ACCC losing patience over small business contracts

The competition watchdog is losing patience with some of the chief executives of Australia’s largest companies.

The Australian Competition and Consumer Commission (ACCC) is losing its patience with a number of Australia’s largest company chief executives.

Later this year, some of the recalcitrant chief executives will be hauled before the courts to have vast sections of their company’s contracts with small business declared void under the unfair contracts act.

The repercussions on chiefs and their boards will be nasty.

First there will be the chaos created by effectively having no meaningful contracts with small suppliers and customers. Then there will be the inevitable audit qualification of their corporate accounts if the auditors do their job and sometimes that can affect debt covenants and thirdly, worst of all for many chief executives, any board who respects their duty to shareholders would substantially reduce the CEO’s bonus.

Most of the companies that are risking such a fate are doing so because too many of the big corporate lawyers in Sydney and Melbourne have been spending too much time in top restaurants and have not studied the act. I jest, but seriously, the big legal firms used some of their best minds to devise devilish standardised contract clauses for small business and those clauses are now void when the contract is renewed. A complete culture change is required in the big legal firms and they struggle.

But CEOs who are hauled before the courts and lose their bonus will seek new lawyers, and fast. Of course there may be situations where there is a legitimate dispute between the ACCC and the large enterprise that must be tested in court and which will naturally not have the repercussions created by recalcitrant CEO’s.

The ACCC, in its latest statement, has taken off the soft gloves and has declared it will be taking “enforcement action in relation to a number of companies over B2B unfair contract terms this year”.

Despite the existence of recalcitrant chief executives the ACCC deputy chair Michael Schafer is starting to sense a change in the culture of some large companies as they begin to realise that under the new rules all the business risk can no longer be placed on the small enterprises as is the current practice in standardised contracts.

Schafer says: “We’re concerned many potentially unfair contract terms are still appearing in standard contracts. Businesses that seek to tip the scales too far in their favour at the expense of small businesses leave themselves open to court action by the ACCC”.

His statement continues:

“A number of investigations have been commenced, either in response to issues raised in the ACCC’s recent industry review or as a result of complaints made to the ACCC. Our enforcement teams are looking at a variety of contracts across a range of industries”.

The ACCC says among the potentially unfair clauses that continue to be used in standard form contracts include terms that allow the contract provider:

• an unreasonable ability to cancel or end an agreement

• potentially broad and unreasonable powers to protect themselves against loss or damage at the expense of small businesses, through the inclusion of broad indemnities or excessive limitations of liability

• the ability to unilaterally change the terms of the contract

• an unreasonable ability to limit or prevent small businesses from exiting their contracts.

Contracts covered by the legislation include those 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.

Standard form contracts provide little or no opportunity for the responding party to negotiate the terms — they are offered on a ‘take it or leave it’ basis.

Meanwhile in the banking sector the unfair contracts regulator is ASIC not ACCC. The National Australia Bank and at least one other bank purported to recast overdraft terms that complied with the act but ASIC declared they still did comply with the act.

I understand some of the banks, including NAB, are now working to comply with the law. They have a situation where vast slabs of their old overdraft agreements are potentially void. Every bank is in the same situation but the task is by no means confined to banks.

The ACCC estimates there are at least eight million contracts that are required to be changed so there is a lot if work to do which is why the Parliament gave the companies 12 months prior to November 12, 2016 to change their ways. Few took advantage of the grace period — hence the scramble in 2017. Large companies may need to go to smaller specialised law firms who have people who understand the task and are not embedded in a past culture.

But the ACCC is already starting to move to then next of protecting small enterprises.

Michael Schaper says the current potential for large businesses to “unilaterally alter their payment terms and unfairly delay payment times for their supplier is a significant concern to the ACCC, and may also raise issues of misleading or potentially unconscionable conduct.”

Of course on that front I have helped achieve two breakthroughs with Telstra declaring that by August/ September they will pay all small business suppliers within 30 days and Coles also declaring that’s what they propose to do.

If we get more companies doing this it will greatly improve productivity and innovation in Australia. Both small and large enterprises will benefit.

MORE
• Corporates should follow Telstra’s lead and ease the squeeze on SME
• Coles cuts small suppliers some slack