International Skin Care Suppliers v CBA

The bank lent to a group of companies and the directors’ family members (wives, sister and mother) provided guarantees and mortgaged their homes. The guarantors were advised to seek independent legal advice by their lawyer (who also acted for the group) and refused, signing acknowledgements waiving their rights to such advice. The group then went into receivership and defaulted. The bank sued the companies and personal guarantors for monies owing under its facilities and for possession. The companies cross claimed for misleading or deceptive conduct and unconscionability on the part of the bank in calling default and the signing of the deed of forbearance and release, pursuant to which the bank agreed to forbear enforcing for a certain period in return for a release.

The court believed the bank and found no misrepresentation by the bank with respect to a future matter, namely that the bank induced the borrowers to believe that it would not treat the appointment of receivers as an event of default and no unconscionable conduct on the part of the bank. In fact the court found that the bank conveyed the exact opposite – that the appointment would be an event of default. The court also found no threat was made by the bank to procure the singing of the release and no unconscionable conduct.

In any case, the court found that the company failed to establish damage, namely that it lost the value of the business and what that value was.

The female guarantors argued a Contracts Review Act defence and unconscionability on the basis that the guarantees were executed in breach of the Banking Code (no time to consider the guarantees), with no independent legal advice and the bank did not take steps to explain the transaction or find out that a stranger had explained it.

The court noted:

The focus is not upon the quality of the weaker party’s assent, as is the case with undue influence, but upon the conduct of the stronger party. The weaker party must have a disabling condition, or the circumstances must be such, so as seriously to affect the ability of that party to make a judgment as to his, her or its own best interests. The weaker party’s need or distress must be such as to leave that party in the power of the stronger. The disadvantage of the weaker party may arise because of illness, ignorance, inexperience, impaired facilities, financial need, lack of assistance or explanation where necessary, lack of relevant language competence, emotional dependence or other circumstances. It is not necessary for the stronger party to have actual knowledge of the weaker party’s special disadvantage. It is sufficient if the stronger party is aware of the possibility or of facts that would raise that possibility in the mind of any reasonable person that the weaker party is suffering some special disadvantage. The stronger party must take advantage of the opportunity presented by the weaker party’s disadvantage. The stronger party’s conduct in taking such advantage must be unconscientious. Where a stronger party has taken advantage of a weaker one to obtain a beneficial bargain, the onus is on the stronger party to show that his conduct was fair, just and reasonable. The presence of independent advice can be an important factor in showing that the transaction was fair, just and reasonable.

The court found that it was not established that the Banking Code applied (namely that the business had less than 20 employees) but in any case, the bank complied because the guarantors obtained independent legal advice (so dispensing with the requirement to give them one day to consider the information).

The court believed the lawyer and found that the female guarantors were provided with adequate advice and given the opportunity to take other advice and voluntarily refused to do so, signing a statutory declaration that they had received independent legal advice. The court found each of the female guarantors intelligent and not under any specific disability or disadvantage. The court found that the company and the female guarantors were well represented by a competent solicitor who protected their interests. No urgency or deadline was imposed by the bank. No hurdle was placed by the bank in the way of the female guarantors having further time, whether to obtain further legal advice or otherwise. Any urgency came from the company. The court also noted that the female guarantors were not strangers to the corporate group. Each, to a greater or lesser extent, had some personal direct or indirect economic stake in it or its prospects.

The court held that the bank was neither in a position to, nor did it, in any way unconscientiously take advantage of the position of the female guarantors and rejected their claims.

The court found the bank entitled to judgment against the companies and each of the female guarantors and granted possession.

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