ASIC and the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) confirmed on 16 May 2017 that the big four Australian banks have committed to a series of comprehensive changes to their standard form small business contracts in order to ensure that they fully comply with the unfair contract terms legislation. This follows the earlier review of small business standard form contracts completed by ASIC and the ASBFEO in March this year, and related request for lenders across Australia to take immediate steps to comply with the law.
Please read the article in full below:
ASIC and the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) confirmed on 16 May 2017 that the big four Australian banks have committed to a series of comprehensive changes to their standard form small business contracts in order to ensure that they fully comply with the unfair contract terms legislation. This follows the earlier review of small business standard form contracts completed by ASIC and the ASBFEO in March this year, and related request for lenders across Australia to take immediate steps to comply with the law.
Unfair contract protections were extended to 'standard form' small business contracts in November 2016 (with some limited exceptions). A small business contract is a contract for a financial product or the supply (or possible supply) of financial services in which at least one of the contracting parties is a small business. A small business, in this context, is a business which employs fewer than 20 people at the time the contract is entered into (this includes casual staff employed on a regular or systematic basis).
The changes committed to by the banks include the following:
- the removal of entire agreement clauses from small business contracts which confirm that all express terms are stated in the agreement and consequently excluding conduct, statements or representations made outside of the written agreement;
- the removal of financial indicator covenants from small business contracts unless they are necessary in order for the financial product to operate effectively;
- the removal of material adverse event clauses from all small business contracts. Material adverse event clauses are typically events listed in an agreement which if they occur will result in an event of default or termination event which will accelerate repayments;
- limiting the operation of indemnification clauses which are aimed to protect the lender against losses, costs, liabilities and expenses that may arise; and
- limiting the operation of unilateral variation clauses and provide customers with a minimum of 30 days' notice for any contract changes.
Ultimately, whether a term in a particular small business standard form contract is, or is not, unfair is a question that falls for determination by a court. The above changes do, though, provide some further guidance to lenders from the regulator as to the approach it is taking around the scope of the unfair contract terms legislation. While lenders (not just those big four Australia banks) are likely to have reviewed their standard form contracts for compliance with the unfair contract terms legislation, this additional guidance may mean that at least some of those lenders may be required to take a second look at their documentation.
