Moula Funding Pty Ltd v GJM Transport Pty Ltd
[2022] QSC 104
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- Notable Unreported Decision
- Moula Funding Pty Ltd v GJM Transport Pty Ltd[2022] QSC 104
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Moula Funding Pty Ltd v GJM Transport Pty Ltd[2022] QSC 104
Moula Funding Pty Ltd v GJM Transport Pty Ltd[2022] QSC 104
SUPREME COURT OF QUEENSLAND
CITATION: | Moula Funding Pty Ltd ACN 607 734 154 v GJM Transport Pty Ltd ACN 121 220 737 & Ors [2022] QSC 104 |
PARTIES: | MOULA FUNDING PTY LTD ACN 607 734 154 (plaintiff) v GJM TRANSPORT PTY LTD ACN 121 220 737 (first defendant) and GORDON MANNING (second defendant) and MERVYN ARTHUR PRATT (third defendant – added by counterclaim) and CASH 4 LIFE PTY LTD ACN 612 674 316 (fourth defendant – added by counterclaim) |
FILE NO/S: | BS 2825 of 2019 |
DIVISION: | Trial Division |
PROCEEDING: | Application |
ORIGINATING COURT: | Supreme Court of Queensland at Brisbane |
DELIVERED ON: | 30 May 2022 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 20 May 2022 |
JUDGE: | Brown J |
ORDER: | The orders of the Court are that:
|
CATCHWORDS: | PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – ENDING PROCEEDINGS EARLY – SUMMARY DISPOSAL – SUMMARY JUDGMENT FOR PLAINTIFF OR APPLICANT – where plaintiff lent funds to the first defendant – where the second defendant was guarantor for the amount lent – where the loan agreement provided for the property of the guarantor to be the subject of a charge in the event of default – where the defendants allege that the plaintiff engaged in unconscionable conduct in relation to the loan and guarantee – where the plaintiff seeks summary judgment pursuant to r 292 and r 293 of the Uniform Civil Procedure Rules 1999 (Qld) against the defendants including of their Counterclaim – where plaintiff has established prima facie entitlement to relief – whether the defendants Defence and Counterclaim has no real prospects of success Australian Securities and Investment Commission Act 2001 (Cth) s 12CB, s 12CC, 12GM Competition and Consumer Act 2010 (Cth), Sch 2, s 21 Uniform Civil Procedure Rules 1999 (Qld) r 5, r 292, r 293 Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd (2021) 285 FCR 133, considered Bendigo and Adelaide Bank Limited ACN 068 049 178 v Prichard and Adelaide Bank Limited v Prichard [2021] QSC 179, considered Blomley v Ryan (1956) 99 CLR 363, cited Certane CT Pty Ltd v Whight [2021] QSC 77, considered Chen v ANZ Banking Group Ltd [2001] QSC 43, cited Jams 2 Pty Ltd v Stubbings [2020] VSCA 200, considered MCL 102 Pty Ltd v Yuen [2022] VCC 545, cited Stubbings v Jams 2 Pty Ltd (2022) 399 ALR 409, cited |
COUNSEL: | M A Goldsworthy for the plaintiff J Nott (sol) for the defendants |
SOLICITORS: | Results Legal for the plaintiff Jason Nott Solicitors for the defendants |
- [1]BROWN J: The plaintiff, Moula Funding Pty Ltd, lent $130,000.00 to GJM Transport Pty Ltd, the first defendant. The second defendant, Mr Manning, was guarantor for the amount lent to GJM Transport Pty Ltd. The loan agreement provided for the property of the guarantor to be the subject of a charge in the event of default. The first and second defendants allege that the plaintiff engaged in unconscionable conduct in relation to the giving of the loan.
- [2]The plaintiff seeks summary judgment pursuant to r 292 and r 293 of the Uniform Civil Procedure Rules 1999 (Qld) (“UCPR”) against the first and second defendants in its claim, and on the first and second defendants’ Counterclaim set up in defence of the plaintiff’s claim. Although the latter was not sought in the Application no issue was taken by the defendants in that regard.
- [3]The principal issue for determination is whether the defendants have no prospect of successfully defending the proceeding because they have no real prospect of establishing that in granting the loan to the first defendant and taking a guarantee from the second defendant, the plaintiff engaged in unconscionable conduct.
The plaintiff’s claim
- [4]Mr Watt, the director and chief financial officer of the plaintiff, swore an affidavit deposing as to the loan provided to the first defendant and the events of default.[1]
- [5]On 1 December 2017, pursuant to a written loan agreement between the plaintiff and first defendant, the first defendant was lent a sum of $130,000.00. The agreement provided for interest to accrue at a rate of two per cent per fortnight, with an additional interest of two per cent per fortnight on overdue amounts. The first defendant was to repay the loan by payments of $6,460.90 payable on a fortnightly basis. The loan agreement also provided for a guarantee to be provided by the second defendant.
- [6]The first defendant made nine fortnightly payments to the plaintiff of $6,460.90 from 20 December 2017 until 11 April 2018. On 18 April 2018, the second defendant as the director of the first defendant, requested a suspension of payments for 30 days whilst his property was being sold, which was granted. Subsequently, the second defendant contacted the plaintiff to obtain reduced payment amounts, which was acceded to by the plaintiff until 13 July 2018.
- [7]Between 24 May 2018 and 24 October 2018, the first defendant made additional payments of $24,015.00.
- [8]On 9 November 2018 the plaintiff sent an email to the second defendant noting that the second defendant had advised the plaintiff that the first defendant was wholly unable to meet their payment requirements under the loan agreement and had requested a temporary hold on all payments. The plaintiff stated that there would be no further payment reduction and foreshadowed collection activity. The email also stated that if the second defendant wished to apply for hardship in his capacity as guarantor, he should provide a statement of financial position including details of income, expenses, assets and liabilities.
- [9]On 17 December 2018 the plaintiff issued notices to the defendants demanding payment of the amount of $103,475.16 by 8 January 2019. That amount was not paid. A property owned by the second defendant was sold and the sum of $53,400.50 representing the second defendant’s interest in the sales’ proceeds was paid into the plaintiff’s solicitor’s trust account on 27 September 2019, pending agreement between the parties as to its disbursement.
- [10]Given the accrual of interest, the sum of $615,118.78 is alleged to remain outstanding and is due and payable under the loan agreement.
- [11]The defendants do not cavil with the fact the plaintiff has prima facie made out the elements of its claim and entitlement to judgment, subject to the determination of the defendants’ Counterclaim.
- [12]The real question is therefore whether the defendants have raised sufficient facts to satisfy the court that they have an arguable defence to the plaintiff’s claim and basis for avoiding relief of the plaintiff’s claim pursuant to their counterclaim.
The defendant’s counterclaim
- [13]The defendants seek to defend the claims on the basis that the plaintiff engaged in unconscionable conduct in contravention of s 12CC of the Australian Securities and Investment Commission Act 2001 (Cth) (“ASIC Act”). In particular, in paragraph 24 of the defendants’ Counterclaim it is alleged that the plaintiff:
- (a)did not make reasonable enquiries about the first or second defendants’ purpose in obtaining the loan;
- (b)facilitated and knew or ought to have known that the first and/or second defendants failed or could not have satisfactorily reviewed the loan agreement or guarantee;
- (c)knew or ought to have known that the first and second defendant by Counterclaim had made a prior loan application for the provision of financial services on behalf of the first and second defendants for $250,000.00 which required the supply of financial documentation to support serviceability, which was immediately withdrawn and a further application was made some four days later, which fell below the plaintiff’s threshold at a value of $130,000.00 and did not require the provision of financials to support loan serviceability;
- (d)did not make reasonable enquiries about the first or second defendants’ financial situation or capacity to repay the loan notwithstanding the withdrawal of the original loan request;
- (e)failed to properly assess whether the terms of the loan agreement and guarantee were appropriate or reasonable in the circumstances; and
- (f)to the extent that it received advice about the financial situation of the first or second defendants or the appropriateness of the terms of the loan agreement and guarantee it proceeded with the execution of the loan agreement and guarantee in disregard of that advice.
- (a)
- [14]The defendants allege in paragraph 25 that the above conduct was unconscionable, that the loan agreement and guarantee are void and unenforceable and that the plaintiff is not entitled to the relief in the Statement of Claim.
- [15]The plaintiff refutes the allegations in its answer on the basis that:
- (a)the defendant did undertake reasonable enquiries in relation to the purpose of the loan;
- (b)the first and second defendants had the opportunity to review the entirety of the loan agreement, including the guarantee, prior to execution and in doing so, the second defendant expressly waived his right to obtain legal advice and declared he had read the loan agreement;
- (c)the plaintiff did make reasonable enquiries about the first and second defendants’ ability to repay the loan and the loan was not given on the basis of any asset based lending;
- (d)the plaintiff properly assessed whether the terms of the loan were appropriate including by assessing that the first defendant could service a loan of $132,000.00 over 12 months which was only 80 per cent of the first defendant’s average monthly turnover of $165,000.00; and
- (e)the plaintiff did not advance the loan in disregard of the information it received about the first and second defendants’ financial position, but rather as a result of obtaining that information and assessing that the first defendant could service such a loan, having assessed that the plaintiff carried out an assessment by which it would not loan an amount of $250,000.00, which had apparently been the subject of the original request by the plaintiff.
- (a)
- [16]Mr Watt deposed as to the evidence relied upon in support of each of the propositions.
- [17]Mr Manning, the second defendant swore two affidavits[2] which:
- (a)disputed the fact that the plaintiff had access to Xero accounting records as deposed by Mr Watt;
- (b)exhibited an affidavit by him in Federal Court proceedings where he deposed to the fact that the first defendant by Counterclaim had negotiated the loan with the plaintiff and had told Mr Manning originally that he could secure as much as $260,000.00 but then stated he could only get $130,000.00 “as he didn’t need financials as it wouldn’t stack up”. The second defendant told Mr Pratt that neither the first defendant nor he could service the loan to which he states he was told Mr Pratt said he would sort it for him. According to the second defendant he had asked what surety they had given over the business after the loan was settled and was told “they couldn’t come after me”.
- (c)deposed to him being 61 and a man of limited education and little computer literacy;
- (d)he is a truck driver and plant operator who derives his sole income from the business of the first defendant;
- (e)he was the sole director of Muscart Pty Ltd which owned four properties. That company was in default of loans and by November 2017 the interest was $36,738.20 which was compounding. By October 2018 Muscart Pty Ltd was in default of another loan with the interest accruing at $22,750.00/month. A Power of Sale was exercised in relation to the properties the subject of mortgages in 2020;
- (f)the plaintiff did not explain to the second defendant either the loan agreement or the personal guarantee;
- (g)that he did not provide documentation to the plaintiff indicating his identity or the financial position of the first defendant;
- (h)he did not have a reasonable opportunity to obtain legal advice as to the loan agreement with the plaintiff nor as to the guarantee nor was he directed to do so;
- (i)he was not told the documentation included a personal guarantee and that by ticking all the boxes he had charged all his personal assets in favour of the plaintiff;
- (j)set out that when the second defendant was notified that the first defendant had had the loan approved it pulled to the side of the road after being told he needed to complete the paperwork straight away and the money would be paid to him that day. He brought up a copy of an email and completed the online forms provided by the plaintiff and the process took some twelve minutes. He stated he felt pressured by the plaintiff;[3] and
- (k)that he did not apprehend he was providing a personal guarantee in respect of the loan and had he realised he was providing a personal guarantee over his properties he would not have entered into the funding agreement nor the personal guarantee.
- (a)
- [18]Mr Palaghia, the Head of Risk of the plaintiff, swore an affidavit in response to Mr Manning refuting the suggestion that:[4]
- (a)the plaintiff had not temporarily accessed the first defendant’s Xero access; and
- (b)the plaintiff had not accessed the first defendant’s loan application.
- (a)
- [19]No witness was cross-examined.
- [20]The plaintiff contends that none of the matters raised by the defendants in the context of a commercial loan could constitute unconscionable conduct, nor, was it under any obligation to take any further action in relation to the guarantor than it did. It highlighted in that regard that the second defendant had ticked the box which waived a right to obtain legal advice.
- [21]In oral argument the argument for the defendants shifted markedly from the terms of the Amended Defence and Counterclaim. They contend that the plaintiff engaged in unconscionable conduct through the creation of a system of lending using proforma loan agreements containing a guarantee without the guarantor being given proper warnings, explanation or a requirement to obtain legal advice and which regardless of the borrower’s financial position or the guarantor’s earning position relied on the property held by the guarantor in determining to give the loan. The defendants’ submissions allege that the plaintiff engaged in deliberate conduct of misusing their superior bargaining position and subsequently imposing a personal guarantee on the second defendant in circumstances which were surreptitious and undisclosed. The defendants contend that given the plaintiff’s alleged knowledge it is said that they exploited that advantage such that the attempt to enforce its rights under the proforma Moula Funding Loan Agreement and personal guarantee are unconscionable. The defendants relied upon a number of circumstances including that that there was evidence that the first defendant had a rapidly increasing taxation debt, that the plaintiff had made no enquiries of the second defendant as to whether he had any income which would enable him to meet such an obligation, notwithstanding the first defendant’s “precarious” financial position.
- [22]As to the contention that the plaintiff had properly assessed the loan, the defendants submitted on the plaintiff’s own documentation, the first defendant did not satisfy all of the loan criteria of the plaintiff which should have indicated to the plaintiff it could not meet the loan requirements. They point to the document annexed to Mr Watt’s affidavit containing various matters in the assessment criteria[5] including that the value of credits at a ratio of the first defendant’s debt exceed the value of credits at a ratio of 1.012, the first defendant did not meet the minimum MD9060 criteria, the first defendant did not have its tax payments up-to-date (in fact the loan was to apparently pay the tax loan), did not have a positive balance and the current ratio of assets and liabilities was less than one.
- [23]Conversely, some criteria were satisfied including that the loan amount was less than one month of turnover.
- [24]The defendants contend that the plaintiff had knowledge of the first defendant’s “precarious” financial circumstances and if it were not for the proforma funding agreement and personal guarantee, the application for credit would have been rejected. According to the defendants making the approval of the loan conditional on the provision of a personal guarantee by the second defendant amounted to an exploitation of the plaintiff’s advantage. According to the first and second defendants, there was a need for assessment or assistance of explanation or at least a warning to be given as to the nature of guarantee. Nor did the plaintiff require the second defendant to obtain legal advice. It is submitted that the plaintiff “targeted” the second defendant to take advantage of his “vulnerability” and further, had “designed” a system of lending against a guarantor’s property and which, avoided information as to the first and second defendants’ financial or personal circumstances or worse, willingly turning a blind eye to the precarious financial circumstances of the first defendant and preying on the value of the underlying personal guarantee. According to the submissions of the defendants, in failing to provide the second defendant with an explanation and assistance in the form of a warning or bringing to his notice the consequences of default under the loan agreement and personal guarantee, they acted in an unconscionable manner, given their appreciation of the first and second defendants’ vulnerability.
Consideration
- [25]Rules 292 and 293 of the UCPR are in similar terms. In both cases, summary judgment ought not be granted “unless it is clear that there is no real question to be tried” or to use the wordings of the provisions themselves the defendants have “no prospect of succeeding on all or part of their claim”. The approach to summary judgment has been succinctly stated by Flanagan J in Bendigo and Adelaide Bank Limited ACN 068 049 178 v Prichard and Adelaide Bank Limited v Prichard[6] where as follows:
“Rules 292 and 293 are in similar terms. Summary judgment ought not be granted “unless it is clear that there is no real question to be tried”. The plaintiff has the onus of showing that it has a prima facie case entitling it to judgment on a summary basis. Once this has been established, the evidentiary onus shifts to the defendant. Both limbs of rr 292 and 293 must be satisfied: the defendant must have no real prospect of success and there must be no need for a trial. These requirements are intended to ensure that the rules do not “dispense with the need for a trial where there are issues which should be investigated at the trial”.”
(footnotes omitted)
- [26]Notwithstanding that the defendants raised matters by way of affidavit evidence that are not pleaded, the court has regard to such matters and the fact that a party may improve its position by amendment to its pleading in determining whether summary judgment will be granted, albeit that it may have implications for costs.[7]
- [27]There is a factual contest between the parties as to what the plaintiff did in assessing the loan and whether it was aware of the first defendant’s “precarious financial circumstances”. Some of those matters raise credibility issues which are not appropriate to consider in the present application. Prima facie such a factual contest would suggest that summary judgment should not be granted.
- [28]The plaintiff particularly focussed on the decision of Certane CT Pty Ltd v Whight[8] (“Certane”), where the defendant’s solicitor was also acting and had pleaded unconscionable conduct in substantially the same terms as the present case. In that case Jackson J gave summary judgment in favour of the plaintiff against a defendant. In that case a company had been given a loan which was secured by a mortgage given by the defendant who was also a guarantor of the loan. A number of allegations were admitted by the defendant which prima facie gave the plaintiff the right to relief. Although not expressly pleaded as a counterclaim, the defendant sought to contend that there was unconscionable conduct by the plaintiff in connection with the loan agreement and mortgage in connection in contravention of s 12CB of the ASIC Act. The plaintiff contends that the present case is largely indistinguishable from the situation considered in Certane.
- [29]In his analysis Jackson J considered the operation of s 12CB of the ASIC Act, or its comparators, in relation to unconscionable conduct in connection with the making of a loan and mortgage, included conduct that constitutes taking advantage of vulnerability or lack understanding, trickery or misleading conduct which will potentially engage the section. He states the relevant matters include those identified in s 12CC of the ASIC Act. In Certane his Honour noted the gravamen of the proposed defence was that although the loan was sought by the defendant on behalf of the company for the purpose of refinancing an existing loan in default for a relatively short period to enable her to repay the borrowing by sale of party of the land, it was asset-based lending that was alleged to be unconscionable given the defendant’s lack of other means to repay the interest amounts that would accrue during the loan[9] His Honour referred to the decision of Jams 2 Pty Ltd v Stubbings[10] (“Jams 2 Pty Ltd”), where the Victorian Court of Appeal had stated “ …the existence of asset-based lending, while a relevant factor in deciding whether a particular loan resulted from unconscionable conduct, is not determinative”.
- [30]His Honour determined that having regard to the amended defence and evidence there was no real prospect that the defendant will succeed in establishing unconscionable conduct as it was not said the defendant did not understand the transaction, its purpose or that she would have to sell the land or part of it within 12 months to be able to repay the loan. There was no trickery or misleading conduct alleged. While it was accepted that the defendant was vulnerable there is no suggestion that the defendant took advantage of her.[11] In that case the defendant had taken legal advice from an independent solicitor before undertaking the transaction and signed certificates stating she had done so and understood the terms of the mortgage and guarantee. In addition, the defendant had not made an offer of restitution to the plaintiff as a condition of the release sought by her by repaying the principal advanced under the loan agreement secured by the mortgage in order to obtain relief of winning the guarantee and mortgage under s 12GM(7).[12]
- [31]In the present case, money is held in trust by the plaintiff’s solicitor, which together with the money that has been paid by way of repayments would cover the principal that was lent. The defendants did not cavil with the proposition that they should be ordered to pay that amount to the plaintiff to secure the loan if they avoided summary judgment, as a condition of being unable to raise a defence in unconscionable conduct.
- [32]The defendants contend that the law as to unconscionability has moved on since the decision of Certane.
- [33]The decision of Jams 2 Pty Ltd was overturned by the High Court after Certane[13] The appellant did not challenge the argument that there was nothing inherently unconscionable about asset-based lending. However it contended that on the unchallenged findings of the High Court, the loans to the company and the appellant’s guarantee were effected in circumstances which made the enforcement of the respondent’s rights unconscionable.[14] The majority[15] found that the guarantor’s lack of commercial understanding coupled with his inability to repay the loan from his income or other assets, meant that default in repayment and the consequent loss by the appellant of his equity in his properties by way of interest payments to the respondents, were inevitable as a matter of objective fact.[16] The majority found that the lender’s agent knew that the appellant was bound to lose his properties and had sufficient appreciation of the appellant’s vulnerability and the ‘disaster” that was awaiting him under the mortgages such that his conduct was an unconscientious exploitation of the appellant’s special disadvantage.[17]
- [34]No such vulnerability was alleged to afflict the second defendant which is said to have been taken advantage of by the plaintiff. Rather it was the system of lending created by the plaintiff which is said to be unconscientious conduct by the plaintiff.
- [35]The defendant’s solicitor also points to the decision of the Full Federal Court in Australian Competition and Consumer Commission (ACCC) v Quantum Housing Group Pty Ltd[18] (“Quantum Housing”). In particular, the court found that the primary judge erred in considering that a finding of unconscionable conduct under s 21 of the Australian Consumer Law[19] required the taking of advantage or exploitation of some vulnerability, disability or disadvantage of the person or persons, and stated at [4] that:
“Whilst some form of exploitation of or predation upon some vulnerability or disadvantage of people will often be a feature of conduct which satisfies the characterisation of unconscionable conduct under s 21, such is not a necessary feature of the conception or a necessary essence in the embodied meaning of the statutory phrase. The circumstances of this case reveal why this must be so. Here the facts that were agreed for the penalty hearing are such as to permit the conclusions (substantially drawn by the primary judge) that the respondents engaged in deliberate systematic conduct of misusing their superior bargaining position by dishonestly misleading commercial counterparties (referred to as the investors of no proven particular vulnerability other than from their place in the relevant commercial circumstances) and pressuring the investors by imposing entirely unjustified and unnecessary requirements upon the investors as their contractual counterparties, thereby clearly exhibiting a dishonest lack of good faith, all in order to extract for at least one of them financial benefits which were surreptitious and undisclosed to the investors.”
- [36]The court in Quantum Housing further stated that the task of determining whether conduct is unconscionable is whether there is a “sufficient departure from the norms of acceptable commercial behaviour as to be against conscience or to offend conscience and so be characterised as unconscionable.”[20]
- [37]The provisions as to unconscionable conduct under the ASIC Act do not differ substantively from the provisions considered by the Full Court. The Full Court’s decision does appear to suggest a broadening of the scope of unconscionable conduct compared to the equitable doctrine of unconscionability. Caution must however be exercised in considering such decisions given an assessment needs to be made on the basis of all of the circumstances to determine whether conduct is unconscionable.
- [38]In the present case the plaintiff submits there is no departure from the norms of acceptable commercial behaviour. It submitted, consistent with the decision of MCL 102 Pty Ltd v Yuen[21] that it was a matter for the financier what enquiries it makes to verify the contents of an application. The trial judge in that case emphasised that an assessment of whether conduct was unconscionable required consideration of all the circumstances of the case.
- [39]In the present case the plaintiff’s evidence does show that there was an assessment process. The defendants can only point to the fact that the first defendant did not meet all of the plaintiff’s own loan criteria. Mr Watt deposes to the fact that there was an assessment of the ability of the first defendant to meet a loan over $100,000.00 and determined that the first defendant could service a loan of $132,000.00 over 12 months calculated as 80% of the first defendant’s average monthly turnover. The defendants do not submit that assessment was incorrect, but rather that the first defendant did not meet a number of other criteria and that the plaintiff did or should have appreciated that the first defendant was in a precarious financial position based on the information it had.
- [40]A number of facts or allegations have been thrown up by the defendants which are unsupported by evidence, speculative or are uncontradicted by the plaintiff’s evidence. I do not take account of the suggestions that there was a deliberate act to avoid the application of the National Credit Code by seeking declarations that the loan was not for personal domestic or household purposes. It is apparent it was a commercial loan to the company with the purpose having been identified by the second defendant to the plaintiff. The defendants also rely on the plaintiff’s failure to inquire why the first defendant had originally applied for a loan of $250,000.00 which was subsequently withdrawn and then shortly thereafter there was an application for the loan of $130,000.00.[22] The plaintiff’s evidence however suggests that an assessment had been carried out and it would not lend the amount of $250,000.00. There is nothing to suggest that the plaintiff was put on notice to make inquiries. Nor is there any evidence to suggest the plaintiff placed the defendants under any time pressure.
- [41]The defendants seek to draw upon all of the cases to refer to by reference to various circumstances which they have outlined in their submissions, the most significant of which is the fact that first defendant did not satisfy all of the loan agreement criteria or seek details of whether the second defendant had sufficient income to meet the guarantee if called upon, but rather the plaintiff’s system of lending focussed upon the fact that he had real property assets which could be called upon.[23] The defendants’ major contention appears to be that the system of loan approval and the provision for agreeing online to a proforma loan agreement with an inbuilt guarantee created a system of lending designed to lend against the guarantor’s property and not take account of the first and second defendant’s circumstances. The defendants contend that it was unconscionable given the of the defendants is providing for a guarantee to be taken by the second defendant given the approval of the loan was conditional on the provision of the guarantee. It is contended by the defendants that although no special advantage is required to be shown for unconscionable conduct on behalf of the second defendant to be established under s 12CC of the ASIC Act, the present case was one where “assistance or explanation is necessary”[24] given the financial position of the first defendant was precarious. It is further submitted that the plaintiff had engaged in a “deliberate conduct of misusing their superior bargaining position and subsequently imposing a Personal Guarantee on the Second Defendant in circumstances which was surreptitious and undisclosed” and the “Plaintiff’s knowledge of the First and Second defendant’s circumstances exploited that advantage”.
- [42]There are some facts identified by the defendants which on the face of the plaintiff’s own documents support the fact that the first defendant was in a difficult financial position which prima facie ought to have been known by the plaintiff given the first defendant’s increasing tax debt, apparent state of its balance sheet not being positive net assets and the other loan criteria not met. The repayment based on turnover appear to be on the basis of gross turnover rather than the net position and there is a discrepancy between the calculated turnover referred to by Mr Watt of $165,000.00 as opposed to the loan criteria which appears to refer to $145,000.00 There is also no suggestion of any independent investigation of the second defendant’s income position, although the Equifax document identifies that the second defendant is the sole director and self employed as a truck operator.
- [43]Further there are circumstances the provision of a guarantee as a precondition of loan which were proforma documents completed online, should have led to the plaintiff having the guarantee explained given the guarantee provided for a charge in favour of the plaintiff over all the guarantor’s “legal and beneficial interest in all its present and after acquired real and personal property as security for the performance of the guarantor’s obligations.”[25] No inquiries were said to have been made of the second defendant’s ability to meet his obligations under the guarantee in the loan agreement but obtained an “ Equifax Credit report” of the second defendant. Nor was the second defendant required to obtain legal advice with the online application providing an “opt out” option.
- [44]While there is evidence of an assessment process of the borrower and the level of loan to be given, there is evidence that the first defendant failed a number of criteria which brought into question its ability to service the loan. It is not evident on the material how the first defendant’s ability to meet the loan and its failure to satisfy some criteria was viewed in light of the guarantee which was required to be given. There is evidence to suggest that the latter was not insignificant in the assessment of the loan given the first defendant’s financial position or that the plaintiff relied on the guarantor’s asset position in providing the loan. The plaintiff’s response to the matters raised by the defendants requires a factual assessment of the loan process, particularly its contention that it “properly assessed whether the terms of the loan were appropriate”.[26]
- [45]While the plaintiff points to a number of facts that challenge the claim of unconscionable conduct including the significant delay in the Defence and Counterclaim being raised by the defendants with the pleading in the same form as that used in Certane. Both are legitimate matters to raise and could be suggestive of opportunism. The plaintiff also challenges the credibility of the second defendant deposing to not apprehending he was providing a personal guarantee and that if he appreciated his personal assets, particularly his properties at Camp Mountain would have been charged he would not have entered into the agreement at all, when the second defendant ticked the “opting out button” in relation to legal advice. While raising the Defence and Counterclaim of unconscionable conduct has come very late and questions will no doubt be asked of the second defendant in that regard and there are real questions in terms of the reliability and credibility of the evidence given the second defendant has sworn affidavits in support of his position, they are not matters which I can resolve against the second defendant in the present case.
- [46]The present case is unlike that considered in Certane insofar the loan in that case was to provide for refinancing an existing loan in order to give the defendant time to sell the land or part of it to avoid her financial distress. The loan was not granted on the basis of her ability to service the loan and interest over twelve months. Here the loan was sought to pay a tax debt and assist with cashflow over a slow period and the first defendant’s capacity to service the principal and interest over the twelve months was relevant. There was no suggestion that the loan was a refinance such that the ability of the first defendant to repay the loan was a relevant consideration. Unlike Certane there is a suggestion that the second defendant did not understand the transaction as the second defendant states he was not aware of the effect of the personal guarantee. He has deposed to having limited education and the charge created over his real and personal assets only arose upon default, as opposed to him having been required to execute a mortgage. Further, unlike Certane, the defendants agree that the court should order that the money held in the plaintiff’s trust account be paid to the plaintiff so that the defendants have given restitution of the principal be repaid as a condition of the relief sought by them in the Defence.[27]
- [47]It is not unusual to require a director to provide a guarantee for a commercial loan to a company. Nor is the fact that a lender is willing to take a risk that a borrower may not be able to repay a loan suggestive of unconscionability. However, requiring a guarantee where the ability of the borrower to meet the loan repayments is at least finely balanced and which was arguably apparent on the plaintiff’s own assessment, where the evidence provided to the plaintiff prima facie suggests a likelihood the first defendant would default, raises an arguable basis that the plaintiff has engaged in unconscionable conduct by its lending system requiring a guarantee without any warnings or provision for legal advice. The guarantee provided for a charge over all of the guarantor’s real and personal property and consent to lodging a caveat but given there was no provision for such security to be given up front a guarantor may not have appreciated the extent of the guarantee or his exposure. I am not satisfied that it has no reasonable prospects of success and that there is no need for a trial. That of course does not mean the converse, namely that it has reasonable prospects of success, but it is only in the clearest of cases summary judgement should be given.
- [48]I have considered whether summary judgment should be given against the first defendant and whether the Defence and Counterclaim should only be permitted to continue against the second defendant. However, given the defendants’ case is that the plaintiff’s lending process was designed to focus upon the property of the guarantor rather than the ability of the borrower to repay which in the circumstances outlined above, I am not satisfied has no real prospects of success.
- [49]The way the defendants framed their claim in argument, while novel, receives some support from the decision of Quantum Housing. Caution must be exercised in seeking to place undue reliance on any decision given a determination of unconscionable conduct turns on the particular facts of any case. Given the novel nature of the defendants’ argument, the case will be difficult, but is not one which has no real prospect of success.
- [50]The defendants have not however pleaded the case of unconscionability upon which they sought to rely in this application. They have not on the second defendant’s own admission prosecuted their Counterclaim in these proceedings consistently with rule 5 of the UCPR, although the second defendant now undertakes they will act diligently and expeditiously in the future. I will therefore require the defendants to provide an Amended Defence and Counterclaim pleading the case upon which they seek to rely within twenty-eight days of the order of the court.
- [51]The plaintiff seeks an order striking out paragraphs 2, 4, 6 and 7 of the Defence as inconsistent with paragraphs 24, 27, 28 and 29 of the first and second defendant’s Counterclaim. There is clear inconsistency on the face of the pleadings and they should be struck out with liberty to replead.
- [52]Given the late raising of these matters by the defendants, notwithstanding that the defendants have successfully resisted the application for summary judgment I do not consider they are entitled to an order that their costs be paid let alone paid on an indemnity basis. The partial success of the plaintiff’s strike out does not in the circumstances justify a costs order in the plaintiff’s favour. I am inclined to consider that the appropriate order is that the costs of the application be costs in the proceedings.
- [53]I will hear the parties as to why this matter should not be remitted to the District Court given the amount that is the subject of the claim, and that it otherwise appears to be within the District Court’s jurisdiction.
- [54]The parties should provide a draft order as to the amount to be ordered to be paid from the plaintiff’s solicitors trust account to the plaintiff in accordance with the reasons above.
- [55]The orders of the court are that:
- the plaintiff’s application for summary judgment is dismissed;
- paragraphs 2, 4, 6 and 7 of the Amended Defence will be struck out with liberty to replead;
- the defendant is to file and serve a further Amended Defence and Counterclaim within twenty-eight days;
- the parties are to provide an order as to the amount to be paid to the plaintiff in accordance with these reasons within seven days;
- the parties are to provide any submissions as to costs within seven days together with submissions as to why the proceeding should not be remitted to the District Court.
Footnotes
[1] Affidavit of Andrew Watt sworn 1 April 2022 (CFI 16).
[2] CFI 20 and 21.
[3] Wrongly referring to the first defendant according to his solicitor in [22] of his affidavit.
[4] Affidavit of Michael Palaghia affirmed 17 May 2022.
[5] CFI 16, at p107-108 of exhibit AW-1.
[6] [2021] QSC 179 at [8].
[7] Chen v ANZ Banking Group Ltd [2001] QSC 43.
[8] [2021] QSC 77.
[9] At [32].
[10] [2020] VSCA 200 at [2].
[11]Certane at [34].
[12] See Certane at [37] – [38] and [41].
[13] Stubbings v Jams 2 Pty Ltd (2022) 399 ALR 409.
[14] (2022) 399 ALR 409 at [4].
[15] Kiefel CJ, Keane J and Gleeson J.
[16] (2022) 399 ALR 409 at [5].
[17] At [46] and [52].
[18] (2021) 285 FCR 133.
[19] In Schedule 2 to the Competition and Consumer Act 2010 (Cth).
[20] At [92].
[21] [2022] VCC 545 at [116].
[22] Done through the first defendant by counterclaim
[23] Affidavit of Watt (CFI 16) at p 100.
[24] One example provided by Fullagar J in Blomley v Ryan (1956) 99 CLR 363 at 405 in the context of the equitable doctrine of unconscionable conduct.
[25] Clause 12.12.
[26] Plaintiff’s outline of submissions at [13].
[27] C.f. [37]- [41] above.