LNCP002 Pty Ltd v Feridun Akcan

[2021] NSWSC 848

Supreme Court

New South Wales

Medium Neutral Citation:

LNCP002 Pty Ltd v Feridun Akcan [2021] NSWSC 848

Hearing dates:

10-12 May 2021

Date of orders:

16 July 2021

Decision date:

16 July 2021

Jurisdiction:

Common Law

Before:

N Adams J

Decision:

See [242].

Catchwords:

CONTRACTS — Breach of contract — alleged default by borrower under mortgage – where due date for payments disputed – whether due date varied orally or in writing by parties – held, due date was varied as advanced by lender

CONTRACTS — Implied terms — Terms implied in fact – whether it was an implied term of the loan agreement that the lender would provide a loan statement upon request – where borrower had express right to early repayment of loan – where borrower had to give irrevocable notice specifying the amount to be repaid – held, necessary to imply such a term

ESTOPPEL — Promissory estoppel — where borrower believed payment was due on 11th – where lender previously accepted payment on 11th – whether lender entitled to issue default notice due to failure to pay on 8th of the month – held, lender was estopped from issuing default notice

CONSUMER LAW — Unconscionable conduct — In connection with goods or services — System of conduct or pattern of behaviour – where lender failed to issue loan statement without reasonable excuse – where lender entered negotiations for deed of forbearance during COVID-19 shutdown – where lender issued default notice during negotiations – where default notice issued two days before borrower believed payment was due – held, lender acted unconscionably under s 21 of the ACL

CONSUMER LAW — Misleading or deceptive conduct — Representations as to future matters – where lender said it would “action” request for a loan statement “now” – where lender failed to do so – held, not misleading and deceptive conduct

Legislation Cited:

Australian Securities and Investments Commission Act2001 (Cth), ss 12BB, 12DA

Competition and Consumer Act 2010 (Cth), Sch 2 – Australian Consumer Law, ss 18, 20, 21, 22, 232, 236

Conveyancing Act1919 (NSW), s 93

Real Property Act 1900 (NSW), s 57(2)(b)

Cases Cited:

Australian Competition and Consumer Commission (ACCC) v Get Qualified Australia Pty Ltd (In Liq) (No 2) [2017] FCA 709

Australian Competition and Consumer Commission v Medibank Private Ltd (2018) 267 FCR 544; [2018] FCAFC 235

Australian Competition and Consumer Commission (ACCC) v Lux Distributors Pty Ltd [2013] FCAFC 90

Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1; [2019] HCA 18

Awad v Twin Creeks Properties Pty Limited [2012] NSWCA 200

B.P. Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266

Blomley v Ryan (1956) 99 CLR 362; [1956] HCA 81

Butt v McDonald (1896) 7 QLJ 68

City of Botany Bay Council v Jazabas Pty Limited(ACN 060 105 053) [2001] NSWCA 94

Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184

Heilbut, Symons & Co v Buckleton [1913] AC 30

Hercules Motors Pty Ltd v Schubert (1953) 53 SR (NSW) 301

Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133; [1919] HCA 64

Kosho Pty Ltd v Trilogy Funds Management Ltd [2013] QSC 135

Nadrak Pty Ltd v Permanent Custodians Ltd (1994) 6 BPR 13,344

Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199; [2015] FCAFC 50

Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234

Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596; [1979] HCA 51

Sykes v Reserve Bank of Australia (1998) 88 FCR 511; [1998] FCA 1405

Tonto Home Loans Australia Pty Ltd v Tavares; FirstMac Ltd v Di Benedetto; FirstMac Ltd v O'Donnell [2011] NSWCA 389

Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; [1988] HCA 7

Category:

Principal judgment

Parties:

LNCP002 Pty Ltd ACN 637 107 576 (Plaintiff/First Cross-Defendant)
Feridun Akcan (Defendant/First Cross-Claimant)
Diamond House Jewellery Pty Ltd ACN 083 444 277 (Second Cross-Claimant)
MZF Investment Group Pty Ltd ACN 626 166 854 t/as LaunchCap (Second Cross-Defendant)

Representation:

Counsel:
Mr M W Young SC (Plaintiff)
Mr M B Evans/Ms V Chan (Defendant)

Solicitors:
Summer Lawyers (Plaintiff)
Future Legal (Defendant)

File Number(s):

2020/166316

Publication restriction:

Nil

Judgment

Overview

1. By statement of claim filed on 4 June 2020 the plaintiff, LNCP002 Pty Ltd (“the lender”) seeks possession of the family home of Feridun Akcan (“the defendant” also known as “Adam”) in Canada Bay. Mr Akcan guaranteed a loan from the lender to his jewellery business, Diamond House Jewellery Pty Ltd (“Diamond House”). The lender claims that Diamond House defaulted on that loan. Mr Akcan disputes any default.

2. By cross-claim filed on 24 August 2020, Mr Akcan and Diamond House seek relief, including damages as against both the lender and MZF investment Group Pty Ltd trading as LaunchCap (hereinafter “LaunchCap”) for breach of contract, unconscionable conduct and misleading and deceptive conduct. The lender is a corporate vehicle set up purely for the purposes of this specific loan whereas LaunchCap and its director Jeremy Fleischner managed the loan.

3. A number of issues arose for consideration in this matter. The statement of claim raised the following questions:

1. Were interest payments under the loan agreement due on the 11^th day of each month or on some other day?;

2. If the April interest payment was due on 8 April 2020 (rather than 11 April 2020) was the lender estopped from relying on an alleged default on 8 April 2020?; and

3. Was Mr Akcan in default on 9 April 2020?

4. The following issues arose for consideration under the cross-claim:

1. Did the lender act unconscionably in issuing a default notice on 9 April 2020?;

2. Was there an implied term of the contract requiring the lender to provide Mr Akcan with a loan statement in a timely manner upon request?;

3. Did the lender breach an implied term of the contract by failing to provide Mr Akcan with a loan statement within a reasonable time after he requested it?;

4. If the lender is unsuccessful in its claim what orders should be made?;

5. Did the lender and/or LaunchCap engage in misleading and deceptive conduct after 18 February 2020 by informing Mr Akcan and his broker that a loan statement would be provided imminently when none was provided until 22 June 2020?; and

6. If the defendant/cross-claimant succeeds in the cross-claim what is the appropriate relief?

The evidence

5. The hearing was conducted before me over three days on 10, 11 and 12 May 2020. Mr Young SC appeared for the lender and LaunchCap and Mr Evans of counsel appeared with Ms Chan for Mr Akcan and Diamond House.

6. The lender and LaunchCap relied upon the affidavits of Mr Fleischner and the exhibits thereto. Mr Akcan and Diamond House relied upon Mr Akcan’s affidavits and that of his broker, Ms Lordin Arvanitopoulos, as well as the exhibits and annexures thereto. Ms Arvanitopoulos is a finance broker from whom Mr Akcan sought advice as to the refinancing of his loan between late February and mid-June 2020. These three witnesses all gave evidence and were cross-examined.

7. It became apparent from the evidence of Mr Fleischner that he was not the sole decision-maker in relation to a number of important factual matters in dispute. One of the individuals providing the funds to the lender was Mr David Fitzgibbon. He provided instructions to Mr Fleischner and a real issue arose as to whether he, rather than Mr Fleischner, was the decision-maker on a number of important issues including the decision to issue the default notice on 9 April 2020. Although Mr Fitzgibbon was a party to a number of relevant emails, no affidavit was ever obtained from him.

8. Most of the relevant evidence was in documentary form which I have set out below. In addition to the documents, the facts set out below represent factual matters not in dispute. As it turned out, very few of the relevant factual findings turn on questions of credit, as opposed to the drawing of inferences from proven facts. I will make the relevant factual findings in relation to facts in dispute below at [175]-[183].

Facts

9. In October 2019, Mr Akcan was an established jeweller running his own business, Diamond House, out of a jewellery shop in the Top Ryde shopping centre. He had operated his jewellery business for about 38 years at the date of hearing and had worked in the jewellery industry since the age of 18. He arrived in Australia at the age of 15. English is his fifth language. He gave evidence that he had no formal training in English before the age of 15 and learned to speak English primarily through his business.

10. In October 2019, Mr Akcan was offered an opportunity to purchase wholesale diamonds at discounts of up to 60%. He needed to borrow about $200,000 in a short time frame to take advantage of this opportunity and approached a mortgage broker to refinance the loan on his home in Canada Bay. That property was already subject to a mortgage and was refinanced at a higher rate so that Mr Akcan could obtain the money he required at short notice.

11. Mr Akcan was introduced to Mr Fleischner, the director of LaunchCap, by his broker. Mr Fleischner had commenced operating LaunchCap in May 2018. LaunchCap’s function was to manage loans on behalf of investors. As at the date of hearing, Mr Fleischner had been involved in the private lending industry for four years. The loan to Diamond House was approved and the lender was set up as a corporate vehicle to loan the funds. It was just one of several “LNCP” companies, each of which was set up for an individual loan agreement. These companies were sometimes deregistered once a loan agreement had been paid out.

12. The funds for the loan to Diamond House came from external investors. One of those investors was Mr David Fitzgibbon, who was described by Mr Fleischner as the “point man” for the investor group on the Diamond House loan.

The written agreement

13. On 30 October 2019, Mr Akcan’s solicitor, Mr Ahmet Nedjat, forwarded him an email with attachments. That email stated that hard copies of the loan documents were being couriered to his solicitor’s office for execution.

14. On 31 October 2019, Mr Akcan received a text message from his solicitor advising that the documents had been delivered to his office. Mr Akcan arranged for he and his family members (the guarantors) to attend the solicitor’s office and sign the documents. These documents were:

1. A Letter of Offer and Guarantee and Indemnity;

2. A mortgage and Mortgage Deed;

3. A General Security Deed;

4. A verification certificate and verification of identity certificates.

15. Mr Akcan and the guarantors signed these documents on 31 October 2019. The borrower was Diamond House and the guarantors were Mr Akcan and his two family members. After he signed the documents, Mr Akcan hand-delivered them to the office of Piper Alderman, the solicitor for the lender, that same day. When he delivered the documents, there was no date affixed next to his signature on the Letter of Offer and Guarantee and Indemnity, nor on the Mortgage Deed or General Security Deed. These documents came to bear the date 1 November 2019, which appears to be in the same handwriting as the signature of the lawyer from Piper Alderman who signed the documents on behalf of the lender.

16. On 4 November 2019, a solicitor at Piper Alderman sent further documents to be signed by Mr Akcan and the guarantors (a “Waiver of Independent Financial Advice” form). These documents were signed on 4 November 2019 and Mr Akcan again hand-delivered these documents to the Piper Alderman office on the same day.

17. On 5 November 2019, the same solicitor from Piper Alderman emailed a further document entitled “Undertaking re tax portal statements”. That document included the following requirement regarding payment in advance of three months’ interest:

“The Borrower undertakes to repay to the lender three months interest as a Condition Precedent to the Initial Advance.”

18. This was not a condition that had previously been proposed or agreed to by Mr Akcan. Mr Fleischner conceded in cross-examination that this additional condition was essentially put to Mr Akcan as a “take it or leave it” proposition after the other documents had already been signed. In those circumstances, Mr Akcan and the guarantors signed that document on 6 November 2019 and Mr Akcan again hand-delivered it to the lender’s solicitor on the same day.

19. Due to these settlement delays (caused, inter alia, by the lender adding the additional conditions), Mr Akcan did not get the funds he needed until 11 November 2019. Three months’ interest was deducted from the amount advanced to Mr Akcan as well as $13,012.30 in legal fees paid to Piper Alderman.

The mortgage and loan documents

20. Part A of the loan agreement (“Facility Terms”) provides that the principal amount is $2,025,000 with a “higher rate” of 30% per annum interest (the default rate) and a “lower rate” of 11.5% per annum (the ordinary rate). The “Initial Advance Drawdown Date” is recorded as 30 October 2019. That was not the date that Mr Akcan received the funds. This appears to be the date that the monies were advanced by the investors to the lender. The term of the loan is 12 months from the date of the “Initial Advance” with a minimum term of six months.

21. Part D (“Terms and Conditions”) sets out the following relevant definitions in cl 1.1:

“Advance means any drawing under this deed and where appropriate the amount of the Advance, and includes any deemed Advance under clause 12.2 (Costs and Expenses);

…

Force Majeure includes, without limitation, fire, storm, flood, earthquake, explosion, accident, war, act of the public enemy, rebellion, insurrection, sabotage, epidemic, labour dispute, electrical failure, telecommunications failure and/or act of God;

…

Initial Advance means the first Advance made under this deed;

Initial Advance Drawdown Date means the earlier of the Initial Advance or the date detailed in Item 5 [30 October 2019];

…

Interest Payment Date means the first day of each calendar month;

Interest Period has the meaning set out below:

(a) the first Interest Period begins on the Initial Advance Drawdown Date and ends on the next Interest Payment Date which shall be the first day of the following calendar month, and interest shall be calculated and pro-rated for the number of days in that period (Initial Interest Period);

(b) the second Interest Period begins on the date of expiry of the Initial Interest Period and ends on the next Interest Payment Date; and

(c) each subsequent Interest period begins on the date of expiry of the preceding Interest Period and ends on the next Interest Payment Date. …” (emphasis in original)

22. Clause 3.4 requires the borrower to obtain refinance for the loan within 12 months:

“3.4 Conditions subsequent

(a) The Obligors warrant to the Lender that they will on or prior to the Termination Date repay the Secured Money from the refinance of the Property and the Facility to another financier. Should a refinance of the Facility to another financier be unsuccessful prior to the Termination Date, then the Obligors must sell the Property, on terms acceptable to the Lender in all respects, and apply all of the sale proceeds from the sale of the Property in full payment of the Facility and all other Secured Money prior to the Termination Date;

(b) The Obligors undertake and agree to refinance the Secured Money on or prior to the Termination Date with time being of the essence. If the Obligors have not refinanced or otherwise paid out the Secured Money by the Termination Date (which the Obligors acknowledge will be an Event of Default) they undertake and agree to [facilitate the sale by auction of the property not less than 3 months after the Termination Date or, after that period, to provide vacant possession].”

23. Clause 4.2 of the Terms and Conditions provides for early repayment of the loan:

“4.2 Early Repayment

The Borrower acknowledges and agrees that by the Lender making financial accommodation available to the Borrower, the Lender has made commitments to investors on the promise of a minimum payment of interest, costs and expenses in accordance with clause 4.2(b) below.

The Borrower may at any time before the Termination Date prepay all or any part of the Secured Money provided that:

(a) the Borrower gives the Lender not less than 30 days notice of its intention to prepay (which shall be in writing, be irrevocable and specify the date upon which the relevant prepayment is to be made and the amount of the proposed prepayment) (Prepayment Notice);

(b) if the date of prepayment in the Prepayment Notice falls within the Minimum Term, in addition to the amount to be prepaid, the Borrower must also pay to the Lender an amount equal to all interest and fees (including, but not limited to the monthly Management Fee) which (but for the prepayment) would have been payable by the Borrower to the Lender on the amount to be prepaid for the period from the date of the relevant prepayment up to and including the last day of the Minimum Term; and

(c) in the Lender’s opinion no Event of Default has occurred and no Event of Default is likely to occur as a result of such prepayment.” (emphasis in original)

24. Clause 5 provides for the payment of interest:

“5.1 Payment of interest

(a) The Borrower must pay interest in advance to the Lender on the Limit and any other Secured Money for each Interest Period at the applicable Interest Rate. The Borrower must pay the applicable amount of Interest on each Interest Payment Date.

(b) Interest shall be calculated on the basis that it accrues daily in advance from and including the first day of each Interest Period to the last date of that Interest Period.

In the case of a prepayment or repayment being made on a date other than an Interest Payment Date, interest shall be calculated on the basis that it accrues daily in advance from and including the first day of that Interest Period to the relevant prepayment or repayment date.

(c) The Borrower must pay in advance to the Lender on or before the date of the Initial Advance the Management Fee for the Period together with the Interest for that Period at the Lower Rate.”

25. Clause 7 provides that the guarantors jointly, severally and unconditionally indemnify the lender for the punctual payment of the secured moneys, as well as all charges, costs, and expenses associated with, inter alia, any failure on the part of the borrower to punctually pay the secured moneys.

26. Under cl 10(d), an event of default includes any failure to “pay or repay any moneys payable… under any Finance Document when due and in the manner required.” Clause 11.1 provides that in the event of any default the lender may “demand and require immediate payment of the Secured Money in full and take all necessary steps to recover the Secured money from the Obligors or any one of them”.

27. Clauses 12.29 and 12.31 deal with variation of the contract and force majeure:

“12.29 Variation of Document

A variation of the terms and conditions of this deed will not be of effect unless it is in writing and signed by or on behalf of the parties.

…

12.31 Force Majeure

If an act of Force Majeure occurs:

(a) the obligations of the Lender under the Finance Documents (including, without limitation, any obligations to continue to provide or maintain the Facility) will be suspended to the extent that the Lender is wholly or partially unable to comply with those obligations by the relevant act of Force Majeure;

(b) the Lender will, as soon as practicable, notify the Borrower of the Force Majeure event and the extent to which the Lender is unable to comply with its obligations under the Finance Documents; and

(c) the Lender may by notice to the Borrower, to the extent that it is necessary (in the Lender’s reasonable determination) for it to do so, terminate its obligations under the Finance Documents and on receipt of such notice;

(i) the obligation of the Lender to continue to provide the Facility will be cancelled; and

(ii) if the Lender so requires, the Borrower will, on such date as the Lender specifies, prepay all Secured Money then outstanding or otherwise payable to the Lender.”

28. As stated above, Mr Akcan and the two guarantors also signed an undertaking on 6 November 2019 providing that three months’ interest would be paid in advance as a condition precedent to the initial advance. That undertaking also required that Mr Akcan and the two guarantors provide their tax portal statements on the first day of each month, unless otherwise agreed, and that Mr Akcan provide an invoice for the full amount of the diamonds purchased not later than five business days from the date of the initial advance.

29. The Mortgage Deed provided for a mortgage over the Canada Bay premises (Mr Akcan’s family home) as security for the funds advanced under the loan agreement. The mortgage form records that a registered mortgage was granted against the Canada Bay premises, and that the document was executed by the mortgagor on 31 October 2019 and by the solicitor for the mortgagee on 11 November 2019.

30. PEXA records indicate that settlement occurred on 11 November 2019. The total funds settled were $1,979,050 (the principal amount of $2,025,000 less three months’ interest at the lower rate paid in advance). Mr Akcan had needed and expected to receive over $200,000 in funds to purchase the diamonds. Instead, he only received $139,672.41, after the advance interest payments and the lender’s legal fees were taken out.

February 2020 interest payment

31. Mr Akcan proceeded on the basis that the first interest payment was due on 11 February 2020 given that he received the funds on 11 November 2019 and three months’ interest was paid in advance. As the first payment date approached, Mr Akcan realised that none of the loan documents contained any details as to how he was to make the interest payments. He wondered whether, based on previous experience, the interest payments would be debited directly from the account into which the advance was paid.

32. In early February 2020, Mr Akcan started making enquiries about how to make the interest payment. He first asked his lawyer, Mr Nedjat, who did not know but offered to ask Mr Mitchell Mackinnon (the broker for Mr Akcan’s loan). Mr Nedjat later contacted Mr Akcan to say that Mr Mackinnon did not pick up his phone and he would let Mr Akcan know once he had spoken to him.

33. On 11 February 2020 (the date Mr Akcan believed that the interest payment was due), Mr Akcan telephoned Mr Nedjat and said, “[n]o one has taken money out of [the] Diamond House Jewellery [bank account] what do I do?”. Mr Nedjat said that he had still not heard from Mr Mackinnon.

34. On 12 February 2020, a solicitor at Piper Alderman, acting on behalf of the lender, sent a default notice to Mr Akcan by email. That notice claimed that Mr Akcan had been in default since 31 January 2020 as the interest payments were due on the last day of each month. I pause here to note that this was incorrect. It was common ground that the contract actually provided that interest was due on the first day of each month. Mr Fleischner gave the following evidence about the lender’s omission to provide account details for interest payments in cross-examination:

“Q. The reason Mr Akcan hadn’t paid interest on the mortgage at any time in February prior to that was that you hadn’t provided him with details of any bank account to pay the money into, and you hadn’t given him any other means such as a book of deposit slips or whatever to enable him to actually pay the interest into the right place, had you?

A. No, we hadn’t.

Q. Launchcap is a professional loan management company; is that correct?

A. Yes.

Q. That’s all it does, isn’t it?

A. Yes.

Q. How could you lend someone $2 million and not give them information that enabled them to make the payments of interest?

A. At this moment, we didn’t set it up until later on - at a later date to this.

…

Q. I put it to you that that shows a rather an attitude of carelessness or indifference to the interests of the borrower on the part of, at least, Launchcap, doesn’t it?

A. You can put it that way, if that’s the way you characterise it.”

35. Mr Akcan responded to the default notice by email of 13 February 2020 in these terms:

“I have not been told to make payments nor have i been provided with the lander’s [sic] bank account details to make payments, nor any contact details (phone or email)

The lender was provided with our bank details and at settlement which was on the 11^th of November 2019 approximately $ 139,000.00 was deposited into our account, we were under the impression that the lender was going to debit our account on the 11^th of every month starting 11^th of February.

Could you please provide me with the lenders account details so that i can make the payments…”

36. As for Mr Fitzgibbon’s role in deciding to issue the default notice, Mr Fleischner described it as follows:

“Q. And were you the person that made the decision to issue that default notice?

A. Myself and a few others, yes.

Q. Was Mr Fitzgibbon one of the others?

A. Yes.

Q. What's Mr Fitzgibbon and where does he fit into all of this?

A. He's - he forms part of the investor group that's investing into this loan.”

37. Mr Fleischner gave the following evidence about the decision to subsequently withdraw the default notice issued on 12 February 2020:

“Q. You had the power to do that; did you?

A. Yes.

Q. That was – and just to clarify your answer that was an authority that you

had that you could exercise--

A. Sorry, I apologise, I agreed that with David at the time.

Q. You would need Mr Fitzgibbon’s agreement to do that?

A. Yes.

Q. And you obtained his agreement to do that?

A. Yes.”

Telephone conversation of 18 February 2020

38. On 18 February 2020, Mr Akcan’s solicitor, Seyfi Atila, wrote to Piper Alderman noting that no account details had been provided, and requesting that the lender’s account details be provided urgently. Mr Atila further noted that:

“Settlement took place on 11 November 2019 and the funds were advanced on 11 November 2019. On settlement 3 month’s interest payments were deducted in advance. Therefore, the first repayment was due on 11 February 2020 and not on 31 January 2020 as your client claims.”

39. Mr Fleischner telephoned Mr Akcan on 18 February 2020 after Mr Akcan’s solicitor sent the above email. Mr Akcan’s recollection of that conversation was as follows:

“[Mr Fleischner]: I am calling you about the default of your loan on 31^st of January 2020.

[Mr Akcan]: How can you default me on 31^st of January when I did not receive my money until 11^th of November? You kept 3 months pre-paid interest without my consent, I was told the next interest payment will be on the 11^th of February 2020.

[Mr Fleischner]: Well technically because you have signed the mortgage execution of the document on 31^stof October 2019 you are liable to pay interest from that date.

[Mr Akcan]: I do not accept that I am in default. You didn’t tell me the date the next interest payment was due, and you did not give me the bank account details to make the interest payments. Jeremy, I have the money to pay you.

…

[Mr Fleischner]: As far as I am concerned we have given you all of the account details through Mitchell [Mackinnon] to deposit the interest in our account.

[Mr Akcan]: Mitchell didn’t send me the details. I speak to Ahmet [Nedjat] and he speaks to Mitchell. Jeremy you are lending me the money and I am going to pay you back. You should be communicating with me not with Mitchell.

[Mr Fleischner]: Okay. Send the money to the account number you were provided with by my solicitor don’t worry about the default interest just pay the $2000 for the solicitor’s costs.

[Mr Akcan]: I’m not paying your solicitor’s costs because I haven’t done anything wrong.

[Mr Fleischner]: Ok. Just pay the normal interest rate only and forget about the rest.

[Mr Akcan]: Jeremy we must confirm this in writing. Send me an email so there’s no misunderstanding as soon as I receive your email I will make the interest payment.

[Mr Fleischner]: Ok, text me your email address.”

40. Although Mr Fleischner recalled having this telephone conversation with Mr Akcan on that date, he did not recall all the details of it. He recalled that the effect of it was that Mr Akcan would pay interest at the lower rate and would not pay legal costs of $2,000.

41. Mr Akcan gave evidence that it was during this telephone conversation that he first requested a “loan statement” from Mr Fleischner. A loan statement is a short document (one or two pages) setting out the key elements of the loan including the principal amount, the repayments made to date, and the payout figure. It also indicates whether the loan has ever been in default. Ms Arvanitopoulos’ evidence was that a default-free loan statement was an essential pre-condition to obtaining approval for refinance. Mr Akcan said that he requested that statement on 18 February 2020 in the following terms:

“[Mr Akcan]: Ok, Jeremy I am refinancing as we speak, I need the loan statement.

[Mr Fleischner]: I will have my accounts people send it to you.”

42. Mr Fleischner initially denied saying these words to Mr Akcan but conceded that he did not have a sufficient recollection of the conversation to depose as to what he did say. He gave the following evidence as to whether the loan statement was discussed during that conversation:

“Q. And you knew that because amongst other things you discussed [issuing a loan statement] with him on the phone on 18 February; hadn't you?

A. I don’t recall that conversation but if I did, yes.

Q. Do you recall speaking to Mr Akcan not necessarily then [on 17 March 2020], but at some time about what he wanted?

A. Yes.

…

Q. Do you recall talking to Mr Akcan on the phone at any time other than 18 February, at least before 8 April?

A. No, I don’t recall.

Q. Might it be that your recollection of a conversation in which he talked about a loan statement is in fact part of the exchange that took place between you and him on 18 February?

A. Yes.” (emphasis added)

43. Given that Mr Fleischner conceded in cross-examination that Mr Akcan may have raised the issue of the loan statement during the 18 February conversation I am satisfied that he did so. As to whether Mr Fleischner knew that Mr Akcan was refinancing at that time, it was put to Mr Akcan in cross-examination that he was not in fact refinancing at that time and that if he told Mr Fleischner that he was that would have been incorrect. Mr Akcan’s evidence was as follows:

“Q. You thought about it but you'd actually not taken any significant step towards [refinancing] as at that date; isn't that correct?

A. I was refinancing from day one when Mr Nedjat and Mr Mitchell got involved to get this loan and within three to four months they were going to refinance me so that was already on the card[s].”

44. On 19 February 2020, Mr Akcan wrote to Mr Fleischner confirming that the monthly interest payment of $19,406.25 for February would be transferred to the account details provided and noting that the default interest of $31,218.75 and legal fees of $2,000 would not be paid. On 19 February 2020, Mr Akcan sent a further email attaching a receipt for the interest payment and noting that the interest payment was “for 11^th of February 2020”.

45. On 25 February 2020, Mr Fleischner, on behalf of the lender, emailed Mr Akcan in the following terms:

“Just confirming with you that moving forward, your due date is the 8^th of every month. Any future missed payment will attract another event of default.”

46. Mr Akcan responded as follows:

“Just confirming the settlement was on 11^th November 2019 the payments are due on the 11^th of every month.”

47. Mr Fleischner then sent the following email:

“The drawdown date was on the 30^th October as per the loan docs and the delays caused by various reasons like the existing lender delaying settlement date and so on pushed the settlement date to the 11^th November.

Technically the interest was accruing since the 30^th but in this case, we’re willing to forego the extra week or so of interest and push the interest start date to the 8^th of November.”

48. On 26 February 2020, Mr Akcan sent Mr Fleischner the following email:

“The Original Finance Documents were posted by your solicitor on the 30^th October 2019, my solicitor received it on the 4^th of November and i personally delivered them to your solicitor on the same day.

Your solicitor requested for further documents to be signed on the 5^th of November.

The delay was not from the existing lender it was from your solicitor who charged me $13,000

Jeremy i don’t want to go back and forward with emails, the end result was you lend me money on the 11^th of November that means the repayments were due on the 11^th of every month.”

49. Mr Fleischner did not reply to Mr Akcan but did forward his email to Mr Fitzgibbon shortly after receiving it. Mr Fitzgibbon replied 30 minutes later saying “[t]hanks”. Mr Fleischner gave the following evidence about his understanding of the effect of that email:

“Q.  You never responded to that?

A.  No, I did not.

Q.  So, you accepted his position, didn't you?

A.  No, I didn't.

Q.  Well why didn't you tell him you didn't accept his position?

A.  I had said the 8th in numerous occasions prior, and he insisted on the 11th.  The difference is there.”

March 2020 interest payment

50. Mr Akcan did not make an interest payment on 8 March 2020. Mr Fleischner did not contact Mr Akcan on 8 or 9 March 2020. On 10 March 2020, Mr Fitzgibbon emailed Mr Fleischner at 9:21am, stating:

“Please can you chase up this payment [Diamond House], nothing received to date.”

51. Mr Fleischner replied to Mr Fitzgibbon at 9:24am that day, stating:

“Yup will do. Have followed them up yesterday and will stay on it today until we get a response.”

52. Mr Fleischner conceded in his evidence that, contrary to his representation to Mr Fitzgibbon on 10 March 2020, it was possible that he had not in fact contacted Mr Akcan on 9 March 2020. He did not remember doing so and he was unable to provide any records of such contact. Mr Akcan denied any such conversation and I am satisfied it did not occur.

53. On 10 March 2020, the following text message exchange took place between Mr Fleischner and Mr Akcan:

“[Mr Fleischner]: Hi Adam, Just making sure this month’s interest repayment is good to go?

[Mr Akcan]: Hi Jeremy, It’s all good. I will transfer first thing tomorrow morning and email the payment receipt to you. Regards Adam

[Mr Fleischner]: Thanks” (emphasis added)

54. On 11 March 2020, Mr Akcan sent Mr Fleischner an email with a payment receipt attached. The following exchange occurred by text:

“[Mr Akcan]: Hi Jeremy I have made payment and sent you an email with the payment receipt. Regards Adam

[Mr Fleischner]: Thanks Adam. Received”

55. Mr Fleischner was asked in cross-examination why he did not challenge Mr Akcan at that time about the “late” payment if he genuinely believed that the March interest payment was overdue as at 11 March 2020 and that Mr Akcan was in default at that point. Mr Fleischner gave evidence that “[a]fter those messages, we discussed it between David [Fitzgibbon] and I working out what we would do next.” As to why he did not issue a default notice on 9 March 2020 if he believed that the interest payment was due on 8 March 2020, his evidence was as follows:

“Q.  Why didn't you issue him with a default notice on 9 March 2020?

A.  We didn't see that it was necessary in March.

Q.  I beg your pardon?

A.  We didn't see it was necessary since the money arrived in the accounts to pay the‑‑

HER HONOUR: No, the question was… [o]n 9 March, when you didn't have the money, which you say was due on the 8th, why didn't you issue a default notice on that day, 9 March, like you subsequently did in April; why didn't you do it in March?

A.  We waived it, same as in February, we waived the default notice in March.

Q.  Yes, but in February you communicated it.  Did you communicate that you had waived that in relation to 8 March?

A.  For the 8th of March‑‑

Q.  Did you communicate with the borrower that you had waived it, a default notice in March?

A.  In March, no. … I don't believe so.

Q.  So how was he supposed to know that?

A.  I don't know, your Honour.”

Further requests for the loan statement

56. Ms Arvanitopoulos gave evidence that she had a telephone conversation about refinancing with Mr Akcan in late February or early March. In cross-examination she accepted that it may have been early March. Her affidavit evidence was that it was late February and the evidence of Mr Akcan was that it was late February. I am satisfied this occurred in late February.

57. Ms Arvanitopoulos gave evidence that she would have indicated to Mr Akcan that he would need to obtain a loan statement. They arranged to meet in person on 12 March 2020.

58. On 11 March 2020, Ms Arvanitopoulos sent an email to Mr Akcan requesting that he bring the following documents to their meeting the next day:

“Please make sure that you bring the following:

Passport (needs to be original)

Drivers Licence (needs to be original)

Rates notice

6 months mortgage statement from La Trobe

12 months BAS

Last 2 years tax returns if you have them

Please bring what you can. That is an extensive list I know. The most important is the first two”

59. Ms Arvanitopoulos clarified in her evidence that she believed at that time that the current mortgagee was La Trobe, rather than the plaintiff.

60. It was common ground that Mr Fleischner did not provide a loan statement to Mr Akcan following their conversation of 18 February 2020. He agreed in his evidence that it would not have taken long to generate a loan statement in February 2020 and that he had employees who could do it on his behalf. He agreed that he did not have any records or any recollection of requesting that a loan statement be prepared at any time between 18 February and 11 March 2020.

61. On 11 March 2020, shortly after receiving Ms Arvanitopoulos’ email about the documents required for seeking refinance, Mr Akcan wrote to Mr Fleischner requesting “the last 5 months mortgage statement” stating that “I would really appreciated [sic] if you could please sent it to me today” (emphasis added).

62. Mr Akcan met with Ms Arvanitopoulos on 12 March 2020. She verified his identity and performed a credit check. He informed her that there had been no defaults on the loan at that time. They agreed that Ms Arvanitopoulos would try to arrange refinance for Mr Akcan’s loan with a brokerage fee of 1%. Ms Arvanitopoulos deposed that at the meeting of 12 March 2020 Mr Akcan said the following:

“I spoke with Jeremy from LaunchCap on the 18^th of February and asked him for a loan statement. He said he would have his accounts people send it to me. I hadn’t received anything so I sent Jeremy an email yesterday (the 11^th of March) asking for a statement. I expect that as soon as he receives the email he will send it to me.”

63. She further deposed that she said to Mr Akcan:

“At present the ANZ Bank would definitely accommodate refinancing with an interest rate of 2.29% of the loan from the outgoing mortgagee who is charging you interest rate of 11.5%.”

64. Ms Arvanitopoulos said that she requested that Mr Akcan obtain the loan statement as quickly as possible so that a settlement date could be booked in by the end of March, for settlement to be finalised sometime in April 2020. She said that she expected at that time that if the matter proceeded in the ordinary manner, the refinance would be completed within about four weeks.

65. Mr Fleischner did not provide a loan statement following Mr Akcan’s request of 11 March 2020.

Emails of 17 March 2020

66. On 17 March 2020, Mr Akcan sent the following email to Mr Fleischner:

“I sent you an email on the 11^th of February 2020 [sic: March] requesting mortgage statement for 5 months that i paid interest, i have not received anything as yet if you have sent me an email.

Could you please sent it to me, my accountant needs it urgently.” (emphasis added)

67. When asked in cross-examination why he said that his accountant needed the loan statement, rather than saying that he needed it urgently for refinance, Mr Akcan said the following:

“A. As I said to you, you’ve got a loan with somebody, the reason why you would ask for a loan statement is because you're refinancing, he already knows I'm refinancing, without that document no major bank will actually lend me any money, that is a crucial document that’s it needed with every single time that I went to a bank for a loan, they needed that statement.

Q. If it was a crucial document that you needed to refinance why didn’t you say that in the email?

A. I assume he already knew that.

Q. But instead you say, my accountant needs it urgently?

A. But I forgot to put there my accountant also needs it urgently.

…

A. As I said to you my English isn't that good, I haven't, I don’t read and write how do I say, legal stuff or when you need legal documents or accountant, I did my accountant did say he needs it, I forgot to write he also needs it, when I said I need it urgently I meant I need it, not my accountant I need it urgently for the refinancing.” (emphasis added)

68. Mr Fleischner replied to Mr Akcan’s email of 17 March 2020 one minute later stating:

“Ah, apologies for missing this Adam. I’ll get this actioned for you now.” (emphasis added)

69. Mr Fleischner accepts that despite sending that email, he did not “action” the request at that time. He gave the following evidence about his response to that email:

“Q. And in your email of 17 March you say to him ‘I'll get this actioned for you now’; do you see that?

A. Yes.

Q. Do you do anything then to prepare a loan statement for Mr Akcan?

A. I believe I didn’t.

Q. Why not?

A. Amongst other things, I think this one got missed again.

Q. It got missed?

A. Yes.

Q. How?

A. Again, I can't recall everything that was happening at the time but I believe this got missed during the time just because of everything that was happening. … what I'm trying to say is the things that we were trying to achieve at that particular time may be loan settling or other loans needing actioning or negotiations, whatever it is, I don’t recall all of the things that were happening but I believe in this instance this was missed on my part.”

70. As to whether he requested that anyone else prepare a loan statement in response to Mr Akcan’s email of 17 March 2020, Mr Fleischner gave the following evidence:

“Q. You agree that the – that the message you sent to Mr Akcan would give him the impression that you were going to have a statement prepared for him that very day?

A. Yes.

Q. Did you send a memo to any of your staff to prepare a statement of Mr Akcan’s loan?

A. No, I didn’t.

Q. Did you set about preparing a loan statement yourself at any stage?

A. No, I didn’t, no.”

71. Mr Fleischner gave evidence that it would have taken between 30 minutes and one hour to produce a loan statement for Mr Akcan’s account in March 2020. I pause here to note that when a loan statement was finally provided on 22 June 2020 it was a one-page document that contained very little detail. It was never properly explained why it would take that long to prepare the statement. Although Mr Fleischner conceded that he would need to send it to Mr Fitzgibbon for instructions, that is a different question to how long it would actually take to prepare. LaunchCap at that time employed two people to look after the loan accounts. The company was managing approximately 26 loans in March and April 2020. Mr Fleischner said that the company did not deal with requests on every loan on a daily basis, but that around half of the 26 borrowers would have been seeking refinance in mid-March 2020.

72. In relation to the process for generating a loan statement, Mr Fleischner said that the normal procedure would be for him to create a draft statement which would then be sent to Mr Fitzgibbon for confirmation or instructions. Despite this, he accepted that he at no stage in February or March 2020 created a draft statement and sent it to Mr Fitzgibbon for approval. Nor could he find any evidence of having asked his employees to do so.

73. As to why Mr Fleischner failed to provide the loan statement to Mr Akcan in February or March 2020 despite numerous requests to do so, Mr Fleischner’s explanation was that he did not know that Mr Akcan needed the loan statement for the purposes of refinancing, and believed he possibly wanted the statement “for his records”. He accepted that he had always known that Mr Akcan had planned for the loan to be refinanced early in 2020.

74. Mr Fleischner gave evidence that in his experience it was common for borrowers to be provided with loan statements in order to obtain refinance, and that he knew Mr Akcan could not get refinance without it. Despite this, he maintained in cross-examination that he did not know that Mr Akcan needed the loan statement for the purpose of obtaining refinance.

75. Ms Arvanitopoulos gave evidence that after this meeting she did not immediately approach a bank to arrange refinance because she was waiting for the loan statement. As to why she was waiting for the loan statement Ms Arvanitopoulos said that:

“I wouldn't apply without the statement. I need to know the behaviour of the client. I wouldn't waste my time, nor would I get a credit hit against my client, because it would be - I would deem that non responsible.”

Email of 30 March 2020: COVID-19 hardship

76. On 30 March 2020, Mr Akcan sent the following email to Mr Fleischner:

“I would like to let you know that due to corona virus my business has stopped, I won’t be able to make anymore repayments.

Please defer my repayments as of today, as per the government announcement. Thank you.”

77. Mr Akcan gave the following evidence about the “government announcement” referred to in the above email:

“The government made announcement, they said that the banks are going to help, the landlords they're going to help with the rent, that was the announcement. Everybody's going to help, so I was asking him, as the government made that announcement, I was asking for help because of COVID if he could help me. That's why he came back and said, ‘Give me these tax returns, this information, these documents then we'll look at it’.”

78. Counsel for Mr Akcan tendered a bundle of contemporaneous newspaper articles referring to the events of late March 2020 and the various government announcements around that time. One of them included the following:

“‘I can say, to anybody who is individually concerned about their mortgage, there is assistance that banks can provide already,’ Anna Bligh, chief executive of the Australian Banking Association said on March 20”.

79. Mr Fleischner did not reply to Mr Akcan’s email of 30 March 2020. Instead, he forwarded it to Mr Fitzgibbon asking if he “[had] a sec to have a chat?”. Mr Fleischner gave the following evidence about his delayed response to this email:

“Q. Will you agree that there was some urgency in Mr Akcan's request on 30 March for deferral of repayments?

A. Yes.

Q. But you don't get back to him until the Monday, the following Monday?

A. Yes, that's correct.

Q. Why did it take that long?

A. As you can see in [the email from Mr Fitzgibbon], there's - that file and a bunch of others that we were talking about. That's when the decision was made for Diamond House that that's what, that's the next step that we were going to be doing for Diamond House and that's how long it took.

Q. And is Mr Fitzgibbon's reference in that email of 6 April ‘I hope everything is okay from Friday’, a reference to a discussion you had with him on Friday?

A. Honestly, I can't recall. I'm not entirely sure.

Q. Did you have discussions with him during that week, from 30 March to 6 April, about these loans that are referred to his email of 6 April?

A. Yes, we would have.”

80. He further deposed that after receiving Mr Akcan’s email of 30 March 2020 in which Mr Akcan sought a deferral of interest payments (extracted above at [76]) he no longer believed that Mr Akcan was refinancing, and so he did not think Mr Akcan still needed a loan statement. He said that he then decided to prioritise responding to requests from other loans in his portfolio.

Emails of 6 April 2020

81. By 6 April 2020, Mr Fleischner had still not responded to Mr Akcan’s email of 30 March 2020. On that date at 8:55am, Mr Fitzgibbon sent the following email to Mr Fleischner:

“Jeremy,

I hope everything is okay from Friday.

I have summarised below our position in relation to our loans per our previous discussion. Please note this week is a short week so we need to ensure we are on top of these borrowers. I will call you today to discuss.

…

Diamond House

Next payment due date: 08.04.20

Please provide evidence of hardship by COB. If they have not provided by today, we will have to take action. Their monthly interest payment is due on the 08.04.

Still waiting for docs to prove hardship. Client is aware loan is active and not deferred in the meantime.” (emphasis in original)

82. Mr Fleischner gave evidence that when he received this correspondence from Mr Fitzgibbon, he had not yet requested any documents from Mr Akcan as proof of hardship. As to Mr Fitzgibbon’s comment that the “client [was] aware” that the loan was “active”, he admitted that he knew that Mr Akcan believed the next interest payment was due on 11 April 2020.

83. Mr Fleischner further acknowledged that despite knowing that Mr Akcan thought that interest was due on 11 April 2020, he intended to issue a default notice on 9 April 2020 unless agreement was reached as to deferral. He further acknowledged that he took no steps to warn Mr Akcan that if he did not pay interest on 8 April 2020 he would be put into default.

84. On 6 April 2020 at 10:38am, Mr Fleischner sent the following email to Mr Akcan in response to his email of 30 March 2020 seeking deferral due to the impact of COVID-19 on his business:

“In summary, please note that your current request to defer is not acceptable and we need to remedy ASAP.

In relation to your claim for hardship and reprieve /discount of the monthly payment and in order for us to assess properly, please can you provide the following documentation:

2 years tax returns for Diamond House

Individual tax returns and NOA for each Guarantor

Rental schedule for any additional properties they may own.

Evidence of any leases for any investment properties that have been suspended

12 months trading statements – Diamond House

Evidence of and source of funds used to pay our interest for previous months

Please note the onus is on you, the borrower to be able to prove hardship. After we receive the requested information, we will have to enter into a Forbearance Deed stating an agreeable monthly amount is payable.

Any questions, please let me know. If you can provide the following documents requested by COB today, that’d be great.” (emphasis added)

85. On 7 April 2020, Mr Akcan replied in the following terms:

“When we applied for the loan all of the Tax Returns were provided to you, there are no rental for any additional properties nor is there any investment properties.

The interest payment for the first 3 months you kept upon approval of the loan, the balance of the approved funds I used to buy the discounted wholesale jewellery which i was selling and paying the interest.

I am in a Shopping Centre at Ryde NSW, the first doctor got infected with the corona virus was in Ryde Hospital since the news broke out my business has been declining and eventually my business has stopped, i am not selling anything I am not making any money to be able to make payment, over 90% of the Shopping Centre shops are closed, this is the reason why I have asked for you to defer my payment.”

86. Again, Mr Fleischner did not respond to that email to indicate whether he would accept Mr Fleischner’s request for deferral or not. As to the relevance of the documents he requested in his email of 6 April 2020 to establish COVID-19 hardship, Mr Fleischner gave the following evidence:

“HER HONOUR: Can I ask you just to answer the question that’s been asked. You’ve been specifically asked, what would two years tax returns, which you had, tell you about his ability to withstand a COVID shutdown?

A. I don’t think it would materially affect the decision.

EVANS: Q. It wouldn’t give you any useful information at all, would it?

A. Sure.

Q. Then you asked for individual tax returns and notice of assessments for each of the guarantors; do you see that?

A. Yes.

Q. Again, you already had that information, didn’t you?

A. Yes.

Q. What would the individual tax returns from the past and the notices of assessment for each of Mr Akcan and his wife tell you about the capacity for Mr Akcan’s business to cope with a COVID shutdown?

A. It wouldn’t affect it materially, no.

Q. It was all historical, wasn’t it?

A. Sure. …

Q. Rental schedules for any additional properties they may own. Did you know of any other properties they owned?

A. It was only one other which the address leaves my mind, but it was in their email somewhere.

Q. That was, again, material that you knew about from the original loan application, wasn’t it? Then you asked for 12 months trading statements for Diamond House; do you see that?

A. Yes.

Q. You’d already received that information in the original loan application, hadn’t you?

A. Not for the last four or five months when this email was sent. I would have received it from October prior.

Q. There was a misunderstanding occurred about the interest payment due in February 2020. Didn’t Mr Akcan supply you with bank statements, at least up till then?

A. Up till then, yes.”

87. In relation to the last document requested, that being “evidence of and source of funds used to pay our interest for previous months”, Mr Fleischner gave the following evidence:

“Q. The situation that faced Mr Akcan in early April 2020 was a shutdown of his business because, effectively, the floor on the shopping centre where his shop was situated was closed down - people weren’t going there. What could previous trading statements tell you about his ability to cope with COVID?

A. Where their bank balances are at the moment to be able to service any loan or any serviceability during that time. […]

Q. You never asked him what he could pay then did you?

A. In this email and that email, no, we did not.”

88. Mr Fleischner stated that it was Mr Fitzgibbon who requested the list of documents that he in turn requested from Mr Akcan as evidence of hardship in his email of 6 April 2020.

89. Mr Fleischner eventually conceded in his evidence that the information provided in Mr Akcan’s email of 7 April 2020 did constitute evidence of hardship. He said, however, that a decision was made not to enter into a deed of forbearance:

“Q. So, after 7 April where he gave you evidence that you've accepted was evidence of hardship, what happened to the idea of the forbearance deed?

A. It was not agreed between myself, Mr Fitzgibbon or whoever else was involved that that was enough to enter into a lesser payment.

Q. So, what else was needed?

A. I'm not entirely sure. That's what was - that's the directive that I was given.

Q. And where's the documentation to show that, are there any documents to show what you've just described?

A. I'm not entirely sure, no, I don't think so.” (emphasis added)

90. Mr Fleischner gave the following evidence about the subsequent decision to issue a default notice:

“Q. … Do you recall discussing with Mr Fitzgibbon the information Mr Akcan had given you about his COVID hardship?

A. Yes.

Q. And was that a short discussion, long discussion, what?

A. I couldn't recall exactly how long the minutes were.

Q. But in that conversation the decision was made to issue a default notice on the 9th, wasn't it?

A. Payment wasn't made on the 8th, that was the decision.

Q. So, to the extent that you discussed Mr Akcan's COVID issues with Mr Fitzgibbon, the view taken at least by Mr Fitzgibbon was that Mr Akcan's COVID problems were either not proven or that he wasn't suffering sufficient hardship to warrant any sort of deferral, correct?

A. Correct.

Q. Even though he told you that 90% of the shopping centre shops had closed?

A. Yes.

Q. And that his business had had to close?

A. Yes.

Q. That's not COVID hardship?

A. I didn't say that.

Q. Well did Mr Fitzgibbon say that?

A. I said a decision that we weren't ever proceeding as per normal irrespective of everything that was provided in that email the decision for the loan to continue as normal is what the decision was in the end.”

91. In relation to whether he seriously considered the impact of COVID-19 on Diamond House, Mr Fleischner’s answers were as follows:

“Q. Mr Fleischner you said that you did give some thought to the impact of COVID19 on Mr Akcan’s business but I put it to you that you really gave it no serious thought at all, that’s true isn't it?

A. No.

Q. It didn’t occur to you or you didn’t consider for instance that because of COVID19 and the fact that he was running a retail shop, customers were not going to be able to come to his shop and he could not continue trading did you?

A. We considered that, yes.

Q. But you didn't consider that constituted evidence of hardship in COVID, correct?

A. It impacted his ability to pay, yes, we considered it.

Q. And you put him into default?

A. When he missed his payment, because we hadn't come to an agreement, or a deferral or a forbearance deed of any sort.” (emphasis added)

Default notice of 9 April 2020

92. Regarding the procedure for issuing default notices generally, Mr Fleischner said that:

“Q. The relationship between you and Mr Fitzgibbon is one where he, in a sense, is the person who makes the decisions and you carried them into effect?

A. To a degree, yes.

Q. If he says he’s taken a decision to take action against someone, then you’re bound by that decision, aren’t you?

A. Yes.” (emphasis added)

93. On 8 April 2020 at 2:58pm, Mr Fleischner sent an email to Summer Lawyers, with Mr Fitzgibbon copied in, stating:

“Hi Sam & Nick,

Please prepare to send a default notice for this file [Diamond House Jewellery Pty Ltd] tomorrow.”

94. Mr Fleischner said that the default notice of 9 April 2020 was checked by both him and Mr Fitzgibbon prior to it being issued. Mr Fleischner said that he and Mr Fitzgibbon discussed the evidence of hardship provided by Mr Akcan on 7 April 2020 and that Mr Fitzgibbon took the view that the hardship problems were either not proved or not sufficient to warrant a deferral of repayments. He said that he and Mr Fitzgibbon jointly instructed Summer Lawyers to issue the default notice of 9 April 2020.

95. At 6:30am on 9 April 2020, Mr Akcan was served at his home with a default notice stating that he had failed to pay the interest due on 8 April 2020. That notice claimed that the arrears amount was $50,625.00 and demanded payment within seven days.

96. Mr Akcan gave the following evidence about his state of mind on 9 April 2020:

“… I was waiting for an answer from Jeremy … while I was waiting for an answer he defaulted me.

…

A. In 30 March and 7 April, I'm telling Jeremy what the situation is and I'm asking him for help for deferral at that stage, waiting for an answer from him to see what he's going to do, whether he's going to help me or not, once he doesn't help me then I'm going to find alternative ways to make the payment.

…

I ask him to defer the repayments.  He came back to me and said, ‘Supply me this and I'll have a look at it’.  And then I wrote a letter to him saying that ‘you've already got most of the information, I'm asking you for deferral because 90% of the shopping centre is shut, I'm having problems:’.  I'm waiting for an answer, he defaulted me the next day.” (emphasis added)

97. Mr Akcan could have paid interest at the lower rate on 11 April 2020 if Mr Fleischner had declined to enter into a deed of forbearance. In his oral evidence, he clarified that while Diamond House had less than $19,000 in its trading account at that time, he would have used money from his personal account to make up the shortfall for the April interest payment. Documents were before the Court confirming that to be the case.

98. On 16 April 2020, a solicitor for Mr Akcan wrote to Summer Lawyers requesting that the default notice be withdrawn and stating that:

208. For these reasons I am satisfied that it was an implied term under the contract that the lender was required to provide a loan statement on request and this implied term was breached by the lender.

209. In written submissions Mr Akcan and Diamond House also relied upon breach of an implied term of good faith by failing to provide a loan statement and then defaulting Mr Akcan on 9 April 2020: Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 and Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 at [144]. In Cordon Investments, Bathurst CJ (Macfarlan and Meagher JJA agreeing) observed that the duty of good faith has commonly been held to include the following matters (at [145]):

“1 An obligation on the parties to co-operate to achieve the contractual objectives.

2 Compliance with honest standards of conduct.

3 Compliance with standards of conduct that are reasonable having regard to the interests of the parties.”

215. To the extent that it is necessary to do so, having regard to the nature of the agreement between the parties, I am satisfied that it was an implied term of the loan agreement that the parties at all times act in good faith. For reasons I have already stated and which I consider further below in relation to the claim of unconscionable conduct, I am satisfied that the lender’s conduct fell below the standards of conduct that would be considered reasonable given the interests of the parties. I am thus satisfied that the lender by its conduct breached the implied term of good faith.

Unconscionable conduct

216. The claim of unconscionable conduct was made under ss 20 and 21 of the ACL. The parties agreed that the conduct occurred in trade or commerce and thus those sections were applicable. Although s 20 of the ACL was pleaded, the defendant’s submissions addressed s 21. No issue was taken about this by the lender and I will proceed on the basis that s 21 is the relevant provision. Unconscionable conduct under s 21 is not limited by the common law doctrine of unconscionability (s 21(4)(a), ACL) and thus does not require the party seeking relief to be under a special disadvantage (cf Blomley v Ryan (1956) 99 CLR 362 at 405; [1956] HCA 81 per Fullagar J). Section 21 of the ACL provides as follows:

21 Unconscionable conduct in connection with goods or services

(1) A person must not, in trade or commerce, in connection with:

(a) the supply or possible supply of goods or services to a person; or

(b) the acquisition or possible acquisition of goods or services from a person;

engage in conduct that is, in all the circumstances, unconscionable.

…

(3) For the purpose of determining whether a person has contravened subsection (1):

(a) the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; …

(4) It is the intention of the Parliament that:

(a) this section is not limited by the unwritten law relating to unconscionable conduct; and

(b) this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and

(c) in considering whether conduct to which a contract relates is unconscionable, a court’s consideration of the contract may include consideration of:

(i) the terms of the contract; and

(ii) the manner in which and the extent to which the contract is carried out;

and is not limited to consideration of the circumstances relating to formation of the contract.

217. Section 22 of the ACL sets out the matters to which the Court may have regard for the purposes of unconscionable conduct under s 21. Mr Akcan and Diamond House relied upon a course of conduct including the acts or omissions I have already set out above at [140] as well as the failure to provide the loan statement.

218. The relevant principles in relation to statutory unconscionability were set out by Allsop CJ in Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199; [2015] FCAFC 50 at [296] (subsequently adopted by Kiefel CJ and Bell J in Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1; [2019] HCA 18 at [14]):

“The evaluation includes a recognition of the deep and abiding requirement of honesty in behaviour; a rejection of trickery or sharp practice; fairness when dealing with consumers; the central importance of the faithful performance of bargains and promises freely made; the protection of those whose vulnerability as to the protection of their own interests places them in a position that calls for a just legal system to respond for their protection, especially from those who would victimise, predate or take advantage; a recognition that inequality of bargaining power can (but not always) be used in a way that is contrary to fair dealing or conscience; the importance of a reasonable degree of certainty in commercial transactions; the reversibility of enrichments unjustly received; the importance of behaviour in a business and consumer context that exhibits good faith and fair dealing; and the conduct of an equitable and certain judicial system that is not a harbour for idiosyncratic or personal moral judgment and exercise of power and discretion based thereon.”

219. In Australian Competition and Consumer Commission (ACCC) v Lux Distributors Pty Ltd [2013] FCAFC 90 at [23], Allsop CJ referred to the need to evaluate the facts of each case “by reference to a normative standard of conscience… permeated with accepted and acceptable community values”. This includes the expectation that “consumers will be dealt with honestly, fairly and without deception or unfair pressure” (at [23]). In Tonto Home Loans Australia Pty Ltd v Tavares; FirstMac Ltd v Di Benedetto; FirstMac Ltd v O'Donnell [2011] NSWCA 389, Allsop P (Bathurst CJ and Campbell JA agreeing) held that the range of conduct captured by statutory unconscionability is wide and can include (at [291]):

“bullying and thuggish behaviour, undue pressure and unfair tactics, taking advantage of vulnerability or lack of understanding, trickery or misleading conduct. A finding requires an examination of all the circumstances.”

220. Where, as here, a system or pattern of conduct is relied upon, unconscionable conduct may be established by “a systemic pattern of behaviour involving an accumulation of minor incidents” each of which, in isolation, may not be substantial: Australian Competition and Consumer Commission (ACCC) v Get Qualified Australia Pty Ltd (In Liq) (No 2) [2017] FCA 709 at [66] per Beach J.

221. An assessment of whether conduct is unconscionable is an “objective value judgment” of the impugned behaviour, although the subjective state of mind, whether actual or constructive, will be “relevant to the broader sense” of the test: Australian Competition and Consumer Commission v Medibank Private Ltd (2018) 267 FCR 544; [2018] FCAFC 235 at [247] per Beach J (Perram and Murphy JJ agreeing).

222. Mr Fleischner’s evidence was that he could not think of any reason why Mr Akcan would need a loan statement beside refinancing, although he somewhat faintly ultimately suggested that he might have needed it “for his records”.

223. I have already made the factual findings necessary to consider this ground. I am satisfied that Mr Fleischner knew that Mr Akcan needed to refinance, knew that he needed a loan statement to do so, did not act on the request on 18 February 2020, did not act on the request of 11 March 2020 and did not even act on the urgent request on 17 March 2020 despite replying immediately to say that the request would be “actioned… now”. In total 13 requests for such a statement were made by both Mr Akcan and his mortgage broker Ms Arvanitopoulos before a statement showing a default was finally issued on 22 June 2020.

224. Although the lender’s state of mind is relevant, I do not accept the lender’s submission that because there was no “malice” or “nefarious” purpose on the part of Mr Fleischner, the conduct of the lender could not be unconscionable. The evidence disclosed that Mr Fleischner did not take the request seriously or give it any priority despite Mr Akcan saying he needed it “urgently” on 17 March 2020, after his two earlier requests were ignored. No explanations were provided for the first two failures and the explanation for the third failure to respond (to the 17 March 2020 email) was that Mr Fleischner did not get around to it as he was busy. To the extent that this issue turns on an assessment of the relevant conduct as against accepted and acceptable community values, the conduct of the lender fell far short.

225. I am satisfied that had Mr Akcan been provided with the loan statement at any time after his first request on 18 February 2020 and prior to the issue of the default notice on 9 April 2020 he would have been able to obtain refinance with ANZ bank at a significantly lower rate. I accept the evidence of Ms Arvanitopoulos in that respect. Mr Young’s assertion that Mr Akcan would not have been able to obtain refinance at the lower rate was not supported by any evidence. Nor do I accept Mr Young’s submission that a loan statement was not required because the incoming mortgagee could simply have relied on uncorroborated assurances by Mr Akcan as to the state of the loan. That submission was contrary to the evidence of both Mr Akcan, that he has never obtained refinance without a loan statement, and Ms Arvanitopoulos, which was that she would not waste her time applying for refinance without a loan statement. It was also contrary to the evidence of Mr Fleischner, which was that you could not refinance without a loan statement.

226. As for the submission that any conduct after Mr Akcan’s email of 30 March 2020 could not have been unconscionable because Mr Akcan had repudiated the contract on that date, I reject it. Consistent with the findings I have already made about that email, I am satisfied that it was written by a man who spoke English as his fifth language and was operating a jewellery business in an empty shopping centre in the midst of Sydney’s initial COVID-19 shutdown. There were several announcements by the government and various banks about mortgage relief, although there were no concrete policies at that time that would have assisted Mr Akcan. They were uncertain times. The 30 March 2020 email is clearly a request for some form of relief in that climate. It is also clear from Mr Fleischner’s response of 6 April 2020 that he did not consider Mr Akcan’s email to be a repudiation of his obligations under the contract.

227. I am satisfied that the lender’s failure to provide a loan statement caused considerable detriment to Mr Akcan and no reasonable explanation for that failure has ever been provided. The cross-claimants have established unconscionable conduct under s 21 of the ACL. I include in that finding the lender’s conduct in issuing the default notice on 9 April 2020 whilst negotiations about deferral were ongoing for the reasons I have already provided.

Misleading and deceptive conduct

228. Finally, the cross-claim also asserted that the lender and LaunchCap engaged in misleading or deceptive conduct under s 18 of the ACL by Mr Fleischner’s representation of 17 March 2020, in which he stated in response to Mr Akcan’s request for a loan statement that he would “get this actioned… now”. That section provides as follows:

18 Misleading or deceptive conduct

(1) A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

229. As above, it was agreed that the relevant conduct occurred in trade or commerce.

230. The cross-claimants also relied on s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (“ASIC Act”). It is in the same terms but applies specifically to the provision of financial services. That section provides as follows:

12DA Misleading or deceptive conduct

(1) A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.

231. Section 12BB of the ASIC Act provides that a representation with respect to a future matter will be misleading where the representor has no reasonable grounds for the representation and places an evidential burden on the representor to demonstrate reasonable grounds for the representation:

12BB Misleading representations with respect to future matters

(1) If:

(a) a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and

(b) the person does not have reasonable grounds for making the representation;

the representation is taken, for the purposes of Subdivision D (sections 12DA to 12DN), to be misleading.

(2) For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by:

(a) a party to the proceeding; or

(b) any other person;

the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary.

(3) To avoid doubt, subsection (2) does not:

(a) have the effect that, merely because such evidence to the contrary is adduced, the person who made the representation is taken to have had reasonable grounds for making the representation; or

(b) have the effect of placing on any person an onus of proving that the person who made the representation had reasonable grounds for making the representation.

(4) Subsection (1) does not by implication limit the meaning of a reference in this Division to:

(a) a misleading representation; or

(b) a representation that is misleading in a material particular; or

(c) conduct that is misleading or is likely or liable to mislead;

and, in particular, does not imply that a representation that a person makes with respect to any future matter is not misleading merely because the person has reasonable grounds for making the representation.

232. A representation may be misleading even if reasonable grounds are identified. Where a representation relates to the representor’s future conduct, reasonable grounds will require that the representor had both the ability and intention to perform: Awad v Twin Creeks Properties Pty Limited [2012] NSWCA 200 at [10].

233. The question of whether a person had reasonable grounds is judged at the time of the representation, although subsequent events may shed light on the overall probability that the representation was reasonable: Sykes v Reserve Bank of Australia (1998) 88 FCR 511 at 513; [1998] FCA 1405; City of Botany Bay Council v Jazabas Pty Limited(ACN 060 105 053) [2001] NSWCA 94 at [83] per Mason P, Beazley JA agreeing.

234. I have already found, in considering the unconscionability argument, that Mr Fleischner had no reasonable grounds to promise that he would get the request “actioned… now” and then ignore it without any explanation. I have already rejected Mr Young’s submission that it was “highly dubious” that Mr Akcan could have obtained refinance at a lower rate if the loan statement had been provided in February or March, due to the impact of COVID-19. I accept the evidence of Ms Arvanitopoulos on this issue for the reasons already provided.

235. I am satisfied that Mr Fleischner’s intention was to get Mr Akcan “off his back” by promising immediate action and then immediately forgetting about it. I am satisfied that he knew he should have provided a loan statement by that time because, having ignored two previous requests, Mr Fleischner replied just one minute after the third request. Despite these findings, I am not satisfied that Mr Fleischner acted in a misleading and deceptive manner in so doing. He simply considered the request to be a low priority and wrote what he did to get Mr Akcan off his back.

Conclusion: cross-claim

236. I am satisfied that the lender breached an implied term of the contract by repeatedly failing to provide the loan statement and that the lender and Mr Fleischner acted unconscionably in failing to provide the loan statement and sending the default notice on 9 April 2020 in the midst of negotiations about a deferral of repayments. I am not satisfied that Mr Fleischner’s statement on 17 March 2020 that he would get Mr Akcan’s request “actioned… now” was misleading and deceptive conduct under either the ACL or the ASIC Act.

Relief

237. The orders I would make in relation to the statement of claim are that it be dismissed with costs.

238. The orders I make in relation to the cross-claim should, as near as possible, place Mr Akcan back into the position he would have been had he not been wrongly issued with a default notice on 9 April 2020 and had he been provided with the loan statement within a reasonable time after his first request and, at the very latest, by the time of the second request on 11 March 2020.

239. I note that Diamond House made no repayments in April or May 2020. Payment at the non-default rate was made in June 2020. Since the statement of claim was filed the payments have been made monthly at the court rate, that being 4% above the cash rate last published by the RBA (thus between 4.25% and 4.10% during the relevant period).

240. I have already held that had the loan statement been issued within a reasonable time Mr Akcan would have been able to refinance and would be have been paying a much lower interest rate of 2.29% (as per the evidence given by Ms Arvanitopoulos).

241. I would grant the declaration sought relieving Mr Akcan of the obligation to pay interest at the lower rate under the loan agreement (11.5%) from the time that he would have been able to obtain refinance. I would also grant the mandatory injunction sought requiring the lender to issue a loan statement that records the payment of interest without default and states a payout figure of the principal amount and any applicable fees.

ORDERS

242. Accordingly, I make the following orders:

1. The statement of claim is dismissed.

2. Verdict for the cross-claimants on the cross-claim filed on 24 August 2020.

3. The plaintiff is to issue a loan statement to Diamond House free of any default notation within seven days of this judgment to enable refinancing of the loan.

4. The loan statement issued by the plaintiff is to be calculated by applying an interest rate of 2.29% from 8 April 2020 until the date of settlement and offsetting that as against the payments already made.

5. The plaintiff/cross-defendants are to pay the defendant’s/cross-claimants’ costs on the ordinary basis.

6. The parties have leave to apply to vary these orders by consent in accordance with the judgment within seven days.

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Decision last updated: 17 July 2021