re: Planet Securities Unit Trust v Dalrymple [1999] QSC 204

re: Planet Securities Unit Trust v Dalrymple [1999] QSC 204 - QSC 1999 case summary — Zoe

[87]

"The doctrine of estoppel by conduct is founded upon good conscience. Its rationale is not that it is right and expedient to save persons from the consequences of their own mistake. It is that it is right and expedient to save them from being victimised by other people (cf Allcard v Skinner (1887) 36 Ch.D.145 at p 182). The notion of unconscionability is better described than defined (see per Mahoney JA Antonovic v Volker (1986) 7 NSWLR 151 at p 165); Taylors Fashions [1982] 1 QB at pp 151-152); and generally, per Cooke P Nichols v Jessup [1986] NZCA 84; [1986] 1 NZLR 226 at pp 227-229). As Lord Scarman pointed in National Westminister Bank Plc v Morgan [1985] UKHL 2; [1985] AC 686 at p 709), definition 'is a poor instrument when used to determine whether a transaction is or is not unconscionable: this is a question which depends upon the particular facts of the case.' The most that can be said is that 'unconscionable' should be understood in the sense of referring to what one party 'ought not, in conscience, as between [the parties], to be allowed' to do (see Story, Commentaries on Equity Jurisprudence, 2nd Eng Ed (1892), par. 1219; Thompson v Palmer (1933) 49 CLR at p 537). In this as in other areas of equity-related doctrine, conduct which is 'unconscionable' will commonly involve the use of or insistence upon legal entitlement to take advantage of another's special vulnerability or misadventure (cf Stern v McArthur [1988] HCA 51; (1988) 165 CLR 489 at pp 526-527) in a way that is unreasonable and oppressive to an extent that it affronts ordinary minimum standards of fair dealing. That being so, the question whether conduct is or is not unconscionable in the circumstances of a particular case involves a 'real process of consideration and judgment' (cf Harry v Kreutziger (1978) 95 DLR (3d) 231, at p 240) in which the ordinary processes of legal reasoning by induction and deduction from settled rules and decided cases are applicable but are likely to be inadequate to exclude an element of value judgment in a borderline case such as the present."

[104]

58 I am satisfied, and particularly so in the absence of the defendants from the witness-box, that Mrs Kaine did explain to the defendants that there was a provision in the deed of loan for capitalisation of interest. Whether the defendants realised at the time they signed the Deed of Loan and mortgage documents that failure to repay the loan of $70,588 could and would have the effect of increasing the loan debt in the manner set out in Exhibit 2 I do not know. In their absence from the witness box, I infer that they did. I draw this inference from their absence, from the fact of the male defendants commercial experience and the certification by Mr Godfrey in Exhibit 11. (See first sentence in para 58 (ante)). In my view, I should look at the end result objectively. When I do that, I come to the conclusion that the insertion into the Deed of Loan and bill of mortgage (which provided for interest at 20 pr cent per month albeit reducible to 15 per cent per month if paid on time) of an agreement to pay interest on unpaid interest has taken advantage of the defendants' special vulnerability. Exhibit 4 shows they were in urgent need of this loan of $60,000 - and the above insertion in the agreement is in my view "unreasonable and oppressive to an extent that it affronts ordinary minimum standards of fair dealing" (per Deane J in Verwayen (supra)). There is an element of value judgment in this case. I realise that it is important that courts do not as a general rule interfere in transactions entered into at arms length between men of commerce. Nevertheless, in the circumstances of this particular case I feel very strongly that there has been unconscionable conduct on the part of the plaintiff by the insertion into the Deed of Loan of provisions enabling unpaid interest to be capitalised and then bear further interest at the rate of 20 per cent per month. This case shows that a lender can be extremely careful to ensure, as far as he can, that the borrower has competent independent advice and understands well the nature of the obligation entered into and its general consequences, yet the contract of loan may amount to an unconscionable dealing.

[107]

61 I reject his submission. I am satisfied that in this case there was, on the material presented to the plaintiff before it agreed to make the loan, a risk - but not a high risk - that the defendants would not repay the loan by the stipulated date 9 December 1997. The plaintiff has the personal covenant of the defendants to repay the loan in both Deed of Loan and mortgage (although the mortgage provided for repayment on 17 December 1997). The third mortgage was registered and it provided some security for repayment of the debt. If the plaintiff attempted to exercise its power of sale under the mortgage, at best it would be able to sell the defendants' equity of redemption and any purchaser would buy subject to the prior first and second mortgages and accepting the defendants' liability under the mortgages. Whether, on attempted sale by the plaintiff as third mortgagee, any buyer would have been found, appears now to be doubtful. I am really not in any position to comment further and I say simply the third mortgage provided some security the quality of which is not known. Because the plaintiff has not attempted to exercise its power of sale but has instead sued on the personal covenant it may be inferred now that the value of the security is doubtful. Of course the ballooning debt (see Exhibit 2) appears to have completely extinguished the value of the equity - assuming that equity to be still about $450,000. Given the size of the debt the value of the security now is irrelevant. In my view, I should fix a rate of interest having regard to the fact that the plaintiff did obtain a registered third mortgage in respect of a loan of $70,588 for one month where the equity of redemption was valued at some $450,000 about one year earlier and having regard to the further facts the last sentence of which appear in paragraph 60 ante. The debt in Exhibit 2 was not initially wholly unsecured - it appears that at present it may be partly secured but very largely unsecured. In the particular circumstances of this case, where, as I have said the defendant was initially prepared to pay interest at 15 per cent per month for the one month loan, and where the terms of the loan as to repayment and interest were explained by their solicitor to them, quite independently of the plaintiff, I see no reason why the interest on the unpaid principal should not be greater and considerably greater than the 10 per cent simple interest for which Mr Stone contends.

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