Woodman v Kudosa Pty Ltd [2015] VSC 675

A husband, pilot and property developer was made bankrupt and used his wife as a “dummy front’ for his business. His wife became the director and shareholder of his company, signed various documents without reading them and purchased two investment properties, at her husband’s insistence. The wife owned a previous home, in her own name, which she tenanted. The wife claimed that she told her husband that she did not want to borrow over this home. One of the documents the wife signed was a mortgage over this home and a personal guarantee of the company loan. The wife denied that the loan originator and/or the solicitor who witnessed her signature explained to her that she was giving a mortgage over her home. The wife then sought an injunction to prevent the sale of her home and claimed unconscionability.

The court found no serious question of unconscionability for the following reasons:

  1. The wife knew she was effectively a dummy director for companies that carried on the business activities of her bankrupt partner;
  2. A transcript of the loan originator’s call with the wife made it clear that she was taken through the letter of offer, however the mortgage over her home was not specifically mentioned in that call. The wife initialled the reference to the mortgage in the letter of offer.
  3. The wife signed a company loan, a personal guarantee, an acknowledgement that she had obtained independent legal advice and an acknowledgement of having received the Memorandum of Common Provisions, which referred to the property she owned securing the loan and guarantee.
  4. On the same day the wife covenanted that she had received independent legal advice about the loan and the solicitor that witnessed her signature certified to this effect. However no evidence as to the solicitor’s meeting was found on the solicitor’s file.

The court found that the wife was not a volunteer because she was the sole director and shareholder of the company that borrowed the money in order to purchase investment properties and whilst the borrower was the trustee of a discretionary trust, with her husband the appointer, she was named as beneficiary.

The court said:

If [the wife] had the chance of benefiting from the transaction then I consider that she cannot be said to be a volunteer.

The court also found that the wife by her own admission agreed to become her husband’s dummy director and signed various documents he asked of her, while he ran the business.

The court said:

[The wife] agreed to pretend to the corporate world that she owned and controlled Caprice Beach Pty Ltd when this was in fact untrue. Furthermore, this occurred at a time when she knew her partner – the true controller of Caprice Beach – was a bankrupt. In those circumstances, any argument asserting that it would be unconscionable to allow the defendant to enforce the mortgage is hard to sustain. I regard the plaintiff’s proposed action as nigh on hopeless.

The court also found that if it were wrong and there was a serious question to be tried, then the balance of convenience still favoured the lender given it was sought to restrain the lender from completing a partially completed sale under the final determination of the matter. The court also viewed damages as an adequate remedy given the property was investment in nature and the wife could claim lost rental. The wife’s argument of an emotional attachment did not hold sway:

Whilst this may well be true, it does not mean that damages is not an adequate remedy even if it cannot be a perfect remedy.

The injunction was refused.

Click here to read the full judgement

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