Bank of Queensland Ltd v Dutta - [2010] NSWSC 574 - NSWSC 2010 case summary — Zoe

NSWNSWSC

Bank of Queensland Ltd v Dutta

[2010] NSWSC 574

Supreme Court of NSW|2010-05-20|Before: Davies J, Bryson J

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Source facts

Court

Supreme Court of NSW

Decision date

2010-05-20

Before

Davies J, Bryson J

Source

Original judgment source is linked above.

Judgment (200 paragraphs)

[1]

Background 6 At the time when Mr and Mrs Dutta first came into contact with the Bank at the Hampton Branch in Melbourne they owned 2 properties. The first was their former home at 12 Mayfield Avenue, Pymble. The second was a property at Lawrence Hargrave Drive, Coalcliff, NSW. 7 Mr Dutta ran a business called Planit Organiser through a company called Outback Designers Pty Ltd. Mr and Mrs Dutta were the Directors of that Company which apparently made personal organisers in Australia and exported them to the USA and New Zealand. 8 In about May or June 2004 Mr and Mrs Dutta moved to Melbourne and rented out the property at Pymble. They kept the property at Coalcliff as their Sydney base where they stayed if they were coming to Sydney. 9 Much of the detail of what transpired to bring about the loan agreements was disputed between the Defendants and Ms Merta, the Branch Manager of the Hampton Branch of the Bank who dealt with the Defendants. It will be necessary to return to this detail at a later point. At the present time it is sufficient to say that Mr Dutta found his way to the Hampton Branch of the Bank, which had recently opened, sometime in May 2005. It was ultimately agreed between him and Ms Merta that the Defendants would refinance the existing loan over the Pymble property and that the amounts that they borrowed would exceed what was needed simply to pay out the existing mortgage. Mr Dutta filled out some of the loan Application but Ms Merta filled out other parts of it while Mr Dutta observed her. Mr Dutta took the form home so that his wife could sign it. He is not sure if he signed it at the Bank or at home later. 10 When Ms Merta initially entered the details in the Bank's system she entered it as an investment property loan and not as a Line of Credit facility. She realised that this was a mistake at the time when the various documents arrived from Head Office for signing. The loan for $270,000 was then altered so that it became a Line of Credit rather than an investment property loan. 11 Subsequently the Bank received a valuation of the Pymble property from a valuer, David Ward-Smith, who assessed the value at $1.6 to $1.7 million. On the basis of that valuation the Bank sent 2 sets of loan approval letters to the Defendants, one set to each of them, offering a home loan of $850,000 and what was described as a Secured Overdraft of $270,000. This has been described elsewhere and more frequently as a Line of Credit. Each of the letters contained a number of attached documents one of which was described as "The Consumer Lending General Conditions" and another was a form of the mortgage. These documents assumed considerable importance in the defences that the Defendants sought to raise to the claim. I shall return to their significance presently. 12 It appears that the mortgage sent out with these sets of documents was signed by the Defendants, but it was later realised by the Bank that the wrong mortgage had been used. It would appear from Ms Merta's evidence that the Bank did not use a New South Wales mortgage but, probably, a Victorian one. After the Bank realised that a New South Wales property was involved and that a New South Wales mortgage was necessary it obtained the signatures of the Defendants to the proper mortgage in July 2005 after the settlement of the loan. This was a matter emphasised by Mr Dutta and it will be necessary to return to it in due course. 13 The Defendants accept that the Business Purposes Declaration for the purposes of the Consumer Credit Code was signed although they do not recall signing it. The Declaration is not able to be relied upon, and the Bank does not seek to do so, for the purposes of s 11 of the Code because it is not dated. However, the Bank asserts it has an evidentiary value in providing an admission on the part of the Defendants that the loan was made for business purposes. 14 In May 2006 the Line of Credit was varied to provide a further $162,000 to the Defendants. There is considerable dispute about how and why this occurred but the Defendants do not dispute that they signed the necessary documents that resulted in the further advance to them. 15 The Defendants do not dispute that default was made under the loans in about November/December 2007. The Defendants say that that was because of financial difficulties and the deterioration in the health of Mr Dutta. The Defendants applied to the Plaintiff to vary the loan arrangements but this was not agreed to and the proceedings were ultimately commenced. 16 Because the Defendants admit the default and because they accept that they are obliged to pay to the Plaintiff the sum of $850,000, presumably on the basis of the principle referred to in Collier v Moreland Finance Corporation (Victoria) Pty Ltd (unreported - Court of Appeal - 21 April 1989 at p14), the Bank has, prima facie, established its right to an order for possession of the land. 17 The Defendants did not acknowledge that they had to pay the sum of $850,000 until final submissions but, in any event, the matter proceeded generally on the issues raised by the Defendants' defence and cross-claim that I have identified at the beginning of this judgment.

[3]

Assessment of witnesses 21 The disputed issues of fact in the case were, as I have noted, essentially between Ms Merta and Mr Dutta. Although Mr Dutta required 3 other deponents for cross-examination, including the Plaintiff's solicitor Mr Schneider, there was no real challenge to their evidence. Indeed, even though Ms Merta was cross-examined at slightly greater length, it seemed only to be for the purposes of getting some admissions to matters which were otherwise made plain by documents in any event. Ms Merta was not challenged by Mr Dutta as to the factual differences between them contained in their respective affidavits. Nevertheless, I bear in mind that Mr and Mrs Dutta were not legally represented, and it is clear from a reading of their affidavits that issue was joined between them in relation to most or all of those factual differences. I certainly do not propose to decide this case on the basis that Mr Dutta failed to put particular factual matters to Ms Merta to comply with Browne v Dunn. 22 Even though the Defendants were not legally represented, and even though it is clear Mrs Dutta played a minor role in the mattter, there is some significance in the fact that she did not swear an affidavit in the matter nor give any evidence. 23 Mr Dutta was cross-examined at considerable length by Mr Couper of senior counsel for the Plaintiff. I found Mr Dutta to be an unsatisfactory witness who, on a number of occasions, was not prepared to answer questions put to him in the sense that the answers were non-responsive, and whose evidence on many occasions sat very uneasily with contemporaneous documentary material. In some respects he gave untruthful evidence as he himself ultimately accepted. I will deal with specific instances of inconsistent and unsatisfactory evidence as they arise in the narrative which follows. The result is that where there is a dispute between the evidence of Ms Merta and Mr Dutta I generally prefer the evidence of Ms Merta. 24 In the light of those matters I will now set out my findings in relation to the disputed histories of the events given by Ms Merta and Mr Dutta.

[30]

Q. So is this another case where you said you would like more money and you left it to a bank officer to thrust a sum of money upon you which you hadn't asked for, is that right? A. That would depend on the valuation. 31 It is also of some significance that when Mr Dutta answered the assertion in Ms Merta's affidavit where she recorded Mr Dutta as saying he wanted $270,000 as a Line of Credit so he could start the approval and development process for the apartment project, Mr Dutta did not deny that but said only that at that time he did not have knowledge of the funds that he would require to start the approval and development process. The inference I draw is that he did inform Ms Merta that he wanted extra money to spend on the approval and development process. 32 I reject Mr Dutta's evidence that he did not seek more than to refinance the $850,000 GE loan over the Pymble property and that it was Ms Merta who suggested he borrow more. The application to the National Australia Bank for the additional $270,000 only a month before is strong evidence against what Mr Dutta now asserts. The position is further strengthened by a document showing that in February 2005 Mr Dutta had sought to borrow $280,000 from the ANZ Banking Group. 33 I also reject Mr Dutta's evidence that he told Ms Merta that he needed additional monies to pay for personal expenses, whatever precise language he said he used. Whether or not he truly intended to develop the Pymble property, I find that he told Ms Merta that he required an extra $270,000 so he could start the approval and development process. His evidence that he was not able to develop the Pymble land in isolation from the surrounding blocks does not appear to be consistent with the documentary material he provided to Ms Merta. His assertion that the words "en globo" (in the valuation the Bank obtained) was a reference to his land and the surrounding lands, as providing an explanation that he could not develop his own land without those other parcels, had little ring of veracity about it. 34 There is every chance that Mr Dutta was really endeavouring to obtain extra funds for his living expenses, as he constantly asserted, because he appeared to have been living beyond his means (a matter to which I shall return presently) but I find that he did not inform Ms Merta of that desire, probably because he realised that the Bank was unlikely to lend him money for that purpose. 35 Mr Dutta did not provide accurate information to the Bank either at the time he applied for the original loans nor at the time he applied for the increase in 2006. The Consumer Lending Application signed by Mr and Mrs Dutta on 5 May 2005 is inaccurate in a number of respects. Mr Dutta claimed that he only filled out some of the information in that document, notably the section headed "Applicant Details" on the second page of the Application and the address of the Coalcliff property with its mortgagee's name, the amount owing to that mortgagee and the statement that that property was to be sold shortly. Everything else is said to be Ms Merta's handwriting but it was completed whilst Mr Dutta provided the information to her and looked over her shoulder as she wrote it, as he accepted. 36 Information that was not contained on the form included the facts that Mr Dutta had a BMW motorcar in respect of which he paid leasing charges of $1400 per month, that he had 2 further credit cardsbeing another Visa Card and a Master Card, that he was renting premises at a cost of $6,700 per month and (probably) that the Pymble property had ceased to be rented or was about to become vacant.

[75]

Q. But you didn't? A. No. 45 I find that Mr Dutta provided documents that purported to be copies of tax returns for himself and his Company (but were not) to Ms Merta knowing that she would believe that they were copies of tax returns that had been lodged, and intending her to believe that. 46 I find that Mr Dutta provided the misleading and false information to Ms Merta in an endeavour to obtain the loan funds that he needed for his business and his family to survive. I shall return to this matter when discussing the Defendants' complaint that they ought to have been advised by the Bank that they could not service the loan. 47 I mentioned earlier that the letters of offer from the Bank, which were dated 26 May 2005 and 1 June 2005, attached what were described as Consumer Lending General Conditions. In his affidavit Mr Dutta swore "no memorandum or loan terms and conditions were given to me by the Plaintiff". It became clear that, in making that statement, Mr Dutta was, in part, seeking to distinguish between 2 documents. One was a document headed "Memorandum" which was, strictly, a registered dealing lodged at the Department of Lands, Land and Property Information Division, and given number AA170454D. This document, apart from the first page which was the registrable form of Memorandum, contained behind it a document headed "Real Property Mortgage General Conditions''. Those conditions are all the usual conditions which apply to Bank of Queensland mortgages and take the form of a standard Memorandum lodged with the LPI, a procedure to which most banks and regular lenders adhere. I accept that the Defendants may not have been provided with a copy of that Memorandum. 48 There was another document also entitled "Real Property Mortgage General Conditions'' by the Bank of Queensland. These general conditions were identical to the general conditions attached to the Memorandum. On the second page they contained the registered numbers in each State and Territory of the Commonwealth relevant to the lodged Memoranda. This document contained the registered number of the Memorandum in respect of New South Wales. The 2 documents differed only in their cover pages and in the layout of their list of contents. The list of contents and the conditions themselves were identical in the 2 documents. 49 Mr Dutta ultimately admitted to having received the second of these 2 documents that I have described. His statement in his affidavit that no loan terms and conditions were given to him by the Plaintiff was untrue. 50 The settlement of the home loan took place in early June 2005 with $842,850.18 being used to pay out the investments to GE Mortgage Investments Pty Ltd. The surplus funds of $7,149.82 was credited to the Defendants' account with the Plaintiffs although an amount for loan fees was deducted. 51 At about the same time the facility of the Line of Credit of $270,000 was put in place and on 9 June 2005 the Defendants were notified that they could draw from that line of credit.

[76]

The increased facility - 2006 52 Ms Merta, in her affidavits, gave evidence that in April 2006 the Defendants submitted an application form to the Bank seeking an increase of $162,000 in their business Line of Credit facility. She says that she is now unable to locate the application form. Mr Dutta denies that any such application form was submitted and denies that he ever sought an increase of $162,000. Rather, he says that in April 2006 he contacted Ms Merta by telephone and email requesting a temporary overdraft of $20,000 to be used for business purposes. 53 The request in April 2006, whether for $20,000 or $162,000, cannot be viewed in isolation from a series of emails forwarded by Mr Dutta from October 2005. 54 On 15 October 2005 Mr Dutta sent an email to Ms Merta saying that he and his wife were looking to buy an investment property in Brighton in Melbourne. The asking price was $1.7m and the rent on the property was $93,600 per annum. Ms Merta replied by asking if the Sydney property (by which it seems she was likely to have meant the property in Coalcliff) had been sold. That was the property Mr Dutta had told the Bank he was intending to sell and about which he had written on the May 2005 Loan Application "Property to be sold shortly". 55 A few days later Mr Dutta sent an email to Ms Merta headed "Refinance of our absolute oceanfront property at 209 Lawrence Hargrave Drive, Coalcliff, NSW" which asked if the Sydney valuer could value that property before they made application to borrow for the Brighton property. 56 At about the same time it seems that the Defendants made a loan application to Colonial through a broker known as The Mortgage Store. It is not quite clear what the purpose of the loan was but one may infer from some indications on the documents that it was to refinance the Bluestone Mortgage over Coalcliff. That inference is available because in the section where properties were listed with amounts owing the box headed "to cease" was ticked in respect of the Bluestone mortgage. The amount owing was said to be $970,000 but the loan being sought was $1,360,000. 57 Significantly, this document on the very page signed by Mr and Mrs Dutta stated that the gross taxable income of the Applicants was $477,536.40. However, in another document produced on subpoena by the Mortgage Store it was said that the Defendants were seeking finance approval to purchase an investment property for $1.7m with the funds to complete coming from the sale of the Coalcliff property. 58 On 10 November 2005 Mr Dutta sent an email to Ms Merta asking if the Bank could increase the overdraft to 80% instead of 70% - the reference was, presumably, to the valuation of the Pymble property. That was made clear in a later email of the same day. 59 Ms Merta replied by saying that she would have a look at increasing the Line of Credit to 80%. On 14 November 2005 Mr Dutta sent a further email to her chasing up the request for 80% of the Pymble property. On 17 November 2005 he sent a further email asking if Ms Merta could confirm 80% against the $1.6m valuation with insurance that it was okay to proceed. 60 Ms Merta replied the same day saying that mortgage insurance covered only up to $1m and the mortgage insurance company would not allow any more than that. She went on to say: The other request of 80% lend unfortunately (sic) the Bank will only lend up to 70% on residential property valued above $1.5m, if the value is under $1.5m then we could lend 80%. The other way we could achieve something for you is that we refinance your other properties however, we are still faced with the serviceability problem unless your figures have dramatically improved. If you have figures from your accountant to show the improvement we could possible (sic) look at refinancing your other property that has equity to increase your Line of Credit.

[96]

I would not be prepared to support a 80% LVR where we have only interest only debt and tight serviceability. 79 Later that day Ms Maestre sent another email to the Head Office of the Bank which said this (inter alia): The client is waiting for an answer before this Friday. If not, we're gonna lose this client. He already got an approved loan with NAB for $1,238,000 to refinance all loans that he got with us, having documents to sign (settlement date 24 th April 2006), but he still wants to do business with us. 80 Later that day, and in response to an email from Ms Merta that she was still working on the matter, Mr Dutta sent an email to Ms Merta saying: I thought you could approve temp overdraft yourself. Head Office will go back to square One. If they can't, please advise we want to settle on Friday 21 or Monday the very latest. 81 On 20 April 2006 Ms Merta sent an email to Mr Dutta saying she had an approval and that the Line of Credit would increase to $430,000 and asked "are you happy with that?" 82 In his affidavit of 11 May 2009 Mr Dutta said that he did not provide instructions to Ms Merta to increase his Line of Credit to $430,000. He then made reference to this email from her of 20 April 2006 and said that he did not reply to it. 83 In fact Mr Dutta responded by an email as follows: Is this formally approved and are their any other requirements to meet. Also with this approval are you able to do a temporary increase as you suggested effective now for say $20,000. 84 When cross-examined about his statement that he did not reply, and about the email which I have just set out, Mr Dutta agreed that it was an email in reply to Ms Merta's email and that he had read it in her affidavit before he affirmed his affidavit. When it was put to him that what he said in paragraph 35 about not replying to the email was false he said: A. The question was ""are you happy with that?" I did not say I was happy with that. That is my answer. That was a question. 85 Mr Dutta's statement in paragraph 35 of his affidavit was false, and I find that he made the statement to further his case that he never requested the increase of $160,000 in the Line of Credit but it was, in effect, forced upon him by Ms Merta and the Bank. Needless to say, it was not refused when offered. 86 Ms Merta replied immediately to Mr Dutta's email (in para [83] above) saying that she would increase the Line of Credit for an extra $20,000 on that day until all the paperwork for the larger permanent amount was available. 87 On the same day the Head Office of the Bank wrote to Mr Dutta saying: We are pleased to advise that your finance application $162,200 has been formally approved subject to any special conditions included in the loan documents that we will send you. 88 Mr Dutta responded by sending an email to Ms Merta saying: When do we sign the documents? 89 The documents were signed on 2 or 3 May 2006 and on 8 May 2006 the increased amount was made available on the Line of Credit. 90 Mr Dutta was cross-examined about the statements in his affidavit that he had requested a temporary overdraft of $20,000, that he did not request the loan amount increase by $162,000 and that he did not sign a loan application form for that amount. He gave the following evidence: Q. Were you intending to convey by those paragraphs that all you had asked for was an increase in your overdraft for $20,000 and Ms Merta of her own initiative obtained approval to advance to you $162,000? A. Ms Merta would have taken her own initiative to advance that amount of money.

[117]

Q. Changing your story to fit the known facts. That's what your affidavits are about, isn't it, altering your story to fit the known facts to try to find a defence for yourself? A. Well, it really depends on what stage of the third loan. The third loan could have been the $20,000 and they never asked me for - any financial statements, so if you look at it from that point of view, no, it is not deceiving. But if you ask me did they ask me to produce 2005, I would say, yes, and I did not produce any. In relationship to the $20,000, no. I was not asked. 95 Even that explanation was not correct because in his last answer he said "The third loan could have been the $20,000" whereas in his own affidavit he had defined the third loan amount as being $162,000. 96 A few other things should be said about the material that went between Mr Dutta and the Bank in the email chain I have set out above. First, the copy of the lease of the Pymble property in evidence showed that the rent was $2,607.15 per calendar month making an annual figure of $31,286. On a number of occasions Mr Dutta informed Ms Merta that the rent was $36,000 per year and in his email of 22 February 2006 he referred to the rental to that date in the financial year as being $36,000. 97 In any event, the statements made to the Bank about rental income for Pymble in early 2006 would not appear to be correct if his evidence in the witness box was true that by 2006 the tenant had left the Pymble property and no rent was being received. 98 Secondly, the various financial documents provided by Mr Dutta to Ms Merta need to be compared. The balance sheet forwarded under cover of the email of 12 April 2006 (para [70] above) showed that at 30 June 2005 accounts receivable were $12,638.41. The inventory was said to be worth $51,708.83, yet the balance sheet as of 1 March 2006 (para [67] above) showed accounts receivable being $290,237.49. Mr Dutta had no explanation for that, taking refuge in the excuse that he was not an accountant, although he conceded that he had entered all of the figures in the computer that produced these financial documents. 99 Mr Dutta agreed that for the accounts receivable to have increased to that extent he would have to have sent out some $270,000 worth of bills which had not been paid. Mr Dutta agreed, however, that the profit and loss statement to 1 March 2006 showed that there had only been inventory sales amounting to $110,155.89. 100 The next thing to notice is that the balance sheet at 30 June 2005 showed undeposited funds as an asset in an amount of $189,808.38. The same figure appeared in the balance sheet as of 1 March 2006. Mr Dutta's explanation for the fact that the same figure appeared twice is that it was possible he had not updated the computer system. He nevertheless accepted that he did not have either in the Bank or readily accessible an amount of $189,808.38 or anything like it. 101 All of these matters and some other evidence given by Mr Dutta in answer to questions about these financial documents, lead me to the clear view that the financial documents presented to the Bank were entirely unreliable and did not represent the true position concerning the business Planit Organiser. I am firmly of the view that they were provided to Ms Merta and the Bank to try to persuade the Bank to make loans to Mr and Mrs Dutta that they would not have been able to obtain had the true position been disclosed. 102 Thirdly, the emails show a pattern of pressure that Mr Dutta was endeavouring to assert on Ms Merta to obtain the increase in the Line of Credit by telling her he had approval from another Bank. He was cross-examined about this as follows: Q. Go to page 929, an email from you to Ms Merta of 12 April 2006 where you say: "We have been offered a refinance package via a different bank on the home loan and line of credit facility." Was that true? A. As far as I recall, somebody did say, yes, I can get you that kind of money. I am not sure exactly who would have said that, which bank, might have been a mortgage broker, I am not sure.

[140]

Q. But you can't even remember who the bank was? A. It's probably the National Bank or some other mortgage broker, because they were the only two people I would have dealt with. Either a bank or mortgage broker. 103 Even if Mr Dutta had made application to another financial institution at this time I do not accept that he had had an approval of such an application, nor that he had signed any documents with the other financial institution, nor that it was ready to settle with him. Mr Dutta's statements in his emails were simply an attempt to pressure Ms Merta and the Bank into providing him with additional funds with the threat that if they did not do so, and quickly, he would take his business elsewhere. 104 The significance of this is not the morality or otherwise of acting in that way but the fact that it demonstrates clearly the lengths Mr Dutta was prepared to go to obtain the increase in the Line of Credit. The suggestion that he only sought an extra $20,000 but that the Bank thrust upon him $162,000 must be rejected. 105 Fourthly, from at least 14 December 2005 Mr Dutta was suggesting to Ms Merta that he needed additional money for business purposes. The email of 14 December 2005 said he needed it "to complete some projects". The email of 12 April 2006 asked for an increase "so that we can complete our software project for launching Jul/Aug 06". 106 It is a fair inference that Ms Merta understood that it was for Mr Dutta's business because she asked for financial statements for the business as well as his personal tax returns. Mr Dutta continued to supply Ms Merta with financial information about Planit Organiser. Further, all of Mr Dutta's emails to the Bank from 19 April 2006 onwards were headed "Planit Organiser/Business Overdraft". Mr Dutta was asked if he had any intention of using any part of the money to complete a software project and he gave this evidence: A. I would have used my own money, and I am sure I would have used my own money to produce a software project.

[154]

(b) the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes; … 117 There are divergent views in the cases on what is meant by the credit being "provided or intended to be provided" for personal, domestic or household purposes. One view is that the purpose of the loan is what a reasonable person in the shoes of the credit provider understood that the loan was intended to be used for at the time the loan was made: Rafiqi v Wacal Investments Pty Ltd (1998) ASC 155-024 (Brabazon DCJ) and Park Ave Nominees Pty Ltd v Boon [2001] NSWSC 700 (Harrison AsJ). 118 The alternative view was that expressed by Gillard J in Linkenholt Pty Ltd v Quirk [2000] VSC 166 at [98]: It is appropriate to consider what the money was used for in order to determine the purpose of the provision of the credit. In considering the question it is important to consider the substance of the transaction in the context of its performance… 119 This latter view has been followed in Jonsson v Arkway Pty Ltd [2003] NSWSC 815 (Shaw J), First Mortgage Managed Investments Ltd v Oberlechner [2006] NSWSC 1397 (Rothman J), Benjamin v Ashikian [2007] NSWSC 735 (Smart AJ), and Dale v Nichols Constructions Pty Ltd [2003] QDC 453 at [27] (McGill DCJ). 120 In Beckley I discussed the 2 different views and made reference to what had been said in the Court of Appeal in Bahadori about those views. I also made reference to the interesting discussion by Muir JA in Shakespeare Haney Securities Ltd v Crawford [2009] QCA 85. Regrettably, it was not necessary for either the New South Wales Court of Appeal in Bahadori or the Queensland Court of Appeal in Shakespeare Haney to reach a concluded view about the appropriate view. Nevertheless, I followed the view that had been espoused by Gillard J in Linkenholt. I did so because I considered that the weight of authority strongly favoured that approach (see Beckley at [69]). 121 The position in the present case is a little unusual. This is because, as I have found, Mr Dutta informed Ms Merta in 2005 that he required the additional $270,000 for the purpose of developing the Pymble property. He did not ultimately use the money for that purpose but used it, rather, to pay personal and living expenses because he and his family were living well beyond their means. 122 In 2006 he told Ms Merta that he needed the increase in the loan for some projects or a software project. Again, it appears the money was largely used for living expenses. The question arises whether it is appropriate to apply the test in Linkenholt in the circumstances. 123 In my opinion, the test in Linkenholt should be applied. Given the structure of s 11 of the Code I do not consider there is unfairness to a lender for the Linkenholt test to be applied even in those circumstances. As McGill DCJ said in Dale at [28]: … Subsection (2) provides a mechanism by which a credit provider can protect itself from a debtor who might not be frank about the true purpose of the loan, which will be effective unless, pursuant to subsection (3), the credit provider has actual knowledge that the declaration given by the borrower is false. If the credit provider does not follow that precaution, the credit provider runs the risk that a court will find that the true intention of the borrower was that the money borrowed be used for personal, domestic or household purposes, regardless of what was apparent to the credit provider. 124 It does not seem to me appropriate to approach the legislation from a different point of view dependent upon whether the borrower tells the truth to the lender. The legislation has a particular meaning which must be construed independently of the facts that give rise to the need to understand its meaning in any given case. In my view, Shaw J was right when he said in Jonsson v Arkway at [28] that the legislation needs to be broadly and liberally interpreted as beneficial legislation. Section 11(2) enables the credit provider to protect itself against all sorts of borrowers including untruthful ones. If the credit provider does not avail itself of that sub-section it takes the risk that the presumption in sub-s (1) will operate against it because it cannot prove that the funds were used for purposes other than the purposes for which the borrower proves they were in fact used. 125 In the present case, the Bank obtained Business Purpose Declarations but did not ensure that they were obtained in a way that gave rise to the conclusive presumption that s 11(2) anticipates. It is necessary, therefore, to examine the evidence to see if the Bank can displace the presumption in s 11(1). In that regard, I can accept that the signing of the Declarations may amount to some admission that the loans were not for personal, domestic or household purposes. On the state of the evidence I do not consider that the mere proof that they were signed carries much weight. Mr Dutta's evidence was that he did not recall signing a Business Purpose Declaration in respect of the loans in May 2005. In relation to the increased Line of Credit in April 2006 Mr Dutta said that when he had completed signing the documents he mentioned to Ms Merta "there is $20,000 towards the business" and she then gave him the business declaration to sign, which he did. 126 Mr Dutta gave evidence in his affidavit of 17 May 2010 and in a schedule about the use of funds. In that evidence he said that the monies he obtained on the Line of Credit were transferred to his ANZ accounts in the name of Planit Organiser and Outback Designers. He said that those accounts were cheque accounts and they were the only cheque accounts that the Defendants had during the relevant period. He said that he treated those cheque accounts as if they were personal cheque accounts and used them to pay all of their expenses including repayments under the mortgages. There was no challenge to this evidence. 127 The Bank led evidence which included providing copies of a large number of cheques drawn on the Bank of Queensland account in the names of Mr and Mrs Dutta. Many of these cheques were written to Planit Organiser and some were written to Outback Designers. Although that might, prima facie, suggest that those funds were used for business purposes, there does seem to be some support for Mr Dutta's assertions that those businesses were used to pay his personal expenses. 128 That support derives from the fact that it is very clear, both at time of entry into the Line of Credit in May 2005 and when the increase was sought the following year that the Defendants were living well beyond their means as far as their personal expenses were concerned. They had hefty mortgage repayments on both the Coalcliff property and the Pymble property. They had hefty rent payments although these payments were reduced when the Defendants moved to more modest accommodation. There were high car repayments. It does not appear that the business or businesses they operated were ever particularly successful. Whilst it is true that some of the money was used for business expenses (for example, a monthly payment to Alliance Finance of about $4000 or $5000) the evidence points to the fact that the majority of the funds were used for personal expenses. There is probably some truth in Mr Dutta's assertion that the loans he obtained were not robbing Peter to pay Paul but were robbing Peter to repay Peter. 129 The Pymble property appears never to have been developed - there was certainly no evidence that any steps were taken in that regard. 130 I note that Hislop J in Hamafam Pty Ltd v Saadullah [2007] NSWSC 818 at [23] regarded "predominantly" in ss 6 and 11 of the Code as meaning more than 50%. I cannot be satisfied that the part of the borrowed monies that were used in respect of Pymble (whether as refinance or as loan repayments) were used other than for personal, domestic or household purposes. I am satisfied that more than 50% of the borrowed monies were in fact used for the Defendant's personal purposes. Even if a higher percentage equates to "predominantly" I consider in this case that the evidence demonstrates that the use of the funds by the Defendants was predominantly for personal, domestic or household purposes. 131 The result is that the Code applies to all of the loans made in the present case.

[166]

[89] In my opinion the present action was incorrectly instituted because a default notice was not given and cannot be continued. I think that the better course is to strike out the action without prejudice to the right of the plaintiffs to bring fresh proceedings after they have served a default notice in conformity with the Code and at least 30 days have elapsed. 135 The Bank makes 3 submissions in relation to s 80. First, the Bank argues that the Code does not apply to these loans. I have already held to the contrary. 136 The Bank secondly says that a s 57(2)(b) notice was served and that that is in fact a sufficient compliance with s 80(3). The Bank submits that s 80(3) has 3 requirements. The first is that the notice requires a specification of the default. That appears in the paragraph numbered 2 in the notice served. Next, sub-s (3) requires the specification of the action to remedy the default. The notice does this by requiring the payment of the amount by which the credit limit has been exceeded. 137 Thirdly, the sub-section requires that the notice state that a subsequent default of the same kind occurring during the time for rectification of the default already made may be the subject of enforcement proceedings without further notice if it is not also remedied within the period. The notice served does not say anything about this matter and the Bank accepts that it does not. 138 The Bank argues that a notice containing that requirement is not for the benefit of the borrower but for the lender because it enables the lender to take enforcement proceedings without further notice if there is a subsequent default in the period. The Bank argues that in the event that there was a subsequent default it would simply be restricted to serving a new notice rather than being able to take advantage of what sub-s (3) allows if the notice had contained a statement to that effect. 139 A "subsequent default of the same kind" seems to be directed to the situation where there has been a failure to pay an instalment due and anticipates a failure to pay a further instalment during the period of the first default. The Bank submits that in the present case "a subsequent default of the same kind" does not really have a useful meaning. 140 It also points to the proposition established in Bunberry Foods Pty Ltd v National Bank of Australasia Ltd (1984) 153 CLR 491 at 503-4 where it was held that it is not essential to the validity of a notice calling up a debt that the notice correctly states the amount of the debt. In my opinion, the principle from Bunberry and similar cases such as Mir Bros Projects Pty Ltd v 1924 Pty Ltd [1980] 2 NSWLR 907 at 926 is not relevantly analogous when it is the sub-section itself that requires the notice to specify certain matters. 141 Whilst I can accept that the specification of this requirement appears to be largely for the benefit of the lender I do not think that approaching the matter in that way can mean that the provisions of the section do not need to be complied with in any given circumstance where the sub-section says that the default notice "must specify" those matters. The argument put forward by the Bank would, if accepted, justify all credit providers not specifying the effect of a subsequent default in all cases on the basis that they would issue a new notice for a subsequent default. The sub-section does not contemplate that as an alternative available at any time. The approach would have the effect of transforming a requirement of the sub-section into an optional consideration. 142 The Bank's third and principal submission is that as a matter of construction s 80 merely imposes a procedural condition upon the exercise of the jurisdiction to commence proceedings. The Bank says that the proceedings are certainly not a nullity, nor are they liable to be struck out in every case. 143 In my opinion, a few matters suggest that this is a correct view of the section. First, sub-s (4) clearly contemplates that there are some circumstances where proceedings can be commenced although no notice is served. Two of the matters set out in sub-s (4) ultimately involve the determination of a credit provider believing certain things on reasonable grounds. Similarly, the sub-s contemplates a situation where reasonable attempts have been made to locate a borrower. After a full hearing it may ultimately be held that there were no reasonable grounds on which a credit provider relied, or that reasonable attempts had not been made to locate the borrower. Nevertheless, if the borrower made out no defences under the Code it could not be the intention of the section that the credit provider was obliged then to serve a s 80 notice and commence new proceedings to determine what had already been determined in the earlier proceedings. 144 Since the present proceedings could not be regarded as a nullity (Berowra Holdings Pty Ltd v Gordon (2006) 225 CLR 364), issues estoppel from the first proceedings would mean that the new proceedings would inevitably result in the same findings. 145 Secondly, sub-s (4)(c) provides that the Courts can authorise the credit provider to begin the enforcement proceedings. There is no requirement that this be done before they are commenced. Sub-section (4)(c) must allow the Court to authorise the credit provider nunc pro tunc. 146 Thirdly, s 170 of the Code provides: A credit contract, mortgage or guarantee or any other contract is not illegal, void or unenforceable because of a contravention of this Code unless this Code contains an express provision to that effect.

[170]

150 In Graham Clarke JA said (at 65-66): A conclusion that a credit provider could maintain proceedings despite a failure to comply with s7 is, as it seems to me, inimical to the scheme of the Act. It means, or could mean that a credit provider could press on to judgment, or a sale of a property under a power of sale in a mortgage, and in that way deprive a debtor, who has no defence to the action, of the practical benefit of the s5 procedures. I accept that in certain circumstances subs (9) may afford a measure of protection to a debtor who had sought to take advantage of the s(5) procedures after receiving a writ, or upon becoming aware that a power of sale was being exercised, but whether that subsection was to be of any practical assistance to the debtor would depend upon whether the matter had been referred to the Tribunal before, for instance, a power of sale had been exercised or a judgment for possession entered. Those considerations provide a strong basis for reaching a different conclusion to his Honour. There are additional considerations, including one which I regard as very strong indeed, which reinforce me in my view that his Honour was incorrect. The first of these is that s7 expressly prohibits the taking of proceedings or the exercising of rights in the absence of the service of a notice upon payment of a penalty. A breach of the section is, prima facie, an unlawful act. It is true that s22 provides a defence in which the onus lies on the credit provider to prove that it did not know that, had no reason to believe that and had made reasonable enquiries as to whether, the contract to which the proceedings related was a home finance contract. But this does not detract from the proposition that, prima facie, the proceedings were unlawfully instituted. Nor does that defence, which is only available in proceedings against the credit provider, detract from the proposition that in terms the requirement laid down in s7 operates as a condition precedent to the exercising of a right or the instituting of proceedings. 151 Patten AJ in Cook noted that there were obvious differences between the Code and the 1984 Act. He thought, however, that there was such a degree of similarity that he should follow Graham. With great respect to Patten AJ I consider that the differences in the Code are significant and point to a different construction of s 80 from the Court of Appeal's view of s 7 of the 1984 Act. 152 First, there was no equivalent in s 7 of s 80(4). Particularly, there was no equivalent provision of sub-s (4)(c) enabling the Court to authorise the enforcement proceedings in the absence of a notice being served. Secondly, s 80 is concerned only with enforcement proceedings whereas s 7 of the 1984 Act was also concerned with exercising a right under a contract, a mortgage or a guarantee. Thirdly, and most significantly, there is no equivalent to s 170 of the Code in the 1984 Act. 153 In my opinion, the differences between the Code and the 1984 Act have the result that the decision in Graham does not dictate the outcome of a failure to serve a notice under s 80 of the Code. 154 Where there is a genuine issue in proceedings about whether a loan has been provided wholly or predominantly for personal, domestic or household purposes, and that issue has been determined against the credit provider in such a way that the Code is held to apply to a loan, s 80 does not have the result that a failure by the credit provider to have served a notice prior to the commencement of the proceedings will result in the proceedings being dismissed. Two policy reasons point against that result. First, if the only way the credit provider could avoid such an outcome was to serve a s 80 notice just in case, the effect of the service of the notice was likely to result in an admission by the credit provider that the Code applied although that was an issue in the proceedings. Secondly, and as I noted earlier, it would be in no party's interest for it to be determined after a full hearing that the borrower had made out no defences under the Code but that the proceedings had to be dismissed simply so that notice could be served and then new proceedings commenced to decide the same issues. The position might be different if at an early stage an application was made to strike out the proceedings for failure to serve a s 80 notice. However, even in that case if the real issue was whether or not the Code applied that would scarcely be an appropriate use of the summary dismissal provisions of the Rules. 155 Next, as I have noted, the present proceedings cannot be regarded as a nullity. At worst, there is an irregularity involved in the commencement of the proceedings. Section 80 does not confer the jurisdiction for the bringing of the proceedings: Plowman v Palmer (1914) 18 CLR 339 at 348-349, Emanuele v Australian Securities Commission (1997) 188 CLR 114 at 128. 156 In Woods v Bate (1986) 7 NSWLR 560 McHugh JA (as he then was) said (at 567): In recent times the courts have shown great reluctance to invalidate an act done pursuant to a statutory provision because of the failure to comply with an antecedent condition: ... Speaking generally, I think that, at the present time, the proper approach is to regard a statutory requirement, expressed in positive language, as directory unless the purpose of the provision can only be achieved by invalidating the result of any departure from it, irrespective of the circumstances or resulting injustice: … (authorities omitted)

[171]

157 However, if I am wrong in my approach to the proper construction of s 80 I would authorise the Plaintiff in the present case nunc pro tunc to bring the present proceedings for these reasons. First, the failure to serve the s 80 notice resulted from the view of the Bank that the Code did not apply to the Line of Credit. Although I have held, on the basis of the authorities, that the Code does apply, there are authorities to the opposite effect. Secondly, the issue arose in the present case precisely because Mr Dutta did not use the funds he obtained for the purposes he had advised to the Bank at the time he applied for the Line of Credit and for its increase. The purposes he advised to the Bank, if he had used the money for those purposes, would have resulted in the Code not applying to the loans. In that regard the Bank's failure to serve a notice was neither contumelious nor a highhanded disregard for its obligations. 158 Thirdly, the Defendants are not disadvantaged because they were served with a s 57 notice which complied with the provisions of s 80 except to the extent that I have discussed in paras [137] to [141] above. The notice specified the default and specified what was required to be done to remedy the default. Although it did not contain the notification concerning subsequent defaults, that was not relevant in the present circumstances. 159 Furthermore, it would not be consistent with the just, quick and cheap resolution of the real issues in the proceedings if, having found that the Defendants had not made out any defences under the Code, it would still be necessary to dismiss the present proceedings simply to enable the service of a s 80 notice so that new proceedings could be properly commenced. 160 For these reasons, the present proceedings are not a nullity nor does s 80 require that they be dismissed. (3) Are the loans secured by the mortgage? 161 The Defendants' submission in relation to this issue was twofold. First, it was said that because the Defendants were never provided with a copy of the Memorandum incorporated into the mortgage at the time they signed it, they are not bound by its terms. Secondly, and seemingly associated with it, it was submitted that any default was a default under the loan contract and the loan contract was not incorporated into the mortgage and contained merely personal covenants. It was said that on the authority of Perpetual Trustees Victoria Ltd v English [2009] NSWSC 478 at [124] the Bank is not entitled to possession. This submission also seemed to be connected with the fact that the Memorandum did not specify a particular amount of money but was, in effect, an all monies mortgage. 162 There was no clear evidence that the Defendants were provided with a copy of Memorandum AA170454D in its registered form at the time they signed the mortgage. There was, however, clear evidence that they were provided with a copy of the Real Property Mortgage General Conditions. As I have said, these Conditions were identical to what was contained in the Memorandum and relevantly said this on the front page: About this Mortgage This Mortgage is made up of two documents: These General Conditions and the form to which these General Conditions are attached. The meaning of words printed like this and some other key words are explained in these General Conditions. The relevant provisions of the Code of Banking Practice will apply to your mortgage. 163 Underneath those words was the registered number of the Memorandum in each State and Territory of Australia. As I have mentioned, the registered number of the Memorandum in NSW appeared in that place. 164 The terms of Memorandum AA170454D were expressly incorporated into the mortgage signed by the Defendants. 165 Clause 22 of the Memorandum specifies that the borrower is in default if the person is in default under any agreement covered by this mortgage. Clause 1 defines the words "agreement covered by this mortgage" as meaning an agreement or other arrangement under which one or more of the borrowers incurs or owes obligations to the Bank under which the Bank has rights against the borrower. 166 Clause 23 provides that if the borrower is in default the Bank can take possession of the property. That is so even if the Code applies to the mortgage but in such a case the Bank must give a notice to the borrower stating that the borrower is in default and specifying any period of grace required by law. 167 Nothing in Perpetual Trustees v English or the cases it follows qualifies or impacts upon the rights contained in the Memorandum incorporated into the mortgage in the present case. English, and a number of the other cases, concerned a forged loan document and mortgage where the issue was not whether the registration of the mortgage conferred indefeasibility but rather the identification of the "estate or interest" that upon registration was made indefeasible - see English at [26] and [31]. 168 There is no such issue in the present case. Both of the Defendants signed the loan agreements and the mortgage which, by the terms of the incorporated Memorandum secured the debts owing under the loan agreements. 169 There was no obligation upon the Bank to do other than it did by providing a copy of the Real Property General Conditions that contained all of the terms and conditions of the registered Memorandum. I endeavoured on a number of occasions to ascertain from Mr Dutta what disadvantage he claimed to be under by not having received the actual Memorandum registered with the Department of Lands (such Memorandum containing only a different front page of no significance) but he was unable to point to any such disadvantage. 170 In my opinion, the mortgage incorporated the terms and conditions of the Memorandum, and the loan agreements signed by the Defendants were agreements covered by the mortgage. The Defendants defaulted under the loan agreements with the result that they were in default under the mortgage.

[172]

(4) Are the contracts unjust? 171 Section 70 of the Code gives the Court power to reopen an unjust contract. It relevantly provides: (1) Power to reopen unjust transactions. The Court may, if satisfied on the application of a debtor, mortgagor or guarantor that, in the circumstances relating to the relevant credit contract, mortgage or guarantee at the time it was entered into or changed (whether or not by agreement), the contract, mortgage or guarantee or change was unjust, reopen the transaction that gave rise to the contract, mortgage or guarantee or change. 172 Sub-section (2) sets out matters to which the Court may have regard when determining whether a term in a contract is unjust. The Defendants do not rely upon all of the matters listed in sub-s (2). Relevant to the matters about which the Defendants complain, sub-s (2) provides: (2) Matters to be considered by Court. In determining whether a term of a particular credit contract, mortgage or guarantee is unjust in the circumstances relating to it at the time it was entered into or changed, the Court is to have regard to the public interest and to all the circumstances of the case and may have regard to the following - … (h) whether or not, and if so when, independent legal or other expert advice was obtained by the debtor, mortgagor or guarantor; … (j) whether the credit provider or any other person exerted or used unfair pressure, undue influence or unfair tactics on the debtor, mortgagor or guarantor and, if so, the nature and extent of that unfair pressure, undue influence or unfair tactics; … (l) whether at the time the contract, mortgage or guarantee was entered into or changed, the credit provider knew, or could have ascertained by reasonable inquiry of the debtor at the time, that the debtor could not pay in accordance with its terms or not without substantial hardship. 173 Similarly, s 7 of the CRA 1980 gives power to the Court where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made. Section 9 sets out matters to which the Court is to have regard in determining whether a contract is unjust. Again, relevant to the matters complained of by the Defendants, s 9 provides: (1) In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of: (a) compliance with any or all of the provisions of the contract, or (b) non-compliance with, or contravention of, any or all of the provisions of the contract.

[175]

(a) Absence of legal advice - Code para (h), CRA para (h) 175 Certainly, the Defendants did not have independent legal or other expert advice before they entered into the loan contracts. Mr Dutta said in his affidavit he asked Ms Merta if he should get legal advice but she told him that legal advice would not be necessary. He claimed that that conversation took place first in June 2005 and then again on 3 May 2006. 176 Ms Merta's evidence was that on about 30 May 2005 Mr Dutta attended the Bank's office in Hampton and she gave to him documents relating to the home loan refinance that needed signing by him and Mrs Dutta. Earlier that day she had offered to drop the documents off at his house but he had declined that offer and said he would come to her office. Ms Merta said that she said to Mr Dutta that she needed to explain all of the documents to him. He said he was in a hurry. However, she commenced her explanation of the documents but he kept insisting that he was in a hurry and he wanted to leave with the documents and sign them at home. She said that he also said "I've done this before with the previous lender. I know everything about it." Ms Merta then put "sign" stickers at the places where a signature was needed from Mr and Mrs Dutta and said: If you don't understand anything in the documents you can give me a call. Also, I think you and your wife should get your own legal advice as you are not giving me the chance to go over everything with you. 177 Ms Merta expressly denied Mr Dutta's assertion in his affidavit that he asked if he should get legal advice and denied that she said to him "legal advice would not be necessary". 178 When he cross-examined Ms Merta, Mr Dutta did not put any questions to her regarding the issue of the obtaining of legal advice represented in the evidence I have outlined. Further, when Mr Dutta swore his second affidavit which answered Ms Merta's affidavit, although he made reference to attending Ms Merta on 30 May 2005 he did not make any comment at all on the detailed conversations set out by Ms Merta which included his repeated statements that he was in a hurry, nor did he comment regarding her statement that she thought he and his wife should get legal advice. 179 For reasons I have given earlier concerning Mr Dutta's credibility and truthfulness, together with his failure to deny in his affidavit the conversation that Ms Merta alleged about legal advice, I accept Ms Merta's evidence that she advised Mr Dutta to obtain legal advice, and I reject Mr Dutta's evidence that Ms Merta suggested that such legal advice was not necessary in the face of a question from Mr Dutta. 180 Although that leaves the Defendants in the position where they did not obtain legal advice it is of some significance that it was their choice not to do so, especially in the face of a suggestion from Ms Merta on behalf of the Bank that they should obtain such advice. However, the matters about which Mr Dutta complains in substance (principally, not being advised that they could not afford to make the repayments under the loan) would not have been assisted by the obtaining of legal advice in any event. The solicitor's duty in the ordinary course would not extend to advising on the wisdom of the underlying transaction nor on commercial aspects of the transactions beyond the solicitor's legal qualifications: Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398 at 418E-F; David v David [2009] NSWCA 8 at [76]; Dominic v Riz [2009] NSWCA 216 at [87]-[91]. 181 The Defendants did not establish that there was any legal aspect of the transaction that they did not understand or which should have been explained to them with the result that they would not have entered into the transaction. The only substantive complaint was that the Bank should have advised them that they could not afford to borrow the money. It was never submitted by the Defendants that they did not have "other expert advice" or that such should have been advised to them. However, I will deal with this aspect of para (h) when dealing with the third complaint of the Defendants.

[176]

(b) Unfair pressure etc - Code para (j), CRA para (j) 182 The only unfair pressure complained about was the alleged offer on 2 occasions by Ms Merta to attend at the Defendant's residence with the documents for signing. According to Mr Dutta the first occasion was at the end of his first meeting with Ms Merta when, it is to be remembered, Mrs Dutta was not present. As Mr Dutta admits that his home was near the Bank's office, there was nothing unusual in the offer by Ms Merta to attend to have Mrs Dutta sign the documents. In any event, Ms Merta denied that on that occasion she offered to attend at Mr Dutta's home. She said the only time that such an offer was made was in a telephone conversation with Mr Dutta on 30 May 2005 when she told him she had received the loan documents. She then asked if he would like her to drop them off at his place or whether he would rather come and collect them. It was that occasion, it would seem from Mr Dutta's second affidavit, that caused him to feel pressure from Ms Merta to attend at his house. 183 Because, where there is a conflict, I prefer the evidence of Ms Merta to the evidence of Mr Dutta by reason of the matters of unreliability and untruthfulness in his evidence that I have discussed earlier, I find that there was only 1 offer by Ms Merta to attend at Mr Dutta's house with the loan documents. 184 However, even if Ms Merta offered on 2 occasions as Mr Dutta asserts, it is difficult to see how, objectively, such offers could amount to unfair pressure. Mr Dutta, as he was perfectly entitled to do, refused Ms Merta's offers. Despite those offers and his refusal, Mr and Mrs Dutta signed the documents on the later occasion. It is impossible to accept, and I do not accept, that because Ms Merta made those offers, Mr and Mrs Dutta felt pressured into signing the documents by themselves at home later that day or the next day. It is inconsistent with Mr and Mrs Dutta attending at the branch of the Bank later that day or the next day (as Ms Merta asserts and as I accept) and asking her to witness their signatures on the documents. It is inconsistent with them willingly signing other documents on that occasion and it is inconsistent with Mr Dutta asking Ms Merta when the documents would arrive for the Line of Credit loan. It is inconsistent with Mr and Mrs Dutta subsequently signing the Line of Credit documents on or about 2 June 2005. 185 I find that there was no unfair pressure on the Defendants by any actions of Ms Merta and, in particular, as a result of her offer or offers to attend at their premises. 186 The Defendants submitted also that the Bank's silence in relation to its knowledge that the Defendants could not service the loan constituted unfair tactics. I shall deal with this matter in the next section of the judgment.

[177]

(c) Serviceability - Code para (l), CRA para (d) 187 Mr Dutta's principal complaint (to which he returned time and again), was that the Bank knew he would not be able to service the loans and, therefore, the Bank should have advised him of this and refused to make the loans. It became clear, particularly during Mr Dutta's submissions, that this complaint was associated with his assertion that the Bank had engaged in asset-based lending and had breached its own guidelines in relation to serviceability. 188 The Bank did not accept that it knew Mr and Mrs Dutta were not able to service the loans. Indeed, the Bank pointed to a number of comments both in internal Bank documents and in emails that went to Mr Dutta which demonstrated that the Bank was concerned to ensure that the loans were able to be serviced before they were made. 189 What is also clear, and was conceded by Mr Dutta, was that Mr Dutta himself knew of his financial position and the difficulties that he would have in servicing the loan. This was the more so, the Bank said, when Mr Dutta had not been frank and honest with Ms Merta in relation to his income and expenses. 190 In West v AGC (Advances) Ltd (1986) 5 NSWLR 610 McHugh JA (as he then was) said this about the Contracts Review Act (at 620-621): Under s 7(1) a contract may be unjust in the circumstances existing when it was made because of the way it operates in relation to the claimant or because of the way in which it was made or both. Thus a contractual provision may be unjust simply because it imposes an unreasonable burden on the claimant when it was not reasonably necessary for the protection of the legitimate interests of the party seeking to enforce the provision: cf s 9(2)(d). In other cases the contract may not be unjust per se but may be unjust because in the circumstances the claimant did not have the capacity or opportunity to make an informed or real choice as to whether he should enter into the contract: cf s 9(2)(a), 9(2)(e), 9(2)(f), 9(2)(g), 9(2)(i), 9(2)(j). More often, it will be a combination of the operation of the contract and the manner in which it was made that renders the contract or one of its provisions unjust in the circumstances. Thus a contract may be unjust under the Act because its terms, consequences or effects are unjust. This is substantive injustice. Or a contract may be unjust because of the unfairness of the methods used to make it. This is procedural injustice. Most unjust contracts will be the product of both procedural and substantive injustice.

[178]

The definition of "unjust" in s 4 is not exclusive. It is in my opinion a mistake to think that a contract or one of its terms is only unjust when it is unconscionable, harsh or oppressive. Contracts which fall within any of those categories will be "unjust". But the latter expression is not limited to the so- called "tautological trinity". The Contracts Review Act 1980 is revolutionary legislation whose evident purpose is to overcome the common law's failure to provide a comprehensive doctrinal framework to deal with "unjust" con- tracts. Very likely its provisions signal the end of much of classical contract theory in New South Wales. Any contract or contractual provision, not excluded from the operation of the Act and which the court considers is unjust in the circumstances existing at the time when it was made, may be the subject of relief under the Act. Moreover, the provisions of s 9(2) do not exhaustively indicate the criteria as to what can be taken into account in determining whether a contract or any of its provisions is unjust. The provisions of s 9(2) of the Act are concerned for the most part with matters of procedural injustice. But the court is entitled to have regard to all the circumstances of the case, subject to s 9(4), and the public interest. In an appropriate case gross disparity between the price of goods or services and their value may render the contract unjust in the circumstances even though none of the provisions of s 9(2) can be invoked by the applicant. Indeed, notions of unfairness and unreasonableness will, I think, generally be present when a contract or any of its provisions is declared unjust. This will particularly be the case where procedural injustice is relied on. If a contract or one of its relevant provisions is neither unfair nor unreasonable so far as the applicant is concerned, it is difficult to see how the existence of inequality in bargaining power or lack of independent advice, for example, can render the contract or a provision of the contract unjust.

[179]

If a defendant has not been engaged in conduct depriving the claimant of a real or informed choice to enter into a contract and the terms of the contract are reasonable as between the parties, I do not see how that contract can be considered unjust simply because it was not in the interest of the claimant to make the contract or because she had no independent advice. 191 These remarks of McHugh JA were again adopted by the Court of Appeal in Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 at [71]-[73] and [114]-[116]. Further, as Basten JA made clear in Khoshaba at [128] an object of concern under the Act is a borrower who has demonstrated an inability reasonably to protect his or her own interests. 192 Although, as I have said, I found Mr Dutta to be an unreliable, and sometimes untruthful, witness, I formed a view that he was an intelligent man who was more than able to protect his and his wife's interests. The manner in which he conducted the defence of the case including the affidavits he drafted and the submissions he prepared and delivered indicate clearly to me that he is not the sort of person for whom the Court needs to have a particular concern when considering the provisions of the Code and the CRA, and matters concerning unconscientious behaviour on the part of the Bank. 193 Mr Dutta did not need to be told by the Bank or anybody else that he was living beyond his means nor that he may have difficulty servicing the loans if he did not take other steps such as endeavouring to sell one or more of his properties. Of course, Mr Dutta not only conceded that that had to happen but he repeatedly told Ms Merta over the 12 months he dealt with her that he was doing just that. 194 Although Mr Dutta said both in his evidence and in his submissions that Ms Merta and the Bank ought to have advised him, Meagher JA made clear in Beneficial Finance Corporation v Karavas (1991) 23 NSWLR 256 at 276 that there is no duty on a financier to provide a borrower or a third party guarantor within any commercial advice. Nor is the present situation at all analogous to the position in Smith v Elders Rural Finance Ltd (unreported - Bryson J - 25 November 1994) (a case relied on by Mr Dutta) where his Honour found not only that the borrowers were out of their depths in a situation where the lender perceived the risks and they did not, but also that the lender was engaged in asset-based lending. Mr Dutta submitted that that was precisely what the Bank was doing in the present case. 195 Khoshaba makes it clear that where a lender engages in asset-based lending that may be sufficient to hold that the contract is unjust. So, for example, Basten JA said at [128]: To engage in pure asset lending, namely to lend money without regard to the ability of the borrower to repay by instalments under the contract, in the knowledge that adequate security is available in the event of default, is to engage in a potentially fruitless enterprise, simply because there is no risk of loss. At least where the security is the sole residence of the borrower, there is a public interest in treating such contracts as unjust, at least in circumstances where the borrowers can be said to have demonstrated an inability reasonably to protect their own interests, for the purposes of, for example, s 9(2)(e) or (f). That does not mean that the Act will permit intervention merely where the borrower has been foolish, gullible or greedy. Something more is required: see Esanda Finance Corp Ltd v Tong (1997) 41 NSWLR 482 at 491 (Handley JA) cited with approval in Elkofairi (supra) at [77] by Beazley JA. 196 Of course, it is to be noted that Basten JA seems to impose the qualification that it is in circumstances where borrowers can be said to have demonstrated an inability reasonably to protect their own interests that such a finding will be made. As I have said, the Defendants were not in that position. They were able to look after their own interests. Not only did they know the true position in relation to their own finances but Mr Dutta deceived the Bank in a number of respects in relation to the information he provided to it to secure the loans that he wanted. 197 Although I think Ms Merta was keen to arrange the loans for the Defendants, not the least reason for which was that she was managing a new branch and was keen to build up the work at the branch, and in some cases failed to discern that Mr Dutta was trying to pull the wool over her eyes (the email of 18 April 2006 to Ms Merta is a good example - para [73] above), there is quite sufficient evidence to show that the Bank was concerned about, and examined the issue of, serviceability. The following matters clearly point to this. First, Mr Dutta was required to provide copies of his tax returns as well as tax returns of his company, Outback Designers. Secondly, he was required to produce Balance Sheets and Profit and Loss accounts of his business. Thirdly, amongst the Bank documents in May 2005 there is a completed document headed "Serviceability Worksheet". Fourthly, in a Bank document headed "Consumer Credit Scoring Compliance Checklist" the first section is headed "Financial Quality" and shows that the question of serviceability, the checking of liabilities and commitments etc has been completed. 198 Fifthly, a string of emails from November 2005 onwards to the increase in the Line of Credit in 2006 shows a constant concern by the Bank, communicated to the Defendants, about the serviceability concerns and problems the Bank had. 199 By no measure could these loans have been said to involve asset-based lending. 200 In any event, Mr Dutta had an accountant to whom he could have gone for financial advice had he chosen to do so. The Bank asked him on a number of occasions to obtain a signed statement from his accountant concerning Mr Dutta's income but Mr Dutta always managed to avoid doing that, probably because the accountant would not have borne out Mr Dutta's assertions to the Bank about his income. 201 The evidence disclosed clearly enough that Mr Dutta did not need to seek his accountant's advice to know that he was likely to have difficulties repaying the loans he was insisting on borrowing. In the first place, the fact that Mr Dutta said he needed the money for personal living such as rent and food was clear evidence that he was living beyond his means. Mr Dutta had sufficient intelligence and experience with running a business that he must have known he would have serviceability problems. He admitted that he did know these things. 202 Because Mr Dutta made so much of this complaint at the hearing it is important to set out what he himself admitted at various times both during his cross-examination and in the course of his submissions. At one point there was this evidence: Q. And that do you say you didn't realise yourself that you would have any problem servicing that borrowing? A. I knew I was struggling at that stage when I met Miss Merta, to pay my rent and cover my mortgage, yes.

[195]

Q. And one of the reasons was tight serviceability? A. That's correct. 209 He also gave this evidence: Q. But you knew that yourself already, didn't you? A. I was in serious trouble paying the mortgage and paying my rent, yes. 210 During the course of submissions I pointed out to Mr Dutta what Basten JA said in Khoshaba in the passage set out in para [195] above. Mr Dutta admitted that he had been foolish. 211 All of this material leads me to these conclusions. First, Mr Dutta was fully aware of his financial position before he obtained the loans in 2005 and 2006. Secondly, not only was he aware of his financial position but he actively sought to disguise it in the material he provided to the Bank. Thirdly, although the Bank was under no duty or obligation to advise Mr Dutta, it did raise with him on a number of occasions the issue about serviceability of the loan. None of this causes me to think that there was any unjustness in the contracts. 212 Mr Dutta also points to matters contained in the Banking Code and in the Bank's Guidelines which he alleges the Bank breached in making the loan to him. Whilst it is true that the Bank did not follow up on some matters (for example, copies of tax assessments, or letters from Mr Dutta's accountant) and whilst it was prepared to lend him, ultimately, 80% of the value of Pymble (on a valuation that had been assessed the year before) despite its usual 70% rule, I do not consider there were any aspects of that which result in unjustness of the contracts. This is the more so when Mr Dutta did not disclose the true position to the Bank and, in fact, provided figures in relation to his business which were false on any close examination of them. 213 The Court of Appeal discussed the issue of a Bank's failure to follow lending criteria in Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343. Campbell JA (with whom Hodgson and McColl JJA agreed) said: [96] It can be accepted that pure asset lending - described by Basten JA in Khoshaba at [128] as being "to lend money without regard to the ability of the borrower to repay by instalments under the contract, in the knowledge that adequate security is available in the event of default" - is in at least some circumstances unjust within the meaning of the Contracts Review Act , or unconscionable: Elkofairi v Perpetual Trustee Co Ltd [2002] NSWCA 413; (2003) 11 BPR 20,841 at [57]-[59], [79] per Beazley JA (with whom Santow JA and MW Campbell AJA agreed); Khoshaba at [92] per Spigelman CJ (with whom Handley JA agreed on this point), [128] per Basten JA.

[199]

[117] Even accepting that there were some departures from Accom's own lending guidelines and due diligence procedures, the trial judge was well aware of those departures, and did not regard them as enough, even when combined with other factors, to show the loan was either unconscionable or unjust. It needs to be recalled that departure from a lender's own lending guidelines does not in itself establish the injustice of a loan. Rather, those departures need to be part of a process of reasoning, such as that engaged in by Spigelman CJ in Khoshaba , the ultimate outcome of which is that the loans in question are unjust. 214 Campbell JA then went on to consider whether there were any other factors that, when combined with departures from the lending criteria and due diligence procedures, would lead to the conclusion that the loans were unjust. 215 In the present case, I do not consider that there are other factors when combined with some relatively minor breaches by the Bank of lending criteria that make these contracts unjust. This was not asset-based lending, the interest rate was not high and the Defendants were not vulnerable people who needed protection. Mr Dutta was perfectly aware of his financial position. The Bank in fact gave him some advice about problems with serviceability. The Bank did not have the true picture about the Defendants' financial position because Mr Dutta disguised that position in the information he provided. 216 For all these reasons, the contracts were not unjust in the circumstances relating to them when they were made within the meaning of the Consumer Credit Code or the Contracts Review Act. 217 Nothing that the Bank said or did could amount to misleading or deceptive conduct, whether by silence or positive statement. There is no basis for granting any relief under the Trade Practices Act. Conclusion 218 The Defendants do not make out any of their defences to the claim nor the relief in their cross-claim. The Bank is entitled to possession of the Pymble property and to a judgment for the appropriate sum outstanding. 219 The Plaintiff should bring in Short Minutes of Order to reflect these reasons.

Parties

Applicant/Plaintiff:

Bank of Queensland Ltd

Respondent/Defendant:

Dutta

Legislation Cited (1)

Trade Practices Act 1974(Cth)

Cases Cited (28)

CITATION : Bank of Queensland Ltd v Dutta [2010] NSWSC 574

Bahadori v Permanent Mortgages Pty Ltd [2008] NSWCA 150 Beckley v Consumer, Trader and Tenancy Tribunal [2009] NSWSC 703 Beneficial Finance Corporation v Karavas (1991) 23 NSWLR 256 Benjamin v Ashikian [2007] NSWSC 735 Berowra Holdings Pty Ltd v Gordon (2006) 225 CLR 364 Bunberry Foods Pty Ltd v National Bank of Australasia Ltd (1984) 153 CLR 491 Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398 Collier v Moreland Finance Corporation (Victoria) Pty Ltd (unreported - Court of Appeal - 21 April 1989) Dale v Nichols Constructions Pty Ltd [2003] QDC 453 David v David [2009] NSWCA 8 Dominic v Riz [2009] NSWCA 216 Emanuele v Australian Securities Commission (1997) 188 CLR 114 First Mortgage Managed Investments Ltd v Oberlechner [2006] NSWSC 1397 Graham v Aluma Lite Pty Ltd (1996) 39 NSWLR 58 CASES CITED : Hamafam Pty Ltd v Saadullah [2007] NSWSC 818 Jonsson v Arkway Pty Ltd [2003] NSWSC 815 Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343 Linkenholt Pty Ltd v Quirk [2000] VSC 166 Mir Bros Projects Pty Ltd v 1924 Pty Ltd [1980] 2 NSWLR 907 Park Ave Nominees Pty Ltd v Boon [2001] NSWSC 700 Permanent Mortgages Pty Ltd v Cook [2006] NSWSC 1104 Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 Perpetual Trustees Victoria Ltd v English [2009] NSWSC 478 Plowman v Palmer (1914) 18 CLR 339 Rafiqi v Wacal Investments Pty Ltd (1998) ASC 155-024 Shakespeare Haney Securities Ltd v Crawford [2009] QCA 85 Smith v Elders Rural Finance Ltd (unreported - Bryson J - 25 November 1994) West v AGC (Advances) Ltd (1986) 5 NSWLR 610 Woods v Bate (1986) 7 NSWLR 560

[2003] QDC 453

[2000] VSC 166

[2009] QCA 85

(1991) 23 NSWLR 256

(2006) 225 CLR 364

(1984) 153 CLR 491

(1996) 40 NSWLR 398

(1997) 188 CLR 114

(1996) 39 NSWLR 58

(1914) 18 CLR 339

(1986) 5 NSWLR 610

(1986) 7 NSWLR 560