Fair Trading Laws
Fair trading laws provide an overall level of protection and remedies under the Australian Securities and Investments Commission Act to SMEs and consumers who deal with businesses involved in the finance process, including financiers and brokers. The Competition and Consumer Act addresses anti-competitive conduct and, in the context of equipment finance, fair trading laws associated with the supply of goods.
There have been several policy proposals since the beginning of the century which could have seen equipment finance to SMEs regulated in various ways broadly akin to consumer transactions. AELA is pleased to note that, until recently, these have not come to fruition, due we believe, to lack of demonstrated need for a regulatory regime which would increase costs and be antithetical to the pursuit of microeconomic reform.
Consumer-like Regulation Inappropriate
Early in 2013, AELA and CAFBA effectively worked together with small business representatives to convince the then government to shelve its ‘consumer protection’ proposals for SME finance. If they had become law, these would have resulted in outcomes such as:
- Equipment financiers and brokers being registered with ASIC
- Unequal regulation of traditional equipment finance products, extending to the prohibition of hire-purchase
- Some documentary and disclosure obligations similar to the National Consumer Credit Protection Act
Farm Finance Mediation and Rights
For equipment financiers meeting the needs of farmers, there has been a gradual progression of legislation enacted in some States since the mid-1990s. The laws affect the equipment finance products of chattel mortgage and hire-purchase (but not leases) –
- Queensland – Credit (Rural Finance) Act – default notice before enforcement
- New South Wales – Farm Debt Mediation Act – mandatory to offer mediation before enforcement
- Victoria – Farm Debt Mediation Act – mandatory to offer mediation before enforcement
In addition, as part of its Farm Finance Reform initiative the Commonwealth Government has been developing proposals since 2013 for a national farm debt mediation regime, modeled on existing laws in New South Wales and Victoria.
Farmers in Western Australia who are in hire-purchase agreements have access to rights to seek postponement of enforcement action against farm machinery and for judicial review of unjust contracts.
Unfair Contract Terms
Pre-election small business protection policy commitments by the current Commonwealth Government have led to a significant change in commercial law.
Effective 12 November 2016, both the Australian Securities and Investments Commissions Act and the Competition and Consumer Act apply the same unfair contract terms rules to standard form contracts in which at least one of the parties is a ‘small business’. These are the same rules which apply to contracts with consumers. The extension to transactions with small business affects all commercial contracts, not just finance agreements, e.g. sales, services (e.g. technological, marketing, collections, professional), commercial relationships (e.g. introducers, referrers, franchises), etc.
Preparatory to the unfair contract terms legislation becoming law, AELA anticipates it would be prudent for businesses to review and revise their standard form commercial contracts. While the legislation sets out specific criteria to identify a small business transaction, based on employee numbers and transaction value, it is thought for practical operational reasons standard form contracts will not distinguish between small business and other contracting party types.
A contract term found by a court to be unfair is of no legal effect. Key approaches to assist in avoiding terms in standard form contracts being found to be unfair:
- Having terms which are based on legitimate and justifiable business interests
- Clear and simple drafting of contracts which are comprehensive to small business
The legislation lists contract terms which may be considered unfair, depending on the circumstances and whether a legitimate business interest exists.
Significantly, while contingent fees, such as late payment and early termination fees, are subject to unfair contract terms law, the upfront price of goods or services is not.