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Sheltering small business

Feature Articles

Cite as: (2007) 81(7) LIJ, p. 58

The Small Business Commissioner offers protection to small businesses at risk of being taken advantage of because of their size.

By Mark Brennan

The Small Business Commissioner offers protection to small businesses at risk of being taken advantage of because of their size.
By Mark Brennan

The Victorian Small Business Commissioner has an unprecedented array of powers, both actual and potential, that can be of considerable relevance to legal practitioners with an interest in the sector.

The legislation introducing the Commissioner’s office gave optimum flexibility to its powers and functions that are unlike any of its legislative counterparts.

For instance, there is no definition of “small business” in the Small Business Commissioner Act 2003 (the Act), but during the second reading speech in Parliament establishing the Commissioner it was highlighted that “Victoria’s small and medium businesses will have ongoing protection from being taken advantage of due to their size”.

The Commissioner believes the office has jurisdiction to take action on behalf of anything that is not “big business”. This dramatically widens the size of its investigation and mediation windows.

This article explores the broad scope of the Commissioner’s investigatory powers and functions in order to inform legal practitioners and encourage their use in common legal disputes.

The Small Business Commissioner Act 2003

With only 16 provisions, the Act is a relatively small piece of legislation. Section 1 states that the purpose of the Act is to establish the office “to enhance a competitive and fair operating environment for small business in Victoria”.

Section 3 is the definition section. Interestingly, it contains only a definition of “Commissioner”.[1]

Section 5 is the crux of the Act, setting out the Commissioner’s functions and powers. Section 5(1) gives the Commissioner all the functions and powers conferred on him under this Act or any other Act. Other Acts which confer functions are the Retail Leases Act 2003,[2] the Owner Drivers and Forestry Contractors Act 2005,[3] the Liquor Control Reform Act 1998,[4] and the Victorian Civil and Administrative Tribunal Act 1998.[5]

Section 5(2) then sets out the functions of the Commissioner. Of special relevance to this article is the following function:

“(c) to receive and investigate complaints by small businesses regarding unfair market practices and mediate between the parties involved in the complaint". Section 5(3) provides that the Commissioner can carry out his functions and powers on his “own motion”. This means that the Commissioner can be proactive in carrying out the above functions without being triggered by a complaint.

Section 5(4), which is of extremely broad scope, provides that:

“The Commissioner has power to do all things necessary or convenient to be done for or in connection with the performance of his or her functions”.

Section 5(6), which is a unique provision in the Victorian statute book, provides that the responsible government department must “take reasonable steps to ensure that adequate resources are made available to the Commissioner to enable him or her to carry out his or her functions and exercise his or her powers”.

To support the Commissioner’s investigatory functions, s6 is drafted flexibly to provide:

“The Commissioner may investigate any matter relevant to the Commissioner’s functions and powers under this Act”.

Some further powers provide for the Commissioner to request assistance or information from any Victorian public entity (s10(a)) and for the engagement of consultants: s10(b).

Investigatory provisions

Because of the drafting of ss5(3), 5(4), 5(6), 6 and 10, the Commissioner’s investigatory functions are not limited to those functions clearly investigatory in nature, namely s(5)(2)(c) (investigating unfair market practices) and s5(2)(j) (investigate compliance with industry codes). It appears that the Commissioner can use “investigatory” powers and have all the support required to assist him in carrying out any of the functions given to him under this Act and of the other Acts for which he has been given a function.

The Commissioner’s flagship provision in commencing any type of investigation is s5(2)(c).

Section 5(2)(c): Investigating unfair market practices

The language of the section raises some interesting jurisdictional issues.

What is a “small business”?

The definition section of the Act provides no useful definitions in the interpretation of s5(2)(c). As noted above, there is no definition of “small business”. Small business has been defined by various other Acts, although there is no uniform definition.[6]

It is interesting that the legislature made no attempt to use existing definitions to define the term, even though the reference to “small business” goes to the very core of the Act and the functions and powers of the Commissioner.

Clearly by the title and nature of the Act there is an intention to make some sort of delineation between small and large businesses.

In the absence of statutory assistance, it is useful to examine the relevant parliamentary debates. The second reading speech for the introduction of the Small Business Commissioner Bill indicates that the legislation intended that the functions and powers of the Commissioner under the Act should not be confined to small businesses per se, but should extend to small and medium-sized enterprises.

So what is the jurisdictional threshold when it comes to “small business”? The rule of thumb that the Commissioner employs is that a small (and medium) business is anything that would not be considered “big business”. This interpretation dramatically widens the jurisdiction for any investigation or mediation of a “small business” complaint.

What is an “unfair market practice”?

There is no definition of “unfair market practice” in the Act and the parliamentary materials provide no insight into the intended use of the term.

The closest statutory definitions are arguably those prohibited “restrictive trade practices” under Part IV of the Trade Practices Act 1974 (Cth) which, among other activities, include the prohibition against the misuse of market power (s46) and the prohibition against “unconscionable conduct” in business transactions under s51AC of the Trade Practices Act and the Victorian counterpart, the Fair Trading Act 1999 (s8A).[7]

In the absence of any specific legislative guidance, these provisions, and how the courts and tribunals have and will interpret them, will help determine the significance of “unfair market practice” in s5(2)(c). Legal practitioners should keep a watchful eye in this respect.

In the meantime, the Commissioner has taken the view that “unfair market practice” should be understood as an expansive term, reflecting flexibility to examine a broad scope of business conduct.

Who is the wrongdoer?

Section 5(2)(c) of the Act does not specify who the wrongdoer should be for the purpose of that section, that is, who is engaging in an unfair market practice against the small business. It appears, therefore, that there is no limit as to who the respondent may be in a complaint made to the Commissioner. For example, it could be another small business, a large business, or a government agency.

What does “investigate” mean?

Section 5(2)(c) of the Act states that the Commissioner may “investigate” complaints received by small businesses. It would ordinarily be expected that investigatory powers would be statutorily supervised by the provisions of the enactment itself or via court action. For example, Part 12 of the Trade Practices Act and Parts 8 and 10 of the Fair Trading Act carry a suite of provisions specifying how an investigation is to be carried out, including how to appropriately enter, search and seize material. However, there is no similar guidance in the Act.

In the absence of such directive provisions, can the Commissioner proceed without a warrant or court supervision? Would s5(4) support this position, that is, that the Commissioner can do “all things necessary or convenient to be done” to carry out an investigation? And in terms of resourcing the investigation, would s10(a) mean that the Commissioner can muster assistance across government to support an investigation? Finally, when carrying out the investigation, would s10(b) give the Commissioner carte blanche to engage whomever he deems appropriate to assist in the investigation?

In 2002, the Victorian Parliament Law Reform Committee published a report inquiring into Victorian enactments containing powers of entry, search, seizure and questioning (investigatory powers). One of the report’s recommendations was that all future enactments containing investigatory powers should be expressly made in the relevant enactment.[8]

The Act was enacted after the publication of this report without express provision for investigatory powers. The argument could be made that by expressly omitting these provisions, and instead drafting widely the provisions of ss5(4), 10(a) and 10(b), Parliament consciously chose to invest such investigatory powers in the Commissioner himself, to be exercised as he deemed appropriate and virtually unfettered.

The alternative view is that it was Parliament’s intention that the investigatory powers were to have far less dimension and force than provisions in other legislation giving context to investigatory functions. In this light, the investigatory provisions could more appropriately be described as being in the nature of a function to make inquiries in a context of voluntary cooperation, as opposed to coercive or compulsive cooperation during an investigation.

The answers to these questions, and the correct view to take, can only be determined over time and in light of future judicial guidance. Furthermore, it is not the intention of this article to explore issues related to common law supervision of administrative powers associated with investigations, or the extent to which other government interventions, such as general public sector legislation[9] or annual budget appropriations,[10] may operate to control, or give definition to, the Commissioner’s investigatory functions.

Using s5(2)(c) to resolve common business disputes

The generous drafting of the Act, in particular the drafting of s5(2)(c), allows the Commissioner optimum flexibility in carrying out his functions and ultimately assisting small businesses with their grievances.

The Commissioner has been prepared to investigate and/or mediate any business to business dispute, or business to government dispute, with the general exception of disputes of an industrial relations nature. With no substantial challenge to jurisdiction, this approach has been well received, with a wide variety of business disputes being referred to the Commissioner since the office was established in May 2003. It is therefore in the interest of legal practitioners to attempt to use s5(2)(c) to resolve common business disputes and the Commissioner will use all the necessary provisions of the Act and the resources available to investigate the complaint.

In the 2005-06 financial year, 45 referrals were made to the Commissioner alleging that a degree of unfair market practice had occurred and were investigated under s5(2)(c).[11] The types of complaints received included allegations of breach of contract, misrepresentation in business dealings and activities in the nature of unconscionable conduct, private sector contractual and franchising disputes, business licensing requirements, local government tendering requirements, and compliance with onerous regulatory requirements.[12] In the majority of cases investigated by the Commissioner, the matter was resolved by mediation.

Overall, the success rate for mediations at the office of the Small Business Commissioner, both for retail tenancy disputes and small business complaints, has remained consistently high – over 75 per cent since the office commenced operations on 1 May 2003.[13]

Section 5(3): Investigate “on own motion”

The Commissioner can act on his “own motion”[14] when carrying out functions or exercising powers, including undertaking an investigation.

The Commissioner recently explored this function with the Unacceptable Business Conduct Project. This involved the Commissioner writing to selected big business leaders with the intention of cooperatively working with them on how big businesses should act towards other businesses in the marketplace. The impetus for the project arose from previous investigations undertaken by the Commissioner which indicated that there was great scope for improving Victoria’s business environment by tackling unacceptable business conduct.

Specifically, investigations conducted by the Commissioner’s office have highlighted a number of apparent common causes in the development of business disputes, in particular the issue of unacceptable business conduct characterised by bullying, harassment and other undermining behaviours. These behaviours may not necessarily be considered unconscionable according to established judicial tests, but are nevertheless unacceptable according to the subjective standards expected by small businesses.

The purpose of the Commissioner’s examination of “unacceptable business conduct” is not to establish what is to be determined as “unacceptable” in legal terms, but rather to identify the nature of the issue and whether there is substantial evidence of the impact of such conduct on Victoria’s small business and the community at large. One outcome of this project will be the production by the Commissioner of a report or guidelines which will be instructive to all businesses with respect to acceptable business conduct.[15] It is not intended that the report or guidelines would be in the nature of a code of conduct. Rather, the objective is to identify and encourage conduct to which a business would aspire.

Conclusion

Legal practitioners are invited to make use of the broadly termed s5(2)(c) by submitting complaints of unfair market practices against their small business clients for investigation and possible mediation through the Commissioner’s office. This as a valuable option that should be used in the early phases of irritation to not only avoid inflated legal costs and protracted litigation, but also to salvage the ongoing business relationship.

In terms of carrying out the investigation of the complaint, and until the provisions of the Act are judicially tested, the Commissioner aims to find workable solutions to individual disputes so that businesses can get on with their business, without recourse to lengthy, expensive, traditional legal processes.

Small business complaints can be made to the Commissioner’s office by completing a simple form available on the website http://www.sbc.vic.gov.au. Any further questions on s5(2)(c) or any of the Commissioner’s other functions can be answered by the office’s investigation team on ph 9651 9316.


MARK BRENNAN is Victoria’s Small Business Commissioner.


[1] “Commissioner” means the Small Business Commissioner appointed under s4.

[2] Various sections of the Retail Leases Act 2003 specify that the Commissioner’s functions are to, among other things, prosecute for offences committed against the Act, provide waiver certificates for leases of less than five years under s21, maintain a register of lease details under s25, and provide a forum for dispute resolution under Part 10.

[3] Parts 5 and 6 of the Owner Drivers and Forestry Contractors Act 2005 set up a framework of alternative dispute resolution, part of which involves mediation through the Commissioner’s office. This model is based on Part 10 of the Retail Leases Act 2003.

[4] The Liquor Control Reform Act 1998 s11(8) provides that the Commissioner may investigate compliance of licensees of packaged liquor licences with a code of conduct.

[5] The VCAT Act 1998 s73(2A) gives the Commissioner the power to intervene in proceedings brought before VCAT concerning a retail tenancy dispute, within the meaning of the Retail Leases Act 2003 Part 10 or under the Fair Trading Act 1999 s8A, which relates to unconscionable conduct in business transactions.

[6] Privacy Act 1988 (Cth), s6D: an annual turnover of $3m or less; Equal Opportunity Act 1995 (Vic) s21: a business employing no more than five people on a full-time basis; Estate Agents Act 1980 (Vic) s52: a business the goodwill, plant, equipment and fittings of which are offered for sale or sold for $200,000 or less; and the Workplace Relations Act 1996 (Cth) s643: those with 100 employees or less. On the other hand, the standard Australian Bureau of Statistics definition of a small business used for administrative purposes is a business which employs fewer than 20 employees. The ABS definition applies to all industries except manufacturing, where the definition extends to a business that employs fewer than 100 employees, and agriculture, where classification of a small business is made by reference to a monetary value.

[7] As for jurisdiction, s51AC of the Trade Practices Act (Cth) 1974 caps the value of the transaction at $3m or less, providing yet another legislative indicator as to what a “small business” represents. The unconscionable conduct provisions have also been drawn down into the Retail Leases Act 2003, ss77 and 78. Note also that s46 of the Trade Practices Act is based on the Commonwealth’s use of s51(xx) of the Constitution, whereas the State of Victoria is not so restricted, and has plenary legislative power.

[8] Victorian Parliament Law Reform Committee, The Powers of Entry, Search, Seizure and Questioning by Authorized Persons, 2002, p27.

[9] For example, the Public Administration Act 2004 and the Financial Management Act 1994.

[10] See also s5(6) of the Act.

[11] These investigations are separate from the 912 disputes lodged seeking mediation.

[12] Victorian Small Business Commissioner, Annual Report 05/06, p22.

[13] For further information, and to view more detailed mediation statistics, see Victorian Small Business Commissioner, Annual Report 05/06, ch 7.

[14] See s5(3) of the Act.

[15] For further information on the Unacceptable Business Conduct initiative, see Victorian Small Business Commissioner, Annual Report 05/06, Ch 1.

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