The guarantor alleged that the borrower had made an agreement with the bank that the debt would not be called upon until the property had been sold and the shortfall determined. The claim for possession by the lender is therefore unconscionable conduct pursuant to the ASIC Act. In addition, the guarantor claimed an agreement whereby it had been released from its guarantee.
Section 12CC(4) ASIC Act is as follows:
A person is not to be taken for the purposes of this section to engage in unconscionable conduct merely because the person institutes legal proceedings in relation to that supply.
On its face, it would seem the defence is precluded. However, the Judge noted that ´merely´ indicates that all circumstances need to be taken into consideration. The relevant circumstances were as follows:
- The borrower was an experienced business man;
- The borrower clearly knew the loan was in default and that he did not have cash to hand to discharge the loan;
- The lender had extended time to repay and allowed the borrower to assist with sale of the property;
- The borrower´s oral evidence was inconsistent with the documentary evidence;
- Even if the agreement was reached, it was in relation to a specific sale which was not completed.
On that basis, the commencement of proceedings was not unconscionable conduct. The Court also concluded that the guarantor had not been released from its guarantee.
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