ASIC issues first small business loan unfair contracts actions

ASIC has announced that it has issued separate proceedings against the Bank of Queensland and Bendigo and Adelaide Bank concerning unfair contract terms in their small business loan contracts.

These are the first actions since its Report 565 which set out the details of the changes made by the four major banks to remove unfair terms from their small business loan contracts of up to $1 million.

ASIC contends that certain terms in these contracts are unfair within the meaning of section 12BF of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and are void or unenforceable.

Bendigo and Adelaide Bank

The action against Bendigo and Adelaide Bank relates to two of its divisions, Delphi Bank and Rural Bank and the Delphi Bank’s General Conditions and the Rural Bank’s Facility Terms.

ASIC claims that between 16 November 2016 and 30 June 2019, Bendigo and Adelaide Bank entered into 3,490 relevant standard form contracts with businesses which incorporated the Delphi Conditions. As at 30 June 2019, Bendigo and Adelaide Bank had 15,529 current relevant standard form contracts with businesses which incorporated the Rural Conditions.

ASIC’s claims relate to Standard Form Terms for the Delphi Bank and Rural Bank which include:
a. indemnification clauses that:
1. apply to losses not caused by a customer’s default; and
2. have the effect of limiting the bank’s vicarious liability for its agents;
b. event of default clauses that allow the bank to unilaterally determine whether a default has occurred;
c. event of default clauses that do not permit the customer to remedy a default capable of remedy;
d. event of default clauses that create defaults based on events that may or may not involve any credit risk;
e. event of default clauses that create defaults based on events that are within the control of the bank, not the customer;
f. unilateral variation or termination clauses which permit the defendants to vary the upfront price of the contract, the financial services to be supplied under the contract and other terms of the contract; and
g. conclusive evidence clauses that have the effect of imposing the evidential burden on the customer in proceedings relating to the contract. These clauses also have the effect of allowing the bank but not the customer to terminate the contract if the customer does not pay an amount stated in a certificate by a stated date.

Bank of Queensland

The action against Bank of Queensland relates to the Bank’s Guarantee Facility General Conditions, Business Term Loan General Conditions, Commercial Rate Loan Facility General Conditions, Business Overdraft and Business Line of Credit General Conditions and Facility General Conditions.

ASIC claims that between 16 November 2016 and 30 June 2019, Bank of Queensland entered into 3,754 relevant standard form contracts with businesses which incorporated one or more of the Standard Form Terms. As at 30 June 2019, Bank of Queensland had 3,018 relevant current standard form contracts on foot with businesses, which
incorporated one or more of the Standard Form Terms.

ASIC’s claims relate to the Bank of Queensland’s Standard Form Terms which include:
a. indemnification clauses that:
1. apply to losses not caused by a customer’s default; and
2.. have the effect of limiting the Bank of Queensland’s vicarious liability for its agents;
b. event of default clauses that allow the Bank of Queensland to unilaterally determine whether a default has occurred;
c. event of default clauses that do not permit the customer to remedy a default capable of remedy and which create defaults based on events which may or may not involve any credit risk;
d. event of default clauses that create defaults based on events that may or may not involve any credit risk;
e. unilateral variation or termination clauses which permit the Bank of Queensland to vary the upfront price of the contract, the financial services to be supplied under the contract and other terms of the contract; and
f.conclusive evidence clauses that have the effect of imposing an evidential burden on the customer in proceedings relating to the contract. These clauses also have the effect of allowing the Bank of Queensland but not the customer to terminate the contract if the customer does not pay an amount stated in a certificate by a stated date.

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