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Jams 2 Pty Ltd v Stubbings

Jams 2 Pty Ltd v Stubbings

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SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2019 0085

JAMS 2 PTY LTD (ACN 600 173 117) (and others according to the attached schedule)	Applicants
v
JEFFREY WILLIAM STUBBINGS	Respondent

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JUDGES:	BEACH, KYROU and HARGRAVE JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	8 May 2020
DATE OF JUDGMENT:	5 August 2020
MEDIUM NEUTRAL CITATION:	[2020] VSCA 200
JUDGMENT APPEALED FROM:	Jams 2 Pty Ltd v Stubbings(No 3) [2019] VSC 150 (Robson J); Jams 2 Pty Ltd v Stubbings (No 4) [2019] VSC 480 (Robson J)

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EQUITY – Unconscionable conduct – Asset-based lending – Wilful blindness – Lending organised by firm of solicitors – Lending secured on borrower’s only significant assets – No evidence of ability to repay sought or received – Whether asset-based lending unconscionable – Consideration of unconscionability requires close examination of all the circumstances – Whether lenders put on inquiry – Lenders entitled to rely on certificates of independent legal and financial advice – Australian Securities and Investments Commission v Kobelt (2019) 368 ALR 1; (2019) 93 ALJR 743; [2019] HCA 18 considered; Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413 considered and distinguished; Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 considered – Application for leave to appeal granted – Appeal allowed.

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APPEARANCES:	Counsel	Solicitors
For the Applicants	Mr D Williams QC with Mr J Mattin	Christopher William Legal
For the Respondent	Mr A Dinelli with Mr A Christopherson	Garlan & Hawthorn Brahe Lawyers

BEACH JA
KYROU JA
HARGRAVE JA:

Asset-based lending involves lending on the value of the assets securing the loan, without any consideration of the borrower’s ability to repay the loan from their own income or other assets. No credit-risk analysis other than the calculation of the loan amount to security value ratio is undertaken by the lender. Thus, the lender makes the loan ‘without regard to the ability of the borrower to repay by instalments under the contract, in the knowledge that adequate security is available in the event of default’.[1]
[1]Perpetual Trustees Company v Khoshaba [2006] NSWCA 41, [128] (Basten JA); Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205, 227 [96] (Campbell JA) (‘Kowalczuk’).

There are numerous cases which have considered whether, in the circumstances of the particular case, asset-based lending constitutes unconscionable conduct in equity or under various statutory provisions which prohibit such conduct. The prevailing view is that the existence of asset-based lending, while a relevant factor in deciding whether a particular loan resulted from unconscionable conduct, is not determinative — because ‘all the circumstances’ of each case must be considered.[2] For example, there may be irregularities with the loan application which put the lender on notice that further inquiries should be made.[3]
[2]For example, Kowalczuk (2008) 77 NSLWR 205, 227–8 [96]–[99]; Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389, [3], [291]-[293]; Violet Home Loans Pty Ltd v Schmidt (2013) 44 VR 202, 219–20 [59]; Perpetual…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2020] VSCA 200
Decision Date: 5 August 2020

CaseChat Overview and Summary

In the case of Jams 2 Pty Ltd v Stubbings, the dispute involved an asset-based lending arrangement. Jams 2 Pty Ltd sought to establish that the loan agreements, which were secured against the borrower’s only significant assets, were procured through unconscionable conduct by the lenders. The case was heard in the New South Wales Supreme Court. The primary focus was on whether the lending arrangements were unconscionable, particularly given the lack of evidence concerning the borrower’s ability to repay and the absence of any steps taken by the lenders to verify this ability.

The legal issues the court had to address included whether the asset-based lending arrangement amounted to unconscionable conduct, and if so, whether the lenders were put on inquiry by any circumstances that should have prompted them to seek evidence of the borrower's capacity to repay. A significant aspect of the decision was whether the lenders were entitled to rely on certificates of independent legal and financial advice, given that they did not directly seek information about the borrower’s repayment capacity.

The court ruled that the consideration of unconscionability required a close examination of all the circumstances surrounding the lending arrangement. It found that the lenders were not put on inquiry by any specific circumstances that would have required them to seek further evidence of the borrower's ability to repay the loans. The court held that the lenders were entitled to rely on the certificates of independent legal and financial advice, which did not disclose any information suggesting the borrower could not repay the loans. The court distinguished the case from previous decisions such as Elkofairi v Permanent Trustee Co Ltd and considered the implications of Australian Securities and Investments Commission v Kobelt and Tonto Home Loans Australia Pty Ltd v Tavares. Ultimately, the court granted leave to appeal and allowed the appeal, finding that the loans were not procured by unconscionable conduct.

The final orders of the court were that the appeal was allowed, and the decision of the lower court was set aside. The case was remitted for further proceedings consistent with the Supreme Court’s judgment.

Orders