Dunwoodie v Teachers Mutual [2014] NSWCA 24

An account holder acting under duress from a bikie gang withdrew money from his bank account, which caused his account to be overdrawn. The bank sued for the money owing and obtained default judgment. Three years later, the account holder sought to have it set aside, on the basis of fraud and duress and alternatively on the basis that the bank’s contract with account holders which permitted an account holder to draw against uncleared funds was unjust. The claims failed and the account holder appealed.

The Court of Appeal held that the fraud and duress defences were not arguable because there was no suggestion that the bank knew of either the fraud or the duress. However the majority of the Court of Appeal found the Contracts Review Act defence arguable. The bank’s policy was equated to asset lending in the sense that the credit provider is not concerned about the borrower’s ability to repay with the difference being security is lacking.

The Court of Appeal said:

If the terms offered by the credit provider encourage or facilitate irresponsible borrowing, or even facilitate fraud or exploitation through third party duress, those terms may be subject to review under the Contracts Review Act.

The circumstances in which the policy adopted by the Bank in the present case could be exploited to the potential disadvantage of the Bank’s customers are manifold and not limited to, although exemplified by, the present case. In addition to the circumstances of spouses, friends or relatives who might persuade a customer to drawdown immediately on an uncleared cheque, a school teacher with a part-time tutoring business might draw down on his or her customers’ cheques believing them to be creditworthy, when in fact they were not.

Two features of the Bank’s policy revealed on the facts alleged are noteworthy. First, the policy was not limited by a ceiling. To allow customers to drawdown amounts likely to be needed for everyday living expenses is one thing; to pay out $60,000 is quite another. Secondly, the identity of the drawer was not relied upon as a control. For example, to allow a teacher to draw against a cheque from a large employer is one thing; to be allowed to draw against the customer’s personal cheque on an account with another institution is quite another.

The dissenting judge found the Contract Review Act defence not arguable and noted that an account holder with cleared funds was just as vulnerable to threats, regardless of whether the account was in credit or showing a false credit by reason of the bank’s policy and nothing in that policy was dishonest.

The dissenting judge said:

The Contracts Review Act should not be a vehicle for a general inquiry into the banking system.

The appeal succeeded and the case was remitted for a re-hearing.

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