Madgwicks Lawyers has successfully defended client, John Rose, against a guarantee enforcement claim by National Australia Bank (NAB) of more than $6 million in the Victorian Supreme Court.

Madgwicks was successful in devising a legal strategy that drew on the Code of Banking Practice (the Banking Code), and successfully argued that the Banking Code is of contractual force between subscribing banks and their customers.

Justice Elliott in the Supreme Court found that the NAB representative’s conduct, in the circumstances surrounding the signing of various guarantees, breached the Banking Code, and therefore NAB was unable to enforce its guarantees.

The Banking Code sets standards of good banking practice for banks to follow when dealing with individual and small business customers, prospective customers and guarantors. When the case in the Victoria Supreme Court was opened on behalf of NAB, its counsel stated that NAB did not accept that the Banking Code was promissory or contractual, but that it merely provided “a desirable code of practice”.

During the hearing, Rose gave evidence that he did not understand the full extent of his obligations and liability in signing the guarantees, recalling “[the bank officer] just pulled over the pages and it was basically ‘sign here’”. It was also established that the NAB representative did not advise Rose that he should seek legal advice prior to signing the guarantee.

The case raised key issues in relation to breaches of the Banking Code including:

  • the bank officer’s approach to providing Rose with documents containing the terms and conditions of the guarantee;
  • providing documents at the same time Rose was asked to sign them;
  • failing to expressly suggest that Rose should seek independent legal and/or financial advice before signing any of the guarantees; and
  • processing documents when it was obvious that Rose had not obtained legal advice, or even had the opportunity to review documents prior to signing.

The loss meant that NAB’s claim to enforce its guarantees and recover the outstanding amount (of approximately $6 million) was dismissed. NAB has appealed the decision.

Walker, lawyer at Madgwicks, noted the significance of the case: “It places an important spotlight on the Code of Banking Practice. Banks will need to seriously consider their compliance with the Code now it has been held to be of contractual force. The Courts seem to be more willing in recent times to recognise that banks need to pay more than lip service to the guidelines they voluntarily subscribe to”.

Osborn further stated: “The case shows how important it is for banks to understand their obligations and responsibilities towards consumers. It should never be enough for a bank to simply ask someone to “sign here”, particularly in the case of guarantees, which are onerous documents and difficult to avoid once signed”.

The appeal is currently listed to be heard in July.

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