AFSLs warned against unfair contracts

accounting/legal/finance/

6 April 2017
| By Malavika |
image
image
expand image

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.

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.

 

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

So we are now underwriting criminal scams?...

1 month 3 weeks ago

Glad to see the back of you Steve. You made financial more expensive, not more affordable as you claim, and presided ...

2 months ago

Completely agree Peter. The definition of 'significant change is circumstances relevant to the scope of the advice' is s...

4 months ago

Entireti has unveiled the new name for the AMP financial advice businesses that it acquired last year....

4 weeks ago

A Sydney financial adviser has been permanently banned from providing any financial services, with the regulator deriding his “lack of integrity, trustworthiness and prof...

2 weeks 6 days ago

Minister for Financial Services, Stephen Jones, has provided further information about the second tranche of the Delivering Better Financial Outcomes (DBFO) reforms....

1 week 5 days ago

TOP PERFORMING FUNDS