National Australia Bank Ltd v Rice

In the Federal Court of Australia, National Australia Bank Ltd brought an action against Rice, among others, seeking enforcement of guarantees provided in relation to loans made to a company of which Rice was a co-director. The bank claimed that the guarantees were enforceable, and the defendants argued that the bank had breached warranties, and that the enforcement of the guarantees would be unconscionable. The bank also sought to set off the amounts owed under the guarantees against the company’s debts. The court was required to determine whether the bank complied with the Code of Banking Practice, particularly clauses 25.1, 28.4(a), 28.5(b), and 28.16, and whether the guarantees were enforceable in light of the alleged breaches and unconscionability. The court was also required to determine whether the bank had a duty to inform the guarantors of the potential insufficiency of the company's assets and income to service the loans, and whether the bank's conduct amounted to unconscionability.

The court found that the bank had breached warranties by not disclosing that the company did not have sufficient assets and income to service the loans. The court held that the bank had a duty to inform the guarantors of this information, and that the bank's failure to do so amounted to unconscionability. The court also found that the bank had failed to comply with the Code of Banking Practice, particularly clauses 28.4(a), 28.5(b), and 28.16, which require banks to act in good faith and not take unfair advantage of their customers. The court held that the bank's conduct amounted to unconscionability, and that the guarantees were unenforceable as a result. The court also found that the bank was not entitled to set off the amounts owed under the guarantees against the company’s debts.

The court dismissed the bank's claims and ordered the bank to pay the costs of the proceeding. The court held that the bank's conduct amounted to unconscionability, and that the guarantees were unenforceable as a result. The court also held that the bank had breached warranties and failed to comply with the Code of Banking Practice. The court found that the bank was not entitled to set off the amounts owed under the guarantees against the company’s debts. The court ordered the bank to pay the costs of the proceeding.