Unconscionable or unfair dealing in asset-based lending in Australia

Abstract

This article examines the extent to which the doctrine of unconscionable conduct protects the interests of victims of exploitative asset-based lending. It considers the possibility of a loan made to a borrower unable to conserve his or her own interests and secured on the family home being set aside through general principles of unconscionable dealing in equity, including the current requirement to show a 'situational special disadvantage', under the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), and the Competition and Consumer Act 2010 (Cth). Moreover, this study investigates the courts' jurisdiction to reopen an unjust housing loan contract under the National Consumer Credit Protection 2009 (Cth) (Consumer Credit Code) and the Contracts Review Act 1980 (NSW). First, the article examines whether the lender knew of the vulnerability of the borrower. This article argues that the information given in a loan application may in some cases provide a basis for finding that a lender had knowledge of the inability of a borrower to look after his or her own interests for the purposes of establishing unconscionable dealing and unfair conduct. The case analysis revealed that asset-based lending may constitute unconscionable conduct in certain circumstances; however asset-based lending itself is not unconscionable. Second, a lender may have a duty to make further enquiries regarding a borrower's circumstances in cases where the loan documentation is incomplete or irregular. Third, the courts are willing to consider the information contained in the loan documentation when determining whether a lender had knowledge of a borrower's personal and financial circumstances. Lastly, the requirement that a borrower should 'do equity' and account for any benefit they have received has a significant impact on the utility of the relief granted by the courts.