This week's TGIF considers Australia and New Zealand Banking Group Ltd v Bragg (No. 3)  NSWSC 208, in which the Court rejected a borrower's claims that it entered into a loan contract under duress and that the bank prevented its attempted sale of the mortgaged property.
In October 2010, Conjola Investments Pty Ltd (Borrower) entered into a contract to purchase a property at Lake Conjola (Property). In June 2011, the Borrower entered into a loan contract with ANZ (Bank) to finance the purchase and development of the Property. The loan was secured by mortgages and guarantees provided by Mr Bragg (director and shareholder) and Mrs Bragg (shareholder).
The Borrower first defaulted in December 2011. Although the Bank subsequently agreed to extend the loan on several occasions, the Borrower further defaulted on its payment obligations. In June 2014, the Bank entered into a settlement deed with the Borrower and Mr Bragg (Defendants), Mrs Bragg and another company, in which the Defendants acknowledged their indebtedness and the Bank's rights as a result. Despite that, the Borrower and Mr Bragg, who was in occupation of the Property, failed to give up possession of the Property. This led the Bank to seek possession of the Property from the Defendants.
In their defence, the Defendants made a number of assertions which were ultimately rejected by the Court. These included that the loan contract and settlement deed were entered into under duress and that the Bank's failure to provide a final payout figure prevented Mr Bragg's attempted sale of the Property by auction.
The Court found that neither the loan contract or the settlement deed demonstrated duress, nor was there any evidence of illegitimate pressure, such as unconscionable conduct on the Bank's part.
In coming to his decision, Davies J referred to Australia and New Zealand Banking Group Ltd v Karam (2005) 64 NSWLR 149, in which the Court held that 'the fact that one party is in financial difficulties, of which the other party is aware [...] will be relevant, but not sufficient to establish unconscionable conduct on the part of the stronger party.'
Justice Davies found that it was the Defendants who wanted, needed and sought a further extension of the loan from the Bank. The development had not been completed by two dates stipulated by the Bank, nor had the facilities been repaid by two repayment dates. Justice Davies concluded that:
Nothing in the evidence suggests the absence of any choice for the Defendants to enter into the loan agreement...If there was any absence of choice, it was only that the Defendants needed a further extension. That position had been brought about by their failures.
By extending the loan on several occasions, the Bank granted a number of indulgences to the Defendants. Further, Davies J held that the Bank took no advantage of the Defendants, who had been advised by solicitors since before the Bank was initially approached, up until after litigation commenced. On these bases, his Honour held that the loan agreement was not entered into under duress.
For similar reasons, Davies J found that the settlement deed was not entered into under duress. A further reason for this finding was that the Borrower's solicitor had provided a solicitor's certificate with respect to the settlement documents, certifying that:
- he had explained their general nature and risk to Mr Bragg, before signing; and
- Mr Bragg stated that he understood their general nature and risk and was signing voluntarily and without pressure.
No prevention of sale by the Bank
Justice Davies rejected Mr Bragg's argument that the Bank's failure to give him an exact payout figure prevented him from selling the Property. The Bank provided an indicative payout figure by email to Mr Bragg's solicitors. Justice Davies held that the indicative figure was sufficient because the intention of the Borrower (as communicated to the Bank via email from the Borrower's solicitors) was not to sell for a price less than that figure plus $100,000. In any case, until a settlement date was appointed, the Bank could not calculate precisely what would be owing.
Therefore, Davies J held that contrary to his defence, it was Mr Bragg who prevented the prior sale of the Property by failing to accept an offer at auction, because, while the offer would have covered the debt owed to the Bank, it was not enough to pay out other debts owed by him.
The Court gave judgment for possession in favour of the Bank and ordered the Defendants to pay the Bank's costs of the proceedings.
This decision illustrates that a borrower's financial difficulties alone will not be sufficient to establish that a loan contract or a settlement deed was entered into under duress. Further, it suggests that a bank's failure to provide a borrower with an exact payout figure will not impugn the bank's right to obtain possession of the property.
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