Legal Practitioners Have Working Knowledge Of The COBP

Introduction to practice guidance from selected recent case law relating to Code of Banking Practice and guarantees

Recent case law makes it clear that the Code of Banking Practice (COBP) has contractual effect, not only as between a subscribing bank and its borrower in financing transactions, but also as between a subscribing bank and the borrower’s guarantors. It is prudent for subscriber banks to strictly comply with the COBP’s provisions, whether the provisions are guarantee related or not.

Case law in this guidance note focusses on the operation of the COBP and its application on guarantees. There is also case law on the COBP that relates to other matters. Legal practitioners should have working knowledge of the COBP when advising clients, and this includes case law. This

The loan was called upon to meet its obligations but defaulted. Bankwest, as subsequently succeeded by the Commonwealth Bank of Australia (CBA), sought to enforce the debt obligations of the borrower and guarantors, including the debt obligations of Mr Wood under his personal guarantee. All the defendants pursued by CBA became insolvent or bankrupt, with the exception of Mr Wood.

Mr Wood challenged his liability under the personal guarantee, claiming that Bankwest did not comply with the COBP.

In the end, CBA succeeded in recovering judgment for over $2,000,000 against Mr Wood under the personal guarantee. The court found that while Bankwest did not comply with certain provisions of the COBP, its non-compliance with the COBP was found to be a breach of contractual warranties as opposed to a breach of conditions that may enable the rescission of the guarantee. Mr Wood was not able to show that there is a causal link between the breach of the COBP and his entering into of the guarantee.

Doggett v Commonwealth Bank of Australia [2015] VSCA 351; BC201512471

This decision (Dogggett v CBA) was handed down on 17 December 2015 by Whelan and McLeish JJA and Garde