An empirical study on the law and practice surrounding "sexually transmitted debt" has been released today. The study was conducted by academics at the University of Sydney Law School in conjunction with the NSW Law Reform Commission.
"Sexually transmitted debt", or relationship debt, arises when a person guarantees someone else's debt (usually a relative or friend) and the debtor fails to repay the loan. In these cases the lender can require the person who guaranteed the debt to repay the original loan.
The study confirms the general understanding that a high proportion of women support the borrowing of male partners who are engaged in small business. The evidence shows that women, elderly people and those from non-English speaking backgrounds are disproportionately affected by such guarantees. Those from non-English speaking backgrounds were particularly unlikely to seek legal advice before they signed.
Some of the more surprising findings, according to Senior Lecturer, Jenni Millbank, include:
Poor practice on the part of lawyers included giving advice in a matter of minutes, in front of the main borrower and sometimes also acting for the borrower. "A disturbingly high proportion of guarantees were entered into in informal circumstances, such as at home over the dining room table," said Ms Millbank.
"The poor practice on the part of lenders was unexpected given how many inquiries and reforms have been undertaken in this area in recent years," said Ms Millbank, "The study has highlighted that the entire lender industry needs clear and consistent standards to be followed when people enter guarantees."
The resolution of disputes relating to guarantees has also been examined, highlighting the complex array of common law and legislative defences and the lack of avenues for informal dispute resolution. "Greater certainty in the law could reduce litigation and give lenders and guarantors a better idea of what to expect. There is also a clear need for more accessible avenues for mediated or negotiated settlements before disputes move on to more costly litigation," said Ms Millbank.
The study was carried out between 2000 and 2003 with funding made available by an Australian Research Council Strategic Partnerships in Industry, Research and Training grant.
The Law Reform Commission, which is currently examining the law relating to guarantees, will use the findings in this study to prepare its final report and recommendations in 2004.
Copies of the study (
Research Report 11) may be obtained from the Commission on (02) 9228 8230 or from the Commission's website:
Jenni Millbank, senior lecturer, University of Sydney Law School, (02) 9351 0318
Jenny Lovric, research associate.