The central issue in the recent Court of Appeal decision of Colley v Westpac New Zealand Limited  NZCA 57 was whether the Bank's conduct was "oppressive" within the meaning of section 118 of the Credit Contracts and Consumer Finance Act 2003 (the Act). Section 118 provides that, in the Act, ""oppressive" means oppressive, harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice". Traditionally this has been viewed as a high threshold.
This case concerned two appeals arising out of the collapse of Next Electronic Servicing Ltd. Mr and Mrs Colley were guarantors of that company's indebtedness to the Bank. The Bank sought summary judgment against the Colleys as guarantors for the shortfall owing by Next. In the first instance, summary judgment was given against Mr Colley but was declined against Mrs Colley. Mr Colley appealed against the entry of summary judgment against him, and the Bank against the refusal to enter summary judgment against Mrs Colley.
Mr Colley's claim of oppression was based on the following essential points:
- The Bank failed to disclose reservations about Next
- Commissioning a report from BDO (who were Next's accountants) lacked independence
- The Bank misled Mr Colley as to the reasons and circumstances surrounding the transfer of the account to the Credit Restructuring Unit
- There were failure and delays on the Bank's part in reviewing Next's position and Mr Colley's wishes for a meeting
- Obtaining a report from McGrath Nicol was oppressive
- Cancelling the overdraft facility and appointing receivers were oppressive.
The Court dismissed each of these factors noting the following:
- It is not oppressive for bank managers to not fully disclose to a customer all their opinions about its financial position.
- It made sense for the Bank to get a report from BDO as the firm which was already familiar with the dealings with Next. The later decision (to get another report from accountants entirely independent of the Colleys) was made as a consequence of the problematic situation that the BDO report revealed. The Court expressed the view that, even if using BDO was unwise, the decision could not in any circumstances be described as harsh or unjustly burdensome, or in breach of reasonable standards of commercial practice and therefore oppressive.
- It was up to the Bank how it managed the account (ie, transferring the account to another unit of the Bank), and it was not unjust or in breach of reasonable standards of commercial practice if it did not disclose all its considerations to its customers. In any case, the statements given by the Bank were frank and accurate.
- The real complaint behind the alleged failures and delays was that the Bank did not keep extending the overdraft facility as Mr Colley wanted. To that effect, the Court provided that the Bank had no obligation to provide further funding.
- The McGrath Nicol report was not considered oppressive for the above mentioned reasons.
- There was nothing oppressive in the conduct of the Bank in cancelling the overdraft facility or in the way in which receivers were appointed. Mr Colley had contemplated a collapse of the company some three months earlier, he had received notices of default and had been informed of the transfer of the account to the Credit Restructuring Unit.
Mrs Colley's claim of oppression was based on the following factors and she argued that singly or in combination these factors made it oppressive for the Bank to demand the full amount under the guarantee:
- She was a reluctant guarantor
- She felt pressured and rushed at the time of signing when her lawyer explained that she was signing a personal guarantee
- She thought that their home was the only asset in which she had a interest that was at risk under the personal guarantee
- She was not aware of the increased facility limit of the overdraft facility.
The Court of Appeal dismissed these factors and clearly expressed the position under the Act that the oppression provisions of the Act are not focused on personal hardship to a debtor. Rather, the focus is on the acts of the creditor, either in relation to the contract or transaction itself, or the creditor's specific acts before or after the credit contract arose. A credit contract cannot be impugned as oppressive by reference to matters that affected the debtor but which were unknown to the lender.
The guarantee stated in plain words that Mrs Colley was guaranteeing all existing and future indebtedness of the company and that the Bank was entitled to enter into new, or change existing, arrangements at any time without Mrs Colley's consent. The documents squarely informed that there could be future increases.
In addition, the Bank was provided a guarantor's solicitor's certificate recording that the solicitor had explained to Mrs Colley the general nature and effect of the guarantee. The Bank was also provided with an acknowledgement signed by Mrs Colley stating that she had been advised to obtain independent legal advice, and that she understood the terms and provisions of the documents including certain specific matters.
The Court held that the Bank acted with reasonable standards of commercial practice by relying on the solicitor's certificate and waiver of independent legal advice and there was no basis to conclude that the Bank had acted oppressively in increasing the loans without notifying Mrs Colley, in making demand on her, or in claiming from her the full amounts advanced.
We agree with the Court of Appeal's approach and reasoning and we would be concerned if the Courts were to find any of the above factors oppressive given the factual circumstances and the clear contractual terms. However, the case illustrates the importance of clear terms and provisions and the advisability of Banks obtaining solicitor's certificates and, where relevant, waivers of independent legal advice from guarantors.