Landmark Supreme Court decision impacts lending to religious and charitable organisations
10 December 2015
Today's landmark decision of the Supreme Court of New South Wales provides important guidance on lending to churches, religious institutions and other not-for-profit organisations.
In the decision of Commonwealth Bank of Australia v Palmer  NSWSC 1856, Justice Hammerschlag held that the Anglican Diocese of Bathurst is legally obliged to meet its obligations to repay the debt of its corporate arm, the Anglican Development Fund, as promised in letters of guarantee issued by the Diocese and as set out in the Diocese’s internal rules. The ruling requires the debt to be repaid from assets of the Diocese.
This important judgment provides guidance on issues relating to lending and enforcement with respect to Churches and charitable organisations more generally, including:
- the enforceability of letters of guarantee and other contracts with religious institutions and other not-for-profit organisations
- the enforcement of contracts against unincorporated associations and in particular clarification of the "committee liability" rule
- the authority of Church leaders and officers of charitable institutions to bind organisations under contracts in the absence of an "indoor management" rule
- the scope of powers and obligations conferred by state legislation on individual Church denominations, including to marshal assets to meet their debt obligations.
Who is affected?
Lenders who have exposures to or are considering lending to religious organisations, schools and other forms of not-for-profit and charitable organisations.
To find out more please contact one of our team members listed below.