BOQ slammed by court for using "unfair" terms in small business contracts

The Federal Court has declared several terms within some Bank of Queensland (BOQ) small business contracts "unfair" and ordered they be replaced with new terms.

The decision, originating from an application to the court by the Australian Securities and Investment Commission (ASIC), relates to standard form loan contracts BOQ entered into with small business customers after 12 November 2016.

The court declared the unfair terms void from the start of the contracts and ordered that the unfair terms be replaced with new, fair terms agreed by the parties.

These fair terms must also replace the unfair terms in all standard form contracts from 12 November 2016 (in the same form as those put before the court), that BOQ has with small business customers.

The court found the following terms were unfair:

• Unilateral variation clauses which allowed BOQ to vary the terms and conditions of their contracts without giving borrowers advance notice or an opportunity to exit the contract without penalty;
• Event of default clauses which allowed BOQ to unilaterally determine whether a default has occurred as well as call defaults based on events that do not present any material risk to BOQ and without giving borrowers an opportunity to address the issue;
• Indemnification clauses which allowed BOQ to make a claim against a customer for losses caused by BOQ's mistake, error or negligence; and
• Conclusive evidence clauses which meant that if BOQ issued a certificate stating an amount owing by a customer, that amount would be assumed to be correct unless the customer could prove otherwise.

"The declarations sought are appropriate because they serve to record the court's disapproval of the contravening conduct, vindicate the claim by ASIC that the Bank had contravened the Act, assist ASIC to carry out the duties conferred upon it by the Act, and deter other corporations from entering into contracts containing unfair terms," Justice Bank-Smith said.

The court also accepted an undertaking from BOQ that the bank would not use or rely upon any of the unfair terms in any standard form contracts (in the same form as those put before the court) with small business customers in the future.

ASIC Commissioner Sean Hughes said the decision was a timely reminder for insurers, following Government reforms extending unfair contract terms protections to consumers and small business insurance contracts from 5 April 2021.

"Now that unfair contract term protections apply to insurance contracts for consumers and small business, we expect all insurers to have reviewed all standard form contracts for fairness," Commissioner Hughes said.

In response to the Court's decision, a BOQ spokesperson says the company has been reviewing other small business contracts with a view to remove any similar contract terms.

"Bank of Queensland (BOQ) confirms the Federal Court has approved orders jointly agreed between BOQ and ASIC in relation to terms in standard form contracts for small business lending," says the BOQ spokesperson.

"These contracts were entered into or renewed on or after November 2016.

"While BOQ will amend these contract terms, the Court noted ASIC did not allege BOQ ever relied on the terms in an unfair manner or in a way that caused customers any detriment, loss or damage. BOQ will write to any customers with affected contract terms."