In the second major recent decision in the Supreme Court of Western Australia¹ on the topic of unconscionable dealing, the Supreme Court of Western Australia in Choice Constructions Pty Ltd v Janceski [No 3]  WASC 358 was required to consider whether the plaintiff’s second registered real property mortgage (Mortgage) could fairly and reasonably be enforced.
The defendants, the Janceskis, were immigrants who arrived from Macedonia in the early 1970s. They came to Australia with little or no English and raised a family in Perth. Relevantly, over a 30 year period they borrowed, mortgaged and refinanced with a range of lenders in relation to a range of properties, including the property situated at Collingwood Street, Dianella (Property).
The Mortgage sought to be enforced secured part of the purchase price of a property in West Perth which had been acquired by the eldest son of the defendants from the plaintiff in the name of a family trust of which the defendants were beneficiaries.
The plaintiff’s case
The plaintiff’s case was that:
Essentially, the plaintiff’s main role in the proceedings was to rebut the allegations made by the defendants.
The defendants’ case
The case brought by the defendants in opposition to the enforcement proceedings varied from time to time, but in general terms was that the Mortgage was unenforceable in equity. It was argued (among other things) that the defendants were at a ‘special disadvantage’ vis Choice³. The factors said to support this assertion included:
It was also asserted that the plaintiff had exerted actual undue influence4 against the defendants in circumstances where (among other things):
In raising this argument (albeit, it appears, in passing, in the context of closing submissions), the defendants were asking the Court to consider extending the test in Garcia from a husband – wife relationship, to a parents - son relationship.
Justice Simmonds ultimately found that the defendants had failed to make out their case that they had any special disadvantage capable of supporting their claim that the Mortgage was unenforceable.
In reaching his view Justice Simmonds made the following findings:
It was concluded that even if the case for special disadvantage had been established (which it had not), it needed to be (but was not) sufficiently evident to the plaintiff to justify setting aside the Mortgage.
In relation to the ‘Garcia’ argument His Honour found that the defendants did understand the purport of their transaction with the plaintiff and, as beneficiaries under the family trust controlled by their son which gained the benefit of the plaintiff’s financial accommodation, were therefore not volunteers. In the circumstances, His Honour found it was unnecessary to decide whether the parent – son relationship could sustain a ‘Garcia’ argument but did note that the Court in Vandenbergh had reached a ‘tentative’ view to the contrary.6
Although the defendants’ case did not succeed, this decision serves as a useful reminder of the Court’s equitable jurisdiction to set aside financial transactions on the basis of unconscionability. Lenders must be attuned to circumstances such as the grasp of English, age, mental state, and literacy levels of signatories of documents, particularly where multiple of these factors exist. If a borrower or guarantor can make out a prima facie case that conduct is unconscionable, the onus will be on the lender to establish the transaction was just, fair and reasonable in the circumstances.
These considerations should be given real weight when considering borrowers’ or guarantors’ circumstances, alongside lenders’ other legal obligations set out in the Code of Banking Practice, the National Credit Code and other statutes.
For further information on this case or on any of the legislation outlined above contact:
|Alison Robertson||Dan Butler|
|(08) 9288 6872||(08) 9288 6714|
1 The first being Permanent Mortgages Pty Ltd v Vandenbergh  WASC 10 (Vandenbergh), see in particular  – .
2 It was not in dispute that the Mortgage was properly executed.
3 As that concept was formulated in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 (Amadio).
4 Based on the test outlined in Garcia v National Australia Bank Limited  HCA 48 (Garcia).
5 Mrs Janceski was mid-50s at the relevant time. This was distinguished from the age of the complainant in other similar cases, such as in Bridgewater v Leahy  HCA 66 where Mr York was 84 at the time of entering into the transaction.
6 See Vandenbergh, at  in which Justice Murphy said the aged parent/child relationship is not of itself to be treated as equivalent to the wife/husband relationship for the purposes of the test in Garcia.