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Appendix 7 - House of Representatives Standing Committee on Industry, Science and Technology - Report: Finding a balance towards fair trading in Australia, May 1997 - Recommendations
RECOMMENDATIONS
1 Introduction
The
Committee was asked to report to Parliament on business conduct issues arising
out of commercial dealings between firms. Evidence given to the Fair Trading
inquiry indicated that small businesses were vulnerable to exploitation and
abuse in the following areas:
- retail tenancy;
- franchising;
- misuse of market power by larger
competitors;
- and small business finance.
The
Committee makes recommendations on specific policy measures to address the
problems arising in each of these areas.
The
Committee also recommends action to improve small business access to justice
and to provide small businesses with better education and training to forestall
problems arising.
The
Committee also considered the need for general legislative protection for small
businesses against unfair conduct and recommends a strengthening of Part IVA of
the Trade Practices Act. The Committee considers that the success of new
legislative protection against unfair conduct will require vigorous enforcement
by the Australian Competition and Consumer Commission.
Recommendation
1.1 (para 1.50)
The
Committee recommends that the Australian Competition and Consumer Commission be
proactive in promoting compliance with the proposed new unfair conduct provisions
of the Trade Practices Act 1974.
Due to the
ineffectiveness of the Australian Competition and Consumer Commission in small
business matters in the past, the Committee believes there is an urgent need to
establish a body of precedents under the new provisions as quickly as
practicable.
2 Recommendations
on retail tenancy
Recommendation
2.1 (para 2.35)
Uniform
retail tenancy legislation
The
Committee recommends the drafting of a Uniform Retail Tenancy Code by the
Australian Competition and Consumer Commission in consultation with industry
participants including:
- the
Property Council of Australia;
- the
Australian Retailers Association;
- the
Australian Chamber of Commerce and Industry;
- the
Council of Small Business Organisations of Australia and its constituent retail
bodies, including Independent Retailers of Australia;
- other
retail associations, including the United Retailers Association Inc;
- the
Australian Institute of Valuers and Land Economists; and
- the
Australian Institute of Business Brokers.
The
Committee recommends that the Uniform Retail Tenancy Code be submitted to the
Council of Australian Governments with a view to the adoption of uniform retail
tenancy legislation around Australia.
Recommendation
2.2 (para 2.40)
Underpinning
the Uniform Retail Tenancy Code in the Trade Practices Act
The
Committee recommends that the Minister request the Australian Competition and
Consumer Commission to approve the Uniform Retail Tenancy Code for underpinning
in the Trade Practices Act 1974, thus providing for the courts to take
into account provisions of the Uniform Retail Tenancy Code in determining
whether or not business conduct in the area of retail tenancy has been ‘unfair’
and thus unlawful.
Recommendation
2.3 (para 2.60)
Dispute
resolution
The
Committee recommends that the Uniform Retail Tenancy Code provide for:
- low
cost mediation and conciliation of retail tenancy disputes; and
- retail
lease tribunals around Australia with jurisdiction to make binding decisions on
retail tenancy disputes and affording limited rights of appeal to the courts.
The
Committee further recommends that the Code explicitly exclude the option of
legal representation for parties to a retail tenancy dispute, short of any
eventual appeal to the courts.
Recommendation
2.4 (para 2.93)
Security
of tenure
The
Committee recommends that the Uniform Retail Tenancy Code provide for:
- minimum
lease terms of five years;
- sitting
tenants to have the option of lease renewal for a further five year term;
- sitting
tenants to have a right of first refusal of the lease for subsequent five year
periods; and
- the
option of casual leasing in clearly defined circumstances but only at the
request of the lessee.
The
Committee further recommends that parts (b), (c) and (d) of this recommendation
extend to tenants under existing leases.
Recommendation
2.5 (para 2.106)
Lease
assignment
The
Committee recommends that the Uniform Retail Tenancy Code:
- require
lessees assigning their leases to provide a disclosure statement to prospective
purchasers, showing all relevant information on the financial position of the
business and the rights and obligations of the business as a tenant, including
information on rental rebates, rental holidays, and any other financial
incentives applying at the time of assignment or in the previous five years;
- specify
the grounds on which a lessor can withhold consent to the assignment of a
retail lease; and
- provide
that:
- purchasers of a trading
retail outlet be given a new lease by the property management, when all parties
agree; or
- (as a fallback option) all
rights and responsibilities pursuant to a retail lease pass to the new tenant
on assignment of a lease, unless otherwise agreed in writing between the
assignor and assignee.
Recommendation
2.6 (para 2.130)
Disclosure
of rents paid
The
Committee recommends that the Uniform Retail Tenancy Code provide for
accredited retail property valuers to have access - on a non-disclosable
basis - to relevant Tenancy Schedules of shopping centres, showing the
total occupancy costs for each tenant in the centre and the value of any
concessions or rebates given, for the purposes of valuing retail property or
providing advice on market rent review.
Recommendation
2.7 (para 2.173)
Rents and
rent review
Recognising
rent will always be a matter for negotiation between landlord and tenant, the
Committee recommends the Uniform Retail Tenancy Code provide that:
- the
disclosure statement set out clearly the method by which rent is to be
calculated for the term of the lease without provision for review or for
unpredictable increases;
- market
rent review only be permitted on renewal of a lease; and
- the
level of market rent on lease renewal be determined by an independent
accredited valuer, with costs shared between the parties.
Recommendation
2.8 (para 2.197)
Outgoings
and promotions
The
Committee recommends that the Uniform Retail Tenancy Code provide:
- for
the establishment of merchants’ associations in shopping centres;
- that
all tenants in a shopping centre belong to the merchants' association in that
centre;
- for
Articles of Association of merchants’ associations to be appended to the
standard retail lease;
- for the
merchants’ association to approve the annual budget of variable outgoings and
promotions levies at an annual general meeting; and
- for
each tenant to be provided with detailed quarterly statements of expenditure on
outgoings and promotions and audited annual statements of expenditure on
outgoings and promotions.
Recommendation
2.9 (para 2.214)
Leases
and disclosure statements
The
Committee recommends that the Uniform Retail Tenancy Code provide for:
- a
standard form ‘plain English’ retail lease; also published in community
languages; and
- mandatory
pre-contract disclosure of all factors likely to affect the viability of
lessees - including all items currently required to be included in a
statutory disclosure statement under the NSW Retail Leases Act 1994.
Recommendation
2.10 (para 2.228)
Tenancy
mix
The
Committee recommends that the Uniform Retail Tenancy Code provide:
- for the
merchants’ association in a shopping centre to be consulted in relation to
changes in tenancy mix; and
- for
lessors to include in disclosure statements provided prior to the signing of a
retail lease the tenancy mix of the shopping centre and whether or not there
are any provisions for rent reduction to apply if the turnover of the lessee
falls owing to the introduction of a new competitor, or new competitors.
Recommendation
2.11 (para 2.256)
Redevelopment
and relocation
The
Committee recommends that the Uniform Retail Tenancy Code provide for retail
tenants to be compensated according to pre-determined formulae specified
in the lease or disclosure statement for:
- disturbance
to trading caused by redevelopments carried out at the direction of the lessor;
and
- any
costs incurred as a result of a compulsory relocation, including packup costs,
any new fitout requirements, and compensation for disruption to trading.
The
Committee further recommends that the Uniform Retail Tenancy Code require a
relocated tenant to be granted a lease over new premises comparable to those
vacated on like terms and conditions to the surrendered lease.
Recommendation
2.12 (para 2.261)
Economic
and social impact statements
The
Committee is concerned about the proliferation of retail shopping space in
Australia and recommends that the Commonwealth raise through the Council of
Australian Governments the possibility of local planning authorities requiring
'social and economic impact statements’ to be lodged with development
applications for shopping centre developments, for consideration with a view to
restricting oversupply of retail floorspace.
3 Recommendations on franchising
Recommendation
3.1 (para 3.30)
The
Committee recommends that the Franchising Code of Practice and any other
relevant codes should provide for full disclosure of information relating to
rental, outgoings, promotion expenses, tenancy mix and redevelopment proposals
to franchisees who sub-let their premises from the franchisor. The code
should also provide for adequate representation of franchisees in merchants'
associations.
Recommendation
3.2 (para 3.79)
The
Committee recommends that the Petroleum Retail Marketing Sites Act and the
Petroleum Retail Marketing Franchise Act remain in force until new generic
franchising legislation is enacted.
Recommendation
3.3 (para 3.112)
The
Committee recommends that the Commonwealth enact specific franchising
legislation providing for compulsory registration of franchisors and compliance
with codes of practice. The definition of franchising under that legislation
should include motor vehicle and farm machinery distribution arrangements and
the oil industry.
The
legislation should provide for adequate disclosure documentation, the
establishment of appropriate independent code administration bodies, and
dispute resolution procedures funded through compulsory registration fees.
4 Recommendations
on misuse of market power
Recommendation
4.1 (para 4.59)
The
Committee recommends that the Trade Practices Act 1974 be amended to
give the Australian Competition and Consumer Commission the power to take
representative actions under Part IV of the Trade Practices Act which deals
with various forms of restrictive trade practices, including the misuse of
market power.
Recommendation
4.2 (para 4.66)
The
Committee recommends that the Australian Competition and Consumer Commission
make investigation of complaints, and enforcement of the law, in relation to
the misuse of market power in the retail sector a top priority in light of the
high degree of concentration in that sector and the disturbing evidence
submitted to the Fair Trading inquiry.
5 Recommendations
on small business finance
Recommendation
5.1 (para 5.16)
The
Committee recommends that small businesses be included in any client
protection/dispute resolution programs established by the Treasurer pursuant to
the recommendations in the report of the Financial System Inquiry (the Wallis
report).
Recommendation
5.2 (para 5.48)
The
Committee recommends that, in the light of the business conduct issues raised
in the Fair Trading inquiry, the Commonwealth, in conjunction with State and
Territory governments, examine the laws dealing with repossession and mortgagee
sales with a view to providing that:
- property
owners have a reasonable opportunity to retire their debts by refinancing,
before properties can be sold;
- properties
sold by mortgagee sale cannot be sold to the mortgagee or any company in which
the mortgagee has an interest; and
- there
is a formal dispute resolution mechanism to guard the rights of unsecured
creditors and shareholders against the actions of receivers/liquidators.
Recommendation
5.3 (para 5.52)
The
Committee recommends that the concerns about client confidentiality raised in
the Fair Trading inquiry be taken into account by any Taskforce established to
review credit reporting and/or privacy of financial records.
Recommendation
5.4 (para 5.67)
The
Committee recommends that the Treasury, in light of the concerns expressed in
the Fair Trading inquiry, examine:
- the
practice of banks and other financial institutions securing business finance
against real property rather than against the commercial viability of the
business;
- the
implications of this practice for the efficient operation and survival of small
businesses in Australia;
- whether
or not banks and financial institutions are charging excessive risk premiums
for business finance given that business loans are secured against assets; and
- options
for promoting or ensuring small business access to finance secured against the
potential commercial viability of the business.
Recommendation
5.5 (para 5.85)
The
Committee recommends that:
- the
Code of Banking Practice be extended to cover all small business transactions
instead of just applying to banking services 'for private or domestic use';
- the
Australian Banking Ombudsman Scheme he extended to all small businesses, not
just those which are unincorporated;
- the
monetary limit for disputes under the Australian Banking Ombudsman Scheme be
extended to 5500 000 to encompass the loan requirements of small businesses in
Australia; and
- if the
banks are not prepared to implement part (a) of this recommendation by 30 June
1998, the Commonwealth introduce a code of conduct for the financial sector
underpinned in legislation.
6 Legislative
protection against unfair conduct
Recommendation
6.1 (para 6.73)
The
Committee recommends that Part IVA of the Trade Practices Act 1974 he
amended by repealing the existing section 51AA and incorporating a new
provision proscribing unfair conduct in commercial transactions. The section
should read as follows:
Unfair conduct
New
Section 51AA
- A
corporation shall not, in trade or commerce, engage in conduct that is, in all
the circumstances, unfair.
- Without
in any way limiting the matters to which the Court may have regard for the
purposes of determining whether a corporation has contravened subsection(1) the
Court may have regard to:
- the harshness of the result;
- any
influence or pressure exerted on, or any tactic used against a person by the
corporation or a person acting on behalf the corporation;
- whether or not a person suffered from any disability;
- whether
or not there was a disparity in bargaining power between the parties;
- whether
or not, as a result of conduct engaged in by the corporation, a person was
required to comply with conditions that were not reasonably necessary for the
protection of the legitimate interests of the corporation;
- whether or not the other person was able to understand
any documents;
- the
amount for which, and the circumstances under which, a party could have
acquired identical or equivalent goods or services from a person other than the
corporation;
- the
extent to which the conduct of the corporation is consistent with its conduct
towards other persons who have entered into transactions or commercial relationships
with the corporation that are the same as, or substantially similar to, the
transaction or the commercial relationship between the corporation and the
other person;
- the
requirements of any code of practice applying to participants in the area of
trade or commerce in which the corporation is involved and which have been
approved by the Australian Competition and Consumer Commission in accordance
with section 51AAA;
- the
extent to which the corporation has made prior disclosure of any of its
intentions affecting the interests of the other party and of the risks involved
to that party;
- in
relation to a contract, the extent to which the corporation was prepared to
negotiate with the other person in relation to the terms and conditions of the
contract; and
- the good faith of the parties.
- A
corporation shall not be taken for the purposes of this section to engage in
unfair conduct in connection with the supply or possible supply of goods or
services to a person by reason only that the corporation institutes legal
proceedings in relation to that supply or possible supply or refers a dispute
or claim in relation to that supply or possible supply to arbitration.
- For
the purposes of determining whether a corporation has contravened subsection
(1):
- the
court shall not have regard to any circumstances that were not reasonably
foreseeable at the lime of the alleged contravention; and
- the
court may have regard to conduct engaged in, or circumstances existing, before
the commencement of this section.
Recommendation
6.2 (para 6.78)
The
Committee recommends that Part IVA of the Trade Practices Act 1974 be
amended to incorporate a new provision (section 51AAA) providing for the
Australian Competition and Consumer Commission to approve codes of practice -
the section to read as follows:
Power of the
Commission to approve codes of practice
New
Section 51AAA
Where the
Commission is satisfied that associated corporations in afield of trade or
commerce have, in consultation with organisations representing other interested
persons, agreed to abide by a particular code of practice for fair dealing with
those interested persons, the Commission may approve that code of practice.
Recommendation
6.3 (para 6.81)
The
Committee recommends that the Trade Practices Act 1974 be amended:
- to
allow in section 82 the recovery of damages under Part IVA giving parties
similar rights and access to remedies as are currently available under section
52; and
- to make
available civil penalties in Division 1 and 1A of Part V and for the proposed
unfair conduct provision, as well as for section 51AB if that is retained.
7 Recommendations
on access to justice and education
Recommendation
7.1 (para 7.13)
The
Committee recommends that the Trade Practices Act 1974 be amended:
- to
provide for mandatory pre-trial mediation of actions under the new
section 51AA, prohibiting unfair conduct in commercial transactions; and
- to
provide that, in assessing costs for litigation under the new section 51AA, the
courts should take into account the good faith in which parties have
participated in any pre-trial mediation.
Recommendation
7.2 (para 7.16)
The
Committee recommends the Attorney-General explore with the States and
Territories low cost options for improving small business access to legal
tribunals for commercial disputes.
Recommendation
7.3 (para 7.24)
The
Committee recommends that the Minister for Industry, Science and Tourism
develop education strategies for existing and prospective small business operators
which would include targeting:
- chambers
of commerce;
- trade
associations;
- local
government development units;
- public
and private sector enterprises that may be facing restructure their activities,
necessitating employee lump sum payouts for retirement or redundancy; and
- financial
institutions.
Recommendation
7.4 (para 7.25)
The
Committee recommends that:
- a
national campaign be undertaken to raise awareness by potential small business
entrants of the need to undertake adequate business education prior to
committing themselves to such entry; and
- the
campaign be coordinated by the Commonwealth Government and delivered by State
and Territory Governments.
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