Breaches of Banking Code of Practice not fatal

The decision in Williams v CBA [2013] NSWSC 335 reinforces that a breach of the Code will not be fatal for the lender if a mortgagor seeks to impugn his mortgage and guarantee. In that case, the father gave a mortgage to secure a guarantee of a loan to his son to purchase a service station. Unusually, there was no default by the son or the father and no claim for possession by the bank. However, the bank mortgage prevented the father from selling his property and distributing the proceeds to his other three children and so he claimed a Contracts Review Act defence and unconscionability to impugn both. The court found the father’s evidence unreliable and dismissed the father’s case saying:

It is not enough that he was simply elderly at the time he gave his mortgage. Nor is it enough that he obtained no personal benefit from the transaction other than the moral satisfaction to be derived from the gift of paternal benevolence to his youngest son. Nor is it enough that the plaintiff chose not to address the longer term consequences of his decision on any future estate planning that he might have been expected to undertake. That he did not do so was not the bank’s fault.

One of the factors relied upon by the father to impugn the mortgage and guarantee was the bank’s breaches of Clauses 28.4(d)(v) and 28.6(b) of the Code of Banking Practice which formed part of the bank’s contract with the father, namely:

  1. the Bank did not, before taking a guarantee from the father, provide him with copies of his son’s financial accounts or statements of the financial position of the son for the purposes of the facility (cl 28.4(d)(v)); and
  2. the Bank did not ensure that the father signed the guarantee in the absence of his son (cl 28.6).

However, the court found that the absence of this breach would not have changed the outcome so there was no loss. The father was disinterested in his son’s financial position, determined as he was to help him. And while the father signed the guarantee in the presence of his son, there was no coercion on his part. This is a useful decision for lenders because it reinforces that breaches of the Code do not of themselves determine the outcome of a challenge to the mortgage, and do not of themsleves constitute unconscious behaviour.

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