Extending an unfair trading practices prohibition to commercial arrangements with small businesses: a potential chilling effect

The Commonwealth Government has announced that it will seek to extend a proposed unfair trading practices prohibition to business-to-business (B2B) dealings involving small businesses.

This is inconsistent with the position canvassed in an earlier consultation, which identified a range of risks of introducing a broadly applicable business-to-consumer (B2C) prohibition and B2B prohibition simultaneously. Given the potentially wide-ranging impact of a more broadly applicable prohibition, the Government must carefully consider the practical implications of this proposal as part of its planned consultation.

Unfair trading practices prohibition: a brief recap

In August 2023, following an extended period of advocacy from the Australian Competition and Consumer Commission (ACCC), the Government began consultation on the potential nature and scope of an unfair trading practices prohibition. This was said to be a justified expansion of the ACCC’s enforcement ‘toolbox’ on the basis that certain conduct or practices were not captured by existing prohibitions in the Australian Consumer Law (ACL).

In November 2024, the Government released a second consultation paper, Unfair trading practices: Consultation on the design of proposed general and specific prohibitions. It proposed the prohibition would comprise:

• A general prohibition, which would prohibit conduct that: (i) unreasonably distorts or manipulates, or is likely to unreasonably distort or manipulate, the economic decision-making or behaviour of a consumer; and (ii) causes, or is likely to cause, material detriment (financial or otherwise) to the consumer.

• A grey list of examples of conduct that are likely to satisfy the general prohibition, including the omission of material information and provision of material information in an unclear, unintelligible, ambiguous or untimely manner.

• Specific prohibitions which would prohibit certain types of conduct. The suggested areas of focus were:
  
  
  • subscription-related practices (e.g. prohibiting businesses from offering a subscription contract without meeting certain requirements);
    
    
  • drip-pricing, or where a headline price is advertised, but fees increase that price as the customer moves through the purchasing process;
    
    
  • dynamic pricing, where prices vary based on real-time demand;
    
    
  • online account requirements (i.e. a requirement for consumers to set up an account and provide personal information to make an online purchase); and
    
    
  • barriers to accessing customer support.

Types of B2B conduct at issue

Following consultation, the Government has decided to extend the proposed unfair trading practices prohibitions to conduct involving small businesses, stating that ‘it is important to also extend protections to small businesses, who face power imbalances when dealing with larger businesses’.

The Government’s announcement emphasised the harms experienced by small businesses in the construction, agriculture and retail sectors in particular and, drawing from the ACCC’s submission to the second round of consultation, highlighted a number of potentially unfair practices that small businesses face, including:

• larger businesses using superior bargaining power to pressure smaller suppliers into accepting unfavourable contract changes;

• commercial tactics where large businesses discourage small businesses from exercising their legal rights by suggesting possible commercial consequences;

• retailers threatening to de‑list suppliers in retaliation for seeking price increases to which they may have been contractually entitled;

• online platforms making significant account changes with limited notice or without transparency; and
  
  
• platforms using complex digital interfaces that may lead small businesses into accepting disadvantageous terms when signing up for essential business services.

Risks of immediately adopting a B2B unfair trading practices prohibition

The Government’s proposal is inconsistent with the detailed analysis regarding the risks of immediately adopting a B2B unfair trading practice prohibition expressed in its November 2024 consultation paper, in which it identified and explained that:

• a general unfair trading practices prohibition for B2B transactions could negatively impact freedom of contract and business certainty;

• introducing these prohibitions could ‘carry significant risk’ where existing regulatory regimes already apply (such as various industry codes), for example, the Food and Grocery Code of Conduct,^[1] and Dairy Code;^[2] and

• introducing the broader prohibition would be inconsistent with the approach adopted for prior amendments to the ACL and equivalent overseas regulations.

The consultation paper called out expressly the careful, staged approach to introducing the unfair contract terms legislation, that applied initially to B2C dealings, and then extended to B2B dealings after issues with the interpretation of the legislation were judicially considered and enhanced guidance was prepared. This was to create greater certainty regarding the operation of the expanded prohibition for businesses, who could measure their practices against a bank of useful and instructive precedent and interpretative material.

Practical implications of a B2B unfair trading practices prohibition for businesses

If implemented as proposed, our view is that the B2B unfair trading practices prohibition will substantially and immediately increase commercial uncertainty in B2B relationships and generate a range of ill-defined and unprincipled allegations of breach.

Our view is that the previous proposed approach recommended by the Treasury’s November 2024 consultation paper, in which a B2B prohibition would be introduced after a B2C prohibition, is more proportionate. Instead, businesses will now be subject to a new, potentially expansive prohibition where there is no case law to guide compliance. This is particularly important where the proposed new prohibitions include a range of new and different legal tests, thresholds and adjectives, which are unfamiliar to the Australian business community in the context of the ACL.

Issues of interpretation can often only be identified, understood and resolved once any law comes into effect and legislation has been judicially considered. For this reason, there is a strong rationale for a body of case law to be developed in the context of a B2C prohibition, before extending the prohibition to B2B dealings. If that is not done, there is a real risk of a chilling effect that will deter a range of reasonable and valid, albeit tough, negotiations between smaller and larger suppliers.

As the Government itself stated in its initial consultation paper, the unfair trading practices prohibition has the risk of creating ‘an overly cautious commercial environment with potential impacts on business confidence and innovation’ and we agree with the consultation paper that it is likely to lead to substantial additional transition and compliance costs for businesses active in Australia.^[3]

At minimum, a reasonably long transition period prior to any B2B provision coming into effect and, in parallel, the preparation of detailed guidance from the ACCC, is essential to mitigate the considerable uncertainty. However, the inherent unpredictability cannot be fully resolved by any such preventative measures.

Greater regulatory uncertainty

One aspect that has not been clarified is how any B2B unfair trading practices prohibition would interact with other existing prohibitions for similar conduct, as this prohibition is likely to be duplicative of existing laws, regulations and codes.

The November 2024 consultation paper notes that certain practices to be addressed by the unfair trading practices prohibition overlap with various industry codes, such as restrictions on the de-listing of products,^[4] requirements to deal with commercial counterparties in good faith,^[5] and limitations on the unilateral variation of agreements.^[6] The Government has already strengthened some of these codes which apply to B2B dealings in the retail and agriculture industries.

The existence of potentially competing regulatory regimes creates serious compliance issues, so it is important that any B2B unfair trading practices prohibition is drafted to reduce the risk of inconsistent outcomes and mitigate expanding the regulatory burden on companies active in Australia.

Next steps

Consultation on the specific design and form of the unfair trading practices prohibition for businesses will continue this year.

^{[1]  See Commonwealth, Independent Review of the Food and Grocery Code of Conduct (Final Report, June 2024), p 17.}

^{[2]  See ACCC, Supermarkets Inquiry 2024-2025 (Interim Report, August 2024), p 231.}

^{[3]  See Treasury, ‘Protecting consumers from unfair trading practices Consultation Regulation Impact Statement The Treasury’ (August 2023), p 28.}

^{[4]  Competition and Consumer (Industry Codes – Food and Grocery) Regulation 2015 (Cth) s 19.}

^{[5]  Competition and Consumer (Industry Codes—Horticulture) Regulations 2017 (Cth) s 8; Competition and Consumer (Industry Codes—Dairy) Regulations 2019 (Cth) s 11; Competition and Consumer (Industry Codes – Food and Grocery) Regulation 2015 (Cth) s 6B.}

^{[6]  Competition and Consumer (Industry Codes – Food and Grocery) Regulation 2015 (Cth) s 9.}