Government to consider extending protections from unfair contract terms which would apply to car dealers

Assistant Treasurer the Hon Stuart Robert MP announced on 29 March that the Morrison government would be strengthening protections from unfair contract terms (UCTs) so that they apply to all small businesses, including car dealers, subject to the findings of a Regulation Impact Statement (RIS).

The options to be considered are as follows:

• Making UCTs illegal and attaching civil penalties to breaches;
• Extending the definition of a small business to a business that employs fewer than 100 persons or had an annual turnover of less than $10 million;
• Clarifying the definition of a standard form contract;
• Amending the coverage of “small business” contracts by removing the value threshold;
• Extending UCT protections to government contracts; and
• Removing ‘minimum standards’ as prescribed by states and territories.

In a closely related development, on 14 March 2019, the Parliamentary Joint Committee on Corporations and Financial Services released its inquiry into the franchising industry (The Franchising Report) and made some 71 recommendations regarding the Franchising Code of Conduct. The Report examined the inequality in the relationships between car dealers and motor vehicle distributors, particularly with regard to the lack of protection available for car dealers from Unfair Contract Terms in their agreements with distributors. The Report refers to Section 23 of the ACL which protects small businesses from Unfair Contract Terms when agreements are entered into regarding the supply of goods and services, commonly referred to as the Unfair Contract Terms (UCT) provisions. Importantly, the Franchising Report recommended that the UCT provisions apply to franchises and therefore not be subject to any threshold test.

The Report argues that car dealers specifically have not received any protection or benefitted at all from the UCT legislation due to the thresholds of what constitutes a small business (where at the time the contract is entered into, the party is a business that employs fewer than 20 persons).¹ Car dealers as according to the Australian Automotive Dealers Association are at greater risk of being subjected to Unfair Contract Terms as the return on investment can take many years and after making the initial investment, negotiating balanced commercial terms can be difficult. The Report therefore proposes that all franchises be included in the scope of Section 23.

Currently, most motor vehicle dealer agreements also allow the local importer to unilaterally vary the terms of the dealer agreement. The Report proposes that the Franchising Code be amended so that in the event of a seemingly unilateral variation to the agreement, any such variation can only occur following the agreement by the majority of franchisees, or alternatively by the representatives elected by a majority of franchisees.

The Assistant Treasurer’s announcement on the 29 March of the proposed amendments to current laws reflect the recommendations made by the Parliamentary Joint Committee in their Report and is likely to be welcomed by car dealers who are currently not protected from UCTs under Section 23 of the ACL. These reforms would significantly improve and strengthen protections from UCTs so that they are afforded to car dealers.

We will continue to monitor the details relating to the development and findings of the RIS announced by the Assistant Treasurer.

A full copy of the Franchising Report can be found here.

A full copy of the Assistant Treasurer’s media release can be found here.

This article was written by Maria Townsend, Partner and Robert Gardini, Consultant. 

¹Section 23(4)(b), Australian Consumer Law.