08 8410 9294

Since we are now coming up on a year following the unfair contract provisions which came into effect on 12 November 2016, we thought this would be a good time to review the most significant changes we have seen so far. For our previous discussion on unfair contract terms click here.

Some businesses are proactively changing their terms and conditions.

ASIC recently announced[1] that the big four banks have agreed to make specific changes to its standard form contracts.

In particular, the banks have agreed to:

(a)   remove ‘entire agreement’ clauses from loan documents. These clauses seek to protect banks from representations made by their agents to borrowers not recorded in the actual document;

(b)   vary their ‘indemnity’ clauses so that small businesses will no longer be agreeing to cover losses, costs and expenses incurred due to the fraud, negligence or wilful misconduct of the bank, its employees or a receiver appointed by the bank.[2]

(c)   remove ‘material adverse change event’ clauses from loan documents. These clauses gave lenders expansive powers to determine that a borrower had defaulted on a loan due to certain events specified in the contract. A common clause was that the borrower would automatically represent that there was no material adverse change in its financial conditions every time it accessed a loan facility;

(d)   restrict its ability to vary contracts. Small businesses also now have the option of exiting the contract if they do not agree to such a variation.

The extent of the changes made vary between each bank, however the changes are an indication that small businesses should review its contracts to ensure compliance with the new unfair contract terms regime.

The ACCC is flexing its muscles

The ACCC recently commenced court proceedings against JJ Richards & Sons Pty Ltd (JJ Richards) in relation to alleged unfair terms in its small business contracts.

On 13 October 2017, the Federal Court of Australia declared that eight terms used in the standard form contract of JJ Richards were unfair and therefore void. The eight terms were an automatic renewal clause, a price variation clause, an agreed times clause, a ‘no credit without notification’ clause, an exclusivity clause, a ‘credit terms’ clause, an indemnity clause and a termination clause.

The full decision can be found here.[3]

The Court also made further orders requiring JJ Richards to publicise the orders made.

This decision should stand as a warning to businesses who have not yet reviewed their contracts for unfair terms to do so with urgency.

For more information on unfair terms, contracts and commercial law in general please contact Shavin Silva at Pace Lawyers on (08) 8410 9294 or email him with this form.


[1] © Australian Securities & Investments Commission. Reproduced with permission.

[2] ASIC statement © Australian Securities & Investments Commission. Reproduced with permission.

[3] This is a judgment of the Federal Court of Australia and the link is to the Federal Court of Australia website.