Report 107 (2006) - Guaranteeing someone else's debts - Law Reform Commission : Lawlink NSW

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Report 107 (2006) - Guaranteeing someone else's debts TABLE OF CONTENTS Updates and background for this project (Digest) How to buy a copy of this Report PDF version Terms of reference Participants Previous publications Outline of this Report RECOMMENDATIONS 1. INTRODUCTION NATURE AND CONTEXT OF GUARANTEES Definition A secondary obligation Functions Incidence WHAT MAKES CONTRACTS OF GUARANTEE SO PROBLEMATIC? 2. GUARANTEES IN NEW SOUTH WALES LAW AND PRACTICE GENERAL LAW Unconscionability Undue influence Yerkey and Garcia Other doctrines STATUTORY REGULATION Unjust contracts and unconscionable conduct Misleading or deceptive conduct Relief available Limitations on the reach of statutory regulatory regimes REGULATION OF GUARANTEES UNDER THE C ONSUMER CREDIT CODE OTHER PARTICULAR STATUTORY REGULATION Anti-discrimination Act Farm Debt Mediation Act Controlling contractual terms INDUSTRY PRACTICE AN OVERVIEW 3. GUARANTEES IN HISTORICAL AND COMPARATIVE PERSPECTIVE BAN ON WOMEN AS SURETIES Roman law Later development HUMAN RIGHTS AND EQUAL OPPORTUNITY Effect of the German Basic Law United States Equal Credit Opportunity Act LIMITING THE USE OF PARTICULAR PROPERTY AS SECURITY United States homestead laws Canadian homestead laws New Zealand homestead laws New South Wales homestead laws REGULATING TRANSACTIONS European Community Directives United States Trade Commission Regulations Consent requirements in Canadian homestead laws 4. REFORMING THE LAW INTRODUCTION POLICY OBJECTIVES Protecting third party guarantors from unfairness Promoting commercial certainty for lenders Accommodating the interests of guarantors and lenders INADEQUACIES OF THE PRESENT LAW A regulatory mosaic Reactive regulation Uncertainty Inapplicability of preventive regulation to business loans Failure to endorse industry standards RULING OUT SOME REFORM OPTIONS Prohibiting third party guarantees Restricting the use of the family home Leaving regulation solely to the financial industry HOW TO ACHIEVE REFORM Amending the Consumer Credit Code Enacting a NSW statute to exist alongside the Consumer Credit Code Pursuing a uniform law initiative Improving industry codes of practice The Model Law and the general law 5. SCOPE OF THE MODEL LAW GUARANTEES SUPPORTING CREDIT CONTRACTS NOT-FOR-PROFIT LENDERS GUARANTEES RELATING TO BUSINESS LOANS Small businesses and consumer law Defining “small business” Guarantees relating to other business loans ARTIFICIAL PERSONS COMPANY DIRECTORS AS GUARANTORS RELATED CONTRACTS Indemnity Third party mortgages CONTRACTING OUT 6. ENTERING INTO THE CONTRACT INTRODUCTION PRE-CONTRACTUAL DISCLOSURE Current requirements Privacy Submissions Conclusion INDEPENDENT LEGAL AND FINANCIAL ADVICE Current requirements Submissions Empirical background Conclusion SIGNING THE DOCUMENTS Empirical background Conclusion 7. FORM OF THE CONTRACT INTRODUCTION SHOULD A GUARANTEE BE IN WRITING? PLAIN ENGLISH AND LEGIBILITY OF DOCUMENTS The common law Consumer Credit Code Contracts Review Act Empirical background SUBMISSIONS TO ISSUES PAPER 17 Technical specifications Consequences of failure to comply with formalities CONCLUSION 8. TERMS OF THE CONTRACT “ALL MONEYS” CLAUSES Definition The common law Consumer Credit Code Codes of practice Empirical background Submissions to Issues Paper 17 Conclusion THE PRINCIPLE OF CO-EXTENSIVENESS CONCLUSIVE EVIDENCE CLAUSES 9. ASPECTS OF THE LIFE OF THE CONTRACT COOLING OFF PERIOD Current law and industry standards Empirical background Arguments for and against The Commission’s conclusion DISCLOSURE OF INFORMATION Empirical background Obligations and liabilities Information on the status of the guaranteed loan Notice of the Borrower’s Default Guarantor’s access to information and the Privacy Act 1988 (Cth) CHANGES TO OBLIGATIONS Increase in liabilities Changes by agreement Unilateral changes 10. TERMINATION AND ENFORCEMENT INTRODUCTION TERMINATION BY EARLY REPAYMENT General law Consumer Credit Code Industry codes of practice The Commission’s conclusion NOTICE OF THE BORROWER’S DEFAULT The Commission’s position Remedying the borrower’s default PURSUING THE BORROWER BEFORE THE GUARANTOR The current law Arguments for and against reform The Commission’s conclusion ENFORCEMENT COSTS Empirical background What are enforcement expenses? Credit provider’s internal costs Reasonably incurred and reasonable amount? Excessive enforcement expenses The Commission’s conclusion 11. UNJUST GUARANTEES INTRODUCTION POWER TO REOPEN UNJUST GUARANTEES Unjust guarantees Time Interrelated arrangements GENERAL MATTERS TO BE CONSIDERED BY THE COURT Public interest All the circumstances of the case SPECIFIC MATTERS TO BE CONSIDERED BY THE COURT General discussion Consequence of compliance or noncompliance Relative bargaining power Whether provisions were subject of negotiation Capacity and willingness to negotiate Unreasonable or unnecessary provisions Age, or physical or mental condition Form and intelligibility of the guarantee Independent or other expert advice Accurate explanation and degree of understanding Unfair pressure, undue influence or unfair tactics Ensuring an understanding of the nature and implications of the guarantee Capacity to satisfy the debt Justification of terms and conduct in light of the risks undertaken by the lender Comparable guarantee transactions Any other relevant factor Other factors not covered by the Consumer Credit Code GRANTING RELIEF Justification for a statutory regime Principal relief Ancillary or consequential relief Relevance of parties’ conduct after the contract was entered into 12. DISPUTE RESOLUTION INTRODUCTION EMPIRICAL BACKGROUND NEGOTIATION Postponement by parties Court-ordered postponement The Commission’s conclusions TRIBUNAL PROCEEDINGS MEDIATION INDUSTRY-BASED DISPUTE RESOLUTION SCHEMES Banks Credit Unions and Building Societies The Commission’s conclusions APPENDIX Submissions TABLES Table of legislation Table of cases BIBLIOGRAPHY INDEX

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