Agricultural and Rural Finance Pty Limited v Atkinson

EX TEMPORE Judgment 1HIS HONOUR: The present claim relates substantially to a claim for relief under the Contracts Review Act 1980 (NSW) ("the Act"). The contract is said to have been made on or before 14 July 2006. The parties to the contract are, or were, two brothers, Mr James Brown and Mr Robert Brown on the one hand, and a solicitor Mrs Styliani Papantoniou on the other. The subject matter of the contract is a residential dwelling at North Parramatta, which was owned by the mother of Messrs. Brown prior to her death. I infer from what I've been told so far about the case that the dwelling was the substantial part of the mother's estate. 2Mr James Brown lived in the house as his home at the date of his mother's death. Mrs Papantoniou was the solicitor acting for Mr James Brown in a claim which was brought in respect of the estate under the former family provisions legislation. The parties to that litigation were Messrs. Brown and their sisters. Mr Robert Brown was unrepresented by a lawyer in those proceedings. 3The dispute was settled and the property was put up for sale by auction but was passed in because the highest bid obtained was far below the expectations of the proposed vendors. It was in this context that a contract was entered into, the particulars of which are set out in paragraph 20 of the further amended first cross-claim filed in these proceedings. In particular, Mrs Papantoniou has admitted subparagraphs (a) to (e) of paragraph 20. The matter averred in subparagraph (f) is disputed. 4In general terms the contract provided that Mrs Papantoniou would assist the brothers Brown in buying out the combined 34% interest in the property to which their sisters were entitled. For that purpose Mrs Papantoniou was to raise a loan and acquire their interest, on condition that the loan would be secured against the property and the brothers Brown would provide personal guarantees of her financial obligations under the loan. 5The case that will be presented is that it was the expectation of the parties to the contract that a proposal would be developed for the redevelopment of the site and that the property would be sold either as is with council approved plans, or perhaps after the redevelopment. 6The loan that Mrs Papantoniou raised was for a limited period on the basis of payments of interest only during the term. Eventually there was default and the present proceedings arose as a cross-claim in the context of recovery proceedings issued by the lender in this Court. 7Mr James Brown died in March 2009. Mr Robert Brown is the executor named in his will. He has continued the proceedings on the first cross-claim in that representative capacity, and also brings virtually identical proceedings in his own right in a document referred to as the third cross-claim. 8An issue has arisen at the outset about the admissibility of evidence. In her opening statement on her client's behalf Ms Merkel of counsel, who appears for Mrs Papantoniou, made clear that her client's position was that, if I may paraphrase it, a strict view of relevance had to be adopted as to the admissibility of evidence relating to the question, in particular, of whether or not the contract was unjust within the meaning of section 9 of the Contracts Review Act. 9She referred me to the decision of Einstein J in Agricultural and Rural Finance Pty Limited v Atkinson [2010] NSWSC 635 at [48]-[52]. His Honour in that passage held that in determining whether a contract was unjust within the meaning of the Act it was not legitimate to have regard to post-contractual conduct. In coming to this conclusion his Honour referred to the words of section 7(1) of the Act including the clause "In the circumstances relating to the contract at the time it was made." His Honour thought those words made it clear that the standpoint in determining whether the contract is unjust is the time at which the contract was made. His Honour considered that this idea was reinforced by the language of section 9(1) which his Honour emphasised considered the relevant questions prospectively rather than with the benefit of hindsight. 10His Honour made particular reference to the dictum of McHugh JA (as he then was) in West v AGC (Advances) (1986) 5 NSWLR 610 at 620. McHugh JA said: In my opinion the effect of sections 9(1), 9(2) and 9(4) is that the court may have regard to any circumstance existing at the time of the contract whether or not a party was aware of that circumstance. But the court cannot have regard to any injustice arising from a circumstance that was not reasonably foreseeable at the time when a contract was made. 11However, at [54] Einstein J referred to Perpetual Trustee Company Limited v Albert and Rose Khoshaba [2006] NSWCA 41 where, in the language of Einstein J, It was held that the purpose for which a loan is obtained is a relevant circumstance in applying sections 7 and 9 of the Act. 12His Honour referred to the judgment of Spigelman CJ at [67]-[68] and [76] in support of that statement of principle. I will not set out further what was said by the Chief Justice. 13Likewise, Einstein J referred to the judgment of Basten JA in Khoshaba at [122], where his Honour said: Section 9(1) requires that the Court have regard to all the circumstances of the case including the consequences which may arise in the event of compliance or non-compliance with, or a contravention of, the contract. Where there is a security, the fact that failure to meet a repayment instalment may lead to sale of the security, is therefore a relevant consideration. 14Einstein J also referred to the statement of McHugh JA in West v AGC Limited at 621 in these terms: [The Act] is revolutionary legislation whose evident purpose is to overcome the common law's failure to provide a comprehensive framework to deal with "unjust" contracts. 15At the conclusion of Ms Merkel's opening statement, Dr Mantziaris of counsel who appears with Mr. M Maconachie for Mr Robert Brown in both his capacities, sought to read an affidavit of Rajbir Singh sworn 27 February 2012. I have not yet read that affidavit because as soon as Dr Mantziaris sought to read it Ms Merkel, acting upon her opening, took the objection she had foreshadowed. 16It is unnecessary to set out in any detail the contents of the affidavit for the purpose of this ruling because it is common ground between the parties that Mr Singh's evidence goes solely to events which occurred in February of 2009 when Mr James Brown was terminally ill and was, at one point, unable to leave his home, and at another, confined to a nursing home. 17Ms Merkel says this evidence cannot be relevant on the basis of the argument that she put, namely, to adapt Einstein J's phrase, as to the standpoint from which the question of unjustness is to be determined. Mr Maconachie, who argued the point on behalf of Mr Brown, put to me, inter alia, that the events of February 2009 were relevant to the consideration of Mrs Papantoniou's purpose in entering into the contract. I should point out that this argument is advanced on the basis that part of the dispute between the parties does go to Mrs Papantoniou's motivation for entering into the contract. This of course is a subjective element that would not be admissible at common law if the questions were whether a contract had been entered into between the parties and upon what terms. However, as McHugh JA pointed out in West, the legislation, although now over 30 years old, remains revolutionary in terms of the change it made to the general law. In particular, I note that a party's purpose in entering into a contract has been expressly held to be a relevant consideration for the purpose of the determination of the question of whether a contract is unjust under section 9 of the legislation. 18It seems to me that although the events of February 2009 postdate the formation of the contract by nearly three years, the conduct of the parties, or of each of them individually, at that time, is relevant under section 55 of the Evidence Act 1995 (NSW) in that it could rationally affect the assessment of their motives for entering into the contract in the first place. 19Without in any way prejudging any issue in the case, if it were proved that Mrs Papantoniou acted in a high-handed way in February 2009 in order to attempt to secure for herself a particular advantage, or to take such steps as were available to her to make sure that her end purpose of the original contract could be satisfied, notwithstanding Mr James Brown's illness, that would tend to prove that her motive in entering into the contract was not simply to facilitate Mr James Brown being able to keep the former family home but more likely to obtain for herself a particular financial advantage or profit. Certainly such a matter would fall a long way short on its own of making good Messrs. Brown's claim. The profit motive, of itself, is the essence of much human conduct and its presence does not in any way, shape or form suggest that conduct that results from it is somehow unjust. 20Without drawing too much of an analogy with the general law it seems to me that if a party uses his or her superior position or bargaining power to the detriment of another party that is a matter which is relevant to the question of whether a contract is unjust; see Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447 at 461 per Mason J (as he then was). 21If I have not said so already in these ex-tempore reasons, my understanding of one of the issues is that Mrs Papantoniou said that she agreed to enter into the transaction or the contract for the limited purpose of facilitating the desire of Mr James Brown to stay in the home, even though, as Ms Merkel points out, she also accepts that, in the longer term, the idea was to facilitate the redevelopment of the site. 22Accepting that people's motives might be complex and mixed, conduct which tends to show that the profit motive was at the forefront, rather than the altruistic motive, is in my judgment relevant to the questions I have to determine under section 9 of the Act. 23For these reasons, I rule that evidence of what occurred in February 2009, in a general sense, and particularly the evidence of Mr Singh, is admissible.