In National Australia Bank Ltd v Rose [2016] VSCA 169 the Supreme Court of Victoria – Court of Appeal dismissed an appeal by NAB from the trial judge’s decision in NAB V Rice that NAB could not enforce its loan guarantees against the guarantor as it had breached contractual warranties by failing to comply with the Code of Banking Practice (‘Banking Code’) in taking guarantees from Rose without giving prominent notice to a guarantor of required disclosures.

In the course of its decision the Court of Appeal confirmed the decision of Doggett v CBA that the relevant clauses of the Banking Code had contractual force as terms of the guarantees.

“The application of the Banking Code is not in dispute on this application for leave to appeal. In passing, however, we observe that this Court recently considered this issue in Doggett v Commonwealth Bank of Australia. There, as in this case, each guarantee provided that ‘relevant provisions of the [Banking Code] apply to this guarantee’. McLeish JA, with whom Whelan JA and Garde AJA relevantly agreed, concluded that cl 25.1 was incorporated into the guarantees there in issue as a ‘relevant’ provision of the Banking Code, because ‘a promise by a bank as to the level of care it will take in conducting [a credit] assessment’ was relevant to the transactions and obligations for which the guarantees provided. It must be thought that cl 28.4, which is framed as an express promise to a guarantor that the bank will do certain things before taking a guarantee, is even more plainly relevant to the transactions and obligations under the guarantees in the present case. The same can be said of cl 28.5. Accordingly, we would respectfully agree with the trial judge’s conclusion that those clauses of the Banking Code had contractual force as terms of the guarantees at issue in this proceeding.”

The Banking Code
Clause 28.4 of the Banking Code provided:

“We will do the following things before we take a Guarantee from you:

(a) we will give you a prominent notice that:

(i) you should seek independent legal and financial advice on the effect of the Guarantee;

(ii) you can refuse to enter into the Guarantee;

(iii) there are financial risks involved;

(iv) you have a right to limit your liability in accordance with this Code and as allowed by law;

(v) you can request information about the transaction or facility to be guaranteed (“Facility”) (including any facility with us to be refinanced by the Facility)…”

What is “prominent notice”?
The key question in the appeal was whether the trial judge was correct to conclude that NAB failed to give ‘a prominent notice’ of the matters set out in cl 28.4(a)(i)–(iv) of the Banking Code, and thereby breached the guarantees. The Court of Appeal decided that the context in which written warnings were given was relevant in deciding whether the written warnings constituted “prominent notice”.

The trial judge made the following findings of fact:

• ‘at no time in relation to any of the guarantees did D’Angelo (the bank manager) [specifically] state to Rose that he should get independent legal and financial advice’;
• ‘D’Angelo did not, when taking Rose through the documents to whatever extent that he did, bring the notice as to independent legal and financial advice [on the cover page of the guarantees] to Rose’s attention’;
• ‘Rose never read the documents before signing and … D’Angelo was fully aware of this’;
• ‘[a]t no time were the documents in Rose’s possession before signing other than as part of the execution process’;
• the bank manager’s summary of the cover page of the guarantees did not refer to the warning that independent advice should be sought, and asking whether Rose was ‘happy to sign’ the guarantees or ‘would like’ to seek legal advice fell far short of providing the required warning;
• D’Angelo did not tell Rose that he could refuse to sign each guarantee, or that he had a right to limit his liability under each guarantee.

McLeish JA of the Court of Appeal concluded that:

“Implicit in his Honour’s findings is a conclusion that the written documentation failed in the context in which it was presented to satisfy NAB’s cl 28.4(a) obligation. The question then is not whether the judge ignored the written documentation, but whether his Honour gave it the appropriate weight in the circumstances.

It is clear that cl 28.4(a) imposed no obligation on NAB to ensure that Rose read the written warning or to read it out to him. The trial judge did not consider that it did. At the same time, it would defeat the purpose of NAB’s obligation if cl 28.4(a) could be satisfied by the mere provision of the written warning regardless of the opportunity available to read it or the likelihood that it would be read. For the reasons already explained, the objective features of the surrounding context are plainly relevant to whether the written warning constituted a ‘prominent notice’ in the relevant sense.

It is clear enough that even if D’Angelo followed his standard practice on 18 June 2007, the written warning would have been on the table in front of Rose for a very limited time. Three sets of documentation were dealt with in the 15 to 30 minute meeting; the guarantee was only one document in each set and the written warning was only one part of that document. Given the volume of material to be dealt with, and the repetitive page-turning involved in the signing of the documents, there was very little time available for any given step of the process. That remains so even allowing for the fact that the written warning appeared on each of the three guarantees signed at that meeting.

In addition, during whatever time the written warning was before Rose, D’Angelo was giving a summary of it which was incomplete. Although it is true that the judge made no finding that D’Angelo sought to distract Rose from the warning or to conceal it from him, it remains that while D’Angelo was speaking one would expect that Rose would be more likely to focus on what was being said than to read the written notice. D’Angelo’s summary was another source of information competing for Rose’s attention in the limited time before the page was turned. That is so notwithstanding that it covered some of the same ground as the warning. While the oral summary increased to some degree the likelihood that the written warning would come to Rose’s attention, it also carried the risk that listening to it could be perceived as a substitute for reading the warning.

In this case, although cl 28.4(a) does not require that the proposed guarantor actually reads a prominent notice he or she has been given, it is a matter of some significance that D’Angelo (and thus NAB) knew that Rose was not reading the documents. The meeting proceeded on the basis that he had no need to do so. This necessarily diminished the prominence of the written warning in the objective circumstances.[149] While it is not disputed that Rose could have read the warning if he had wished, that only created the possibility for the warning to be prominent; it does not establish that it was. …

In all of the circumstances of the 18 June 2007 meeting as they are revealed by the evidence, we consider that the written warning would not have stood out such that it could be said to be a prominent notice as required by cl 28.4(a); its contents were insufficiently likely to come to Rose’s attention in the circumstances for it to be said that NAB complied with its cl 28.4(a) obligation. ….

As should be apparent, the above conclusion does not entail that written notices of the type NAB gave Rose could never constitute a prominent notice for the purposes of cl 28.4(a). If NAB had posted the guarantee documentation to Rose, or delivered it to him for the purposes of overnight review, the context of the written warnings on which it sought to rely would have been very different. It would also have been different if D’Angelo had given the required notice to Rose in person, separately from the other documents and before presenting him with those documents for signature. It is not necessary to determine whether the result in either such case would have been different, but to take such steps could not be considered overly burdensome in the ordinary course of commerce.”