The Case of Narni Pty Ltd V National Australia Bank Limited - Assignment Example

The Case of Narni Pty Ltd V National Australia Bank Limited The case decision in the Narni pity Ltd vs. National Australian Bank Ltd has fundamental legal principles that cover the relationship between a bank and its customers. This research paper looks into the issues raised in the case specifically, the implied contractual obligations the bank owes to the customer. While in the past many Australian courts have looked into obligations in relation to the dealings of the customer’s account with the bank, in the case Narni vs. The National Australian Bank pity Ltd, this obligation is considered in the wider perspective to encompass bank-customer practices. The reason why Narni Pty Limited sued the National Australia Bank Limited Narni operated a nursing home of a capacity of seventy beds in Carrum. In 1988, almost all the assets of their assets were aided by loans from friends, banks and relatives. Due to this, there was a cash flow problem encountered by the sisters who were operating the Nursing home. Earlier in the year (1988), Narni limited had applied or bank overdraft with the National Australian Bank, the limit of the overdraft was $65000 which was then approved in November of that year, meanwhile, the account was in debit for the period preceding November of which the bank honored cheques drawn from the account by the Narni. However, National Australian Bank denied the extension of the overdraft limit to $100000 and they tried as much as possible to keep the claimant within the agreed limits of $65000 and gave support to honor the cheques. There was turn of event in June 1989 when the Nationals Australian Bank started to dishonor Narni’s cheques and as a result, their staff went on rampage and called for an industrial action against the Nursing home and debenture holders took over the ownership of the premise and soon after they sold the Nursing home. The aim of the background information is to bring to light the unfolding the events that led the claimants (Narni Nursing Home) to file a case in court. It’s a fact that the claimants sued for damages claiming that the action of denying them financial support by the National Australian Bank had resulted in the failure of the business, they further claim that the defendant, by dishonoring the overdraft agreement without any prior notice, is in breach of the agreed agreement and in consequence they suffered loss of the business (McCracken & Everett, 2009)1. Implied term breached by the defendant. As the matter came before court, the claimant argued that the defendant had breached an implied term (and other terms of the overdraft), however, of great concern is the implied term. Following the case critically, it’s evident that as the claimants argue, it’s implied that the continued financial aid given to them by the National Australian Bank would continue. The court found out that as a matter of legal principle, there was indeed an implied term between the Narni and the bank thus the defendant could not null the agreement or alter it in anyway without reasonable notice to the claimant to have enough time to re-arrange their affairs and that cheques had previously been honored under the current pre-existing agreement, so the implication was that there was arrangement between the parties since the bank knew that the claimant solely relied on them. In the case of State Bank of New South Wales Court ltd vs. Carrabubula Holdings pty ltd (2001), the bank that was the claimant in its appeal raised inter alia the following issue that there was the breach of implied term, the appellate judge, Giles JA, held that the implied term had been breached and that this term arose from the dealings between the bank and its customer (defendant) the trial judge viewed the implied term as that which gives the business efficacy to contract, BP Refinery (Westernport) Pty Ltd v Shire of Hastings however, Giles JA overturned the trial judge views stating that the efficacy of the banking business does not depend on the uncertainty of the terms. Narni Pty Ltd sued the National Australia Bank Limited on grounds that lending or borrowing is always an issue of contract, be it expressed on paper or implied by the deeds of the parties involved. In banking, the implied terms are only derived where necessary or where the parties intended the terms in order to be certain that the agreement shall operate effectively. Since the claimant dealt in business and had a contractual relationship with the bank, the implied terms had to be construed in such a way as to give the consumer (Narni Nursing Home) protection over the service provider (National Australian Bank) and vise versa. In Australia, the contract between account holder and the bank is a legal binding agreement enforceable under the law and shall provide the conditions upon which the parties shall operate. The bank holds that the account holder understands the terms and nature of the relationship, In Australia, The Code of Banking Practice is the guidance to good customer care in the banking industry, this code the Code of Banking and Practice (1993), obliges the bank to provide its customers with all the documents containing terms and conditions of the agreement, it also include the provisions:- For the banks to disclose general terms and conditions. Of giving account holder statement of account. Issue copies of the signed documents to the other party. Procedures of debts collection. About Complaint handling procedure and machinery. In this code, among other provisions that stand out conspicuously and of interest to the case above is that it gives guarantors of loans fundamental disclosure, rights and commitment of the banks to act fairly in decorum that is consistent and ethically right (Tyree & Weaver, 2006)2. In Robinson vs. Midland Bank ltd (1925), an account was opened in the claimant’s name without his notice in order for the conspirator to carry out some blackmail. It was held that the bank had no contractual agreement with the claimant since the account was opened without his authority. Contractual agreement between Banker and customer takes various forms such as:- a) Banks and big-size corporate. b) Banks and small medium size corporate. c) Banks and consumer customers. In these categories the banks among other obligation should be aware of implied terms that obliges them to be vigilant in dealing with customers, and these terms can only be negated through an express agreement among the parties to the contract, in the case of Narni Pty Ltd vs. The National Australia Bank Limited, the court did not find any inference that the parties intended to negate or vary their contract. In light of these facts therefore the court concluded the terms to be of greater importance to the claimant. The doctrine of Estoppel in the Narni’s case This is a rule of evidence that prevents one from alleging or denying statement or act which he/she had made earlier and in making such statement, he/she shall be contradicting the previous one. If a party has performed or is likely to do certain act that the court finds warrant estoppel, then the party is estopped from making such allegations. Lord Coke stated that ‘it is called so because it’s man’s own acceptance to say the truth’. In order to understand this principle better the following example shall apply:- in a contract between A and B, and that the contract states that it had been reviewed by A’s lawyers for it to be proper, an estoppel shall in this case stop A from claiming invalidity of the contract, in the case of Hughes v Metropolitan Railway company (1876-1877) the claimant leased an asset to the defendant, he compelled the defendant to renovate the structure through a notice but before the renovation the defendant started negotiation to buy the premise but they did not settle anything, during which the renovation time had elapsed the claimant sued for contract breach, it was held by the England House of lords that by starting to negotiate it implied that the claimant would not enforce the time limit in the notice to the defendant and that they acted on this promise but to their disadvantage. Many parties however, would want to rely on this doctrine as a defense even though it’s not vivid to the ordinary man thus the court affirmed the availability of clarity of this principle in any case, thus in the case of Legione v Hateley (1983) - a buyer was not granted the required extension of time to raise the needed money the secretary said that he required to get further instruction, later the contract was rescinded (Martin, 2008)3. It was held that the estoppel should be clear and can also be implied from conduct of the parties. This doctrine is often used as a defense not as a first strike i.e. the claimant can argue reasons why respondent should honor contractual duty or pay damages caused on the other hand the defendant can seek an estoppel by demonstrating to the court that the claimant statements/claims goes against his earlier established facts and this is left to the discretion of the sitting judge to decide. In Combe v Combe (1951) a divorced wife to the defendant wanted to enforce a promise of payment of annual maintenance fee the husband gave her before the break of marriage. It was held in the court of appeal that estoppel could not be invoked since it’s only being used as a defense not as a ‘sword’ as the case may be in High Trees case [1947] KB 130. In previous years, financial business has witnessed an increasing number of claimants who bring issues to court claiming that the banks had advised them to enter contractual obligation they didn’t understand or that the banks did not disclose the risk involved in making such contract. Majority of these claims fail because of the contractual estoppel i.e. if one has a contractual obligation with the bank, the document they issue about the purchase product does not constitute legal advice that these customers seek to rely upon, and as a result these individuals suffer huge losses. In the development of this doctrine, judges in England considered only the contracts in writing to warrant the application of the doctrine, this was changed in the case of Lowe v Lombank (1960) in which the contract in writing did not reflect the reality of things thus i.e. the bank could not rely on estoppel that it wasn’t giving legal advice but in reality both parties were aware it was doing so. In application of this doctrine the court intend to establish certainty in complex commercial transactions such as the case of Springwell Navigation corporation v JPMorgan Chase Bank& others (2010) and their reasoning binds all businesses. An estoppel can be by record, deed and conduct where parties acted on a shared undertaking. In the case of Narni v the National Australia Bank, the claimant seeks the application of the estoppel doctrine which was, that the conduct of the Bank in honoring the claimant’s cheques before the overdraft was taken to $100000, and overdrawing the account by at least $100000 lead the claimants to believe that respondent would not depart from honoring the cheques without first giving notice. The claimants therefore worked in reliance on the conduct of the bank and it was unthought-of that the respondent would depart from this conduct. This to my view the Narni were claimed an estoppels by conduct. In conclusion therefore, its worth noting that prior bank-customer relationships can be compared with master-servant relation that one party orders and the other performs, this ensures unequal trading grounds between the parties and majority of the claims end up in the corridors of justice (Narni v National Australia Bank) and the courts, in their endeavors to strike a balance on these issues have come up with guiding principles (estoppel) that have been followed as precedent to realize the certainty of business especially banking, thus courts protects both the consumer (Narni Nursing Home) and the service provider (National Australia Bank). Bibliography Tyree, A. & Weaver. P. (2006), Weerasooria’s Banking Law and the Financial System in Australia. (6th Ed) LexisNexis Butterworths Martin, R. (2008), Banking and Finance in Principle, Thomson Lawbook Co. McCracken, S. & Everett. A.(2009), Banking and Financial Institutions Law, Thomson Lawbook Co. Read More