In Parker Wells Pty Ltd v Lenn Financial Services Pty Ltd [2026] QSC 207 (Hindman J, 8 September 2026), the Court looked at a short-term bridging loan secured by personal guarantees and a mortgage, and dealt with two questions which come up regularly in this part of the market:
- Was the guarantee unenforceable due to unconscionable conduct?
- Was the default interest rate an unenforceable penalty?
A few points from the judgment stand out.
Check exactly how your “default rate” is defined
The loan documents here set out a “Lower Interest Rate” and a “Higher Interest Rate,” and both sides had assumed at trial that only the higher rate would apply on default. On a close reading of the definitions, the Court found the default rate was actually the two rates added together — a much higher figure than either party expected. This is not so common, but a small drafting ambiguity ended up mattering a lot.
A wide-ranging cost indemnity can undercut a default interest uplift
Where a lender can already recover its legal costs, enforcement costs, admin costs and lost margin in full under a separate indemnity clause, an extra interest rate hike on default is left doing very little real work — it is mainly covering harder-to-pin-down things like reputational risk and the higher risk of a defaulting borrower. If that hike is large, courts are more likely to see it as a penalty rather than genuine compensation. Here, more than doubling the rate on default was found to cross that line — it was found to be a penalty.
Knowledge is everything in unconscionable conduct claims — and it has to be pleaded properly
The Court confirmed a lender needs to have actually known (or wilfully turned a blind eye to) the other side’s special disadvantage — just being in a position where it “ought to have known” is not enough. And a claimant has to spell out clearly who knew what, and why that knowledge should be attributed to each defendant. Skip that step and the claim is vulnerable no matter how sympathetic the facts are. This can be distinguished from other well-known cases dealing with unconscionable conduct claims (like Stubbings, for example).
Using an intermediary changes the knowledge question, but does not make it disappear
Where a lender only ever deals with an intermediary — never meeting the borrower or guarantor — the lender generally only knows what the intermediary actually tells it. Whether the intermediary’s knowledge can be treated as the lender’s own is a fact-heavy question, especially where the paperwork says outright that there is no agency relationship between them.
It is worth a fresh look at how default interest, capitalisation and indemnity clauses work together in standard loan documents, and how due diligence and knowledge flow through broker and intermediary arrangements.