Can a lender enforce its security if it breaches the Code of Banking Practice? - Part two

1.  As I noted in my blog post yesterday, there have been a number of recent Victorian Supreme Court decisions about the effect of the incorporation of the Code of Banking Practice into agreements between bankers and their customers.

2.  In Commonwealth Bank of Australia v Wood [2016] VSC 264, Justice Elliott of the Supreme Court of Victoria has confirmed that not all breaches of the Code of Banking Practice (Code) will be fatal for lenders. Importantly, in the decision the court rejected as an exercise of hindsight the often run argument a guarantor would not have entered into the guarantee if they had received all necessary documents.

3. In that case, Mr Robert Wood (an orthopaedic surgeon) was involved in property development together with his brothers, Graeme and Philip Wood.  

4. The Woods had decided in 2006 to become involved in a joint venture for the acquisition and development of Kunanadgee Homestead, Spring Drive, Corowa, New South Wales (“the Property”). It was proposed that the Property be developed as an “Eco Resort”, with the sale and leaseback of units. They borrowed money from Westpac for 12 months to fund the development.

5. They refinanced the Westpac loan with BankWest (which subsequently became the CBA) in 2007. The CBA eventually sued Mr Wood under a guarantee that he had given in respect of the refinance.

6. Mr Wood alleged in his defence that the CBA breached the Code by not drawing to his attention various matters required by the Code, and importantly, that he would not have entered into the guarantee had he known its full terms and effect. 
7. The defence failed on the second point. 

W G Stark

Hayden Starke Chambers