Bank of Western Australia v O’Brien [2012] NSWSC 456

The bank lent money to a company secured by guarantees. Both the loan and the guarantee contained suspension clauses, requiring full payment with no deduction or set-off. The loan became due, the borrowers did not pay and the bank applied for summary judgment. The guarantors filed defences and brought a cross-claim, which the bank argued was prevented by the provisions of the loan and guarantees. The defences were that there was no default because of the bank’s breach of contract or misleading conduct, which estopped the bank from calling on the loan and guarantees. The guarantors claimed that the bank breached an implied term of the loan to exercise its powers reasonably and made various misrepresentations, gave inadequate warning and engaged in misleading and deceptive conduct and acted unconscionably and was estopped from calling on the loan and guarantee.

Summary judgment
Summary judgment will only be given if it can be shown that the proposed defence show no triable issue. It is not sufficient to say that the guarantors’ prospects of success might be slight. The question is whether they have any prospects of success at all.

Suspension clauses
It is both clear and uncontroversial that a creditor and a debtor may agree that the creditor is entitled to be paid in full before the debtor may exercise any rights (including by way of set off or cross claim) against the creditor. Clauses having that effect are commonly referred to as “suspension” or “suspension of rights” clauses. Suspension clauses do not oust the jurisdiction of the courts. The party whose rights are suspended is, and remains able, to enforce those rights provided it conforms with its primary obligation of payment.

Decision
The court observed in this case that the loan came to an end of its own force and became payable. The bank’s act in purporting to terminate was legally irrelevant and in that sense legally ineffectual because the facility had already expired. The source of the bank’s powers to exercise its rights was in fact the security agreements. Under the guarantees, when the borrower did not pay, the guarantors became liable to pay on demand from the bank regardless of whether any demand had been made on the borrower.

Hence the guarantors’ defence was no answer to the bank’s claim.

The court gave summary judgment in favour of the lender.

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