Consumer Credit Legal Service
(WA) Inc.
Faith Cheok (Principal Solicitor)
Georgina Molloy (Solicitor)
Edward Souti (Paralegal)
Is this unjust?
Faith Cheok
Consider:
Karamihos v Bendigo Bank
Mr & Mrs K borrowed $1.2 million from Bendigo
Bank, secured over their home. They used $957K to
pay off their existing BOQ loan, gave $100K to their
daughter & used the rest for their café business.
Within 2 years, they suffered ill health and closed
down their café business. Mr & Mrs K defaulted.
Bendigo Bank sued to repossess their home.
Mr & Mrs K counter-sued; claiming the loan contract
was unjust.
Consider: Karamihos v Bendigo Bank
Background
• They were 72yo & 73yo at the time of the loan
• Greek immigrants with limited English ability
• They could barely understand written English
• No negotiations; no legal/financial advice
before they signed the documents
• They had worked hard all their lives; had run
their café business for 27 yrs
Old age…no income, no home
Unjust contracts
[Unjust transactions]
Edward Souti (Volunteer paralegal)
National Credit Code
• Covers consumer credit transactions including:
– home loans
– personal loans
– pay day loans
– credit cards
– consumer leases
Making a complaint
Section 76: Unjust contracts
• Under section 76 of the National Credit Code, a consumer can
apply for the “reopening” an unjust transaction.
• What does “reopen” mean?
What does “unjust” mean?
• Unjust includes unreasonable, harsh or
oppressive.
The contract
itself
Surrounding
circumstances
S 76 approach
Public
Interest
Circumstances
of the case
S 76(2) factors
What is the public interest?
The protection of
consumers.
The need to hold
parties to their
bargains.
16 factors to consider
Factors…
• The relative bargaining
power of the parties:
• Could the consumer
protect their own
interests because of age
or physical or mental
condition.
More factors…
• Form/language of
contract (complex and
ambiguous language?).
• Whether or not
independent legal or
expert advice was
obtained.
Some more factors…
• Are the obligations
necessary to protect the
interests of the bank?
• Was any unfair pressure,
undue influence or unfair
tactics used to get the
consumer to enter into the
contract?
– Examples?
Even more factors
• Accurate explanation of the
nature and effect of the
contract.
• Ensuring that the consumer
understands that explanation.
Case example 1: Mrs C
CIO Determination 24 September 2014
• Mrs C signed two loan contracts for $250,000
• For her son to buy 2 adjoining blocks to build
houses
• Mrs C was 65 yo; a widow; born in Egypt; could
barely read or write English
• Mrs C’s sole income = Centrelink age pension.
• Son “took care of everything”
• One loan was secured to her home. She didn’t know
that.
• Q: Unjust?
CIO’s considerations
• 65 yo; no formal education; very limited English ability.
• Limited loan experience. Both previous loans arranged
by late husband.
• Clearly no ability to understand the loan contracts
• Heavily influenced by her son. Expected he would act
in her best interests.
• No legal or expert advice obtained
Case example 2: Mr & Mrs K
Steve Karamihos and Aristea Karamihos v Bendigo and Adelaide Bank Limited
[2013] NSWSC 172
• Mr & Mrs K borrowed $1.2 million from Bendigo Bank, secured
over their home. They used $957K to pay off their existing
BOQ loan, gave $100K to their daughter & used the rest for
their restaurant business.
• Within 2 years, they suffered ill health and closed down their
business.
• Mr & Mrs K defaulted. Bendigo Bank sued to repossess their
home.
• Mr & Mrs K counter-sued; claiming the loan contract was
unjust.
Case example 2: Mr & Mrs K
Steve Karamihos and Aristea Karamihos v Bendigo and Adelaide Bank Limited
[2013] NSWSC 172
Background
• Mr and Mrs K were 72yo & 73 yo at the time of the loan
• Greek immigrants with limited English ability;
• Could barely understand written English.
• No negotiations; no legal/financial advice before they
signed the documents.
• Had worked hard all their lives; had run their café
business for 27 yrs.
• Q: Unjust?
Court’s considerations:
1. Public interest
– Protection of aged borrowers. Why is this important?
2. Other factors:
– Mr and Mrs K could not read or understand the contracts, or
understand the risks they faced in the event of sickness and
retirement.
– Consequences of non-compliance – Loss of family home.
– They received no legal advice.
– Relative lack of bargaining power and absence of any negotiation.
Unjust!
Overturned on appeal
• Why? (Hint: Remember the public interest?)
Responsible lending laws
• Where? Chapter 3 NCCP Act
• What?
– Before entering into a credit contract, a credit provider must
make reasonable inquiries about:
• Financial situation,
• Requirements and objectives,
– Reasonable steps to verify financial situation
– Make assessment about whether the credit contract is “not
unsuitable”
• Crossover? Differences?
Key points to consider
• Not easy to prove unjustness
• Unjust to layman not the same as unjust to the
court
• Overlap between unjustness and responsible
lending principles
Unconscionable conduct
Georgina Molloy
Unconscionable conduct
What does this
mean?
How can you use
unconscionable
conduct arguments
to help your clients?
Source: Google images
“Unconscionable”
dictionary meaning
Source: Google images
Legal cause of action?
Image: High Court of Australia, Canberra. Source: peo.gov.au
Unconscionable conduct
3 specific
elements
• The person had a ‘special
disability’ when dealing with the
stronger party;
• The person’s special disability was
known to the stronger party; and
• The stronger party obtained an
‘unconscionable’ advantage from
the transaction.
Rules in Amadio
Commercial Bank of Australia Ltd v Amadio [1983]
Source: Google images
Mr and Mrs Amadio’s special disability
Elderly
Limited English
Limited business experience
Reliance on their son Vincenzo
Unconscionable conduct
(the test again)
3 specific
elements
• Mr and Mrs Amadio had a ‘special
disability’ when dealing with the Bank;
• Mr and Mrs Amadio’s special disability
was known to the stronger party (the
Bank); and
• The Bank obtained an ‘unconscionable’
advantage from the transaction.
Recent WA cases
Perpetual Trustees Victoria Ltd v Burns [2015]
Source: https://au.news.yahoo.com/thewest/wa/a/28667886/court-win-for-disabled-couple/
Special disability?
Faith Burns
• mental disability
• unwell physically
• limited ability to read and write
Dale Burns
• blind in one eye
• illiterate
Source of income
for both Faith and
Dale
• disability support pensions
• no prospect of gaining employment or
additional income
Unconscionable conduct
• The Burns suffered from a special disability or
disadvantage with respect to the other party
(Perpetual) at the time of entering into the
transaction;
• the other party (Perpetual) knew of that special
disadvantage or disability, or was wilfully ignorant
of it; and
• the other party (Perpetual) had unconscientiously
taken advantage of their position.
Result for Mr and Mrs Burns
• Mortgage set aside
• The Burns still had to pay the principal with a
lower level interest
• Debt now unsecured
Source: Google images
Key points to remember
3 elements
Unconscionable
conduct has
specific legal
meaning
• Special disability of
weaker party
• Stronger party has
knowledge of disability
• Stronger party takes
unconscionable
advantage
Questions?