Reliance Financial Services v Sobbi [2010] NSWSC 236

In this case the lender sought to enforce a mortgage given by two elderly immigrants whose claimed unfamiliarity with English. The mortgage was given to secure a loan made to their son which was allegedly for the purpose of repaying a baseball bat wielding creditor. The parents sought to avoid the guarantee (and therefore the mortgage) pursuant to the Contracts Review Act, or, alternatively, under the general law principles of unconscionable dealing.

The parents raised the following claims in their defence and cross-claim:

  1. That they were elderly with a poor command of spoken or written English.
  2. That a copy of the Loan Agreement was not provided to or explained to them.
  3. That they did not obtain independent legal advice.
  4. That the lender knew that their son was, at the time of the loan, a bankrupt.
  5. That they did not know that the purpose of the loan was for their son to repay monies owed to someone who was threatening him.
  6. That their son did not have the financial resources to pay the loan.

At the time of the loan the parents were 70 and 62 years of age. The mother’s evidence was that she speaks only Persian and Arabic and is unable to read or write in any language. She had never been to school and had no knowledge or understanding of financial matters.

The evidence showed however that both the parents had been involved in the jewellery trade and property development and had substantial assets, including unencumbered properties. 

According to the Lender’s director, whose evidence the judge preferred to that of the borrowers, the following conversation took place:
 
Father:  Can we sign the documents now?

Lender:  No, you both have to get independent legal advice from separate lawyers. Your son has already sent me documents which he says were signed by you and I’m not so sure. I want a solicitor to witness you signing the documents.

Father: I’m a man of Honour, I will never forget the help you have given us. I don’t need any documents explained to me or my wife.”

Lender: No, this is the proper way to do things and it protects you and me just in case of any future dispute.

On the bankruptcy issue, the judge held that there was no evidence that affirmatively establishes that the lender knew or was conscious or suspicious of the fact that at the time of the loan the son was a bankrupt. Moreover the judge  concluded that it was more probable than not that if the Father, at the time of the loan, had been aware he would, nonetheless, have proceeded with the loan and associated transactions.

A solicitor gave evidence that she heard the Father say to the Lender:

I need the money. They have beaten my son with a baseball bat. I’ve got to help my son and I need to pay the rent for the shop.

The judge disbelieved the Father because of inconsistencies in his evidence and to a lesser extent because of his demeanour and unsatisfactory responses to questions in cross-examination.

On the issue of whether the threats made against the son constituted a special disability giving rise to relief the judge held:

A decision of a borrower in such circumstances to effectively buy-off a person making threats does not, in my opinion on the facts of the present case, constitute evidence of “special disadvantage” that would require a lender to refrain from granting the loan or to require it to do so only after it has sought more information to ensure that the potential borrower was making a rational decision about the matter.

On the issue of asset lending the judge found for the lender noting:

This was not a case of pure asset lending. That expression comprehends a transaction under which money is lent without regard to the ability of the borrower to repay by instalments under the contract, in the knowledge that adequate security is available in the event of default and thus “a potentially fruitless enterprise, simply because there is no risk of loss”:

In the present case, the lender had acted for the borrowers as their accountant for several years. He would be taken to have some reasonably detailed knowledge of their business, their financial status and their asset position. As at the date of the transaction the subject of the proceedings, they owned assets other than their home. In particular, they owned the shares valued at approximately $2 million.

The subject loan was not, as in Khoshaba, raised for the purposes of a speculative venture involving a highly risky investment promoted by third parties to the public (including the gullible public). There is no evidence in this case (as in Khoshaba) that the defendants incurred damage or loss as a result of a loss-making investment scheme. The evidence instead establishes that they have had the benefit of the plaintiff’s money.

Accordingly the defence and cross-claim were dismissed and the lender was granted judgement for possession.

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