Donnelly v Australia and New Zealand Banking Group Ltd - [2014] NSWCA 145 - NSWCA 2014 case summary — Zoe

NSWNSWCA

Donnelly v Australia and New Zealand Banking Group Ltd

[2014] NSWCA 145

Court of Appeal (NSW)|2014-04-01|Before: McColl JA, Macfarlan JA, Leeming JA, Stevenson J

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At a glance

Source facts

Court

Court of Appeal (NSW)

Decision date

2014-04-01

Before

McColl JA, Macfarlan JA, Leeming JA, Stevenson J

Catchwords

218 CLR 471 First Mortgage Managed Investments Pty Ltd v Pittman [2014] NSWCA 110 Fox v Percy [2003] HCA 22
214 CLR 118 HCK China Investments Ltd v Solar Honest Ltd [1999] FCA 1156
165 ALR 680 Kakavas v Crown Melbourne Ltd [2013] HCA 25
87 ALJR 708 PT Ltd v Spuds Surf Chatswood Pty Ltd [2013] NSWCA 446 Tambree v Travel Compensation Fund [2004] NSWCA 24

Source

Original judgment source is linked above.

Catchwords

218 CLR 471 First Mortgage Managed Investments Pty Ltd v Pittman [2014] NSWCA 110 Fox v Percy [2003] HCA 22214 CLR 118 HCK China Investments Ltd v Solar Honest Ltd [1999] FCA 1156165 ALR 680 Kakavas v Crown Melbourne Ltd [2013] HCA 2587 ALJR 708 PT Ltd v Spuds Surf Chatswood Pty Ltd [2013] NSWCA 446 Tambree v Travel Compensation Fund [2004] NSWCA 24Aust Contract Reports 90-195 Vadasz v Pioneer Concrete (SA) Pty Ltd [1995] HCA 14

Judgment (42 paragraphs)

[1]

[This Headnote is not to be read as part of the judgment] In 2008 Mrs Donnelly, the appellant, was living in Macau with her then husband and their four children. In August 2008 the Donnellys drew down HK$4,105,056.00 (the equivalent of A$600,000) under a "Dual Currency Residential Property Loan Facility" granted to them in June 2008 by ANZ Asia Ltd, the second respondent ("the Bank"). The Donnellys' liability under the Facility was secured over a property in Sydney, and the loan refinanced existing debt secured on the property. Under Clause 18 of the Loan Facility (the "Clawback Condition"), the Bank was entitled to convert the loan from Hong Kong Dollars to Australian Dollars in the event that fluctuations in the exchange rate caused the Donnellys' liability, when expressed in Australian Dollars, to exceed 85% of the assessed value of the security property (the "Loan to Value Ratio" or "LVR"). Shortly after drawdown the Australian Dollar fell sharply against the Hong Kong Dollar, adversely affecting the LVR. Following extensive negotiations with Mrs Donnelly, in December 2008 the Bank exercised its right under the Clawback Condition to convert the loan currency to AUD. The Donnellys' indebtedness then became approximately A$730,000. In May 2011 the Bank assigned its rights under the Facility to Australia and New Zealand Banking Group Ltd, the first respondent, which commenced proceedings against the Donnellys for possession of the secured property and judgment for their indebtedness under the Facility. The second respondent was subsequently joined as a plaintiff. Mr Donnelly did not defend the proceedings, and the first respondent obtained default judgment for debt and possession against him in December 2011. At a hearing in November 2013 before Stevenson J sitting in the Common Law Division, Mrs Donnelly defended the proceedings on two bases: first, that the Bank had engaged in unconscionable conduct, principally by failing to inform her that a deterioration in the value of the AUD against the HKD would adversely affect the Donnellys' interests under the Facility; and secondly, that the Bank had breached an agreement allegedly made between the Donnellys and the Bank in November 2008 to negotiate a twelve month repayment plan for the excess LVR, in consideration of the Donnellys paying US$20,000 to the Bank. While the Facility Agreement was expressly governed by the laws of Hong Kong, it was common ground that the law of the forum should be applied given the absence of any evidence as to the content of the laws of Hong Kong. By judgment of 29 November 2013, Stevenson J rejected Mrs Donnelly's defences and upheld the first respondent's entitlement to the relief sought. He later directed judgment for the first respondent against Mrs Donnelly in the sum of $879,685.55 and made orders for possession of the secured property and costs. Held (dismissing the appeal): (1) The appellant did not establish that the Bank acted unconscionably by failing to inform her of the risk of loss if the AUD depreciated against the HKD, as the Bank did take reasonable steps to do this ([106]). (2) The primary judge's finding that an explanation of the effect of exchange rate movements was given to the Donnellys by Mr Stuart of the Bank along the lines of a foreign exchange analysis prior to their entry into the Loan Facility was a credibility-based finding. The appellant failed to demonstrate that it was contrary to incontrovertible facts or uncontested testimony, or was "glaringly improbable" or "contrary to compelling inferences" ([44]). Further, this finding indicates that Mr Stuart had good reason to believe that Mrs Donnelly understood the nature of the Facility ([99]). (3) The Bank's alleged failure to recommend that Mrs Donnelly obtain legal advice was not unconscionable in the circumstances of the case. The primary judge found Mrs Donnelly to be an intelligent and articulate woman, and it was her choice not to seek legal advice from lawyers in her family or a solicitor then acting for the Donnellys on another transaction ([90]). Nor did the primary judge err in finding that Mrs Donnelly was not in a position of special disadvantage ([104]). (4) The appellant did not demonstrate any other basis for a finding of unconscionable conduct on the part of the Bank ([78]-[80], [88], [100]-[103]). (5) There is no basis for overturning the primary judge's finding that there was no agreement between the Donnellys and the Bank to negotiate a twelve month repayment plan for the excess LVR ([81]-[82]), the appellant having contended that this agreement was inconsistent with the Bank's conversion of the loan indebtedness to AUD. The appellant failed to satisfy the conditions for a successful challenge to the primary judge's credibility-based finding rejecting her evidence concerning that agreement ([81]).

[2]

Judgment 1McCOLL JA: I agree with Macfarlan JA's reasons and the order his Honour proposes. I also agree with Leeming JA's reasons. 2MACFARLAN JA: On or about 22 August 2008 the appellant, Mrs Fiona Donnelly, and her husband drew down HK$4,105,056.00 (the equivalent of A$600,000) under an "Expat Mortgage Loan Facility" granted to them on 12 June 2008 by the second respondent, ANZ Asia Ltd ("the Bank"). The Donnellys' liability under the Facility was secured over a property at Bardwell Valley in Sydney. The loan refinanced existing debt secured on the property. Under the Facility, the Bank was entitled under a "Clawback Condition" to convert the currency of the Donnellys' liability from Hong Kong Dollars to Australian Dollars in the event that, as a result of exchange rate changes, their liability, when expressed in Australian Dollars, exceeded 85% of the assessed value of the security property (the "Loan to Value Ratio": the "LVR"). 3Soon after drawdown the Australian Dollar depreciated sharply against the Hong Kong Dollar. After extensive negotiations with Mrs Donnelly, the Bank, on or about 18 December 2008, exercised its right under the Clawback Condition, with the result that the Donnellys' indebtedness became an amount of approximately A$730,000. 4Following an assignment by the Bank to the first respondent, Australia and New Zealand Banking Group Ltd, of its rights under the Facility, the first respondent commenced the present proceedings against the Donnellys for possession of the secured property and judgment for their indebtedness under the Facility. The second respondent was subsequently joined as a plaintiff, presumably because of a challenge (not now pursued) to the efficacy of the assignment. The first respondent later obtained default judgment against Mr Donnelly. 5At a hearing in November 2013 before Stevenson J sitting in the Common Law Division, Mrs Donnelly defended the proceedings against her on the basis that the Bank had engaged in conduct that was unconscionable under equitable principles and had breached an agreement made in November 2008 in the course of negotiations between the Donnellys and the Bank. Mrs Donnelly had previously withdrawn a cross-claim alleging misleading or deceptive conduct by the Bank and asserting a claim under the Contracts Review Act 1980 (NSW). The principal basis for the assertion of unconscionable conduct was that the Bank had failed to inform Mrs Donnelly that a deterioration in the value of the Australian Dollar against the Hong Kong Dollar would adversely affect her interests under the Loan Facility. Although the Loan Facility provided that it was governed by the laws of Hong Kong, the parties agreed that the law of the forum should be applied in the absence, as was the case, of any evidence as to the content of the laws of Hong Kong. 6By a judgment of 29 November 2013 Stevenson J rejected Mrs Donnelly's defences ([2013] NSWSC 1760). He later directed entry of judgment for the first respondent against Mrs Donnelly in the sum of $879,685.55 and made orders for possession of the secured property and as to costs. 7For reasons that appear below, I consider that Mrs Donnelly's appeal against that judgment should be dismissed with costs.

[4]

The 13 May 2008 meeting 10On or about 13 May 2008 the Donnellys met with Mr Stuart in Macau. There was conflicting evidence as to what occurred at the meeting. 11Mr Stuart exhibited to his affidavit of 16 May 2013 a form of foreign exchange analysis ("FX Analysis") completed by him in respect of other clients but which he said was substantially the same as an FX Analysis that he completed in the presence of the Donnellys at the 13 May meeting. He said that it was his practice to complete an FX Analysis at every meeting with prospective loan applicants and to provide "a written and visual demonstration in front of the prospective loan applicants [of] the potential interest savings as well as how foreign exchange movements had a direct impact on the expat mortgage facility and risks associated with the foreign exchange movements" ([18]). He then described how he "populated" the form when meeting with loan applicants. 12In relation to the meeting with the Donnellys, he said: "To the best of my recollection, I took the template FX Analysis to my first meeting with Mr and Mrs Donnelly and completed the hypothetical scenarios in the FX Analysis during the meeting by inserting the loan and property value amounts, exchange rates, interest rates and performing the calculations in each section of the FX Analysis during the meeting. I did so using a calculator and inserting the results into the FX Analysis in writing by hand during the meeting" ([45]). He said also that he left the FX Analysis with the Donnellys at the conclusion of the meeting ([46]) but the primary judge concluded that that did not in fact occur (Judgment [97]). 13The form of FX Analysis exhibited to Mr Stuart's affidavit provided for the calculation of the applicants' savings in interest as a result of borrowing in HK Dollars rather than Australian Dollars. Interest rates applicable to borrowings in HK Dollars were far lower than those applicable to Australian Dollar borrowings. The FX Analysis then provided for a calculation of the effect on a borrowing in HK Dollars of different movements in the exchange rate, "Scenario 1" dealing with an appreciation of the Australian Dollar against the Hong Kong Dollar and "Scenario 2" dealing with the converse. Scenario 2 understandably showed an increase in the Australian Dollar equivalent of the HK Dollar principal. Under a heading "Loan to Value Ratio", three benchmarks were referred to. The original LVR was shown as 75%, and that where additional security or a cash top-up might be requested (that is, a "Call" made) shown as 80%. The third was stated as follows: "Close-out: 85% - the loan will be automatically converted back to AUD and additional security/cash top up will be required to bring the LVR back to 80%". 14Illustrations were then given of the impact of currency changes on the LVR, including ones which would entitle the Bank to make a Call. 15Finally, under a heading "Strategies to Reduce Risk", five possible courses of action, including "Forward Exchange Contracts", were mentioned. The FX Analysis comprised only two pages and was set out in a readily comprehensible form. Mr Stuart's evidence was that at the meeting with the Donnellys, he populated a form of this type with figures pertinent to the Donnellys' proposed borrowing. 16Prior to Mr Stuart giving oral evidence on 12 November 2013, the Bank's counsel read, ultimately without objection (Transcript p 124), an undated affidavit that Mr Stuart had sworn responding to evidence given by Mrs Donnelly the previous day. 17The affidavit included the following paragraph concerning the 13 May meeting: "35. I say that, during my meeting with Mr and Mrs Donnelly at the Crown Casino in Macau, I took Mr and Mrs Donnelly through the FX Analysis tool whilst explaining the features of the expat mortgage facility to them. In doing so, I informed Mr and Mrs Donnelly in substance that if they chose to borrow in HKD: (a) The loan principal balance would reduce if the AUD appreciates against HKD; (b) The loan principal balance would increase if the AUD depreciates against HKD; (c) The LVR would change in the event of currency fluctuations impacting (a) and (b) above; (d) If the AUD depreciates against HKD, then the LVR could exceed the maximum allowable limit of 75%; (e) If the LVR reaches 80%, the bank can request extra security in the form of cash, cash security or property security to reduce the LVR back to 75%; (f) If the LVR reaches 85%, the bank is within its rights to convert the loan back to AUD at its absolute discretion and then request the LVR be reduced to 75% via extra security in the form of cash, cash security or property security; (g) There were five strategies to reduce risk of the exchange rate exposure as listed in the FX Analysis document (a template of which is at page 3B of [Exhibit] NS 1) including reduction of the loan balance and currency switching". 18Mr Donnelly did not give evidence in the proceedings. 19In an affidavit dated 5 September 2013, Mrs Donnelly denied that Mr Stuart had discussed "the issue of risk at all" but in oral evidence she said the following in relation to the 13 May meeting: "A. ... Mr Stuart, mentioned other Australian ex pats that were living in Macau that were customers of his, and then we turned to the issue of borrowing from ANZ and we told Mr Stuart that we were interested in refinancing our Sydney home and also purchasing a unit in Potts Point because our oldest daughter had begun school there and she was only 13 and I wanted to spend some time with her. And so then Mr Stuart asked us some questions about our home in Sydney; how much it was worth. We told him it was worth about $950,000. He asked us what interest rate we were paying, who we were with; we were with - NAB was the answer, and we told him the interest rate; I can't exactly remember what it was but somewhere around 7%, and then he told us that the interest rate in Hong Kong was really low, I can't remember exactly what he said but it was about two and a half percent or so. And then he did some calculations and he - first of all he told us what sort of funds we could borrow, which was around 750,000, and then he did some calculations and he wrote some things down on some paper and told us that we could save a lot of interest by borrowing in Hong Kong. And he did a calculation and it was a really big amount; it was something like $40,000 a year. And then-- Q. Are those calculations based on some hypothetical figure or based upon what you told him you and your husband had borrowed from the NAB? A. No, this was - well, I suppose this was based on the borrowing, the equivalent through ANZ in Hong Kong, I suppose, to come up with that sort of figure, I assume. He was punching in the numbers and telling us so I assume that that's how he calculated it. Q. Punching in the numbers to what? A. He had a calculator. So he came up with this fantastic interest saving and then he did some other calculations showing us how we could make currency gains; he was talking about the rising Australian dollar and he was saying - well, he showed us a brochure; it was certainly an ANZ glossy brochure and it backed up what he was saying; that the Australian dollar was going to skyrocket, he said. And he said that he'd be able to make currency gains, he did some further calculations showing how we could reduce our loan balance, and these were big amounts that he was coming out with. And he was saying that you can borrow in Australian dollars or Hong Kong dollars but he was recommending to us to borrow in Hong Kong dollars because we would make these savings. And I suppose that was the general topic of the conversation at the meeting." (emphasis added by primary judge at [76])

[15]

Unconscionable conduct 37Having referred to relevant case authority, the primary judge concluded that the Bank had not acted unconscionably. 38His Honour found that Mrs Donnelly was not relevantly in a position of special disadvantage and concluded as to the particular matters upon which Mrs Donnelly relied (see [28] above): "(1) I do not accept that Mrs Donnelly signed the Facility Letter at the 'urging or direction' of Mr Stuart, although I do accept that Mr Stuart told her (as the Bank's 'in house economist team' evidently believed) that the AUD would 'skyrocket' and 'shoot past parity before the end of the year'; (2) I do not accept that the 'risks inherent' in the Facility were not 'addressed or explained' to Mrs Donnelly, although I do accept that such explanation as Mr Stuart gave as to how the Facility would operate in the event of currency fluctuations did not bring home to Mrs Donnelly the full implications of foreign currency borrowing; (3) I do not accept that independent legal advice was not available; Mrs Donnelly could have sought advice from her father, Mr Ryan, or her brother, the solicitor Mr Stephen Ryan, or Mr O'Brien, the solicitor acting for her in relation to the Potts Point purchase (to be funded in part from the advance under the Facility) at the time she signed the Facility Letter; (4) the Risk Disclosure Statement contained a request that Mr and Mrs Donnelly seek independent advice, although Mr Stuart did not suggest he said anything to that effect to Mrs Donnelly; (5) I do not accept that Mr Stuart either misrepresented to Mrs Donnelly that the currency of the Facility could only be changed with her consent or failed to warn her that the Bank could unilaterally convert the Facility to AUD if the LVR exceeded 85 per cent" (Judgment [197]). 39His Honour concluded that even if, contrary to his view, Mrs Donnelly had been in a position of special disadvantage, the Bank did not know, nor should it reasonably have known, of that position of disadvantage and that Mr Stuart was not cross-examined in relation to his state of mind at the time the Donnellys signed the Facility Letter on 12 June 2008. His Honour observed that he had not been referred to any evidence which would justify a conclusion that Mr Stuart knew, or should reasonably have known, that Mrs Donnelly did not understand the nature of the Facility (Judgment [200] and [201]).

[16]

THE MEANING OF "UNCONSCIONABILITY" 40This case does not call for a review of the law relating to unconscionability as developed by courts of equity. For reasons appearing below, the Bank's conduct in this case was in my view clearly not unconscionable in accordance with accepted principles of equity. 41It is sufficient to refer to the following recent statements of principle by the High Court in Kakavas v Crown Melbourne Ltd [2013] HCA 25; 87 ALJR 708 at [20], [117] and [161]: "... equitable intervention does not relieve a plaintiff from the consequences of improvident transactions conducted in the ordinary and undistinguished course of a lawful business. A plaintiff who voluntarily engages in risky business has never been able to call upon equitable principles to be redeemed from the coming home of risks inherent in the business. The plaintiff must be able to point to conduct on the part of the defendant, beyond the ordinary conduct of the business, which makes it just to require the defendant to restore the plaintiff to his or her previous position." "The absence of a reasonable equality of bargaining power by reason of the special disability of one party to a transaction, while not decisive, is important given that the concern which engages the principle [to relieve against an unconscionable dealing] is to prevent victimisation of the weaker party by the stronger." "Equitable intervention to deprive a party of the benefit of its bargain on the basis that it was procured by unfair exploitation of the weakness of the other party requires proof of a predatory state of mind. Heedlessness of, or indifference to, the best interests of the other party is not sufficient for this purpose. The principle is not engaged by mere inadvertence, or even indifference, to the circumstances of the other party to an arm's length commercial transaction. Inadvertence, or indifference, falls short of the victimisation or exploitation with which the principle is concerned." See also the decision of this Court in PT Ltd v Spuds Surf Chatswood Pty Ltd [2013] NSWCA 446 at [93] - [106].

[19]

GROUND 2: BANK'S RIGHT OF CONVERSION NOT REFERRED TO AT 13 MAY MEETING 48Mrs Donnelly submitted first that the finding that Mr Stuart referred at the 13 May meeting to the Bank's right to convert the loan indebtedness to AUD if the LVR exceeded 85% was based upon [35] of the affidavit Mr Stuart swore immediately before giving evidence (as to which see [17] above). 49However, the finding was not based solely upon that paragraph. The finding is also supported by the evidence in Mr Stuart's first affidavit, first, that his practice was to take potential loan applicants through the FX Analysis, and, secondly, that he did in fact do so at the meeting with Mr and Mrs Donnelly ([17] - [39] and [44] - [45]). As pointed out above, this evidence was also supported to some extent by the contents of the email of 7 April and by Mrs Donnelly's own evidence of the meeting. The terms of the FX Analysis form provide further support as to the topics that would have been discussed if, as Mr Stuart said, he took the Donnellys through the form of FX Analysis and populated it in their presence with figures referable to their proposed borrowing. 50Mrs Donnelly further submitted (by the terms of the ground of appeal itself) that paragraph 35 of Mr Stuart's affidavit referred to above was "effectively a submission by the Plaintiffs and was inadmissible as affidavit evidence on which to base [the relevant] finding". 51However, the paragraph was admitted into evidence, ultimately, without objection and there was in any event nothing objectionable about it. 52In his first affidavit, Mr Stuart gave evidence that was based in part upon his practice but he was in that affidavit (for example in [45], as in [35] of his fourth affidavit) able to make affirmative statements as to what occurred. Even if, which appears not to have been the case, Mr Stuart's evidence was wholly based on his practice, it would not thereby have been rendered inadmissible, although of course its reliability would have been open to be questioned in cross-examination. It is common in everyday life, and permissible in evidence, to rely upon one's practice to assert that something did or did not occur at a particular point of time in the past. For example, drivers in Australia would rarely have an actual recollection of the side of the road upon which they drove on a particular day but their practice would usually enable them to say with some assurance that (unless turning or overtaking) they drove on the left hand side. 53As Jacobs JA said in Connor v Blacktown District Hospital [1971] 1 NSWLR 713 at 716: "The particular rule is that I can give evidence of what I did on a particular day, even though I have no distinct recollection of the particular day, if it was part of my practice to do the act regularly". See also Vu v New South Wales Crime Commission [2013] NSWCA 282 at [92] and Tambree v Travel Compensation Fund [2004] NSWCA 24; Aust Contract Reports 90-195 at [98] (reversed on other grounds at [2005] HCA 69; 224 CLR 627). 54This ground of appeal should accordingly be rejected.

[22]

GROUND 3B: WHETHER NON-DISCLOSURE AT THE TIME OF DRAWDOWN 63By the terms of this ground of appeal, Mrs Donnelly submitted that, following her instructions to the Bank on 20 August "to change the loan currency to AUD", she was "persuaded by a clerical employee (copied to Nicholas Stuart) to retain the loan currency in HKD". She submitted that she should at that time have been informed of the Bank's power "to unilaterally convert the loan currency" and told about the possibility of the Donnellys' protecting their position by entering into Forward Exchange Contracts. 64Mrs Donnelly instructed the Bank to provide the loan in AUD by email of 20 August (see [24] above). She did not suggest in her evidence that this instruction was a mistake on her part or arose out of forgetfulness that the previous discussions with the Bank had contemplated that the drawdown would be in HKD so that a very much lower rate of interest would be applicable than if the borrowing were in AUD. Indeed, on appeal her counsel submitted that the inference to be drawn from the email was that Mrs Donnelly knew of a limited fall that had occurred in the value of the AUD against the HKD since the 13 May meeting with the Bank. The further inference would follow that Mrs Donnelly made a considered decision that, in light of this information, the drawdown should be in AUD. It is difficult to understand how in these circumstances Mrs Donnelly's instruction of 20 August did not indicate awareness on her part that depreciation of the AUD against the HKD would, or at least could, result in loss to herself and her husband. 65However Mrs Donnelly has the benefit of a favourable contrary finding from the primary judge on that topic (see [33] above) and the Bank did not challenge it on appeal. 66In response to Mrs Donnelly's instruction of 20 August, Ms Sarangdhar of the Bank drew Mrs Donnelly's attention to the fact that, if the loan was drawn down in AUD, Australian interest rates would apply. Mrs Donnelly then gave the instruction that the drawdown should be in HKD. This seems to have been an oral instruction as it is not contained in any email in evidence. Mrs Donnelly's submission that she was "persuaded" by Ms Sarangdhar is not supported by this evidence. Ms Sarangdhar simply pointed out an undoubted fact and Mrs Donnelly thought better of her first decision. As Mrs Donnelly said in her oral evidence, "I changed my mind and decided to draw down in Hong Kong dollars" (Transcript p 39). 67So far as the alleged non-disclosure is concerned, Mr Stuart had, on the primary judge's findings which I have found to be unimpeachable, drawn the Donnellys' attention to the two matters in question (the Clawback Condition and Forward Exchange Contracts) at the 13 May meeting (see [30] above). There was therefore no non-disclosure by the Bank and this ground of appeal should be rejected.

[24]

GROUND 3D: WHETHER THE MORTGAGE WAS INVALID 70Mrs Donnelly submitted on appeal that, whilst she had an equitable debt to the Bank calculated on the basis that the loan indebtedness had remained throughout in HKD, the mortgage was invalid as a result of the Bank's unconscionable conduct and Mrs Donnelly's equitable debt was accordingly not secured by it. This differed from Mrs Donnelly's position at first instance where she conceded the Bank's entitlement to possession under the mortgage but contended that there was less owing under the mortgage than the Bank claimed, because the Bank improperly converted the debt to AUD in December 2008 (Defence to Fourth Amended Statement of Claim, [15]; Transcript pp 200 - 201). This position was reflected in the primary judge's statement that Mrs Donnelly did not challenge the mortgage (Judgment [40]). 71I do not consider that Mrs Donnelly should be permitted to depart from this fundamental basis upon which the proceedings were conducted at first instance, particularly when, even on appeal, the point was only raised at a very late stage, with the result that the Court did not receive full assistance from the parties in relation to it. 72In any event, Mrs Donnelly's argument that the mortgage was invalid was founded on the proposition that there was no debt secured by it (see HCK China Investments Ltd v Solar Honest Ltd [1999] FCA 1156; 165 ALR 680 at [258]). However the mortgage here was relevantly an "all monies" mortgage and thus secured the equitable debt which Mrs Donnelly acknowledged. Furthermore, the better view is that the effect of the postulated unconscionability would not be to relieve Mrs Donnelly completely of her debt at law and to avoid the mortgage. Rather, the Court would treat the mortgage as valid and the debt that it secured appropriately reduced (see Vadasz v Pioneer Concrete (SA) Pty Ltd [1995] HCA 14; 184 CLR 102 at 114; First Mortgage Managed Investments Pty Ltd v Pittman [2014] NSWCA 110 at [169] - [171]). 73I note at this point that on appeal Mrs Donnelly did not challenge the primary judge's implicit conclusion that Mrs Donnelly was jointly liable with Mr Donnelly for the whole of the indebtedness under the Loan Facility (see Judgment [39]). As a result, it is unnecessary to address the respondents' Notice of Contention by which they sought to make the reasoning underlying that conclusion explicit.

[41]

CONCLUSION AND ORDERS 111As each of Mrs Donnelly's grounds of appeal have been rejected, her appeal should be dismissed with costs. 112LEEMING JA: I agree with the orders proposed by Macfarlan JA and with his Honour's reasons for them. 113The essence of my reasons for rejecting Mrs Donnelly's main submission on appeal may be stated succinctly. Mrs Donnelly said in her evidence in chief that Mr Stuart had a calculator and paper with him on 13 May 2008, and gave examples of both interest savings and "currency gains". Those gains could only arise from a variation in exchange rates, and in those circumstances, it is implausible that he did not also refer to the possibility of losses if exchange rates moved in the other direction. That was, after all, what he wrote to say he was going to do in advance of the meeting. Mr Stuart advised, in his original 7 April 2008 email, that "movements in exchange rates can be both rapid and severe" and that he would explain strategies to allow the borrower to "react to any shifts in currency movements" so as to assist "in managing/reducing the risks". What is more, the loan was not drawn down immediately (nor was there any obligation to do so). By the time it was drawn down, some two months after it was executed, Mrs Donnelly knew that the Australian dollar had depreciated (by some 9%) as against the Hong Kong dollar. The exchanges between her and the Bank at this time demonstrate that Mrs Donnelly was actively considering the currency in which the loan was to be drawn down. 114Against those considerations, the primary judge nevertheless found at [126] that Mrs Donnelly did not know (or at least, "had not thought through the implications") that if the Australian dollar declined still further after drawdown she and her husband would suffer loss. That finding must stand for the purposes of the appeal. Nevertheless, the foregoing considerations preclude acceptance of Mrs Donnelly's principal oral submission, namely, that there was something unconscientious about the Bank's conduct.

Donnelly v Australia and New Zealand Banking Group Ltd

At a glance

Court

Decision date

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Catchwords

Source

Catchwords

Judgment (42 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (14)

Cited By (1)