Plaintiff v First Defendant [2024] VSC 571 | Case summary

UNCONSCIONABLE CONDUCT - Whether solid foundation for claim that conduct was unconscionable in equity - Where no special disadvantage identified - Where lender alleged to have received false and/or misleading information - Where no solid foundation that lender was on notice of falsity of information received - Where no solid foundation for claim of predatory conduct - Where no solid foundation for claim of unconscientious advantage - Whether lender's conduct unconscionable within meaning of s 12CB(1) of Australian Securities and Investments Commission Act 2001 (Cth) - Where no relevant matters identified - Stubbings v Jams 2 Pty Ltd [2022] HCA 6; (2022) 276 CLR 1 applied.

Plaintiff v First Defendant [2024] VSC 571 | Case summary | Zoe

[67]

Hi Rod and Jeremy,

Good new - the loan is now Conditionally Approved. I've had a number of discussions with the assessor over last couple of days, they have agreed in principle to do this but please understand the risk/appetite has changed given the environment so we're going to need to jump through a few more hoops.

There is however a list of conditions that will be required below, and my comments in Blue [in this version in this ruling shown in italics].

Rod, please don't shoot the messenger here and understand I'm pushing back wherever I can - I desperately want to get this done. But as it stands now we'll need to provide below.

FYI, I'm tied up most of today. If you need to chat tomorrow would be better for me.

Cheers

Geoff

-----------------------------------------------

Borrower(s): Torbeckin Pty Ltd ACN 006 306 047

Guarantor(s): Jeremy Stanley Rowell/Rodney Stanley Rowell

Loan Amount: $1,632,000.00 or 50.24% of valuation (inclusive of costs), whichever is the lower

Less Total Costs: Approx $17,610.00 (establishment fee $16,320 /Documentation & settlement fees $1,290).

Est. available funds at settlement: $1,614,390.00

Loan Term: 30 years

Interest Rate: 4.90%, Star Commercial Variable IO 5yr, P&I After

Repayments: $6,694.00 includes $30 monthly service fee

Security Address: 392 Victoria Street, RICHMOND VIC 3121

-----------------------------------------------

This loan is approved subject to the following conditions:

�� Receipt of fees totalling $3,655.00 (Valuation Fee $2,860.00, Application Fee $795.00). (They require the application fee to be paid up front along with the valuation fee, so need to amend the Credit Card Authority)

�� Receipt of satisfactory valuation report for 392 Victoria Street RICHMOND VIC 3121 confirming the market value and net rental at a minimum $220,000 p/annum exclusive of GST (Please note, if acceptable comparable sales or not available, LVR restrictions may apply). The valuation must also acknowledge all stated works have been completed as per the supplied work agreement. (I am arguing this condition as it was not the purpose of the works agreement - leave this with me)

�� Max ID requirements to be satisfied (there's a new online ID certification process - I'll be in touch with you on this soon)

�� Require a Certificate of Legal & Financial Advice (Liberty to provide this prior to settlement)

�� Require evidence of rental payment for $20,166 for 02/2021. (They've requested evidence of the next lease payment as soon as it's made - I think due in the next day or 2?)

�� Subject to Liberty Credit Committee Approval

�� The clients business must be fully operational both prior to Formal Approval and prior to Settlement. (ie: They're reserving the right to reject if if we were to go into another lockdown)

�� 6 months satisfactory and up to date statements in respect of the Mortgage being refinanced NAB #2554. (Statement provided goes to August 2020. Will require statement or corresponding transaction listing showing repayments made from August 20 to current date, evidencing repayments being met)

�� 6 mths transaction statements showing repayments being debited from the nominated account as discussed. (Need statements/transaction accounts where repayments have been coming from showing the debits for repayments being made to the NAB Loan #2554 over last 6 months)

�� Require evidence of other liquid funds held in other bank accounts in the event the are required to service repayments on this facility over say the next 6 mths as discussed. (They want to see evidence (statement/s) of any facilitates (Cash/Offset/Redraw available that could be called upon should we be shut down again for a period of say 6 months.... Statements balances must be within 14 days of today.

[80]

(a) I refer to page 30 of exhibit NM-1 which is a diary note dated 16 February 2021. It records the rental on the Security Property payable under the Golden Cube Lease was lower than the rental that had been payable under the previous lease due to an agreement with Golden Cube that they undertake works to the Security Property for the amount of $113,500. When Secure Funding had first seen the 2020 Loan Application, the annual rent exclusive of GST (under the previous lease) was $266,9000, whereas on the current application (and under the new, Golden Cube Lease) it was $220,000. The diary note is referencing Torbeckin's explanation that the reduced rental in the new lease was due to a works agreement. To verify the accuracy of this explanation, the Conditional Approval Letter required that the valuation confirm that these works had been undertaken as agreed between Torbeckin and Golden Cube...;

(b) Although Secure Funding generally requires six months of statements showing receipt of rental income, Secure Funding has the discretion to vary this condition and occasionally does so. This discretion sits with the Credit Committee and I understand is exercised based on each individual application and depending on the customer profile. I believe from my review of the relevant business records that at the time the Conditional Approval Letter was issued, Secure Funding was exempted from the need to provide evidence of six months of rental payments ... Torbeckin had already provided records of three months' rental payments, illustrating that each of the tenants were meeting their requirements under their respective lease agreements. The rental payment for February 2021 under the Golden Cube Lease was requested for completeness and to confirm that the most recent rental payment had been received by Torbeckin.

(c) Although the Conditional Approval Letter refers to provision of 'bank statements', it is not unusual for Secure Funding to be provided with a transaction history. The purpose of these documents is to verify rental payments being received or loan repayments being made. For the LeaseStream loan product, as mentioned above, Secure Funding is assessing whether the rental income will be sufficient to service the loan, not undertaking a broader assessment of the company's financial position. Consequently, in my experience, a transaction history that verifies the rental payments is often considered acceptable. I do not recall making repeated requests of the Company to be provided with bank statements (instead of a transaction history). My recollection is consistent with the diary notes exhibited at pages 17 to 35 of NM-1.

Based on my review of the file maintained by Secure Funding each of the conditions set out in the Conditional Approval Letter were satisfied by the Company or otherwise waived or varied by Secure Funding at its discretion.

Copies of the key documents provided to Secure Funding in satisfaction of the conditions set out in the Conditional Approval Letter are exhibited to NM-1 as follows:

(a) Evidence of six months' repayment of current loan obligations: bank statements for the Torbeckin's NAB account #2554 the period of 24 March 2020 to 23 September 2020 and 24 September 2020 to 22 February 2021...;

(b) Evidence of loan repayments being debited from the Company's transactional loan account: bank statement for the Company's NAB account #7481 for the period of 1 January 2021 to 29 January 2021 and transaction history report for Torbeckin's NAB account number #7481 for the period covering 1 July 2020 to 19 February 2021...;

(c) Evidence of four months rental income being received: transaction history report for the Torbeckin's NAB account #7481 for the period covering 1 July 2020 to 22 February 2021...;

(d) Evidence of liquid funds: bank statement for the Torbeckin's ANZ account #0737 showing liquid funds of $896,027.62...;

(e) Valuation received from AdVal...;

(f) Certificates of independent legal and financial advice: certificate signed by Jeremy on 26 March 2021 and certificate signed by Rodney Rowell, the third defendant, on 26 March 2021...

(g) Confirmation that the tenant's business was fully operational: refer page 21 of NM-1 which is a diary note dated 17 March 2021 in which I record that the guarantors (Rodney and Jeremy Rowell) have confirmed that the tenant's business is fully operational.

In terms of the valuation, based on my review of the diary notes, I believe Ms Nyugen instructed AdVal to proceed with the valuation of the Security Property on or around 25 February 2021. I refer to pages 22 to 23 of NM-1 which is a diary note recording Ms Nguyen's correspondence with AdVal on 25 February 2021.

I am informed by Ms Nguyen and believe that on 10 March 2021, Ms Nguyen received an email from Nima Komelli of AdVal 2021, attaching a valuation report for the Security Property (AdVal Report)...

I notice that the AdVal Report exhibited at pages 143 to 231 of NM-1 is dated '25 February 2021' on the front page and '25 February 2020' on page iv. The footer also refers to '25 February 2020'. I expect that the references to '2020' are typographical errors and should instead refer to '25 February 2021'. It may be that reference to'25 February 2021' on the front page is a reference to the date on which AdVal was instructed to undertake the valuation and attended the Security Property. This, in my view, is consistent with:

(a) The diary note exhibited at pages 22 to 23 of NM-1 which shows that AdVal was only instructed to proceed with the valuation on 25 February 2021;

(b) A diary note exhibited at page 22 of NM-1 which shows that as at 1 March 2021, Secure Funding was still waiting for the valuation to be provided; and

(c) The email from Ms Komelli of AdVal exhibited at pages 141 to 143 sending Ms Nyugen the AdVal Report on 10 March 2021.

As set out above, it was a condition to the approval of the 2021 Application that the Security Property valuation confirm that the works agreed to be undertaken by Golden Cube (Works) had been completed. I refer to pages 21 on NM-1 which is a diary note completed by me dated 17 March 2021 in which I record, among other things, 'noted that the valuer has confirmed all required works completed in line with stated rental reduction.' I do not recall now what led me to make that comment in the diary note but I have no reason to doubt its accuracy. I suspect that I may have spoken with the valuer via a telephone call around the time the valuation was issued and he confirmed this point with me over the phone. Further, I have reviewed the AdVal Report for the purposes of preparing this affidavit and note that the AdVal Report at paragraph 10.4 refers to the 'refurbishment works recently concluded' at the Security Property.

[181]

The Plaintiff

Liberty engaged in irresponsible lending practices and failed to abide by its own responsible lending policies prior to facilitating the loan which contributed to the mortgage default.

Failed to exercise a reasonable duty of care toward the borrowers, which includes acting in the best interests of the borrowers

Failed to conduct due diligence in assessing the borrower's stability and viability of the business

failure to make reasonable inquiries about the customer's financial situation

failure to verify information provided

failure to undertake adequate preliminary assessments and meet their own requirements

failure to ascertain if the company could meet its loan repayment and other obligations

When notified that Torbeckin and its Director were in a highly vulnerable possession and suffering severe financial hardship after becoming victims of crime, fraud and family violence.

Liberty:

Failed to investigate or act

Failed to abide by its own Family violence policy's

Failed to comply with its own Financial Hardship policy's

Did nothing to work with the directors or understand the circumstances and develop a solution

Did nothing to support the financial wellbeing of the company and its guarantors

Provided no assistance or help to manage the stress that can result from an unexpected event like fraud

Used unfair tactics and exploited the borrower's vulnerability by charging excessive default interest that is significantly above market rates

Charged penalty interest that was extremely harsh and did not accurately reflect the actual costs incurred by the bank due to late payments

Imposed penalties that were disproportionate to the actual damages suffered by the party imposing the fee

Acted oppressively and unconscionably in circumstances where Torbeckin and Jeremy were vulnerable, and the mortgage default was out of their control and caused by the illegal and unconscionable conduct of others

Created more financial hardship for the borrower.

[201]

[E]quitable 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.

In Commercial Bank of Australia Ltd v Amadio, this Court held that unconscionability involves: a relationship that places one party at a 'special disadvantage' vis-à-vis the other; knowledge of that special disadvantage by the stronger party; and unconscientious exploitation by the stronger party of the weaker party's disadvantage. But these considerations should not be understood as if they were to be addressed separately as if they were separate elements of a cause of action in tort. As Dixon CJ, McTiernan and Kitto JJ said in Jenyns v Public Curator (Qld), in a passage approved by this Court in Kakavas and Thorne v Kennedy, the application of the equitable principles relating to unconscionable conduct:

calls for a precise examination of the particular facts, a scrutiny of the exact relations established between the parties and a consideration of the mental capacities, processes and idiosyncrasies of the [vulnerable party]. Such cases do not depend upon legal categories susceptible of clear definition and giving rise to definite issues of fact readily formulated which, when found, automatically determine the validity of the disposition. Indeed no better illustration could be found of Lord Stowell's generalisation concerning the administration of equity: 'A court of law works its way to short issues, and confines its views to them. A court of equity takes a more comprehensive view, and looks to every connected circumstance that ought to influence its determination upon the real justice of the case...

[213]

(1) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 12CB in connection with the supply of financial services to a person (the service recipient), the court may have regard to:

(a) the relative strengths of the bargaining positions of the supplier and the service recipient; and

(b) whether, as a result of conduct engaged in by the supplier, the service recipient was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and

(c) whether the service recipient was able to understand any documents relating to the supply or possible supply of the financial services; and

(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the service recipient or a person acting on behalf of the service recipient by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the financial services; and

(e) the amount for which, and the circumstances under which, the service recipient could have acquired identical or equivalent financial services from a person other than the supplier; and

(f) the extent to which the supplier's conduct towards the service recipient was consistent with the supplier's conduct in similar transactions between the supplier and other like service recipients; and

(g) if the supplier is a corporation - the requirements of any applicable industry code (see subsection (3)); and

(h) the requirements of any other industry code (see subsection (3)), if the service recipient acted on the reasonable belief that the supplier would comply with that code; and

(i) the extent to which the supplier unreasonably failed to disclose to the service recipient:

(i) any intended conduct of the supplier that might affect the interests of the service recipient; and

(ii) any risks to the service recipient arising from the supplier's intended conduct (being risks that the supplier should have foreseen would not be apparent to the service recipient); and

(j) if there is a contract between the supplier and the service recipient for the supply of the financial services:

(i) the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the service recipient; and

(ii) the terms and conditions of the contract; and

(iii) the conduct of the supplier and the service recipient in complying with the terms and conditions of the contract; and

(iv) any conduct that the supplier or the service recipient engaged in, in connection with their commercial relationship, after they entered into the contract; and

(k) without limiting paragraph (j), whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the service recipient for the supply of the financial services; and

(l) the extent to which the supplier and the service recipient acted in good faith.

Plaintiff v First Defendant

At a glance

Court

Decision date

Before

Source

Judgment (346 paragraphs)

Parties

Legislation Cited (5)

Cases Cited (10)