Unconscionable conduct – a reminder

The Supreme Court of Western Australia’s decision in Choice Constructions Pty Ltd v Janceski [No 3] [2011] WASC 358 provides guidance on the Garcia and Amadio principles in relation to unconscionable conduct by a mortgagee.

Background

The defendants, Mr and Mrs Janceski (Janceskis), were of non-English speaking background, having moved to Australia in the 1970’s. Although neither had received a formal education both could read, write and speak English to a limited extent, and had been involved in a series of property transactions prior to entering into the mortgage with Choice Constructions Pty Ltd (Choice).

The Janceskis challenged the enforceability of the mortgage arguing Choice had acted unconscionably. The claim of unconscionable conduct was based the principles set out in the High Court decisions of Commercial Bank of Australia v Amadio (1983) 151 CLR 447 and National Australia Bank Limited v Garcia (1998) 194 CLR 395.

Decision

In Amadio, the High Court held that a mortgage will be unenforceable where one party to a dealing is at a special disadvantage and because of the disadvantage it would be unconscionable for the other party to take a benefit from it. Garcia stands for the proposition that it would be unconscionable to enforce against a married woman a guarantee given in connection with her husband’s debts in circumstances where:

  1. the guarantor did not understand the effect of the transaction, and was not receiving a benefit from it;
  2. the lender was aware that the guarantor did not understand the transaction; and
  3. the lender did not take steps to ensure the guarantor gained an understanding.

Simmonds J ultimately found in favour of Choice, declaring that the Janceskis were not at a special disadvantage and that Choice had taken adequate steps to ensure the Janceskis received appropriate and translated advice.

His Honour made several comments in his decision on the factors relevant to a finding of special disadvantage:

  1. whilst age in itself is not a special disadvantage, when combined with other factors it may give rise to a special disadvantage;
  2. emotional dependence is often an indicator of special disadvantage but will not amount to special disadvantage without the presence of other factors;
  3. a lack of literacy, education or comprehension of the English language are significant factors indicating special disadvantage; and
  4. a lack of business knowledge may also be a contributing factor.

It was not necessary to decide whether the Garcia principle now extend to relationships other than that between a husband and wife and that question appears to be unsettled.

Comment

The principles in Amadio and Garcia are well known. This case provides some useful commentary on their application in a contemporary setting. It also highlights the importance of ensuring that potential borrowers and guarantors obtain independent legal advice.

It is important to keep in mind that a mortgagor need only make out a prima facie case of unconscionable conduct before it is necessary for the lender to show that they were not and should not have been aware of the disadvantage, or that they took appropriate steps to ensure the mortgagor received independent advice.