AFSLs warned against unfair contracts

Australian financial services licensees (AFSLs) need to ensure they avoid ‘unfair contract terms’ for their authorised representatives to avoid a court deeming it unfair and declaring it void, The Fold Legal warned.

Paralegal, Lydia Cartensen wrote in a blog that if a court decides a contract term is unfair, common law principles would apply instead.

“If you didn’t want your contract to apply, you wouldn’t have bothered drafting it in the first place, so it’s worth taking a few moments to think about whether your drafting would actually hold up if it did come before a court,” Cartensen wrote.

Related News:

She identified common terms that could be deemed unfair either because they were heavy handed, unilateral, or went beyond what was needed to protect the licensee’s legitimate business interests, and how to fix them.

Indemnity clauses that favoured one party over the other and failed to incorporate principles of causation and proportionate liability should include proportionate liability principles in favour of the party providing the indemnity, she wrote.

Termination clauses that would allow the contract to be terminated for breach even where the breach can be fixed should allow the authorised representative to repair the breach before the licensee can terminate for breach.

Termination clauses that would require a party to destroy records which would interfere with tax and compliance requirements to maintain complete records should allow restricted access to and/or retention of records for suitable purposes.

Cartensen also noted set off clauses that would allow a party to deduct their indemnity claim from fees payable under the contract.

“Even where the claim is covered by insurance, insurers may view the deduction as a financial loss and refuse to pay for it. Make this clause fairer by providing that claims that are covered by insurance cannot be deducted from fees payable,” she wrote.

Cartensen noted ‘unfair contract terms’ was discussed widely in 2016, with the Australia Competition and Consumer Commission (ACCC) working with some industries to remove unfair contract terms.


Related Content



Add new comment