A husband and wife ran a successful African restaurant and purchased another property to open a further restaurant. This purchase was funded by the bank as a commercial loan and the husband and wife gave guarantees. The guarantees were secured on the family home as well as the property purchased. The couple ran into financial trouble and the bank refused to advance any more money. The couple argued that the guarantees and mortgage were unjust and that the bank misrepresented the extent of finance that would be offered. They also argued that the bank was negligent in failing to provide sufficient working capital. The wife also argued the wife’s equity principle (Yerkey v Jones), on the basis that she did not understand the effect of the guarantee nor benefit from it.
Misleading conduct and estoppel claims
Being a commercial loan, the misleading conduct claim was based on breach of section 12DA of the ASIC Act.
The court rejected these claims for two reasons:
- There was no misleading conduct. The court did not believe that the bank officer said that the bank would advance further money to enable further renovations. In any event, money was available for that purpose from another facility.
- The property had already been purchased at the time the bank officer made these alleged misrepresentations so there was no detriment suffered.
Contracts Review Act claim
The borrowers claimed unjustness on the basis that the borrowers had limited English and the terms and conditions were not explained to them. The court rejected this. The court found that they had considerable business experience and both received legal advice on the loan, mortgage and guarantee and financial advice in relation to the guarantees.
The court noted:
Mr and Mrs Diagne signed certificates on each occasion that they had received independent legal advice in relation to those transactions. There may be a question whether those certificates were accurate. However, in my opinion, the Bank was not required to go behind those certificates… the Bank had a reasonable basis for believing that Mr and Mrs Diagne understood the certificates they signed……at no stage did the Bank promise to advance more than it did. Consequently, it is difficult to see how it acted unjustly in not advancing more.
Wife’s equity claim
The court rejected this because the Yerkey v Jones defence requires the wife to show that she obtained no financial benefit from the guarantees and did not understand the effect of the guarantee, which she did.
The court rejected any duty of care on the part of the bank to investigate the borrower’s financial circumstances to determine whether the loan that was made was appropriate for them.
The court said:
Their real complaint is that the Bank failed to provide sufficient working capital to permit them to establish the business at the Enmore premises. Their complaint is not that the Bank lent them money in circumstances where it should not have done so.
The court found it difficult to see how the bank could have done more than it did and rejected the claim.
The court granted the bank possession and costs on an indemnity basis.