Nibar Investments v Manikad [2014] NSWSC 920

The lender sought possession but did not sue the guarantor. The arrangement was struck that finance would be provided to the guarantor’s company, and a new purchase contract was entered into to reflect this. The guarantor sought to be joined on the basis that the loan, mortgage and guarantee be set aside because the arrangement that involved the company buying the land was unjust and the loan should never have been made to her.

The court granted joinder of the guarantor as cross-claimant on the basis that if possession was obtained and less than the full amount of the debt were recovered, the lender would seek the balance from the guarantor.

The court found no defence to the claim. The court said:

The borrower and guarantor may well have arguments from the Contracts Review Act and principles of unconscionability that might afford some relief in limiting any monetary judgment against them. However, it does not seem to me that those arguments would serve to diminish the obligation of the borrower to repay the $900,000 principal lent. The $900,000 was advanced which enabled the borrower to complete the contract to buy the land. The borrower retains the land. There can be no defence to that part of the claim that relates to the principal sum. It may be that the borrower and the guarantor will recover damages or will show an entitlement not to have to pay moneys over and above the $900,000. However, where they have the consideration of the land purchased for the $900,000 that principal sum must be repaid. That is not able to be done without the land being sold.

The court found the lender entitled to an order for possession. However, by reason of the cross-claim, there should be a stay on any execution of the judgment of any amount in excess of $900,000. From a practical point of view that may mean that the proceeds of sale received on a sale of the land after payment of sale expenses, over and above $900,000, will need to be either paid into court or lodged in a controlled moneys account under some arrangement that is made between the parties to the proceedings.

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