Australia: Breach of Code of Banking Practice - Court finds in bank's favour on enforceability of guarantee

Last Updated: 13 July 2016
Article by Emma Hodgman
Services: Financial Services
Industry Focus: Financial Services

What you need to know

  • A guarantor recently sought to rely on various breaches of the Code of Banking Practice to dispute the enforceability of a guarantee and argue that it had been repudiated as a result of the bank's breaches of the Code.
  • The Supreme Court of Victoria found that despite several breaches being established, the surrounding circumstances did not entitle the guarantor to avoid his liabilities under the guarantee.
  • This decision demonstrates that courts are likely to consider breaches of the Code of Banking Practice in full context, including the specific contractual terms as well as the cause or causes of any loss, when determining the consequences of those breaches.

In Commonwealth Bank of Australia v Wood [2016] VSC 264, the Supreme Court of Victoria considered various breaches of the Code of Banking Practice (the Code) which a guarantor sought to rely upon to dispute the enforceability of a guarantee given to the Commonwealth Bank of Australia (the Bank).  

The Court found that despite several breaches being established, in all the circumstances of this particular case the guarantee was still enforceable.

Breaches of the Code

The guarantor's arguments focused on three clauses of the Code.

Clause 28.4
The guarantor alleged that the Bank had breached its disclosure obligations under the Code by failing to provide it with copies of: (1) any related credit contract together with a list of any related security contracts (clause 28.4(d)(i)), (2) the final letter of offer to the debtor (clause 28.4(d)(ii)) or, (3) any financial accounts or statements of financial position given to the Bank by the debtor within two years prior (clause 28.4(d)(v)).

Clause 28.5
The guarantor alleged that the Bank had breached clause 28.5(b) of the Code because it failed to give the guarantor "until the next day" to consider the information in (1) and (2) above.

The Bank had provided the guarantor with the original final letter of offer for execution (about a week before the guarantee was signed), but did not provide the guarantor with a copy of that letter.

The Court said that to the extent the Bank had breached clause 28.4 by the complete failure to provide certain information, there was no opportunity to consider such information at all. However, to the extent that the information in clause 28.4 included information that was contained in the final letter of offer and the guarantee, the guarantor did not establish that he did not have until the next day to consider that information.

The Court also noted that clause 28.5 does not oblige a bank to allow "until the next day" to consider the information if the guarantor has obtained legal advice. In this case, the guarantor had signed a declaration that he had obtained legal advice, even though he had not. Therefore, the Court found that as a matter of contract, clause 28.5 did not apply.

However, the Court went on to say that to the extent that a breach of clause 28.5 had been established, it was more likely than not that the guarantor would have signed the guarantee in any event.

Clause 28.6
The guarantor alleged that the Bank breached clause 28.6 of the Code (the requirement that a bank will not give the guarantee to the debtor or to someone acting on behalf of the debtor to arrange signing). The Court found that the person to whom the guarantee was given was acting on behalf of the debtor and accordingly the Bank had not complied with clause 28.6 of the Code.

Consequences of breaches

Conditions or mere warranties?

The guarantor argued that each of the clauses of the Code relied upon were conditions (or essential terms) of the guarantee, the breach of which would give the guarantor the right to terminate the guarantee. The guarantor also argued that by breaching the Code, the Bank had evinced an intention not to be bound by the terms of the guarantee and had repudiated the guarantee.

In response, the Bank argued that the relevant clauses were no more than warranties (or non-essential terms) of the guarantee, with the result that the guarantor could only ever have a claim for damages if the Code had been breached. The Bank also argued that if the Code had been breached, such a breach or breaches did not amount to repudiatory conduct which would entitle the guarantor to terminate the guarantee.

The Court said the guarantor would have to establish that the breached provisions were conditions, and not mere warranties, of the guarantee before he could avoid his obligations under that guarantee.

The Court said the characterisation of clauses 28.4 to 28.6 of the Code will depend upon the facts of each individual case, including the express terms of the guarantee. Significantly in this case, clause 10.1 of the guarantee provided as follows:

"Rights given to us under (the guarantee) and your liabilities under it are not affected by any act or omission by us or by anything else that might otherwise affect them under law or otherwise, including:
(g)        the fact that the obligations of any person who guarantees any of the debtor's obligations may not be enforceable."

The Court held that whether or not clauses 28.4 or 28.5 might possibly be construed as a condition or an essential term in other circumstances, in this case the provisions in those clauses could only properly be characterised as warranties.

What would the guarantor have done if not for the breaches?

The guarantor argued that if the breaches had not occurred, he would have fully appreciated the extent of his obligations under the guarantee and would have refrained from signing it.

The guarantor gave evidence that at all relevant times, he believed his liability would be and was limited to a twelfth of the debtor's liabilities, and that his brother would be a co-guarantor.

The Court rejected that argument, finding there was no evidence to support it. The Court made a number of noteworthy observations:

  • There were financial incentives for the guarantor to execute the guarantee, whether or not his brother was a co-guarantor and whether or not his liability was limited to a twelfth of the debtor's liabilities.
  • The Court was not satisfied that the guarantor would not have taken on the exposure involved by signing the guarantee, given the anticipated profits in which he was expected to be able to share. Further, the Court said even if it were satisfied that the guarantor believed at the time of execution that his liability was limited to a twelfth of the debtor's liabilities and that his brother was to be a guarantor, it was not satisfied that he would have discovered the truth of the matter had the Bank complied with the Code.
  • There was no basis for finding that the guarantor would have discovered that the terms of the guarantee were other than what he believed them to be. There was also no basis for finding that the guarantor would have treated any additional documents any differently from those that were in fact provided, or that the guarantor would have done anything differently had someone else provided the documents to him for execution. In light of the fact that the guarantor stood to gain financially from the transaction, the presence of someone acting on behalf of the debtor would have been highly unlikely to have had any effect on the guarantor's conduct in relation to the execution.

It followed that the guarantor had not established any causal link between the liabilities he was subject to under the guarantee and the Bank's breach of the Code.

As to the allegation that the Bank's conduct in breaching the Code amounted to repudiation of the guarantee, the Court concluded that the breaches were only breaches of warranties, but even if the terms in question could have been characterised as essential terms, the conduct in question could not be said to have deprived the guarantor of the substantial benefit of the transaction, or a substantial part of it.

Key takeaways

This decision demonstrates that when there is a breach of the Code, the consequences of any breach will depend on the surroundings circumstances.  In determining those consequences, courts will have regard to all of the terms of the relevant contract (in this case that included clause 10.1 of the guarantee), as well as the facts of the particular case to establish whether there is any causal link between the breach of the Code and the liability of the complainant.

This article is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this article. Authors listed may not be admitted in all states and territories

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
Check to state you have read and
agree to our Terms and Conditions

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.

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 by clicking here .

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.


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.