With concerns that SME contractors are increasingly going bankrupt because brokers are failing to impart adequate advice before signing contracts, the news that the Coalition, if elected, is likely to implement unfair contract terms for businesses could not come at a better time.
Insurance law expert, solicitor director of The Fold, Charmian Holmes, last week said SMEs were not receiving the correct advice from brokers before signing commercial contracts.
She added that SMEs often found themselves carrying the financial burden of others, largely because unfair contract terms exist for consumers but not for businesses.
Wotton + Kearney lawyers, who told Insurance Business they “often deal with cases involving inappropriate broker advice”, said unfair contract terms could include businesses if the Coalition is elected in September
“The Coalition plans to extend the unfair contract protections consumers get under the Australian Consumer Law to small business if elected,” said chief executive partner David Kearney and senior associate Jane O’Neil. “This is on the basis that small businesses often have to negotiate with big business on a ‘take it or leave it’ basis under standard form contracts which place a disproportionate burden on one party over the other. It also exposes small businesses to exceptional levels of risk; which risk is often uninsured.”
Kearney and O’Neil said such legislation is “likely to be met with fierce opposition by interested parties due to its regulatory and economic impact”, stating that the previous attempt to introduce a regime extending to small business was “shot down” when the Australian Consumer Law was passed in 2010.
They added that it could create additional problems, affecting the way commercial transactions are executed and may introduce an extra level of uncertainty and therefore costs.
“From a policy perspective, there is a real risk that protection for small business will remove certainty of contract as a party could later try to get out of a contract by alleging unfair terms. Further, in most cases it is likely that small business has a greater capacity to understand and manage risk than a consumer.”
“Whatever the outcome of the election, it is clear that changes to the unfair terms regime will be on the agenda.
“We consider much work needs to be done before the proposed regime is workable,” they said.