Code & Contract – (NAB v Rice).

Industry Codes of Practice exist to ensure certain standards of behaviour are complied with in relation to particular services.

In this article, it will be discussed how the Codes of Practice are incorporated into contracts, such as mortgages and insurance policies.  A recent case in which alleged breaches of the Code of Banking Practice (Banking Code) such as  non-compliance with the Banking Code, material non-disclosure to Guarantors and unconscionable conduct by a bank were considered was National Australia Bank Limited v Timothy Craig Rice & John Albert Rose (NAB v Rice).[1] This was the first case in the Supreme Court of Victoria where it was found that breaches of the Banking Code rendered a contract void.

NAB v RICE

It was argued by NAB that the Banking Code did not impose any contractual obligation on it, but merely provided a desirable code of conduct;[2] however, the Court held that the Banking Code was contractually binding between NAB and Rose.[3] It was further determined that the terms of the Banking Code were to be treated as contractual terms of each of the guarantees. It did so on the basis that the breaches of the Banking Code caused the defendants loss.

Four points on which the defendants relied were:
1. unilateral mistake;
2. non-compliance with the Code of Banking Practice;
3. material non-disclosure by NAB; and
4. unconscionable conduct by NAB (which included alleged breaches of the Banking Code).

The Court held that NAB had breached the Banking Code in relation to non-compliance and non-disclosure.  NAB’s case was dismissed and the Court found that the breaches of the Banking Code by NAB, rendered the contract void.

GENERAL INSURANCE CODE OF PRACTICE

NAB v Rice[4]  illustrates a situation where non-compliance with an industry Code of Practice may render a contract void.  The General Insurance Code of Practice has the same compliance element as the Banking Code.  As such, Insurers need to comply with the General Insurance Code of Practice when issuing insurance policies.  In addition, the Insured has obligations under their insurance policy with the Insurer which incorporates the General Insurance Code of Practice.

NAB v Rice[5] was the first case where a Court found that non-compliance with the Banking Code rendered the contract void. This case demonstrates that Courts are now considering and determining that industry Codes of Practice are more than guidelines as to conduct to be followed, they are obligations incorporated into contracts.