The Road Transport Forum has for a number of years led the charge in pushing the Government to deal with unfair commercial practices – particularly unilateral deferred payments – that have had an adverse effect on the ability of SMEs, including trucking companies, to do business.
Late last year the Government introduced legislation to deal with the issue, which RTF recently discussed in an appearance before a Parliamentary select committee.
"Ever since this Government took office, we have been in their ear to do something to protect small businesses from unfair commercial practices and specifically unilateral deferred payment terms (UDP)," says RTF's Nick Leggett.
The use of UDP by large customers, sometimes for as long as 90 days after invoicing, can make it very difficult for transport operators in various parts of New Zealand to operate.
"The issue hit the headlines in our industry a few years ago and, while public pressure resolved some instances of UDP, it is important that SMEs receive legislative protection to prevent the practice from re-establishing itself," says Leggett.
Nearly half of businesses surveyed by the Ministry of Business, Innovation and Employment (MBIE) in 2018 indicated that, in the previous year, they had been offered what they considered to be unfair contract terms, or otherwise treated in a way they considered to be unfair.
"Without a doubt, unfair commercial practices are a significant issue and in the uncertain business environment that has been left behind by COVID-19, it is even more important that business-to-business contracts are fair to both sides," says Leggett.
RTF's submission is focused on a number of key recommendations to further strengthen the Bill and increase protections for small businesses.
"Firstly, we want to see the annual value threshold of contracts the legislation applies to increase from $250,000 to $500,000," says Leggett.
"We believe $250,000 is just too low, will exclude too many transport businesses, who despite being small businesses themselves, take on large contracts.
"We are also disappointed that the draft legislation retains the Commerce Commission as having the exclusive right to seek a court declaration that a contract term is unfair. The effect of this is that any legal process to determine an unfair contract term would be long, slow and at the sole discretion of the Commission."
Right from the start RTF advocated that this power be extended so that any party could have the opportunity to establish unfair contract terms in court. This would provide far greater protection to SMEs and would mean that large companies know that overbearing contract terms are susceptible to challenge.
RTF has also submitted that the Bill should apply to all existing contracts, not just if and when they are varied. Many SMEs are already on longterm contracts subject to UDP and other unfair contract terms and under the legislation as drafted, would remain unprotected. RTF does not consider that to be fair.
Finally, RTF has reservations about the protections to SMEs from the use of 'unconscionable conduct' provisions in the Bill. We consider that the definition of 'unconscionable behaviour' or 'unconscionability' is so poorly defined that it will be unusable for SMEs without the significant legal resources that would take to pursue it.
This will prevent small businesses from asserting that a contract term is prohibited and will have a significant impact on the intent of the legislation to protect SMEs.
"Even MBIE officials voiced preference for the legislation to prohibit 'oppressive conduct' rather than 'unconscionable conduct,' says Leggett.
"Oppressive conduct already exists in NZ case law and would provide SMEs with far greater certainty when considering a contract term.
"It is our hope that the select committee will look favourably upon our submission. We believe the legislation has the right intention and with the tweaks we suggest could become an effective tool to protect SMEs from unfair commercial practices used by large commercial customers."