The last time I wrote about the unilateral deferred payment (UDP) issue in TransportTalk was back in April of last year.
At that stage several large multinationals had made the move to 60, 90 or 120-day payment terms and for many operators in our industry, this unreasonable practice was becoming intolerable.
I also indicated that the Road Transport Forum was working on a legislative proposal to solve the issue based around the unfair contract term provisions that already exist in the Fair Trading Act and that once that work was done we would offer it to government as a proposed solution.
That proposal, now comprehensively developed, extends provisions that exist to protect consumers in consumer-based contracts to standard form contracts used by small businesses in business-to-business contracts.
This would mean that large companies would be unable to force small businesses into unfair contract terms.
A critical second part to the initiative is the insertion of a clause to allow small businesses adversely affected by unfair contract terms to apply to the courts for relief from those terms.
This is in addition to the current provision by which only the Commerce Commission can apply for relief on a consumer’s behalf.
Whereas National had seemed reluctant to address the issue while they were in power, the election of the new Labour-led Government gave us new hope that something may be done.
Early on the minister for small business, Stuart Nash, made some public statements that indicated that indeed this Government had late payers in its sights.
Nash expressed disappointment in Fonterra for its use of UDP and promised to keep an eye on what was happening in Australia with the possibility of replicating what the Australian Government were doing on the issue.
All good stuff.
Sensing the writing was on the wall Fonterra subsequently announced in April that it would return to paying small businesses on the 20th of the month following the end of the month in which an invoice is received.
Fonterra’s previous policy of taking up to 90 days to pay its bills was blatantly unfair to its suppliers and the smaller businesses that rely on its contracts and was just using them as a cheap form of finance.
It was very pleasing to see the dairy giant drop the practice once and for all.
Further progress was made when I met with Nash and commerce minister Kris Faafoi to discuss UDP, its impact on road transport operators, particularly in rural areas, and whether the Government was indeed going to follow through on its rhetoric and do something about it.
Well, it is fair to say that the determination of both ministers to tackle unfair contract terms was obvious and genuine.
Nash and Faafoi are now actively considering two different legislative methods to protect small businesses from unfair contract terms.
The first being what RTF originally proposed and presented to government around extending unfair contract term provisions in the Fair Trading Act and the second option being to replicate what the Australians are doing to solve it over there by introducing unconscionable conduct provisions.
Unconscionable conduct is a doctrine in contract law that describes terms that are so extremely unjust, or overwhelmingly one-sided in favour of the party who has the superior bargaining power, that they are contrary to good conscience.
Introducing unconscionable conduct into New Zealand law is a broader response than what RTF proposes and carries with it wider-ranging consequences.
That may make it a far higher legislative hurdle to get over, which considering the fragile state of the three-party governing arrangement does carry with it some risk.
If Nash and Faafoi went down this route it would also suggest that the Government may be eyeing up more comprehensive reforms to deal with aspects of contract-law issues outside of UDP.
Regardless of whatever solution the Government ultimately chooses, it will be a massive improvement on the laissez-faire treatment of business-to-business contracts and payment terms that exist in current legislation.
Officials have been tasked with investigating both options and will report back to ministers sometime soon.
RTF is maintaining close contact with the minister’s offices and has offered whatever support they require to help us put an end to UDP in New Zealand.
Interestingly, in parallel to the work being done by Nash and Faafoi, is a member’s bill that has just been drafted by Labour backbench MP Deborah Russell, which shines a light on the payment practices of large companies.
The bill is designed to help small businesses get a clearer idea about which large companies use late payment terms.
It does not, however, require those companies to refrain from late payments, so in my view Russell’s bill doesn’t go nearly far enough.
