Sam Management Services v Bank West (No.1) [2009] NSWSC 676

The bank attempted to enforce its loan and the company cross-claimed arguing there was an implied term in the loan agreement to permit a partial refinance and/or the bank was required to act reasonably by virtue of the Banking Code and allow a partial discharge. As the borrower had less than 20 staff the code applied and in particular under the code the bank promised:

We will act fairly and reasonably towards you in a consistent and ethical manner. In so doing we will consider your conduct, our conduct and the contract before us.

Bransgroves recommends lenders do not subscribe to the Banking Code and thereby incorporating such ‘woolly terms’ into their mortgages. The whole purpose of a contract is to prescribe with great certainty the rights as between the parties. If a lender agrees to act ‘fairly and reasonably’ it surrenders its property rights to the whim of a judge, thereby introducing uncertainty to the contract. It would be like having a loan agreement that required the borrower to pay back a ‘fair and reasonable amount under the circumstances’. Although formulas like ‘ethical’, ‘reasonable’, ‘just’ sound wonderful there is nothing more fair, just and reasonable than when two parties enter into a contract they know precisely what they can expect from it.

Fortunately for the lender in this case the judge found no implied term and in view of the fact the bank had granted the company considerable indulgences, that it had not acted unreasonably in the circumstances, and consequently was not required to partially refinance and release equity.

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