OUR DAVID VS GOLIATH STORY
Creevey Russell was recently involved in a classic ‘David versus Goliath’ battle. Our clients were an elderly couple based in semi-rural Queensland. In the late 90s and early 2000s, they borrowed some funds (about $130,000.00) from a second tier lender for the purpose of purchasing farm machinery. The loans were secured against the machinery. Our clients had used this lender previously for smaller loans without issue, mainly because they were conveniently located in the nearest town.
Things sailed along smoothly for a very short period until it became clear that our clients were unable to meet the repayments (and probably shouldn’t have been lent the money in the first place). As time went by, the interest added up and was capitalised (meaning that each interest payment was added to the total funds owing under the loan, with the effect that interest was charged on that interest). The interest rates were more than 20%.
By the late 2000s, because of the interest charging practices adopted by the lender, our clients were alleged to owe in excess of $1 million under the two loans. In 2011 the lender convinced our clients to sign an agreement which allowed the lender to take possession of a small farming property they owned in order to satisfy the debt then owing.
Our clients were not given the opportunity to get legal or financial advice prior to this occurring. The property was sold by the lender for $400,000.00, but the lender continued to pursue our clients for the remaining debt they allegedly owed.
The lender wanted to ensure it extracted as much money from our clients as possible, so in 2012, it required our clients to grant a $600,000.00 mortgage in favour of the lender over their home. Like the earlier loans, the mortgage allowed the lender to capitalise the interest accruing on the loan. Again our clients were not given the opportunity to obtain any legal or financial advice prior to signing the mortgage and had very little understanding of its effect.
Under the mortgage, our clients were required to pay $15,000.00 per month – a difficult task when your only income is a pension!
A short time later, because of the interest provisions in the mortgage, the alleged debt to the financier had skyrocketed. The lender sued our clients in the Supreme Court of Queensland for almost $1.6 million. By the time the matter had reached the Court, the lender was in liquidation and the court action was being pursued by the liquidator.
Our clients were facing the prospect of losing their home and personal bankruptcy if they didn’t get the mortgage set aside.
They were eventually recommended to seek legal advice.
We were engaged to defend the $1.6 million claim made in the Court.
After some digging into the practices of the lender, it became very clear to us that the lender had been taking advantage of vulnerable people like our clients. They hadn’t undertaken the most basic of steps to ensure that our clients had the capacity to work or repay the loan. We alleged that the lender signed up people to loans for the sole reason of maximising their return by imposing unconscionably high interest rates which rapidly increased the debt owed.
We made our case clear and put the liquidator on notice that we would be taking it all the way to the Court. The liquidator asked us to ‘settle’ on at least 5 occasions but we were confident in our legal position.
In broad terms, the basis of the defence was that the lender had acted unfairly by requiring our clients to sign up to a mortgage in circumstances where they were never given the chance to get advice and they never had the capacity to repay. The lender knew or should have known that our clients would have defaulted immediately but they asked them to sign the mortgage knowing that as soon as our clients defaulted, they would seize and sell their home.
On the day before the case was to be set down for a trial, the liquidator withdrew the claim and agreed to walk away with nothing. Not a cent. Zero. This was a huge victory for the little guys. Needless to say our clients were relieved that the lender was finally off their back for good.