Wolfe v Permanent Custodians [2013] VSCA 331 (22 November 2013): CONSUMER CREDIT, unjust terms, unconscionability & duty to cooperate

November 24, 2013 |

The Court of Appeal in Wolfe v Permanent Custodians [2013] VSCA 331  considered issues of duty to co operate in the context of a contractual relationship and unconscionability by a creditor in recovery proceedings against a defaulting mortgagor.


Permanent Custodians Ltd (“Permanent”) holds a first mortgage over a property in Pascoe Vale which secured a loan to Mr Wolfe and his former partner [1]. In 2008 there was default on the loan. In August 2009 Permanent obtained default judgment against Wolfe, a default judgment for the loan and for possession of the Property against his former partner and issued a warrant of possession. Eviction by the Sheriff was scheduled for the week commencing 4 December 2009 [4]. Wolfe  entered into an arrangement, on terms set out in a letter from Permanent’s solicitors on 1 December 2009 (the “1 December 2009 arrangement”)[5].

Those terms were, at [6],relevantly:

  • Wolfe was to pay arrears, fees and costs, and ‘2 months payments in advance;
  • Wolfe was to make all future repayments as and when they fall due;
  • payments would be accepted without prejudice to Permanents rights to rely on the existing judgment and warrant for possession; then
  • Permanent would stay the eviction; but
  •  if  Wolfe defaults in repayments from February 2010 Permanent reserved its rights to proceed with further legal action including obtaining a fresh eviction date without further notice.

Wolfe did make 2 months payment in advance.  On 14 December 2009 staff at AMS attempted to contact Wolfe by telephone regarding the deficiencies in the direct debit form but it had been disconnected. The Court noted that Gadens, solicitors acting for both AMS and Permanent had Wolfe’s current (presumably working) mobile phone number and contact details for Wolfe’s solicitor  [10].

Wolfe defaulted on the repayment due in February 2010 because the direct debit form he submitted to Permanent had not been properly completed by him [7] and had not been, and could not be (see [9]), processed by a mortgage manager Australian Mortgage Securities Ltd (‘AMS’) who acted for Permanent [8].

Mr Wolfe did not  check to see if the payment had been made and was unaware of the default until March 2010 when Gadens sent him a written demand to vacate the property [11]. Permanent took possession on 22 April 2010.  Wolfe made payments until June 2010.  The property remains unsold in Permanent’s possession [12].

Wolfe commenced proceedings seeking a declaration that that the terms of the arrangement were unenforceable [13].  The trial judge dismissed the claim [14].

The grounds of the appeal, at [14], were:

1. The Associate Judge ought to have reopened the 1 December 2009 arrangement and made orders under s 76 and s 77 of the National Consumer Credit Code 2010 on the ground that the term as to the consequence of default from February 2010 was unjust.

2. The Associate Judge ought to have found that the conduct of Permanent, after the arrangement had been made, concerning the direct debit form and the February default was in breach of Permanent’s contractual obligation to do all that was necessary on its part to enable Mr Wolfe to have the benefit of the arrangement.

3. The Associate Judge ought to have found that Permanent’s conduct concerning the direct debit form and the February default was unconscionable under s 12CB of the Australian Securities and Investment Commission Act 2001 (‘ASIC Act’).


The court considered each ground of appeal in seriatim:

Unjust terms

Wolfe argued that the terms which permitted Permanent to enforce the judgment for possession upon any subsequent payment default without further notice were unjust, describing the situation as a ‘Sword of Damocles hanging over the appellant’s head’ for the many years that the 1 December 2009 arrangement might run [21].

At first instance the trial judge concluded that given Wolfe’s credit history and the ‘last chance’ character of the arrangement, the default and notice provisions of the 1 December 2009 arrangement, whilst onerous, were not unjust [22].

The Court of Appeal also regarded the terms  as onerous but stated that they needed to be understood in the circumstances in which the arrangement was made; that  Permanent had a default judgment after substantial and long standing default under the loan agreement. Wolfe had  ‘one last chance’ and in those circumstances the onerous terms were not unjust [24]

Duty to co operate

While Wolfe acknowledged that Permanent did not have a positive duty to assist him in completing the direct debit form and that he had made errors in completing it he submitted that Permanent’s implied contractual duty to co-operate extended to doing all that was necessary to ensure that the direct debit facility operated. Wolfe emphasised Permanent’s failure to alert Wolfe to the known deficiencies in the form [25].

The Court of Appeal stated, at [28], that regarding the duty to co operate:

..the scope of the duty is defined by what has been promised under the contract; it is not a general duty to ensure another party obtains an anticipated benefit.

The Court, at [29], cited with approval Mason J’s reasoning in Secured Income Real Estate (Australia) v St Martins Investments Pty Ltd regarding a duty to co operate where he stated (in a paraphrased form):

  1. It is easy to imply a duty to co-operate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract.
  2. It is not quite so easy to make the implication when the acts in question are necessary to entitle the other contracting party to a benefit under the contract but are not essential to the performance of that party’s obligations and are not fundamental to the contract… the correct interpretation of the contract depends..not so much on the application of the general rule of construction as on the intention of the parties as manifested by the contract itself.

Applying the facts to the above principles the Court found:

  1. the 1 December 2009 arrangement required all future repayments to be made on time [30];
  2. while it it was not fundamental to the performance of this obligation that the payments be made by direct debitit is clear that that was the mode of payment contemplated by the parties [30];
  3. Permanent’s duty of co-operation did not extend to ensuring that Wolfe submitted a correctly completed form [31];
  4. it was Wolfe’s task to complete the form in a way that was sufficient to enable the setting up of the direct debit facility and Permanent was not required to co-operate in order for  Wolfe to complete this task [31]; and
  5. while it was regrettable that Permanent did not make greater efforts to alert  Wolfe to his errors but the failure to do more did not constitute a breach of the implied contractual duty to co-operate [32].


Wolfe submitted, at [35], that:

  • once Permanent discovered that it could not process the form as submitted he was in  ‘situational disadvantage’.  He thought the direct debit facility was in place but Permanent knew that it was not.
  • It was contrary to ‘good conscience’ for Permanent not to  inform him that the direct debit facility was not in place and then execute on the judgment after default inevitably had occurred.
  • Permanent ought to have made reasonable attempts to contact him about the incorrect form
  • Permanent had ‘exclusive control’ over the direct debit form and the establishment process and that he had no way of finding out about the errors in the form except via Permanent.

Their Honours revisited and adopted the Court of Appeal’s most recent analysis (by the same judges as in this proceeding) of unconscionability in Director of Consumer Affairs v Scully & Ors (Scully). In particular the court stated:

  1. unreasonableness and unfairness are not to be regarded as automatically rendering conduct unconscionable [38];
  2. a distinctive quality of unconscionable conduct as against unreasonable or unfair conduct is that it is unethical [38]; and
  3. Unreasonableness or unfairness may form the basis of a conclusion that conduct is unconscionable but there must also be, at least some degree of moral tainting in the transaction of a kind that permits the opprobrium of unconscionability to characterise the conduct of the party [38].

The Court of Appeal found that Permanent’s conduct was not unconscionable even if it was harsh and ‘unfair’. There was a lack however, of ‘moral taint’ and the inconsistency with the dictates of good conscience which a finding of unconscionability requires. Completion of the form correctly was not Permanent’s responsibility. That failure was entirely Wolfe’s.  Again the Court pointedly noted that Permanent could have done more to notify Wolfe of his errors (see [41] & [42]), and there was an unwillingness or disinclination in the relevant staff of AMS to conduct more detailed enquiries as to how Mr Wolfe might be contacted [41],but Permanent did make some attempt to notify him [40]


This case is the second time in a month that the Court of Appeal has considered the principles of unconscionability.  Both Scully and Wolfe make it clear that harshness and lack of fairness in and of themselves are not sufficient basis to make a claim of unconscionability.  The need for some form of moral taint is required. Both the trial judge and the Court of Appeal found the approach taken by Permanent was unfortunate and were obliquely critical of both it and AMS.  But that less than desirable corporate behavour fell far short of a moral taint and a lack of good conscience.

Here onerous and longstanding committments with dramatic consequences for failure as terms of an agreement were not sufficient for the Court to consider the terms unjust. The court had regard to the circumstances leading up to what was described as a last chance agreement.

On the duty to co operate the court’s analysis was entirely orthodox however it made clear that any duty to co operate arises from the terms of the contract, not a more comprehensive duty drawn in more ephemeral terms, in this case to assist another party (here Wolfe) to complete a direct debit form which was not its responsibility.

This decision provides some comfort to credit providers in re affirming an orthodox approach to equitable claims of unconscionability and duty to co operate under a contract.  It also is of assistance to those credit providers entering into “last chance arrangements” with debtors who are already under pressure of a default judgment.  The Court will countenance onerous and harsh terms if the circumstances warrant it.

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