Bendigo and Adelaide Bank was found to have sold contracts with unfair terms to small businesses in November 2016, but instead of a financial penalty, the Federal Court of Australia has barred the bank from using any of the impugned terms in a manner that is unfair or causes damage to customers.
Justice Gleeson found that the unfair terms caused a significant imbalance in the parties’ rights and obligations under the contract, were not reasonably necessary to protect the legitimate interests of Bendigo and Adelaide Bank, and would cause detriment to the small businesses if the terms were relied on.
ASIC was also successful in having the Federal Court declare the same terms appearing in other standard form small-business contracts, entered into by the bank with its customers in the same time period, to be unfair.
“ASIC is committed to protect small-business owners of Australia from unfair terms in loan contracts, particularly where business borrowers are confronted with inflexible standard terms,” ASIC commissioner Sean Hughes said.
According to ASIC’s investigation, the unfair terms gave the bank the power to unilaterally vary the terms and conditions of the contract without giving the small-business borrower advanced notice or an opportunity to exit the contract without penalty.
Other terms allowed the bank to take disproportionate actions in response to a breach by the borrower; for example, by calling a default without giving the borrower an opportunity to remedy a breach, or based on events that do not present any material risk to the bank.
In handing down the judgment on 28 May 2020, Justice Gleeson declared that the terms were void from the outset, not from the time of the court’s declaration, with the remainder of the contract continuing to bind the parties.
The court also ordered that the contracts be varied by replacing the unfair clauses with new fair clauses by the parties following successful negotiations between ASIC and Bendigo and Adelaide Bank.
Mr Hughes noted that ASIC will take the necessary steps to enforce the law.
“Importantly, insurance firms should be preparing to extend these obligations in insurance contracts,” he added.
“We are pleased the government backed us with additional funding that was earmarked to enforce this area of the law.”