HEADNOTE
[This headnote is not to be read as part of the judgment]
The first appellant (Mr Caterjian) borrowed $250,000 from the first respondent (Parfit) under a loan guaranteed by his wife, the second appellant (Mrs Sclavos-Caterjian), and secured by a second mortgage over the appellants' residential property. Mr Caterjian borrowed those funds to finance a company, which was to be incorporated, becoming an area representative for Life Resolutions Australia Pty Ltd (LRA), the owner and operator of a psychology practice franchise business.
After Mr Caterjian defaulted on interest payments under the loan agreement, Parfit commenced proceedings against the appellants, seeking judgment for the amount of the mortgage debt and possession of their residential property. The appellants brought a cross-claim seeking declarations that the loan agreement was void on the basis that Parfit and its principal director and shareholder (Mr Cookes, the second respondent) engaged in unconscionable conduct and made false representations to the first appellant.
The primary judge upheld Parfit's claim, ordered the relief it sought, and dismissed the cross-claim.
The appellants challenge those orders. The primary issues in the appeal are:
(i) whether Parfit advanced funds in accordance with the terms of the loan agreement;
(ii) whether Mrs Sclavos-Caterjian's guarantee was discharged because of Parfit's breach of the terms of the loan agreement;
(iii) whether the respondents engaged in unconscionable conduct in procuring the appellants' entry into the loan and security agreements;
(iv) whether the appellants could argue for the first time on appeal that Parfit had actual or constructive knowledge of Mr Caterjian's exercise of undue influence over his wife to obtain her signing of the guarantee and mortgage.
The Court (Meagher JA, White and Mitchelmore JJA agreeing) dismissed the appeal, holding:
As to issue (i):
(1) The contentions said to underpin the appellants' submission that the funds were not advanced in accordance with the loan agreement are not made out. Mr Caterjian gave a valid and operative direction to Parfit to pay the borrowed funds to LRA, and that direction was signed before those funds were disbursed by Parfit. There was no breach of the loan agreement by Parfit in also receiving and acting upon a direction from LRA as to how Parfit should pay or apply the moneys LRA was to receive from Mr Caterjian. That LRA directed some of those moneys be applied as consideration for the assignment to LRA of a debt owed to Parfit, or in repayment of debts owed by LRA to Parfit, did not have the consequence that those funds were not advanced to or at the direction of Mr Caterjian. That direction from LRA may have been received prior to the direction from Mr Caterjian and the execution of the loan agreement between Mr Caterjian and Parfit, but the relevant time was when it was acted upon, which occurred after Mr Caterjian's direction was given and the agreement made: Meagher JA at [34]-[41]; White JA at [91]; Mitchelmore at [92].
As to issue (ii):
(2) As Parfit had not advanced the funds to Mr Caterjian in a manner inconsistent with the loan agreement, there was no breach of that agreement discharging the guarantee. Moreover, that Parfit did not disclose to Mrs Sclavos-Caterjian that the moneys lent to Mr Caterjian were to be paid to LRA and applied by it, including by LRA reducing a debt it owed to Parfit and as consideration for the assignment of a debt owed to Parfit, were not unusual features of the contract of loan and did not constitute a 'special' arrangement between Mr Caterjian and Parfit requiring disclosure to Mrs Sclavos-Caterjian: Meagher JA at [42]-[45]; White JA at [91]; Mitchelmore at [92].
Commercial Bank of Australia v Amadio (1983) 151 CLR 447; [1983] HCA 14; Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549; [1987] HCA 15, referred to.
As to issue (iii):
(3) There was no unconscionable conduct on the part of the respondents arising from their commercial considerations for making the loan. Mr Cookes' evidence that the loan was to enable Mr Caterjian to fulfil contractual obligations to LRA, in circumstances where Parfit was only willing to lend money to him for that purpose if LRA agreed that it would apply the moneys received from Mr Caterjian to fund the assignment to it of a non-performing loan from Parfit to a third party, was commercial and reasonable. Mr Caterjian's loan agreement was perceived by Parfit and LRA to hold the prospect of "beneficial outcomes" from the making of the loan for Mr Caterjian and his company, for Parfit as lender, and for LRA as franchisor. It was not established that the "true purpose" for the making of the loan was merely to enable Parfit to replace its exposure to a non-performing loan with a secured exposure to the first appellant: Meagher JA at [47]-[56]; White JA at [91]; Mitchelmore at [92].
(4) It was not established that LRA was insolvent at the time the loan agreement was made. Throughout this period, there was continuing working capital support provided to LRA by Parfit and other contributory lenders, including its principal shareholder. This meant that over the relevant period LRA was apparently able to pay its debts as and when they fell due: Meagher JA at [58]-[71]; White JA at [91]; Mitchelmore at [92].
Treloar Constructions Pty Limited v McMillan [2017] NSWCA 72; Lewis v Doran [2005] NSWCA 243; (2005) 54 ACSR 410; Chan v First Strategic Development Corporation Limited (in liq) [2015] QCA 28, considered.
(5) As it was not the appellants' case that Mr Cookes mistakenly believed that LRA was insolvent, it could not be established that he engaged in unconscionable conduct because he knew or ought to have known that LRA was insolvent: Meagher JA at [72]-[75]; White JA at [91]; Mitchelmore at [92].
As to issue (iv):
(6) It was not pleaded nor part of the case conducted before the primary judge that Parfit had actual or constructive knowledge of Mr Caterjian's overbearing of his wife's will such that either Parfit was subject to the equitable rights which arose as between the second appellant and her husband, or Parfit's enforcement of the agreements would constitute unconscionable conduct. Determination of these issues would require further evidence with respect to Parfit's knowledge or notice and further cross-examination of Mrs Sclavos-Caterjian as to whether she freely signed the documents. It follows that they could not be raised for the first time on appeal: Meagher JA at [83]-[89]; White JA at [91]; Mitchelmore at [92].
Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; [1950] HCA 35, applied.