Wendy Jones, Partner, Adelaide
This case concerned an action brought by the bank against the borrower to recover funds advanced to him. The borrower counterclaimed and argued that the bank breached its obligations to him under Clause 25.1 of the Code of Banking Practice. This case is notable in that unlike all reported cases to date, it was the borrower and not a guarantor making the claim under Clause 25.1.
Clause 25.1 of the Code of Banking Practice
Consistent with the authority of Doggett & Ors v Commonwealth Bank of Australia  VSCA 351, Nicholson J found that the focus of Clause 25.1 is upon the process undertaken by the bank in arriving at a decision as to whether or not to approve a particular transaction rather than the ultimate decision itself. His Honour also rejected the borrower's attempt to import an obligation to assess security as part of the obligation under Clause 25.1, finding that the adequacy of security falls outside of the scope of Clause 25.1.
His Honour also noted that if a breach was proven, the borrower would need to establish that such breach was causative of actual loss. Relevantly, his Honour was not satisfied that a loan would not have ultimately been procured by the borrower (either from the bank or another lender).
On the question of (hypothetical) loss, his Honour accepted the bank's submission that the borrower had suffered no direct loss, because he received value for the loans. While his Honour was prepared to take a broad-axe approach to (hypothetical) consequential loss, he held that credit would need to be given for benefits received by the borrower as a result of the loans being advanced, including taxation deductions, rental income, rent-free occupation of premises and avoidance of a damages claim for breach of contract.
Notably, in assessing the bank's conduct, his Honour had close regard to the nature and circumstances of the transaction including as to its intended short term, its place within an overall strategy, and the borrower's knowledge, experience, track record and risk appetite. In this regard, the bank's contemporaneous file notes were of significant importance.
The effect of the borrower signing a business purpose declaration
The borrower had signed a Business Purpose Declaration pursuant to the NCC but attempted to resile from it. His Honour found that the onus was on the borrower to rebut the presumption that the loan was for a business purpose, which onus was not met.
The bank was contractually entitled to its costs, including of its claim and the counterclaim, on an indemnity basis. In this regard, the bank successfully relied upon the well-established principle that where the terms of a contract plainly and unambiguously provide for costs on a particular basis, ordinarily, a court will exercise its discretion to make an order reflecting that right.
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