Australia: Failing to comply with Banking Code of Practice costs bank $6 million

The Banking Code of Practice has contractual force. Where applicable, a bank must comply with the Code. Failure to comply can expose the bank to a claim for damages.

In National Australia Bank Limited v Rice [2015] VSC 10, a guarantor, Mr Rose, successfully avoided liability under five guarantees, where National Australia Bank (NAB) claimed $6,184,593.48 plus interest and costs.


Mr Rice and Mr Rose entered into a joint venture arrangement for the acquisition and sale of real estate on a 50/50 basis. When a property was purchased, a new company was incorporated for the acquisition of the property and finance was obtained from NAB. Rice and Rose were directors of the company.

Before the joint venture arrangement, Rice had an existing relationship with NAB. Rose had no previous business relationship with NAB.

Rice had most of the dealings with NAB's representative, Mr D'Angelo, regarding the obtaining of finance.

Although Rose had been successful in business, he had never invested in real estate for commercial gain and had only limited experience in general business affairs.

Rose personally contributed $4.8 million towards the purchase price of the initial properties. Rice had no funds of his own to invest.

Rose signed guarantees that made him liable for all of the obligations of the borrowers. Rose thought that, in signing the guarantees, he was only liable for 'interest on the loans or something like that'.

The guarantees were signed by Rose when they were given to him by D'Angelo as part of the bundles of loan documentation for execution.

At no time were the guarantee documents in Rose's possession before signing, other than as part of the execution process.

The guarantees signed by Rose contained a warning statement on the front page of the guarantee that he should seek independent legal and financial advice on the effect of the guarantee before signing the guarantee.

One of the documents signed by Rose was a certificate stating he had read and understood the guarantee documents. The signature page for each guarantee also contained warnings, however they were not immediately adjacent to the place for the required signature.

D'Angelo was aware that Rose did not read any of the warnings or the documents before signing the guarantees. NAB's guarantees also contained the usual clauses found in bank documentation where Rose waived any right as a guarantor that might be inconsistent with the provisions of the guarantee, or that would restrict NAB's rights or remedies under the guarantees.

The guarantees contained a provision that the Code applied to the guarantees.

The Code

Clause 31.4(a) (previously clause 28.4(a)) provides that before the bank takes a guarantee, the bank is required to give the proposed guarantor a prominent notice that:

  • they should seek independent legal advice and financial advice on the effect of the guarantees;
  • they can refuse to enter into the guarantees;
  • there are financial risks involved;
  • they have a right to limit their liability in accordance with the Code and as allowed by law; and
  • they can request information about the transaction or facility to be guaranteed including any facility that is being refinanced.

Clause 31.5 (previously clause 28.5) provides that the bank will not ask you to sign a guarantee, or accept it, unless the bank has:

  • provided the proposed guarantor with the information described in clause 31.4 to the extent that the Code requires that information to be given; and
  • allowed the proposed guarantor until the next day to consider that information.

The bank is not required to allow the proposed guarantor until the next day to consider the information if the proposed guarantor has obtained independent legal advice after receiving the information required by clause 31.4.

Execution of the guarantees

The Court found that D'Angelo:

  • was unclear as to the precise explanations and warnings that he had given Rose when the guarantees were signed;
  • did not discuss any page of the guarantee in any detail; and
  • relied on his standard practice as to what he did and what he said to Rose at the time of the execution of the guarantees.

There was a large discrepancy between what D'Angelo was purported to have said based on his standard practice and what Rose purported to recall not being told by D'Angelo.

It was not part of D'Angelo's standard practice to refer to the warnings on any page. After the guarantees were signed, D'Angelo returned to his office and completed a record of interview or checklist as to what occurred when the guarantees were signed.

There were gaps and errors in the bank's internal records as to what D'Angelo did and what he said to Rose at the time the guarantees were signed. As a result, the Court placed little reliance upon the bank's contemporaneous documentation purporting to record what occurred.

The Court preferred the evidence of Rose, who:

  • said that he did not have any of the guarantees properly explained to him and that he simply signed where he was told to sign by D'Angelo;
  • was emphatic that D'Angelo never told him that he should obtain independent legal advice; and
  • said that, if he had been told to obtain independent legal advice, he would have done so.

NAB's contention regarding the warnings

NAB argued that it was not necessary to give the warnings orally. The Court accepted this but said that to comply with the Code, NAB was required to give Rose 'a prominent notice' of such matters. Simply 'looking' at the front page and giving the inadequate summary that D'Angelo said formed part of his standard practice, and not inviting Rose to read any of its contents, did not give prominent notice of the required warnings.

There was no attempt by D'Angelo to give Rose the opportunity to consider the information contained in the bank documentation, or to give him until the next day to sign the guarantees. On either version of what occurred, nothing that was said by Rose could amount to a waiver of the benefit of the provisions under the Code. Signing the guarantees did not amount to such a waiver.

Consequences of breaching the Code

Rose's unequivocal evidence was that if he had been told by D'Angelo that he should obtain independent legal advice before signing any of the guarantees, he would have done so.

The Court held that such legal advice would most likely have informed Rose of the true extent of his potential liability under the guarantees. The Court accepted Rose's evidence that if he had known that he would become potentially liable for all of the debts, he would not have signed any of the guarantees.

The Court commented that in some cases, asking a potential guarantor whether they wanted to get legal advice, as opposed to telling the potential guarantor that legal advice should be obtained, would be unlikely to have any effect on the attitude of the guarantor. However, in this case the Court said the distinction was critical. If D'Angelo had told Rose he should get legal advice, that would have rung alarm bells and Rose would have sought the suggested legal advice.

Entitlement to damages

The Court held:

  • NAB's failure to comply with the requirements of the Code constituted a breach of warranty entitling Rose to claim damages;
  • the clauses in the guarantees did not prevent Rose from claiming damages;
  • Rose's damages equated to at least his liability under the guarantees; and
  • if NAB had not breached the Code, Rose would not have signed any of the guarantees and he would not have had any liability to NAB.

During the course of the joint venture, Rose had received $1.1 million from the sale proceeds of a property that was financed by NAB. NAB argued that the profit should be taken into account.

The Court said that in the absence of the NAB finance, the purchases would not have proceeded and Rose would not have invested approximately $5 million of his own funds in the joint venture. In those circumstances, the receipt of the $1.1 million did not result in any real profit to Rose.

Rose suffered loss far beyond his exposure under the guarantees because of his joint venture with Rice. This remained the position even after taking into account the $1.1 million sale proceeds that Rose received.

Claims for consequential loss

The Court did not consider whether Rose's $5 million loss of funds were too remote to be claimed against NAB.

This was because Rose did not make any claim for consequential loss. If he had made a claim for damages in relation to consequential loss, the $1.1 million he received would have to be taken into account. However, Rose had simply sought to set off the amounts payable under the guarantees, and as a result, the Court said it would be incorrect to reduce that amount by the sale proceeds that Rose received.


The decision highlights the danger of bank representatives witnessing the execution of guarantees and having loose procedures regarding the explanations and warnings to be given to a proposed guarantor to comply with the Code.

A court may not place any reliance on a bank's internal documents such as a record of interview or checklist if there are gaps or errors in the document or if they are inconsistent with what actually occurred.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Winner – EOWA Employer of Choice for Women Citation 2009, 2010, 2011 and 2012
Winner – ALB Gold Employer of Choice 2011 and 2012
Finalist – ALB Australasian Law Awards 2008, 2010, 2011 and 2012 (Best Brisbane Firm)
Winner – BRW Client Choice Awards 2009 and 2010 - Best Australian Law Firm (revenue less than $50m)

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions