Case Name: Stubbings v Jams 2 Pty Ltd
- Citation: [2022] HCA 6; (2022) 276 CLR 1; 96 ALJR 271; 399 ALR 409
- Judges: Kiefel CJ, Keane, Gordon, Steward, and Gleeson JJ
- Date of Judgment: 16 March 2022
- Area of Law: Equity – Unconscionable Conduct
- Court: High Court of Australia
Stubbings v Jams 2 Pty Ltd [2022] HCA 6 is a decision by the High Court of Australia regarding unconscionable conduct in asset-based lending. Given below is a summary of the case.
Appellant: Jeffrey William Stubbings
Respondents: Jams 2 Pty Ltd and others
Case Background (Stubbings v Jams 2 Pty Ltd)
The appellant, Jeffrey William Stubbings, guaranteed loans made by the respondents (Jams 2 Pty Ltd and others). The appellant was unemployed, had no income, and owned properties used as a loan security. The loans, totalling over $1 million, were made to a shell company controlled by the appellant (Victorian Boat Clinic Pty Ltd), secured by mortgages on the appellant’s properties.
The respondents used an intermediary and a legal firm to arrange the loans. The respondents’ agent, AJ Lawyers, and intermediary (Mr. Zourkas) avoided direct interactions with borrowers to minimize liability and knowledge of their financial vulnerability.
The appellant received legal and financial certificates allegedly verifying his understanding of the loan risks, though these were disputed as independent.
The lending system was asset-based, relying solely on collateral value, with no assessment of the borrower’s repayment capacity.
The appellant defaulted shortly after the loan initiation, leading the respondents to enforce mortgage rights.
Legal Issue
The appellant alleged unconscionable conduct, arguing the respondents exploited his financial vulnerability and lack of understanding.
The High Court examined whether the respondent’s system of asset-based lending exploited the appellant’s vulnerability and amounted to unconscionable conduct.
High Court Decision (Stubbings v Jams 2 Pty Ltd)
The appeal was allowed, overturning the Victorian Court of Appeal’s decision. The High Court reinstated the primary judge’s findings.
The appellant was at a significant disadvantage due to his financial illiteracy, lack of income, and inability to understand the risks of the loan transaction. The appellant’s special disadvantage was apparent, and the respondents, through their agent, knew or ought to have known the risks posed to the appellant. But their deliberate ignorance of the appellant’s circumstances constituted exploitation.
The court determined that the system of conduct employed by the respondents constituted unconscionable behaviour under equity and statutory law, specifically Section 12CB of the Australian Securities and Investments Commission Act 2001 (Cth).
The Court held that the respondents exploited the appellant’s disadvantage to profit from his equity in the properties, which was unconscionable.
The certificates of advice were deemed inadequate to negate the unconscionable nature of the transactions, as they did not provide true independence or transparency. The solicitor and accountant providing the “independent advice” (Mr. Kiatos and Mr. Topalides) were introduced by the intermediary (Mr. Zourkas), raising questions about their impartiality.
Orders
The mortgages were discharged, and the loans declared unenforceable.
Costs were awarded against the respondents.
Significance
The case underscores the High Court’s commitment to ensuring fairness and preventing exploitation in financial dealings, particularly where systemic practices target vulnerable individuals.
References:
https://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/HCA/2022/6.html
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