovation.

Defence procurement is important, as we know from the German bid. I understand that something like 2,000 companies could be involved. Local businesses and small businesses could be involved in any local build of a submarine, which is absolutely critical to South Australia. The government needs to say that, because of the unemployment rate, because of the evidence given to the Senate inquiry on shipbuilding to date, taxpayers will unambiguously get better value for money in the medium and longer term by having submarines built, maintained and sustained in Australia. If you build something here, it is cheaper in the longer term to sustain it here as well. But the impact on small businesses in terms of confidence and having a strong economy and strong jobs growth is absolutely critical.

We can have all the best provisions to tackle unfair contract terms in the world but, unless small businesses are thriving, prospering and making goods or providing services in the marketplace, where there is demand for their goods and services, this legislation is somewhat hypothetical. We need to have a strong basis of demand and growth for the small business sector to prosper.

So I look forward to the debate in the committee stage of this bill. I look forward to the government explaining the concerns expressed by COSBOA, dealing with the Greens amendments, which I think have a lot of merit, and also dealing with the concerns of the Australian Bankers' Association, which I think on the face of it seem quite reasonable. So I look forward to the committee stage of this bill. I again commend Minister Bruce Billson for his very hard work in this area.

Matthew Canavan (Queensland, Liberal National Party) Share this | Link to this | Hansard source

I too rise to give support to the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 and credit to the government for bringing it forward. It helps conclude a process that has lasted almost a decade now. The then Treasurer Peter Costello sent an inquiry to the Productivity Commission in 2006 to look at Australia's consumer law and that inquiry came back with a recommendation to establish unfair contract terms. By the time that inquiry was considered by the government, there was a new Labor government and some of the recommendations were included in changes made to the then Trade Practices Act in 2010—and the Trade Practices Act became the Competition and Consumer Act at that time. But there was one crucial aspect that was missed when the then Labor government moved our consumer law from the Trade Practices Act to the Competition and Consumer Act and introduced unfair contract terms: the unfair contract terms of that time did not apply to small businesses.

My view is that for many small businesses in their dealing with larger businesses they are not dissimilar to consumers in their ability to negotiate and their ability to get across the detail and understand it. Small businesses are very much like consumers when they have to go and negotiate with a larger business and therefore deserve protections similar to those which exist for consumers. That is reflected in our existing competition law, at least as it existed before this review occurred.

We have unconscionable conduct provisions in our current competition law which apply to consumers and small businesses alike. Indeed, these unconscionable conduct provisions have been used by the ACCC recently to take action against Coles in particular due to some of its unconscionable practices vis-a-vis small businesses. Those who argue that unfair contract terms should not apply to small businesses—and the Labor Party did argue that when they introduced these changes a few years ago—have to ask: why do we have a situation where unconscionable conduct laws apply to small businesses? If they did not apply to small businesses, the ACCC would not have been able to take action against Coles last year in the Federal Court and we would not have had the outcome where finally I think we are getting a bit of a response, with some of the supermarkets changing some of their practices, which have clearly been inappropriate and have now been found to be unconscionable under our competition laws.

This piece of legislation finishes a process that has been a decade long and extends unfair contract terms to consumers. I would like to take a little while to explain why we should have unfair contract terms at all, including for consumers. There are a few reasons why we need to update our laws to include unfair contract terms. The first is that products and services in our economy have become increasingly complex. The average consumer now will probably sign up to hundreds of pages of legal contracts and legalese in their daily life each year—a case that probably did not exist decades ago. Anybody who uses the internet or a computer will often be subject to having to agree to large legal contracts, usually relating to end user licence agreements. Anyone who buys a mobile phone likewise will have large contracts that are complex and full of detail that average consumers and indeed small businesses may find it difficult to get across.

Most of us, of course—and I put myself in this bucket—sign these things without reading perhaps a word and certainly without reading the entire contract. So it is easy for a larger business with teams of lawyers to potentially slip things through which are clearly unfair and which a reasonable consumer would not sign up for if they had the time and the wherewithal to be able to get across these things. That is the principal reason.

The other reason, though, is simply to reflect that there is an imbalance in negotiating positions and power between larger and smaller entities, and that gives rise to the possibility that that relationship can be abused to implement unfair arrangements. That can be ultimately counterproductive to the wider creation of those relationships and to market exchange, because we want to encourage people to come into those arrangements with confidence that they will be protected against unfair practices and protected against those unfair practices without having to be on their watch all the time or having to go to lawyers or bankers or other people or other agents to help them deal with every little mundane purchase in modern life. Having a law that provides this protection will allow consumers to have more confidence in the transactions that they enter into. After this law passes, small businesses as well will have the confidence to enter into contracts without being subject to abuse.

The other reason these laws should be expanded is that legal action in Australia has become increasingly costly. I support the comments that Senator Xenophon made just before me that access to justice is a real issue in regard to competition law as it stands at the moment. But it does not just relate to section 46 or other provisions of the Competition and Consumer Act; it also relates to the unconscionable conduct provisions as well. There are great similarities between unfair contract terms and unconscionable conduct. Many things that would be unfair would be unconscionable as well. 'Unconscionable' generally is taken to mean 'taking advantage of a relationship in an unreasonable way', and many of the terms of this bill go towards whether or not a larger business has used its power to impose obligations on contractors that would be unreasonable or perhaps unconscionable.

That gives rise to the question: why do we need this law in addition to the unconscionable conduct provisions we already have? That primarily goes to the fact that it has become extremely costly to proceed with an unconscionable conduct case. Indeed, it is extremely rare that a small business or consumer would actually do so. We have had the ACCC—and I give credit to Mr Rod Sims as the chair of the ACCC—be a little more assertive in taking those cases to the Federal Court or to litigation, and I believe that that has had some beneficial impact on the use of unconscionable conduct. But it is still the case that, as it now stands, primarily there is a need for the ACCC to be involved in taking any kind of action on an unconscionable matter. They did do that last year in regard to Coles where there was conduct that was clearly in breach of any proper standard of conduct. But it is a costly process and it is one that they cannot replicate over and over. So I believe we need these laws because unfair contract term laws are more definitive and less subject to detailed litigation debate. Therefore, they are likely to be implemented and acted upon by regulators and private individuals alike at a much cheaper cost and hopefully will develop into a much more detailed law.

I will just spend a little time explaining why the issues around unconscionable and unfair conduct remain very live in the context of the case last year against Coles. It is often put that if a business is acting in a way that is unfair or, indeed, unconscionable then the particular customer or business partner should leave that relationship and go and choose a different path. The problem with that analysis is that it does not take account of the fact that small businesses and consumers often have little choice in contracting with larger businesses. Those power relationships were played out very clearly last year in that Federal Court case in regard to Coles, because in that case it was revealed that the ACCC used its investigatory and subpoenaing powers to obtain internal documents from Coles that revealed conduct that I think every Australian would find contemptible.

Unfortunately, senior managers at Coles appeared to be engaged in a common practice of demanding extra contractual payments from their suppliers to meet certain internal revenue targets. For example, there was a case involving a household goods supplier who was emailed a request from their Coles buyer saying: 'You need to pay us'—I think it was a sum of just over $200,000—'by the end of the week or we may not have a relationship next year.' That is very sharp commercial practice. I would also suggest that it is actually quite unconscionable to demand from a business partner a payment that is completely outside of the contract, that does not rely on any particular breach of the contract by the supplier but is simply a use—and I would say abuse—of the particular power that a large business has over a smaller one.

I give credit to the ACCC in that they were able to take a case of that kind and bring that conduct to light. The fact that it has been brought to light—and it was brought to light only because the ACCC could use its powers to subpoena documents from Coles—does indicate to me that there is, I am sure, other behaviour that goes unreported and unnoticed that similarly would be unconscionable or unfair, and we should have laws in place that allow private individuals and actors to help bring a spotlight to that particular conduct and make sure it is not a common practice in our marketplace, because it will undermine confidence across a broader business and consumer sector if it is. That is what this law will help to achieve.

By expanding the law to small businesses I hope that we can create the conditions where the law will be used more. While unfair contract terms only apply to consumers there are limits on how much court action and how many claims will be made under this piece of legislation, because consumers generally only have smaller transactions and only have at risk smaller amounts of money in any particular dealings they have with larger businesses.

So if there is some type of unfair conduct—and I myself have sometimes felt that some of the contracts I have had with mobile phone companies and others have not gone exactly the way they should have and maybe are unfair—I personally would not have the incentive to take action on those things. I would generally just walk away, put it down to experience and the school of hard knocks and move on with my life. It is just not worth the hassle for me to take it up. But if everybody is like that there is no discipline in the marketplace against such conduct. That is why expanding this law to include small business contracts will hopefully provide that opportunity to a different group of participants in the marketplace—a group that have greater incentive to use this law and to take action if there are any issues, because obviously small businesses will sign contracts that are generally larger than consumers do, notwithstanding the fact that they often find themselves in the same powerless position as consumers.

That gives rise to the question of what we should define as a small business and how we should quarantine this only to those participants in the marketplace that find themselves in that position. I might be wrong on this, but I am told that there are something like 19 different definitions of a small business in Commonwealth legislation. I realise that that is perhaps not ideal, but sometimes life is messy. Sometimes you have to define the parameters of small business in accordance with what you are trying to achieve in this law. So I can understand why, in this law, the government chose the 20-employee limit, which is a common definition as it stands, and also used a contractual value amount to limit its scope to contracts that are under a certain amount. Of course, once you make any definition and draw any boundaries there are potentially exceptions beyond those boundaries that look anomalous.

I note that Senator Xenophon earlier raised issues around participants in the banking sector who may be very small companies but, nonetheless, deal with very large and sophisticated contracts. I would make two points on that. Firstly, this legislation only applies to what are known as standard form contracts. If those businesses are entering into complex contracts they are unlikely to be standard form, but I do not discount that there may be the odd occasion where standard form contracts continue to prevail. The other point I would make is that I have been a member of the Senate Economics Legislation Committee, which reviewed this particular piece of legislation, and that committee has recommended that a review process be conducted by the government after three years to ensure that issues like those that Senator Xenophon raised can be dealt with and looked at to see if these definitions are working effectively.

The second issue is around the definition of the threshold value in contracts, which has been set at $100,000 for an annual contract and, I believe, $250,000 for a contract that is longer than 12 months. The committee received a substantial number of submissions about those levels. Clearly those levels would restrict a number of small businesses from using this law, and I share some of the concerns that that will unduly limit access to these protections by businesses that are otherwise small but sign contracts above and beyond those particular threshold levels. Nonetheless, I understand that the government has had to come to some decision on this amount and has had to negotiate this amount with the various state and territory governments around Australia, given that it is an amendment to competition laws, which are harmonised and are subject to a COAG process. In my view those thresholds too should be part of that review after three years to see if they have unduly restricted access to this improvement in our law and, in particular, whether they have unduly restricted the ability of small businesses to take action in the courts. As I said earlier, one of the great advantages of this bill is that we will expand access to the law to a group of entities that can have the incentive and at times the resources to take legal action. But if these thresholds have mitigated those potential benefits they need, and deserve, to be looked at again.

I again commend the government for pushing this forward. With the limited time available I would also like to comment briefly, as Senator Xenophon did, on the effects test and other aspects of our competition law, because these issues are all interconnected. As I said, we partly need this bill because our unconscionable conduct laws are costly and hard to navigate. We also have in section 46 an issues of market power provision which, as I have said publicly, is not working and is certainly not used much any more, or at least has not been used successfully for more than a decade. That needs finetuning as well. We have some recommendations from the Harper review in regard to that. I broadly support those recommendations and would hope to see that something is done to provide not just greater access for small businesses to unfair contract terms but also greater access under the generic misuse of market power arrangements that exist in our Competition and Consumer Act. I also note that the National Party conference passed a motion on the weekend supporting that position, and I hope that the government does consider these issues as it responds to the Harper review in due course.

Finally, I would like to repeat that we would not have this law, we would not be making these amendments, if it were not for the fact that the coalition government was elected two years ago. It had been the policy of the Labor Party not to expand unfair contract terms to small businesses. They made arguments about that when we proposed putting unfair contract terms into our competition laws, saying that businesses do not need these protections, that it should only be quarantined to consumers. I believe that view is wrong. We should treat many small businesses similarly to consumers in our competition law. They should be protected not only because they can sometimes be the greatest victims of anticompetitive acts but also because they can be the greatest policemen in making sure that no more anticompetitive behaviour occurs than is needed.

I compliment the government, in particular Minister Billson, for bringing this amendment forward and taking it through the various processes you have to go through to get competition laws changed in this country. It will be a substantial improvement in our laws. It will be a greater protection for the millions of small businesses that exist around Australia, and it is another demonstration of how the Liberal and National parties support small business, want to see small businesses thrive and want to make sure that big business is not a protected species in this country but rather that big businesses are always and everywhere threatened by the emergence of new businesses that have better products and can make sure that consumers have diverse range of choice from those products.

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

Firstly, I would like to thank all of those senators who, like Senator Canavan, have contributed to this debate. The Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 demonstrates the government's commitment to supporting small businesses by extending to them the unfair contract term protections currently available to consumers.

The government consulted widely in formulating this bill. The 10-week public consultation process conducted in 2014 gathered information about the extent of the problem and the potential policy options. Over 80 submissions and around 300 survey responses were received as part of this process. In April of this year, Commonwealth, state and territory consumer affairs ministers formally agreed to amend the Australian consumer law as required under the Intergovernmental Agreement for the Australian Consumer Law. In line with the Corporations Agreement 2002, the Commonwealth notified the states and territories that these legislative protections would be mirrored in the Australian Securities and Investments Commission Act 2001.

Public comment was sought on the exposure draft legislation, where almost 50 stakeholders made submissions on the drafting of the bill. Feedback through these consultations has indicated that small businesses across a wide range of industries have concerns about unfair terms. Small businesses, like consumers, are vulnerable to the inclusion of unfair terms in standard form contracts because, like consumers, they often do not have the time or legal expertise to critically analyse the contracts offered to them. To address this problem, there was significant support for an extension of the current consumer unfair contract terms law to the small business sector.

This bill extends to consumer unfair contract term protections to small businesses when they agreed to low-value standard form contracts. A court will be able to declare void and unfair term—for example, one that allows one party to unilaterally change a price—contained in a contract where at least one party was a business with fewer than 20 employees when it agreed to the contract and the value of the contract does not exceed $100,000 or, if the contract is for more than one year, $250,000.

Having a transaction value threshold limits protections to day-to-day transactions, where the cost of seeking advice on a contract's terms may be disproportionately high, while maintaining the onus on small business to undertake due diligence for high-value contracts. This bill will have a significant positive impact on Australia's two million small businesses. It is time that small businesses, who often face the same vulnerabilities as consumers, received the same protections when offered take-it-or-leave-it contracts.

Labor has raised several concerns with the bill in their additional comments in the economics committee's report. First, they question the narrow definition of small business. In response, I note that 'businesses with less than 20 employees' has been chosen for the definition as it is a commonly used headcount measure and has been found by the Australian Bureau of Statistics to provide a good proxy for a small business. The headcount approach is also considered to be the easiest the small businesses to implement. It should provide a simple way for all businesses to record the size of their business at any point in time. Labor has also queried the lack of a comprehensive disclosure regime to encourage small businesses to seek professional and legal advice before entering into a contract with another business. The policy is designed to address take-it-or-leave-it contracts only. Contracts that involve the need for diligent negotiation are not included, as those contracts are not standard form contracts.

Labor questioned the lack of a reasonable time limit within which a small business can advise if they consider part or all of the contract to be unfair in order to ensure contract certainty. The government's view is that the nature of some contracts and terms are such that it may not be apparent that a contract term is potentially unfair until such a time as it is applied. Applying an arbitrator time limit for the identification and notification of potentially unfair contract terms would undermine the effectiveness of these protections. Labor has also questioned the definition of 'up-front price'. The government's view is that this means the amount disclosed to the other party at or before the time the contract is entered into. Any future payments will be included as long as they are clearly disclosed at or before the time that the contract is entered into.

Further, Labor also noted concerns with the time period for businesses to change their contracts before the legislation takes effect. The government's judgement is that the transition period for implementation of the new protections follows details stakeholder consultation. Parties have argued for both a longer transition periods to assist businesses to ensure compliance and a shorter transition period to offer small businesses these essential protections as early as possible. The government considers that the transition period in the draft legislation balances these priorities appropriately.

In order to assist businesses to comply, the ACCC will work with businesses and industry groups to identify problematic contract terms and encourage compliance. This approach was taken for the consumer protections and led to most businesses choosing to delete or amend problematic terms. The ACCC has been provided with $1.4 million to support businesses in complying with the extension of the protections to small businesses. This will include the ACCC releasing guidance material at the start of the six-month transition period.

Finally, Labor and some other senators have questioned the $100,000 up-front price threshold for a small business contract. The reforms apply only to contracts worth less than $100,000 or $250,000 for contracts longer than one year. The consultations indicated that these thresholds covered the majority of small business transactions. The $100,000 threshold for the up-front price balances the interest of protecting small businesses with the need to ensure that businesses undertake due diligence for large transactions.

We will be conducting a post-implementation review to make sure that the unfair contract terms protections are working as intended. That review in five years is the right way to consider how the thresholds are applying in practice. The bill introduces measures that will give confidence to small businesses when entering into transactions and support them to grow, invest and create jobs. It is a significant reform that will bring benefits to the broader Australian economy and is part of our long-term plan for a stronger, more prosperous economy, where everyone has the best possible opportunity to get ahead. I commend this bill to the Senate.

Question agreed to.

Bill read a second time.