High Court Considers Unconscionable Conduct in Asset-Based Lending

In Stubbings v Jams 2 Pty Ltd [2022] HCA 6, the High Court of Australia considered the circumstances in which a non-bank lender acts unconscionably in providing an asset-based loan to a borrower who is labouring under a “special disadvantage”. A central issue in the case was whether the lenders’ requirement for independent certificates was sufficient to avoid a finding of unconscionability.


The appellant was unemployed and had no regular income. He owned two properties valued at around $770,000, and a debt which was secured by a mortgage to the CBA of $240,000. The primary judge found the appellant to be “unsophisticated, naïve and had little financial nous”.

The appellant was seeking to purchase a small property to live in but was unable to obtain finance from a bank. He met a “consultant” who suggested that the appellant could instead buy something bigger and introduced him to a solicitor who acted on behalf of lenders (the respondents). On the strength of the consultant’s suggestion, the appellant then purchased a property for $900,000.

In order to avoid the operation of the National Credit Code, the lenders provided finance to a company the appellant controlled. The appellant provided a guarantee secured by mortgages over all three properties. Prior to the advancement of money, the lenders required that the appellant provide:

  1. a certificate of “Independent Legal Advice” to be signed by an independent lawyer; and
  2. a certificate of “Independent Financial Advice” to be signed by an independent accountant.

The appellant subsequently defaulted on the third month’s interest payments and the lenders commenced legal proceedings. The primary judge found that there was unconscionable conduct by the lenders but the Victorian Court of Appeal overturned this finding.


The High Court unanimously upheld the appeal and restored the decision of the primary judge.

The plurality (Kiefel CJ, Keane and Gleeson JJ) stated that “special disadvantage” meant something that “seriously affects the ability of the innocent party to make a judgment as to his or her own best interests”. It was not disputed in these proceedings that the appellant was a person with a “special disadvantage” as he was incapable of understanding the risks involved in the transaction.

The primary issue in the appeal was whether there was knowledge and exploitation by the lenders through their solicitor. The plurality held that the lenders’ solicitor knew of the appellant’s vulnerability and there could be no doubt that the solicitor had a lively appreciation of the likelihood that all the appellant’s equity would be lost by reason of his financial naivety. Further, the certificates contained nothing to suggest that the appellant had actually turned his attention to the difference between the cost of his existing borrowings with the CBA and the proposed loans or how he could service the proposed loans. The open inference was that the certificates were mere “window dressing”.

Gordon and Steward JJ, in separate judgments, also held that the certificates were not themselves determinative of the primary issue.


This case highlights the importance for lenders to take care that they do not engage in exploitative conduct amounting to unconscionability when lending to prospective borrowers who may have a “special disadvantage”. A lender requiring a borrower to obtain certificates from an independent solicitor or accountant is not in itself sufficient to avoid a finding of unconscionable conduct.

Lenders are encouraged obtain legal advice to minimise the risk of their loan agreement being set aside by a Court.

The content of this article is intended to provide a general guide to the subject matter. Specific advice should be sought about your specific circumstances.

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