A recent NSW Court of Appeal decision considered whether a defendant should be given the opportunity to defend a bank’s claim to recover money owning from a dishonoured cheque, on the basis that the policy which allowed the cheque to be paid before it cleared, generated an inherent and obvious risk of fraud.
Mr D’s first argument was that that the withdrawal from the TMB account was undertaken under duress or fraud and that he should be permitted to defend the claim on that basis. The Court of Appeal dismissed that argument because there was simply no suggestion that TMB was in any way a participant in, or cognisant of, either the fraud or the duress to which Mr D claimed occurred. The Court’s reasoning is unsurprising – it would be breaking new ground to hold a third party bank liable for the unlawful actions or misconduct of others in circumstances where no notice of that conduct existed.
The next potential ground of defence considered by the Court of Appeal lay under the Contracts Review Act 1980 (NSW) (CRA). The CRA gives the Court a broad discretion to give relief in circumstances where it finds “a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made…”.  Section 9 of the CRA provides that when determining whether a contract is unjust “the Court shall have regard to the public interest and to all the circumstances of the case…”
Mr D relied on the decision of the New South Wales Court of Appeal in the Tonto Home Loans case, and, in particular, a passage from that case to the effect that it is appropriate, and in the public interest, for the Court to administer the provisions of the CRA to protect people who may be taken advantage of because of a lender’s indifference or disregard for obvious risk and lax operation of appropriate safeguards. Mr D sought to defend TMB’s claim on the basis that the cheque clearance policy “generated an inherent and obvious risk of fraud” and exposed [TMB’s] “”members to predation by third parties”, a risk which was manifest, and that the debit transaction was only possible because of that policy and, accordingly that the contract was unjust.” 
The Court of Appeal made orders to remit the matter to the District Court to hear and determine the application to set aside default judgment on the basis that there was an arguable case for relief under the CRA.
In these circumstances, it would be an irrational outcome (and arguably contrary to the public interest) if liability for debts incurred to a bank could be avoided because a bank’s policy was capable of being manipulated by acts the law deems to be criminal. Although the decision of the Court of Appeal is not determinative of such matters, it does highlight the ability to use the CRA as a shield to what otherwise should be straightforward debt claims. That possibility serves as a timely reminder for banks to review their non-loan account policies and procedures to ensure they are appropriate.Footnotes:
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