Jackson & Associates, Solicitors welcomes the Year of the Rat – the first animal of the Chinese zodiac. May the months ahead bring good fortune, joy and wealth to all.

The enforceability of high interest rates is often before the courts at the moment because of the large number of short term high interest loans …

At the end of 2014, Mr Ross Love guaranteed a seven month loan of $245,000 that his company Love Properties was granted by Quantum Asset Management Pty Ltd (“Quantum”). There were extensions and variations of the loan over the following two years.

Love Properties defaulted on the loan and Quantum sued for recovery of the debt. Quantum obtained judgment and then Love Properties paid the judgment sum in full.

Love Properties then sued to recover from Quantum the amount that it had paid because it claimed that the charge was a penalty and the claim by Quantum was unenforceable and Love Properties should be given restitution.

The Supreme Court of Western Australia was asked to decide whether the high interest paid by Love Properties was a penalty. If “yes”, then the amount should be repaid to them by Quantum to Love.

Firstly, the loan had an interest of 9.75% per annum, however, after the default occurred, the interest rate rose to 4.43% per month (being 53 .16 % per annum).

Quantum submitted that it was artificial to compare the two rates because the lower interest rate (also taking into account the various fees and charges) was approximately 53% and there were no fees and charges in the default period when the higher rate of interest was charged. Quantum argued that the significantly higher interest rate at default compensated for the fact that no fees and charges were incurred by the borrower.

Quantum gave evidence of the factors that it took into account in determining the interest charged to Love Properties. These were the credit report on Love Properties, the number of writs and default judgments, the fact that Love Properties was in default with the existing lender and the loan application involved a subdivision that was in litigation.

Judge Banks – Smith summarized the legal principles that governed when a high interest rate was a penalty; the party claiming that interest rates are a penalty must prove the following:

1. whether the sum agreed was commensurate with the interest protected by the bargain;
2. a sum that it is merely disproportionate to the loss suffered does not quality as a penalty;
3. the penalty must be “extravagant, exorbitant or unconscionable” and out of all proportion “to the interest of the party which it is the purpose of the provision to protect”;
4. the court will not lightly interfere with the bargain struck between the parties; and
5. whether it is intended only to punish the defaulting party.

After examining the facts before him, his Honour concluded that the high interest imposed by Quantum was not a penalty (and therefore Love Properties were not entitled to recover any of the interest they had paid) in circumstances where:

1. the facility was high risk and in the short term money market; and
2. Quantum adduced evidence which persuaded the Court that the facility, together with its applicable interest rate was never intended to punish Love Properties for their default and it was dependent on the risk/financial position of Love Properties.

What must the court consider when examining whether or not a caveat should be removed…

Most often, parties who are owed money and have an interest in land generally, lodge a caveat over the land to secure that interest. However, the landowner sometimes needs the caveat removed.

When an application is made to remove a caveat, the onus is on the caveator (the party who lodged the caveat) to satisfy the court of two matters:

1. that there is a serious issued to be tried and until the final hearing of the issue, the caveat should remain on the title; and
2. the balance of convenience.

When considering the balance of convenience, the court weighs the relief the plaintiff seeks (for example, the extension of the caveat) against the harm that might be done to the defendant (for example, preventing him/her to finalise the sale of the property in question).

Mr Tony Jovanovski and Ms Beti Jovanoska entered into a Contract for Sale of land in late 2018 with T Square Investments Pty Ltd to transfer to the latter a property located at Wyndham Vale, Victoria. The purchase price of $6.5mil was to be paid by installments. Subsequently, T Square Investments Pty Ltd lodged a caveat over the Wyndham Vale property to protect its interest (“Caveat”).

After a default in the payment of one of the installments, Mr Jovanovski and Ms Jovanoska rescinded the contract in late 2019 and because it became apparent that the Caveat will not be removed, an application was made by them to the Supreme Court of Victoria for its removal.

Justice Cameron concluded that there was no serious issued to be tried because the Contract for Sale had been rescinded and therefore T Square Investments Pty Ltd had no interest in the land. His Honour further indicated that because of his finding on this issue, there was no necessity for him to look at the balance of conveyance.

In conclusion, Mr Jovanovski and Ms Jovanoska were successful in their application for the removal of the Caveat.

Peter Jackson, Costin Stan and Jason Tran 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 2019 and 2 January 2020.

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

Forged Loan Documents and Compensation:

When a Loan Agreement and Mortgage is forged can the plaintiff argue that the documents are unjust credit documents under the National Consumer Credit Protection Act 2009 (Cth.)…

Mr Van de Heuvel forged his wife’s signature on a loan agreement and mortgage so that he could borrow money from Perpetual Trustees Ltd (“Perpetual”). The Court ordered that there was a registered mortgage that secured the debt owing to Perpetual.

The judge on the first instance held that the unjust credit provisions of the National Consumer Credit Protection Act 2009 (Cth.) (“the Code”) did not apply in this case because Mrs Van den Heuvel was not a mortgagor under the general law because of the forgery. The matter went to the Court of Appeal and three judges discussed all of the arguments.

Justice Hodgson found that the mortgage was excluded from the the Code because Mr Van den Heuvel had signed a certificate stating that the loan was for business purposes. Once that certificate is signed, the unjust contract provisions of the Code do not apply.

Justice Basten held that the wife should be entitled to rely on the provision in the Code because she was at risk of losing her interest in the home that was security under the mortgage.

Justice Young held that the Code did not apply. He further stated that it is only people who enter into mortgage who can rely on the provisions of the Code and not someone who becomes a mortgagor only because of the operation of the Real Property Act 1900 (NSW) following the registration of the mortgage.

Their Honours concluded that Mrs Van den Heuvel could not seek assistance under the Code. Therefore, she was left with compensation from the Registrar General.

The court did not have power to assist a guarantor who claimed that the second guarantor should pay a greater proportion of the guaranteed debt…

Daniel Brown and Dustin Kavanagh guaranteed the debts of Rethink Financial Group Pty Ltd to AMP Bank.

Mr Brown claimed that the conduct of Mr Kavanagh, at the time of the split of the partnership, gave him an unfair advantage and therefore Mr Brown should pay a greater proportion of the debt claimed by the bank.

Judge Kunc delivered judgment on 30 March 2017, and held that the law did not include any power to adjust the monetary obligations as between guarantors to reflect what might be seen as one co surety’s greater culpability or responsibility for the guaranteed debt.

His Honour went in to say that even if the law allowed for an apportionment other than equally between guarantors, the facts did not support that in the case of Mr Brown and Mr Kavanagh .

Mr Brown held 30% of the shares in Rethink Pty Ltd and Mr Kavanagh held 70%. Mr Brown said that it would be fair if he was required to pay 20% of the debt. He did not argue the percentage of his shareholding as a factor. Mr Brown’s case was based on facts that occurred at the end of the partnership, namely that he was locked out and that Mr Kavanagh dealt with assets of the business in a way that gave him an unfair advantage.

Mr Honour relied on an old 1787 authority in deciding that the doctrine of contribution among sureties is not founded on contract but in equity on the ground of equality of burden and benefit.

His Honour pointed out that the only way Mr Brown could have argued that Mr Kavanagh should pay more than half the guaranteed debt would be to argue that he did not come to the court of equity with clean hands. This was not argued and his Honour said that it was difficult to see how it could have been.

Mr Brown was unsuccessful in his claim and Mr Kaganagh and was obliged to pay half of the debt.

An oral agreement between brothers to transfer a property ends up in court…

After the Vietnam War, Cam Vinh Phung migrated to Australia from Vietnam and in the years following, he assisted his family, including his younger brother Cam Tai Phung, to also come to Australia.

Cam Vinh claimed that in January 2010 he came to an oral agreement with his brother Cam Tai for the transfer of a property in Swete Street Lidcombe to him on payment of $180,000. The amount of $180,000 was the amount owing by Cam Tai on mortgages on two properties that he owned.

Between 2010 and 2013, Cam Vinh paid a total of $90,000 to his brother and then commenced regular payments of $400 per fortnight. Cam Vinh moved into the Swete Street property and from March 2010 paid all of the outgoings. He also spent between $6,000 and $7,000 on renovations.

In September 2013, Cam Tai was traveling overseas and Cam Vinh asked him to give him something in writing about the arrangement between them. Cam Tai agreed to this and prepared and signed a short statement saying that he had agreed to “transfer“ the Swete Street property to his brother Cam Vinh.

In October 2016, Cam Vinh asked his brother to transfer the Swete Street property to him. Cam Tai refused claiming that the money was paid to allow Cam Vinh to live in the property during his lifetime.

Supreme Court proceedings were started and it was for the Court to decide whether or not Can Vinh was entitled to the Swete Street property.

The law provides that all dealings in respect of land must be in writing. Justice Darke found that the document in September 2013 did not meet the requirements of the law; for example, the document did not refer to the purchase price of $180,000.

However, that was not the end of Cam Vihn’s case. He further argued that the court of equity should intervened and order that the contract should be completed because of his part performance of it. His Honour looked at what had occurred: the $180,000 had been paid by Cam Vinh, he had moved into the Swete Street property, he had paid all of the outgoings and he carried out and spent money on renovations. His Honour said that paying the $180,000 was not enough on its own to support a claim for specific performance of the contract but when combined with the other matters, he reached the conclusion that a contract existed between the two brothers and he made the order that Cam Tai transfer the property to Cam Vinh.

Cam Tai submitted that the order for specific performance should not be made on the grounds of unfairness and hardship. Cam Tai claimed that the agreement was entered into because of undue influence by his brother, that the purchase price was below market price and that he would suffer hardship if he was required to transfer the property to his brother.

His Honour found that although Cam Tai respected his brother, he did not enter into the agreement because of the undue influence of his brother. As to the purchase price, the court found that although it was below market price there were other matters in the family that determined that it was not unjust; one fact was that Cam Vinh had helped Cam Tai pay the mortgage over the years.

His Honour ordered that Cam Tai transfer to Cam Vinh the Swete Street property. He also ordered that Cam Tai should pay the legal costs of Cam Vinh associated with the proceedings.