O’Brien v Bank of WA [2013] NSWCA 71

The bank lent money to a company secured by guarantees. Both the loan and the guarantee contained suspension clauses, requiring full payment with no deduction or set-off. The loan became due, the borrowers did not pay and the bank applied for summary judgment. The guarantors filed defences and brought a cross-claim, which the bank argued was prevented by the provisions of the loan and guarantees. The guarantors claimed that the bank engaged in misleading and deceptive conduct. The lower court found that the guarantors’ defence was no answer to the bank’s claim, as the loan became due not as a result of the bank’s action but automatically upon termination of the loan and gave summary judgment in favour of the lender, in Bank of Western Australia v O’Brien [2012] NSWSC 456. The guarantors appealed.

The Court of Appeal held that none of the suspension, preservation and indemnity clauses provided a basis for summary judgment given the possibility that relief for misleading and deceptive conduct may result in those contractual clauses being inoperative at their time of exercise because the contract may be varied by order from dates prior to the grant of relief. In addition, the Court found the following with respect to each of the clauses:

 

  1. that the suspension clause did not protect the bank against the consequences of a promise that it might be found to have made to the principal debtor or guarantors;

  1. that the suspension clause did not apply as the guarantors’ defences were not confined to asserting set-offs or counterclaims but alleged that the debt was not payable at the relevant times. Suspension clauses do not protect against such a defence and arguably do not apply unless the debt is due and unpaid;

  1. that the indemnity clause, whereby the guarantors agreed to indemnify the bank if the debtor did not pay in accordance with any “arrangement’’ as here but there was arguably no departure from the arrangement, so the obligation to indemnify had not arisen.

The Court of Appeal also reversed the order of the lower court striking out the guarantors’ cross-claim that the bank had breached implied terms of good faith and not to act for collateral purposes.

 

Click here to read the full judgment

 

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