Stubbings v Jams 2 Pty Ltd

The High Court of Australia heard an appeal concerning allegations of unconscionable conduct in an asset-based lending transaction. The appellant, who was unemployed, had no regular income, and possessed poor financial literacy, guaranteed a loan made by the respondents to a company he owned and controlled. This company had no assets and had never traded. The loan and guarantee were secured by mortgages over three of the appellant's properties. The respondents, through an intermediary law firm acting as their agent, facilitated this secured loan. The appellant had provided signed certificates of independent financial and legal advice, which were drafted by the respondents' agent. When the company defaulted on the loan, the respondents sought to enforce their rights against the appellant.

The central legal issues before the High Court were whether the respondents had acted unconscionably in seeking to enforce their rights against the appellant, whether the respondents' agent possessed knowledge of the appellant's circumstances, and whether the respondents were entitled to rely on the certificates of independent advice. The court was required to determine if there had been an unconscientious exploitation of the appellant's special disadvantage.

The High Court allowed the appeal, finding that the respondents' conduct amounted to the unconscientious exploitation of the appellant's special disadvantage. The court reasoned that the respondents, through their agent, had taken advantage of the appellant's lack of business acumen and limited financial resources to strip him of his equity in the properties. The court noted that the transaction was not merely a high-risk loan to an asset-rich but income-poor individual or a gamble on property values, but rather a deliberate exploitation. The court concluded that it was unconscionable for the respondents to insist upon their rights under the mortgages.

Consequently, the High Court set aside the orders of the Court of Appeal and varied the orders of the primary judge. The appeal was otherwise dismissed, with specific directions regarding costs, including the payment of costs for legal assistance provided on a pro bono basis. The respondents were ordered to pay the appellant's costs.