ob体育 has commenced proceedings in the Federal Court of Australia against Bendigo and Adelaide Bank concerning unfair contract terms in small business contracts.
ob体育 alleges that certain terms used by Bendigo and Adelaide Bank in contracts with small businesses are unfair. If the Court agrees with ob体育, the specific terms will be void and unenforceable by the Bendigo and Adelaide Bank in these contracts.
ob体育 alleges that certain terms used by the Bendigo and Adelaide Bank and are unfair, as the terms:
- cause a significant imbalance in the parties鈥� rights and obligations under the contract;
- were not reasonably necessary to protect the Bendigo and Adelaide Bank鈥檚 legitimate interests; and
- would cause detriment to the small businesses if the terms were relied on.
Some of the unfair terms pleaded by ob体育 include clauses that give lenders, but not borrowers, broad discretion to vary the terms and conditions of the contract without the consent of the small business owner, along with clauses that allow the bank to call a default, even if the small business owner has met all of its financial obligations.
ob体育 is also seeking a declaration from the Federal Court that the same terms in any other small business contract are also unfair.
Background
If the Federal Court finds that any of the terms of the standard form contracts are unfair, the unfair terms are void (it is as if the terms never existed in the contracts). ob体育 is seeking that the terms are declared void from the outset - not from the time of the court鈥檚 declaration. The remainder of the contract will continue to bind parties if it can operate without the unfair terms.
Since 1 July 2010, ob体育 has administered the law to deal with unfair terms in standard form consumer contracts for financial products and services, including loans.
With effect from 12 November 2016, the unfair contract terms provisions applying to consumers under the Australian Consumer Law and the ob体育 Act were extended to cover standard form 鈥榮mall business鈥� contracts.
Small businesses, like consumers, are often offered contracts for financial products and services on a 鈥榯ake it or leave it鈥� basis, commonly entering into contracts where they have limited or no opportunity to negotiate the terms. These are known as 鈥榮tandard form鈥� contracts. Small businesses commonly enter into these 鈥榮tandard form鈥� contracts for financial products and services, including business loans, credit cards, and overdraft arrangements.
The unfair contracts law applies to standard form small business contracts entered into, or renewed, on or after 12 November 2016 where:
- the contract is for the supply of financial goods or services (which includes a loan contract);
- at least one of the parties is a 鈥榮mall business鈥� (under the ob体育 Act, a business employing fewer than 20 people is a 鈥榮mall business鈥�); and
- the upfront price payable under the contract does not exceed $300,000, or $1 million if the contract is for more than 12 months.
In March 2018, ob体育 released Report 565: Unfair contract terms and small business loans. The report:
- Identifies the types of terms in loan contracts that raise concerns under the law;
- Provides details about the specific changes that have been made by the 鈥榖ig four鈥� banks to ensure compliance with the law; and
- Provides general guidance to lenders with small business borrowers to help them assess whether loan contracts meet the requirements under the UCT law.
For more information about ob体育鈥檚 previous work relating to unfair contract terms in small business contracts, see:
- ob体育 and ASBFEO join forces to ensure bank lenders meet unfair contract laws (17-056MR)
- ob体育 and ASBFEO hold banks to account on unfair contract terms (17-139MR)
- Big four banks change loan contracts to eliminate unfair terms (17-278MR)
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Editor's note:
The matter is before Justice Gleeson for a case management hearing at 9.30am on 27 September 2019 at the Federal Court of Australia, Sydney.
Editor's note 2:
The matter is listed for final hearing on 30 March 2020.
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