This case involved a businessman’s dream home that went pear-shaped due to cost overruns. When the bank sought possession the borrower sought to blame the bank.
Improvidence / Non-English speaking
The borrower argued the bank should never have made the loan as it was improvident and they were vulnerable people:
There was no reason for the ANZ to consider the proposed loan to have been in any way improvident or beyond their means to repay. Although English was not their mother tongue, they had lived in Australia for over twenty years. Their capacity to run businesses in Australia was a powerful indication of their ability to express themselves and understand written and spoken English.
They were experienced business people who had conducted a successful antique business in Australia for decades. They knew the nature and effect of a loan and a mortgage and were capable of protecting their own interests. It was reasonable for the ANZ to regard them as such. Indeed, their scrupulous adherence to their contractual obligations to repay the debt for a number of years is a powerful indication of their ability to repay and their appreciation of their legal obligation to do so.
The Court made clear that the contract has to be examined at the time it was entered into:
In determining whether a contract is unjust for the purposes of the Contracts Review Act, it is not appropriate to diagnose what went wrong in the performance of the contract and consider, with the benefit of hindsight, whether the party asserting its rights against the party claiming relief could have acted differently to avoid any resultant misfortune. It is almost always reasonably foreseeable that economic conditions will change adversely to a borrower: income thought to be sufficient to service the loan may prove to be inadequate; assets relied upon to be realised to provide ready cash in difficult times may lose value; and the usual vicissitudes of economic fortunes may wax and wane. In the present case, it was common ground that the fortunes of Mr and Mrs Fink were affected by the Global Financial Crisis, which diminished the demand for 18th century French antiques and therefore reduced the income of the business and the value of its stock.
The Court made clear that if you have the means you are entitled to splurge your money, including borrowed money on what you will. A paternalistic attitude is only required from the lender where the borrower is unsophisticated:
Having regard to its exceptional character and location, there was always a risk that the cost of its building would exceed its market value. To lend money on unremarkable commercial terms for the completion of a partially constructed dwelling, even if its style and location give it the character of a folly rather than an investment, is not unjust where the borrowers have a demonstrated capacity to pay and there is, as here, no reason to believe that they are not capable of acting in their own interests.
Were it otherwise, the provision of funds for depreciating or whimsical assets, such as luxury cars or boats, or overcapitalised real estate, would be put in jeopardy. Financial institutions, such as the ANZ, are neither required, nor expected, to be paternalistic to customers such as Mr and Mrs Fink. As long as borrowers are reasonably able to make financial decisions in their own interests they are entitled to take risks.
The Bank’s lack of vision
The borrower’s complained that ANZ Bank did not see the project through to the finish. The judge found no such obligation:
First, the ANZ was entitled to act commercially as a financial institution in its own interests. It was not obliged to share the “vision” of its customers and continue to provide them with financial support, irrespective of the terms of the agreements between them. Secondly, the ANZ was entitled to have its own policies as to how loans would be advanced.
Superior bargaining position by virtue of default
The Court was of the opinion that if a borrower is in default and the bank requires further security to extend that does not amount to unconscionability even though the bank is clearly in a superior bargaining position:
ANZ was in a superior bargaining position since, without a further extension, the borrowers would have been in default of the limits of the Overdraft Facility. The critical disadvantage from which the they suffered was that they had no legal entitlement to an extension of the Overdraft Facility. However, they had a choice, albeit an unpalatable one. Their choice was either to remain in default, and face enforcement action, or execute the Goods and Property Mortgage.
Choosing the latter option gave them the opportunity of receiving the expected proceeds of the sale. The parties involved in the transaction: the ANZ on the one hand and the borrowers on the other, were concerned to advance or protect their own financial interests. The borrwers were not subject to any special disadvantage; nor was the ANZ’s conduct unconscionable.
The judge noted that there was not a lot of case law on the proposition that the Banking Code acted as a contract between the borrower and lender. There was one case where the questions was never decided but where Justice Young of the Court of Appeal made some disparaging comments against the proposition:
The Code of Banking Practice is a document which was probably never prepared by its drafters to form part of a legal document. It is drafted as a lay person’s document to be understood in a quick reading by a person considering dealing with the bank. It thus lacks the precision that one would expect in a term to be included in a contract dealing with megadollars.
The clause in question in a legal document is so fraught with ambiguity it would be unwise to attempt to be definitive in its construction. Assuming it must be given some meaning in a commercial document, it probably does not operate to beyond requiring the bank to act in good faith towards the customer.
The borrowers sought to rely on the following clauses of the code:
[2.2] We will act fairly and reasonably towards you in a consistent and ethical manner. In doing so we will consider your conduct, our conduct and the contract between us.
[25.1] Before we offer or give you a credit facility (or increase an existing credit facility), we will exercise the care and skill of a diligent and prudent banker in selecting and applying our credit assessment methods and in forming our opinion about your ability to repay it.
[25.2] With your agreement, we will try to help you overcome your financial difficulties with any credit facility you have with us. We could, for example, work with you to develop a repayment plan. If, at the time, the hardship variation provisions of the Uniform Consumer Credit Code could apply to your circumstances, we will inform you about them.
The Court held these breaches were not made out and that there was no evidence led as to what a diligent and prudent banker would do.
Certificate of debt
ANZ was entitled under their mortgage to give a certificate of debt which must be regarded by the Court as conclusive of the customer’s indebtedness (thus avoiding a fight). To this the judge replied:
ANZ is entitled to all monies outstanding under these loans. The ANZ was entitled by reason of the memorandum to the mortgage to give a certificate certifying how much is owed: Dobbs v NAB  HCA 49.