Proprietary estoppel by encouragement. It is possible to gain an interest in land because of encouragement of that belief by registered proprietor …

The recent case of Wheatley v Salmon [2022] NSWSC 395 examined whether a plaintiff can claim a proprietary estoppel against the Registered Proprietor.

Briefly, the facts of the case were as follows:
• In 2003 Adele Wheatley and her brother Gregory Salmon guaranteed the repayment of a loan by Gregory’s company Marketing Masters Qld Pty Ltd from Westpac in the amount of $550,000.
• In 2005 the company went in liquidation and the Westpac debt was not paid. Ms Wheatley sold her home and paid the debt which was then $640,000. Although Ms Wheatley could have sued Mr Salmon for contribution she chose not to do this.
• In 2006 Ms Wheatley demanded that Mr Salmon buy her a home to make up for the loss of the home she sold to pay the debt to which Mr Salmon refused.
• In 2010 Mr Salmon and his wife decided to buy an investment property and Mr Salmon said to Ms Wheatley that she could live in the home rent free until she got on her feet provided she pay the utilities and expenses associated with the property. Adele believed that the property was for her to compensate her for the earlier loss.
• In 2018 Mr Salmon and his wife served on Ms Wheatley a notice terminating the tenancy. Ms Wheatley commenced proceedings claiming that the Registered Proprietors were estoppel from denying that the property was hers.
His Honour Justice Kunc, held that the plaintiff had not been encouraged to believe that she had an interest in the property. She rather hoped that would be the case. His Honour found that there was no doubt that the property was purchased as part of an investment portfolio.

His Honour set out what must be established to prove that there is an estoppel by encouragement, namely:
1. a representation by the defendant to the plaintiff that the plaintiff has or will have a proprietary interest in property owned wholly or partly by the defendant (representation);
2. the plaintiff forms an assumption that he or she has or will have a proprietary interest in that property (assumption);
3. the conduct of the defendant in making the representation causes or materially contributes to the formation of that assumption by the plaintiff (reliance);
4. the plaintiff takes action in change of his or her position in reliance on that assumption (inducement);
5. the plaintiff would suffer detriment if the defendant were permitted to depart from the assumption (detriment); and
6. it would be unjust or unconscionable for the defendant to depart from the assumption (unconscionability).
His Honour held that the Plaintiff failed to proved the necessary elements and she was not granted the relief sought.

Unfortunately for Ms Wheatley an action against Mr Salmon for contribution was statute barred.

For any further information please contact Peter Jackson or Costin Stan at Jackson & Associates Solicitors.

The High Court declares particular asset-based lending transaction as being unconscionable…

What is asset-based lending? It involves transactions where the lender relies on the asset given as security and disregards the borrowers capacity to service the loan.

The recent case of Stubbings v Jams 2 Pty Ltd [2022] HCA 6 involved a dispute between an asset lending transaction and the enforceability of the security associated with the loan. In the judgment, their Honours held that whilst asset-based lending itself is not necessarily unconscionable, certain transactions and/or conduct may render loans (and the security) unenforceable.

The appellant, Mr Stubbings, wanted to buy a home to live in. He did not have a regular income, was unsophisticated but owned two investment properties having equity of about $500,000.

Through an intermediary, Mr Stubbings applied for two loans from Jams 2 Pty Ltd. One loan for about $900,000 for the purchase of the home and a second loan of about $100,000 to cover the first months interest, payment of commissions, fees and expenses. He was required to borrow the money through a company and for this purpose set up Victorian Boat Clinic Pty Ltd. Mr Stubbings guaranteed the repayment of the loans. He was also required to obtained certificates of independent legal and financial advice.

Mr Stubbings paid the first three months internet and then defaulted. The lender started proceedings to recover the debt.

In considering whether the loan was unconscionable and should be set aside, the High Court looked at whether Mr Stubbings was in a position of special disadvantage, whether the lender had knowledge of that special disadvantage and exploited its position.

Their Honours found that the certificates of independent advice that the lender heavily relied on were mere window dressing; the documents were drafted by the solicitor for the lender, were not truly independent because the providers of the certificates would only be paid if the loan was advanced. The High Court held that the borrower did have a special disadvantage and it could be inferred that the lender had knowledge of the vulnerability or special disadvantage of the borrower by their “willful blindness“ of his true position which was a lack of sophistication and an inability to service the loan. To draw this inference, their Honours relied heavily on the lending scheme that had been set up by the lender through his solicitor including the way in which the certificates of independent advice were prepared and signed.

Ultimately, the loans, mortgages and the guarantee were set aside as unconscionable.

The judgment is a reminder that lenders should ensure the circumstances of potential borrowers are fully scrutinised prior to lending.

For any further information please contact Peter Jackson or Costin Stan at Jackson & Associates Solicitors.

The rights of consumers to claim a refund on faulty or defective goods …

The pandemic has seen an increase in online shopping and from time to time shoppers receiving goods that do not work or not do what they were expected to do. Sometimes the seller tells the customer that they do not have the right to a refund or to have the item repaired.

It is important for all consumers to know their rights. Under the Australian Consumer Law (the ACL) consumers have the right to a repair, replacement or refund if a product or service fails to meet a consumer guarantee.

Consumer guarantees are guaranteed under the ACL and are intended to provide that products or services work as described and will be safe. If these guarantees are not met the consumer is entitled to exercise his or he rights.

The right to a refund or replacement exists if the default is a major failure, which means that the item is not fit for purpose or cannot be fixed in a reasonable time or is unsafe. In the case of minor defects the remedies are more limited but still exist.

These consumer rights cannot be excluded from the purchase contract and there cannot be a cost imposed for the replacement or repair.

For any further information please contact Peter Jackson or Costin Stan at Jackson & Associates Solicitors.

COVID-19 & Public Health Orders impact on performance of a Contract for Sale of a hotel in Sydney…

In the recent decision of Dyco Hotels Pty Ltd v Laundy Hotels (Quarry) Pty Ltd [2021] NSWSC 504, the NSW Supreme Court considered whether the Plaintiff, who entered into a contract to buy a hotel in Pyrmont (and the associated assets), could escape the contract as a result of the NSW Government introducing COVID-19 restrictions before settlement occurred.

Briefly, the facts of the case were as follows:
1. in January 2020, Dyco Hotels Pty Ltd agreed to purchase a hotel in Pyrmont together with the license and gaming entitlements.
2. settlement was to take place in March 2020.
3. the contract included a clause that provided that Laundy Hotels was to carry on business “in the usual and ordinary course as regards its nature, scope and manner”.
4. on 23 March 2020, the NSW Government introduced Public Health Orders and as a result of the Public Health Orders, the hotel was required to close its doors.
5. Laundy Hotels did their best to continue trading within the Public Health Orders, including introducing a take away food service.
The Plaintiff argued that the contract was at an end; either because it was frustrated or because the Defendant did not comply with the condition to continue trading as referred to above.

In respect of the frustration argument, the Plaintiff submitted that because of the Public Health Order, the transaction was completely different and it was just that the contract be terminated and the deposit returned. The Court rejected this argument and pointed out that it was possible to perform the contract as it had been agreed. The Court also noted that there was no warranty in the contract about future earnings of the hotel and the drop in value was a risk that any purchaser takes when acquiring an asset.

In respect of the argument that the Defendant had not complied with the condition to continue to trade, the Court held that the clause did not require the Defendant to carry on business contrary to the law in place at the time.

The Court ordered that the Plaintiff forfeit the deposit paid and also pay damages of $900,000.00 to the Defendant for the loss of the bargain.

The take home message from the case is the importance of using a well-drafted and comprehensive contract in higher value transactions.

For any further information please contact Peter Jackson or Costin Stan at Jackson & Associates Solicitors.

If a party to a contract exploits the serious mistake of the other party, the party who made the mistake has an equitable right to rescission …

In the case of Commonwealth Bank of Australia v Stephens [2017] VSC 385, CBA loaned to Mr Owen Bruce Stephens $2,100,300 in 2008. The loan was was secured by a mortgage over Mr Stephens property at Wooralla Drive Mount Eliza. Mr Stephens defaulted and CBA sued for possession of the property to recover the amount owing.

Mr Stephens defended the claim by CBA on a number of grounds including that he executed the loan documents and the mortgage in the mistaken belief that the financial accommodation to be provided by the bank would be $2,550,000 and that the interest payable would be capitalised so as to allow him to subdivide the property and purchase a second property.

Mr Stephens attempted to succeed with his claim for rescission on the further ground that the bank was aware that circumstances existed which indicated that he was entering into the contract under a serious mistake or misapprehension and deliberately set out to ensure that he did not become aware of his mistake or misapprehension. Because of the extensive communication between the CBA and the parties representing the interests of Mr Stephens as to the terms of the loan this argument did not succeed

The court analysed the evidence carefully and found that CBA was not aware of a serious mistake that would support the claim by Mr Stephens for rescission.

Mr Stephens failed in all of his defences and an order of possession of the property was made in the CBA’s favour

Peter Jackson and Costin Stan from Jackson & Associates Solicitors wish our friends, clients and readers of our newsletter the best wishes for the holiday season and the coming year.

Our offices will be closed between 23 December 2021 and 3 January 2022.

For urgent matters during the holiday period please contact Peter Jackson at pjackson@jacksonassoc.com.au or Costin Stan at cstan@jacksonassoc.com.au