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Federal Court voids banks’ unfair small-business contracts


The Federal Court of Australia has found that two Australian banks used unfair contract terms with their small-business clients, following investigations from the corporate regulator.

Sponsored by Aidan Curtis 11 minute read

Bendigo and Adelaide Bank has been found to offer unfair contract terms to small businesses, with the Federal Court of Australia ruling the bank must give the court an undertaking to not use or rely upon any of the impugned terms in a manner that is unfair.

ASIC, which was granted extensive investigative powers in 2018, alleged that some of the contract terms offered by Bendigo and Adelaide Bank gave it “broad discretion” to unilaterally alter the terms of the contract without notifying the borrower in advance.

The regulator also said other terms allowed the bank to take “disproportionate” actions in response to a breach without allowing opportunity for the breach to be remedied.


The court deemed several terms within six small-business contracts used by Bendigo and Adelaide Bank to be unfair, and backed ASIC’s claim that the same terms appearing in other standard form small-business contracts were also unfair.

Justice Gleeson of the Federal Court ruled that the unfair terms caused a significant imbalance in the parties’ rights and obligations under the contract.

The terms were also ruled to be not reasonably necessary to protect the legitimate interests of Bendigo and Adelaide Bank and that they would be detrimental to small businesses if the terms were relied upon.

The Federal Court declared the unfair terms to be void from the outset, with the remainder of the contract to continue binding the parties involved, and ordered that the contracts be varied by introducing new, fair clauses in place of the unfair terms.

ASIC commissioner Sean Hughes said the regulator will continue to follow up claims of unfair contracts.

“ASIC is committed to protect small-business owners of Australia from unfair terms in loan contracts, particularly where business borrowers are confronted with inflexible standard terms,” Mr Hughes said.

“[The] judgment shows that ASIC will take the necessary steps to enforce the law.”

Aidan Curtis


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