Supreme Court New South Wales Medium Neutral Citation: Australia and New Zealand Banking Group Limited v Giannaklis (No 2) [2020] NSWSC 148 Hearing dates: 23, 24 April 2019 Date of orders: 28 February 2020 Decision date: 28 February 2020 Jurisdiction: Common Law Before: Rothman J Decision: The Court makes orders in accordance with the claim of ANZ and directs the plaintiff to file a Short Minute of Order, reflecting an up-to-date calculation of the amounts owing under the Loans Catchwords: CONTRACT – GUARANTEE – claim of unconscionable conduct by lender Bank – allegation of misconduct associated with failure to analyse sufficiently the income of business and borrowers – rejected on facts – guarantee enforced Legislation Cited: Australian Securities and Investments Commission Act 2001 (Cth) Contracts Review Act 1980 (NSW), ss 4, 6, 7 Uniform Civil Procedure Rules 2005 (NSW), r 13.1 Cases Cited: Australia and New Zealand Banking Group Limited v Giannaklis [2019] NSWSC 32 Australian Securities and Investments Commission v Kobelt (2019) 93 ALJR 743; [2019] HCA 18 Beneficial Finance Corporation Limited v Karavas (1991) 23 NSWLR 256 Blomley v Ryan [1956] HCA 81 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; [1983] HCA 14 Elkofairi v Permanent Trustee Co Ltd (2002) 11 BPR 20,841; [2002] NSWCA 413 Hurley v McDonald's Australia Ltd [1999] FCA 1728, Nguyen v Taylor (1992) 27 NSWLR 48 Perpetual Trustee Company Limited v Albert and Rose Khoshaba (2006) 14 BPR 26,369 [2006] NSWCA 41 Qantas Airways Ltd v Cameron (1996) 66 FCR 246; [1996] FCA 1483 Category: Principal judgment Parties: Australia and New Zealand Banking Group Limited (Plaintiff) Peter Giannaklis (Defendant) Representation: Counsel: N M Bender J Vizzone (Solicitor) Solicitors: Thomson Geer Lawyers (Plaintiff) Vizzone Ruggero Twigg Lawyers (Defendant) File Number(s): 2018/88502 Judgment 1. HIS HONOUR: The Court is required to resolve a dispute between the parties relating to the enforcement of a guarantee. By Statement of Claim filed 20 March 2018, the plaintiff, the Australia and New Zealand Banking Group Limited ACN 005357522 (hereinafter "the plaintiff" or "ANZ") sought to enforce possession of property mortgaged to it and an order for a money sum payable pursuant to the home loan that underpinned the mortgage and a Guarantee for the payment of the home loan. By judgment dated 31 January 2019, Davies J ordered possession of the land and judgment in respect of the home loan in the sum of $623,244.19. The Court, in the orders issued by Davies J, also directed the filing of any Amended Defence and the filing of further evidence in support of the Amended Defence, together with further directions for evidence in reply from the plaintiff. The remaining matter, being the enforcement of the Guarantee, is the matter with which the Court must now deal. 2. As is obvious from the foregoing, the plaintiff claims under a Guarantee and Indemnity. The Guarantee and Indemnity is dated 26 October 2015. Pursuant to that document, the defendant, Peter Giannaklis, is purported to have guaranteed the repayment of all money owing to the plaintiff by Trojan King Pty Ltd (hereinafter "Trojan King"), by virtue of the Credit Contract dated 23 October 2015 (hereinafter "the Credit Contract"). At the time that the defendant entered into the Credit Contract, he was the only director and shareholder of Trojan King. 3. The issue between the parties is the Defence raised by Mr Giannaklis in or to the effect that ANZ engaged in unconscionable lending practices; engaged in irresponsible lending practices; failure to make proper enquiries in respect of Mr Giannaklis' capacity to service the loan and his financial position; and that Mr Giannaklis was at a special disadvantage. In other words, the formal issues as to the Guarantee and loan are not in dispute. 4. The dispute centres on the defence of unconscionability and submits that the plaintiff's only genuine regard was for the security for the loan and not to other factors necessary to render the loan and/or Guarantee anything other than unconscionable. Further, the defendant submits that the plaintiff could not have reached a reasonable conclusion that Trojan King could easily meet its repayments, based on any information that ANZ had been provided. Further, such information, according to Mr Giannaklis, was routinely not provided and routinely not considered. 5. Further again, the defendant submits that the foregoing conduct, or lack of enquiry, shows that ANZ was only concerned with its ability to recoup any amount outstanding on the loan and did not verify information provided or satisfy itself as to the capacity of either Trojan King or Mr Giannaklis to meet the requirements of the loan. 6. The defendant submits that the recent death of his wife was a personal circumstance that amounted to a special disadvantage of which ANZ knew or ought to have known. 7. The Defence filed by Mr Giannaklis does not, in its terms, rely upon the Contracts Review Act 1980 (NSW). Nevertheless, the defendant, in his submissions, did rely upon the provisions of the foregoing Act in order to set aside or otherwise remedy the conduct of ANZ that the defendant submits was impermissible and/or unreasonable. The Factual Background and Evidence 1. As earlier stated, Davies J issued summary judgment under the Uniform Civil Procedure Rules 2005 (NSW) (hereinafter "the UCPR"), r 13.1 in favour of ANZ in relation to its claim against the defendant under his home loan. That judgment was for possession of the land and for a monetary sum of $623,244.19: Australia and New Zealand Banking Group Limited v Giannaklis [2019] NSWSC 32 (hereinafter "the possession judgment"). 2. The property that was security for the mortgage (hereinafter "the property") also secured an amount owing to ANZ under the Credit Contract and Guarantee. The Guarantee is the Guarantee and Indemnity dated 26 October 2015. As earlier stated, that which remains to be decided by the Court is ANZ's money claim against Mr Giannaklis under the Guarantee. 3. The Credit Contract, which is not in issue, provided that ANZ would extend to Trojan King a number of loan facilities. Those loan facilities included an ANZ Business Overdraft Facility, to a limit of $263,000 (hereinafter "the Overdraft Facility"); an ANZ Business Mortgage Loan to a limit of $500,000 (hereinafter "the Business Mortgage Loan"); and an Indemnity Guarantee Facility to a limit of $30,000 (used to secure the rental bond) (hereinafter "the Indemnity Guarantee"). 4. On 25 January 2017, again uncontested, liquidators were appointed to Trojan King after it failed to make repayments as they fell due and payable under the Credit Contract. Uncontroversially, the failure to make those payments was a default under the Credit Contract and entitled the plaintiff, subject to the capacity of Mr Giannaklis to set aside the Credit Contract and/or the Guarantee, to terminate its obligations and render all of the loan amounts immediately payable. 5. On 12 September 2017, ANZ purported to terminate its obligations under the Credit Contract and notified Trojan King that all of the monies it had borrowed from ANZ were now immediately due and payable. On 5 March 2018, ANZ demanded payment from Mr Giannaklis, the defendant in these proceedings, of an amount of $796,256.68, purportedly pursuant to the Guarantee. 6. On 18 December 2018, Trojan King was deregistered as a corporation. 7. The amounts that are owing on the Loan were provided to Trojan King (or Mr Giannaklis) for the purpose of purchasing a business, namely, "Tyrepower", which is a franchise business. The Loan was obtained for the purpose of financing the initial purchase and some initial expenses. 8. On 14 June 2013, Mr Giannaklis signed a Loan Application on behalf of Trojan King. That Application (Volume 1 of the Chronological Bundle of Exhibits at p 46) contains a number of relevant pieces of information. First, it is in the name of Trojan King, which is said to be a trustee company. Secondly, it completes, seemingly in the handwriting of Mr Giannaklis, information relating to the nature of the business that is sought to be the subject of finance. 9. Thirdly, it refers to the purchase of the new business as a franchise and the business was one that was a current business with ANZ (p 47). The loan application also identifies Mr Giannaklis as the relevant contact person, providing his details, including information that he is "widowed". 10. The Application (at p 49) provides the name of the relevant accountant and the amounts sought (at p 50). At p 51 of Volume 1 of the Chronological Bundle of Exhibits, Mr Giannaklis sets out his financial position, which listed the value of his house at Eastlakes, the value and make and model of his motor vehicle, the value of furniture and household goods, the value of other assets (which are specified as proceeds from his wife's superannuation fund and the life insurance payout), totalling $1,485,000 in assets, less an amount of the mortgage that existed at the time that the Loan Application was made and which the loan monies, or part thereof, were to satisfy. 11. Annexed to the Application is the Summary Profit and Loss Statement for the year ending 30 June 2012 of the business that was to be purchased. It showed sales in 2012 of $1.2 million (which, together with rebates was an increase of $10,000 from 2011). It also showed the cost of goods that gave rise to the sales (increased from 2011 by approximately $6,000) with a gross profit from trading in 2012 of $471,393 and in 2011 of $477,171. The Summary Profit and Loss Statement (p 53) is subject to details at pp 54, 55 and 56. More needs to be said in relation to the reconciliation of the Summary at p 53 and the detailed documents at pp 54-56. 12. The Loan Application also attached the contract for the sale of the business and information about it. 13. An internal memorandum of ANZ recommended the approval of the Loan Application. A number of matters are appropriate to be summarised. First, the memorandum reports on the valuation of the secured premises at approximately $100,000 less than was anticipated. This gave them a "C" indicator. 14. The memorandum also, correctly, describes Mr Giannaklis' history as a "self-employed painter for well over 20 years". It refers to his desire to seek a change in employment and industry. It refers to the franchise that he has "found", called "Tyrepower", owned by an ANZ customer. The purchase price is $300,000 and a contract of sale is provided. 15. It then refers to the business that is being purchased as "well-established", which has employed his brother in the role of manager for well over five years. The staff will continue in the same role after the sale. Mr Giannaklis is to be fully trained by the franchisor and the memorandum then states "with the aid of his brother and existing employees business will run as usual with himself being involved in the business on a daily basis". 16. It recites an examination of the financials for the Financial Year Ending 2012 and "Interims" till March 2013, which discloses increases yearly and good profits. It refers to his current income returns and the fact that he was making "ends meet" with his commitments. The memorandum also refers to Mr Giannaklis as a current ANZ customer and then, under the heading "Ability to Repay" says: "Ability to Repay (eg. your evaluation of whether the business current +/- or projected profitability is sufficient to repay proposed debts. Is there any external income outside this borrowing entity that should be considered?) Based on information supplied to us via vendor or data, CTS [Capacity To Service] has been detained and my CTS has been provided within the case. Utilising 9 months['] trading figures and adding back owners wages of $70K we can see that CTS is evident. No other addbacks accounted for. Lease commenced in 2/2010 with a 15 year term. Security (eg. If the facility is unsecured or appears to have marginal security, it is appropriate to justify the banks['] security exposure. Also address any linked or related security to other lending such as ANZ mortgages) 1RM [Registered Mortgage] to be provided by customer Mr Peter Giannaklis." 1. As earlier stated, the memorandum recommends the approval of the Loan and notes: "CTS has been proven; fully secured application; character proven; training provided to ensure success and understanding of business." 2. On 25 July 2013, an offer letter was sent by ANZ to Trojan King, which, amongst other things, notes the terms of the Facilities and Loan amounts for a maximum term of 30 years, with three years' interest only at a rate of 6.13% per annum. The rate of 6.13% per annum is unremarkable, given the date of the letter. 3. The amounts of the loan, at the time, referred to the Business Mortgage Loan to a limit of $350,000; the Overdraft Facility to a limit of $35,000; and the Indemnity Guarantee Facility to a limit of $15,000, which reflects, as earlier stated, the amounts in the application for the monies. Apart from the terms already noted, the terms of the offer provided that the Loans were to be secured by the property and guaranteed by Mr Giannaklis, up to a limit of $400,000. The Court will return to the issue of the limit later in these reasons. 4. On 2 August 2013, Mr Giannaklis accepted the letter of offer on behalf of Trojan King and signed the Guarantee on his own behalf. 5. The submissions of ANZ calculates that, were the funds to have been fully drawn on the first day of the loan, the annual interest cost would have been $21,455 for the Business Mortgage Loan and $2,891 for the Overdraft Facility, calculated as $24,346 in total. The terms of the offer of loan, accepted by Mr Giannaklis, included a term that the purpose of the loan was "business working capital" and the money provided by the loans "must not [be used] for any other purpose without first obtaining ANZ's approval in writing". 6. On or about 24 September 2013, Mr Giannaklis sought to extend the Loan so that it refinanced his existing home loan, to which earlier reference has been made. This involved an advance of $597,000 on a "principal and interest" repayment basis and required repayments of $3,198.71 per month or $38,384.52 annually. For the purposes of these reasons for judgment, the extension of the advance of $597,000 will be referred to as the "Home Loan". 7. On 24 September 2013, ANZ agreed to that proposal by letter of offer and, on 25 September 2014, Mr Giannaklis accepted the letter of offer from ANZ. As a result of the liabilities associated with the Business Loans (the Business Mortgage Loan, the Overdraft Facility and the Indemnity Guarantee Facility) together with the Home Loan amounted to a total annual interest expense of $62,730.52. 8. On 23 April 2014, ANZ (presumably at the request of Mr Giannaklis) offered Mr Giannaklis or, more accurately, Tyrepower, an increase in the Overdraft Facility from $35,000-$95,000. That offer was accepted by Mr Giannaklis on 23 April 2014. At the same time, the limit of the Guarantee from Mr Giannaklis was increased from $400,000-$460,000. 9. At the time that the application for the increase in the overdraft facility was made, which gave rise to the letter of offer of 23 April 2014, Mr Giannaklis and/or Tyrepower submitted a Profit and Loss Report for the business from 1 October 2013 to 31 December 2013, which recorded a quarterly profit, before tax, of $58,035.14, which, annualised, amounted to an annual before tax profit of $323,140.56. It also disclosed wages for the period of $48,648 (annualised, $194,592). 10. The calculation of the net profit, before tax, included a deduction of expenses of $6,302.38 for the quarter being for "bank fees and charges". That is a fee that covered the interest cost on the Bank Mortgage Loan and Overdraft Facility. 11. Another internal Bank memorandum recommended the increase in the Facility which, as earlier stated, was provided. 12. On 2 November 2014, the Overdraft Facility was again increased and the borrowings of Trojan King increased. The Application by Mr Giannaklis, on behalf of Trojan King, recorded revenue for the Financial Year Ending 30 June 2014 of $1 million; a net profit, before tax, of $65,000 for the same year; a net monthly income of $14,500 (i.e. $174,000 annualised) and monthly expenses of $2,147 ($25,764 annualised). 13. The Application by Mr Giannaklis was approved and ANZ sent a letter of offer to Mr Giannaklis on 11 November 2014, which was accepted by him, on 17 November 2014. Mr Giannaklis' Guarantee Limit was increased, at the time, to $508,000. 14. After this latest increase, being the increase in November 2014, to the Overdraft Facility, the annual interest cost of the Business Loan and Overdraft Facility was $30,832.80. The total exposure, in interest and principal payments for the aforesaid Business Loans and the Home Loan was, together, a maximum of $69,217.32, compared with the previous exposure of $66,573.52. 15. The defendant, Mr Giannaklis, then sought a further increase in the Business Mortgage Loan to $472,000. The Application recorded business revenue of $1,300,000 for the Financial Year Ending 2015; a business net profit, before tax, of $55,000 for the same period; and the defendant, over and above the profit, receiving a net monthly income of $14,500 (or annualised $174,000) and monthly expenses of $2,147 (or $25,764 annualised). 16. The BAS statement, for the period 1 January 2015 to 31 March 2015, recorded total sales of $320,862 for the quarter. It also recorded non-capital purchases of $180,214 and $39,648, resulting in an annual profit of about $100,820 and annual wages of about $158,592. The plaintiff sought an increase, as earlier stated, and on 17 June 2015, ANZ sent a letter to Mr Giannaklis offering to increase the Business Mortgage Loan from $350,000 to $500,000, which offer was accepted on 18 June 2015. 17. At the same time, Mr Giannaklis' Guarantee was increased to $658,000. The increased amount of the Business Mortgage Loan increased the interest cost of the business by $5,680 per annum, rendering an annual maximum repayment obligation of Mr Giannaklis and Trojan King, together, being a combination of the Business Loan (the Business Mortgage Loan, the Overdraft Facility and the Indemnity Guarantee Facility) together with the Home Loan of $74,897.32 (increasing from a maximum of $69,217.32). 18. On 21 October 2015, Mr Giannaklis applied for a further increase in the Overdraft Facility, without specifying the amount. On 23 October 2015, ANZ sent a letter to Mr Giannaklis offering to increase the Overdraft Facility limit to $263,000. 19. At the same time, ANZ proposed that the Guarantee limit would increase to $793,000. Again, there was an internal Bank memorandum in respect of the application, which referred to the net monthly income and expenditure figures that had been submitted in support of the Application for the increase to the Business Mortgage Loan, earlier in 2015, and concluded that there was a positive capacity to service the increased Overdraft Facility and recommended its approval. 20. If the Overdraft Facility were fully drawn, the maximum annual interest cost would increase by $11,638.32 to $48,151 per annum. Further, if one included the Home Loan, the maximum annual repayment obligation of Mr Giannaklis and Trojan King, together, amounted to $86,535.52, an increase from $74,897.32 as a result of the increase in the Overdraft Facility and assuming, as do all of the foregoing figures, that the Overdraft Facility was fully drawn. Detailed Submission of the Defendant 1. As earlier stated, the essential bases of the case for Mr Giannaklis rests, according to the submissions filed on his behalf, on two propositions: first, that the conduct of ANZ was, in the circumstances, unconscionable; and, secondly, on the provisions of the Contracts Review Act. 2. It is necessary for the Court to deal briefly with the reliance upon the Contracts Review Act. As earlier stated, the Defence, pleaded by Mr Giannaklis, does not raise the provisions of the Contracts Review Act. The foregoing is not a criticism. If there were merit in the claim, then the Court would, no doubt, have entertained and treated favourably any application for an amendment of the pleading. 3. However, the challenge to the Loan documents is a challenge to the Business Loans and the money amounts owing thereon. While the provisions of s 7 of the Contracts Review Act allow the Court to refuse to enforce any or all provisions of a contract; declare the contract void, in whole or in part; order of variation, in whole or in part to any provision of a contract; and other such orders, if the Court finds a contract or a provisional contract unjust, and the term "unjust" is defined by s 4 of the Contracts Review Act to include "unconscionable, harsh or oppressive", the provisions of s 6 of the Contracts Review Act make it clear that the Court is not entitled to grant relief "in relation to a contract so far as the contract was entered into in the course of or for the purpose of a trade, business or profession carried on by the person or proposed to be carried on by the person". 4. The express terms of the Application to ANZ for the Business Loan (and the extensions to the principles and amounts under those Loans) are for the purpose of purchasing and running the business that was to be run by Trojan King. As a consequence, Trojan King would not have available to it a defence that allowed it to pursue, in relation to the Business Loans, relief under s 7 of the Contracts Review Act. 5. Nevertheless, even though Trojan King would not have available to it the remedies provided by the Contracts Review Act, I will deal with the issues associated with the submissions of Mr Giannaklis on the basis that the remedies in the Contracts Review Act were available, at least to the Guarantee provided by Mr Giannaklis to ANZ to underpin the Loan to Trojan King. The foregoing ought not be taken as an indication that the Guarantee is not otherwise caught by the provisions of s 6(2) of the Contracts Review Act. 6. The case of Mr Giannaklis depends also upon unconscionability and is not precluded by the provisions of the Contracts Review Act or any other statute. However, unconscionability in equity is generally considered to be a less broadly available remedy to that available under the statute. 7. I turn then to the details of that which Mr Giannaklis submits is a special disadvantage, known to ANZ, and/or why the provision of the Loan was either unconscionable or "unjust". It is unnecessary to recite all of the details of the evidence. It is sufficient, for present purposes, to summarise that on which Mr Giannaklis relies. 8. As already stated, Mr Giannaklis relies on the fact that he was a widower. His wife had recently (that is compared with the initial Loan) passed away. It is clear, from the terms of the initial Application for the Business Loan, that ANZ was aware that Mr Giannaklis was a widower and that his wife had passed away, within the timeframe on which Mr Giannaklis relies. 9. I deal firstly with some of the subjective elements to which Mr Giannaklis attests in his Affidavit. Mr Giannaklis was the sole proprietor of the property at 4 King Street, Mascot and had acquired the property in 2009 with his wife. They have three children who were, at the time of swearing the Affidavit, 15 and twins of 13 years of age. On 17 February 2013, Mr Giannaklis' wife passed away, having suffered from cancer. As a consequence, he raised the young daughters himself. 10. On the passing of his wife, Mr Giannaklis received approximately $100,000 from the insurance attached to his wife's superannuation fund, of which approximately $30,000 had to be used for funeral expenses. Mr Giannaklis raised his younger daughters, in particular, after the death of his wife. 11. Up to the time of his wife's death, Mr Giannaklis had been working as a painter and earned, according to his Affidavit approximately $1,000 per week ($52,000 per year). His wife, when she was working, worked as a freight forwarding staff member, earning approximately $900 per week, bringing the total annual income earned by Mr Giannaklis and his wife to approximately $98,926 per annum. 12. When Mr Giannaklis became interested in the business, being the franchise of "Tyrepower", and wanted to purchase the business, he approached a broker at "Yellow Brick Road". He does not now recall the name of the broker. 13. The broker, on behalf of Mr Giannaklis, approached a number of banks (at least two) by whom he was rejected, because his only security was his family home and he had little or no business experience. 14. He met with Mr Gagliano of ANZ at the broker's premises. From that conversation, Mr Giannaklis gained the perception that the lack of business expertise that he possessed did not seem a real problem for ANZ. 15. Mr Giannaklis' recollection of the chronology of the Loans does not match the paperwork, but, in the scheme of the whole of the proceedings, the inconsistency is immaterial. 16. Mr Giannaklis attested to the fact that he was under financial strain from the commencement of the business which, he concludes, "was an absolute failure and has placed [his] family under immense stress and pressure". 17. From the foregoing, it is apparent that the business that Mr Giannaklis sought to purchase was, at the time of the purchase, said to be earning significantly more than the combined income of both Mr Giannaklis and his wife, prior to her death. Further, Mr Giannaklis was, in presenting the financial figures, to which reference has already been made, advised by an accountant. ANZ was entitled to accept that the figures were, albeit approximately, accurate. 18. Some attention was paid during the course of the evidence to what was said to be inconsistency between the detailed financial figures and the summary thereof, to the extent that the figures did not reconcile. However, an examination of the various documents shows that line items included in the detailed expenditure were included in other items during the course of the global summary, as between 2011 and 2012. 19. In other words, the alleged discrepancy, if there were one, seems to have been wholly attributable to the different descriptions and treatment of expenditure and/or income. In part, this seems to have been motivated by tax and other considerations. 20. First, the defendant relies upon the reasons for judgment in Elkofairi v Permanent Trustee Co Ltd (2002) 11 BPR 20,841; [2002] NSWCA 413; and Perpetual Trustee Company Limited v Albert and Rose Khoshaba (2006) 14 BPR 26,369 [2006] NSWCA 41. He submits that the plaintiff only had a genuine regard to the security at material times, giving scant or no regard at all to other factors; the plaintiff could not have reached a reasonable conclusion that Mr Giannaklis could easily meet its repayments based on any information that was provided, except for the value of the security; and that the conduct of the Bank clearly falls within the "very essence of the comments referred to by the Plaintiff's Counsel that the Bank was 'only concerned with its ability to recoup any amount outstanding on the loan' and that it relied, seemingly, only on verified information supplied as to the valuation of the property." 21. Further, the defendant submits that the special disadvantage suffered was his personal circumstances at the time, being the fact that he was, as earlier stated, recently widowed. 22. Moreover, the defendant, in particular, submits that the following circumstances disclose unconscionability: 1. When making the initial Business Loan Application, the only security that ANZ could rely upon from Trojan King or Mr Giannaklis, was the security on the home itself; 2. The loan application, initially made, and the subsequent applications, were, invariably, incomplete and, from the ANZ perspective, lacked a quality control process. The submission that Mr Giannaklis makes is that a proper analysis of the documentation discloses that ANZ did not want to ensure that all information was provided or that information was verified; 3. The initial internal memorandum of the Bank expressed concerns as to the "serviceability" of the Loan. The next memorandum highlighted the financial difficulties that Mr Giannaklis was having; and ANZ had "actual knowledge" of significant "serviceability" issues suffered by Mr Giannaklis; 4. Mr Giannaklis made five fresh Applications in a period of two years and two months for further monies to float and/or support the business, during its early phase; this, again, should have given rise to the ANZ having actual knowledge of the defendant's serviceability issues; 5. ANZ failed to verify performance of the business or the income records of Trojan King or Mr Giannaklis and, again, on Mr Giannaklis' submission, it appeared that the plaintiff was only ever concerned with the fact that it was protected by its security on the asset; 6. In one instance, detailed above, ANZ advanced monies to Trojan King and/or Mr Giannaklis, of an amount greater than what the defendant had requested; 7. While ANZ had knowledge of Mr Giannaklis, there appears, on the submission of Mr Giannaklis, to be a wilful disregard of that knowledge and Mr Giannaklis' circumstances and a "complete lack of quality control and process in processing credit applications"; 8. A quick review of the business records that were provided would, on the submission of Mr Giannaklis, show that the figures did not match and the income does not appear to be correct; 9. ANZ is a large corporate Bank and should have possessed a sophistication in its analysis of business records and information provided, while the defendant was a widower, fresh from the death of his wife; 10. Mr Giannaklis was clearly "at a disadvantage" in his dealings with ANZ and ANZ "appeared only interested in having Mr Giannaklis' business with his Home Loan and did everything in its power to secure that Home Loan and continued providing him credit and increases to his liability in circumstances that an experienced large Bank in the position of ANZ ought not to have done". 1. Over and above the foregoing, Mr Giannaklis relies upon the ANZ being a signatory to the Australian Banking Association Code of Practice on and from 1 January 2014 and, therefore, according to his submissions, bound to the terms of the Code from that date. 2. As a consequence of ANZ being bound by the terms of the aforesaid Code, the Credit Contract, between ANZ and Mr Giannaklis, which refers to the Code, imports the terms of the Code and, therefore, requires ANZ to "exercise the care and skill of a diligent and prudent banker in applying … credit assessment methods and in forming … [ANZ's] … opinion about [Mr Giannaklis'] ability to repay the credit facility". The conduct of the Bank is, in the submission of Mr Giannaklis, not conduct that is "acting with the care and skill of a diligent and prudent banker". 3. Mr Giannaklis seeks that the Loans be set aside and the defendant not be ordered to pay the amounts owing. It seems, on its face, that Mr Giannaklis draws no distinction between the principal that was provided and the interest thereon. 4. Further, Mr Giannaklis asserts that ANZ acted "in a predatory and unconscionable fashion, happy to accede to a person who was desperate, and not thinking clearly and who was struggling after the death of his wife and who's (sic) business was quickly failing". Consideration 1. Prior to the death of his wife, Mr Giannaklis and his wife earned approximately $99,000 per annum, from his business as a painter and her work in freight forwarding. On the material supplied to the Bank by Mr Giannaklis, relating to the income, before tax, and the profits, before tax, of the business that he sought to purchase, if the business remained static, the income of Mr Giannaklis would have increased, by comparison to their prior earnings, to an amount, before tax, of $471,393. That is a net increase in income of over 475%, as a direct result of the operation of the business compared to the previous wages earned by Mr and Mrs Giannaklis. On the previous income of $99,000 per annum, Mr Giannaklis (and his wife) met the repayments on their then Home Loan and met their living expenses. 2. The submission of Mr Giannaklis as to "verified figures" essentially asks the Court to insist that a bank provided business figures by an applicant for a loan, certified by an accountant, should investigate and verify those figures. Further, assuming there be such a duty, without deciding that there is, there is no evidence to suggest that the figures provided with the initial Loan Application were inaccurate or incorrect. 3. As earlier stated, there is some discrepancy between the detailed line item expenses in the Profit and Loss Statement and the recording of the profits and line items for the previous year. That "discrepancy" does not render more probable than not that the figures utilised are inaccurate. As earlier stated, there are significant reporting discrepancies, being the different treatment of expenses as between 2012 and 2013 (and presumably 2011). 4. For the nine-month period from July 2012 through to March 2013 (three quarters) the receipts totalled $986,905 which, if annualised, would be receipts of $1.3 million. The cost of sales, for the three quarters, was $594,888 and, on an annualised basis, $793,184. That would leave a gross profit of $392,000 for the three quarters, and, on an annualised basis, $522,689. The total expenses were, for the three-quarter period, $266,051 and, on an annualised basis, $354,734. Even on the most cursory analysis of the figures provided by Mr Giannaklis on behalf of Trojan King and himself, that would leave a profit of approximately $170,000 in the year ending 30 June 2013. 5. In the year ending 30 June 2012, the profit was $160,000 and, in the year ending 2011, the profit was $136,000. On any analysis of the figures presented over the period 2011 through to 2013, there was an increase in profit after expenses (and before tax) of significant proportion. In each case, there was a significant increase over and above the Giannaklis' previously received income of $99,000, assuming, for present purposes that the business remained static. 6. I have already discussed the figures that were presented for the extensions of the Loans. The fact, and I accept it is the fact, that Mr Giannaklis could not recall all of the Loans and all of the advances, is not necessarily surprising. It seems Mr Giannaklis had difficulty in running the business. 7. Nevertheless, on the information provided to the Bank, Mr Giannaklis' brother had worked as a manager in the business for five years prior to Mr Giannaklis' purchase and was in a position to be able to train and run the business on behalf of Mr Giannaklis. There is no reasonable basis for the Bank to assume that Mr Giannaklis would not make a success of the business. 8. The fact, and I accept it is the fact, that the Bank required security for the Loan is not, in and of itself, surprising or unconscionable. The initial memorandum upon which Mr Giannaklis relies, which referred to concerns about serviceability, was replaced with a thorough assessment. 9. If the assessment upon which ANZ ultimately relied was wrong, that does not make the conduct of ANZ unconscionable. 10. It is true that Mr Giannaklis had recently been widowed. That was a matter known, actually or constructively, by the Bank. It has not been shown on the balance of probabilities, or even suggested, that the Bank was aware of the distress and anxiety under which Mr Giannaklis was suffering. 11. It may well be that ANZ was aware that Mr Giannaklis' wife had died. It is a logical jump, not available to Mr Giannaklis, then to assume that ANZ was aware that Mr Giannaklis was unable properly to care for himself or to run his business, as a consequence. 12. None of the figures provided by Mr Giannaklis to ANZ disclosed an inability to service the Loans, each of which has been set out in the course of this judgment. The proposition, stripped to its fundamental premise, is that a lending institution should be liable to a borrower (or guarantor) for believing figures presented by the borrower and/or guarantor to justify a loan. Such a proposition would take unconscionability to a level not hitherto countenanced. 13. Unconscionability occurs in circumstances where one party to a transaction is at a special disadvantage in dealing with the other party, because of illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affecting her or his ability to protect her or his own interest and the other party unconscientiously takes advantage of the opportunity thus placed in her, his, its hands: Blomley v Ryan [1956] HCA 81; Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, per Mason J at 461 and per Deane J at 474; [1983] HCA 14. 14. The foregoing summary is not intended to be a codification of that which may be able to be remedied by equity, but it does not include unfair practice, simpliciter. 15. It is unnecessary for the party acting unconscionably to have caused the special disadvantage of which it takes unconscientious advantage. It is sufficient for the stronger party to have been aware of the special disadvantage and have taken unfair advantage of it. 16. In order for conduct to be "unconscionable" it is, at least, required that the person alleging same, show, on the balance of probabilities, that the impugned conduct had shown "no regard for conscience"; be inconsistent with that which is right or reasonable; and imports a pejorative moral judgement: Hurley v McDonald's Australia Ltd [1999] FCA 1728, per Heerey, Drummond and Emmett JJ. 17. Ordinarily, unconscionability requires moral fault or responsibility, rather than mere negligence. The limits of unconscionability, have not been adumbrated. Nevertheless it includes actions that show no regard for conscience or that are irreconcilable with what is right or reasonable: Qantas Airways Ltd v Cameron (1996) 66 FCR 246; [1996] FCA 1483 and involve a pejorative moral judgement. 18. While the recent comments of the High Court of Australian Securities and Investments Commission v Kobelt (2019) 93 ALJR 743; [2019] HCA 18, consider the term "unconscionability" in the context of the term used in the Australian Securities and Investments Commission Act 2001 (Cth), which purports to render actionable unconscionable conduct, not confined to the meeting of the unwritten law, the comments of the majority are apposite. After discussing the possible broader meaning of unconscionability, Gageler J, as part of the majority, said: "[88] The Commonwealth Parliament's appropriation in s 12CB of the terminology of courts administering equity in the expression of the normative standard which the section prescribes serves to signify the gravity of the conduct necessary to be found by a court in order to be satisfied of a breach of that standard. 'Unconscionability', as has been long and well understood, 'is not a slight matter, and behaviour is only unconscionable where there is some real and substantial ground based on conscience for preventing a person from relying on what are, in terms of the general law, that person's legal rights'." (Citations omitted.) 1. In order for the conduct to be unconscionable, conduct must not be "a slight matter" and there must be "some real and substantial ground based on conscience for preventing a person from relying on what are, in terms of the general law, that person's legal rights". The defendant has failed to show any such unconscionability. 2. If, despite my earlier comments, the Contracts Review Act applies to provide Mr Giannaklis a remedy, then Mr Giannaklis must still fail. The principles embodied in the application of s 7 of the Contracts Review Act do not provide an anodyne. 3. The circumstances involved in the proceedings before the Court, in this matter, are significantly different from those involved in Elkofairi, supra. The lender, ANZ, was provided with figures as to the income that was anticipated from the business, which, on the information before ANZ, it had every reason to believe were accurate and reasonable. 4. Similarly, ANZ turned its mind to the earning capacity of the borrower and Mr Giannaklis. It took the view, even if it were wrong, reasonably, on the basis of the material provided to it by Trojan King and Mr Giannaklis, that the income from the business would be sufficient to meet the outgoings of the Loans. It was not ANZ's first resort to enforce the security against the personal residence of Mr Giannaklis, see Khoshaba, supra, at [83]. At [92] of the reasons for judgment in Khoshaba, Spigelman CJ, with whom, relevantly, Handley and Basten JJA agreed, said of the transaction: "[92] The conflicting considerations are finely balanced. Had the Appellant or its representatives made any inquiries about the purpose of the loan I would have allowed the appeal. I do not mean to suggest that the Appellant had to determine that the proposed investment was reasonable and capable of servicing the loan. It is the indifference, suggesting that the Appellant was content to proceed on the basis of enforcing the security, which I find determinative." 1. The circumstances before the Court in this matter are significantly different to those with which the Court was dealing in Khoshaba, supra. 2. In this case, the alleged disability under which Trojan King and/or Mr Giannaklis were suffering has not been shown, even on the balance of probabilities, to be a disability of which ANZ was aware at the time that the Contracts or Loans were made. In general, it would be unsound to exercise the jurisdiction conferred by the Contracts Review Act in circumstances where the existence of the disability was a matter of which the other party was unaware: Beneficial Finance Corporation Limited v Karavas (1991) 23 NSWLR 256 at 277, per Meagher JA; Nguyen v Taylor (1992) 27 NSWLR 48. 3. In the view that the Court takes, the defendant, Mr Giannaklis, has shown neither unconscionability nor conduct that would, if it were to apply, justify orders under the Contracts Review Act. The Court will make orders in accordance with the claim of ANZ and directs the plaintiff to file a Short Minute of Order, reflecting an up-to-date calculation of the amounts owing under the Loans. Interest, prior to judgment, will be calculable on the basis of that specified in the Loan documents, or such lesser amount as may be the prevailing rate for such loans offered by ANZ, whichever is the lesser, and post-judgment interest will run as prescribed in the UCPR. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 28 February 2020