Norddeutsche Landesbank Girocentrale v Schaeffer

Norddeutsche Landesbank Girocentrale (the plaintiff) brought proceedings against Schaeffer (the defendant) in the Supreme Court of New South Wales. The dispute concerned the plaintiff's claim for repayment of a loan, which the defendant had guaranteed. The defendant sought to resist the claim by alleging that the loan agreement was void for illegality, as it was purportedly made for an unlawful purpose.

The primary legal issue before the Court of Appeal was whether the loan agreement was rendered void due to illegality. Specifically, the court had to determine if the purpose for which the loan was advanced was unlawful, and if so, whether this illegality vitiated the guarantee agreement. The court also considered the principles of illegality and public policy in contract law.

The Court of Appeal held that the plaintiff's claim was not defeated by illegality. The court reasoned that the evidence did not establish that the plaintiff had knowledge of, or participated in, any unlawful purpose for which the loan was intended. The court applied the principle that a contract is not necessarily void for illegality merely because the borrower intends to use the funds for an unlawful purpose, unless the lender is aware of and participates in that unlawful purpose. The guarantee was therefore enforceable.