Collingwood v Romkara Pty Ltd - [2003] WASC 190

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: COLLINGWOOD & ORS -v- ROMKARA PTY LTD & ORS [2003] WASC 190

CORAM: MASTER NEWNES

HEARD: 9 SEPTEMBER 2003

DELIVERED : 8 OCTOBER 2003

FILE NO/S: CIV 2177 of 2002

BETWEEN: JOHN PHILLIP COLLINGWOOD
SUSANNE COLLINGWOOD
SAMTOR PTY LTD
VINCENT DAVID MAZZARDIS
BARBARA ANNE MAZZARDIS
VINCENT DAVID ANDREW MAZZARDIS
LEONARD FORREST METCALFE
RAYMOND KEITH SLOAN
DAVID MARSH
SYLVIA MARSH
Plaintiffs
AND
ROMKARA PTY LTD
First Defendant
WILLIAM JOHN THOMAS THOMSON
Second Defendant
PHILLIP WILIAM THOMSON
Third Defendant

Catchwords:

Practice and procedure - Summary judgment - Claim for possession by mortgagee - Defence of unconscionability - Turns on own facts

Legislation:

Nil

Result:

Judgment for plaintiff

Category: B

Representation:

Counsel:

Plaintiffs:     Mr P Van Der Zanden
First Defendant             :     Mr D F Gordon
Second Defendant         :     Mr D F Gordon
Third Defendant           :     Mr D F Gordon

Solicitors:

Plaintiffs:     Minter Ellison
First Defendant             :     Gordons
Second Defendant         :     Gordons
Third Defendant           :     Gordons

Case(s) referred to in judgment(s):

Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd & Ors [2003] HCA 18
Bridgewater & Ors v Leahy (1998) 194 CLR 457
Commercial Bank of Australia Ltd v Amadio & Anor (1983) 151 CLR 447
Eng Mee Yong v Letchumanan [1980] AC 331
Fancourt v Mercantile Credits Ltd (1983) 154 CLR
Gillon & Ors v Kyle, unreported; FCt SCt of WA; Library No 9123; 16 October 1991
Inglis v Commonwealth Trading Bank of Australia Ltd (1972) 126 CLR 161
Webster v Lampard (1993) 177 CLR 598
White v Johnston (1886) 8 ALT 53

Case(s) also cited:

AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705
Clarke v The Union Bank of Australia Ltd (1917) 23 CLR 5
Cloverdell Lumber Co Pty Ltd v Abbott (1924) 34 CLR 122
Commonwealth Development Bank of Australia Ltd v Nertec Pty Ltd [1999] WASCA 311
Crump v Cavendish (1880) 5 Ex D 211
Inglis v Commonwealth Trading Bank of Australia [1972] 126 CLR 161
Lewkowski v Bergalin Pty Ltd, unreported; FCt SCt of WA; Library No 7675; 26 May 1989
Macedonian Society of Western Australia (Inc) (Receive and Manager Appointed) v St George Bank Ltd [2003] WASC 17
Mainbanner Pty Ltd v Dadincroft Pty Ltd [1988] ATPR 49,661
Moscow Narodny Bank Ltd v Mosbert Finance (Aust) Pty Ltd [1976] WAR 109
National Australia Bank Ltd v Catlin [2002] WASCA 103
Pemberton v Chappell (1987) 1 NZLR 1

MASTER NEWNES: This is an application by the plaintiffs for summary judgment for an order for possession of certain land, pursuant to a mortgage granted by the second defendant to the plaintiffs.
In the reamended statement of claim the plaintiffs plead that, on or about various dates in late June and early July 1997 the first, second, fourth, fifth, sixth, seventh, ninth and tenth‑named plaintiffs and one Gooch advanced to the first defendant the sum of $560,000 in consideration, and on the terms, of certain securities. Those securities were a mortgage, dated 24 June 1997, by the first defendant of certain land it owned in Newman ("Romkara Mortgage"); an undated charge, stamped on 26 June 1997, granted by the first defendant over its assets and undertaking ("Charge") and a mortgage, dated 24 June 1997, of the second defendant's property at Mount Tarcoola ("Thomson Mortgage"). Under the terms of the Charge, the second and third defendants guaranteed the first defendant's indebtedness to the plaintiffs. It was a term of each of the securities that the loan moneys were repayable on demand, but that no demand would be made before 29 June 1998. The Thomson mortgage was registered on 4 July 1997.
It is pleaded that the date for repayment of the loan moneys was extended by agreement to 29 June 1999 and then subsequently to 29 June 2001.
In the meantime, in about late 2000 Mr Gooch transferred his interest in the Thomson Mortgage to the third‑named plaintiff. On 31 January 2001, the fifth and sixth‑named plaintiffs assigned five of their shares in the Thomson mortgage to the eighth‑named plaintiff.
The plaintiffs allege that the defendants breached the terms of the mortgages and the Charge in that they failed to repay the principal sum on or before 29 June 2001 and failed to pay interest instalments due on 29 February, March, April, May, June, July and August 2001. Written notices of demand dated 25 September 2001 were served on the defendants, but the defendants did not remedy the default, nor make any payment to the plaintiffs in reduction of the amount outstanding.
In the reamended statement of claim, the plaintiffs claim possession of the land secured by the mortgages and of the assets and undertaking of the first defendant secured by the Charge. In fact, prior to the hearing of this application, receivers and managers appointed by the plaintiffs took possession of the property secured by the Romkara Mortgage and the Charge respectively, and the claim for possession of the property secured by those securities was not pursued. The outstanding issue, which is the subject of this application, is the plaintiffs' claim for possession of the land secured by the Thomson mortgage.
The current application is supported by affidavits of the first‑named plaintiff, who verifies the facts pleaded in the reamended statement of claim. In an affidavit sworn on 27 June 2003 he deposes to the defendants' indebtedness, secured by, inter alia, the Thomson Mortgage, as $756,032.46 as at 26 June 2003. That comprises the principal sum of $560,000 and interest of $185,597.86, plus fees of $10,434.60 owing to Geraldton Finance Co Pty Ltd.
I did not understand it to be in issue that, subject to the matters raised by the second defendant, the plaintiffs had made out their claim to possession. In any event, I am satisfied that that is the case. There is, therefore, an evidentiary onus on the second defendant to show some arguable defence.
In opposition to the application, an affidavit was sworn on 9 April 2003 by the second defendant, who is the father of the third defendant. An affidavit of the third defendant sworn 9 April 2003 was also filed in opposition to the application.
According to the second defendant, in late 1995 and early 1996 he and the third defendant were seeking funding for the establishment of a nightclub in Newman to be known as "Club Ziggy's". He says they had a number of discussions with one Dennis Pearce, who controlled Geraldton Finance Co Pty Ltd ("GFC"), a finance broker, about obtaining funds for that purpose. The second defendant says he had dealt with Mr Pearce for many years and had been involved in a number of business dealings with him. They had what the second defendant described as a "confident working relationship".
The second defendant says he explained to Mr Pearce that the third defendant had expended a considerable sum of money obtaining a liquor licence for the proposed nightclub premises and that additional funds were required to acquire a lease and option to purchase the premises, to fit out and finish the premises and to finalise the liquor licence application. According to the second defendant, he discussed with Mr Pearce a loan of an amount of $300,000. He told Mr Pearce that the funds would be required for a period of 10 years and the loan would have to be on an interest only basis, with the interest to be payable monthly, or capitalised and rolled over on an annual basis. The second defendant says he explained to Mr Pearce that flexibility was required in respect of payment of capital and interest, and that lending arrangements would need to be tailored to allow such flexibility and to cater for the development and extension of the business.
According to the second defendant, Mr Pearce told him that GFC had the ability to procure the required funds on an ongoing basis and would be able to ensure flexibility in the lending arrangements that would allow extensions and variations to occur as need arose. Mr Pearce said that any interest not paid could be capitalised and rolled over.
The second defendant says it was agreed with Mr Pearce that if subsequently an option to purchase the premises were to be exercised, arrangements would be put in place to roll over and extend the finance arrangements. He says that Mr Pearce told him that when the freehold was obtained, the mortgage over the second defendant's house could be lifted, although he and the third defendant would have to give personal guarantees.
The third defendant, in his affidavit, merely says that he approached GFC because of their long‑standing dealings with his father and that Mr Pearce "indicated that GFC could fund the venture and provide the requirements of finance flexibility that I would require".
The first defendant was incorporated on 6 March 1996 with the intention that it would own the nightclub and would borrow the funds required in connection with it. The third defendant was the sole director of the first defendant and the second and third defendants were the only shareholders. In the meantime, GFC approached potential lenders to raise the money.
On 19 March 1996, GFC wrote to the first defendant confirming that it had approvals from four lenders (being the first‑named, second‑named and seventh‑named plaintiffs and another party) who, together, would provide the sum of $300,000.
In early April 1996, an amount of $180,000 was advanced through GFC to the first defendant. GFC advised that the balance of the funds had been delayed. The second defendant says that no documentation had been finalised at that stage and the advance was made on the basis of the oral arrangements that had been discussed with Mr Pearce.
A further sum of $97,952.52 was advanced on about 2 July 1996. The balance of the loan funds, an amount of some $22,048.00, was taken up in fees, legal costs and various disbursements.
The second defendant says that he signed "some documentation" on 4 July 1996. A mortgage (the "original mortgage") over the second defendant's property was registered on 12 July 1996.
The loan to the first defendant was for a term of 12 months, but by letter dated 2 July 1996 GFC advised that, in view of the delay in advancing the funds, the lenders had agreed to extend the loan period to 29 June 1997.
The second defendant says that, in January 1997, he discussed with Mr Pearce the extension of the term of the loan to 29 June 1998 and Mr Pearce told him that there would be no difficulty in arranging that.
According to the second defendant, in February 1997 he and the third defendant asked Mr Pearce to obtain additional funds of between $200,000 and $250,000 so the first defendant could exercise the option to purchase the land on which the nightclub stood. Mr Pearce said there would be no problem in providing the funds if a valuation of the nightclub was obtained. He asked that the request for the funds be put in writing.
The defendants' request was confirmed in writing in a handwritten letter of 7 February 1997 from the second defendant to GFC. The terms of that letter are significant, for reasons that will emerge, and I will, therefore, set out the material terms of it:
"Please be advised that [the first defendant] will be seeking to extend it [sic] borrowings from $300,000 to $550,000.
A reduced interest rate would be nice. The term of the loan 24 months interest paid monthly in advance.
Due to the success story for Romkara's nightclub - Club Ziggy's in Newman it is intended to purchase the freehold of the lease premises to which [sic] we have spent $318,773 on extensive renovations.
After five month [sic] of trading Romkara is trading at 34% net profit before tax. Had we owned the freehold profit would be 38%.
I have instructed the accountants to prepare interim final accounts and projections.
Sallmanns International Property Consultants are preparing a comprehensive revaluation and fresh demographic reports.
All these facts should be available by February 28.
Please note that there is a sound intelligence in picking up our option to freehold and that should provide extended security to lenders.
I would appreciate your early comments."
It appears that, following that letter, GFC sought to raise the additional funds, approaching the existing lenders in the first instance. The second defendant says that in the period February to April he discussed the first defendant's requirement for an additional sum, over and above the $200,000 required to exercise the option to purchase, to meet the interest on the increased borrowings. He says Mr Pearce advised him to borrow an additional amount to cover the interest.
On 5 May 1997, the second defendant wrote again to GFC. The material terms of that letter were as follows:
"I have received your correspondences with regard to impending loan rollovers.
However I do wish to increase borrowing to $550,000 for a term of 24 months interest paid monthly in advance.
I need to know if you can accommodate this level before resolving which strategy Romkara will adopt.
We have three basic options to consider.
Option 1: Simply roll over the existing loans of $300,000 plus the $25,000 - mine and continue with existing leasehold arrangements which we are servicing all together with $80,000 PA and still showing net trading profit of 30% before tax.
Option 2: Sell the business at a handsome profit in spite of the youth of the venture which has been lawfully geared to minimise capital gains tax. But Phillip would not be keen with this option.
Option 3: Would be to pick up our option to purchase the freehold of the club premises before an agreed price rise of $20,000 to total $220,000 in August 1997.
We currently pay 13.75% of $200,000 as rent etc which equals $27,500 PA.
It makes good sense to own the property as it would add to overall security as well as savings on legals extended insurance and the benefit of full depreciations.
To support Romkara's successful nightclub operations interim accountant figures have been prepared.
Also in February we had a sworn valuation prepared which established a conservative Club Ziggy's value of $950,000 as freehold.
These items will be supplied when needed to support borrowings.
I would appreciate your advice with regard to options 1 and 2."
GFC replied by letter of 20 May 1997. The material terms of that letter were as follows:
" … we confirm your intention to increase borrowings to $550,000 for a term of 24 months interest paid monthly in advance.
It appears that at this stage of the existing lenders in the $300,000 at least $250,000 will be renewed.
It will be our intention to increase this amount subject to receipt of figures and valuation to the required amount of $550,000 to allow you to purchase the freehold, which was our original intention 12 months ago.
In regard to your options we would advise as follows:
Option 1
Existing loan of $300,000 will be incorporated into the new transaction to a figure of $550,000 bearing in mind that $50,000 from this transcript has to be repaid to one of the lenders, Wilton.
The $25,000 in regard to Mr Sleight has been agreed to and we will arrange for new transaction to take place shortly.
Option 2
You have the option to set up the freehold of the business and it is trading as well as you advise, we do not think it would be wise to sell at this stage.
Option 3
This is our preferred option and as soon as you can provide us with the sworn valuation of the freehold, which we believe should come up to $950,000 and the interim accountants figures.
Once we have the information supplied we will be able to arrange funds."
On 26 May 1997, GFC wrote to the first defendant advising that GFC had raised $550,000 from "lending clients at this office". The letter stated that the loan would be for a term of one year from 29 June 1997 and would be secured by a first mortgage over the second defendant's home, a mortgage over the nightclub premises and a debenture over the assets and undertakings of the first defendant. Interest was to be paid monthly in advance. As the second defendant comments in his affidavit, the nominated lenders differed substantially from the earlier lenders. In fact, seven of the 10 lenders were new.
GFC subsequently arranged for the existing securities to be discharged and the new securities were then executed by the plaintiffs and the defendants and duly registered. The securities included the Thomson mortgage.
The second defendant says that he asked GFC to increase the loan period to two years, but was told that the loan arrangements could only be extended for one year at a time, although it would be possible to continue rolling the loan over on an annual basis.
The second defendant says that in the period 1997 to 2000 Mr Pearce told him on several occasions that extensions of the lending facilities would not present a problem and that the ongoing requirements of the nightclub business could be catered for by varying or extending the finance facility.
It appears that annual extensions of the term of the loan were subsequently agreed upon, although there appears to have been a good deal of confusion as to precisely what documents were actually signed and registered in that regard.
According to the second defendant, from 1998 the defendants were aware of a downturn in the iron ore market, which between 1998 and 2000 reduced the population of Newman from approximately 6000 people to a figure somewhere in the order of 3000. The second defendant says that from 1998 they had discussions about the downturn with Mr Pearce. Mr Pearce indicated to them it would not present a problem and, if financial difficulties were encountered, he could assist by raising additional funds to meet interest payments and ensure the extension of existing financial agreements.
The second defendant says that, by early 2000, he was very concerned about the demographic changes at Newman and frequently discussed the matter with Mr Pearce. He says that in 1998 they had agreed it would be in the first defendant's interests to obtain a new liquor licence in Geraldton to defray some of the expected shortfall in Newman. In early 2000, the first defendant obtained a cabaret licence in Geraldton and Mr Pearce agreed to obtain funding for a new venture in Geraldton.
According to the second defendant, he had discussions with Mr Pearce in late February 2001 about the first defendant's position. In the course of those discussions he told Mr Pearce about a possible sale of the nightclub and freehold, which the third defendant was then negotiating with a third party. Mr Pearce said that, in the meantime, he would seek additional finance to cover arrears of interest payments and would attempt to extend the finance facility for a further year from June 2001.
The second defendant goes on in his affidavit to set out the subsequent negotiations to extend the loan while attempts to sell the nightclub were pursued. It is unnecessary for present purposes to go into those events. Suffice it to say that the first defendant was unable to sell the nightclub on terms acceptable to it and the first defendant remained in arrears on the interest payments due to the plaintiffs.
In September 2001, the plaintiffs issued the notices of demand under the mortgage and the debenture respectively.
The second defendant says that, from September 2001 to early 2002, he had various discussions with Mr Pearce about restructuring the first defendant's debt. In April 2002, GFC's finance broker's licence was suspended and in July criminal charges were preferred against Mr Pearce. That, obviously, was the end of any further involvement of Mr Pearce.
On 21 August 2002, the plaintiffs commenced the current action for possession of the secured property and judgment for the sum of $688,976.65, plus interest and costs. This application for summary judgment was made on 2 December 2002.
The defendants say in their affidavits of April 2003 that they have a number of claims against the plaintiffs arising out of the alleged conduct of GFC, as the plaintiffs' agent, in respect of delays in advancing the funds under the 1996 loan and events preceding the issue of the notices of demand, including in relation to the failed attempt to sell the nightclub. It is unnecessary to deal with those claims as they were not pursued at the hearing, the second defendant's counsel conceding that they would not constitute a defence to the present claim for possession because of what is commonly known as the rule in Inglis's case: Inglis v Commonwealth Trading Bank of Australia Ltd (1972) 126 CLR 161. The second defendant's counsel said that the second defendant was not in a position to make a payment into Court.

On behalf of the second defendant it was contended, however, that the second defendant was entitled to have the Thomson mortgage set aside; first, on the ground that the delay in payment of the balance of the original loan moneys constituted a variation of the second defendant's guarantee, secondly, that the mortgage had been entered into as a result of misrepresentations on the part of Mr Pearce and, thirdly, that the mortgage had been obtained by unconscionable conduct on the part of the plaintiffs, by their agent, Mr Pearce.
I did not understand the first two grounds to be pursued, and the focus was on the alleged unconscionable conduct. In any event, for reasons that I will come to, I consider there is no basis upon which those two grounds could be made out.
The claim of unconscionable conduct was based primarily on a short affidavit of the second defendant sworn on 27 August 2003, shortly before the hearing. That affidavit was sworn after an earlier hearing of this application, on 15 July 2003, had been adjourned to allow the second defendant to put on further affidavit material. Shortly before the hearing on 15 July the plaintiffs had indicated, for the first time, that they would rely on Inglis v Commonwealth Trading Bank of Australia Ltd (supra).
In the affidavit of 27 August 2003, the second defendant says that he provided the original mortgage over his house because Mr Pearce told him that it was only required "until the freehold of the nightclub was obtained in 1997."
According to the second defendant, when the purchase of the freehold was negotiated in 1997, he was informed that the plaintiffs would not lend the money to the first defendant unless the second defendant's house was retained as security. He says he was told by Mr Pearce that if the defendants did not buy the freehold, the lenders might not extend the existing loan at all and that would put the loan and the house "at demand". The second defendant says that if he had been informed of this in 1996, at the time he granted the original mortgage, he would not have agreed to provide his house as security.
He says that he was not aware, either in 1996 or when the Thomson mortgage was entered into in 1997, that he should have obtained independent advice. He says that if he had obtained independent advice, he would not have entered into the mortgages because it would have been apparent that the representations made to him by Mr Pearce were untrue.
He says he relied upon Mr Pearce's representations that his house was only needed as security for the original transaction and was misled as to why the security was necessary.
The second defendant also says that, if he had known that the original loan funds would be delayed in being advanced - which, he says, caused extra costs in developing the leasehold nightclub - he would never have allowed his house to be offered by way of security for the loan.
The second defendant says he is 69 years of age, with no assets other than his house and no income other than the aged pension. He says that Mr Pearce knew that he had a heart condition, and other health‑related problems, and that he became confused when under duress.
The allegation that delay in the advance of the original loan funds caused the first defendant to incur extra costs in the development of the nightclub is dealt with in more detail in the affidavit of the third defendant of 9 April 2003. In that affidavit, the third defendant says that by 4 April 1996 all finance dealings with the lenders were complete and the defendants expected to receive the full $300,000. However, on about 3 April 1996 the sum of only $180,000 was transferred into the first defendant's account, $20,000 having been retained for fees and expenses. The balance of $97,952.52 was not transferred until 2 July 1996. The third defendant goes on:
"13The balance of the funds, were not transferred to Romkara until 2nd of July 1996 in which $97,952.52 of the balance $100,000.00 (the balance difference funds was also with held by GFC for fees and interest) [sic]. This in itself caused delays in development and further ramifications of payments to the contractor. Although we explained the situation, Newman is a small town and the resulting implications of this caused damage to our credibility and financial situation.
14The effect of this meant that not only was our credibility damaged in terms of Newman but also the manner of the way the money was leant [sic] meant that it placed us under financial pressure. The delay in lending the money meant that we were unable to pay our contractors who instituted legal proceedings against us. We then had to obtain another contractor to finish the project which meant that we incurred costs of approximately $100,000.00. This overcapitalised the project. Hence at the end of the first year the 27th May 1997 Romkara again had to approach GFC to arrange further capital being $560,000.00.
15The effect of this lending in portions to us meant that in terms of borrowing we were placed at a special disadvantage in that we were now locked into an agreement to develop Club Ziggy's through Mr Dennis Pearce and any further dealings or borrowing of capital would have to be done through Mr Pearce which Mr Pearce well knew. Hence the transaction itself was unconscionable as there was an abuse by the Plaintiffs' agent Mr Pearce, in the manner and effect of lending the money.
16If we had known this at the time we would not have entered into the agreement to borrow money from Mr Pearce.
17When Mr Pearce was approached about this, he said that he could not help it as that he had used the $100,000.00 part of the $300,000.00 leant [sic] by the Plaintiffs in that the $100,000.00 wouldn't be available until it had come from a rollover from a project known as 'African Reef'.
…
19It was for this reason that Romkara approached GFC to raise further capital.
20It was necessary to raise the capital from GFC as the Defendants were already locked into the financial arrangements that GFC had established. The money had been spent and from my previous approaches to other financial institutions, the Plaintiffs' agent, Mr Pearce, would have known that the First Defendant would require further money to keep the project afloat.
21At Mr Pearce's insistence we were urged to attempt to borrow from the Plaintiffs $560,000.00 which $200,000.00 would be used to purchase the premises of Club Ziggy's.
22At the end of the first year 27th May 1997 Romkara had been carrying financial burdens of approximately $100,000.00. This was as a direct result of the Plaintiffs not making the full $300,000.00 available in April 1996.
23At the Plaintiffs agents urgings we were required to borrow the money to but [sic] the freehold of the nightclub. The reason for this was that the Plaintiffs now had extra security. We felt compelled given the financial position we had been placed in by the Plaintiffs actions."
It is clear that the power to order summary judgment must be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried: Fancourt v Mercantile Credits Ltd (1983) 154 CLR at 79. The need for exceptional caution is nowhere more important than where the ultimate outcome turns upon the resolution of some disputed issue or issues of fact: Webster v Lampard (1993) 177 CLR 598. It was never intended that when the facts are in dispute, actions should be disposed of summarily (White v Johnston (1886) 8 ALT 53) and the Court does not dispose of the factual merits by rejecting the defendant's affidavit evidence because of its arguable inconsistency with documentary evidence adduced by the plaintiff: Gillon & Ors v Kyle, unreported; FCt SCt of WA; Library No 9123; 16 October 1991. But the Court is not bound to accept uncritically as raising a dispute of fact calling for further investigation every statement in an affidavit, however equivocal, lacking in precision or inconsistent with contemporary documents or other statements by the deponent: Eng Mee Yong v Letchumanan [1980] AC 331 at 341.
It is against the background of those principles that I turn to the issues raised on the current application. As I have said, the primary, if not the only, ground of defence raised to the plaintiffs' claim is that of unconscionability.
In Commercial Bank of Australia Ltd v Amadio & Anor (1983) 151 CLR 447 at 462, Mason J said:
"It is made plain enough, especially by Fullagar J, that the situations mentioned are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition or circumstance is placed at a special disadvantage vis-à-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word 'disadvantage' by the adjective 'special' in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party"
That passage was quoted with apparent approval by all members of the High Court in Bridgewater & Ors v Leahy (1998) 194 CLR 457 and more recently by Gummow and Hayne JJ in Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd & Ors [2003] HCA 18 at [55].
It is clear that a person is not in a position of relevant disadvantage simply because of an inequality of bargaining power: Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd & Ors (supra). It follows that the fact that a person is in financial difficulty and in need of money does not of itself constitute a position of relevant disadvantage.
As I understand the case advanced on behalf of the second defendant, he alleges that the conduct of the plaintiffs, by GFC, was unconscionable because the second defendant had been placed by GFC's wrongful conduct in a position where he had no alternative but to accept the plaintiffs' demand that he enter into the Thomson mortgage. It was contended that delay by the lenders in advancing the original loan funds in 1996 for the development of the nightclub put the defendants in a financial position where they had to borrow further funds through GFC to buy the freehold. The second defendant was informed that the plaintiffs would not lend the money to the first defendant unless the second defendant's house was retained as security. Mr Pearce told him that if the defendants did not buy the freehold, the lenders "might not" extend the existing loan at all and that would put the loan and the house at risk. He, therefore, had no practical alternative but to grant the Thomson mortgage to secure those funds.
This case was based primarily on the matters raised by the second defendant, for the first time, in his affidavit of 27 August 2003. It is, however, plainly inconsistent with the second defendant's own contemporaneous documents.
In the second defendant's letter of 7 February 1997, seeking the additional funds to acquire the freehold on which the nightclub stood, he says that the defendants intended to acquire the freehold "due to the success story for … [the nightclub]". He says that had the first defendant owned the freehold, the net profit in the first five months of trading would have been 38 per cent rather than the 34 per cent achieved.
In his letter of 5 May 1997, some two months before he entered into the Thomson mortgage, the second defendant said that one of the options then available was to sell the nightclub business "at a handsome profit". He went on to say that in February 1997 the defendants had had a sworn valuation of the nightclub on a freehold basis of $950,000.
In its letter of 26 May 1997, advising that it had raised the loan funds, GFC said that the proposed loan would be secured by, among other things, a mortgage over the second defendant's house. The second defendant annexed this letter to his affidavit of 9 April 2003 without any comment on this aspect of it.
No attempt has been made by the second defendant in his affidavit of 27 August 2003 to reconcile the case he now seeks to make with the contemporaneous documents. Indeed, no reference is made in that affidavit to any contemporaneous documents.
There is also no suggestion in any of the correspondence annexed to the second defendant's 9 April 2003 affidavit, nor in the affidavit itself, that if the first defendant did not buy the freehold, the existing lenders might not extend the existing loan at all and the second defendant's house would then be at risk. That assertion emerged, as I have said, for the first time in the short affidavit sworn on 27 August 2003. It is also significant that the second defendant does not say that he was ever told that the lenders would not extend the first loan; he puts it no higher than that he was told they "might not" extend it and his house would then be "at immediate demand".
There is also nothing to suggest that at that time, given the success of the nightclub and the valuation of it obtained by the defendants, no other possible source of funds was available to the first defendant.
The third defendant's affidavit, which on this aspect of the matter is also inconsistent with the contemporaneous documents, does not mention the Thomson mortgage or the position of the second defendant.
On the basis of the second defendant's own contemporaneous documents, at the time he entered into the Thomson mortgage he did not consider that he was in the hopeless position that he now claims. It is clear from his letter of 5 May 1997 that at the time he thought an alternative to extending the existing loan, or procuring the new loan, was to sell the nightclub "at a handsome profit". That, plainly, would have led to the mortgage over his house being discharged. For whatever reason, at the time that course apparently did not commend itself to the second defendant.
The second defendant's difficulties do not end there. His case is, of course, based on the proposition that his alleged parlous position was brought about by the delay in the 1996 funds being advanced. There is, however, no evidence that the 1996 lenders were obliged to advance the original loan funds sooner than they did. In connection with that, the third defendant simply says that the defendants "expected" to receive the full amount of $300,000 after 4 April 1996 as the "finance dealings with the lenders had been completed". He says that the sum of $180,000 was transferred on about 3 April 1996 "despite our protests an assurance [sic] that the following monies would be paid within 30 days." It is not at all clear what that means. But it does not go to make out a breach of any obligation on the part of the lenders to advance the funds sooner than they did.
It is also notable that no complaint is made in the second defendant's affidavit of 9 April 2003 about the late advance of the 1996 loan funds. There, he simply observes that the sum of $180,000 was advanced before the loan documentation had been finalised and he says that, from his earlier discussions with Mr Pearce, he understood that Mr Pearce was able to "source funds and arrange funding prior to formal arrangements being finalised." In relation to the extension of the loan term, because of the delay, he says simply that "[t]his, I believe, was in accordance with Pearce's assurances during our initial discussions that flexibility would be maintained and that variations and extensions could take place as the need arose".
All that is a long way from anything tending to establish that the lenders involved in the 1996 transaction were in breach of an obligation to advance the loan funds sooner than they did. It is even further from establishing that the seven plaintiffs who were not involved in the 1996 loan have any liability for any problems associated with that loan.
In the circumstances, a demand by the plaintiffs that the second defendant provide the Thomson mortgage as part of the price of providing the loan funds in 1997 could not, in my view, constitute unconscionable conduct.
The contention that the second defendant was discharged from any liability under the Thomson mortgage, because of the delay in 1996 in advancing the original funds to the first defendant, was not developed in argument. It necessarily founders, in my view, because, among other things, it relates to the previous, 1996, agreement, not to the agreement that is the subject of these proceedings.
The contention that the Thomson mortgage was entered into in reliance upon misrepresentations by Mr Pearce is also, in my view, untenable. The alleged misrepresentations relate to the 1996 transaction, not to the Thomson mortgage which is the subject of these proceedings. For the reasons I have given, I do not accept that, as a consequence of having entered into the original mortgage, the second defendant had no practical alternative but to enter into the Thomson mortgage. I might add that there is, in any event, nothing which goes to show that any representations that the second defendant's house could, or even would, be released upon the first defendant acquiring the freehold were false at the time, in 1996, when they were made.
Although in his affidavit of 27 August 2003 the second defendant raises his age and health, there is nothing to suggest that he suffered any relevant disability that seriously affected his ability to make a judgment about what was in his own best interests. It is apparent from his affidavit of 9 April 2003 that the second defendant is an experienced businessman and, indeed, it was because of his established business relationship with Mr Pearce, borne of their many prior dealings, that the defendants approached GFC in the first place.
I am very conscious of the exceptional caution with which the power to order summary judgment must be exercised. I am, however, persuaded that the plaintiffs are entitled to judgment. The matters now relied upon by the second defendant were raised for the first time very late in the day. In contrast to his earlier affidavit, where he traversed the events in some detail, his later affidavit lacks an appropriate degree of particularity. There is also no explanation as to why the matters now raised were not mentioned in his earlier affidavit. Most importantly, the case the second defendant now seeks to make is simply inconsistent with the contemporaneous documents annexed to his earlier affidavit, in circumstances where he has made no attempt at all to explain the inconsistencies. The only inference that can be drawn is that he can offer no plausible explanation. I do not, therefore, accept that the alleged defence of unconscionability has any credibility. I do not consider that the second defendant has shown an arguable defence on that or any of the other grounds relied upon.
In my view, the plaintiffs are entitled to the judgment they seek.