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Reflections on a ‘landmark’ decision for private lenders
A recent decision from the Supreme Court of Queensland, the respondent’s solicitors argue, sets a “pivotal precedent” under the recently revamped Unfair Contract Terms regime.
Jerome Doraisamy
Last month, the Supreme Court of Queensland handed down its decision in DCZ Early Learning Pty Ltd v Semper Mortgage Management Pty Ltd, which tested the fairness of a standard loan agreement charging clause against the new Unfair Contract Terms regime – which was expanded in November of last year – under the Australia Securities Investments Commission Act 2001 (Cth).
The revamped regime, Solomons Legal told Lawyers Weekly, expands the scope of what is considered “a standard form contract” and makes unfair terms illegal (not just unenforceable) for the first time.
This change, the firm said, left many private lenders vulnerable to civil penalties when renewing contracts on the same terms as before.
The case of DCZ v Semper – in which Solomons acted for the respondents – tested the fairness of a standard loan agreement charging clause against the new regime, “something that had not been done before”.
“This type of clause is utilised across the industry, mostly in private lending and non-bank lending arrangements,” Solomons partner Victor Asoyo said.
“Had Semper lost, there would have been a floodgate of litigation against lenders by borrowers seeking to escape liability under letters of offer that are a precursor to loan agreements where charging clauses are included as part of the terms of letters of offer.”
To defend its position, Asoyo explained, Semper had to show that the letter of offer was not a standard form contract, or that the charging clauses were not unfair.
Semper ultimately succeeded in proving both grounds.
“When determining unfairness of a contract clause in the new regime, the court will interpret the contract ‘as a whole’ rather than confining itself within the four corners of the text,” Asoyo said.
“Negotiation is a persuasive factor (though not determinative) in favour of the contract/letter of offer in question not being a ‘standard form contract’.”
In conversation with Lawyers Weekly, Asoyo said that the case – “the judiciary’s first interpretation and application of the Unfair Contract Terms law”, following the reforms in November last year – represents a “landmark decision within the private lending industry”.
“The court has upheld the lender’s ‘charging clause’ and ‘fee clause’ after being satisfied that ample opportunity was given to the borrowers and guarantors to negotiate and seek legal advice to their satisfaction,” he said.
When asked how the decision should be interpreted, Asoyo said: “So long as a party is provided with the entire contract document, which includes both the ‘main commercial terms’ and ‘standard boilerplate provisions’, choosing to negotiate only the former tends to show that there was also the opportunity to negotiate the latter.”
“Negotiation of main terms tends to indicate (in the absence of evidence to the contrary) that an opportunity to negotiate boilerplate terms was also present.”
“When advising lenders, the ‘fee clauses’ and ‘charging clauses’ must be transparent to the extent that they will proportion fees recoverable from the borrowers and guarantors if they withdraw from the transaction before settlement. The wording of charging clauses should not, prima facie, provide disproportionate powers of termination.”
“When advising borrowers and guarantors, the whole contract document (both ‘main commercial terms’ and ‘standard boilerplate provisions’) must be thoroughly reviewed. If the lender is open to negotiation, such opportunity must be exhausted in addressing any concerns held by the borrowers and guarantors regarding the lender’s standard terms and conditions.”
Looking ahead, he went on, to avoid being captured by the Unfair Contract Terms law, prudent practice for lenders will involve leaving sufficient room for negotiation “so that the bargaining power is fairly balanced”, as well as clearly presenting all terms when offering a loan facility.
Asoyo added that for borrowers and guarantors, prudence will require “paying attention to the contract document as a whole instead of cherry-picking the specific terms they wish to negotiate before signing”.
Solomons’ team on this matter included: Asoyo, fellow partner Roy Kim, paralegal Seunghyun Jin, and counsel Jason Wang.
The case citation is DCZ Early Learning Pty Ltd v Semper Mortgage Management Pty Ltd [2024] QSC 120
Jerome Doraisamy
Jerome Doraisamy is the editor of Lawyers Weekly. A former lawyer, he has worked at Momentum Media as a journalist on Lawyers Weekly since February 2018, and has served as editor since March 2022. He is also the host of all five shows under The Lawyers Weekly Podcast Network, and has overseen the brand's audio medium growth from 4,000 downloads per month to over 60,000 downloads per month, making The Lawyers Weekly Show the most popular industry-specific podcast in Australia. Jerome is also the author of The Wellness Doctrines book series, an admitted solicitor in NSW, and a board director of Minds Count.
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