10. Termination and enforcement

Updates and background for this project (Digest)

• Introduction
• Termination by early repayment
• Notice of the borrower’s default
• Pursuing the borrower before the guarantor
• Enforcement costs
  

INTRODUCTION

10.1 In this chapter, the Commission deals with issues relating to the termination and enforcement of guarantees. First, we look at whether guarantors should be allowed to pay out early the guaranteed loan as a means of discharging the contract of guarantee. Secondly, we examine whether lenders should be obliged to notify guarantors of default by the borrower, and in particular whether this should be a pre-requirement to the commencement of legal proceedings to enforce the guarantee. Thirdly, we explore whether lenders should be required to exhaust their remedies against borrowers prior to the enforcement of guarantees. Finally, we analyse the extent to which lenders should be allowed to recover from guarantors the costs incurred in enforcing the guarantee.

TERMINATION BY EARLY REPAYMENT

General law

10.2 At common law, a debtor (including a mortgagor or guarantor) does not have a right to pay out a loan prior to the due date.¹ A tender of repayment early is an attempt to vary the contract. “It is…settled law that if A agrees with B in consideration of a loan from B to A to repay that loan with interest on a fixed future date, B cannot sue A for repayment of the loan before the arrival of that date, nor can A compel B to accept repayment of it before that date has arrived.”²

Consumer Credit Code

10.3 Section 75(1) of the Consumer Credit (New South Wales) Code (“Consumer Credit Code”) has changed the law with respect to consumer contracts by granting a debtor or guarantor the right to pay out a credit contract at any time. The parties cannot contract out of this right.³

10.4 Section 75(2) provides the amount required to pay out a credit contract, which is the total of:

• the amount of credit;
• interest charges and all other fees and charges payable by the debtor to the credit provider up to the date of termination;
• reasonable enforcement expenses;⁴ and
• early termination charges, if provided for in the contract;

10.5 Section 75(2) does not apply to continuing credit contracts, which are contracts under which multiple advances of credit are contemplated and the amount of available credit ordinarily increases as the amount of credit is reduced.⁵ The guarantor in this situation could request the credit provider to provide a statement under s 34 of the Consumer Credit Code, discussed in Chapter 9,⁶ which would indicate the current balance of the debtor’s account. However, the statement given under s 34 is arrived at by reference to past transactions and would not determine the amount required to be paid at a future date. Moreover, it does not include early termination fees and other fees that are debited to the account on the date the current balance is given. Consequently, the guarantor of a continuing credit contract just has to work out (with the cooperation of the financial institution) the pay out amount.

10.6 Section 76 assists a debtor or guarantor to exercise the right granted by s 75(1) by granting them the further right to require the credit provider to furnish a statement containing information of the pay out figure as at a particular date and the items which comprise that figure. The amount required to pay out the contract supplied in accordance with this section will be the same amount specified in s 75(2). The statement must also include a qualification to the effect that the amount required to pay out the credit contract may change according to the date on which it is paid. The statement must be provided within seven days after the request. In the case of joint debtors and guarantors, the statement need only be given to a debtor or guarantor who requests it. The maximum penalty for contravention of s 76 is $5,000.

10.7 The disclosure of this information to a guarantor is outside the general prohibition imposed upon credit providers from providing reports or any personal information derived from reports to other people since it is either a disclosure required or authorised by law pursuant to s 18N(1)(g) of the Privacy Act 1988 (Cth);⁷ or a disclosure to a person who is considering discharging the debt owed by the debtor pursuant to s 18N(1)(bf) of that Act. Alternatively, if the debtor has agreed to the guarantor receiving the information, its disclosure is allowed under s 18N(1)(bg)(i) of the Privacy Act 1988 (Cth).

10.8 If the credit provider does not provide a statement of the amount required to pay out a credit contract, s 77 of the Consumer Credit Code empowers a court, on application of the debtor or guarantor, to determine the amount payable, the amount by which it increases daily and the period for which the determination is applicable. The credit contract will be discharged if an amount calculated in accordance with the determination by the court is tendered to the credit provider within the applicable period.

Industry codes of practice

10.9 The Code of Banking Practice (“Banking Code”) and Credit Union Code of Practice have identical provisions allowing a guarantor to extinguish at any time his or her liability to a bank or credit union under a guarantee by paying the then outstanding liability of the borrower (including any future or contingent liability) or any lesser amount to which the liability of the guarantor is limited by the terms of the guarantee or by making other arrangements satisfactory to the bank or credit union.⁸ Unlike s 75 of the Consumer Credit Code, the provisions in the various industry codes of practice apply to guarantees given in relation to small business loans. They do not, however, have the force and effect of law.

The Commission’s conclusion

10.10 Guarantors of both consumer and small business loans should be given a statutory right to pay out the loan they guaranteed as a means of discharging a possible future liability. The Consumer Credit Code provisions on the matter provide a very useful model to follow in the Model Law. They assist lenders and guarantors by giving a formula for calculating the amount required to pay out the credit contract. Further, they grant guarantors a right to require lenders to furnish information on the pay out figure or if the lender fails to provide such information, to apply to the court to determine the amount payable.

RECOMMENDATION 10.1

The Model Law should give guarantors within its ambit the right to pay out the guaranteed loan as a means of discharging the guarantee, in terms similar to s 75-77 of the Consumer Credit Code.

10.11 At common law, the lender is not obliged to notify the guarantor of the borrower’s default,⁹ unless notification is required by the terms of the guarantee.¹⁰ The rationale given by courts for the rule is that the guarantor, in undertaking the obligation, must realise that there is a risk that the borrower will not perform his or her contractual obligations and the burden is therefore on the guarantor to ascertain when the default has occurred.¹¹ The present state of the law is very likely a significant reason for the failure of many guarantors to learn of the borrower’s default until it is too late to remedy the situation, usually when the bank has commenced court action to enforce the guarantee.¹² For guarantees relating to consumer transactions, s 80(1) of the Consumer Credit Code has changed the common law by requiring a credit provider to give the debtor and guarantor a default notice.¹³

10.12 The Banking Code and the Credit Union Code of Practice require the signatory banks and other financial institutions to send to a guarantor a copy of any notice of demand made on the borrower.¹⁴

10.13 The fact that the general law does not require lenders to notify guarantors of the borrower’s default may be criticised on the basis that, if the guarantor were informed of the situation, he or she might be able to take steps to remedy the situation and prevent the guarantee from being enforced. The Law Reform Committee of South Australia made this observation:

The giving of notice to the surety immediately on the default of the debtor would alert him to the situation as between himself and the principal debtor. In many cases, he could call on the principal debtor to pay, with some hope at that stage of getting payment by the debtor in whole or in part and if he could not do that he would be able to help himself.¹⁵

The Commission’s position

10.15 As noted above, s 80(1) of the Consumer Credit Code requires credit providers to give guarantors of consumer transactions notice of the debtor’s default. A similar requirement should be contained in the Model Law. Guarantors should be notified of borrower’s default regardless of whether the loan subject of the guarantee is for consumer or small business purposes. This is to give guarantors the opportunity to prevent their liability from arising by either assisting the borrower to remedy the default or attending to the default themselves before the situation worsens.

10.16 Section 80(1) cannot, however, be adopted wholesale in the Model Law because it is, on its face, primarily directed at the debtor. This is apparent in two important aspects - the content and effect of the notice. First, the notice must inform the debtor of the default, what action on his or her part is necessary to remedy it, and that a subsequent default of the same kind may be the subject of enforcement proceedings without further notice. The guarantor is simply given a copy of this notice without an explanation of its significance to the guarantee or what action the guarantor may take to prevent his or her liability from arising.

10.17 Secondly, s 80(1) specifies the purpose of the default notice as a pre-requisite to the initiation of enforcement proceedings against the borrower. The effect of s 80(1) is that, even if a credit provider has no present intention of taking action against a guarantor, the credit provider must give notice to the guarantor as a pre-condition of taking proceedings against the borrower. However, there is no similar restriction, requiring a preliminary default notice, on the right of the credit provider to institute enforcement proceedings against a guarantor, though the guarantor will have received the default notice given to the borrower, in accordance with s 80(1). The restrictions in the Consumer Credit Code on enforcement against a guarantor, contained in its s 82 and discussed below,¹⁹ are concerned with the enforcement of judgements. They are not preliminary to the commencement of action.²⁰

10.18 The notice to be included in the Model Law, which would naturally be intended for the benefit of the guarantor, should not only contain a copy of the notice given to the borrower but also explain in plain language the implications of the borrower’s default on the guarantee and the action that the guarantor may take to prevent the enforcement of his or her liabilities. The form and details of the notice may be prescribed by regulations implementing the proposed legislation.

10.19 Moreover, the Model Law should spell out the effect of such notice - that it is a pre-condition to the commencement of legal proceedings to enforce the guarantee. In other words, a failure to notify the guarantor of the borrower’s default should prevent the lender from taking any enforcement action against the guarantor.

RECOMMENDATION 10.2

The Model Law should provide that lenders be required to notify guarantors regarding the borrowers’ default. The notice, which should be accompanied by a copy of the default notice given to the borrower, should explain in plain language the effects on the guarantee of the borrower’s default. It should be given simultaneously with the service of the default notice on the borrower. The Model Law should provide that the notice is a pre-condition to the commencement of legal proceedings to enforce the guarantee.

10.20 Section 81 of the Consumer Credit Code provides:

(1) If a default notice states that the credit provider intends to take action because the debtor or mortgagor is in default under the credit contract or mortgage, the debtor, mortgagor or guarantor may remedy the default within the period specified in the notice, and the contract or mortgage is then reinstated and any acceleration clause cannot operate.

(2) A debtor, mortgagor or guarantor does not remedy the default if, at the end of the period, the debtor or mortgagor is in default under the credit contract or mortgage because of the breach specified in the notice or because of a subsequent breach of the same type.

RECOMMENDATION 10.3

The Model Law should adopt s 81 of the Consumer Credit Code concerning the consequences of the exercise by a guarantor of his or her right to remedy the borrower’s default.

The current law

10.22 At common law, the general rule is that a guarantor who has not paid the principal debt cannot require the lender to proceed against the borrower, before having recourse to the guarantor.²¹ It matters not that the borrower remains solvent and would therefore be in a position to discharge the debt. ²² Nor, subject to the terms of the contract, is it necessary for the lender to resort to any securities given for the debt by the borrower.²³ The doctrine is based on the proposition that it is the duty of the guarantor, not the lender, to ensure that the debtor performs the principal obligation.²⁴ It is also at least arguable that a lender should not be prevented from pursuing a right to take available legal action against any person who remains his or her debtor.²⁵

10.23 The general rule is, however, subject to any contrary provision in the contract of guarantee, which may require the lender to exhaust any particular remedy against the borrower before the enforcement of the guarantee. It has been held, for example, that by the terms of the particular contract, it was a pre-condition to the recovery from the guarantor that “utmost efforts or legal proceedings” be taken against the borrower.²⁶

10.24 Section 82 of the Consumer Credit Code modifies the common law by providing that the credit provider must not enforce a judgment against a guarantor unless:

• the credit provider has obtained judgment against the debtor and the judgment has remained unsatisfied for 30 days after a written demand for payment;
• the court has relieved the credit provider from the obligation to obtain a judgment against the debtor on the ground that recovery is unlikely;
• the credit provider has made reasonable attempts to locate the debtor but without success; or
• the debtor is insolvent.

10.26 Clause 28.14 of the Banking Code mirrors s 82 of the Consumer Credit Code. Notwithstanding the recent reviews of and amendments to the Banking Code, this section expressly excludes from its application guarantees that support small business loans. The Credit Union Code of Practice does not contain equivalent provisions.

Arguments for and against reform

10.27 Where the lender has other security for the principal debt, or where the borrower is solvent or has assets within the jurisdiction of the court, the lender has ample means to recover from the party primarily responsible for the debt. It may be argued that allowing the lender to take the option of pursuing guarantors without making reasonable attempts to recover from the borrower constitutes an unfair balancing of the rights of the parties to the transactions. For some lenders, this issue is a matter of expedience and convenience: for example, they may find guarantors who own their home easier to pursue than more mobile borrowers.²⁹ But this often results in hardship for guarantors, who may not even derive any material benefit from their undertaking.

10.28 It is true that a guarantor has a right to pursue the borrower for reimbursement of any money paid to the lender once the guarantee has been called up. However, since many guarantors undertake obligations for a close family member, they may not seek to enforce such right because this may risk further straining relationships. More importantly, guarantors do not always have sufficient resources to take action against the borrower. Hence, a guarantor’s right to be reimbursed by the borrower can become illusory.

10.29 On the other hand, there are theoretical and practical arguments for the rule granting lenders a choice of going after either the borrower or guarantor. A guarantee is traditionally seen as imposing an obligation on the guarantor to see to it that the borrower performs his or her obligation, and failing this, the lender’s cause of action against the guarantor arises immediately on the borrower’s default.

10.30 In addition, it is arguable that a change in the law may diminish the attractiveness and utility of the guarantee by imposing upon the lender the delay and burden of pursuing the borrower first. The lender may have taken the guarantee for the precise purpose of avoiding this expense and inconvenience. Granting the guarantor a right to require the lender to exhaust its remedies against the borrower first could escalate the cost of enforcing a guarantee with no benefit to the lender.³⁰

The Commission’s conclusion

10.31 The historical notion that it is the guarantor’s duty to see to it that the borrower performs his obligations to the lender has long been regarded as “fictitious and unrealistic”.³¹ In today’s business setting, where banks and other financial institutions have vast resources that enable them to enforce the transactions they have entered into with their customers, the burden of ensuring that the borrower performs the principal obligation should be on the lender and not on the guarantor. Where the lender has avenues for recovering directly from the borrower, either because the borrower has sufficient assets for this purpose or the lender holds other security for the debt, allowing the lender to pursue the guarantor without making reasonable steps to recover from the borrower constitutes an unfair balancing of the rights and obligations of the various parties.

10.32 Section 82 of the Consumer Credit Code has shifted the balance in favour of guarantors of consumer loans but it may be argued that it has not gone far enough. It relates only to enforcement of judgments. As a result, a lender is free to institute legal proceedings against the guarantor before taking steps to recover from the borrower.

10.33 An alternative approach for purposes of the Model Law is that contained in s 138 of the Credit Act 1984 (NSW), the Consumer Credit Code’s predecessor, which stated:

138. (1) A credit provider shall not bring proceedings to recover an amount from a guarantor in respect of a regulated contract unless the credit provider brings proceedings against both the debtor and the guarantor to recover the amount or unless the credit provider has obtained judgment against the debtor and a written demand made on the debtor for satisfaction of the judgement has remained unsatisfied for not less than 30 days.

(2) Where, in proceedings to recover an amount in respect of a regulated contract, judgment is given against both a debtor and a guarantor, the judgment is not enforceable against the guarantor unless a written demand made on the debtor for satisfaction of the judgment had remained unsatisfied for not less than 30 days.

(3) Subsections (1) and (2) do not apply if:


(a) the debtor is a bankrupt…;

(b) the court believes on reasonable grounds that it is not reasonably likely that any part of a judgment obtained against the debtor would be satisfied and has, on application of the credit provider, declared that subsections (1) and (2) do not apply in that case;

(c) the creditor is unable to locate the debtor after having made reasonable inquiries (including inquiries of the guarantor) as to the whereabouts of the debtor and has given the guarantor 14 days notice in writing in the prescribed form of the intention to bring proceedings against the guarantor.

10.35 Such a requirement was also consistent with the rules regarding the ability of a guarantor to rely on cross claims and defences which the borrower has against the lender. Where a borrower’s claim against the lender is for unliquidated damages in respect of the guaranteed transaction, the guarantor cannot plead the claim as a defence to an action on the guarantee if the borrower is not joined as a party to the proceedings, unless the borrower is insolvent.³² The requirement in s 138 of the Credit Act 1984 (NSW) for the lender to bring a joint action against the borrower and guarantor ensured that all the claims among the borrower, lender and guarantor were heard and determined together so that the rights of all parties would be protected.

10.36 Moreover, the exceptions to the general rule in s 138 of the Credit Act 1984 (NSW) contained requirements that were more specific and stringent than those found in s 82 of the Consumer Credit Code. For example, lenders would not have been able to use the exception concerning inability to locate a borrower unless they had made reasonable inquiries about the borrower’s whereabouts (including inquiries of the guarantor) and given the guarantor a written notice, in the prescribed form, of an intention to bring proceedings. The written notice prescribed by the regulations required the lender to advise the guarantor of the borrower’s default, the fact that the borrower could not be found, the amount claimed from the guarantor, the right of the guarantor to discuss the matter with the lender and/or Consumer Affairs (now the Department of Fair Trading) and other relevant rights under the Act.³³ Hence, in this instance, where the lender was allowed to commence proceedings against the guarantor without exhausting its remedies against the borrower, s 138 provided the guarantor with a greater level of protection. We favour a return to this provision in the Model Law.

RECOMMENDATION 10.4

The Model Law should require a lender to proceed against the borrower before enforcing the guarantee. Such requirement should be in terms similar to the provisions contained in s 138 of the Credit Act 1984 (NSW).

Empirical background

10.37 Lovric and Millbank found that most guarantee contracts provide that it is the guarantor who is liable for the costs of enforcement. In particular, many contracts contain a provision allowing the lender to claim all reasonable costs of recovery. The costs of enforcement are often unclear on the face of the guarantee documents. Such costs can quickly increase into tens of thousands of dollars.³⁴ While not a third party guarantee matter, the case of Ristic v Greater Building Society Ltd³⁵ gives a good indication of how costs in mortgage cases can quickly accrue. In 1998, Mr Ristic had a $20,000 loan. In 2001, the balance of the loan account had reached $92,937. Of this, the solicitor’s costs and costs of the enforcement proceedings totalled $72,294.

10.38 The inclusion of “all reasonable costs of recovery” clauses in contracts of guarantee may be criticised on the ground that they transfer a significant portion of the risk of lending – the transaction costs of recovery - from lenders to guarantors. Considering that it is lenders who profit from the interest from the loan, and that many guarantors are volunteers who do not gain by the loan, it has been argued that such clauses are unfair to guarantors.³⁶ However, the provision of finance is a service for which customers must expect to pay transaction costs. It is unrealistic to expect financial institutions to bear all the costs of maintaining and enforcing transactions. Outlawing enforcement costs provisions in guarantee contracts would diminish their value as risk-minimising devices for banks, which could result in more restrictive access to credit by small business.

10.39 Alternatively, such a policy may precipitate a shift in the way such costs are recovered, for example, through an increase in a financial institution’s fees and charges. The outcome would be an inequitable sharing of transaction costs where customers who are compliant with their contractual obligations partake in the burden of paying for costs incurred because some other customers choose to dispute their obligations.

10.40 The solution is not to prohibit lenders from recovering enforcement costs from guarantors but to regulate the extent and manner of such recovery. The regulation of enforcement costs under the Consumer Credit Code provides a good starting point for the Model Law.

10.41 Section 99 of the Consumer Credit Code provides that “a credit provider must not recover or seek to recover enforcement expenses from a debtor, guarantor or mortgagor in excess of those reasonably incurred by the credit provider.”

What are enforcement expenses?

10.42 Enforcement expenses are expressly excluded from the Consumer Credit Code’s definition of “credit fees and charges”.³⁷ The Code defines “reasonable expenses” in relation to a mortgage, as including “expenses incurred by the mortgagee in preserving or maintaining property subject to the mortgage (including insurance, rates and taxes payable for the property) but only if the expenses are incurred after a breach occurs and are authorised by the mortgage”.³⁸ Since this definition is only in relation to a mortgage, the broader meaning of enforcement expenses depends on the definition of “enforcement proceedings”. The Code defines this term as:

• proceedings in a court to recover a payment due under the contract or a guarantee; or
• taking possession of property under a mortgage or taking any other action to enforce a mortgage.³⁹

10.43 Where a guarantor applies to a court to change the terms of the credit contract on the grounds of hardship, the credit provider’s costs in proceedings dealing with the application will not be considered enforcement expenses since they are not proceedings to recover a payment due under the credit contract or guarantee, nor are they proceedings to take possession of the property under the mortgage or to enforce the mortgage.⁴⁰

Credit provider’s internal costs

10.44 At common law, a mortgagee is not entitled to claim its internal costs of administration in relation to the enforcement of the mortgage. This general rule is, however, subject to any specific agreement to the contrary.⁴¹ Applying this rule to s 99 of the Consumer Credit Code, it has been suggested that the cost of internally performed enforcement action is not an enforcement expense that the credit provider can recover from the guarantor.⁴² The use of the word “incurred” in s 99 implies that the credit provider must have become liable to a third party for the cost. If the credit provider had not actually paid money to a third party, the amount expended was not an enforcement expense.

10.45 In 1998, the following sentence was added to s 99(1) of the Consumer Credit Code:

Enforcement expenses of a credit provider extend to those reasonably incurred by the use of the staff and facilities of the credit provider.

Reasonably incurred and reasonable amount?

10.47 Section 99(1) of the Consumer Credit Code refers to “enforcement expenses … reasonably incurred”. This wording raises the issue of whether the amount of the enforcement expenses should also be reasonable. The distinction is significant in the law of costs.⁴⁴ For example, Part 42, rule 5(b) of the Uniform Civil Procedure Rules 2005 (NSW) provides, that where in any proceedings costs are payable to a person on an indemnity basis, all costs incurred by that person are to be allowed except to the extent that it appears that those costs “are of an unreasonable amount or have been unreasonably incurred”. In fact, the equivalent provision in the Credit Act 1984 (NSW), the predecessor of the Consumer Credit Code, stated that a credit provider could recover an amount only if it was a “reasonable amount reasonably incurred”.⁴⁵ It could be argued that a change in the wording from that used in the Credit Act indicated a change of meaning.⁴⁶

10.48 There is a view that the term “reasonable” in s 99 refers to both the amount and to the incurring of it, in light of other provisions of the Consumer Credit Code which expressly require the amount of expenses recoverable by a credit provider to be reasonable. For example, s 55(1) provides that a guarantee is void to the extent it secures an amount that exceeds the sum of the amount of the liabilities of a debtor under the credit contract and “reasonable expenses of enforcing the guarantee”.⁴⁷ It has been argued that s 99 should be construed similarly to those sections.⁴⁸ However, the fact that s 99 is worded differently to those other sections may strengthen the view that this section, unlike the others, only requires that the expenses be reasonably incurred.

Excessive enforcement expenses

10.49 Section 99(2) of the Consumer Credit Code provides that any “provision of the credit contract, mortgage or guarantee that appears to confer a greater right [than the recovery of enforcement expenses reasonably incurred by the credit provider] is void.” For example, where a contract of guarantee grants the credit provider the right to enforcement expense of $10,000, and a court determined that this amount was not reasonable under the circumstances, the provision in the contract would be void and the credit provider would not be able to recover even a lesser amount under it.⁴⁹

10.50 Section 99(2) also provides that, if a guarantor has in fact paid expenses in excess of the limitation set in the section, he or she is entitled to recover it back. This provision overcomes the common law defence of illegality to a claim for restitution, which prevents courts from aiding a participant to a contractual provision that is prohibited by law.⁵⁰ In other words, the credit provider cannot deny a guarantor’s claim for recovery of excessive expenses on the basis that the guarantor was a participant to a contractual provision that contravened s 99.

10.51 Finally, s 99(2) provides that, if there is a dispute between the credit provider and the guarantor about the amount of enforcement expenses that may be recovered by the credit provider, the court may, on application by any of the parties to the dispute, determine the amount of that liability.

The Commission’s conclusion

10.52 Section 99 of the Consumer Credit Code provides a good basis for regulating the recovery by lenders of enforcement costs. It declares the fundamental policy that lenders may recover only reasonable enforcement expenses. It contains guidelines on what constitutes enforcement expenses, including a clarification on the status of a lender’s internal costs. It renders void contractual provisions that allow the recovery of excessive enforcement expenses. It grants courts authority to determine disputes between the lender and the guarantor in relation to the amount of enforcement expenses that may be recovered by the credit provider. It gives guarantors a right to recover expenses paid in excess of what a court considers reasonable. The Model Law should, however, clarify the wording of s 99 to ensure that a lender can recover an enforcement expense if it was reasonably incurred and the amount claimed is reasonable under the circumstances.

RECOMMENDATION 10.5

The Model Law should regulate enforcement expenses, in terms similar to s 99 of the Consumer Credit Code. However, it should clarify that lenders may recover only enforcement expenses that have been reasonably incurred and in amounts that are reasonable under the circumstances.

1. Hyde Management Services Pty Ltd v FAI Insurance Ltd (1979) 144 CLR 541.

2. Knightsbridge Estates Trust Ltd v Byrne [1938] Ch 741 at 756 (Luxmore J).

3. Consumer Credit (New South Wales) Code s 169.

4. See para 10.42-10.52.

5. See Consumer Credit (New South Wales) Code Sch 1 cl 1(1).

6. See para 9.21-9.24.

7. See para 6.17-6.29, 9.30-9.31.

8. Code of Banking Practice (2004) cl 28.10; Credit Union Code of Practice (1994) s 17.7.

9. Commercial Bank of Australia Ltd v Colonial Finance, Mortgage, Investment & Guarantee Corp Ltd (1906) 4 CLR 57 at 70 (O’Connor J). See also Coffey v DFC Financial Services Ltd (New Zealand Court of Appeal, No 255/89, 2 October 1991, unreported).

10. See for example Eshelby v Federated European Bank Ltd [1932] 1 KB 423.

11. Thomas Fuller Construction Co (1958) Ltd v Continental Insurance (1970) 36 DLR (3d) 336 at 353.

12. 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 the University of Sydney, Research Report 11, 2003) (“Lovric and Millbank”) at para 6.9, 6.10-6.14.

13. A credit provider need not give a default notice before commencing enforcement proceedings against the debtor if: (1) it made reasonable attempts to locate the debtor without success; (2) it believes on reasonable grounds that it was induced by fraud into entering into the credit contract; (3) it believes on reasonable grounds the debtor or mortgagor has removed or disposed of mortgaged goods under a mortgage related to the credit contract; or (4) the court authorised it to commence the enforcement proceedings: Consumer Credit (New South Wales) Code s 80(4).

14. Code of Banking Practice (2004) cl 28.4(b)(i); Credit Union Code of Practice (1994) s 17.6(ii).

15. Law Reform Committee of South Australia, Relating to the Reform of the Law of Suretyship, Report No 39 (1977) at 8.

16. Commonwealth Bank, Submission at 9-10; Country Women’s Association of NSW, Submission at 2; Financial Counsellors’ Association of NSW, Submission at 4; NSW Department of Fair Trading, Submission at 5, 6; NSW Legal Aid Commission, Submission at 15; Ryde-Eastwood Financial Counselling Service, Submission at 7; Women Lawyers Association of NSW, Submission at 4, 8; Women’s Legal Resources Centre, Submission at 8, 10.

17. NSW Legal Aid Commission, Submission at 15.

18. Australian Finance Conference, Submission at 19. The Australian Finance Conference is Australia’s national finance industry association. Its membership includes some banks, building societies and companies in the business of credit, finance or financiers.

19. See para 10.24-10.25.

20. See D McGill and L Willmont, Annotated Consumer Credit Code (LBC Information Services, Pyrmont NSW, 1999) at 590.

21. Jackson v Digby (1854) 2 WR 540; Moschi v Lep Air Services Ltd [1973] AC 331.

22. Belfast Banking Co v Stanley (1867) IR 1 CL 693; Re Brown’s Estate, Brown v Brown [1893] 2 Ch 300.

23. Wilks v Heely (1832) 1 Cr & M 249, 149 ER 393; Re Howe; Ex parte Brett (1871) LR 6 Ch App 838 at 841 (Sir G Mellish LJ).

24. Moschi v Lep Air Services Ltd [1973] AC 331.

25. J O’Donovan and J Phillips, The Modern Contract of Guarantee (3rd edition, LBC Information Services, North Ryde NSW, 1996) at 537-538.

26. Hall v Hadley (1828) 5 Bing 54, 130 ER 980; Union Bank of Australia Ltd v Barry (1897) 23 VLR 505.

27. Consumer Credit (New South Wales) Code 1995 (NSW) s 6.

28. See Lovric and Millbank ch 2.

29. NSW Legal Aid Commission, Submission at 17-18.

30. O’Donovan and Phillips The Modern Contract of Guarantee (3rd edition, LBC Information Services, North Ryde NSW, 1996) at 542.

31. Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 256 (Mason CJ).

32. Cellulose Products Pty Ltd v Truda (1970) 92 WN (NSW) 561; Covino v Bandag Manufacturing Pty [1983] 1 NSWLR 237.

33. Credit Regulation 1984 (NSW) cl 16, Sch 1 Form 7.

34. Lovric and Millbank at para 6.22, 7.22, 7.23.

35. [2002] NSWCA 266.

36. Lovric and Millbank at para 8.30-8.32.

37. Consumer Credit (New South Wales) Code 1995 (NSW) Sch 1 cl 1.

38. Consumer Credit (New South Wales) Code 1995 (NSW) Sch 1 cl 1.

39. Consumer Credit (New South Wales) Code 1995 (NSW) Sch 1 cl 1. The term “court” includes the Consumer, Trader and Tenancy Tribunal: Consumer Credit (New South Wales) Act 1995 s 8.

40. See McNally v Australia and New Zealand Banking Group (2001) ASC ¶155-047. This case involved a debtor who applied for variation of the credit contract on the ground of hardship under s 68 of the Consumer Credit Code.

41. Sandtara Pty Ltd v Australian European Finance Corporation Ltd (1990) 20 NSWLR 82.

42. S Edwards, D Brogan and A Tierney, Accessing the Consumer Credit Code (FT Law & Tax, South Melbourne Victoria, 1996) at 221.

43. Consumer Credit (Queensland) Amendment Act 1998, Explanatory Note.

44. See G E Dal Pont, Law of Costs (LexisNexis Butterworths, Chatswood NSW, 2003) at para 16.21.

45. Credit Act 1984 (NSW) s 76(1).

46. D McGill and L Willmont Annotated Consumer Credit Code (LBC Information Services, Pyrmont NSW, 1999) at 648.

47. See also s 78(8)(d) (the credit provider can only deduct its “reasonable enforcement expenses” from the sale proceeds of mortgaged goods) and s 45(1) (a mortgage is void to the extent it secures an amount that exceeds the amount of the liabilities of the debtor under the credit contract and the “reasonable enforcement expenses” of enforcing the mortgage).

48. D McGill and L Willmont Annotated Consumer Credit Code (LBC Information Services, Pyrmont NSW, 1999) at 648.

49. This is a modified example found in D McGill and L Willmont, Annotated Consumer Credit Code (LBC Information Services, Pyrmont NSW, 1999) at 648.

50. See Browning v Morris (1778) 98 ER 1364; Parkinson v College of Ambulance Ltd [1925] 2 KB 1.