National Australia Bank Ltd v Rose [2016] VSCA 169: Consumer Guarantors

In the case of National Australia Bank Ltd v Rose [2016] VSCA 169, delivered on 21 July 2016, the Victorian Supreme Court of Appeal determined that National Australia Bank did not properly inform a customer who went guarantor for $8 million in loans, meaning he would not have to pay back money still owed.

Background to the Case

The case centred on the businessman behind iconic safety helmet Stackhat, John Rose (Rose). In 2007, Rose entered into a joint venture with a Timothy Rice (Rice), the first defendant at trial, to acquire investment properties on the Gold Coast. 

The acquisitions were funded by a combination of funds contributed by Rose and borrowings from NAB to the total of $8 million in loans.

For each acquisition, Rose signed loan documents on behalf of the borrowing entity, which was the relevant subsidiary company.  He also executed a guarantee in respect of each acquisition, personally guaranteeing the liabilities of the relevant borrower company to NAB. At the time Mr Rose thought he was responsible for his half share of the loans but signed documents that stipulated he was responsible for their entirety.

In 2010, following default on the loans, the properties were repossessed and sold.  NAB issued demands against the guarantors, including Rose, seeking payment of the outstanding balance of the loans.

Conclusions of the Trial Judge

Ultimately, Rose pressed contentions that NAB had failed to comply with the Banking Code and that it had acted unconscionably in taking the guarantees. His Honour made conclusions that:

• Rose was not in a position of special disability or disadvantage, beyond the fact that he ‘did not fully understand the nature and extent of each of the [g]uarantees’ and ‘for at least some of the relevant period … was not aware of Rice’s true financial position’;
• ‘NAB was never informed that Rose’s potential liabilities under the [g]uarantees were to be more limited than Rice’s position’;
• ‘D’Angelo (the bank manager at the meetings where the documents were signed) was not told that Rose had understandings based on Rice’s explanations that were fundamentally inconsistent with NAB’s documents’;
• ‘There was no evidence which showed, or allowed any inference to be drawn properly to the effect that D’Angelo “knew” of Rose’s misunderstandings’;  and
• ‘Rose was … perfectly capable of protecting his own interests and obtaining his own advice if he wanted to do so’.

The parties did not seek to dispute these conclusions on appeal.

Victorian Supreme Court of Appeal Case

NAB appealed against the decisions of the trial judge on the grounds of the trial judge being in error by holding that the Banking Code, a voluntary code, was the source of the obligations to give Rose prominent notice of the duties and obligations required as a guarantor.

Rose counter-sued the bank for the remainder of the debts. He said he was never properly informed about the nature of the guarantees he signed and this was a breach of the code of practice. 

The Voluntary Banking Code in question stated that NAB had to give Mr Rose "prominent notice of various matters" before taking a guarantee from him.

Chief Justice Marilyn Warren and Justice Stephen McLeish of the Victorian Court of Appeal dismissed NAB's appeal of the original case:

Ramifications for Consumer Banking

This decision has upheld a lower court decision that banks are legally bound to adhere to an industry code of practice, even though it is voluntary.

Rose's counsel Grant Walker from legal firm Madgwicks' said it:

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National Australia Bank Ltd v Rose [2016] VSCA 169 (21 July 2016)

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