$21.6 Million Mortgage Enforced: Court Declines to Unwind a Risky Refinance

Key Takeaways

• Statutory unconscionability sets a high threshold. A court will uphold a commercially rational bargain even where it is risky and entered under pressure, particularly where the arrangement is more favourable than the available alternatives.
• Distress and hard terms are not, without more, grounds to set a transaction aside. The borrowers here were experienced in business and understood the essential features of the loan they sought.
• A solicitor acting for both sides without full disclosure breaches their fiduciary duties, but breach alone does not entitle a borrower to relief.
• A claim for equitable compensation fails without proof that the borrower would have acted differently with independent advice and proof of actual loss.
• The outcome of disputes like this is usually settled upstream, in security terms drafted to hold, in genuinely independent advice and in a file that records the borrower understood the risk.

1. 1.Background
2. 2.The Decision
3. 3.The Conflict of Interest
4. 4.What It Means

Lenders who provide rescue finance to borrowers in default, and borrowers who accept it, should note the recent decision of the Supreme Court of New South Wales in CPF Group Pty Ltd v Everest Index International Pty Ltd (Receivers and Managers Appointed) [2026] NSWSC 416. The Court declined to set aside a high-risk refinance on grounds of unconscionability and enforced the loan and mortgage on their terms.

Background

The borrowers were in default under an existing facility secured over their family home in Vaucluse. Enforcement proceedings were already on foot. To avoid an immediate mortgagee sale, they entered a short-term loan with CPF Group Pty Ltd that gave them time to sell the property themselves. The facility carried strict terms. It required a prompt sale and imposed escalating interest if the sale did not occur.

The borrowers did not complete a sale. When CPF moved to enforce, they resisted on the basis that the loan and mortgage were unconscionable and unjust. They relied on their age, the financial pressure they faced and their solicitor's failure to disclose that he acted for both sides of the transaction.

The Decision

The Court rejected the unconscionability claim. Statutory unconscionability sets a high threshold. The conduct must depart so far from accepted commercial standards as to offend conscience. The transaction did not meet it.

The borrowers were under pressure, but they were experienced in business and understood the essential features of the arrangement. They knew the loan was temporary. They knew repayment depended on a sale. They knew a failure to sell would expose them to higher interest and enforcement. The refinance was not imposed on them. They sought it as the only realistic alternative to immediate enforcement by the existing lender. The Court treated that context as central. The facility was a last opportunity to manage a sale on their own terms and left them in a better position than the one they were already in. On that footing it could not be characterised as exploitative or predatory.

The Conflict of Interest

The undisclosed conflict did not change the outcome. The Court accepted that the solicitor breached his fiduciary duties by acting for both parties without full disclosure. That breach did not entitle the borrowers to relief. Their claim for equitable compensation failed for two reasons. There was no persuasive evidence that they would have acted differently had they received independent advice. And they proved no actual loss in any event. A breach of fiduciary duty without proof of causation and loss does not found a remedy.

Having rejected the claims, the Court entered judgment for CPF for the outstanding debt exceeding $21.6 million, together with possession of the property and its enforcement rights.

What It Means

The decision confirms two points of practical importance. First, a court will uphold a commercially rational bargain even where it is risky and entered under pressure, particularly where the arrangement is more favourable than the available alternatives. Distress and hard terms are not, without more, grounds to set a transaction aside. Second, a solicitor's conflict of interest is a serious matter, but a breach of fiduciary duty will not justify relief unless the borrower proves both causation and loss.

Much of what decided this case was settled long before the enforcement hearing. It was settled when the facility was documented and when the advice was given, or withheld. The protection sits upstream, in security terms drafted to hold, in advice that is genuinely independent and in a file that records the borrower understood the risk. That groundwork is where matters of this kind are won or lost, and it is where we direct our attention at Astris Law when acting on either side of a distressed loan.

If you would like confidential advice on rescue finance, a mortgage enforcement or a dispute over a distressed loan, whether you are the lender or the borrower, please get in touch or call (07) 4270 8880.

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