SINGAPORE - Smaller businesses need greater protection from unfair contract terms in dealings with large suppliers, said Mr Murali Pillai (Bukit Batok) on Monday (Feb 5).
Speaking during an adjournment motion about how unfair terms increase business risk and costs for small and medium enterprises (SMEs), he suggested offering them greater protection through regulatory and legislative solutions.
Due to their size, smaller businesses have less bargaining power. This means they often have no choice but to accept the terms set by the big players, who may issue contracts with onerous or one-sided clauses in the areas like the provision of utilities, telecommunication services and leases, he told Parliament.
Mr Murali, who is a partner at law firm Rajah & Tann, recounted how his aunt, who ran a beauty parlour at Tekka Mall, poured her savings into renovating the shop after her lease was extended for three years. But just 10 months later, the landlord told her to vacate the premises as the entire floor was to be renovated, using the "demolition clause" in the tenancy agreement.
The High Court eventually ruled that the owners exercised the demolition clause in bad faith, but this is rare, said Mr Murali. "For the vast majority of tenants in my aunt's shoes, they would have to yield their premises without any compensation."
He highlighted how under current laws, small businesses here are only given limited protections, when acting as consumers, under the Unfair Contract Terms Act. This focuses mainly on certain types of clauses such as exclusion of liability clauses and indemnity clauses, and excludes certain types of contracts, he said.
In some other countries, such as Australia, Germany and the United States, general protections are provided under the law where the courts can refuse to enforce parts of contracts which are determined to be unconscionable or unfair.
Better protection for smaller businesses "will make them more competitive and, hopefully, allow them to make an even bigger contribution to the vibrancy of Singapore's economy," said Mr Murali.
Responding, Senior Minister of State for Law Indranee Rajah said that enacting general protection legislation here could cause market distortion and inefficiency, which would be harmful to all. For example, landlords may raise rents to address the added business costs, which would hurt SMEs even more in the long run.
It is also difficult to determine whether a particular clause is unfair "or simply the result of a valid, albeit hard, commercial bargain", she said.
She added that the current laws do have safeguards to protect against injustice, as general contractual principles apply to all contracts, and have been used by the Singapore courts to prevent unfair exploitation of parties, such as in the case of Mr Murali's aunt.
"The way forward for SMEs should be to strengthen their bargaining power, through growing their businesses, bolstering their negotiating positions with the assistance of business and trade associations such as the Singapore Business Federation, ensuring that they have other options and alternatives, while at the same time seeking out ways to raise productivity, reduce costs, and maximize profits," said Ms Indranee.