An Australian expat couple in Hong Kong refinanced their mortgage in Australia with a dual currency HKD/AUD loan. The loan was converted to AUD when the value of the AUD fell. Upon conversion the couple could no longer afford the payments and the lender sued for possession.
Default judgment for possession was entered against the husband as joint tenant. The wife did not challenge the mortgage or that she was liable to repay it, only that the loan should be treated as being a loan in HKD to be repaid in HKD at HK interest rates. The wife claimed unconscionability, breach of agreement and estoppel on the basis that:
- The loan was signed at the bank’s urging;
- The risks were not adequately explained, namely that a drop in the value of the AUD would increase the amount owed in AUD;
- No independent financial or legal advice was available;
- The lender represented that the currency could only be changed with their consent and further that it was later agreed that the loan would remain in HKD.
The court believed the wife that the lender did say that the AUD would skyrocket on the basis of an email sent to them giving the lender’s in-house economist’s forecasts that the AUD would ‘shoot past’ parity before the end of the year. However the court did find that the lender gave an explanation of how the facility would operate although it could have been explained more fully and that the lender could convert the loan to AUD if the LVR exceeded 85%, largely on the basis of the wife’s earlier emails in which she did not protest about this happening when warned by the lender.
The court also found that the wife was adequately warned about the risks of foreign currency borrowing, despite her imperfect understanding of the loan on the basis of:
- The prominence of the Risk Disclosure in the facility letter including the first page;
- The wife’s failure to protest when warned of the consequences of the AUD fall in emails;
- The fact that the wife had numerous potential sources of advice about the loan, namely her father, brother and solicitor acting on a separate matter.
- The fact that the wife appreciated that an increase in value of the AUD would reduce the amount owed. The court concluded from this that the wife must have been able to appreciate that the opposite would be the case if the AUD dropped in value.
The court found that the lender did not represent that the borrowers could change the loan to AUD whenever they wanted and did warn them that the lender could change the currency of the loan if the LVR exceeded 85%. The court found no agreement was reached to leave the loan in HKD.
The court held no unconscionability because the wife was not in a position of special disadvantage – she saw the warnings even though did not fully understand the facility and even though the lender could have done more to explain the risks. In any event the lender did not know that the wife did not understand the loan.
The court gave possession and judgment against the wife on the basis of the loan being converted to AUD.
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