'Deeply flawed': Rod Sims calls for change to unfair contract law

Rod Sims has called for reform of unfair contract law in relation to businesses and says the legislation is "deeply, deeply flawed".

The chair of the Australian Consumer and Competition Commission told the Vodafone National Small Business Summit in Sydney on Friday that the law needs to be strengthened with tougher penalties introduced for breaking it.

ACCC chair Rod Sims would like to see "huge penalties" for breaches of unfair contract law.

Photo: Alex Ellinghausen

“The business-to-business unfair contract term law is an extremely valuable law that works to protect small businesses against terms that just should not be found in contracts," he said.

"However it does not go far enough, and its limitations really tie our hands as a regulator. What we want is unfair contract terms to be made illegal and we want huge penalties to apply."

Limitations with the current law

Mr Sims said the Australian Consumer Law currently allows a potentially unfair contract term to be challenged in a court so it can be declared void, but it does not prohibit such a term being included in a contract in the first place.

Companies can include potential unfair contract terms in their contracts and when, and only when, challenged by the ACCC, do companies need to remove them from their standard contracts.

What we want is unfair contract terms to be made illegal and we want huge penalties to apply.

Rod Sims

"The fundamental flaw is it is not illegal to have an unfair contract terms," says Mr Sims. "What does it mean to have the term void? There is no penalty, no sanction. So really we become the thing we absolutely never want to become which is a company compliance department."

Problems with enforcement

Mr Sims said there is little the ACCC can do to hold big businesses to account for prior conduct and it cannot issue infringement notices for unfair contract terms.

"You comply with the law and if you don't we whack you, it is really simple," he said. "With unfair contact terms we cant do that. We have to take companies to court and in many cases when we knock on the door they say 'Go take a jump'. They can sit there with unfair contract terms in their contracts knowing they are unfair and not do anything about them until we are on the steps of the court. That is just completely unsatisfactory."

Mr Sims said the law is not strong enough.

"Unfair contract terms should be illegal," he said. "As it stands, no real incentive exists for businesses to ensure their standard contracts do not contain such terms, which really means they have incentive to include them and see if they can get away with it. This is out of step with other provisions in the Competition and Consumer Act 2010, and Australian small businesses are the ones paying the price.”

Mr Sims says the flawed legislation is a product of the political process in which it was created.

He is hopeful of reform with a government review of the unfair contracts law is being undertaken.

"The law got over the line in a half form, it just sort of snuck over the line with too many compromises," he said. "The good news is it got over the line. Now we have to fix it up."

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