Commercial loans and their commercial context: identifying the true borrower
Where money is lent and a question arises as to whether the loan is made to a company or to a director of that company, how might a court go about identifying the true borrower? The NSW Court of Appeal recently considered that question and, in doing so, has given a decision which contains guidance for the kind of evidence that might be relevant including, of interest here, evidence as to the ‘commercial context’ of the loan.
In Rose v A-Civil Aust Pty Ltd,[1] a lender had deposited an amount into the bank account of a company. The lender later alleged that, despite that fact, the relevant agreement had been with the director of that company in his personal capacity. Following a trial, the NSW Supreme Court found in the lender’s favour. The director appealed, contending that the company was the borrower.
The NSW Court of Appeal upheld the trial judge’s conclusion. In doing so, the Court noted among other things that, besides oral and documentary evidence supporting the trial judge’s conclusion, it was ‘important to consider the commercial context in which the $1 million was advanced’.
On that point, those arranging to lend the money had given evidence at trial that they had understood the particular director to have been asset-rich and had taken that matter into account when deciding to lend to him. The director did not give evidence at trial, whether in opposition to those matters or otherwise.
The Court of Appeal held that is was ‘commercially rational to give significance to [the director] being wealthy and having assets in the context of assessing whether or not to make a loan of $1 million to him’. The Court noted that, on the other hand, ‘those matters would have no relevance to the commerciality of making a loan to [the company], or to any other corporate entity.’
It also was relevant that there had been no evidence of the lender having made enquiries about the financial capacity of the company, and that ‘[i]n the absence of anything in the evidence to explain why [the lender] might have been willing to expose itself to such commercial risk, it is objectively unlikely that [it] would have advanced $1 million to [the company] in these circumstances’.
Such matters were, in the Court’s view, features of the ‘commercial context’ of the transaction providing ‘objective support’ to oral evidence on the identity of the borrower. The Court’s comments, in that respect, are a reminder that the task of identifying the true parties to a contract involves a consideration of not just the oral and documentary evidence but also the context — including, relevantly in this case, the commercial context — of the parties’ bargain.
[1]: [2026] NSWCA 130. The quotations in the above case note are from [99]–[100] of the Court’s reasons.