Australia & New Zealand Banking Group v Karam

Australia and New Zealand Banking Group Limited (ANZ) appealed to the New South Wales Court of Appeal against a decision of the Equity Division which had found that ANZ had acted unconscionably and in economic duress when it sought to shore up its security position. The dispute arose from a family-owned company's precarious financial state and its directors' alleged unawareness of the full extent of their existing liability to ANZ. The company sought further financial accommodation from ANZ, which ANZ agreed to provide, but only after securing its existing position.

The Court of Appeal was required to determine whether ANZ's conduct in strengthening its security constituted unconscionable dealing, particularly given the company's financial vulnerability and the directors' limited understanding of their liabilities. A further issue was whether the doctrine of economic duress could apply where the alleged illegitimate pressure exerted by ANZ was not unlawful or unconscionable in itself, but rather arose from the exercise of contractual rights in circumstances of financial distress.

The Court of Appeal reasoned that the directors of the company were sophisticated parties who had received independent legal advice regarding the proposed transactions. Their lack of full awareness of the extent of their existing liability did not, in the circumstances, render ANZ's conduct unconscionable. The Court held that ANZ was entitled to exercise its contractual rights to secure its position, and that the pressure exerted, while significant, did not amount to illegitimate pressure for the purposes of economic duress, especially as the conduct was not unlawful.

Consequently, the Court allowed ANZ's appeal, setting aside the orders made by the Equity Division and entering judgment for ANZ against the respondents for the principal sum of $3,729,049.89, plus interest and costs. The respondents' cross-appeal was dismissed, with orders for the respondents to pay ANZ's costs of both the appeal and the cross-appeal.