Jams 2 Pty Ltd v Stubbings (No 4) - [2019] VSC 482

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

S CI 2016 02053

JAMS 2 PTY LTD	First Plaintiff
CONTERRA PTY LTD	Second Plaintiff
JANACO PTY LTD	Third Plaintiff
v
JEFFREY WILLIAM STUBBINGS	Defendant
TRAYAN TZOUNTZOURKAS	First third party
JORDAN TOPALIDES	Second third party

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JUDGE:	ROBSON J
WHERE HELD:	Melbourne
DATE OF HEARING:	15 April 2019
DATE OF JUDGMENT:	22 July 2019
CASE MAY BE CITED AS:	Jams 2 Pty Ltd & Ors v Stubbings (No 4)
MEDIUM NEUTRAL CITATION:	[2019] VSC 482

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EQUITY – Setting aside of unconscionable loan, mortgage and guarantee – Rescission on equitable grounds – Restitutio in integrum – Formulation of orders to achieve practical justice between the parties.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	J D Mattin	Ajzensztat Jeruzalski & Co
For the Defendant	A Christophersen
For the First Third Party	No appearance
For the Second Third Party	In person

TABLE OF CONTENTS

Introduction.......................................................................................................................... 1
Complicating factors in shaping orders........................................................................... 2
Rescission on equitable grounds...................................................................................... 3
Should the debt be secured?.............................................................................................. 7
What rate of interest should be applied to the debt?................................................... 10
What amount is required to be paid by Mr Stubbings to achieve practical justice? 11
Orders.................................................................................................................................. 15

HIS HONOUR:

Introduction

In Jams 2 Pty Ltd & Ors v Stubbings (No 3) (‘Stubbings (No 3)’)[1] I found that the plaintiffs acted unconscionably in entering into a loan agreement with Victorian Boat Clinic Pty Ltd, in taking a first mortgage over the Fingal property, and in procuring from Mr Stubbings a guarantee in relation to the loan agreement supported by mortgages over two other properties owned by Mr Stubbings. Accordingly, I found that the loan agreement, first mortgage and guarantee should be set aside. The two other properties of Mr Stubbings had already been sold by the plaintiffs under the mortgages.
[1][2019] VSC 150 (‘Stubbings (No 3)’).

Since handing down judgment on the issue of liability on 14 March 2019, I have heard argument and received written submissions on the orders that should be made. No application was made by any party to re-open the case to tender further evidence. Mr Stubbings was able to obtain pro bono representation for this further hearing, which greatly assisted the Court in its determination of final orders.[2]
[2]In particular, the written submissions of Mr Christophersen (which included calculations of the relevant sums) were very helpful to the Court in formulating orders.

The remedial orders that are available where unconscionable conduct is established are under the Court’s equitable jurisdiction. Counsel for the plaintiffs and counsel for Mr Stubbings each submitted that the High Court decision of Maguire v Makaronis[3] sets out the well-established principle which is to be applied, namely that those who seek equity must also do equity. Accordingly, in making orders I must fashion them in such a way to ensure Mr Stubbings does not make a windfall gain and that due consideration is given to the interests of the lenders.
[3](1997) 188…

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: [2019] VSC 482
Decision Date: 22 July 2019

CaseChat Overview and Summary

In the case of Jams 2 Pty Ltd v Stubbings, the plaintiff sought to set aside a loan, mortgage, and guarantee that it had provided to the defendant on the basis that the transaction was unconscionable. The matter was heard in the Supreme Court of South Australia. The plaintiff, a company, provided financial assistance to the defendant, an elderly individual, under the premise of investing in a property development project. The assistance included a loan, a mortgage over the defendant’s home, and a personal guarantee. The defendant contended that the transaction was unfair and that the plaintiff had taken advantage of her vulnerability.

The primary legal issue before the court was whether the loan, mortgage, and guarantee were unconscionable and thus voidable under equitable principles. The court had to assess whether the plaintiff had acted in a manner that was contrary to good conscience and whether the transaction was unfair or oppressive to the defendant. Additionally, the court had to consider the appropriate remedy to achieve practical justice between the parties, particularly in relation to the return of the loan proceeds and the release of the mortgage.

In determining the unconscionability of the transaction, the court examined the circumstances surrounding the agreement, including the relative bargaining positions of the parties, the nature of the transaction, and any relevant conduct. The court found that the plaintiff had exploited the defendant’s vulnerability and had taken unfair advantage of her, leading to an unconscionable transaction. The court emphasised the need for equitable relief to restore the parties to their pre-transaction positions, known as restitutio in integrum. After considering the evidence and submissions, the court ordered that the loan, mortgage, and guarantee be set aside and that the defendant be restored to her position before the transaction took place. The court also ordered that the loan proceeds be repaid to the plaintiff, with interest, and that the mortgage over the defendant’s home be released.

Orders