Hoad v GEL Custodians [2014] NSWSC 513

A lender refused to advance further funds when it discovered that the borrowers had substantially overstated their income. The borrowers sued the lender for damages for breach of contract and also misleading and unconscionable conduct. The lender cross-claimed for the amount of the debt on the basis of the borrowers’ misleading conduct in overstating their gross income.

The court found that the sole source of the female partner’s income were government pensions and benefits and that items such as asset sale amounts, borrowings and benefits were wrongly included as income items. The court noted that a bald and optimistic figure which is dependent on supposition, speculation and hypothesis is not what is intended by the phrase ‘gross income available’.

The court found that by inflating their ‘gross income available’, the borrowers induced the lender to enter into a creditor-debtor relationship, when it would not otherwise have done so and this amounted to misleading conduct. The court found that but for the borrowers’ misrepresentations, the lender would not have approved any of their loan applications.

The lender called its chief appraiser to give evidence that if the lender had know of the misrepresentations, the lender would have refused to make the loans. Despite reservations about this type of evidence, the court found it to be a reliable guide on the questions of reliance and causation and held that if the borrowers had accurately stated their true financial position, the lender would have refused to lend and the litigation would have never arise.

The court also noted that there was nothing unconscionable (in the legal sense) about the form of the fastdoc declarations or the lender’s conduct in relation to them.

The court found for the lender.

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