RHG Mortgage Corporation Limited v Cran & Anor

The first defendant appeared on behalf of both defendants

[1] This is the trial of a claim by the plaintiff for payment of its mortgage debt and for recovery of the mortgaged property, which is the defendants' house at Mudgeeraba. The defendants are without legal representation. Mrs Cran was not present at the hearing due to ill health. I allowed Mr Cran to represent her. Their pleadings have been signed by each of them.

[2] There is little in dispute factually, and that which is in dispute is not material. It is admitted that the documents upon which the plaintiff relies were signed by the defendants and that the advances were made. Their default is admitted, as is the giving of the requisite notices of default. The defences which are raised involve allegations of hardship under s 66 of the Consumer Credit Code, unjust transactions under s 70 of the Code and unconscionable conduct in contravention of s 51AA of the Trade Practices Act 1974 (Cth).

[3] It is common ground that the parties discussed this loan for the first time in late 2005. There is an application for the loan, admittedly signed by the defendants, dated 22 December 2005. That was some weeks after a valuation of the proposed mortgage property was obtained on 7 November 2005. The value according to that was $800,000. But the defendants say that there was an application for a loan which preceded that valuation, and that it was signed when the plaintiff's representative, Mr Lunney, came to their house on 3 November 2005. Mr Lunney says that there was no earlier application signed. He agrees that he had contact with them prior to the valuation. But he says that the valuation was obtained first. Mr Cran was unable to explain why this particular factual issue was relevant to the outcome of the case. But if it be relevant, I prefer Mr Lunney's account. There is no apparent reason why the plaintiff would wish to make it appear that the application signed on 22 December was the first such application if that was not the case. Mr Cran did not say that there was something which would have been in the earlier application which in some way supported his case. As Mr Cran told Mr Lunney, the primary purpose for the proposed loan was to refinance an existing loan upon the defendants' house. The amount of that loan was $450,000. On Mr Cran's computer Mr Lunney was shown a website where there was a statement of the account for that existing loan. That was printed and as appears from the document, this was done on 22 December. Mr Lunney was concerned to see the history of that loan and it is unlikely that he asked Mr Cran for this information on two occasions rather than simply on this occasion of 22 December.

[4] The amount applied for on 22 December was $560,000. This was arrived at because it was 70 per cent of the valuation. Under the plaintiff's guidelines that was the maximum which could be advanced for this type of transaction, and in particular one in which there was no evidence of the borrowers' income which was being provided. Mrs Cran was not employed. Each of them was aged between 65 and 70. Mr Cran was an inventor and had developed an invention for which he had potential investors. He told Mr Lunney, as he told me, that there was a company in Germany interested in the invention. He also told Mr Lunney that there was another person who was willing to provide him with $120,000 if he needed it whilst he concluded an arrangement with the German investor. Other than that $120,000 he referred to no income from which the defendants could pay what was due under the proposed loan. It was a loan for five years on an interest only basis.

[5] Mr Lunney told Mr Cran that it was necessary to have the $560,000 broken into two instalments: one of $500,000 to be advanced initially followed by the remaining $60,000. He said to Mr Cran, and in evidence here, that this had an advantage in so far as the cost of mortgage insurance was concerned. On 10 January 2006 the defendants signed the loan agreement and mortgage together with an acknowledgement of these matters:

1. that someone from the plaintiff had advised them that they should retain a solicitor to represent and advise them and a financial advisor such as an accountant before accepting the offer of the loan and that they had decided not to do so;

2. that they understood it was their risk in not obtaining that advice;

3. that they understood that the variable interest rate might rise or fall and that the repayments would vary if that occurred, and that there was no limit on the amount of the potential variation;

4. that they understood that the plaintiff could not, in effect, forecast any expected movements in variable interest rates and could not manage their exposure to such variations;

5. that they had read the documents provided by the plaintiff and understood the terms contained in them and their obligations under them.

[6] $500,000 was advanced on 10 January 2006 and $60,000 on 3 March 2006. The interest rate by then appears to have been about 7.5 per cent. Mr Cran agreed that this was less than the rates which the defendants had been paying to their previous financier, which appear to have been about eight per cent on most of that loan and just under eight per cent on some of it. The fees according to the plaintiff's loan agreement were in the sum of $3,153 at the outset (which included fees for stamping and registering the mortgage) and then fees of $96 per year. There was an "exit fee" of two per cent of the loan if the defendants paid out the loan within the first three years. The default interest rate would be two per cent higher than the rate otherwise applying.

[7] Thereafter the defendants duly paid the monthly interest, as they had paid the interest on their previous loan, as appeared from the statements which Mr Lunney had been given in December 2005.

[8] In early November 2007 Mr Cran contacted Mr Lunney saying that he wished to apply for a variation to the loan agreement. He said that Mrs Cran was very ill and that money was needed urgently to pay medical expenses. He told Mr Lunney that they would ensure that the increased monthly payments were met and that if there were any problems in doing so, that they would sell their house within six months and pay out the plaintiff. Mr Lunney said that the defendants' proposal did not then meet the plaintiff's criteria. Nevertheless on 8 November 2007 Mr Lunney asked an officer of the plaintiff whether the plaintiff could assist on compassionate grounds. That officer agreed on condition that the defendants sold their house quickly. Mr Lunney told Mr Cran that the plaintiff could make the further advance on condition that the property be sold within six months. On 29 November 2007 Mr Cran sent to Mr Lunney an email saying that:

"I seem to be having a problem convincing RAMS regarding my willingness to sell our property. I can assure you we are keen to sell and downsize to a smaller home for the reasons I have outlined to you in previous conversations regarding my wife's health situation.

We initially listed the property at POA on the advice of the local agents. The prices quoted to us at the time were $1M which we considered too low to $1.5M which was too high, this was very inconsistent so we settled on the advice of the agent at $1.2M as a list price. If we have an offer of a lesser amount we are prepared to negotiate with a sensible purchaser.

I do not understand where the problem is, we are not having a fire sale, if we need to sell at a lower price of say $1M there would be no risk to RAMS payout at all...I am expecting to sell the property by March for the best market price I can get, we are prepared to meet the market..."

[9] A further agreement was then made on 6 December 2007 for the advance of another $40,000, bringing the total principal to $600,000. This was not a separate loan but simply an increase of the principal under the existing facility.

[10] The defendants were lent this further sum of 14 December 2007. They met their interest payments for the end of that month and for January and February of 2008. Their last payment, however, was made on 3 March 2008. They have paid nothing since. The amount owing has thereby increased from $600,000 in March 2008 to the amount of $690,874.58 as at today. There is no challenge to the plaintiff's calculations.

[11] On 12 September 2008 the plaintiff served a default notice, said to have

been given under s 84 of the Property Law Act 1974 (Qld) as well as under s 80 of the Consumer Credit Code. Again, there is no issue as to the efficacy of this notice.

[12] I go then to the case which is pleaded and argued by the defendants. The same matters are pleaded in relation to sections 66 and 70 of the Code and s 51AA of the Trade Practices Act. Section 66 of the Code cannot assist the defendants because the maximum amount of credit provided to them was more than the amount referred to in s 66(3). In any case as to s 66(1), the defendants did not attempt to establish that they had an expectation, reasonably or otherwise, of being able to discharge their obligations if the terms of the contract were changed in some way. But I would have accepted that because of Mrs Cran's illness, and because of Mr Cran's age and the fact that the investment for his invention has not been forthcoming, the defendants are unable to meet their obligations.

[13] Within the matters which are pleaded for the case under the Code and the Trade Practices Act, there is an allegation that Mrs Cran did not understand the effect of the transaction and that "the plaintiff, as the stronger party to the transaction, would have understood that, as a wife, [she] may have [reposed] trust and confidence in her husband...and therefore would have understood that the husband...may not have fully and accurately explained the effect of the transaction...[to her]."

[14] Undoubtedly the transaction was not explained by the plaintiff to Mrs Cran. But there is no evidence upon which I could find that Mr Cran did not explain it to her. Nor is there evidence that Mrs Cran did not understand the effect of the transaction. In his address Mr Cran told me that she did not read the documents. Even accepting that to be so, it does not follow that she did not understand the effect of them. There is no doubt that she signed them. They are relatively uncomplicated and they involved the refinancing of an existing home loan. The loan, at least for that refinancing, was clearly beneficial, because the interest rate was lower than that which they had been paying their previous financier. There is no suggestion here that Mrs Cran did not understand Mr Cran's financial circumstances. Accordingly, there is no substance in any defence along the lines that the transaction was unjust or unconscionable for some disadvantage suffered by Mrs Cran.

[15] Next it is pleaded that the plaintiff knew that the defendants could not repay the loan in accordance with its terms or "without substantial hardship". It is alleged that the plaintiff knew that the defendants were elderly persons with limited income and no employment. It is said that the plaintiff knew that the only way to repay the loan would have been to have had the property sold. Those facts are true as to the further advance of $40,000. I do not find them to be true as to the advances totalling $560,000. On the contrary, Mr Cran told Mr Lunney of the likelihood of a substantial investment in his invention with the financial backing, if required, of another $120,000, whilst that was being pursued. Nevertheless I would accept that the plaintiff must have placed little or no reliance upon that information from Mr Cran and that the plaintiff was persuaded to make the initial loans because of the valuation of the house and because of their successful performance of their existing loan obligations.

[16] There are other allegations in the pleading of "unfair pressure and tactics" which are not at all supported by the evidence.

[17] There is nothing as to the terms of these loans which suggest that they were in some way harsh, oppressive or unjust. The interest rate and fees do not appear to have been unusually high. There is no evidence to demonstrate that they were. Those comments apply in particular to the exit fee about which Mr Cran was critical in his submissions. He was also critical of the terms by which they were not entitled to see the lender's valuation and by which the fees and interest rates were able to be varied. However, none of those terms are unusual or unjust or unconscionable. The interest rates did vary, but at least broadly in line with what can be recalled as market movements. Even after the default, they had not exceeded about 10.4 per cent. Mr Cran asserted that they increased more quickly than the market rates did in 2007 and 2008 but there is no evidence as to that relativity.

[18] In summary there is no basis for a finding that the transaction, either in early 2006 or the subsequent transaction in late 2007, was unjust such that it should be reopened under s 70 of the Consumer Credit Code, or that there was conduct of the type that was unconscionable in the sense of s 51AA of the Trade Practices Act. As Mr Cran fairly explained in his submissions, the very unfortunate circumstances of the defendants are really due to economic conditions, which have depressed the market for properties such as theirs, and which make it unlikely that Mr Cran will obtain the investment funds he was hoping to attract for whatever is his invention. I accept that Mrs Cran is seriously ill and that the loss of their house will cause them particular hardship. Nevertheless, they have no legal basis for resisting the plaintiff's claim and it must be upheld. The plaintiff agrees to a stay on the judgment for recovery of possession for the period which I suggested to the plaintiff's counsel, which was 60 days.

[19] There will be judgment for the plaintiff against the defendants in the amount of $690,874.58. There will be judgment for the plaintiff for the recovery of possession of all that piece or parcel of land described as lot 724 on registered plan 170984 in the County of Ward Parish of Mudgeeraba being the whole of the land contained in title reference number 15997100. It will be further ordered that that judgment for recovery of possession be stayed for a period of 60 days from this judgment. The defendants are ordered to pay to the plaintiff its costs of the proceeding, including reserved costs, to be assessed on the standard basis.