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What the Changes to Unfair Contract Terms Mean for Small Businesses

What the Changes to Unfair Contract Terms Mean for Small Businesses

Unfair Contract Terms: What Online Businesses Need to Know

 

Have you ever signed an online contract without fully reading or understanding its terms and conditions? 

If so, you’re not alone. 

Many people, from those running small businesses to vulnerable individuals, lack the knowledge, ability, time, resources, bargaining power, and patience to effectively review and negotiate terms of standard form contracts.

Some companies flatly refuse to consider changes and respond along the lines of “those are our standard terms, take it or leave it”. That approach is becoming risky.

In an attempt to try and level the playing field a little, the Federal Government recently passed a law  (Treasury Laws Amendment (More Competition, Better Prices) Act 2022), which updates the Australian Consumer Law (ACL) to enable the Courts to levy penalties on businesses for including unfair contract terms in standard form and small business contracts. 

If you have previously paid very little attention to your standard form contracts, or ‘adopted’ them from someone else, or had them given to you by a well-meaning colleague, now is the time to review. If you don’t review your established business practices you face potentially being held liable for quite severe penalties for seeking to impose, or enforce, any unfair contract terms. 

Previously, the Courts could only declare specific terms of a contract unfair and void, but because unfair terms were not prohibited by law, the Court could not impose any penalties. Now they can. 

It is expected that individuals and small businesses will have stronger bargaining powers as a result of these changes. A small business is one that employs fewer than 100 people or has an annual turnover of less than $10 million – so the majority of Australian businesses.  

This still means you either have to go to court, or be taken to court, for these new penalties to be imposed. 

A business will be found to have breached the law (s.23(2A) ACL) if:

   (a)  the person makes a contract; and

   (b)  the contract is a consumer contract or small business contract; and

   (c)  the contract is a standard form contract; and

   (d)  a term of the contract is unfair; and

   (e)  the person proposed the unfair term.

At the same time the penalties for breaches such as false or misleading representations, coercion, unconscionable conduct, supplying products that do not comply with established standards, and harassment have attracted maximum penalties for individuals of $2,500,000 and for companies at $50,000,000. Other calculations may be applied, as set out below 

This means that all businesses, including those businesses mainly online, will need to be more attentive in reviewing and amending their standard form contracts to avoid breaching the revised laws and inadvertently incurring severe penalties.

As a business, you have until 10 November 2023 to review and amend your standard form contracts.

As a business, you have until 10 November 2023 to review and amend your standard form contracts.

 

But What Exactly Is An Unfair Contract Term?

An unfair contract term, according to the ACL, is one that causes an unreasonable or unnecessary imbalance between the parties’ rights and obligations under the contract. An unfair contract term protects one party whilst the other party bears all or most of the risk and cannot negotiate their position. So, a ‘take it or leave it’ approach to contracts. 

Unfair contract terms could also include clauses that are not reasonably necessary to protect one party’s legitimate interests and would cause financial or other detriment to the other party if relied upon. 

Examples of unfair contract terms include allowing one party to terminate, amend, or renew the contract while the other cannot. Other examples include allowing one party to vary the price, goods, or services without the other party’s consent or ability to end the contract if they disagree. 

Consider an example of an online subscription product where the company providing the product unilaterally decides to increase the monthly plan without your consent. You have a power imbalance, with little ability to negotiate a lesser plan. The increase might even apply without you realising it – even if the business provided notice via email before the change. Not everyone gets through their emails… 

Unfair contract terms have always been prohibited and the amendments to the ACL do not change the definitions or considerations of defining unfair contractual terms; instead the amendments affect how those contract terms are dealt with and the increased penalties. 

The situation used to be that if you felt there were unfair contract terms in an agreement, you had to go to court to get an order saying the terms were unfair and therefore void. Now, the Court also has the ability to levy penalties. 

Contract terms which the courts have previously considered to be unfair include those which:

  • give rise to an imbalance between the parties’ rights and obligations
  • are not necessary to protect any one party’s legitimate interests in a contract or project
  • allow one party but not the other to limit the performance required under the contract
  • penalise one party but not the other for breaches of the contract
  • allow one party but not the other to renew the contract
  • allow one party to vary the contract with the other party having a right to terminate for breach
  • allow one party to vary the price or goods or services without the other parties’ consent
  • allow one party to terminate on a wide range of reasons and which may have significantly adverse consequences for the other party

Maximum Penalties

Does your business have the greater of $50 million, or 3x the value of the benefit obtained, or, if the value of the benefit cannot be determined, 30 per cent of your business turnover during the period you engaged in the conduct?

Those are the maximum penalties for a company if it is found to have imposed unfair contract terms. 

For individuals, it is $2,500,000.

If you are a sole trader, can you afford $2,500,000?

Fines have also been increased for breaching the Competition and Consumer Act 2010 (CCA). For example, a finding of anti-competitive behaviour can carry maximum penalties of up to $50 million or three times the value of the benefit obtained, or, if the value derived from the breach cannot be determined, 30 per cent of the company’s turnover during the period it engaged in the conduct, whichever is greater. No business can afford to take these unnecessary risks.

In addition to these penalties, the courts have the power to void, amend, or refuse to enforce part or the whole contract to remedy the loss suffered by the wronged party. 

If a particular clause is deemed to be unfair, the court may also stop a party from including similar unfair terms in future standard or small business contracts. 

Online businesses of all sizes and industries are at risk of breaching the revised legislation, but those that using standard form contracts are particularly exposed. To avoid these risks, all small businesses including online businesses should review their standard form contracts, obtain legal advice if necessary, and amend any outdated or unfair terms before the 12-month respite period ends on 9 November 2023.

These changes to the ACL seek to limit the negotiation power imbalance between parties in the standard form and small business contracts. 

They aim to prevent companies or individuals from taking advantage of unfair contract terms and penalising those who do. As an online small business owner, it’s important to be aware of the changes and take action to ensure that your standard form contracts comply with the revised legislation. 

Now is the time to review and revise any standard form contracts you may have!

 

 

How Can Onyx Legal Help You?

Send us your standard terms and conditions to advice@onyx.legal and ask for a quote to update your contracts or terms and conditions before it is too late. 

Revenue Share Deals for Online Business – the Legal Side

Revenue Share Deals for Online Business – the Legal Side

Revenue Share Deals for Online Business – the Legal Side

Revenue Share Deals for Online Business

What is a Revenue Share Deal?

Revenue share deals are a type of business agreement in which two parties agree to share the revenue generated by a specific product or service. The revenue is typically generated by sales, but it can also come from other sources such as advertising or subscriptions.

Revenue share agreements work well in the online business environment  and are subtly different from a joint venture, although share many of the same features.

Whilst a joint venture might be intended for a specific project, and may also be time or project limited, revenue share deals can be perpetual and unending, provided the parties maintain their good working relationship.

Generally speaking, in a revenue share deal one partner has unique skills which can enhance the performance of a business beyond its current state (eg. strategy), and the other party has a business they want to improve, without the knowledge or experience to do so (eg. operations). As the operations person, the strategic partner often becomes your objective, trusted advisor and promoter, without having any control, ownership or decision making in the business.

This makes revenue share deals attractive to business owners who do not want to give up control or equity in what they have created, don’t have the immediate capital or cashflow to pay a high level advisor, but still want to leverage the knowledge and skills of an advisor.

It’s important to note that in a revenue share deal, both parties are sharing the risk as well as the rewards. If the product or service doesn’t sell well, both parties will earn less revenue.

Revenue Sharing Business Model Examples

1.  Revenue sharing companies

Employee share schemes or other incentive programs, bonus payments to high performing distributors and distributions to shareholders are all forms of revenue sharing in companies. Whilst having an underlying performance base, typically the company retains control over the decision making around whether or not a distribution is made.

2.  Sports and entertainment industries commonly use revenue sharing arrangements

Coaches and managers might take a share of the revenue a player or an entertainer receives from participating in an event. By way of example, for the popular sport of Australian Rules Football, the AFL Players’ Association requires agents to be accredited with them and publishes as a guide

Typically agents won’t charge a fee during a player’s first season or if they are on a rookie contract. From their second year on a list, it’s usually in the 2% to five per cent range on any football payments a player earns. In relation to any commercial or promotional activities, the typical rate is 20 per cent.”

The league generates its revenue from the promotion of the game. Player salaries typically come from the revenue distribution to their club received from the governing league. This was highlighted in early 2023 when the association for rugby players rejected the salary cap issued by the NRL.

3.  Commission and affiliate based arrangements

Straight commission or affiliate agreements without underlying retainers are really a revenue share model. Payment is calculated on each sale over a threshold, even if that threshold is only one sale. Sales are dependent on the efforts of the salesperson and the work of the salesperson only costs the business a percentage of the sale made. Provided that costs of the product or service are not excessive, both parties benefit. 

4.  Revenue Share in Ecommerce

Cost per click advertising is a form of revenue sharing, provided the click converts to a sale!

Advantages and Disadvantages of Revenue Sharing

Some Pros:

  • equal risk to the parties, which can mitigate potential financial losses for either party
  • revenue sharing is performance based – if either party stops performing, revenue decreases
  • both parties can benefit from increased sales and revenue
  • generally speaking, the contributions of the revenue share party extend the business beyond what the business owner could achieve on their own
  • the revenue share party doesn’t have to acquire ownership or liability for businesses it partners with, but can generate a steady stream of revenue from the relationship
  • easier calculation than profit share, as cost of sales is not taken into consideration

Some Challenges:

  • revenue sharing arrangement require a high level of trust
  • if a revenue party is brought in to improve strategy, the operations partner needs to be willing to change existing business practices
  • it can have a slow start – strategic changes may take time to produce tangible increases in revenue
  • an operations partner may not still see the value in the arrangement after the strategic implementations are completed and there is less input from the strategic party

Cons:

  • revenue share works best where the product or service being sold has an identified market and demand
  • revenue share works best with standard products and services, rather than bespoke offerings
  • both parties are likely to be dependent on each other for revenue and success, which can create tension in the relationship
  • the terms of the agreement may be difficult to renegotiate if one party is not satisfied with the arrangement
  • revenue sharing arrangements are generally not attractive to strategic partners when the business is not ready for sales, or is ready, but hasn’t made any sales
  • regulatory, environmental or social changes that significantly impact a business (think COVID impact on hospitality) can ruin a revenue share opportunity

Someone looking to rapidly scale may be seeking a significant involvement of the revenue share partner from the beginning, with feedback potentially reducing over time. It is important to understand that this is different from a standard coaching relationship and that the time contribution of the strategic partner may vary significantly over the life of the relationship, without changing their impact on the business, and therefore entitlement to revenue share.

 

Example Revenue Share Formula

Before establishing a revenue share model, it will be useful for you to consider what it is you want to achieve.

Consider an education and coaching business offering online programs with some live video coaching sessions.

The creator of the business has the knowledge and experience in the subject matter, but would like to increase sales, their current sales are $500,000 per year, which returns a profit. The creator enters into a revenue sharing agreement with a specialist online marketer for the purpose of increasing earnings from their existing products and services.

The revenue share formula might look like this:
– 12% of all sales revenue over $500,000 per annum
– sales are calculated 30 days after purchase and exclude any refunds or cancellations
– distribution of revenue share is made once per quarter for sales occurring in the 90 days ending 30 days before the end of the quarter

In this model, any additional costs incurred by the business do not need to be taken into consideration. The cost of changes in marketing recommended by the specialist online marketer will be covered in the balance (88%) of increase in revenue.

What to Think About Before Entering a Revenue Share Deal

Some things you might like to consider are:

  1. your role and expectations in the revenue share
  2. are you starting from a zero base, or is there existing revenue?
  3. what skills or attributes you are looking for in a revenue share partner
  4. the other party’s role and expectations
  5. structuring the deal
  6. the amount of revenue share
  7. what happens when the revenue share is not paid?
  8. what is the business is sold?
  9. what happens if one party wants out?
  10. meeting and reporting obligations

 

Ending a Revenue Share Agreement

It is important that you are clear on expectations and what will happen if the agreement ends. You will find the proposed revenue share agreement more useful if you can clearly identify any areas where there is potential for dispute and address those things in the agreement, up front.

Open and frank negotiation should always be the first resort (having some tough conversations) but that can stop being feasible if the relationship between the parties has broken down. It is important to have a quick and effective dispute resolution process to avoid damaging the business – the revenue source for each party. With international transactions, international commercial arbitration is often the most accessible and sensible course, but if the parties are in the same country, other options may be preferred.

It is common for there to be a form of earn out included when a revenue share agreement comes to an end by the operations partner. This is in recognition of the contribution of the strategic party’s efforts at the start of the relationship when the changes suggested took time before showing results. If the strategic partner wants out, depending on the reasons, the earn out might or might not come into effect.

It is also not unusual for a strategic partner to request an entitlement to a share of the revenue on a sale of the business, in place of that earn out arrangement. This is because revenue share agreements are so dependent on the relationship between the parties and are unlikely to be transferred to a new owner of the business.

How can Onyx Legal help you?

Make an appointment with one of our team to discuss how to implement a revenue share model for your business.
If you are considering a revenue share deal, download our Revenue Share Questionnaire here to help you get started.

Online Learning: Protecting Your Business Online

Online Learning: Protecting Your Business Online

Online Learning: Protecting Your Business Online

Consumer Protection Laws in Business

Did you know that all businesses must comply with consumer protection laws? So, it is important you understand how consumer rights affect your business. In this video, we give you example of a variety of topics that form part of consumer protection law, and therefore your obligations as a business owner.
 
Quick Guide to Consumer Protection Law – Video Table of Contents
2:00 Looking at Consumer Guarantees that Affect Your Business
2:35 What are Consumer Guarantees for Products – Maximum value now $100,000 up from $40,000
7:41 What are Consumer Guarantees for Services – Maximum value now $100,000 up from $40,000
10:42 Check out the ACCC Small Business Education Program link
11:22 What is Misleading and Deceptive Conduct
14:50 Examples of Misleading and Deceptive Conduct
17:43 What are Fair Payment Terms for Sellers and Is it Illegal to say “No Refunds”?
20:45 How Important is it for Your Business to Display Prices?
23:32 What about Selling Below Cost?
25:02 Do You have Unfair Contract Terms and How do Unfair Contract Terms apply B2B?
27:07 Why it is Important to Have Clear and Simply Contracts
29:50 Do You Have to Comply with Product Safety Standards
31:33 How to Contact Onyx Legal – NEW booking page link here

PRIVACY FOR SMALL BUSINESSES

All business owners must understand their obligations under Australian Privacy Laws.
 
To ensure your business stays on the right side of the law, watch our video to see our Principal Lawyer, Jeanette Jifkins, explain Privacy Law in Australia in more detail.
 

 

TERMS AND CONDITIONS

Terms and conditions help protect you and your consumer. So what do you need to include on your website?

 

 
 
Watch our video to see our Principal Lawyer, Jeanette Jifkins, explain.

 

website ownership basics

Who owns your website and what does that mean?
 
Did you know there is a difference between your domain name and what people see on your website?
 
Watch our video to see our Principal Lawyer, Jeanette Jifkins, discuss website ownership.

 

understanding copyright law

Watch the full video on Understanding Copyright Law below.

 

managing testimonials, comments, and reviews

Let’s talk testimonials and no, you can’t make them up.
 
How do you manage them? Are you allowed to use testimonials for advertising? Can you edit them?
 
Watch our video to see our Principal Lawyer, Jeanette Jifkins, answer all these questions.

 

anti-spam

Spam is an electronic commercial message that can include email, phone and even online chat platforms.
 
When done incorrectly it can be easy to create marketing that your audience may categorise as spam.
 
If you want to avoid this we recommend watching our below video to see our Principal Lawyer, Jeanette Jifkins, explain anti-spam in more detail.

 

How can Onyx Legal help you?

As a Small Business Owner it is sometimes hard to know where to start and scary not knowing what is important for your business from a legal perspective. Book your chance to get some quick, practical legal answers from the Onyx Legal team here and clarify your Next Steps in Business.   

The 7 Key Legal Issues in Buying a Business

The 7 Key Legal Issues in Buying a Business

The 7 Key Legal Issues in Buying a Business

The 7 Key Legal Issues in Buying a Business

1. Not Rushing In

You might be incredibly excited about buying a business, and we have come across people who have decided they want to work from home, have a look on Facebook marketplace and agree to spend money they don’t have, all in one day. No consultation with a lawyer or accountant, no real understanding of what is involved in the business. It did not last and it cost them money. 

We’ve also come across people who buy a business with unrealistic expectations of the work involved and an expectation that if the bank is prepared to lend them the money, they would be able to make a success of it. 

A business purchase is a big commitment. It is not just the cost involved, but running the business afterwards. The next three case studies to show why it is important not to rush into a purchase.

Case Study 1 

A young lady came to us with an offer from her employer to purchase the hairdressing business she was working in ‘cheap’, and to take over the lease for the business. She was keen to sign the agreement, as the seller (her boss) wanted to get out of the business before the end of financial year and it was already June. 

A quick review of the deal suggested that our client would be taking on a business that was only still operating because of her work, a lease that had three years remaining and was not cheap, and the need for some refurbishment of the salon. The landlord was offering a $5,000 incentive for fitout, but the likely cost was probably going to be higher. 

Fortunately, we were able to get our client to slow down and get accounting advice on the business, and to identify to our client that the seller would benefit to the tune of $30,000 per annum by being out of the lease. We encouraged our client to get an estimate of fitout renovations, which came in at a little under $70,000. 

Our client decided there was no benefit in the deal to her and other opportunities were out there. 

Case Study 2

A client came to us after having already taken over a beauty spa business. She thought she had a good deal because the replacement cost of the relatively new equipment in the business was significantly higher than the requested purchase price, and the vendor was providing finance. 

By already being in the business and having paid a deposit of $5,000 to the seller, our client was committed, and there was nothing in writing. The client came to us desperate to get a sale agreement documented because the seller had said they would do it and hadn’t. Our client was already paying the rent, COVID restrictions came into effect and the seller was suddenly very cooperative in getting the paperwork complete. The landlord was fortunately agreeable to transferring the lease, but our client did not want us to advise on the lease, which was very basic. 

Two years down the track it became apparent that the appropriate council certifications had not been obtained for the plumbing work on the premises and the premises were non-compliant. The lease and assignment of lease were silent on responsibilities and our client ended up footing the bill. 

Difficulties with the lease could have been resolved before the purchase was completed if the client had not already been in the premises and operating the business before getting advice. 

Case Study 3

Our client was looking to buy his first business at around $200,000 and had found a business through a broker that he was keen to buy. He arranged the finance, did his own due diligence and asked us to become involved at contract stage. The broker had prepared the contract on behalf of the seller. 

When we received the business purchase contract, it was unclear from the contract what exactly our client was buying. On talking to the broker, they had moved from selling residential property into business broking and were inexperienced in the area. They were also quite frustrated that our client hadn’t simply signed the agreement and sent it back. 

Without the business sale contract clearly setting out what was being sold, we couldn’t assure our client about what they would receive. In addition, the landlord wanted the buyer to enter into a new lease at a rent $10,000 per annum more than the seller had disclosed to our client. 

Fortunately, our client did not rush to sign and when answers to our questions were not forthcoming, and his circumstances changed, he decided not to go ahead. In that instance he had invested in getting legal and accounting advice and told us he had a very valuable learning experience.

2. Knowing What you Are Buying

So, what are you buying? If the contract isn’t clear, then you might be handing over money and not getting what you expected. You need to know what is important to the day-to-day operations of the business and how much of that is being transferred to you. You don’t want to purchase a cafe and upon settlement, find out that the seller cleaned out all the cupboards and fridges the day before and you have to restock before you can trade. 

Case Study 4

Our client was looking to buy his first business at around $200,000 and had found what he thought was a printing business and that everything was done onsite. He had no experience in printing and was planning to hire someone to run the business. He arranged the finance, and asked us to become involved at contract stage. 

When we received the business purchase contract, it was unclear from the contract what exactly our client was buying. There was no mention of printing equipment, paper, card, inks or other stock. We also suggested our client carefully go through the accounts with their accountant to ensure there were sufficient profits in the business to be able to hire someone to run it. The seller was an owner/operator. 

Without the business sale contract clearly setting out what was being sold, we couldn’t assure our client about what they would receive, what equipment was in the business, or even if the seller owned the equipment being used and had the right and ability to sell it. 

Without ensuring the contract was clear, it is possible that our client could have only received business branding, a client list and the liability for a lease – expenses without immediate income.  He would then have also had to immediately spend additional money purchasing the necessary equipment to operate the business. 

Fortunately, our client did not rush to sign and when answers to our questions were not clear, and he was offered a role interstate, he decided not to go ahead. That client is looking to purchase a business for income without him having to be involved in the day to day. He hasn’t done that before and said that it had been a very worthwhile investment in getting legal and accounting advice before signing anything. He now feels better prepared to assess potential deals in the future. 

3. Profit is in the Purchase

When you are buying a business, it is very important to get appropriate accounting and financial advice. It is possible to buy a business that needs to be turned around, but only if you can do so at the right price. 

The profit is in the purchase. 

What opportunities do you have to increase revenue immediately or very soon after you buy the business? It is not uncommon that people who are ready to sell are at that point because they have lost real interest in the business and there is lots of room for improvement. If you can see the opportunities, and know how to leverage them, then you might be looking at a good deal. 

A lawyer who had bought a law practice on the Gold Coast once applied to work with Onyx Legal. They claimed they had been misled about the value of the business, paid too much and there was no opportunity to make money because the Gold Coast was a low socioeconomic area! Naturally, they didn’t get the job. You attitude to the business you are buying can influence your ability to make a success of it. 

When you go into business, success or failure is up to you. Know what the business is worth once the owner walks away (are customers attached to the owner and likely to follow them?) and understand what you are willing to pay to secure that opportunity. 

It is not unusual for cafes and restaurants to be sold for nominal amounts (like $1) because the owner is losing money and is better off getting out. Someone who understand the area, likely clientele, available workforce and marketing can potentially come in and make a success of it. There are stories of a Gold Coast restaurateur selling and buying back a restaurant a couple of times because he knew how to make it a success, but the purchasers didn’t. 

One of the early Australian online tipping platforms was bought from the founders by a larger company, and then bought back by the founders 18 months later at a much lower cost because that company didn’t know how to make a success of it.

4. Assets vs Entities

When you buy a business, you are either buying shares in a company, in which case you are buying the history, or you are buying assets – which is everything necessary to operate a business. Assets can be tangible (like a desk) or intangible (like a website). 

When you buy shares, everything in the company comes with it, so you must understand what loans or other liabilities are sitting in the company, and how they will be dealt with at settlement. Things like tax debts, overdue superannuation, bad credit ratings, court proceedings, embarrassing media stories and so on are all associated with the entity, and that is what you are buying. 

When you are buying assets, you need to understand what is transferrable and what is not. Not all supply contracts are transferable without the prior approval of the customer. So if the profits in the business are in one or two large contracts and it is not clear if they are transferable, you may be losing money as soon as the purchase is completed. 

These sorts of things need to be checked. 

5. Transferring Intellectual Property

Intellectual property – copyright, trade marks, patents etc, need to be transferred in writing, by the owners. It is important to check who owns what when buying a business. In particular, copyright belongs to the creator unless transferred in writing. Software, graphic design, website copy etc all belong to the creator. If the creator is an employee it is ok, the copyright vests in the company, but if they started as a contractor before becoming an employee, there can be uncertainty about what they company owns and is able to sell. 

Case Study 5

Our client was buying a health business and searches showed that the domain name and the website (separate things) used to advertise the business were not actually owned by the seller. A lot of patients found the business through the website. It was essential to have the sale of business contract adjusted to ensure that transfer of the domain name and website occurred as part of the sale. 

Case Study 6

A client was interested in buying a business which used a particular bespoke software for all of its main operations. The due diligence process disclosed that the software developer had been contracting to the business for years and there was nothing in writing about the ownership of that software, or its ongoing use by the company. The seller was unable to produce anything in writing to show that it owned the software, even though it believed it did. 

The buyer of the business walked away. 

6. Competition by the Seller

Online businesses are a big area where competition is a concern after settlement. Most business sale contracts contain some form of restraint on the seller about what they can do in an area that will compete with the business you are buying after the date of the sale. 

A restraint provision in an employment agreement is more likely to be enforceable when it is structured to protect the interests of the buyer, and not likely to be enforceable if it puts the seller in a position where they cannot earn a living. 

Tougher restraint provisions are likely to be enforceable for commercial agreements than they are in employment situations, because the courts will also expect the parties to have made a commercial decision about what is acceptable to them, or not. This is an issue for sellers who do not carefully consider what they plan to do after completion, and how they may be limited by a restraint. 

Different things that restraint provisions can cover are:

  • Area: Does the business operate locally, nationally, in a region like Oceania, or worldwide? Does the seller plan to expand the area of service, or combine it into an existing business that covers a larger area? Is it fair? 
  • Industry: A bug-bear we have is when a buyer attempts to include ‘a similar business’ without defining what that is, or to include the businesses operated by a group of companies related to the buyer, whether or not those businesses are in the same industry or something completely different. Restraints should focus on the business being sold, not something broader.
  • People: It makes sense to restrain a seller from working with existing or potential customers already known in the business being sold, however, we have assisted sellers in being permitted to retain a client list for the purpose of communicating a new business, where that business does not compete with or adversely affect the buyer. 
  • Key contacts: It can be also worthwhile include a restraint against poaching staff, suppliers or distributors for a period of time after completion. 
  • Time: Periods of restraint can vary significantly, anywhere from months to years. Times and areas of restraint vary depending on the type of business and the reach of that business. It is also common to have cascading provisions, which leave it to a court to decide what is fair if a restraint is breached. We encourage our clients to consider the period of time it would take a knowledgeable competitor to set up a similar business, and to be reasonable in setting the time for restraint. Where a large infrastructure investment is likely to be threated by competition from the seller, then a longer restraint period is likely to be considered fair and reasonable. 

7. The Limits of Each Adviser

It’s tempting to think that your advisers will have all the answers when you are buying a business and be able to tell you what to do if you end up in a situation where you feel a little lost. This can happen for people who have never bought a business before. 

As legal advisers, we can review the contracts and check that the contracts properly describe what you think you are buying and what your obligations, and the obligations of the seller will be, after purchase. We can highlight potential rights and flag decisions you must make – but we cannot make those decisions for you. 

The truth is, it is your responsibility.

Your accountant, lender or financial adviser are all in the same boat. They can highlight information for you, but they cannot make the decision whether or not to buy, and they cannot determine how much importance you place on any piece of information. 

Case Study 7

Many years ago when working in a national firm, a client who had borrowed significantly (millions) to fund a purchase was part way through the due diligence process and wondering whether or not the purchase was going to be worthwhile. It got to a point where the client was saying “we’ve spent too much (around $300k) now not to go ahead.” 

There was an element of wilful blindness on the part of the purchaser in that transaction. They had put their reputation, and their house, on the line to fund a purchase that was looking more and more questionable the more they learnt about the business. Going through with the purchase was more about their ego and being ‘clever’ at getting the deal done. 

About 6 months after settlement, the business failed and was placed into liquidation and the director was forced into bankruptcy.   

It is your money. It could be your reputation, your family and your future that you are staking on this purchase. As much as professional advisers can provide you with advice, advisers cannot tell you what to do and all the important decisions are up to you. This makes it important to be up front with your advisers, whether legal, financial, accounting or otherwise, and ensure they understand your priorities and concerns. 

A binding contract requires offer, acceptance and consideration. Consideration can be the doing of some thing or the payment of money. 

At every point before consideration has passed, you are likely to have the opportunity to exit from a transaction, no matter how much has been spent getting to that point. Sometimes, a small loss can be better than taking a risk that doesn’t feel right.  

When you are buying a business, you will also have a period of time to complete due diligence and should use that time to ensure that your assumptions about the business are correct, and if not, whether you still want to go ahead, negotiate further, or walk away. 

As we said at the start – don’t rush in.

    How can Onyx Legal help you?

    If you are interested in buying a business, whether this is your first time or your tenth, and you know you need help in the process, make an appointment now to talk it through with one of our team.

    Can Doctors Use Testimonials in Australia?

    Can Doctors Use Testimonials in Australia?

    Can Doctors Use Testimonials in Australia?

    Can Doctors Use Testimonials In Australia?

    Doctors and other registered health practitioners can only use testimonials in a very limited fashion. 

    As a general overview and in simple terms, the limits are:

    • star ratings are acceptable, without commentary
    • general commentary like “friendly prompt service” or “nice offices, comfortable waiting chairs” and similar comments that are not about the health service received, are acceptable.

    Registered health practitioners in Australia are required to comply with AHPRA (Australian Health Practitioner Regulation Agency) advertising guidelines, which are set out in section 133 of the National Law (short for the Health Practitioner Regulation National Law).

    Due to the complexity of what is, and what is not allowed in advertising of health services, AHPRA has created an advertising hub on its website to assist practitioners.  

    Since the National Law commenced in 2010 testimonials have been specifically prohibited under section 133(1)(c) as follows:

    1. A person must not advertise a regulated health service, or a business that provides a regulated health service, in a way that—

    (c) uses testimonials or purported testimonials about the service or business; …

    In May 2022 hope appeared in the form of proposed amendments to the National Law which were tabled to remove the prohibition on testimonials. It was proposed that section 133(1)(c) would be deleted and that testimonials would be treated in the same way as other forms of advertising. 

    The explanatory notes to the draft legislation acknowledged that the prohibition on testimonials was “…out of step with consumer expectations and current marketing and advertising practices. Testimonials and reviews are common online, and new forms of advertising, particularly on social media, have blurred the lines between information and advertising. Consumers increasingly expect to have access to reviews and testimonials when purchasing health services and expect to be able to share their views about health services and practitioners.

    The removal of that prohibition would have meant that doctors and other health practitioners could have started using testimonials, provided that the testimonials continued to comply with the other rules around advertising, such as not being misleading or deceptive. 

    Note that a testimonial saying “Dr Yu cured me of diabetes with acupuncture” is still likely to be prohibited, because the practitioner who uses that testimonials would be required to produce evidence-based research showing a cure was possible through acupuncture treatment. The practitioner in that instance, if testimonials were permitted, would be wise to ask their patient to amend the comment to say something like – “After three months of treatment with acupuncture by Dr Yu I no longer experience any symptoms of diabetes.” 

    Any use of the word “cure” raises red flags with regulators. 

    However, we are getting ahead of ourselves. 

    Although testimonials are still prohibited, penalties were increased significantly under the new legislation to $60,000 for an advertising offence by an individual and $120,000 for a company.

    Some concerns were raised about removing the prohibition on using testimonials. One report that surveyed consumers on their beliefs about testimonials found “Testimonials were reported to be lacking in reliability (67.7%) and that they should not be used in healthcare in the same manner as they are used in other industries. Only 44.8% of participants reported that they felt confident to spot a review that was not written by a genuine user of a service.

    The straw that broke the camel’s back and reversed the proposal to remove the prohibition on testimonials, which was removed from the draft legislation before it was passed in October 2022 – is the fault of cosmetic surgeons. 

    Cosmetic surgery is not an identified area of specialty governed by AHPRA and the title “cosmetic surgeon” is not a protected title. What that means is that a person can call themselves a cosmetic surgeon even if they have no special training or qualifications to carry out cosmetic procedures. 

    In late 2021 an investigation into the cosmetic surgery industry by AHPRA and the Medical Board of Australia (also part of AHPRA) was announced in the wake of media published by Four Corners and Nine newspapers based upon their investigations into a string of clinics owned by an identified plastic surgeon. 

    The media reports alleged hygiene and safety breaches, and patients suffering ongoing pain, physical and psychological issues. 

    The report from the AHPRA investigation was published on 1 September 2022 and a number of recommendations were made around managing advertising of cosmetic procedures. 

    Whilst no specific recommendation was made about the use of testimonials, it was noted that the use of testimonials would not be helpful in avoiding a lack of reliable information for consumers because “Testimonials, when selectively used by practitioners, are more likely to be the opposite; subjective and biased (even when they may not be false, misleading or deceptive). In these circumstances, the review is concerned that testimonials have the potential to further contribute to misunderstanding and confusion among consumers.” [page 87]

    Due to the findings made in the report and the limited resources available to AHPRA to implement and monitor changes in its policies, procedures and guidelines, reforms for cosmetic surgeons have taken priority over the removal of the prohibition on testimonials. 

    The explanatory notes to the legislation as passed note that the issue of patient testimonials needed to be consistent with actions and reforms for cosmetic surgery.  

    There is no timeframe for AHPRAs work in reforming how cosmetic surgery is regulated, so doctors and other health practitioners should not anticipate a lift in the prohibition on using testimonials any time in the near future, and should keep in mind the significant increase in penalties. 

    How can Onyx Legal help you?

    If you are a health practitioner and worried about the risks in your advertising schedule an appointment with us to have it reviewed.