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From the Desk of the Executive Director

Ken Phillips is co-founder and Executive Director of Independent Contractors of Australia. He is a published authority on independent contractor issues and directs research on related commercial and trade practices issues. Through his numerous articles in newspapers and think-tank and academic journals, Ken is known for approaching issues from outside normal perspectives and is frequently sought out for media comment.

Mall for one but not for all

Monday, January 20, 2014

You’ve got to feel sorry for the billionaires and highly paid executives of the multi-billion dollar corporations who own and control Australia’s major shopping centres. At least that’s what you’d take from the article (Mall owners are wrapped in red tape) in Business Spectator last week by their representative lobbyist, Milton Cockburn of the Shopping Centre Council.

Cockburn was responding to several articles by Robert Gottliebsen (A Coalition sticky spot for shopping centres and Abbott must fix small business in 2014) in which Gottliebsen argued that shopping centre owners are putting themselves in a bad position by opposing the Abbott government's proposed fair contract laws for small businesspeople.

Cockburn, on behalf of shopping centre owners, says that he has no objection to the proposed fair contract laws – as long as they don’t apply to shopping centre owners. One thing that can be said for these shopping centre billionaires is that they don’t mind being upfront about their naked self-interest!

Unfortunately for Cockburn, his arguments lack a foundation in facts. This makes his objections to fair contracts look like self-interested spin rather than a contribution to good public policy debate.

He claims that ‘fair’ is a highly subjective concept that will create commercial uncertainty, because different judges could rule in different ways as to what is fair and unfair. However, what the Abbott government has promised is quite specific and will aid commercial certainty.

The Abbott commitment is to give to small businesspeople the same unfair contract protections that were created for consumers in 2010. Those laws define (in part) an unfair contract as one which "…would cause a significant imbalance in the parties’ rights and obligations arising under the contract".

The law is quite specific, stating that a contract term is unfair if it gives one party but not the other the ability for example to terminate the contract, vary the terms of the contract, change the price and more. This is commonsense stuff. A full layperson’s explanation of the laws is here.

What the 2010 law did in many respects is codify and make clear what is already embedded in the common law understanding of commercial contracts. The legal concept of a commercial contract is that both parties have equal rights to control the terms of the contract. For example, the price cannot be changed unless both parties agree. To a person with common sense, that’s clearly fair.

This principle of equality and balance in commercial contracts is a key legal underpinning of successful market economies. It gives everyone an equal chance to do business.

What happens in practice, however, is that big companies and governments frequently write contracts that subvert these principles by giving themselves dominance under the contract. They give themselves the ability, for example, to change the price of a contract at a whim. The little people can’t afford the legal expense of stopping this and securing their rights. Consequently, the big guys win by intimidation.

The 2010 fair contract laws stopped this for consumers and forced the banks, phone and internet companies and many more to change their contracts. That’s a good thing. The Abbott government has promised to have these protections extended to small businesspeople. That’s a great microeconomic reform that will improve small and big business and the economy.

Cockburn’s shopping centre billionaires are weeping, saying that’s a bad thing. Cockburn claims that the shopping centres are already covered by strong retail tenancy laws. That’s true.

Several decades ago, the shopping centres had tenancy agreements that enabled them to literally do anything they wanted to tenants. Retail tenancy laws were progressively introduced to curtail the harsh and oppressive behaviour of many big shopping centre landlords. Cockburn is saying that the big shopping centre billionaires shouldn’t be layered with extra red tape under fair contract laws as well as existing retail tenancy laws. On the surface, that’s a reasonable request.

What the small business fair contract laws should do is trigger a review of retail tenancy laws to ensure alignment with the fair contract laws. Conceptually, the retail tenancy laws shouldn’t require much amendment to ensure consistency.

The fair contract laws are a good model of light-touch regulation that creates commercial clarity and certainty. This will make for better business.

Robert Gottliebsen is right and Milton Cockburn is wrong. The shopping centre owners are well behind the game. Further, they expose themselves as pushing exclusive self-interest. They want a version of corporate welfare; they want advantage under the law rather than equality before the law. By behaving this way, Cockburn’s shopping centre owners risk damaging their relationship with the Abbott government.

[First published in Business Spectator, January 2014.]

Laurie Park commented on 20-Jan-2014 01:14 PM
Hi Ken
It is enlightening to see a review into competition policy. I started a business after the Hilmer report on the false understanding that government agencies and statutory authorities would be compliant. Big mistake we currently have government departments who fancy themselves as business operators and use their market domination and regulatory powers to disadvantage and eliminate the "competition" this being the small business owners.
It is important that government agencies must also comply with competition law.
Anonymous commented on 20-Jan-2014 06:34 PM
good point Laurie. Govt agencies and departments need to be subject to the same laws as the rest of the community.

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