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‘Business Protection’
Over the years there has been a tendency for consumer credit type legislation to extend its protections into business finance areas. Although properly subject to Common Law protections as well as the fair trading sections of the Trade Practices Act, lease and other forms of equipment finance have to-date only been marginally affected by this extension.
Earlier developments in NSW (the Credit (Rural Contracts) Act (1987) and the General Credit Bill (1989)) could have applied these regulations to most of the commercial finance portfolio. AELA, along with other finance sector groups, does not believe that the financial and procedural details of a $400,000 harvesting machine financing contract should be subject to protections aimed at $5,000 personal loans. Enterprises in business for a profit should, we believe, be treated as such and not protected as if they are disadvantaged consumers. Business transactions are of necessity often complex.
AELA supports proper disclosure but is opposed to its legislative prescription as the rigidity, potential for technical breach and frustration of remedies which arise, ultimately lead to a reduced availability of finance and/or a higher finance cost to the sectors so ‘protected’ as lenders respond to the addition of legal risks to the already considerable uncertainties of providing finance to especially small-to-medium sized business. Representations were made urging the abandonment of this regulatory direction; in the event the governments involved at that time decided not to proceed.
In 1992 the Trade Practices Act was amended to insert s51AA which provides: ‘A corporation must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time-to-time, of the States and Territories.’ AELA supported this approach as against the alternative of detailed statutory prescriptions, so that a body of law could evolve based on court decisions on specific facts. It has been our view that there is already sufficient uncertainty in commercial transactions without adding the questions of unconscionability, harshness and oppression. Disparity in bargaining powers and positions is in our view the normal situation in commercial dealings, and of itself could not, nor should not, ever be regarded as unconscionable, harsh or oppressive.
The key is the abuse of power and position. Enhancing competition is the preferred long-term industry and economic strategy. However, in 1998 several years of vigorous debate and inquiries about allegations of unfair trading against small business culminated in the Commonwealth Parliament enacting the Trade Practices Amendment (Fair Trading) Act 1998 which, effective 1 July 1998, prohibits unconscionable conduct in a significant range of commercial transactions and gives statutory support to voluntary and mandatory industry codes of practice. In essence the unconscionability remedy is available for transactions where the price does not exceed $1M and is not available to listed public companies. As a further part of its small business initiative, the Commonwealth Government also announced its intention: to further resource and empower the Australian Competition and Consumer Commission in relation to small business; to foster alternative dispute resolution schemes for small business disputes; and to encourage better methods of assessing small business lending risk. AELA remains to be convinced that this type of legislation in a commercial context will achieve desired policy outcomes without unintended consequences. To-date however, there has been minimal action under these new laws in relation to equipment finance.
More recently, regulation could however have become far more intrusive. The development of the Commonwealth’s Financial Services Reform legislation, initially drafted to cover the retail side of compulsory superannuation, derivatives and like wealth-creation products, was misguidedly expanded to capture most lending, including equipment finance, on the semantic grounds that loans were ‘financial services’. Fortunately, the anomaly of including retail and commercial finance accommodation in a licensing and regulatory regime aimed at financial products wherein the regulated business takes money from the retail investor (rather than the opposite under leasing) was accepted and the legislation, which commenced on 1 March 2002, was duly restricted more in line with its original intention.
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