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Ombudsman, ACCC call for unfair contract penalties

Ombudsman, ACCC call for unfair contract penalties

By Karin Derkley

Consumer Law 


Unfair contracts should be made illegal and attract strong penalties, a forum on how regulators can help small businesses heard this week.

Speaking at the LIV Lunch and Learn session Navigating the Regulatory Maze, Australian Business and Family Enterprise Ombudsman deputy ombudsman Craig Latham said unfair contracts are rife. "I’m yet to see a contract that does not have unfair terms in it," he said.

It's not just big business imposing unfair contracts onto small businesses either, he said. "We see a lot of very poor contractual arrangements small business to small business. I don't know why people can't get this right."

ACCC Consumer and Small Business Strategies Branch assistant director Eti Abdulioglu said the ACCC is lobbying to make illegal one-sided contracts that contained terms that enabled one party but not the other to avoid or limit their obligations, to terminate a contract, or to vary the terms of the contract.

An example was Uber Eats, which the ACCC in July found to have unfair contracts that made restaurants responsible for customer complaints about food deliveries, regardless of whether the problem was caused by the Uber deliverer or the restaurant.

After scrutiny by the ACCC, Uber Eats agreed to clarify in its terms that restaurants will only be responsible for matters within their control, such as incorrect food items or incorrect and missing orders.

But the ACCC wants a stronger remedy for these kinds of unfair terms, which can be declared void by a court, but are not illegal, Ms Abdulioglu said.

"[We want] reform to prohibit unfair contract terms and introduce pecuniary penalties for breaches of that prohibition. It's not sufficient that a term is merely voidable."

Mr Latham agreed. “[Unfair contracts] need to be made illegal, and there needs to be penalties for using them.”

Also at the forum, ASIC senior investigator Michael Mealy said ASIC has a new approach to enforcement that he claimed was in process before the recent banking and financial services royal commission.

"Our starting point is a focus on deterrence, public denunciation and punishment of wrongdoing via litigation," he said. That does not mean ASIC is going to litigate everything. "Once ASIC is satisfied there is a breach of law, and it's evident from the facts of a case that it is in a public interest to pursue a matter, then ASIC will ask the question ‘Why not litigate?’”

"It's about finding the evidence and if the law has been broken we'll take appropriate action."

A big influx of matters has been coming into ASIC as a result of the royal commission, he said, and ASIC, armed with additional powers and the ability to impose significantly increased civil penalties and prison sentences for serious financial misconduct, is investigating many. "Funding has gone up significantly – so we've got the resources to deal with the extra work that we'll be getting."

ATO lawyer Ashley Crowther told the forum a "mobile strike team" that is visiting 10,000 small businesses around Australia has found that many small businesses are not meeting their record keeping obligations and that there is a general misunderstanding of employer obligations. Some businesses have been found to be completely operating outside of the system without ABN or GST registrations, he said.

To assist businesses meet their obligations, the ATO is focusing on prevention and earlier resolution of disputes. Mr Crowther encouraged lawyers working with small businesses who had disputes with the ATO to take advantage of its low cost and independent inhouse dispute facilitation service.

The small business independent review was another new service that heard from both parties before making an impartial decision on a dispute.

Victorian Small Business Commission senior manager Mark Schramm said the number one issue it helped small businesses with was unpaid monies, followed by contractual rights and responsibilities. The commission dealt with 11,000 complaints and inquiries last year and had a success rate of 82 per cent for its mediation process.

The commission offers a mediation process through its website. "Mediation is about facilitating negotiation to find out what interests lie beneath the party positions. [It also involves] a bit of arbitration, cajoling, and some psychology," he said.

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