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I drafted the core of this article on disadvantages faced by small to medium businesses on May 13 and, much to my surprise, that night the federal government announced in its budget that the right to review unfair contracts would be extended to small businesses.

While voters may have differing views on other parts of the budget, the government got that part right! (unless subsequent lobbying persuades it to back down).

Here is the article:

“In 2009, I wrote about the disadvantages small to medium businesses - which would include most farming enterprises - face when they deal with large corporations buying their products or supplying them services.

I often see standard contracts that contain clauses which favour a large corporation that my SME client deals with. This leads to the question: why should you agree to a one sided contract?

The difficulty for most SMEs is they have no ability to negotiate the terms of the contract because the large corporation is often in a position where it exercises substantial market or financial power and the SME is in a position of ‘take it or leave’.

The concentration of market and financial power in large corporations is in fact, increasing, and many of the publicly listed corporations wield enormous bargaining power, and seem to be getting more powerful.

At the current rate of mergers and acquisitions, in 50 years’ time the Australian stock exchange will have very few large corporations left to invest, as most of them will have been acquired by overseas companies other than the large banks, if the government retains its existing ‘4 pillars’ banking policy.

In 2009, the federal government looked at whether the Competition & Consumer Act should provide more protection for small businesses by extending the consumer laws which were being incorporated into the Act to cover SMEs. Sadly that reform, which would have rendered unfair contract conditions unenforceable, was not introduced as the federal government backed down.

State governments recognised the need for intervention on behalf of tenants dealing with landlords when they introduced legislation to override harsh lease terms in favour of commercial or residential landlords.

Personally, I think it’s time for another round of lobbying by SME representative organisations on a national basis, to try and achieve some fairness in the law of contract rather than leave large corporations, many of whom are publicly listed multi-nationals, with the power to dictate the terms of their dealings, at the expense of the smaller players in the business community.

It is hard enough for an SME dealing with a large corporation to afford its day in court if there is a dispute, without also having to grapple with one-sided contracts.

When SMEs are doing business with larger publicly listed corporations, the concept of negotiating contracts, which still applies where you are dealing between equals, does not apply.

Until the federal government amends the Act to allow SMEs to challenge unfair contract conditions, the law of contract will continue to favour the rich and powerful.”

Provided that the government sticks by its budget statement and the Act is amended SMEs will not have to deal with large corporations thinking there is a gun to their head - or at least there will not be so many bullets in it!