The Case

The borrowers were facing enforcement action in relation to existing debt exceeding $13 million. Possession proceedings had commenced and a mortgagee sale of a high-value property was a real prospect.

To avoid that outcome, the borrowers sought a refinance through a private lender. The new facility to advance $14.15 million, was structured as short-term finance to allow the borrowers time to market and sell the property themselves rather than lose control of the process through enforcement action.

The borrowers ultimately did not complete the contemplated sale. As interest accrued, the debt increased to more than $21.6 million and the lender subsequently sought possession in court.

In response, the borrowers argued that the transaction was unconscionable under the ASIC Act, unjust under the Contracts Review Act, and tainted by their solicitor's admitted conflict of interest arising from acting for both lender and borrower without informed consent.

Key Findings

The Court rejected all the borrowers' defences.

Although the borrowers were elderly and had limited English proficiency, the Court found they were commercially experienced and understood the nature of the transaction. They had substantial business experience, understood the financial implications of the transaction and received assistance with translation and communications.

Importantly, the Court assessed the refinance against the alternatives available at the time it was entered into. Viewed objectively, the facility was commercially preferable to the realistic alternatives available at the time, including the incumbent lender's proposed forbearance arrangement and an imminent mortgagee sale.

The Court also rejected arguments regarding repayment capacity. Repayment was always intended to occur through a property sale. The facility was structured as bridging finance, not a conventional long-term loan dependent on income or traditional serviceability.

A recurring theme throughout the judgment was that the facility was designed to facilitate a borrower-controlled sale of the property. Having obtained that opportunity and avoided immediate enforcement action, the borrowers ultimately failed to execute the strategy underpinning the refinance.

While the solicitor's conflict constituted a breach of fiduciary duty, the borrowers still had to prove that the breach caused loss. The Court was not satisfied that the borrowers would have acted differently had the conflict been disclosed and independent advice obtained. Given the alternatives available, the evidence indicated they would likely have proceeded with the refinance in any event.

The decision demonstrates the importance of assessing the commercial circumstances existing when the transaction was entered into, rather than judging the refinance solely by its eventual outcome.

What This Means for Lenders

Key takeaways for lenders include:

• Clearly document the borrower's objectives and the purpose of the refinance.

• Record why the proposed facility is preferable to available alternatives.

• Ensure the loan structure aligns with the intended exit strategy.

• Where repayment depends on an asset sale, document that strategy and the borrower's obligations to pursue it.

• Do not assume age, language barriers or financial distress will, by themselves, establish unconscionability.

• Independent legal advice remains an important risk-management measure.

• Solicitor conflicts should be avoided, but a conflict alone will not necessarily entitle a borrower to relief.

For private lenders, the decision highlights that a genuine "breathing space" refinance may withstand allegations of unconscionability where its purpose is clear and it is commercially rational and objectively beneficial when entered into.

DISCLAIMER: This article is current as at October 2026. It is general in nature and does not constitute legal advice. Specific advice should be obtained for your particular circumstances.