Montesa Investments Pty Ltd v Certane CT Pty Ltd - [2022] SASC 43

SUPREME COURT OF SOUTH AUSTRALIA
(Appeal to a Single Judge)
MONTESA INVESTMENTS PTY LTD v CERTANE CT PTY LTD
[2022] SASC 43
Judgment of the Honourable Justice Blue
6 May 2022
REAL PROPERTY - TORRENS TITLE - MORTGAGES, CHARGES AND ENCUMBRANCES
REAL PROPERTY - TORRENS TITLE - MORTGAGES, CHARGES AND ENCUMBRANCES - EQUITABLE MORTGAGES
REAL PROPERTY - TORRENS TITLE - MORTGAGES, CHARGES AND ENCUMBRANCES - RIGHTS, LIABILITIES AND REMEDIES OF MORTGAGOR
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - ENDING PROCEEDINGS EARLY - DEFAULT JUDGMENT - SETTING ASIDE - PROCEDURAL AND OTHER MATTERS
APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - ADMISSION OF FURTHER EVIDENCE
Appeal against an order for possession made by a Master in favour of the respondent against the appellant.
The appellant is the registered proprietor of land that was subject to a mortgage in favour of First Mortgage Capital Pty Ltd. The appellant fell into default under the loan terms. As at March 2019 it owed $479,150 to First Mortgage Capital. Interest was accruing at the higher rate of 36 per cent per annum.
The respondent agreed to lend $336,000 to the appellant, secured by a first mortgage over the land, for the purpose of refinancing the First Mortgage Capital loan. Interest would accrue at a higher rate of 30 per cent per annum, which was lower than under the First Mortgage Capital loan.
The appellant and First Mortgage Capital entered into a forbearance deed under which the appellant agreed to pay $310,000 and First Mortgage Capital agreed upon receipt of that payment to release its first mortgage; the appellant agreed to make subsequent bi-monthly instalments totalling $80,000 and First Mortgage Capital agreed upon receipt of the final payment to release any security interest over the land.
The respondent advanced $336,000 to the appellant, of which $310,000 was paid to First Mortgage Capital, which discharged its mortgage. First Mortgage Capital lodged a caveat to secure what was now a second mortgage over the land.
The appellant defaulted in payment of interest instalments and the principal under the loan. The respondent applied for an order under section 192 of the Real Property Act 1886 for possession of the land. An order for possession was made by the Master without substantive opposition by the appellant.
The appellant seeks leave to adduce new evidence on appeal and leave to appeal against the possession order on the ground that the respondent engaged in unconscionable conduct under section 12CA or 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) and in equity in providing the loan. It seeks orders on appeal setting aside the possession order and for the matter to proceed to trial on pleadings and discovery.
Held:
1       The appellant has failed to adduce sufficient evidence to establish a reasonably arguable case of special disadvantage and unconscionable conduct (at [111]).
2       In any event, the respondent had a clear entitlement to possession of the land when the Master made the possession order. Even if the appellant had established a reasonably arguable counterclaim, it is inevitable that the land must be sold. There is no reason to stay an order for possession pending the hearing and determination of a counterclaim (at [121]).
3       Appeal dismissed (at [123]).
Australian Securities and Investments Commission Act 2001 (Cth) s 12CB; Law of Property Act 1936 (SA) s 55A; Real Property Act 1886 (SA) s 133; Uniform Civil Rules 2020 (SA), referred to.
De Pasquale v ASCF Managed Investments Pty Ltd [2021] SASC 21; Jams 2 Pty Ltd v Stubbings [2020] VSCA 200; Stubbings v Jams 2 Pty Ltd [2022] HCA 6; Violet Home Loans Pty Ltd v Schmidt [2013] VSCA 56 (2013) 44 VR 202, considered.

MONTESA INVESTMENTS PTY LTD v CERTANE CT PTY LTD
[2022] SASC 43

BLUE J: The appellant Montesa Investments Pty Ltd (Montesa) appeals against an order for possession made by a Master in favour of the respondent Certane CT Pty Ltd (Certane)[1] and seeks leave to appeal for that purpose.
[1] Previously called Sargon CT Pty Ltd.
Montesa is the registered proprietor of land comprising one hectare at Lewiston (the Land). Mirko Durovic is the sole director and shareholder of Montesa.
As at March 2019 the Land was subject to a first mortgage (the FMC mortgage) in favour of First Mortgage Capital Pty Ltd (FMC) which secured a loan originally of $319,714 plus interest and other indebtedness (the FMC loan). Montesa fell into default under the loan terms. As at March 2019 Montesa owed $479,150[2] to FMC, which debt was secured by the FMC mortgage.
[2] All dollar figures rounded to the nearest whole dollar unless otherwise shown.
Certane agreed to lend $336,000 to Montesa, secured by a first mortgage over the Land, for the purpose of refinancing the FMC Loan.
Montesa and FMC entered into a forbearance deed (the FMC forbearance deed) under which Montesa agreed to pay $310,000 and FMC agreed upon receipt of that payment to release the FMC mortgage. Montesa agreed to make subsequent bi-monthly instalments totalling $80,000 and FMC agreed upon receipt of the final payment to release any security interest over the Land. In the event of default by Montesa, the full amount of the secured monies was recoverable by FMC.
Montesa executed a mortgage over the Land in favour of Certane (the Certane mortgage) to secure a loan of $336,000 plus interest and other indebtedness (the Certane loan or the loan).
Certane advanced $336,000 to Montesa, of which $310,000 was paid to FMC, and FMC discharged the FMC mortgage. The Certane mortgage was registered and became the first mortgage over the Land. FMC lodged a caveat to secure what was now a second mortgage over the Land.
Montesa defaulted in payment of interest instalments and the principal under the Certane loan. Certane applied for an order under Part 17 of the Real Property Act 1886 (SA) for possession of the Land so that it could effect its power of sale of the Land. An order for possession was made by the Master without substantive opposition by Montesa.
Montesa seeks leave to adduce new evidence on appeal and leave to appeal against the possession order on the ground that Certane engaged in unconscionable conduct under section 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) and in equity in providing the Certane loan. It seeks orders on appeal setting aside the possession order and for the matter to proceed to trial on pleadings and discovery.
Background
Certane is part of the Australian Secure Capital Fund (ASCF) group and acts as custodian for funds or companies within that group. The group carries on business as a mortgage-secured lender. Summer Lawyers act as solicitors for ASCF (including Certane).
Mr Durovic previously owned a Foodworks Supermarket in metropolitan Adelaide. Evidence was not adduced as to the legal ownership of that business, but I assume that it was conducted by a company owned and/or controlled by Mr Durovic. In 2017 Mr Durovic closed the supermarket due to volatile business market conditions and large competitors entering the industry.
At some point, Mr Durovic became involved in Warehouse Connect Pty Ltd (Warehouse Connect). In February 2019 Mr Durovic became its sole director. Warehouse Connect provided services to clients of bulk storage, order dispatch, pick and pack, container unloading and delivery services. Its clients included Visy Board and Toll Group. As at March 2019 Warehouse Connect had been operating for at least one year.
Before October 2017 Mr Durovic’s parents were the registered proprietors of the Land. They became the registered proprietors in 2008; however they have apparently lived at the property for over 40 years.
In October 2017 Mr Durovic’s parents executed a transfer of the Land to Montesa, and Montesa borrowed $319,714 from FMC secured by the FMC mortgage over the Land. Evidence was not adduced concerning the reason for this transfer or how the proceeds of the FMC loan were used. Mr Durovic’s parents continued to reside at the property.
The FMC mortgage was prepared by Summer Lawyers. It was executed by Mr Durovic on behalf of Montesa and by a solicitor from Summer Lawyers on behalf of FMC. Under the FMC mortgage, interest was chargeable in respect of the loan at a higher rate of interest of 36 per cent per annum or lower rate of interest of 18 per cent per annum. Evidence was not adduced as to the term of the FMC Loan. The terms of the FMC mortgage were contained in document reference 12758935. That document comprises Mortgage Common Provisions registered at the Lands Titles Registration Office entitled “Summer Lawyers 2017 Memorandum” (the Standard Terms).
In November 2017 the transfer to Montesa and the FMC mortgage were registered over the Land.
Montesa fell into default in compliance with the terms of the FMC loan. Summer Lawyers on behalf of FMC applied to the Supreme Court for an order under Part 17 of the Real Property Act for possession of the Land.
In July 2018 a Master made an order (the FMC possession order) that Montesa give up possession of the Land within 70 days of service of the order (by October 2018).
It appears that agreements were entered into between Montesa and FMC at least between October 2018 and January 2019 for instalment payments, some of which were made. However Montesa did not fully comply with these agreements. Evidence was not adduced of the detail of these agreements or of payments by Montesa other than payments totalling $11,000 made in October 2018.
On 14 January 2019 FMC sent an email to Mr Durovic saying that the matter had been reverted back to FMC’s legal team, Summer Lawyers, because the agreement in place had not been met.
On 24 January 2019 Mr Durovic sent an email in response to FMC saying that he had begun the process of refinancing the loan, had found another broker and was aiming to refinance by 30 March 2019. He put an adjusted payment proposal and said that he was under a lot of financial strain.
On 25 January 2019 FMC sent an email to Mr Durovic rejecting his adjusted payment proposal, saying that it had engaged the Sheriff and was waiting on an eviction date and saying that he would have until the eviction date to pay out the loan. It said that, once the eviction date had been set, he would be notified accordingly.
In February 2019 Mr Durovic approached Restore My Credit to negotiate with his creditors arising out of the failure of the Foodworks Supermarket business. On 15 February 2019 Restore My Credit sent an email to Mr Durovic reporting that they had put offers totalling about $21,000 to eleven creditors of that business.
In or before March 2019 Mr Durovic approached a finance broker, Bill Hunt of Loanspal in Melbourne, to assist in refinancing the FMC loan. A Short Form Application for a Private Loan (the Loan Application Form) was prepared by Mr Hunt or Mr Durovic. It showed $340,000 owing to FMC, an amount requested of $340,000 to refinance the existing first mortgage and a requested term of six months. It also said that the loan would be repaid by “[r]efinance of property loan”. The box enquiring why a bank loan was not available was not completed.
On 4 March 2019 Mr Hunt sent an email to ASCF attaching the Loan Application Form. Mr Hunt provided the following information concerning Warehouse Connect:
Warehouse Connect P/L main business focus is Warehouse Fulfilment and Logistics
They provide these services to clients
Bulk storage
-Order Dispatch
-Pick and Pack
-Container unloading
-Logistics
Their main client Visy has been using their services to store and distribute to their Northern Suburbs customers for the past year.
They are currently moving to become a reseller for Visy products and this will begin in the next few months.
They have also diversified into Transport services for their clients.
Currently they have begun a contract with Toll Express Intermodal Services in Adelaide.
They currently supply delivery services to half of Adelaide Toll business customers.
This is a long term contract and they are currently in talks to service all of Adelaide Toll Express delivery division.
In relation to the Foodworks Supermarket, Mr Hunt attached the email from Restore My Credit dated 15 February 2019 and reproduced the following information from Mr Durovic:
I previously owned a Foodworks Supermarket in Enfield SA. Due to volatile business market conditions and large competitors entering into the industry I was forced to close the doors in 2017.
With over 200 suppliers I was only left with 14 suppliers I could not meet my obligations.
This impacted my Credit file and was mostly around the same period.
I have recently appointed a Lawyer who has been able to negotiate with the creditor to pay the total owing including removing any defaults on my file.
The settlement date has been set for April 2019 for all creditors to [be] paid. The lawyer has indicated that all defaults will be removed
I have attached [a] letter with the remainder of defaults and amounts
I would like to apply for 6 months loan to allow to refinance my existing loan which is due to expire 30^th March.
This would allow me to finalise my financial affairs and exit by refinancing with a conventional banking method.
Mr Hunt reproduced information from Mr Durovic stating that he had placed two vehicles for sale with a combined value ranging from $25,200 to $30,000 and that the proceeds were to be used to pay off the Foodworks creditors. He also stated that all plant and equipment from a previous business would be placed with an auction house.
On 5 March 2019 ASCF, on behalf of Certane, issued an indicative letter of offer (the Letter of Offer) to Montesa showing a facility limit of $340,000; a term of six months; an interest rate of 2.5 per cent per month and a discount interest rate if paid on time of 1.25 per cent per month; the mortgage security; Mr Durovic as guarantor; and fees totalling $18,510 inclusive of GST. It contained a disbursement summary showing one month’s prepaid interest of $4,250, fees totalling $18,510 and a balance due to Montesa of $318,120. It did not represent a formal offer of a loan facility and was subject to formal credit approval.
On 5 March 2019 Mr Durovic executed the Letter of Offer on behalf of Montesa and himself as guarantor and returned the executed copy to ASCF.
Mr Durovic engaged a solicitor, Mark Sander, to act for Montesa and himself in relation to the transaction with ASCF.
On 12 March 2019 Summer Lawyers, acting for Certane, sent an email to Mr Sander attaching a letter that in turn attached security documents (described below). The security documents provided for a principal amount of $336,000 (reduced from $340,000 shown in the Letter of Offer).
On 12 March 2019 FMC, Montesa and Mr Durovic entered into the FMC forbearance deed. Montesa acknowledged existing indebtedness of $479,150 exclusive of costs. FMC agreed to compromise the indebtedness (including costs) if Montesa complied with the agreed instalment plan. Montesa agreed to pay $310,000 by 13 March 2019 in return for which FMC to release the FMC mortgage, thereby enabling Certane to become first mortgagee.
Montesa agreed to the following further instalment payments:
·$5,000 on 13 May 2019;
·$5,000 on 11 July 2019;
·$5,000 on 9 September 2019; and
·$65,000 on 30 September 2019.
FMC agreed upon receipt of the final payment to release any security interest over the Land. In the event of default by Montesa, the full amount of the secured monies was recoverable by FMC.
I infer that Mr Durovic was only prepared to enter into the FMC forbearance deed after receiving confirmation from ASCF that it had agreed to advance $336,000 which, after deduction of fees and prepaid interest, enabled Montesa to pay the initial instalment to FMC of $310,000.
On 13 March 2019 Mr Durovic executed the security documents on behalf of Montesa and himself (witnessed where necessary by Mr Sander) and Mr Sander executed the Schedule E and Schedule G Legal Practitioners Certificates.
The security documents comprised:
·Mortgage document which, under the heading Terms and Conditions, contains a reference to document 12758935 and additional terms and conditions consistent with the Letter of Offer (except that the principal is $336,000);
·Schedule A containing the same variables as in the Mortgage document;
·Schedule B comprising a schedule of fees;
·Cheque Directions;
·Authority & Direction;
·Schedule D Debtor’s Advice Declaration and Schedule F Guarantor’s Advice Declaration executed by Mr Durovic; and
·Schedule E Australian Legal Practitioner’s Certificate in respect of Montesa and Schedule G Australia Legal Practitioners Certificate in respect of Mr Durovic as guarantor executed by Mr Sander.
On 13 March 2019 Summer Lawyers executed the Mortgage document and Schedule A on behalf of Certane as mortgagee.
On 18 March 2019 settlement of the refinancing by Montesa occurred. ASCF advanced $314,348 to Montesa, of which $310,000 was paid to FMC in return for a discharge of the FMC Mortgage, which was lodged for registration. Certane lodged the Certane mortgage for registration. FMC lodged a caveat to secure what was now a second (equitable) mortgage over the Land. The balance of the loan advance of $336,000 was applied to one month’s prepaid interest and fees.
In April, May and June 2019 Montesa made the interest payments of $4,200 per month when they became due, except that the May payment was four days late and $200 short.
In July 2019 Montesa paid only $2,000 seven days late, and Certane commenced charging a monthly $1,500 default management fee ($50 per day) and default interest at $8,400 per month.
On 18 September 2019 Montesa failed to repay the loan when it fell due for repayment.
On 19 September 2019 Montesa issued a default notice demanding payment of the amount owing of $363,992.
On 8 September 2020 Mr Durovic sent an email to Peter Flanders, the Chief Operating Officer of FMC (exhibited to the affidavit of Cheryl Ho sworn 15 September 2021 (Ms Ho’s first affidavit)). He said that he had come to an agreement with FMC on 31 August 2020 that he was to provide stock to Graysonline to the value of $20,000, and in return FMC would immediately withdraw its caveat over the Land and the payment of $20,000 would be for the full and final settlement of FMC’s claim against Montesa and Mr Durovic. He attached an agreement with Graysonline (which was not exhibited to Ms Ho’s first affidavit).
On 8 September 2020 Mr Flanders sent an email in reply (exhibited to Ms Ho’s first affidavit) to Mr Durovic stating “I confirm that if we receive 20k we will consider it full and final payment”. There is no evidence that FMC received $20,000 in September 2020 or at all.
On 22 October 2020 Certane, Montesa and Mr Durovic entered into a Forbearance Deed (the Certane forbearance deed). Montesa agreed to make instalment payments of $3,400 bi-monthly commencing on 31 October 2020; instalment payments of $25,000 bi-monthly commencing on 30 November 2020; and a final balance payment by 30 September 2021. Certane agreed, upon receipt of the first instalment payment, to reduce the interest rate to one per cent per month for the remaining months while Montesa complied with its obligations under the deed.
On 30 November 2020 Montesa failed to make the $25,000 payment due on that date under the Certane forbearance deed, subsequently paying only $10,000 on 7 December 2020.
Thereafter, although Montesa more or less made the bi-monthly payments of $3,400, it failed to make the bi-monthly payments in the alternate months of $25,000 due under the Certane forbearance deed.

On 3 April 2021 Certane served on Montesa a notice dated 1 April 2021 under section 55A of the Law of Property Act 1936 (SA) and section 133 of the Real Property Act, alleging breaches of a term of the mortgage by failing to pay the secured money and identifying the amount outstanding as $486,399.
On 7 July 2021 Certane filed an originating application, returnable on 18 August 2021, seeking an order for possession. It was supported by an affidavit affirmed by Richard Taylor, a director of Certane.
On 18 August 2021 Montesa sought a four week adjournment to allow it to refinance and negotiate a payment plan with Certane. The possession application was adjourned to 15 September 2021.
On 13 September 2021 Sanam Mirchandani, a solicitor at Summer Lawyers, affirmed an affidavit (Ms Mirchandani’s first affidavit) which:
·exhibited a market appraisal by Ray White Barossa Valley of the Land at $550,000 to $600,000 as at 10 September 2021;
·stated that the debt owing under the mortgage was estimated to be $532,149 plus enforcement costs of $88,568; and
·exhibited an email from Mo Ahmed, FMC’s Recoveries Officer, dated 13 September 2021 stating that FMC was owed “in excess of” $355,245 by Montesa.
On 15 September 2021 Cheryl Ho, Montesa’s solicitor, swore an affidavit in support of an application for a further adjournment (Ms Ho’s first affidavit). She exhibited the emails between Mr Durovik and FMC dated 8 September 2020 referred to above. She said in relation to Montesa’s indebtedness to FMC that she was instructed that “the total of the agreed sum is $20,000.00 and not the $355,245.32 as indicated in Ms Mirchandani’s affidavit”.
On 15 September 2021 Montesa sought a further adjournment to allow it to negotiate with Certane. The possession application was adjourned to 29 September 2021.
On 29 September 2021 a Master made an order that Montesa give to Certane possession of the Land within 42 days of service of the order (the Certane possession order). The Master gave liberty to apply to any party for the discharge or variation of the order. Montesa did not assert that it had any defence to the application for possession and in particular did not assert that Certane had engaged in unconscionable conduct.
On 9 November 2021 Montesa filed a notice of appeal against the Certane possession order.
The appeal hearing
At the appeal hearing, Montesa tendered an affidavit by its solicitor Cheryl Ho, affirmed on 9 November 2021 (Ms Ho’s second affidavit), to explain why no claim of unconscionable conduct was raised before the Master and why a notice of appeal was not filed within 21 days as required by the Uniform Civil Rules 2020 (SA) (the Rules).
Montesa tendered an affidavit by Mr Durovic affirmed on 10 November 2021 (Mr Durovic’s second affidavit) in support of its unconscionable conduct contention. It was also tendered to explain why no claim of unconscionable conduct was raised before the Master and why a notice of appeal was not filed within 21 days as required by the Rules.
Montesa tendered an affidavit by Ms Mirchandani affirmed on 25 November 2021 (Ms Mirchandani’s second affidavit) exhibiting various documents.
Certane objected to receipt of those three affidavits on the ground that new evidence should not be received on appeal. I reserved the question of admission of those affidavits. Certane did not seek to cross-examine the deponents of those affidavits.
I receive the affidavit of Ms Ho because it only relevantly addresses the application for an extension of time to appeal and why no claim of unconscionable conduct was raised before the Master. I receive the affidavit of Mr Durovic insofar as it addresses the application for an extension of time to appeal and provides reasons why no claim of unconscionable conduct was raised before the Master. I address below the question of admission of the balance of Mr Durovic’s affidavit and Ms Mirchandani’s second affidavit insofar as they address the unconscionable conduct contention.
I also received documents filed in the possession action. These comprised the originating application; two affidavits of Richard Taylor; an affidavit of Mr Durovic sworn on 18 August 2021 (Mr Durovic’s first affidavit); Ms Mirchandani’s first affidavit; Ms Ho’s first affidavit; and the records of outcome and Certane possession order.
Extension of time to appeal
The time to appeal against the possession order expired on 20 October 2021. The notice of appeal was not filed until 9 November 2021, being 20 days out of time. However, when the notice of appeal was filed, the order to give up possession within 42 days of service of the formal order had not yet expired.
The delay is explained by Mr Durovic and Ms Ho in their second affidavits. Ms Ho in her affidavit states that it was only in October 2021 (after the possession order had been made) that Mr Durovic indicated the circumstances in which the loan was obtained, the timeframe in which it was obtained and the position that Montesa was in at the time. She states that on or around 24 October 2021 Montesa formally engaged her firm to examine whether there was unconscionable conduct on the part of Certane.
Ms Ho states in her affidavit that she did not intend to bring a baseless claim “and therefore an appeal was not filed until a determination was made as to the possible claim” of unconscionable conduct. Ms Ho and Mr Durovic state in their affidavits that Mr Durovic took time to consider instructions, how to proceed and secure funds for the costs of the proceeding. Mr Durovic states that he was also delayed due to his need to care for his parents and dealing with stress and mental pressures of the proceeding.
Certane is critical of the lack of detail and disclosure in the affidavits of Ms Ho and Mr Durovic and of the conduct of Mr Durovic. I take into account, without setting them out, all of the submissions made by Certane in opposition to the application for an extension of time. Certane did not seek to cross-examine either deponent on their affidavit and I take that into account in considering its criticisms of their affidavits.
Weighing all of the relevant circumstances, including the relatively short delay and the fact that the order for possession had not yet taken effect, this is an appropriate case in which to grant an extension of time in which to appeal and I do so.
Appeal vehicle and leave to appeal
The procedural vehicle adopted by Montesa to challenge the possession order is an appeal.
At the hearing of the appeal, I raised with the parties alternative procedural vehicles. The first alternative would be for Montesa to apply to set aside the order for possession under subrule 186.1(2) of the Rules, which empowers the Court to set aside a judgment if satisfied that the interests of justice so require. This would have been an appropriate procedural vehicle given that the order for possession was not opposed on any substantive grounds and the Master did not need to determine the merits of the application for a possession order.
The second alternative procedural vehicle would be for Montesa to apply to discharge the order for possession pursuant to the liberty to apply contained in the Certane possession order. This is more problematic because the purpose of the grant of liberty to apply is not clear. However, it appears to empower an application to discharge the order on a ground or grounds that, for reasons not known at the time the order was made, the order for possession should not have been made.
Montesa refers to the fact that, in De Pasquale v ASCF Managed Investments Pty Ltd,[3] an order for possession was the subject of an appeal and the order was set aside on appeal on the ground that the owners had a reasonably arguable case of unconscionable conduct. However, in that case the owners had opposed an order for possession before the Master on substantive grounds (albeit fraud rather than unconscionability) and it appears that no point was taken as to whether a set aside application under subrule 186.1(2) would have been a more appropriate procedural vehicle.
[3] [2021] SASC 21.
Both parties submit that, if a different procedural vehicle were adopted, the same substantive issues would arise and they would make the same substantive submissions. Given this submission and the fact that the substantive issues were fully argued at the hearing of the appeal, it is appropriate to determine the substantive issues on the appeal.
Montesa accepts that it requires leave to appeal against the order for possession and seeks such leave. Certane opposes the grant of leave to appeal.
Given that an appeal is the adopted procedural vehicle to challenge the possession order, leave to appeal should be granted. The possession order is not in the nature of an order relating to practice or procedure but determines substantive rights of the parties and, in particular, determines the right to possession of the Land. Montesa will suffer obvious prejudice if leave to appeal is not granted and it is evicted from the Land.
For similar reasons, the evidence of Mr Durovic and of Ms Mirchandani in their second affidavits should be admitted.
Unconscionable conduct
At the hearing of the appeal, Montesa accepted that, if it wishes to advance a case of unconscionability under the ASIC Act, it must institute a substantive action (either a standalone action or a counterclaim in the possession proceeding) and cannot merely rely on such unconscionability by way of defence. If the appeal is allowed and the possession order is set aside, it intends to institute such an action. It accepts that it could have instituted a substantive action when it appealed but decided to defer that until determination of the appeal.
Montesa contends that, in advancing the loan, Certane engaged in “asset-based lending”. Montesa accepts that engaging in asset-based lending does not amount to unconscionable conduct in itself.[4]
[4] Violet Home Loans Pty Ltd v Schmidt [2013] VSCA 56, (2013) 44 VR 202 at [59] per Warren CJ, Cavanough and Ferguson AJJA; Jams 2 Pty Ltd v Stubbings [2020] VSCA 200 at [2] per Beach, Kyrou and Hargrave JJA (see also Stubbings v Jams 2 Pty Ltd [2022] HCA 6 at [4] per Kiefel CJ, Keane and Gleeson JJ).
Montesa contends that Certane’s conduct in entering into the transaction was unconscionable because:
1.Certane knew (via attribution of knowledge of Summer Lawyers) of Montesa’s default in respect of the FMC loan the subject of the refinancing;
2.Montesa had no capacity to service or repay the loan;
3.the Land was the only significant asset of Montesa; and
4.the loan was provided by Certane on the day before Montesa was scheduled to be evicted pursuant to the FMC possession order and on the same day as the FMC forbearance deed.
In Stubbings v Jams 2 Pty Ltd[5] Kiefel CJ, Keane and Gleeson JJ addressed unconscionability in the following terms:
[5] [2022] HCA 6.
In Kakavas v Crown Melbourne Ltd, this Court said:
"[E]quitable intervention does not relieve a plaintiff from the consequences of improvident transactions conducted in the ordinary and undistinguished course of a lawful business. A plaintiff who voluntarily engages in risky business has never been able to call upon equitable principles to be redeemed from the coming home of risks inherent in the business. The plaintiff must be able to point to conduct on the part of the defendant, beyond the ordinary conduct of the business, which makes it just to require the defendant to restore the plaintiff to his or her previous position."
In Commercial Bank of Australia Ltd v Amadio, this Court held that unconscionability involves: a relationship that places one party at a "special disadvantage" vis‑à‑vis the other; knowledge of that special disadvantage by the stronger party; and unconscientious exploitation by the stronger party of the weaker party's disadvantage. But these considerations should not be understood as if they were to be addressed separately as if they were separate elements of a cause of action in tort. As Dixon CJ, McTiernan and Kitto JJ said in Jenyns v Public Curator (Qld), in a passage approved by this Court in Kakavas and Thorne v Kennedy, the application of the equitable principles relating to unconscionable conduct:
"calls for a precise examination of the particular facts, a scrutiny of the exact relations established between the parties and a consideration of the mental capacities, processes and idiosyncrasies of the [vulnerable party]. Such cases do not depend upon legal categories susceptible of clear definition and giving rise to definite issues of fact readily formulated which, when found, automatically determine the validity of the disposition. Indeed no better illustration could be found of Lord Stowell's generalisation concerning the administration of equity: 'A court of law works its way to short issues, and confines its views to them. A court of equity takes a more comprehensive view, and looks to every connected circumstance that ought to influence its determination upon the real justice of the case'." (citation omitted)
In this field of discourse, "special disadvantage" means something that "seriously affects the ability of the innocent party to make a judgment as to his [or her] own best interests". While the factors relevant to an assessment of special disadvantage have not been exhaustively listed, Fullagar J in Blomley v Ryan considered that special disadvantage may be inferred from "poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary". No particular factor is decisive, and it is usually a combination of circumstances that establishes an entitlement to equitable relief.[6]
[6] At [38]-[40]. (Footnotes omitted)
Montesa relies on the decision of Livesey J in De Pasquale v ASCF Managed Investments Pty Ltd.[7] In that case, Mrs De Pasquale suffered very substantial disabilities, including early childhood neurological trauma, Cerebral Syringomyelia, deafness, impaired language use and comprehension, and was confined to a wheelchair. Mr and Mrs De Pasquale and their two companies entered into an agreement with ASCF Managed Investments (ASCFMI) to borrow $525,000 for three months and the De Pasquales agreed to grant a first mortgage over their property at West Beach (valued at $700,000) to secure the borrowing. This loan was made at the instigation of Good Life One World Pty Ltd (Good Life), which was to (and did) receive all of the loan proceeds. Summer Lawyers acted as solicitors for ASCFMI in the transaction. Conatur Legal acted as solicitors for the De Pasquales and also for Good Life.
[7] [2021] SASC 21.
Summer Lawyers had previously acted as solicitors for FMC, which had earlier lent $367,402 to Good Life, secured amongst other things by mortgages granted by the De Pasquales over two other properties. Good Life was to (and did) receive all of the loan proceeds from FMC. Summer Lawyers, in their capacity as solicitors for FMC, were aware that Good Life was in default in respect of the loan from FMC, having issued notices of demand before the ASCFMI loan was made.
Livesey J held that there was a triable issue on the question whether the knowledge of Summer Lawyers, in their capacity as solicitors for FMC, was to be attributed to ASCFMI.[8] Livesey J held that there was a triable issue on the question whether, assuming such attribution of knowledge, the conduct of ASCFMI was unconscionable.[9]
[8] [2021] SASC 21 at [71].
[9] [2021] SASC 21 at [87], [97], [117], [122].
Unconscionability
The first issue is whether Montesa has established a reasonably arguable case that Certane engaged in unconscionable conduct in entering into the loan and mortgage transaction.
In his second affidavit, Mr Durovic said that he struggled to make repayments on the FMC loan, defaulting in 2018. He exhibited the January 2019 emails referred to above in which FMC said that it had engaged the Sheriff and were waiting on an eviction date. Mr Durovic further said in his affidavit “I am no longer in possession of documents relating to the notice of eviction and stay of the order however to the best of [my] knowledge the date was set as on or around 13 March 2019”.
Mr Durovic said that in March 2019 Montesa was not a trading company, did not own significant assets and derived no income. He did not provide any further information in relation to Montesa, including why it was formed, whether it had ever traded or owned other assets or whether it had any assets apart from the Land.
Mr Durovic said that in March 2019 he personally did not own any significant assets. He said that he had been sole director of Warehouse Connect since February 2019, which was being engaged by Visy Board. Warehouse Connect undertook work for Visy Board lasting approximately 14 weeks from February, during which it derived approximately $40,000 of income. He said that after this he was unemployed until he became the sole director of Duroguard Pty Ltd.
Mr Durovic said that, when he executed the Certane security documents on 13 March 2019, he “was very pressured by the time constraints created by the provision of these documents on this date despite having tried to secure the documents earlier from [Certane]”.
Certane is critical of the information, or lack of information, put forward by Mr Durovic concerning his financial position and contends that Montesa has failed to provide evidence that demonstrates an arguable case of special disadvantage or any unconscientious conduct by Certane.
Mr Durovic provided only very limited information concerning himself, the circumstances in which the FMC loan was obtained or the circumstances in which the Certane loan was obtained.
Mr Durovic provided no information concerning his age, qualifications, business experience and expertise, or financial experience and expertise. This information is highly relevant to the question whether he suffered a special disadvantage vis a vis Certane. He provided no information concerning previous business enterprises in which he had been involved before the Foodworks Supermarket. He provided no information in his affidavit concerning the Foodworks Supermarket nor evidence of borrowings made by it. The only information available in this appeal concerning the Supermarket is contained in Mr Hunt’s email dated 4 March 2019.
Mr Durovic provided very little information in his affidavit concerning Warehouse Connect. He had provided more information to Mr Hunt that Mr Hunt had incorporated in his email to ASCF on 4 March 2019. Assuming that the information provided by Mr Durovic to Mr Hunt was not false (which is not suggested by Montesa), Mr Durovic did not provide information as to when Warehouse Connect commenced operating, its revenue from all sources (as opposed to just Visy Board) over the 12 months up to March 2019, its profit over that period, its assets, its liabilities, its contracts, its customers (other than Visy Board), or its prospects of generating income as at March 2019. The information provided to Mr Hunt and incorporated in Mr Hunt’s email sent on 4 March 2019 presented a favourable picture of Warehouse Connect’s business.
Mr Durovic also provided very little information about himself. He did not refer to any members of his family other than his parents and did not refer for example to whether he was married or in a relationship in March 2019. He did not identify whether as at March 2019 he was a beneficiary of a trust or eligible beneficiary of a discretionary trust which had assets or income.
Mr Durovic did not explain how he intended to obtain the funding to make the final payment of $65,000 due on 30 September 2019 under the FMC forbearance deed; how he intended to pay the interest due on the Certane loan; how he intended to repay the principal of the Certane loan on 13 September 2019; or why these payments were not made as events transpired.[10]
[10] Some two years later, in Mr Durovic’s first affidavit he said that he was negotiating refinance from Lending Circle Pty Ltd and would be able to pay Certane on obtaining that finance and further sale of stock. This was relatively vague but he said nothing about his expectations as at March 2019.

Mr Durovic did not explain the nature or purpose of the transactions in October 2017 whereby Montesa became the owner of the Land in place of his parents and Montesa borrowed $319,714 from FMC, nor did he explain how Montesa used the proceeds of the loan from FMC.
Mr Durovic did not depose to any particular vulnerability he suffered in March 2019 or that he felt, or was, in a position of special disadvantage vis a vis Certane in relation to the loan transaction.
The only evidence provided in Mr Durovic’s second affidavit about pressure was that he understood that the date of eviction by the Sheriff pursuant to the FMC possession order was around 13 March 2019 and that he felt pressured by the time constraints created by the provision of the Certane security documents on 13 March 2019, despite having tried to secure them earlier from Certane. This addressed the time after 5 March 2019 (when Certane issued the Letter of Offer) up to 13 March 2019 (when Certane issued the security documents). However, it did not address Mr Durovic’s state of mind as at 4 March 2019 when he applied for the Certane loan or at 5 March 2019 when he received and executed the Letter of Offer.
It is not surprising that, having determined to enter into the back to back transactions with Certane (to borrow the funds) and with FMC (to enter into the FMC forbearance deed), Mr Durovic was anxious that they be completed as soon as possible. However, the issue is whether he made the decision on 5 March 2019 to enter into the transactions in the first place as a result of unconscionable conduct by Certane.
As at March 2019 Montesa owed $479,150 plus costs to FMC. No evidence was adduced concerning costs incurred by FMC but it is likely that they were substantial given that FMC had applied for and obtained an order for possession, and it was in the hands of recovery personnel. Interest was accruing at 36 per cent per annum compounding monthly. Even if the total debt including costs were only $500,000 (which is unlikely), and it only took four months for FMC to obtain possession of the Land, market it, enter into a contract for sale and settle on that contract (which is optimistic), interest of $60,000 would have accrued by the time of settlement of a sale, resulting in a total debt of, say $560,000.
The Loan Application Form submitted by Mr Hunt on behalf of Montesa recorded the value of the Land as being $460,000. The form also recorded that the maximum that would be lent was 75 per cent of the value of the security, and that a loan was sought of $340,000 (being 74 per cent of $460,000).
Montesa clearly had no equity in the Land as at March 2019. Unless it was able to refinance the FMC loan, it was inevitable that it would lose the Land and be left with a substantial unsecured and likely irrecoverable personal indebtedness.
In the circumstances and considered objectively, by negotiating to borrow from Certane monies that would give him clear funds exceeding $310,000, and negotiating with FMC to pay $310,000 in return for a discharge of its mortgage over the title to the Land and for instalment payments totalling $80,000 over the six months, it can be said that Mr Durovic stood to gain substantial benefits.
First, if he could obtain $80,000 by any means over the next six months, Montesa would be freed of the FMC indebtedness and save over $100,000.
Secondly, Montesa would be relieved of the obligation to pay any interest to FMC over the next six months provided that it made the instalment payments of $5,000 per month.
Thirdly, Montesa would only be obliged to pay interest at 15 per cent per annum on $336,000 to Certane over the next six months provided that it made interest payments on time. This compares favourably to a liability to FMC of 36 per cent per annum on $479,150. Even if Montesa were obliged to pay interest at the higher rate of 30 per cent per annum, this was still substantially less than under the FMC loan.
Fourthly, Mr Durovic could procure additional time for his parents to continue to live in the property on the Land. (As it transpires, he has procured three years.)
In return for these advantages, Mr Durovic was obliged to pay fees to Certane totalling $18,510. Mr Durovic also gave a personal guarantee of Montesa’s indebtedness to Certane but if, as he deposed in his affidavit, he had no personal assets, this would have been of limited significance and, in addition, he did not adduce evidence that he had not given a personal guarantee of Montesa’s indebtedness to FMC.
It is not self-evident that it was disadvantageous for Montesa (or Mr Durovic) to enter into the transaction with Certane. There is no evidence that Mr Durovic regarded it as disadvantageous and on the contrary it is evident that he considered it to be advantageous at the time.
Mr Durovic in his second affidavit stated “I am no longer in possession of documents relating to the notice of eviction and stay of the order however to the best of [my] knowledge the date was set as on or around 13 March 2019”. It is unclear what this means. It suggests that there was a stay of the possession order but does not identify when that stay was made or how long it was in force. However, even if Mr Durovic had been informed by the Sheriff that the Sheriff intended to execute a warrant of possession on 13 March 2019, that would not in itself have placed Montesa in a position of special disadvantage vis a vis Certane.
For the purpose of determining whether it is reasonably arguable that Certane engaged in unconscionable conduct, I will assume that any knowledge of Summer Lawyers gained in their capacity as solicitors for FMC is to be attributed to Certane. Certane contends that this is not reasonably arguable in the absence of evidence of the relationship between Summer Lawyers, FMC and Certane. Such evidence would be essential if the matter proceeds to trial but that evidence is not in the possession of, or reasonably available to, Montesa at this stage.
The four matters relied on by Montesa, assuming that they were established, are not sufficient in themselves to establish that Montesa was in a position of special disadvantage vis a vis Certane. The mere fact that Montesa itself had no other significant assets and had no capacity to service or repay the loan is of limited significance: Montesa and Mr Durovic have failed to make full disclosure of the assets or income of related parties that may have been available for this purpose. The mere fact that Montesa was in default in respect of the FMC loan or, if it were the case, was subject to imminent eviction by FMC from the Land, does not entail that Montesa was in a position of special disadvantage vis a vis Certane. The four matters relied on by Montesa, considered together, do not entail special disadvantage or unconscionable conduct.
The onus lies on Montesa to adduce sufficient evidence to establish a reasonably arguable case of special disadvantage and unconscionable conduct. It has failed to discharge that onus.
Relief
Even if Montesa had established a reasonably arguable case of unconscionable conduct by Certane, the question arises as to what relief, if any, would be ordered in favour of Montesa against Certane.
Montesa accepts that any relief granted in its favour would be subject to an obligation on it to pay the principal amount of the loan together with interest at an appropriate rate. It appears unlikely that an appropriate rate for this purpose would be less than 15 per cent per annum, being the lower rate chargeable in respect of the Certane loan and less than the lower rate of 18 per cent per annum chargeable in respect of the FMC loan. Interest accruing since March 2019 at 15 per cent per annum, compounding monthly, would be very substantial.
Any relief granted in favour of Montesa would also have to take into account that the funds provided by Certane were used, as to $310,000, to reduce the indebtedness of Montesa to FMC and discharge FMC’s first mortgage. Montesa does not identify any reason why Certane would not be entitled to be subrogated to FMC’s security (ranking on a pro rata basis of some sort with FMC in respect of its own debt) in this respect.
Evidence was adduced before the Master by Certane that Ray White Barossa Valley undertook an appraisal of the Land as at September 2021 appraising the value of the Land at $550,000 to $600,000.
The email from Mo Ahmed of FMC dated 13 September 2021 stated that the current debt amount exceeded $355,245. Montesa does not challenge that this represented the raw amount of the debt, but contends that FMC agreed in September 2020 to compromise the debt at $20,000.
Montesa has failed to establish a reasonably arguable case that the FMC debt was compromised in September 2020. First, there is no evidence from Mr Durovic of the compromise. The only evidence is Ms Ho’s first affidavit exhibiting the 8 September 2020 email exchange.
Secondly, on the face of Mr Flanders’ email, FMC would only consider it full and final payment if it received the $20,000. There is no evidence from Montesa that FMC received $20,000. On the contrary, Ms Ho’s affidavit states that the total of the agreed sum is $20,000, which indicates that it was not paid. It is clear on any view that Mr Flanders’ offer to accept $20,000 in full and final payment was open for only a limited time and that time has long since expired.
It follows that on any view the combined debts of Certane (even if limited to principal and interest at a modest interest rate) and FMC exceed the value of the Land. Montesa has no equity in the Land. It has not adduced any evidence that it has any capacity to refinance its indebtedness to Certane and FMC. It therefore has no reasonable prospects of obtaining relief that would result in the Land not being sold.
Certane had a clear entitlement to possession of the Land as at September 2021 when the Master made the Certane possession order. There is an important distinction between having a defence to an action and having a counterclaim. If a party has a reasonably arguable defence to an action, the action will ordinarily proceed to trial. If a party has no defence to an action but has a counterclaim, the Court has a discretion as to whether to grant a stay of proceedings on the action until the counterclaim is heard, grant judgment on the action but stay the judgment until the counterclaim is heard, or merely grant judgment on the action and let the counterclaim proceed to trial.
In the present case, even if Montesa had established a reasonably arguable counterclaim, it is inevitable that the Land must be sold. There is no reason to stay an order for possession pending the hearing and determination of a counterclaim. If Montesa chooses to bring an action for unconscionable conduct, it can obtain an order for payment of monies by Certane if it demonstrates an entitlement to such relief. There is no good reason to defer the sale and realisation of the value of the Land in the meantime.
Conclusion
I make the following orders:
1.Montesa is granted an extension of time until 9 November 2021 to institute this appeal.
2.Montesa is granted leave to appeal.
3.The appeal is dismissed.
I will hear the parties as to costs and as to any other orders sought.