Commercial

A ‘fair go’ for small business?

11 June, 2015

In recent months, the Commonwealth Government followed up its election promise to give small business a ‘fair go’ by releasing exposure draft legislation which confirms that consumer protections relating to unfair contract terms will be extended to protect small business.

The new laws, which are expected to apply from early 2016, follow a consultation process conducted by Treasury last year, which was commenced in light of growing concerns about the imbalance of negotiating power between large and small business and the consequential impact of that imbalance on the economy.

Current provisions

Currently, unfair terms in standard ‘consumer contracts’ are void under the Australian Consumer Law. In other words, the contract will remain ‘on foot’ (to the extent possible), however, the relevant unfair term is unenforceable.

Generally speaking, a contractual term will be regarded as ‘unfair’ if it:

  • would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
  • is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
  • would cause detriment (whether financial or otherwise) to either party if it were to be applied or relied on.

These provisions only protect ‘consumers’ (individuals) who enter into contracts for the supply of goods, services or an interest in land, where the consumer is acquiring the goods, services or interest for wholly or predominantly personal, domestic or household purposes.

Extending the protection to small business

The Government’s exposure draft legislation extends these protections to small business (and, therefore, commercial ‘business to business’ contracts). The proposed laws are targeted at improving the negotiating power of small businesses in circumstances where they are offered standard terms with little to no opportunity to vary them (including, for example, in competitive tender bidding processes).

During the consultation phase, there was uncertainty relating to how the new laws will define ‘small business’ (i.e. which businesses will be protected). This appears to have been ‘cleared up’ by the Government in the exposure draft which indicates that the provisions will only apply where:

  • at least one party to the contract employs fewer than 20 people; and
  • the ‘upfront’ price payable’ (excluding interest and contingent fees) does not exceed either:
  1. $100,000 for contracts with a term of 12 months or less; or
  2. $250,000 for contracts with a term of more than 12 months.

The scope of contracts that may fall within these parameters is significant and will include contracts where both parties are ‘small businesses’ (with fewer than 20 employees). On its face, this approach seems counter-intuitive to the Government’s objective of giving small business ‘a fair go’ and may, in fact, result in higher compliance costs for such businesses. It also appears to be a departure from the Government’s consultation phase sentiment which was concerned with the power imbalance between large and small businesses.

The exposure draft does not expressly exclude specific industries which are already heavily regulated, such as franchising and retail leasing. It seems likely that contracts (including, for example, licences and leases) in these industries may also be covered by the new rules.

What to do

If you use standard form contracts – it appears inevitable that the new laws will be enacted, so it may be a good time to consider what changes might be required to your contracts (and business operations) when the new laws come into effect. However, you should be wary of taking a ‘one size fits all’ approach as ‘unfairness’ is a fluid concept which may apply differently to different small businesses.

If you are a small business – watch this space. On commencement of the new laws, you will enjoy a new level of negotiating power in circumstances where you are presented with unfair ‘standard terms’.

McCabes’ Expertise

McCabes advises clients on a range of commercial contracts and related matters, including drafting and negotiating contracts and advising clients of their rights and obligations. McCabes also has significant experience in advising on and conducting tender processes for large and small contracts.

This article is not legal advice. It is intended to provide commentary and general information only. Access to this article does not entitle you to rely on it as legal advice. You should obtain formal legal advice specific to your own situation. Please contact us if you require advice on matters covered by this article.

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Canadian Court elevates thumbs-up emoji to signature status

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After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed.   Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph [18], Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)."   Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and   The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. 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The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship.   Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph [63]: "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the dictionary.com definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. 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Published by Foez Dewan
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