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PROTECTING SMALL BUSINESSES
11.
The report also recommends improved protection for small businesses. At
present, where a business contracts on the other party’s standard written terms
of business, it may challenge unfair exclusion clauses. This means that the court
may review the fairness of a term that excludes or limits liability for negligence or
breach of contract, or purports to allow the other party to render a contractual
performance substantially different from that which was reasonably expected.
12.
We were told that small businesses frequently find themselves signing contracts
that contain other unfair terms, which the law does not allow to be challenged.
This is especially true where a small farmer, manufacturer or builder supplies a
much larger business. The small business may be required to indemnify the
larger business for losses that are not their fault, or forfeit deposits, or accept
variations of price after the contract has been agreed. They may find that the
larger business has reserved the right to terminate a contract at will, or for only a
minor default, while the small business is bound more rigorously by the contract.
13.
We do not wish to interfere with business contracts that are genuinely negotiated
between the parties. However, there is a problem when one party imposes its
standard terms on a vulnerable small business. The small business may not
understand the term or its consequences; and even if it does understand the term
it will often lack the bargaining strength to change it.
14.
The draft Bill includes special protection for the smallest and most vulnerable
businesses, commonly referred to as “micro businesses”. We define these as
businesses with nine or fewer staff.
15.
Under our proposals, these very small businesses will be able to challenge any
standard term of the contract that has not been altered through negotiation, and
is not the main subject matter of the contract or the price.
16.
However, we do not wish to interfere where contracts are already sufficiently
regulated, or where the business is sufficiently sophisticated to look after its
interests. We therefore set out a number of exceptions to the new small business
protections. We exclude contracts for financial services, contracts over £500,000
and situations where the apparently small business is associated with other
businesses, so that overall the group has more than nine employees. We also
recommend that the exemptions currently in the 1977 Act should apply to the
new controls on small business contracts. These exclude, for example, contracts
for land, intellectual property, or security interests or contracts to form or dissolve
contracts. Here people will usually seek legal advice.
17.
In an ideal world, a well-resourced organisation would use preventive powers to
protect small businesses generally, by challenging those that imposed unfair
standard terms on them. However, we have not been able to find an organisation
with the resources to take on this task. The draft Bill does not presently include
preventive powers to be used on behalf of small businesses. However, if
resources could be found, this would provide useful protection. Many small
businesses told us about unfair terms that could be challenged under the present
law, but which are still used because the small business lacks the ability to bring
court action
11.
The report also recommends improved protection for small businesses. At
present, where a business contracts on the other party’s standard written terms
of business, it may challenge unfair exclusion clauses. This means that the court
may review the fairness of a term that excludes or limits liability for negligence or
breach of contract, or purports to allow the other party to render a contractual
performance substantially different from that which was reasonably expected.
12.
We were told that small businesses frequently find themselves signing contracts
that contain other unfair terms, which the law does not allow to be challenged.
This is especially true where a small farmer, manufacturer or builder supplies a
much larger business. The small business may be required to indemnify the
larger business for losses that are not their fault, or forfeit deposits, or accept
variations of price after the contract has been agreed. They may find that the
larger business has reserved the right to terminate a contract at will, or for only a
minor default, while the small business is bound more rigorously by the contract.
13.
We do not wish to interfere with business contracts that are genuinely negotiated
between the parties. However, there is a problem when one party imposes its
standard terms on a vulnerable small business. The small business may not
understand the term or its consequences; and even if it does understand the term
it will often lack the bargaining strength to change it.
14.
The draft Bill includes special protection for the smallest and most vulnerable
businesses, commonly referred to as “micro businesses”. We define these as
businesses with nine or fewer staff.
15.
Under our proposals, these very small businesses will be able to challenge any
standard term of the contract that has not been altered through negotiation, and
is not the main subject matter of the contract or the price.
16.
However, we do not wish to interfere where contracts are already sufficiently
regulated, or where the business is sufficiently sophisticated to look after its
interests. We therefore set out a number of exceptions to the new small business
protections. We exclude contracts for financial services, contracts over £500,000
and situations where the apparently small business is associated with other
businesses, so that overall the group has more than nine employees. We also
recommend that the exemptions currently in the 1977 Act should apply to the
new controls on small business contracts. These exclude, for example, contracts
for land, intellectual property, or security interests or contracts to form or dissolve
contracts. Here people will usually seek legal advice.
17.
In an ideal world, a well-resourced organisation would use preventive powers to
protect small businesses generally, by challenging those that imposed unfair
standard terms on them. However, we have not been able to find an organisation
with the resources to take on this task. The draft Bill does not presently include
preventive powers to be used on behalf of small businesses. However, if
resources could be found, this would provide useful protection. Many small
businesses told us about unfair terms that could be challenged under the present
law, but which are still used because the small business lacks the ability to bring
court action
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