CBA v Thompson [2013] NSWSC 149

The bank took possession of a failed residential development. The bank then proceeded against one of the guarantors. The guarantor claimed that the bank had to first sell the units before enforcing the guarantee and that the bank had engaged in unconscionable conduct in taking preliminary steps to market and then doing nothing for over 12 months.

The court found that the bank had done very little to market or maintain the properties but had recently taken steps to sell the properties and did not seek interest over the period it had been tardy. This featured significantly in the court’s decision.

The court noted the following duties:

A lender is not obliged to realise his security. But if he does, he must act fairly towards the borrower. The lender’s interest in the property has priority over the borrower. However that does not entitle the lender to take possession and do nothing, waiting for an improvement in the market. If he lets the property he must obtain a proper market rent, and if he sells he must obtain a proper market price.

For conduct to be regarded as unconscionable, serious misconduct or something clearly unfair or unreasonable, must be demonstrated. The court found that while the bank had been tardy in selling, the bank had not breached its duties to the borrower, had acted in good faith and was not unconscionable because the bank had now taken steps to sell the property and was not seeking recovery of interest that accrued over the period when the bank was dilatory. For these reasons, the court found it unnecessary to decide whether a lender is at liberty to exercise his rights of leasing and sale in a way that in all likelihood will substantially increase the burden on the borrower or guarantor beyond what otherwise would be the case.

The court found for the bank and required the guarantor to pay on the guarantee.

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