It has ordered the bank to rewrite its standard loan contracts with an agreed form of fair terms and voided existing ones.

The unfair terms were in standard loan contracts BoQ entered into with small business customers after November 12, 2016.

The court found that under the contracts BoQ could vary the terms and conditions without giving borrowers advance notice or an opportunity to exit the contract without penalty.

The bank was also able to unilaterally determine whether a default had occurred as well as call defaults based on events that did not present any material risk to BoQ and without giving borrowers an opportunity to address the issue.

There was also indemnification clauses which allowed BoQ to make a claim against a customer for losses caused by BoQ’s mistake, error or negligence.

The bank, which has only recently completed a $1.3 billion merger with ME Bank, has a core market in the small business sector.

The case was brought by the Australian Securities and Investments Commission.

ASIC commissioner Sean Hughes said small business owners deserved to be able to enter into fair loan contracts, especially where they have little or no ability to negotiate the terms. 

“ASIC will take action against unfair practices in standard form contracts, whether it be for consumers or the small business community,’’ he said.

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. 

In handing down the judgment, Justice Banks-Smith determined: “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.’

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.

BoQ said while to would 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.

BOQ said it has also been reviewing other small business contracts with a view to removing any similar contract terms.