In brief

In a decision that could have wide-reaching ramifications and consequences for consumer banking, the Supreme Court of Victoria has upheld a decision that banks are legally required to adhere to the Code of Banking Practice.

What you need to know:

  • Banks need to improve their product disclosure practices and compliance with regulatory obligations aimed at protecting consumers.
  • Individuals and small businesses should seek independent legal advice before signing guarantee documents.


Madgwicks Lawyers has successfully defended client, John Rose (Rose), against an appeal by National Australia Bank (NAB) who sought to overturn the decision of the Supreme Court of Victoria, which decided in March 2015, that Rose did not have to pay the NAB more than $6 million pursuant to guarantees he had signed with the bank.

On 21 July 2016, the Victorian Supreme Court of Appeal affirmed that decision by dismissing the NAB’s application to appeal.

Madgwicks’ Partner, Peter Kennedy, says: “This is a fantastic result for a long-standing client of Madgwicks, and we’re thrilled that he’s got the result he deserved. It’s been a long process getting here, and it’s good to see justice has occurred.”


In 2007, Rose was conned by a business partner to invest in a high-end Gold Coast property investment scheme which resulted in the loss of his entire initial investment (approximately $5 million) and additional profits.

Although the business arrangement was a 50:50 split, Rose unwittingly executed documents that made him the guarantor for a number of loans in relation to the investment scheme. While Rose knew that he was signing guarantee documents, he did not understand the nature and effect of the guarantees. Nor did he understand that the guarantees could result in him being held liable for the full amount owing to NAB. When Rose’s business partner “went to ground” and subsequently became bankrupt, this left Rose as the only possible source of recovery for NAB.

When NAB sought to enforce its guarantees to recover the total amount outstanding (approximately $6 million), Rose came to Madgwicks to see if there was anything we could do to assist.

The first instance decision

At first instance, 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 accepted that had Rose been aware of his obligations and liability under the guarantees, he would never have signed them.

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. In this case, the Banking Code required NAB to give Rose “prominent notice” that, prior to signing the guarantees, he should seek independent legal advice on the effect of each guarantee.

His Honour 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. In particular, the Court found that Rose had not been advised to seek independent legal advice prior to signing the guarantees, nor had he read the guarantees prior to signing them.

His Honour accepted the evidence of Rose that if he had been given the opportunity to get legal advice he would have done so and as a consequence he would never have agreed to provide the guarantees.

NAB appealed the decision, arguing that it had not breached its contractual obligations under the Banking Code.

The decision on appeal

Chief Justice Warren and Justice McLeish of the Victorian Court of Appeal affirmed the earlier decision of Justice Elliott. Their honours reiterated that the Banking Code required NAB to advise Rose to obtain independent legal advice in order to fully understand his liability under the guarantees. This was not a “token or trivial requirement”, and obligated NAB to take steps to bring it to Rose’s attention that he should obtain such advice.

It was found that the NAB representative had presented Rose with a written warning as to his liability under the guarantees and stated in general terms that he would be liable if the borrower defaulted. However, this information was given to Rose during a very brief meeting in which he was also required to consider several other financial documents. In light of the brevity of the meeting and the volume of documentation Rose was required to consider during the meeting, the Court found that the notice provided by NAB did not constitute “prominent notice”.

In conclusion, it was held that the NAB had failed to discharge its obligation under the Banking Code to notify Rose that he should obtain independent legal advice before singing the guarantees. On this basis, the Victorian Court of Appeal confirmed the Supreme Court’s decision that the guarantees were not enforceable.

Madgwicks’ said: This landmark decision of Victoria’s highest court will have far reaching consequences for consumer banking across Australia, and will add to the already significant pressure on large banks to improve their product disclosure practices and compliance with regulatory obligations aimed at protecting consumers.”

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