In Bendigo and Adelaide Bank Ltd v Karamihos [2014] NSWCA 17 the Supreme Court of NSW Court of Appeal allowed an appeal by the Bank against the trial judge’s decision that the loan contract and mortgage were unjust within the meaning of both the Credit Code and the Contracts Review Act. (See our discussion of the original decision here).
In particular the Court of Appeal decided that the fact that the Karamihoses were in their early 70s did not in itself indicate an inability to protect their own interests: “A conclusion that that ability is absent must depend on more evidence than that.”
Macfarlan JA concluded that:
there were no other matters that warranted the conclusion that the Loan Contract and Mortgage were unjust. The following indicate the contrary:
•The Karamihoses were aware of their obligation to make monthly payments and understood the consequences of default.
•They had sufficient financial acumen to have conducted a successful business for 27 years. The Bank’s credit inquiry did not reveal any default by them.
•They had the assistance of their adult daughter in relation to the transaction…
•The loan was intended to be, and was in fact, largely used to repay an existing lender, with the balance to be applied to the Karamihoses’ business. There was nothing in the evidence to suggest that the Karamihoses’ intended application of the balance of the funds to their business was an irrational, foolish or uneconomic strategy.
•The Karamihoses had an exit strategy which the evidence did not show was inadequate to enable them to repay the loan upon their retirement or illness. As it transpired, it appears that they chose not to use it. Mr Karamihos’ evidence suggested that they attempted unsuccessfully to sell the “business” (presumably distinct from the property itself). He did not say that they attempted to sell the property. Instead, they leased the property. ….For these reasons, I consider that the primary judge erred in finding that the Loan Contract and Mortgage were unjust within the meaning of the Contracts Review Act and the Code. In short, the Karamihoses did not demonstrate that they were unable to protect their own interests or that for any other reason the Loan Contract and Mortgage were unjust…. “
