Key Takeaways

In this case, IG Markets’ mistake and one-sided clause cost it $5.5 million.

In this case, a lack of reciprocation in a clause resulted in a sufficiently significant imbalance of rights and it was not necessary to protect the legitimate interests of a party. This case has implications not only for standard form contracts involving financial services, but also standard form contracts regulated by the Australian Consumer Law.

Whether in leases, financial services agreements, insurance contracts, building contracts, or the provision of services under other standard agreements, organisations should identify and review their standard form contracts to ensure they don’t cause a significant imbalance of rights and that clauses are necessary to protect the legitimate interests of a party.

Certain clauses in standard form contracts should, if possible, be reciprocal, and this includes clauses that determine rights, issues of liability, indemnities, dispute resolution and termination, whether in relation to specific transactions or the entire agreement.

Background

IG Markets provides services in the form of share trading platforms, allowing users to trade shares, forex, indices, commodities and options in many markets.

On the morning of 17 April 2020, a user, Adam Tomasso, realised profits of approximately $5.5 million from derivative trading over approximately 30 minutes.

Later that same day IG Markets blocked Mr Tomasso’s account and reversed the transactions.

When Mr Tomasso enquired about the account being blocked, IG Markets advised Mr Tomasso that the transactions that led to his profits resulted from one of IG Markets' employees inadvertently making ‘test’ markets available to clients to trade on the platform in error.

In reversing the transactions, IG Markets relied on a clause in its standard form contract acceptance of which by Mr Tomasso was a condition of his use of the platform. The relevant clause allowed IG Markets to void from the outset or amend the terms of any transaction which contained or was based on an error which IG Markets reasonably believed was obvious or palpable. In exercising its rights under the clause, IG Markets was also required to act in good faith according to what it reasonably believed was fair in the circumstances.

The proper construction of clause was at the heart of the dispute between the parties, and Mr Tomasso challenged this clause in Court, arguing it was an unfair contract term under the Australian Securities and Investments Commission Act 2001 (Cth) and was therefore void and could not be relied on by IG Markets to reverse the transactions.

Issues

The relevant clause, referred to as Term 11, in effect, provided as follows:

1. IG Markets reserved the right to either void, from the outset, or amend the terms of any transaction containing or based on any error that IG Markets reasonably believe to be obvious or palpable, without Mr Tomasso's consent
2. If, in IG Markets' reasonable discretion, IG Markets choose to amend the terms of any such transaction, the amendment would be such level as IG Markets reasonably believed to be fair at the time the relevant transaction was entered into
3. In deciding whether an error was manifest, IG Markets would act reasonably and consider any relevant information
4. Any financial commitment that Mr Tomasso had entered into or refrained from entering into in reliance on the transaction with IG Markets would not be taken into account in deciding whether there had been a manifest error
5. In the absence of IG Markets' fraud, wilful default or negligence, IG Markets would not be liable to Mr Tomasso for any loss, cost, claim, demand or expense
6. If IG Markets chose to exercise any of IG Markets' rights under term, and if Mr Tomasso had received any monies from IG Markets in connection with the manifest error, Mr Tomasso would agree that those monies were due and payable to IG Markets and Mr Tomasso would agree to return an equal sum to IG Markets without delay.

The Supreme Court of Western Australia agreed with Mr Tomasso, and determined that Term 11 was unfair and void, as it created a significant imbalance in the parties' rights. In particular:

1. IG Markets’ right in Term 11 to amend or void the transaction was one sided and could only be exercised by IG Markets. The clause was not reciprocal
2. IG Markets had the discretion to determine what action, if any, should be taken. Mr Tomasso did not have any similar rights
3. IG Markets had the discretion to determine outcomes regarding issues of liability and the consequences and resolution of matters. These were one-sided, and not reciprocal in favour of Mr Tomasso
4. IG Markets imposed a requirement on Mr Tomasso for any monies paid to him to be returned or paid to IG Markets. There was no reciprocal obligation for IG Markets to do the same in favour of Mr Tomasso.

Further, Term 11 was not reasonably necessary for the protection of IG Markets’ legitimate interests. While the term was considered reasonably transparent, the Court determined that if Term 11 was relied upon, it would be substantially unfair and would cause significant financial detriment to Mr Tomasso.

As a result, the Court determined Term 11 void. Mr Tomasso was awarded damages totalling $5,518,251.

Summary

In this case, IG Markets’ mistake and one-sided clause cost it $5.5 million.

One-sided clauses often appear in standard form contracts, including leases, property agreements, agreements for the provision of financial services, insurance contracts, building contracts, and service agreements including software as a service or agreements with utilities.

Parties should review their standard form contracts to identify and remove one-sided clauses that create a significant imbalance of rights, including a lack of reciprocation, in circumstances in which the imbalance is not reasonably required to protect the legitimate interests of the advantaged party. This includes clauses that determine rights, issues of liability, indemnities, dispute resolution processes and termination rights, whether for specific transactions or the entire agreement. Even if the clause is transparent, it still may be unfair.

Such clauses (or indeed the entire contract) may be declared void by a Court, and the impacted party can claim damages to redress the impact resulting from that unfair clause.

Since 2023 regulators including the ACCC and ASIC have been given powers to commence proceedings seeking the imposition of penalties for unfair terms. Courts can impose penalties of up to:

• $50 million, or
• Three times the value of any benefit obtained from the conduct, or
• 30% of the breaching entity’s annual adjusted turnover during the breach period (minimum 12 months), or
• For financial services, 10% of the breaching entity’s annual adjusted turnover during the breach period, capped at 2.5 million penalty units ($555,000,000).

These significant penalties should be a strong incentive for organisations to proactively review and amend their standard form contracts.

Should you wish to discuss this decision, unfair terms in standard form contracts, and consumer law rights and obligations, please do not hesitate to contact us. We also deliver presentations and training to our clients on consumer laws and the implications of consumer law reforms.

Further information / assistance regarding the issues raised in this article is available from the author, Bill Fragos, Special Counsel, Christina Segaan, Senior Associate, or your usual contact at Moray & Agnew.