BankWest v El-Khoury [2013] NSWSC 157

The bank sought to enforce its guarantee against the directors of a child care centre. The guarantors argued no default based upon an alleged oral variation of the loan by the bank to extend its term and increase its limit.

The terms of the guarantee:

(a) provided that no changes to the loan could affect the liability of the guarantor under the guarantee; and
(b) suspended the guarantor’s rights to rely on a defence or cross-claim until the guaranteed moneys were paid in full.

The court found that it was arguable the Banking Code applied to one of the loans albeit not the guarantee because the loan refinanced the guarantors’ home mortgage. The court found that this may have affected the enforcement of the guarantee, even though not formally pleaded by the guarantors, but raised late in submissions and so declined summary judgment.

The court then found it unnecessary to decide whether the terms of the guarantee prevented the currently pleaded defence and cross-claim. However the court indicated that the suspension of rights clause in the guarantee would prevent both the current defence and cross-claim because the defence merely challenged the exercise of rights under the guarantee and not the guarantee itself. However the court noted that suspension of rights clauses could not prevent a defence which went to the invalidity of the guarantee, but this would require the allegations in the cross-claim of misleading conduct and unconscionablity to be re-pleaded in the defence. The court generously directed the guarantors to do this by a further amended pleading.

The court refused to dismiss the claim for want of prosecution, despite the guarantors’ tardiness and gave them one last chance to file their expert evidence.

Click here to read the full judgment.

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