Investec Bank v Naude [2014] NSWSC 165

The bank sued a guarantor. By way of defence, the guarantor alleged that his guarantee was induced by the bank’s misleading conduct as to future second stage development finance, the first stage was for acquisition of the properties.

The bank did not call the officer who allegedly made the representation. The judge noted the bank officer left the employ of the Bank under some cloud. For a while, after leaving the Bank, he worked for the developer. Thereafter, it appeared from an exchange of emails, he was prepared to assist the developer in his disputes with the Bank.

In those circumstances, the court held the officer was not to be regarded as “in the camp” of the Bank, and accordingly no inference could be drawn by the bank’s failure to call him but rather the reverse, that the developer’s failure to call him would count against the developer.

The court found the defence of misleading conduct (later dropped) failed because the officer of the bank who allegedly made the misrepresentation that development finance would be provided was not called and the express terms of the acquisition finance loan which the guarantor acknowledged to have read carefully and understood excluded reliance on any such representations.

The court found that the unconscionability defence based upon section 12CB of the ASIC Act also failed because the court found no evidence to support the alleged representations. The court found that on the plain wording of the acquisition finance loan, the bank had not committed itself to provide any future development funding and any such decision was up to the credit committee. The court further found that the guarantor knew this and took that risk. The guarantor accepted the so-called two tranche structure in the knowledge that second tranche funding was not assured.

The court said:

Even if the bank was the only likely source of funds, that does not mean that the two tranche structure was, or became, unconscionable.

The court noted that the bank’s failure to provide funding for the full development (noting that funding was eventually given for limited development) occurred because the guarantor could not satisfy the bank’s conditions, which were reasonable and took account of the GFC and the surrounding events of default under the other facilities at the same time. The court found that the bank did not behave unconscionably.

The court noted:

It is very difficult to understand how any concept of unconscionable dealing between banker and customer could require the Banker to subjugate its legitimate interests to those of its customer, and to take on risk which, in the ordinary way, it would not contemplate accepting. But in essence, that is the guarantor’s complaint in this case.

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