BankWest v Mann [2015] WASC 187

A business owned multiple hotels and night clubs and the loans were secured by a guarantee from the owner of the business, who had also personally taken out home loans secured against his home. The EBIT (earnings before interest and tax) covenant in the business loans were breached, the bank charged penalty interest of 5%, and then sued on the guarantee and sought to enforce its mortgage against the guarantor’s home.

The guarantor claimed misleading conduct, estoppel and unconscionable conduct on the part of the bank. The misleading conduct was that the guarantor was misled about the significance of the EBIT information and covenant in the loans. The guarantor alleged that the bank officer told him that the EBIT figures were only estimates to be used as a guide for assessing the borrower’s ability to repay the loans and that the bank officer knew that were inflated to get the loan across the line. The equitable estoppel arose from the expectation that the bank would not enforce its loans provided penalty interest was paid and a refinance would follow and on this basis the guarantor used his personal funds to finance a significant portion of the renovation. The unconscionable conduct arose from the bank charging penalty interest during hotel renovations as a result of the EBIT covenant breach even though all repayments were being met and then appointing receivers before the business owners could refinance and this was done ahead of the date provided for in a deed of forbearance.

The court found no evidence to verify that notices of demand were validly served and hence the bank was not entitled to summary judgment. In any case, the court noted that the guarantor had arguable defences and counterclaims for misleading conduct, equitable estoppel and unconscionable conduct.

The court said:

[The guarantor] has raised a large number of concerning issues about the manner in which the bank dealt with the loans made to [the borrower] and with him personally as a guarantor and a borrower. For reasons which are not apparent to me, the bank seems to have gone to inordinate lengths to terminate its relationship with [the guarantor] and his business partners, even though [the borrower] was never in default of its repayment terms. [The gurantor’s] concerns are not limited to the allegations of misleading conduct, estoppel and unconscionable conduct. [The guanrantor] also raises concerns about the haste with which the receivers appointed by bank sold the hotel and nightclub, and the fact that no serious consideration appears to have been given to offers nearly double the offer ultimately accepted.

The court found it arguable that the bank’s conduct was unconscionable as it resorted to undue pressure and unfair tactics such as the imposition of penalty interest as well as telling the guarantor that he should leave the bank despite the fact he was up to date with interest (including penalty interest) payments and was pressured into signing a deed of forbearance on the spot. The Court went so far as to say that, if the evidence was accepted, the bank’s conduct “offends against basic notions of good conscience and fair play”.

The case will proceed to trial.

Click here to read the full judgment.

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