In Dunwoodie v Teachers Mutual Bank Ltd [2014] NSWCA 24 the NSW Court of Appeal concluded (by a 2-1 majority) that it was possible for general banking terms and conditions to be an unjust provision of credit under the NSW Contracts Review Act.
In ordering a hearing by the District Court, the Court of Appeal decided that the customer who was permitted to withdraw $60,000 by cashing an uncleared cheque (on an account which had insufficient funds) had an arguable defence to be considered under the Contracts Review Act 1980 (NSW) as to whether the contract pursuant to which banking services were provided, insofar as it incorporated general terms and conditions permitting the drawing of uncleared cheques.
The customer claimed that the cheque was cashed in circumstances where he was being blackmailed.
The default judgment against the customer has been set aside.
Basten JA said:
“75.By paying cash in such circumstances, the Bank was, in effect, providing credit. Although the allegation of feckless lending might be viewed as poor practice for a credit provider, it is said to be more than that. Such lending may arguably be an irresponsible practice from the perspective of the customer. …
79.The circumstances in which the policy adopted by the Bank in the present case could be exploited to the potential disadvantage of the Bank’s customers are manifold and not limited to, although exemplified by, the present case. In addition to the circumstances of spouses, friends or relatives who might persuade a customer to drawdown immediately on an uncleared cheque, a school teacher with a part-time tutoring business might draw down on his or her customers’ cheques believing them to be creditworthy, when in fact they were not.
80.Two features of the Bank’s policy revealed on the facts alleged are noteworthy. First, the policy was not limited by a ceiling. To allow customers to drawdown amounts likely to be needed for everyday living expenses is one thing; to pay out $60,000 is quite another. Secondly, the identity of the drawer was not relied upon as a control. For example, to allow a teacher to draw against a cheque from a large employer is one thing; to be allowed to draw against the customer’s personal cheque on an account with another institution is quite another.”
