On 2 September 2011, the NSW Court of Appeal upheld the decision of the primary judge in Fast Fix Loans Pty Ltd v Samardzic  NSWCA 260 to award relief under the Contract’s Review Act 1980 NSW) in respect of a guarantee that was given by two guarantors under pressure from their son.
In November 2006, Milan (the son), through his company, entered into a call option for nine months to purchase a property at Head Street in Forster for $1,330,000 plus GST. With stamp duty, this price exceeded $1,400,000.
In order to purchase the property, Milan asked his parents for financial assistance. His parents, both of Yugoslavian nationality, were only able to speak communicative English, or as the primary judge referred to it as ‘simple’ English.
The parents gave a short term loan to the company (a loan using their own property as security) which enabled a second mortgage over the property. Milan’s parents advised Milan that they had no assets and were unable to meet any obligations under the loan but said “we can help you by putting our name on the bank document if it helps you get the loan, but only if our obligation ends in three months”. Milan stressed to his father that it was a “big problem” and they [the parents] would need to lend him the money for the property in Forster. Following on from the comments above, Milan said that they would need to sign some documents and see a solicitor. A lawyer who spoke Serbian explained the documents to the parents in the presence of Milan.
The findings by the Court of Appeal:-
- The Primary Judge found that Milan had pressured his parents to obtain legal advice and sign the documents
- There was no evidence that Fast Fix Loans Pty Ltd had any insofar as Fast Fix Loans Pty Ltd made no enquiries as to the financial position of the parents and was only concerned about that of the security in the case of a default.
- At the time that a deed of loan and mortgage was provided to the parents, the parents only had a general understanding of the document, nor were they aware of the interest rates associated with the mortgage.
- The primary judge incorrectly applied the principles relating to borrowers in assets lending cases to guarantors.
- There was ample basis to conclude that the contracts were unjust and thus, relief to be granted against the Appellant (Fast Fix Loans Pty Ltd)
- Reference was also made to the high interest rate and said it may be a significant contributor to the injustice of a loan if the lender has not ensured that an unsophisticated borrower has received an explanation that brings home to the borrower the reality of how the interest rate, including any compounding, actually operates.
This case stresses upon lenders, the need to make enquiries of a guarantor’s ability to meeting their obligations irrespective if they have received legal advice. It should not be concerned only with security available in the case of a default.
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