A claim by a wife that a guarantee by her of her husband’s debts should be set aside …

In the Supreme Court matter of Greentown Bellambi Pty Ltd v Wong [2017] NSWSC 872, which was before his Honour, Justice Ball it was argued by the defendant the guarantee was unconscionable and should be set aside.

Briefly, the facts of the case were that, after a long running dispute and as part of a settlement of a claim by the plaintiff against Mr Wong and others, Mr Wong’s wife, Liza Noi Kiu Wong guaranteed the payment of the settlement sum. Mrs Wong did not argue that she gave the guarnatee or that the amount claimed was incorrect, but rather, she claimed that the guarnatee should be set aside because it was unconscionable.

In order for the guarantee to be set aside on unconscionable grounds, Mrs Wong was required to prove the following:

1. that she gave the guarantee under the actual duress of her husband or that she did not understand the document;
2. that she did not gain anything from giving the guarantee; and
3. that the plaintiff did not take steps to explain the guarantee to her or take steps for a stranger to explain the guarantee to her.

Mrs Wong did not claim actual undue influence. However, she argued that she did not understand the guarantee, that she left all matters of business to her husband, that she gained nothing from giving the guarantee and that the document was not explained to her.

Based on the evidence before the Court, his Honour found that the plaintiff appreciated that Mrs Wong did not benefit from the guarantee and reposed trust and confidence in her husband. For these reasons, the plaintiff insisted that she receive independent legal advice in relation to the guarantee. Mr Wong informed the plaintiff that his wife would be advised about the guarantee by the in-house counsel of his companies, Ms Kok. Ms Kok was a lawyer permitted to practice in Malaysia but did not have a practicing certificate in New South Wales. Ms Kok informed Mrs Wong of her circumstances and that she could not advise on the guarantee. Mrs Wong said that she was happy to proceed and signed the guarantee which was witnessed by Ms Kok.

His Honour rejected Mrs Wong’s defence and concluded that the plaintiff had no way of knowing of Ms Kok’s status and there was no reason for them to make additional inquiries in this regard. The plaintiff was successful and judgment was entered against Mrs Wong for in excess of $15,000,000.

COVID-19 and mortgagee repossession of land…

In the Supreme Court matter of Catalyst Provisional Lending Pty Ltd & Ors v Dick-Telfar & Anor [2020] NSWSC 324 which was before his Honour, Justice Harrison on 31 Marc 2021, it was argued by the defendants that:

1. a lender should be prevented from taking possession of mortgaged land because the government might make regulations to assist defaulting borrowers during the COVID-19 pandemic as per the COVID-19 Legislation Amendment (Emergency Measures) Act 2020 (NSW); and
2. the Court should exercise its discretion to prevent the mortgagee from taking possession of because there were subtenants and they were protected under Residential Tenancies Act 2010 (NSW).

Both arguments were ultimately rejected by his Honour.

On the first argument, his Honour held that the fact that there was the possibility of regulations being made under the COVID-19 Legislation Amendment (Emergency Measures) Act 2020 (NSW) did not assist the defendants.

On the second argument, his Honour said that there was no evidence that the subtenants were not able to relocate to a new premises.

The mortgagee was permitted to proceed to take possession of the property to recover money owing under the mortgagee.

High interest rates and fees are not always considered a penalty …

A decision of the Supreme Court of NSW in Bhundia v Sommers (No 4) [2021] NSWSC 455 considered the applicability of the rule against penalties.

In late 2018 Mr Sundip Bhundia. a Swiss citizen, lent US$500,00 with a fixed amount of interest of US150,000 in a one off payment to Propertybay Holdings Pty Ltd. The loan was a bridging loan to be repaid on 31 January 2019.The repayment of the loan was guaranteed by its directors Timothy Sommers and Sean Neylon. In early January 2019 the loan agreement was varied to provide that a further US$130,000 be advanced by Mr Bhundia to the borrower. In the event of a default in the repayment of the loan amount, the default interest payable would be 30% per annum compounded monthly.

The borrower did not repay the loan and Mr Bhundia sued the guarantors to recover his money.

The guarantors, in their defence, claimed that the up front payment of interest and the yearly interest rate on default were void and unenforceable as penalties.

Judge Adamson set out the principles that apply in penalty cases:
• it is up to the plaintiff to prove that the payment was a penalty because of the reluctance of the courts to interfere with agreements reached between parties; and
• an interest rate can only be described as a penalty if it is extravagant, unconscionable or out of all proportion to the legitimate interests of the party making the claim.
The guarantors put no evidence before the court that convinced his Honour that the up front payment of interest or the interest payable on default amounted to a penalty and therefore were unsuccessful in their defence.

Mr Bhundia succeeded in his claim for an amount in excess of US$920,000.

In the event of anyone finding themselves in a similar scenario do not hesitate to contact Peter Jackson at pjackson@jacksonassoc.com.au or Costin Stan at cstan@jacksonassoc.com.au.

A claim by a wife that a mortgage should be set aside because of the presumed undue influence of the husband dismissed …

Mrs Mavaddat purchased a family home with her husband in Perth in 2004. HSBC advanced $1.16 million to assist with the purchase. Later Mrs Mavaddat became the sole owner of the property. Mrs Mavaddat’s evidence was that she was born in Iran, came to Australia in 1957, that her command of English was not good and she signed whatever documents her husband asked her to. It was on this evidence that she asked the court to set aside the loan transaction and the mortgage on the basis of the presumed influence of a husband over his wife and the bank’s knowledge of and involvement in this undue influence. Her argument was rejected and the bank was given judgment for possession of the property and judgment for the debt.

There are two categories of undue influence. The first is where there is actual undue influence by a husband over a wife and the second is where there is no actual undue influence but there is a failure to explain adequately and accurately the transaction which the husband seeks to have the wife enter into for the immediate economic benefit not of the wife but the husband. A bank can be tainted by the conduct of the husband in the second category of case.

In the first category the applicant must prove the undue influence that is relied on to set aside the transaction.

In the second category the undue influence is presumed. It arises when there is a relationship of trust. Furthermore, in this category there are two sub categories. The first is where there is a special relationship of trust such as parent and child or doctor and patient. The second subcategory requires the applicant to prove that he or she had a special relationship of a nature that enlivens the presumption of undue influence. The relationship of husband and wife is not in the first subcategory.

For a wife to prove that she has the special relationship that enlivens the presumption of undue influence she must prove the following:

1. she did not, in fact, understand the purport and effect of the transaction;
2. the transaction was voluntary (in the sense that the wife obtained no gain from the contract the performance of which was guaranteed);
3. the lender is to be taken to have understood that, as a wife, the claimant may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife; and
4. the lender did not take itself steps to explain the transaction to the wife or find out that a stranger had explained it to her

The Court held that Mrs Mavaddat failed to prove the matters that would have established that she was in a special relationship with her husband that would have enlivened the presumption that she could have relied on to set aside the loan and mortgage transaction.

The owner of a property succeeds in obtaining an order for possession against a claimant who alleged an unwritten sale agreement …

In 1998 Mrs Marguerita Strauss (“Mrs Strauss”) purchased a one tenth share of a property in Mullumbimby in NSW for $67,000. By agreement between all of the owners Mrs Strauss occupied site 4.

Lara Strauss, the daughter of Mrs Strauss, lived on the property between January 1999 and June 2014 and between mid 1999 and February 2005. Mr Ian Bennett (who at that time was Lara’s husband) (“Mr Bennett”) also lived on the property.

When Lara moved out of the property in June 2014 Mr Bennett moved back in.

Mrs Strauss started proceedings for the eviction of Mr Bennett in 2016. Mr Bennett claimed that:
• there was an unwritten agreement in June 2014 for the sale of the property to him; and
• in the alternative, that he is entitled to a proportion of the property because of the work that he did on the property while he was there.
As to the second claim, Mr Bennett argued that he made substantial improvements to the property as part of a joint endeavor between himself, Mrs Strauss and Lara, which endeavor ultimately failed. However, it was never intended that Mrs Strauss should retain the benefit of those improvements. He argued that he made the contributions because of an expectation that he owned the property with Lara at the time or would in the future.

Mr Bennett gave evidence that Ms Strauss led Lara and himself to believe that the property was theirs. Mrs Strauss denied Mr Bennett’s statements and in fact gave evidence that for a period Lara paid rent to reside on the property.

As to the agreement for the sale to Mr Bennett, a lot of evidence was before the court and it was clear that initially, it would have suited Lara to see the property sold to Mr Bennett. In July 2014, Mr Bennett paid $60,000 to Lara (for Mrs Strauss) as part of the purchase price. Lara gave half of this money to her new partner and half to Mrs Strauss.

The relationship between Lara and her new partner ended in September 2014. Mrs Strauss gave Lara the $30,000 she had received and asked her to return it to Mr Bennett. When Lara did that she told Mr Bennett that he could recover the balance of the $60,000 from her former partner.

The money that Mrs Strauss originally received was returned to her. She did however deny to Mr Bennett that they had a deal for the sale of the property and took steps to evict him.

In the Supreme Court of NSW, Justice R Darke rejected the argument of Mr Bennett that the property was for Lara and himself. He also found that the building works carried out by Mr Bennett were largely paid for by Mrs Strauss and her husband.

His Honour accepted that Mr Bennett did landscaping work and contributed some of his own money to the improvement of the property. However, His Honour rejected that these contributions were part of a joint endeavour with Mrs Strauss and Lara on the expectation that he owned the property with Lara.

As to the agreement that Ian alleged for the sale of the property. Mrs Strauss was not a party to the conversations that Ian relied on. Mr Bennett said that Lara had told him that Lara was speaking for her mother, however, Lara denied this. His Honour accepted the evidence of Mrs Strauss that she did not know the value of the property and wanted to think about Mr Bennett’s proposal to buy the property for $240,000.

Ultimately, His Honour’s conclusion was that no agreement was reached between Mrs Strauss and Ian.

Mrs Strauss was however ordered to pay back to Ian the $60,000 plus interest that he paid.

Mr Bennett was ordered to pay damages to Mrs Strauss for lost rent for the period 6 November 2014 until the time he vacated.

An order for possession of the property was made in favour of Mrs Strauss.

A bank customer fails in a claim that the bank wrongfully paid loan monies into the wrong account causing him loss …

Murray Willson and his wife, Barbara Willson, agreed in family law proceedings to settle the financial matters between them by, in part, the sale of property at 90 Jutland St in Brisbane by Mrs Willson. At settlement, Mr Willson was to receive $312,500 from the sale proceeds as part of the family law settlement agreement.

In separate proceedings in the Supreme Court of Queensland the Bank of Queensland commenced proceedings against Mr Willson as the guarantor of a debt owed by Prestige Pools Paving and Landscapes Pty Ltd. Mr Willson defended the proceedings claiming that the money advanced by the bank was paid into the wrong account in breach of duties that the bank owed himself and his company and thereby preventing him from being in a position to pay the debt that he had guaranteed.

The account into which the bank paid the money was a joint account opened by Mr Willson and his wife, Mrs Willson on 30th October 2008. Mr Willson claimed that the joint account was opened for Mrs Willson’s benefit and he had no obligation to repay any of this money. He further claimed that the bank had no authority to pay the money into the joint account. Mr Willson also claimed that his business collapsed because of the bank’s actions in paying the money into what he claimed was the wrong account.

The court did not accept the evidence of Mr Willson and found that the joint account where the money was paid by the bank had been opened at the request of Mr Willson to advance an investment opportunity of his own.

The court held that the bank had not breached any duty owed to Mr Willson.