Compete for your small business rights

Date: Jun 02, 2009
Document Type: Newsletter

"Competition brings out the best in products and the worst in people."
- David Sarnoff

Competition is seen as a necessity in business - almost a necessary evil - but what happens when the "necessary" becomes obsolete? There is a fine balance between competition and unfair business practices to obtain competitive advantage. Small businesses can arm themselves with information on trade practices and the rights and obligations of business to ensure they are not the targets for unconscionable conduct or misuse of market power by larger companies.

The competition regulators
The Australian Competition and Consumer Commission (ACCC) are responsible for administering the Trade Practices Act. Section 51AC of the Act makes it unlawful for persons or companies to engage what is called as "unconscionable conduct".

Unconscionable conduct
Unconscionable conduct is to take advantage in a way that offends the conscience and can happen at any stage, such as executing a contract where the bargaining power was unequal.

Small businesses and unconscionable conduct
Section 51AC prohibits unconscionable conduct in small business transactions where:

  • The value of the goods or services in the transactions do not exceed $10 million; and
  • The business who is the target of the conduct is not publicly listed (i.e. no shares listed on the stock market).

When the above requirements are not met, s 51AC will not apply though remedies under s 51AA (general unconscionable conduct) or other areas of common or equity law will apply.

How to decide whether conduct is unconscionable
Several factors can be considered:

  • The relative bargaining strength of the parties;
  • Whether the stronger party imposed conditions that were not necessary to protect their legitimate business interest;
  • The use of undue influence, pressure or unfair tactics that are harsh and oppressive;
  • The good faith displayed by each party;
  • Whether disadvantages were exploited unfairly;
  • Whether one party is unable to understand the deal due to lack of experience or professional legal advice.

The conduct will be considered as a whole, including other factors not listed above.

How to prevent unconscionable conduct
The adage "prevention is better than cure" rings true in this situation.While there are areas of redress, it is far easier on the wallet and mind to prevent possible unconscionable conduct by:

  • Getting everything in writing;
  • Reading contracts carefully and not signing without reading it;
  • Asking questions on anything they don't understand;
  • Getting professional legal advice;
  • Not accepting an unsatisfying deal, try to negotiate or find a better offer.

Note that unconscionable conduct provisions do not cover when a poor deal is made.

The next step
Always seek legal advice.
Your lawyer can help you through every step of the process of your business transactions and will help you lodge a complaint to the ACCC or find legal redress.

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