Companies find loophole to avoid unfair contracts legislation

The Australian, April 4, 2018

A significant number of large Australian corporations believe they have found ways to defy the will of Australia’s parliament on unfair contracts.

And their small business contactors who have signed standardised contracts are too scared of retribution to do anything about it.

Others are using the same loophole in genuine ignorance.

The 2015 unfair contracts act (which came into operation in November 2016) was one of the great achievements of Malcolm Turnbull and was supported by all political parties because they all realised that small business would be a major future employer and needed protection.

There have been major strides in implementing the unfair contracts act, including rewriting of bank overdrafts and an overall reasonable level of compliance.

But the big Pitt and Collins Street law firms who have great skills in writing unfair contracts to benefit their large corporate clients have discovered that the regulators of the act, the Australian Competition and Consumer Commission (ACCC), have no power to demand a copy of the contract and the small business victims are too scared to provide the ACCC with a copy for fear of retribution.

Some large organisations believe that if they do not amend their old unfair contracts but merely keep rolling them over they are immune from the act.

I believe these loopholes must be fixed

In addition the unfair contracts law does not cover government organisations which continue to demand their small enterprise contractors sign contracts that they know do not comply with the act.

I believe as a matter of urgency the parliament needs to amend the act to give the ACCC power to request contracts and to make sure rollover tactics are clearly blocked.

It would also make sense to attach some small penalty to those found to be in breach.

However incorporating government organisations might cause so much opposition among public servants that it might be better to separate that action from the urgent requirements.

Meanwhile the ACCC last week found the standardised contracts that US-based automatic teller machine giant Cardtronics was offering to small businesses who installed their machines did not comply with the act.

To Cardtronics’ credit it co-operated with the ACCC.

Cardtronics’ contracts had several unfair terms, including automatic renewal for six years, unilateral increase of fees, and first right of refusal should businesses seek to change providers at the contract’s conclusion.

Cardtronics has given a court-enforceable undertaking to the ACCC to change any terms that may be unfair for businesses under existing contracts and has undertaken not to enforce unfair terms for all existing merchants—some of who entered contracts six years ago.

While Cardtronics contracts will continue to be automatically renewed, the minimum notice to cancel will be reduced from six months to three months and Cardtronics will provide written notice to customers five months before the end of the contract.

Previously, merchants had to keep track of automatic rollover dates more than five years after entering contracts.

ATM machines are in decline but in the US cash is still very strong and in Australia and NZ Cardtronics has a major business operating ATMs outside the major banks.

The 2015 unfair contracts legislation covers standardised contracts between businesses where one of the businesses employs less than 20 people and the contract is worth up to $300,000 in a single year, or $1 million if the contract runs for more than a year.

Prior to the act most standard form contracts provided little or no opportunity for the small business to negotiate the terms — they were offered contracts on a “take it or leave it” basis.

The law sets out examples of contract terms that are unfair, including:

* Terms that enable one party (but not another) to avoid or limit their obligations under the contract;

* Terms that enable one party (but not another) to terminate the contract;

* Terms that penalise one party (but not another) for breaching or terminating the contract;

* Terms that enable one party (but not another) to vary the terms of the contract.

Only a court or tribunal (not the ACCC) can decide that a term is unfair. However, if a court or tribunal finds that a term is “unfair”, the term will be void — this means it is not binding on the parties. The rest of the contract will continue to bind the parties to the extent it is capable of operating without the unfair term.