If you are a private lender or financier, it is important to understand the tips and traps of unfair loan terms. Recently, a decision on a case from the Supreme Court of Queensland that tested the fairness of a standard loan agreement set a precedent under the newly revamped Unfair Contract Terms regime. Attune Legal Senior Counsel David Heasley unpacks how the case reflected the updated regime and what advice private lenders should follow to ensure their protection in our latest blog. Read it below.

Please note: As this is a QLD case and it may be informative, it is not binding on the courts of other states.

The Case: DCZ Early Learning Pty Ltd v Semper Mortgage Management Pty Ltd

The new Unfair Contract Terms regime was expanded in November of 2023, under the Australia Securities Investments Commission Act 2001 (Cth), or the ‘ASIC Act’.

As discussed in Lawyers Weekly on 18 July 2023 (Queensland Judgments, n.d.), DCZ v Semper was the first case to test the fairness of a standard loan agreement charging clause against new laws in the Unfair Contract Terms regime.

It is important to note that an Indicative Letter was prepared and signed on 8 December, 2023. Once the Indicative Letter was signed, Semper embarked on its preparation work necessary to find investors and prepare loan documents.

The applicants relied on s12BF of the ASIC Act, which stated that a term of a consumer contract or a small business contract is void if three conditions are satisfied:

1. The term is unfair; and
2. The contract is a standard form contract; and
3. The contract is a financial product or a contract for the supply of financial services.

The revamped regime makes unfair terms illegal for the first time, and expands on what a standard form contract is. This meant that in order to defend its position, Semper had to show that the Indicative Letter in question was not a standard form contract, or – failing that – the charging clauses relied upon were not unfair.

Considerations under the ASIC Act

When deciding cases like this, a court may take into account such matters as it thinks relevant but must take into account the following six factors:

1. whether one of the parties has all or most of the bargaining power relating to the transaction;
2. whether one of the parties has made another contract, in the same or substantially similar terms, prepared by that party, and, if so, how many such contracts that party has made;
3. whether the contract was prepared by one party before any discussion relating to the transaction occurred between the parties;
4. whether another party was, in effect, required either to accept or reject the terms of the contract;
5. whether another party was given an effective opportunity to negotiate the terms of the contract; and
6. whether the terms of the contract take into account the specific characteristics of another party or the particular transaction.

The court’s decision

The court held at paragraph 54:

“…. this is not a case where Semper possessed all or most of the bargaining power.  Semper had previously made contracts in the same or similar standard terms, but this contract was not pre-prepared, although it did include some standard terms.

The contract was not presented to DCZ on a ‘take it or leave it’ basis. Importantly, not only did DCZ have an opportunity to negotiate, it took advantage of that opportunity and, through its broker, negotiated a tailor-made bargain that it was prepared to sign”.

The court further stated that:

“The negotiations between the parties, in particular, means that Semper has overcome the presumption in s12BK(1), and has proved that the Indicative Letter was not a standard form contract. That means that s 12BF of the ASIC Act does not apply and the applicants’ case must fail.” [55].

Advice for private lenders or financiers

If you are a private lender or a financier (and to avoid the situation described above), here are my recommendations for you:

1. Allow the opportunity to truly negotiate terms (in both the loan documents and / or any letter of offer);
2. Do not give any “take it or leave it” ultimatums to the potential borrower;
3. Insist on the borrower seeking proper legal advice.

Finally, if you haven’t updated your offer letters or loan terms, reach out to an experienced legal firm – such as Attune Legal –  to review them immediately.

The case citation is: DCZ Early Learning Pty Ltd v Semper Mortgage Management Pty Ltd [2024] QSC 120:

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