2. Guarantees in New South Wales law and practice

Updates and background for this project (Digest)

• General law
• Statutory regulation
• Regulation of guarantees under the Consumer Credit Code
• Other particular statutory regulation
• Industry practice
• An overview

GENERAL LAW

2.2 In general, the common law of contract attaches no special rules to contracts of guarantee. This is different from, for example, contracts of insurance, which are classified as contracts of “utmost good faith”. Thus, persons seeking insurance must disclose to the proposed insurer all matters within their knowledge that are material to the risk.² In contrast, a lender has no general duty to disclose to the guarantor all material facts within the lender’s knowledge.³ Nor does the common law place limitations on the terms that may form part of a guarantee.

2.3 It has been said that the common law has a special rule for the interpretation of guarantees, namely, that where the terms of the guarantee are ambiguous, they should be construed in favour of the guarantor.⁴ This rule of interpretation will no doubt apply to most of the guarantees considered in this Report because they will have been drawn up by the lender. However, since it may be no more than a manifestation of the general rule of interpretation that a document is construed against the party who prepared it,⁵ the “special rule” may not apply to all guarantees.⁶

2.4 The most important impact of the general law on guarantees occurs where the circumstances, particularly those surrounding the formation of the contract, allow the guarantor to set aside, or resist the enforcement of, a contract impaired by the presence of some vitiating factor. These vitiating factors find expression in general equitable and common law doctrines,⁷ of which the most relevant for this Report are unconscionability, undue influence and the principle in Yerkey v Jones and Garcia v National Australia Bank.

Unconscionability

2.5 The equitable principle of unconscionability, firmly established in the jurisprudence of the High Court,⁸ is concerned with setting aside transactions where one party has taken unconscientious advantage of the special disadvantage or disability of the other. While the circumstances or conditions of special disadvantage are not capable of exhaustive enumeration, they include “poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary”.⁹ Their common characteristic “seems to be that they have the effect of placing one party at a serious disadvantage vis-à-vis the other”.¹⁰

2.6 The decision of the High Court in Commercial Bank of Australia Ltd v Amadio¹¹ illustrates the application of this principle to a contract in which a person guarantees the loan of another. An elderly couple of Italian origin executed a guarantee and mortgage as security for a loan their son was seeking from the bank to support his business. The guarantors’ advanced age and limited English, their lack of understanding of the contents of the guarantee and their lack of knowledge about the true financial position of their son’s business all contributed to their “special disability”, or disadvantaged position relative to the bank, when they signed the guarantee and mortgage. The bank, for its part, was privy to the business affairs and financial instability of the son’s business. It was aware that the son’s company had, for some time, been unable to meet its debts as they fell due. It was also aware of the state of the business’s two overdrawn accounts with it and of past failures to observe agreed borrowing limits. Moreover, the bank officer dealing with the relevant transactions was cognisant of the personal circumstances of Mr and Mrs Amadio and their reliance on their son whom the bank officer described as the “dominant member of the family”. The High Court set aside the transaction on the ground of unconscionability.

2.7 Justice Deane explained that the principle comes into play where:

(i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or “unconscientious” that he procure, or accept, the weaker party’s assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable …¹²

2.8 Parties to a contract who seek to set it aside on the ground of undue influence are asserting that the other party exploited the situation leading up to the formation of the contract to influence their mind or judgment to such an extent that they did not bring a free will to its execution. The doctrine thus focuses on the quality of consent, unlike the doctrine of unconscionable conduct which allows a contract to be set aside because one party has unconscientiously taken advantage of the other party’s position of special disadvantage, whether or not the disadvantaged party’s mind is free and independent.¹³ The two doctrines are, however, closely connected and the facts of a case may call both into play.¹⁴

2.9 Undue influence is established by proof that a party to the contract overbore the will of the other party (“actual undue influence”).¹⁵ Alternatively, undue influence can be established by relying on a presumption of undue influence resulting from a pre-existing relationship between the parties (“presumed undue influence”). Presumed undue influence arises in the context of relationships that occur where one of the parties occupies or assumes against the other a position naturally involving ascendancy, influence, dependency or trust.¹⁶ Where the presumption applies, the party relying on the contract must affirmatively prove that the contract was the “pure, voluntary, well-understood act of the mind” of the other party.¹⁷ Two categories of case need to be distinguished:

• Where the relationship falls within a class that of itself imports influence. Examples are parent and child, guardian and ward, trustee and beneficiary, solicitor and client, physician and patient, and religious adviser and disciple.¹⁸ Relevantly for this Report, such relationships do not include that between husband and wife,¹⁹ adult child and elderly parent,²⁰ and financial adviser and client.²¹
• Where the facts establish that the relationship, even though not within one of the traditional classes, is susceptible to undue influence.²² For example, a relationship between an adult child and his or her elderly parent will give rise to a presumption of undue influence where the facts establish that the child assumed a position in relation to that parent that naturally involved ascendancy, influence, dependency or trust.²³

• the borrower has obtained the guarantee as agent of the lender;²⁵ or
• the lender has, in the circumstances, such notice of the circumstances of undue influence that the lender should have taken steps to ensure that the guarantor’s entry into the guarantee was independent and voluntary, but failed to do so.²⁶

Yerkey and Garcia

2.12 Yerkey v Jones,²⁸ a High Court decision of 1939, embodies an equitable principle that applies specifically to married women who guarantee their husbands’ loans. Provided that the lender has notice of the marriage relationship,²⁹ the principle allows a wife, who obtains no benefit from the undertaking that is the subject of the guarantee,³⁰ to set the guarantee aside:

• if her consent was obtained by undue influence, unless she has received independent advice; or
• if she failed to understand the effect or significance of the guarantee, unless the lender took steps to inform her of these matters.³¹

2.13 Garcia v National Australia Bank³² illustrates the operation of this principle. Mrs Garcia, whom the trial judge described as a “capable professional”, and her husband executed a mortgage over the family home in favour of the bank to secure a loan made to both of them. The mortgage secured all moneys they might owe including moneys secured by future guarantees. The loans were repaid but the mortgage was never discharged. Mrs Garcia subsequently executed several guarantees relating to loans made to a company of her husband’s that was in the business of buying and selling gold. She signed the guarantees following requests by her husband to do so. Her husband told her there was no danger in signing the guarantees because “if the money isn’t there the gold is there”. She was a director and shareholder of the company but she was not involved in its operations. Following the parties’ divorce (which resulted in the family home being transferred to her subject to the mortgage), Mrs Garcia sought a declaration that the guarantees were void, the bank cross claiming to obtain possession of the mortgaged property under one of the guarantees. When she had executed that guarantee in the presence of an officer of the bank, Mrs Garcia had believed that it was a guarantee of the business’s overdraft; she did not understand that it was secured by the all-moneys mortgage over the family home. The bank had not informed her of the true nature of the transaction. Although her husband had not unduly influenced her, she had agreed to the guarantee relying on his representations that it was risk proof. The High Court, applying Yerkey v Jones, sustained Mrs Garcia’s claim.

2.14 The “special equity” ³³ in favour of wives said to be the basis of Yerkey v Jones and applied in Garcia has attracted much debate and criticism. Some regard it as perpetuating undesirable gender stereotypes, presupposing an inferior position of women in society that is incompatible with contemporary Australian social conditions.³⁴ Others argue that stereotyping that promotes the protection of a vulnerable group in society, rather than the perpetuation of discriminatory values, is not necessarily objectionable.³⁵ More radical critiques would regard either of these approaches as inadequate. By locating the debate as a choice between the desirability of formulating gender-neutral or gender-specific principles, these approaches simply reinforce fundamental assumptions about gender.³⁶ For example, by accepting that sexually transmitted debt is a problem that affects married women, all the judgments in Garcia focus on women’s difference, and it matters not whether the assumption is made because married women in practice leave business decisions to their husbands,³⁷ generally prefer to do so³⁸ or are dependent on their husbands.³⁹ In doing so, these approaches simply miss the point that the problem is caused by structural gendered inequality in marriage – particularly economic inequality – that results from male dominance and that is not necessarily remedied by the provision of information or independent advice.⁴⁰

2.15 Whatever the force of these various points of view, their emphasis on Garcia’s reformulation of Yerkey v Jones as a principle applicable only to married women is probably misplaced. Garcia makes it clear that the basis of Yerkey v Jones is that it is unconscionable for a lender to have the benefit of a guarantee when the lender is taken to know that the guarantor reposes trust and confidence in the borrower (as a result of which there may not have been an adequate explanation of the effect of the guarantee), and fails to explain the transaction to the guarantor, who receives no benefit from the transaction and was mistaken about its purport and effect.⁴¹ Garcia establishes that a lender is taken to know of the trust and confidence that a wife reposes in her husband in business affairs. It expressly leaves open when (if ever) this can be said about other relationships – for example, “long term and publicly declared relationships short of marriage between members of the same or of the opposite sex”.⁴² Case law since Garcia, including decisions of the Queensland⁴³ and Victorian⁴⁴ Courts of Appeal, shows some willingness to apply the principle in Yerkey v Jones to other relationships of trust and confidence, both intimate⁴⁵ and non-intimate,⁴⁶ of which the lender has notice.

Other doctrines

2.16 The facts surrounding the execution of a guarantee may allow a guarantor to resist the lender’s enforcement of a guarantee by relying on other general law doctrines, namely:⁴⁷

• Duress:⁴⁸ where the guarantor can establish that his or her consent to the guarantee resulted from illegitimate pressure (ranging from threats to person, property or economic interests)⁴⁹ either by the lender,⁵⁰ or by the borrower where the lender had knowledge of the borrower’s duress or the borrower was the agent of the lender.⁵¹
• Mistake:⁵² where the guarantor establishes that, at the time of executing the guarantee, he or she was under a fundamental mistake as to its nature, effect or subject-matter; that the lender knew about this and either deliberately set out to ensure that the guarantor did not become aware of the mistake,⁵³ or (perhaps), simply failed to correct it.⁵⁴
• Non est factum (“it is not my contract”):⁵⁵ a species of mistake where the guarantor establishes that, without any carelessness on his or her part (for example, not bothering to read the document), he or she signed a document believing it was radically different from what it was in fact.⁵⁶
• Misrepresentation:⁵⁷ where the guarantor establishes that he or she was induced to enter the contract by a material misstatement of fact either by the lender,⁵⁸ or by the borrower where the lender was a party to the misrepresentation or had knowledge of it at the time the guarantor entered the contract.⁵⁹

2.17 Just as guarantors may resist the enforcement of a guarantee by appealing to one or more of the general law doctrines that have been described above, so they may also rely on a number of statutory doctrines that are related, more or less, to those at common law or in equity. Unlike the general law, the scope of statutory regulation does not necessarily extend to all guarantees. In particular, it does not always extend to guarantees that support business loans.⁶⁰

2.18 The following statutes contain principles that can be useful to guarantors:

• Contracts Review Act 1980 (NSW) (“Contracts Review Act”),
• Fair Trading Act 1987 (NSW) (“Fair Trading Act”),
• Consumer Credit (New South Wales) Code (“Consumer Credit Code”),⁶¹ and
• Australian Securities and Investment Commission Act 2001 (Cth) (“ASIC Act”).⁶²

• unjust contracts or transactions⁶⁴ and unconscionable conduct;⁶⁵ and
• misleading or deceptive conduct.⁶⁶

2.19 The regimes established under the Contracts Review Act, Consumer Credit Code, ASIC Act⁶⁷ and Fair Trading Act cover unjust contracts, unjust transactions or unconscionable conduct:

• The Contracts Review Act allows a court to grant relief in relation to a contract or part of a contract that is “unjust in the circumstances relating to the contract at the time it was made”.⁶⁸ The term “unjust” is not restricted and its definition includes “unconscionable, harsh or oppressive”.⁶⁹
• Under the Consumer Credit Code, a court may decide that a guarantee was “at the time it was entered into or changed ... unjust”.⁷⁰ “Unjust” includes “unconscionable, harsh or oppressive”.⁷¹
• The ASIC Act and the Fair Trading Act prohibit “persons” or “suppliers” respectively from engaging, in trade or commerce, in “conduct that is, in all the circumstances, unconscionable”.⁷²
• The ASIC Act also prohibits a person, in trade or commerce, from engaging in unconscionable conduct within the meaning of “the unwritten law, from time to time, of the States and Territories”.⁷³

2.21 First, liability under the statutory regimes is wider than at general law. On the face of the relevant legislation, an “unjust” contract or transaction is not restricted to one that is unconscionable; and, except to the extent to which the statute requires otherwise,⁷⁴ “unconscionable conduct” is not necessarily limited to any particular meaning at general law.⁷⁵ A general reason for this is that application of the unconscionability doctrine at general law is dependent on the special disability of the one party being “sufficiently evident” to the other party (who then takes advantage of it).⁷⁶ Under the legislative schemes, this is not necessarily an element of liability, though it may be relevant to the exercise of a court’s discretion whether or not to grant relief in the circumstances of the case.⁷⁷ Thus, Justice Kirby has remarked that a person may be liable under the Contracts Review Act even though they were ignorant of the circumstances of the other party or their conduct was “honourable” or “lawful”.⁷⁸ So also, the fact that a lender was not aware of the conduct of a borrower or agent in relation to a guarantor is not conclusive of whether or not the contract is unjust.⁷⁹ This means that liability under the statutory schemes may even be wider than liability under the principle of Yerkey v Jones.⁸⁰

2.22 Secondly, unlike the general law, the legislative regimes all provide non-exhaustive “shopping lists” of matters to be taken into account in determining whether the situation is unjust or unconscionable in all the circumstances of the case.⁸¹ They focus the court’s attention on matters that are relevant to the inquiry within the overall objectives of the statute in question. Unsurprisingly, the lists are not identical. Both the Contracts Review Act and the Consumer Credit Code require the courts to have regard to the public interest and to “all the circumstances of the case”.⁸² In broad terms, the matters listed focus on the characteristics and circumstances of the parties and the nature of the relationship between them, the nature and characteristics of the contract, and the circumstances surrounding its negotiation and formation, as well as the commercial context of the transaction. Generally speaking, they include the following considerations:

• inequality of bargaining power;⁸³
• difficult or harsh terms;⁸⁴
• intelligibility of the contractual documents;⁸⁵
• unfair tactics or undue influence or pressure exerted by another person;⁸⁶
• comparable conduct in similar contracts or transactions;⁸⁷
• standard form contracts, or whether the parties negotiated the provisions of the contract⁸⁸ or were willing to do so;⁸⁹
• acting in good faith;⁹⁰
• the ability of the guarantor to protect his or her own interests;⁹¹
• relative financial circumstances, educational background, literacy;⁹²
• whether or not independent legal advice or other expert advice was obtained;⁹³
• accurate explanation of the legal and practical effect of the contract;⁹⁴
• whether the provisions of the transaction were understood;⁹⁵
• terms of comparable transactions, including rates of interest or charges.⁹⁶

Misleading or deceptive conduct

2.24 Both the Commonwealth and New South Wales relevantly proscribe, in trade or commerce, conduct that is misleading or deceptive, or is likely to mislead or deceive.⁹⁸ These sections may extend to conduct that would not be reached at common law. Thus, silence may constitute misleading or deceptive conduct, while at common law it would not ground liability in misrepresentation in the absence of a duty to disclose.⁹⁹ Moreover, liability for misleading and deceptive conduct is strict. A person can mislead or deceive another without necessarily intending to do so.¹⁰⁰ While the general law can also, exceptionally, be strict (for example, where liability exists for innocent misrepresentation),¹⁰¹ the remedies available under the legislation are much broader than those available at general law.¹⁰² On the other hand, in the absence of agency or knowing involvement in a contravention of the legislation, it may be more difficult to impose liability on a lender for the conduct of a borrower than at general law.¹⁰³

Relief available

2.25 A guarantor who bases a claim against the lender under one of the statutory regimes covered in this section has access to a much wider range of remedies than at common law, where the normal remedy is the sometimes fragile one of rescinding the contract.¹⁰⁴

Contracts Review Act

2.26 Under the Contracts Review Act, if a court finds a contract or a provision in a contract unjust, it may refuse to enforce any or all of the provisions of the contract; or declare the contract void in whole or in part; or vary any provision of the contract. Further, the court may make any of the ancillary orders listed in Schedule 1 of the Act, including such orders “as may be just in the circumstances”.¹⁰⁵

2.27 The flexibility of the remedies under the Contracts Review Act is illustrated in a number of cases where parents mortgaged their family home by way of security for a guarantee given in support of a loan to a business of their children or other close relatives. In these cases, the courts have sometimes given more limited relief than simply setting aside the contract. They have, for example, prevented the exercise of the mortgagee’s power of sale during the mortgagor’s lifetime or released or postponed the mortgagor’s personal liability.¹⁰⁶ This has led one commentator to observe that:

the ability to choose something other than the more traditional all-or-nothing solution may well result in judges giving at least some measure of relief in circumstances where they would otherwise have felt compelled to refuse relief on the basis that the injustice that would otherwise be caused to the defendant by setting aside the contract would outweigh the injustice caused to the plaintiff by its enforcement. ¹⁰⁷

2.28 When the court reopens an unjust transaction under the Consumer Credit Code, it may make a number of orders including:

• relieving the guarantor from payment of any amount the court considers to be in excess of what is reasonably payable;
• setting aside either wholly or in part or revising or altering any agreement made in connection with the transaction;
• ordering the mortgagee to take the steps necessary to discharge the mortgage;
• ordering a party be paid an amount that is justly due under the agreement, having regard to such relief as the court thinks fit to grant; and
• making ancillary or consequential orders.¹⁰⁸

2.29 Relevant parts of the financial services and fair trading legislation provide for the following relief:

• Injunctions. The court may grant injunctions¹⁰⁹ against those involved in contravening conduct.¹¹⁰ Any person may apply for an injunction, not only those directly affected by the conduct. The injunction may be “in such terms as the Court determines to be appropriate”.¹¹¹ An injunction could, for example, restrain a lender from seeking to enforce or retain the benefit of a mortgage used to secure a loan.¹¹²
• Damages. A person who suffers loss or damage as a result of contravening conduct may generally recover the “amount of the loss or damage” from the person in breach,¹¹³ although damages are not available for unconscionable conduct under the Fair Trading Act 1987 (NSW).¹¹⁴ However, a court may also order compensation for unconscionable conduct in its discretion under the “other orders” provisions.¹¹⁵
• Other orders. The court may also make “such order or orders as it thinks appropriate” to compensate a person who suffers, or who is likely to suffer, loss or damage by a person engaging in contravening conduct.¹¹⁶ For example, a court may: declare part or all of a contract void from the beginning; vary a contract; refuse to enforce all or part of a contract; direct the refund of money or the return of property; or direct the payment of the amount of the loss or damage suffered.¹¹⁷ These provisions in no way limit the scope of an injunction otherwise granted by the court.¹¹⁸

2.30 There are limitations on the scope of application of the statutory provisions considered above. Those relevant to this Report are as follows:

Contracts Review Act

2.31 Relief under the Contracts Review Act is not available to corporations.¹¹⁹ Nor is it available to a person in respect of a contract entered into “in the course of or for the purpose of a trade, business or profession carried on by the person or proposed to be carried on by the person other than a farming undertaking”.¹²⁰ This restriction does not, on its face, apply when an individual guarantees a loan that was taken out for the borrower’s business purposes, since the business in question will not be “carried on by” the guarantor. Such guarantees are, therefore, subject to the Act,¹²¹ even where the guarantor has a stake (for example, as a shareholder) in the borrower’s business.¹²² Most of the guarantees considered in this Report will, therefore, be subject to the Contracts Review Act. But guarantors of, for example, small business loans will lose the protection of the Act if their giving of guarantees reveals a pattern of sustained activity and transactions aimed at their own business profitability.¹²³

Financial services and fair trading legislation

2.32 The provisions of Australian Securities and Investment Commission Act 2001 (Cth) that deal with unconscionable conduct apply only to conduct, in trade and commerce, in connection with:

• consumer transactions, that is, the supply of financial services “of a kind ordinarily acquired for personal, domestic or household use”;¹²⁴ or
• certain business transactions, that is, “for the purpose of trade or commerce” up to a value of $3,000,000.¹²⁵

Consumer Credit Code

2.34 The Consumer Credit Code and its regulations¹²⁹ apply to guarantors who are individuals or strata corporations¹³⁰ where the guarantee supports a credit contract that is “wholly or predominantly for personal, domestic or household purposes”.¹³¹ They, therefore, apply only to consumers, and do not protect individuals who guarantee business loans, even when they have no direct interest in the business.

REGULATION OF GUARANTEES UNDER THE CONSUMER CREDIT CODE

2.35 In addition to the power of a court to determine that a guarantee or other credit contract is “unjust”,¹³² the Consumer Credit Code contains a number of provisions that either deal specifically with guarantees or are capable of application to such contracts. These provide a number of significant safeguards for guarantors, but do not extend to guarantees that support business loans.¹³³ For example, the Consumer Credit Code:

• requires lenders to give prospective guarantors, prior to the signing of the guarantee, not only a copy of the contract but also: (a) a copy of the loan contract to which the proposed guarantee relates; and (b) a document explaining the rights and obligations of guarantors.¹³⁴ This addresses, to a limited extent, the information disparity between guarantors and financial institutions. By giving guarantors access to the loan document, this provision puts them in a position to examine or get advice on their potential liability.
• requires every guarantee to contain a warning, called “Form 4”, which informs the guarantor that he or she may be personally liable for the debt, and that this could jeopardise the guarantor’s assets, including his or her home. It also advises the guarantor that it may be possible to withdraw from the guarantee or to limit his or her liability under the guarantee. It further outlines the guarantor’s rights in relation to an extension of credit. It recommends that the guarantor get independent legal and financial advice, and make his or her own inquiries about the borrower’s financial position and credit risk.¹³⁵
• directs guarantees to be in legible form and to use plain language.¹³⁶ This is intended to make it easier for guarantors to understand the contract.
• grants guarantors a cooling off period. More specifically, it allows guarantors to withdraw from the contract at any time before credit is first provided to the borrower.¹³⁷ This gives them time to consider the transaction further, even though they have already signed the contract.
• obliges lenders to supply the guarantor with ongoing information about the loan, including the current balance of the borrower’s account and any amounts that are overdue.¹³⁸ The Consumer Credit Code, therefore, imposes continuing obligations on credit providers. This provision enables a guarantor to monitor instances when his or her liability might arise as a result of the borrower’s default.

Anti-discrimination Act

2.36 Some, as yet untested, provisions of the Anti-Discrimination Act 1977 (NSW) are capable of extending to guarantees.¹³⁹ The Act makes it unlawful for a service provider to discriminate against a person on the ground of marital status (a) by refusing to provide the person with those services, or (b) in the terms on which he or she provides the person with those services.¹⁴⁰ Discrimination on the ground of marital status occurs where the “perpetrator” treats “the aggrieved person less favourably than in the same circumstances, or in circumstances which are not materially different, the perpetrator treats or would treat a person of a different marital status”.¹⁴¹ The effect of these provisions would appear to be that, although a lender may require, as a condition of providing credit to a married borrower, that the borrower find a guarantor, the lender cannot require that the borrower’s spouse become that guarantor.¹⁴²

2.37 An alleged contravention of the Act can only be pursued by way of complaint to the President of the Anti-Discrimination Board and, ultimately, reference to the Administrative Decisions Tribunal.¹⁴³ If a complaint is substantiated, the Tribunal can do one or more of the following:

• order the lender to pay the guarantor up to $40,000 by way of compensation for any loss or damage;
• order the lender to stop the unlawful conduct;
• order the lender to do something to redress any loss suffered by the guarantor; or
• declare void in whole or in part any guarantee made in contravention of the Act.¹⁴⁴

2.38 The Farm Debt Mediation Act 1994 (NSW) applies in situations where a farmer, as either a borrower or a guarantor, owes money to a lender under a “farm mortgage”¹⁴⁵ and the lender seeks to enforce the loan. When the farmer is a guarantor, the Act only applies where the guarantee is secured by farm property. It provides for delay in enforcement by requiring that 21 days’ notice be given to the guarantor.¹⁴⁶ During the notice period, the farmer guarantor may request mediation¹⁴⁷ and enforcement cannot continue until the Rural Assistance Authority has issued a certificate that it is satisfied that certain processes have been carried out.¹⁴⁸

2.39 The Act is simply a means of delaying enforcement actions against farmers in the hope that a better solution can be found through mediation. A guarantee cannot be overturned unless the parties agree. The Act does not affect any rights to have the guarantee reviewed under other relevant legislation such as the Contracts Review Act 1980 (NSW) or “any other Act or law that deals with the granting of relief in respect of harsh, oppressive, unconscionable or unjust contracts or on the grounds of hardship”.¹⁴⁹

Controlling contractual terms

2.40 Injunctive relief under financial services and fair trading legislation could extend to the making of an order against a financial service provider prohibiting it from engaging in conduct that constitutes a contravention of a relevant provision of the legislation, such as entering into a contract that contains terms that would breach a section of the Act.¹⁵⁰ “Any person”, including a consumer organisation, has standing to apply for such an injunction.¹⁵¹ Further, the Attorney General or Minister may apply for an order, under s 10 of the Contracts Review Act, prescribing or restricting the terms on which any person may enter into contracts of a specified class in order to prevent that person from engaging in a course of conduct leading to the formation of unjust contracts. Thus, in Minister of Consumer Affairs v W W Vallack Real Estate Pty Ltd,¹⁵² the Minister obtained an order against defendant real estate agents prohibiting their use of an unjust term in their standard form contracts with vendor clients that gave them an interest in the property being sold as security for any unpaid commission.

2.41 These provisions obviously have the potential to be used in guarantee contracts against lenders, such as banks, and could prohibit, for example, all moneys clauses in such contracts, that is, clauses providing that the guarantee is a continuing security and covers all moneys currently owing or remaining unpaid or which may from time to time be owing or remain unpaid.¹⁵³

INDUSTRY PRACTICE

2.42 The Australian Bankers Association released a Code of Banking Practice (“Banking Code”) in November 1993 and revised it, after a substantial review in 2003.¹⁵⁴ The latest version was issued in May 2004. The Banking Code is not law, but rather a self-regulatory code setting “standards of good banking practice”¹⁵⁵ for the Association’s members. A bank can, of course, decide whether or not to adopt the Banking Code. Once it has done so, it is contractually bound to observe its provisions.

2.43 The provisions of the Banking Code deal generally with the relationship between banks and their customers, and contain provisions specifically dealing with guarantees.¹⁵⁶ The 2003 version of the Banking Code was the first to extend its provisions substantially to loans taken out by small business customers.¹⁵⁷ Small business customers are defined as having “less than 20 full time (or equivalent) people” unless the business involves the “manufacture of goods” in which case they must have “less than 100 full time (or equivalent) people”.¹⁵⁸

2.44 Some of the provisions in the Banking Code that benefit guarantors are patterned after the Consumer Credit Code, except that the former extends some (but not all) of them to small business guarantees.¹⁵⁹ For example, the Banking Code requires guarantees to include the Form 4 warning of the Consumer Credit Code.¹⁶⁰ It also gives guarantors a cooling off period, which is similar in terms to the one found in the Consumer Credit Code.¹⁶¹ In comparison to the Consumer Credit Code, however, the Banking Code substantially increases the obligation on lenders in respect of pre-contract disclosure of information. Both Codes require lenders to give a prospective guarantor a copy of the loan document, in addition to the guarantee. However, the Banking Code requires the disclosure of, among other things, any relevant credit report obtained by the bank about the borrower; financial accounts or statements of financial position given by the borrower to the bank for purposes of obtaining the credit facility; the latest statement of account relating to the credit facility; and any unsatisfied notice of demand made in relation to the credit facility in the previous two years.¹⁶² These pieces of information, which essentially relate to the borrower’s credit history, are intended to give better information to the prospective guarantor about the risks of entering into the guarantee.

2.45 Not all banks have adopted the latest version of the Banking Code. Some are still governed by the 1993 Banking Code while others are governed by the original 2003 revision¹⁶³ - a matter that may not be readily apparent to any intending borrower or guarantor.

2.46 The 1993 Banking Code was followed in 1994 by similar industry codes of practice for building societies and credit unions,¹⁶⁴ which contractually bound member institutions once they agreed to be bound.¹⁶⁵ The Credit Union Code of Practice is still in force, but the Building Society Code of Practice ceased in 2003. Neither finance companies nor mortgage brokers have industry codes of practice.

2.47 The Credit Union Code applies to guarantees signed by individuals (not companies) and is still limited to loans that support consumer transactions.¹⁶⁶ The borrower cannot be a (public) corporation, or a corporation where the guarantor is a director or secretary, or a trustee of a trust (including a discretionary trust) where the guarantor is a beneficiary.¹⁶⁷ Nor will the code apply where the borrower is a co-owner, agent, consultant or associate of the guarantor.¹⁶⁸ Thus, the Credit Union Code does not generally apply to the very common situations in family businesses, where the wife is both guarantor and director of the borrowing family company, or is both guarantor and a beneficiary of the discretionary family trust for which a loan is made.¹⁶⁹

2.48 Where there is a conflict between the Consumer Credit Code and the codes of practice, the Consumer Credit Code, being legislation, prevails.¹⁷⁰

AN OVERVIEW

2.49 The following general observations can be made about the current legal regulatory regime of third party guarantees in New South Wales:

• a multitude of overlapping sources regulate guarantees in New South Wales;
• generally, regulation is reactive rather than preventive: it addresses problems after they have arisen rather than attempting to prescribe standards or conduct that prevent problems arising in the first place;
• the protection afforded guarantors is traditionally very much focused on the circumstances of the particular case;
• the only comprehensive preventive legal regime is found in the Consumer Credit Code, but this extends only to consumer loans; in particular, it does not apply to loans for small business purposes;
• regulation in specific contexts (such as under the Anti-Discrimination Act 1977 (NSW)) yields very limited relief; and
• industry regulation of guarantees is, sometimes, in advance of legal regulation.

1. Using “regulation” widely to encompass private law as a regulatory mechanism: see further H Collins, Regulating Contracts (OUP, Oxford, 1999) ch 4.

2. See K Sutton, Insurance Law in Australia (3rd edition, LBC Information Services, Sydney, 1999) ch 3, especially at 179-181.

3. J O’Donovan and J Phillips, The Modern Contract of Guarantee (3rd edition, LBC Information Services, Sydney, 1996) at 33. See also para 6.3

4. See Ankar Pty Ltd v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549 at 561 (Mason ACJ, Wilson, Brennan, and Dawson JJ).

5. That is, contra proferentem.

6. See, generally, J O’Donovan and J Phillips, The Modern Contract of Guarantee (3rd edition, LBC Information Services, 1996) at 218; G Andrews and R Millett, Law of Guarantees (4th edition, Sweet & Maxwell, London, 2005) at 90-91. In Canada, the courts differentiate between accommodation sureties, who undertake a guarantee with no expectation of personal gain, and compensated sureties, who undertake surety contracts for profit, such as bonding companies. Courts treat accommodation sureties more benignly than compensated sureties. Hence, rules designed for the benefit of accommodation sureties, such as the contra proferentem rule in the construction of contracts, are not generally applied to compensated sureties: Citadel General Assurance Co. v Johns-Manville Canada Inc (1983) 147 DLR (3d) 593. See also P Devonshire, “The Liability of Original Mortgagors and Sureties Upon Default by a Mortgagor by Assumption” (2006) 39 University of British Columbia Law Review 185 at 197.

7. See especially J Paterson, A Robertson and P Heffey, Principles of Contract Law (2nd edition, Lawbook Co, Sydney, 2005) Pt 10.

8. Especially Blomley v Ryan (1956) 99 CLR 362; Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; Louth v Diprose (1992) 175 CLR 621; Bridgewater v Leahy (1998) 194 CLR 457. See also Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51.

9. Blomley v Ryan (1956) 99 CLR 362 at 405 (Fullagar J), 415 (Kitto J).

10. Blomley v Ryan at 405 (Fullagar J).

11. (1983) 151 CLR 447.

12. (1983) 151 CLR 447 at 474 .

13. Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 461 (Mason J), 474 (Deane J).

14. See Louth v Diprose (1992) 175 CLR 621 at 626-628 (Brennan J).

15. See Johnson v Buttress (1936) 56 CLR 113. For an example of actual undue influence in the context of a guarantee, see Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923.

16. Johnson v Buttress (1936) 56 CLR 113 at 134-5 (Dixon J). Justice Dixon added that “[o]ne occupying such a position falls under a duty in which fiduciary characteristics may be seen”.

17. See Huguenin v Baseley (1807) 14 Ves 273 at 295-6, 33 ER 526 at 535 (Lord Eldon); Johnson v Buttress (1936) 56 CLR 113 at 119 (Latham CJ).

18. See Johnson v Buttress (1936) 56 CLR 113 at 119 (Latham CJ), 134 (Dixon J). See also Jenyns v Public Curator (1953) 90 CLR 113 at 133 (Dixon CJ, McTiernan and Kitto JJ); Louth v Diprose (1992) 175 CLR 621 at 628 (Brennan J); Hillston v Bar-Mordecai [2003] NSWSC 89 at para 32-37 (Bryson J).

19. See, eg, Yerkey v Jones (1939) 63 CLR 649 at 675 (Dixon J).

20. George v Paul George Pty Ltd (NSW, Supreme Court, 2575/1993, Santow J, 29 February 1996, unreported) at 31-32.

21. Bank of New South Wales Ltd v Rogers (1941) 65 CLR 42 at 60 (McTiernan J).

22. See Johnson v Buttress (1936) 56 CLR 113 at 119 (Latham CJ), 134-135 (Dixon J).

23. George v Paul George Pty Ltd (NSW, Supreme Court, 2575/1993, Santow J, 29 February 1996, unreported) at 30-32.

24. J W Carter and D J Harland, Contract Law in Australia (4th edition, Butterworths, Chatswood NSW, 2002) at para 1405; A J Duggan, “Undue Influence” in P Parkinson (ed), The Principles of Equity (LBC Information Services, Sydney, 1996) at para 1120.

25. See Alderton v Prudential Assurance Company Ltd (1993) 41 FCR 435 at 444-447 and the cases cited there.

26. For example, Bank of New South Wales Ltd v Rogers (1941) 65 CLR 42.

27. Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 464 (Mason J, commenting on the statement of claim in the case).

28. (1939) 63 CLR 649, reaffirmed by the High Court in Garcia v National Australia Bank Ltd (1998) 194 CLR 395.

29. Garcia v National Australia Bank Ltd (1998) 194 CLR 395 at 408-411 (Gaudron, McHugh, Gummow and Hayne JJ).

30. Garcia v National Australia Bank Ltd (1998) 194 CLR 395 at 411-412 (Gaudron, McHugh, Gummow and Hayne JJ).

31. See Yerkey v Jones (1939) 63 CLR 649 at 683-684 (Dixon J). For the view that both limbs of the case are explicable by reference to the doctrine of unjust enrichment, see J Edelman and E Bant, “Setting Aside Contracts of Suretyship: The Theory and Practice of Both Limbs of Yerkey v Jones” (2004) 15 Journal of Banking and Finance Law and Practice 5.

32. (1998) 194 CLR 395.

33. See for example, Barclays Bank plc v O’Brien [1994] 1 AC 180 at 194 (Lord Browne-Wilkinson).

34. See Garcia v National Australia Bank Ltd (1998) 194 CLR 395 at 421-429 (Kirby J dissenting). See also Su-King Hii, “From Yerkey to Garcia: 60 Years on and Still as Confused as Ever!” (1999) 7 Australian Property Law Journal 47 at 56-57.

35. See R Haigh and S Hepburn, “The Bank Manager Always Rings Twice: Stereotyping in Equity After Garcia” (2000) 26 Monash University Law Review 275.

36. See K Dunn, “‘Yakking Giants’: Equality Discourse in the High Court” (2000) 24 Melbourne University Law Review 427, 437-47.

37. Garcia v National Australia Bank Ltd (1998) 194 CLR 395 at 404 (Gaudron, McHugh, Gummow and Hayne JJ).

38. Garcia v National Australia Bank Ltd (1998) 194 CLR 395 at 433-434 (Kirby J dissenting).

39. Garcia v National Australia Bank Ltd (1998) 194 CLR 395 at 443 (Callinan J).

40. See D Otto, “A Barren Future? Equity’s Conscience and Women’s Inequality” (1992) 18 Melbourne University Law Review 808; K Dunn, “‘Yakking Giants’: Equality Discourse in the High Court” (2000) 24 Melbourne University Law Review 427 at 447-60.

41. Garcia v National Australia Bank Ltd (1998) 194 CLR 395 at 408-409 (Gaudron, McHugh, Gummow and Hayne JJ).

42. Garcia v National Australia Bank Ltd (1998) 194 CLR 395 at 404 (Gaudron, McHugh, Gummow and Hayne JJ).

43. ANZ Banking Group Ltd v Alirezai [2004] QCA 6.

44. Kranz v National Australia Bank (2003) 8 VR 310 (CA).

45. Liu v Adamson [2003] NSWSC 74. Compare State Bank of New South Wales v Hibbert [2000] NSWSC 628 (de facto relationships).

46. Kranz v National Australia Bank (2003) 8 VR 310 (CA); ANZ Banking Group Ltd v Alirezai [2004] QCA 6. Compare Watt v State Bank of New South Wales [2003] ACTCA 7.

47. See NSW Law Reform Commission, Guaranteeing Someone Else’s Debts (Issues Paper 17, 2000) at para 2.11-2.51.

48. See generally J W Carter and D J Harland, Contract Law in Australia (4th edition, Butterworths, Chatswood NSW, 2002) ch 13.

49. See J W Carter and D J Harland, Contract Law in Australia (4th edition, Butterworths, Chatswood NSW, 2002) para 1307-1313. See also Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 at 45-46 (McHugh JA).

50. For example, Mutual Finance Co v Wetton [1937] 2 KB 389.

51. See J W Carter and D J Harland, Contract Law in Australia (4th edition, Butterworths, Chatswood NSW, 2002) para 1324.

52. See generally J W Carter and D J Harland, Contract Law in Australia (4th edition, Butterworths, Chatswood NSW, 2002) at para 1252-1254.

53. See Taylor v Johnson (1983) 151 CLR 422 at 432 (Mason ACJ, Murphy and Deane JJ).

54. See J O’Donovan and J Phillips, The Modern Contract of Guarantee (3rd edition, LBC Information Services, 1996) at 142; G Andrews and R Millett, Law of Guarantees (4th edition, Sweet & Maxwell, 2005) at 125.

55. See J W Carter and D J Harland, Contract Law in Australia (4th edition, Butterworths, Chatswood NSW, 2002) at para 1267-1275.

56. Petelin v Cullen (1975) 132 CLR 355 at 359-360, which stresses that the plea is difficult to establish and that there is a “heavy onus” on a person who pleads non est factum. See also Child v Commonwealth Development Bank of Australia Ltd [2000] NSWCA 256.

57. See generally J W Carter and D J Harland, Contract Law in Australia (4th edition, Butterworths, Chatswood NSW, 2002) Ch 10.

58. For example, Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 454-458 where Gibbs CJ held that the bank’s failure to disclose to the elderly parent guarantors unusual features of their son’s overdrawn account amounted, in the circumstances, to a misrepresentation (material non-disclosure), having the effect that the guarantee was not binding on the parents.

59. See G Andrews and R Millett, Law of Guarantees (4th edition, Sweet & Maxwell, London, 2005) at 135-138. See also Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 458-459 (Gibbs CJ).

60. See specially para 2.34.

61. Consumer Credit (New South Wales) Code is the title adopted for the Consumer Credit Code as it applies in New South Wales. It is a generic description of the national uniform credit legislation which was first passed by Queensland in 1994 (Consumer Credit (Queensland) Act 1994 (Qld)) and has either been adopted by the other States (Consumer Credit Act 1995 (ACT); Consumer Credit (Northern Territory) Act 1995 (NT); Consumer Credit (South Australia) Act 1995 (SA); Consumer Credit (Victoria) Act 1995 (Vic); and Consumer Credit (Tasmania) Act 1996 (Tas)), or been the subject of consistent legislation (Consumer Credit (Western Australia) Act 1996 (WA)). See, generally, A J Duggan and E V Lanyon, Consumer Credit Law (Butterworths, Sydney, 1999).

62. The relevant provisions of the Australian Securities and Investments Commission Act 2001 (Cth) replace, in their application to guarantees, the equivalent provisions contained in the Trade Practices Act 1974 (Cth) s 51AA-51AC, 52, 60 (contravening conduct); and s 80, 82, 87 (enforcement and remedies). The application of the ASIC Act to guarantees depends on the definition of “credit facility” in s 12BAA(7)(k), on which see Australian Securities and Investments Commission Regulations 2001 (Cth) (“ASIC Regulations”) reg 2B(1). This is despite a contrary view in Manso v David [2003] NSWSC 905 at para 62 (O’Keefe J). See also Cole v Challenge Bank Ltd [2001] FCA 1425 at para 32, which, however, was handed down before the ASIC Regulations came into effect on 11 March 2002. It is not clear what effect the omission from Trade Practices Act 1974 (Cth) s 51AAB(2) of s 51AC has on the operation of Australian Securities and Investments Commission Act 2001 (Cth) s 12CC. The point may be academic, however, given that the terms of each provision are essentially identical.

63. Also conceivably relevant are the statutory provisions aimed at controlling undue harassment and coercion: see Australian Securities and Investments Commission Act 2001 (Cth) s 12DJ; Fair Trading Act 1987 (NSW) s 55. See further Campbell v Metway Leasing Ltd (1998) ATPR 41-630; Australian Competition and Consumer Commission v McCaskey (2000) 104 FCR 8; Australian Competition and Consumer Commission v Maritime Union of Australia (2001) 114 FCR 472.

64. Contracts Review Act 1980 (NSW) s 7; Consumer Credit (New South Wales) Code s 70.

65. Australian Securities and Investments Commission Act 2001 (Cth) s 12CA, 12CB, 12CC; Fair Trading Act 1987 (NSW) s 43.

66. Australian Securities and Investments Commission Act 2001 (Cth) s12DA; Fair Trading Act 1987 (NSW) s 42.

67. The provisions of the Australian Securities and Investments Commission Act 2001 (Cth), in their application to guarantees, replaced equivalent provisions contained in the Trade Practices Act 1974 (Cth) s 51AA-51AC.

68. Contracts Review Act 1980 (NSW) s 7.

69. Contracts Review Act 1980 (NSW) s 4(1).

70. Consumer Credit (New South Wales) Code s 70(1).

71. Consumer Credit (New South Wales) Code s 70(7).

72. Australian Securities and Investments Commission Act 2001 (Cth) s 12CB, 12CC; Fair Trading Act 1987 (NSW) s 43.

73. The High Court has accepted that this is a reference to the principles stated in the previous High Court decisions of Blomley v Ryan (1956) 99 CLR 362 and Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447: Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51 at para 38-40.

74. Consider Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51 (interpreting Trade Practices Act 1974 (Cth) s 51AA as including a reference to the unwritten law expounded in Blomley v Ryan and Amadio, but leaving open the scope of what else (if anything) was intended to be included: see para 42-46 (Gummow and Hayne JJ)).

75. J W Carter and D J Harland, Contract Law in Australia (4th edition, Butterworths, Chatswood NSW, 2002) para 1527-1528.

76. See para 2.7.

77. See T Carlin, “The Contracts Review Act 1980 (NSW) – 20 Years On” (2001) 23 Sydney Law Review 125 at 139-41; B Zipser, “Unjust Contracts and the Contracts Review Act 1980 (NSW)” (2001) 17 Journal of Contract Law 76 at 86. See also J W Carter and D J Harland, Contract Law in Australia (4th edition, Butterworths, Chatswood NSW, 2002) para 1522 (arguing that the element of “moral blameworthiness” in the general law is absent under the Act).

78. Baltic Shipping Co v Dillon (The Mikhail Lermantov) (1991) 22 NSWLR 1 at 20 (reversed on other grounds (1993) 176 CLR 344).

79. See CIT Credit Pty Ltd v Keable [2006] NSWCA 130 at para 68-69 (Spigelman CJ); B Zipser, “Unjust Contracts and the Contracts Review Act 1980 (NSW)” (2001) 17 Journal of Contract Law 76 at 86-87.

80. See J Lovric and J Millbank, Darling, please sign this form: a report on the practice of third party guarantees in New South Wales (NSW Law Reform Commission and University of Sydney, Research Report 11, 2003) (“Lovric and Millbank”)^.

81. Australian Securities and Investments Commission Act 2001 (Cth) s 12CB(2), 12CC(2), 12CC(3); Contracts Review Act 1980 (NSW) s 9; Consumer Credit (New South Wales) Code s 70(2); Fair Trading Act 1987 (NSW) s 43(2).

82. Contracts Review Act 1980 (NSW) s 9(1); Consumer Credit (New South Wales) Code s 70(2).

83. Australian Securities and Investments Commission Act 2001 (Cth) s 12CB(2)(a), 12CC(2)(a), 12CC(3)(a); Contracts Review Act 1980 (NSW) s 9(2)(a); Consumer Credit (New South Wales) Code s 70(2)(b); Fair Trading Act 1987 (NSW) s 43(2)(a).

84. Australian Securities and Investments Commission Act 2001 (Cth) s 12CB(2)(b), 12CC(2)(b), 12CC(3)(b); Contracts Review Act 1980 (NSW) s 9(2)(d); Consumer Credit (New South Wales) Code s 70(2)(e); Fair Trading Act 1987 (NSW) s 43(2)(b).

85. Australian Securities and Investments Commission Act 2001 (Cth) s 12CB(2)(c), 12CC(2)(c), 12CC(3)(c); Contracts Review Act 1980 (NSW) s 9(2)(g); Consumer Credit (New South Wales) Code s 70(2)(g); Fair Trading Act 1987 (NSW) s 43(2)(c).

86. Australian Securities and Investments Commission Act 2001 (Cth) s 12CB(2)(d), 12CC(2)(d), 12CC(3)(d); Contracts Review Act 1980 (NSW) s 9(2)(j); Consumer Credit (New South Wales) Code s 70(2)(j); Fair Trading Act 1987 (NSW) s 43(2)(d).

87. Australian Securities and Investments Commission Act 2001 (Cth) s 12CC(2)(f), 12CC(3)(f); Contracts Review Act 1980 (NSW) s 9(2)(k).

88. Contracts Review Act 1980 (NSW) s 9(2)(b), 9(2)(c); Consumer Credit (New South Wales) Code s 70(2)(c), 70(2)(d).

89. Australian Securities and Investments Commission Act 2001 (Cth) s 12CC(2)(j), 12CC(3)(j).

90. Australian Securities and Investments Commission Act 2001 (Cth) s 12CC(2)(k), 12CC(3)(k).

91. Contracts Review Act 1980 (NSW) s 9(2)(e); Consumer Credit (New South Wales) Code s 70(2)(f). Although no specific provisions exist in trade practices legislation, this may be subsumed under the concept of relative strength of bargaining power: Australian Securities and Investments Commission Act 2001 (Cth) s 12CB(2)(a), 12CC(2)(a), 12CC(3)(a); Fair Trading Act 1987 (NSW) s 43(2)(a).

92. Contracts Review Act 1980 (NSW) s 9(2)(f). Although no specific provisions exist in trade practices legislation, this may be subsumed under the concept of relative strength of bargaining power: Australian Securities and Investments Commission Act 2001 (Cth) s 12CB(2)(a), 12CC(2)(a), 12CC(3)(a); Fair Trading Act 1987 (NSW) s 43(2)(a).

93. Contracts Review Act 1980 (NSW) s 9(2)(h); Consumer Credit (New South Wales) Code s 70(2)(h), but there is no direct requirement for the provision of independent legal or other expert advice. Although no specific provisions exist in trade practices legislation, this may be subsumed under the concept of generally understanding the documents: Australian Securities and Investments Commission Act 2001 (Cth) s 12CB(2)(c), 12CC(2)(c), 12CC(3)(c); Fair Trading Act 1987 (NSW) s 43(2)(c).

94. Contracts Review Act 1980 (NSW) s 9(2)(i); and Consumer Credit (New South Wales) Code s 70(2)(i). Although no specific provisions exist in trade practices legislation, this may be subsumed under the concept of generally understanding the documents: Australian Securities and Investments Commission Act 2001 (Cth) s 12CB(2)(c), 12CC(2)(c), 12CC(3)(c); Fair Trading Act 1987 (NSW) s 43(2)(c).

95. Contracts Review Act 1980 (NSW) s 9(2)(i); Consumer Credit (New South Wales) Code s 70(2)(i), 70(2)(k). Although no specific provisions exist in trade practices legislation, this may be subsumed under the concept of generally understanding the documents: Australian Securities and Investments Commission Act 2001 (Cth) s 12CB(2)(c), 12CC(2)(c), 12CC(3)(c); Fair Trading Act 1987 (NSW) s 43(2)(c).

96. Consumer Credit (New South Wales) Code s 70(2)(n); Australian Securities and Investments Commission Act 2001 (Cth) s 12CB(2)(e), 12CC(2)(e), 12CC(3)(e); Fair Trading Act 1987 (NSW) s 43(2)(e).

97. See Akron Securities v Iliffe (1997) 41 NSWLR 353 at 364-366 (Mason P, dealing with remedies under Trade Practices Act 1974 (Cth) s 87).

98. Australian Securities and Investments Commission Act 2001 (Cth) s 12DA (“in relation to financial services”); Fair Trading Act 1987 (NSW) s 42.

99. See J W Carter and D J Harland, Contract Law in Australia (4th edition, Butterworths, Chatswood NSW, 2002) para 1110.

100. See, eg, Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre (1978) 140 CLR 216 at 228 (Barwick CJ); Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 197 (Gibbs CJ); Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 at 467 (Black CJ, von Doussa and Cooper JJ).

101. See J W Carter and D J Harland, Contract Law in Australia (4th edition, Butterworths, Chatswood NSW, 2002) para 1037-1038.

102. See para 2.29.

103. See Australian Securities and Investments Commission Act 2001 (Cth) especially s 12GD(1)(e), 12GH(4), 12GM; Fair Trading Act 1987 (NSW) s 61(c), 65(1)(e), 70(4). Compare Trade Practices Act 1974 (Cth) s 75B. See also Cassidy v NRMA Health Pty Ltd (2002) ATPR 41-891 at para 71-73 (affirmed Cassidy v Saatchi and Saatchi Australia Pty Ltd (2004) ATPR 41-980).

104. J W Carter and D J Harland, Contract Law in Australia (4th edition, Butterworths, Chatswood NSW, 2002) para 1120, 1526.

105. Contracts Review Act 1980 (NSW) s 7, 8.

106. Melverton v Commonwealth Development Bank of Australia (1989) ASC ¶55-921; Bridge Wholesale Acceptance (Australia) Ltd v GVS Associates Pty Ltd (1991) ¶ASC 56-105; National Australia Bank Ltd v Hall (1993) ASC ¶56-234; Burke v State Bank of NSW Ltd (1994) 37 NSWLR 53; Hayward v Nichols (1996) NSW Conv R 55-763.

107. D Harland, “Unconscionable and Unfair Contracts: An Australian Perspective” in R Brownsword, N Hird and G Howells, Good Faith in Contract: Concept and Context (Ashgate Publishing Limited, Aldershot, 1999) at 262.

108. Consumer Credit (New South Wales) Code s 71.

109. Under Australian Securities and Investments Commission Act 2001 (Cth) s 12GD; Fair Trading Act 1987 (NSW) s 65.

110. Under Australian Securities and Investments Commission Act 2001 (Cth) s 12CA-12CC; Fair Trading Act 1987 (NSW) s 42, 43, 55.

111. Australian Securities and Investments Commission Act 2001 (Cth) s 12GD(1); Fair Trading Act 1987 (NSW) s 65(1).

112. See, for example, Gregg v Tasmanian Trustees Ltd (1997) 73 FCR 91 at 127-128 (Merkel J).

113. Australian Securities and Investments Commission Act 2001 (Cth) s 12GF; Fair Trading Act 1987 (NSW) s 68.

114. Fair Trading Act 1987 (NSW) s 68(1).

115. Australian Securities and Investments Commission Act 2001 (Cth) s 12GM(7)(e); Fair Trading Act 1987 (NSW) s 72(5)(e). See Trade Practices Act 1974 (Cth) s 87(2)(d). The relationship between Trade Practices Act 1974 (Cth) s 82 and 87 has been the subject of a recent High Court decision: I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109. See also P Mendelow, “Trade Practices Act: Recent developments in assessment of damages” (2003) 77 Australian Law Journal 534.

116. Under Australian Securities and Investments Commission Act 2001 (Cth) s 12GM; Fair Trading Act 1987 (NSW) s 72.

117. Australian Securities and Investments Commission Act 2001 (Cth) s 12GM(7).

118. Under Australian Securities and Investments Commission Act 2001 (Cth) s 12GD: Australian Securities and Investments Commission Act 2001 (Cth) s 12GM(1) and 12GM(2).

119. Contracts Review Act 1980 (NSW) s 6(1).

120. Contracts Review Act 1980 (NSW) s 6(2).

121. For example, St George Bank Ltd v Trimarchi [2004] NSWCA 120; Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413; Esanda Finance Corp Ltd v Tong (1997) 41 NSWLR 482. See further B Zipser, “Unjust Contracts and the Contracts Review Act 1980 (NSW)” (2001) 17 Journal of Contract Law 76 at 76-78 (pointing out that s 6(2) of the Contracts Review Act has been narrowly interpreted).

122. Toscano v Holland Securities Pty Ltd (1985) 1 NSWLR 145; Australian Bank Ltd v Stokes (1985) 3 NSWLR 174. See also Ring Tread Systems Australasia Pty Ltd v Tubb (NSW, Court of Appeal, 40830/1996, 30 October 1998, unreported) at 7-8 (Mason P).

123. Multi-Span v Portland [2001] NSWSC 696 at para 117.

124. Australian Securities and Investments Commission Act 2001 (Cth) s 12CB(5).

125. Australian Securities and Investments Commission Act 2001 (Cth) s 12CC(6)-(9).

126. Fair Trading Act 1987 (NSW) s 43.

127. Fair Trading Amendment Act 2003 (NSW) Sch 1[18]-[20].

128. All business transactions would appear to be covered despite the intention, expressed in the second reading speech, that the amendments cover small business transactions: NSW, Parliamentary Debates (Hansard) Legislative Assembly, 21 May 2003 at 933.

129. Consumer Credit (New South Wales) Regulations, applying the regulations enacted under Consumer Credit (Queensland) Act 1994 (Qld) Part 4.

130. Consumer Credit (New South Wales) Code s 9(1).

131. Consumer Credit (New South Wales) Code s 6(1)(b). On the definition of “personal, domestic or household”, see Jonsson v Arkway Pty Ltd (2003) ASC 155-060 at para 17-34.

132. Consumer Credit (New South Wales) Code s 70. See further Chapter 11.

133. See para 2.34.

134. Consumer Credit (New South Wales) Code s 51(2).

135. Consumer Credit (New South Wales) Code s 50; Consumer Credit (New South Wales) Regulations s 20.

136. Consumer Credit (New South Wales) Code s 162(1)(a) and (c).

137. Consumer Credit (New South Wales) Code s 53(1)(a).

138. Consumer Credit (New South Wales) Code s 34.

139. See L Katz, “An Unused Potential Statutory Remedy for Spousal Guarantors” [2004/2005] Bar News (Summer ) 32.

140. Anti-Discrimination Act 1977 (NSW) s 47.

141. Anti-Discrimination Act 1977 (NSW) s 39.

142. This places the spouse of a borrower in a position similar to that in which the spouses of borrowers are placed by the Equal Credit Opportunity Act (US) (15 USC § 1691-1691f) and the regulation made under that Act (12 CFR Pt 202): see para 3.14-3.27.

143. See generally Anti-Discrimination Act 1977 (NSW) s 89-113. This is different from the American regime where the spousal guarantor is able to rely at any time on a contravention of the spousal guarantee provisions as a defence in recoupment to an action brought on the guarantee by the lender: see para 3.22-3.27.

144. Anti-Discrimination Act 1977 (NSW) s 108(2).

145. Defined in Farm Debt Mediation Act 1994 (NSW) s 4(1).

146. Farm Debt Mediation Act 1994 (NSW) s 8(1).

147. Farm Debt Mediation Act 1994 (NSW) s 9(1).

148. Farm Debt Mediation Act 1994 (NSW) s 11(1).

149. Farm Debt Mediation Act 1994 (NSW) s 7(1).

150. See para 2.29.

151. Especially Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd (2000) 200 CLR 591.

152. (1986) ASC ¶55-478.

153. See generally J W Carter and D J Harland, Contract Law in Australia (4th ed, Butterworths, Chatswood NSW, 2002) at para 1529-30.

154. See Review of the Code of Banking Practice: Final Report (RTV Consulting Pty Ltd, October 2001) (“Viney Report”). For an evaluation of the review process and of aspects of the Code, see C Godfrey, “The Revised Code of Banking Practice: Is It Made of Straw, or Does It Have Enough Bricks to Provide Effective Consumer Protection?” (2006) 14 Competition and Consumer Law Journal 146

155. Code of Banking Practice (2004) cl 1.1.

156. Code of Banking Practice (2004) cl 28.

157. But see the exception in Code of Banking Practice (2004) cl 28.14.

158. Code of Banking Practice (2004) cl 40.

159. See Code of Banking Code (2004) cl 28.14 for an example of a provision that has not been extended to small business guarantees.

160. Code of Banking Practice (2004) cl 28.8.

161. Code of Banking Practice (2004) cl 28.11.

162. Code of Banking Practice (2004) cl 28.4(d).

163. See the website of the Australian Bankers’ Association at http://www.bankers.asn.au/.

164. The Building Society Code of Practice (released in October 1994) and the Credit Union Code of Practice (released in July 1994).

165. Building Society Code of Practice (1994) cl 1.3; and Credit Union Code of Practice (1994) cl 1.3.

166. Credit Union Code of Practice (1994) s 17.1 in relation to s 1.1 (definition of “credit union product or service”).

167. Credit Union Code of Practice (1994) s 17.1.

168. Credit Union Code of Practice (1994) s 17.1(iv).

169. This is the situation in a number of the cases: see, eg, the facts of Garcia v National Australia Bank Ltd (1998) 194 CLR 395. See also Lovric and Millbank at para 2.7-2.18.

170. Code of Banking Practice (May 2004) cl 3 and 4; and Credit Union Code of Practice (1994) s 1.2.