209 Although the present is not a case of wife and husband, the principles for granting relief on the grounds of unconscionability in such a case are relevant to considering whether the Agreement for Provision of Finance, so far as it concerns Barry Andrews, was unjust. The threshold for relief under the Contracts Review Act in such a case is lower than in relation to a claim of unconscionability at general law (Bakarich & Ors v Commonwealth Bank of Australia [2007] NSWCA 169 at [89]). I have explained why Barry Andrews can be regarded, for the purposes of the Contracts Review Act, as being in a position analogous to that of a surety, even though he was a principal borrower. To adapt the language of the majority of the High Court in Garcia, in the present case, there is the combination of circumstances that Barry Andrews did not understand the purport and effect of the transaction; the transaction was in substance a voluntary one in the sense that it was unlikely that he would obtain a benefit from it; he did not participate in any of the discussions in relation to the transaction or negotiations of it, although his son did; Racken may be taken to have understood that he might repose trust and confidence in his son in relation to the transaction as it related to the provision of working capital for Oxyman for which his son was a senior manager and beneficial shareholder; Racken may be taken to have understood that Garry Andrews might not fully and accurately explain the purport and effect of the transaction to Barry Andrews, and yet Racken did not itself take steps to explain the transaction to him or to find out that the transaction had been explained to him. Whether or not such considerations would justify relief at general law, in my view they lead to the conclusion that the transaction was unjust in the circumstances in which it was made within the meaning of ss 7 and 9 of the Contracts Review Act.
210 It follows that the Court has a discretion under s 7(1) as to what order, if any, should be made for the purpose of avoiding as far as practicable an unjust consequence or result. That may include the making of an order declaring the contract, so far as it affects Barry Andrews, void, in whole or in part, or refusing to enforce all or any of the provisions of the contract, or varying, in whole or in part, any provision of it.
211 Barry Andrews seeks an order that the contract be declared wholly void. However, such a remedy would go beyond avoiding the unjust consequence or result. It is not unjust that Barry Andrews be held to the substance of the agreement he thought he was making. He thought that, in return for Oxyman advancing funds, he was providing Racken with an option, either to acquire the shares in Oxyman to be issued in his name through the subscription of the funds advanced by Racken, or to acquire shares in Laserbond Marketing which would entitle Racken to $62,500 worth of shares in HVOF when floated at seventeen cents per share. It appeared to be common ground that the shares in Oxyman are worthless. In any event, that was the plaintiffs' contention. As Racken did not misrepresent Oxyman's financial position to Barry Andrews, it would not be unjust for Barry Andrews to be held to the substance of the transaction into which he thought he was entering by allowing Racken to exercise its control over such number of Laserbond Marketing shares as would equate to 367,647 shares in HVOF (namely, $62,500 divided by seventeen cents). The difficulty is that, in their negotiations for the proposal as Barry Andrews understood it, the parties did not identify how many shares in Laserbond Marketing this would be. Nor did they identify what rights by way of security Racken should have over the shares. There is no evidence of the parties turning their minds, even in the early stages of the negotiations, to what should happen if the listing of HVOF did not proceed.
212 In the statement of claim the plaintiffs alleged that Racken's entitlement to shares to the value of $62,500 in HVOF would be secured by 224 shares in Laserbond Marketing. It is unclear from the pleading whether the plaintiffs intended to allege that 224 shares was the number of shares in Laserbond Marketing to be provided as security by each of Barry Andrews, Sultan Khan, Zanshin and HOD, or whether they intended to allege that 224 shares in Laserbond Marketing was the total number of shares to be provided as security. As the pleading also referred to 350 Oxyman shares being provided as security, it might be inferred from the face of the pleading that the plaintiffs intended to allege that 224 Laserbond Marketing shares in total were to be offered as security. That would be wrong.
213 No submissions were made about how the plaintiffs arrived at the number of 224 Laserbond Marketing shares. I infer that it is the number of shares the plaintiffs say each of Barry Andrews, Sultan Khan, Zanshin and HOD agreed to provide as security for Racken's right to be issued shares in HVOF on its being floated. I infer that from the following. According to an ASIC search dated 12 July 2005, there were then 3,100 issued shares in Laserbond Marketing. According to the schedule prepared by Richmond, referred to at [44] above, there were also 172 convertible notes which, if converted, would have resulted in total share capital of 3,272 shares in Laserbond Marketing. Shareholders in Laserbond Marketing were to be entitled to 5,500,000 shares on the float of HVOF. This equates to 1,681 shares in the listed company for each share in Laserbond Marketing. The shares to be issued to Racken at a discounted value of seventeen cents per share on the float of HVOF, in return for the advance of $250,000, would equal 1,470,588 shares (this was rounded up to 1,500,000 shares). If each Laserbond Marketing share gave its holder the right to 1,681 shares in HVOF on the float, approximately 224 shares in Laserbond Marketing would need to be held to be entitled to 375,000 (one quarter of 1,500,000) shares in HVOF on the float.
214 Therefore, I take the plaintiffs to have admitted that Barry Andrews agreed to provide 224 shares in Laserbond Marketing as security for Racken's entitlement to take up shares in HVOF.
215 That is not to say that 224 Laserbond Marketing shares were treated as having a value of $62,500. There is no evidence that the parties intended that, if the float did not occur, Racken could exercise rights of beneficial ownership over the shares in Laserbond Marketing transferred to it as security. In the early stages of the negotiations, they did not address the question of what would happen if the float did not occur. The shares in Laserbond Marketing could well have been worth substantially more than the value to be attributed to the right referable to those shares to take up shares on the float of HVOF. If Laserbond Marketing had other valuable assets and businesses which were not to be transferred to HVOF, then they would be worth substantially more.
216 Given that Barry Andrews should have expected that, in some undefined way, Racken could exercise security over 224 of his shares in Laserbond Marketing, it would not be an unjust consequence for Racken to be entitled to exercise rights as mortgagee to sell the 224 shares in Laserbond Marketing to recoup $62,500, which was paid for the issue of 88 shares to Barry Andrews in Oxyman, together with interest from 5 October 2005 at the rates and at the rests provided for in the Agreement for Provision of Finance. Nor would it be unjust for Racken to take up rights which may be attached to the Laserbond Marketing shares, to take up shares on the float of HVOF, if the float proceeded.
217 Having found that the contract was unjust, I consider an appropriate exercise of discretion under s 7(1) of the Contracts Review Act is to make orders declaring the Agreement for Provision of Finance to be void insofar as it imposes personal obligations on Barry Andrews, but that it is not appropriate to declare the deed wholly void. There should be an order that Racken re-transfer 1,030 shares in Laserbond Marketing to Barry Andrews and should account for any dividends paid on those shares. There should be a declaration that Racken is entitled to exercise its power as mortgagee to sell 224 shares transferred to it from Barry Andrews pursuant to the Agreement for Provision of Finance and to retain from the proceeds of sale $62,500 plus interest at the rates and on the rests provided for in the Agreement for Provision of Finance from 5 October 2005 and to account for the balance of the proceeds of sale, if any, to Barry Andrews. The orders should provide that Barry Andrews is entitled to redeem the shares on payment of $62,500 plus interest. The orders should also provide that, if Racken exercises its Laserbond Call Option before the shares are sold or redeemed, Racken is entitled to deal with the shares as may be required to take up such number of shares in Laserbond Limited (as defined in the Agreement for Provision of Finance) to which the holder of 224 shares in Laserbond Marketing may be entitled.
218 In summary, whilst Barry Andrews did not understand that the transaction was one of loan, it is not an unjust consequence of the contract for Racken to be able to exercise security over the 224 shares in Laserbond Marketing that Barry Andrews has admitted he was required to provide as security for Racken's rights under the transaction as he understood it. As that transaction has not eventuated, it is not an unjust consequence for those shares to stand as security for the advance of $62,500 and interest. Nor is it an unjust consequence for Racken to be able to enforce any rights in a float of HVOF, should it materialise, as are conferred on the holder of 224 shares in Laserbond Marketing.
Barry Andrews' Claim for Misrepresentation and Misleading and Deceptive Conduct
219 For the reasons already given, Barry Andrews' claim against all defendants for misrepresentation fails (see findings at [135], [168] and [174] above). The claim for misleading and deceptive conduct was based upon the alleged misrepresentations. These claims also fail.
Barry Andrews' Claims for Unconscionable Conduct
220 The plaintiffs allege that all the defendants engaged in conduct in connection with the supply, or the possible supply, of financial services that was in all the circumstances unconscionable in contravention of ss 12CB or 12CC of the ASIC Act or s 51AC of the Trade Practices Act. They did not allege that the defendants engaged in unconscionable conduct in connection with the acquisition or possible acquisition of financial services.
221 Section 12CB of the ASIC Act is inapplicable. It applies only where a person in trade or commerce engages in conduct that is in all the circumstances unconscionable in connection with the supply, or possible supply, of financial services of a kind ordinarily acquired for personal, domestic or household use (s 12CB(5)).
222 Counsel for the plaintiffs did not elaborate on how the plaintiffs contended that Racken supplied "financial services" as defined in s 12BAB of the ASIC Act. A person provides a financial service if, inter alia, they "deal in a financial product" (s 12BAB(1)(b)). A "financial product" includes both a security (which includes shares) and a credit facility within the meaning of the regulations (s 12BAA(7)). Whilst the loan made by Racken would be a credit facility within the meaning of regulation 2B(1) of the Australian Securities and Investments Commission Regulations 2001 (Cth) ("the ASIC Regulations"), a person is taken not to "deal" in a financial product if the person deals in the product on its own behalf, unless the person is an issuer of financial products and the dealing is in relation to one or more of those products (s 12BAB(9)). I was not assisted by any submissions as to whether Racken was an issuer of financial products within the meaning of s 12BAB(9). It is unnecessary to decide this question, however, because if Racken did not supply financial services within the meaning of s 12CC, it nonetheless supplied services within the meaning of s 51AC of the Trade Practices Act. That section applies in the same terms to a corporation's or a person's supply of goods or services as does s 12CC to a person's supply of financial services. The same remedies are attracted if the provision is contravened. Section 51AC provides:
" 51AC Unconscionable conduct in business transactions
(1) A corporation must not, in trade or commerce, in connection with:
(a) the supply or possible supply of goods or services to a person (other than a listed public company); or
(b) the acquisition or possible acquisition of goods or services from a person (other than a listed public company);
engage in conduct that is, in all the circumstances, unconscionable.
...
(3) Without in any way limiting the matters to which the Court may have regard for the purpose of determining whether a corporation or a person (the supplier ) has contravened subsection (1) or (2) in connection with the supply or possible supply of goods or services to a person or a corporation (the business consumer ), the Court may have regard to:
(a) the relative strengths of the bargaining positions of the supplier and the business consumer; and
(b) whether, as a result of conduct engaged in by the supplier, the business consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and
(c) whether the business consumer was able to understand any documents relating to the supply or possible supply of the goods or services; and
(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the business consumer or a person acting on behalf of the business consumer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services; and
(e) the amount for which, and the circumstances under which, the business consumer could have acquired identical or equivalent goods or services from a person other than the supplier; and
(f) the extent to which the supplier's conduct towards the business consumer was consistent with the supplier's conduct in similar transactions between the supplier and other like business consumers; and
(g) the requirements of any applicable industry code; and
(h) the requirements of any other industry code, if the business consumer acted on the reasonable belief that the supplier would comply with that code; and
(i) the extent to which the supplier unreasonably failed to disclose to the business consumer:
(i) any intended conduct of the supplier that might affect the interests of the business consumer; and
(ii) any risks to the business consumer arising from the supplier's intended conduct (being risks that the supplier should have foreseen would not be apparent to the business consumer); and
(j) the extent to which the supplier was willing to negotiate the terms and conditions of any contract for supply of the goods or services with the business consumer; and
(k) the extent to which the supplier and the business consumer acted in good faith.
(4) Without in any way limiting the matters to which the Court may have regard for the purpose of determining whether a corporation or a person (the acquirer ) has contravened subsection (1) or (2) in connection with the acquisition or possible acquisition of goods or services from a person or corporation (the small business supplier ), the Court may have regard to:
(a) the relative strengths of the bargaining positions of the acquirer and the small business supplier; and
(b) whether, as a result of conduct engaged in by the acquirer, the small business supplier was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the acquirer; and
(c) whether the small business supplier was able to understand any documents relating to the acquisition or possible acquisition of the goods or services; and
(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the small business supplier or a person acting on behalf of the small business supplier by the acquirer or a person acting on behalf of the acquirer in relation to the acquisition or possible acquisition of the goods or services; and
(e) the amount for which, and the circumstances in which, the small business supplier could have supplied identical or equivalent goods or services to a person other than the acquirer; and
(f) the extent to which the acquirer's conduct towards the small business supplier was consistent with the acquirer's conduct in similar transactions between the acquirer and other like small business suppliers; and
(g) the requirements of any applicable industry code; and
(h) the requirements of any other industry code, if the small business supplier acted on the reasonable belief that the acquirer would comply with that code; and
(i) the extent to which the acquirer unreasonably failed to disclose to the small business supplier:
(i) any intended conduct of the acquirer that might affect the interests of the small business supplier; and
(ii) any risks to the small business supplier arising from the acquirer's intended conduct (being risks that the acquirer should have foreseen would not be apparent to the small business supplier); and
(j) the extent to which the acquirer was willing to negotiate the terms and conditions of any contract for the acquisition of the goods and services with the small business supplier; and
(k) the extent to which the acquirer and the small business supplier acted in good faith.
...
(6) For the purpose of determining whether a corporation has contravened subsection (1) or whether a person has contravened subsection (2):
(a) the Court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and
(b) the Court may have regard to circumstances existing before the commencement of this section but not to conduct engaged in before that commencement.
(7) A reference in this section to the supply or possible supply of goods or services is a reference to the supply or possible supply of goods or services to a person whose acquisition or possible acquisition of the goods or services is or would be for the purpose of trade or commerce.
...
(9) A reference in this section to the supply or possible supply of goods or services does not include a reference to the supply or possible supply of goods or services at a price in excess of $3,000,000, or such higher amount as is prescribed.
..."
223 I accept that the service supplied by Racken to Barry Andrews under the Agreement for Provision of Finance, namely the making of a loan, was a service he acquired for the purpose of commerce, namely, the subscription for shares in Oxyman (s 51AC(7)).
224 If Racken contravened s 51AC (or s 12CC of the ASIC Act), Barry Andrews would be entitled to recover damages to compensate him for the loss or damage suffered by that conduct (s 82, Trade Practices Act; s 12GF, ASIC Act). Such contravention would also enliven the power to make orders under s 87 of the Trade Practices Act (or s 12GM of the ASIC Act) to compensate him in whole or in part for loss or damage suffered, or likely to be suffered, by such conduct. The orders which may be made to that end are such orders as the Court thinks appropriate and include orders under s 87(2) (or s 12GM(7)) including orders declaring the whole or any part of the contract to be void or varying the contract. I would not make any wider order under s 87 (or s 12GM) wider than that which would be made under s 7 of the Contracts Review Act.
225 As I have stated, however, if the defendants contravened s 51AC (or s 12CC) Barry Andrews would be entitled to damages under s 82 (or s 12GF) for the loss suffered as a result of his entering into the contract. That would encompass the loss arising from the mortgage of 224 shares in Laserbond Marketing to secure repayment of $62,500 and interest. That is a loss suffered as a result of his entering into the Agreement for Provision of Finance notwithstanding that such a loss is not an unjust consequence or result.
226 It is therefore necessary to determine whether any of the defendants contravened s 51AC of the Trade Practices Act or s 12CC of the ASIC Act.
227 For the reasons given in paras [208]-[209] above, it is arguable that it would be unconscionable within the meaning of the general law for Racken to seek to enforce the Agreement for Provision of Finance against Barry Andrews. However, it is one thing to say that it is (or may be) unconscionable for a lender to enforce a guarantee against a surety if the lender took no steps to explain the purport and effect of the guarantee to the surety and did not reasonably believe that its purport and effect had been explained to the surety by a competent, independent and disinterested stranger, where the surety was a volunteer. It is quite another to say that in such circumstances the lender acted unconscionably in accepting the guarantee.
228 I do not consider that Racken acted unconscionably in entering into the agreement. The agreement was a commercial agreement in which there was no material difference between the parties' bargaining positions. Barry Andrews was free not to enter into the transaction and was under no financial pressure to enter into it. It cannot be said that the conditions insisted on by Racken were not reasonably necessary for the protection of its legitimate interests. It was not obliged to take the risk of subscribing either for more shares in Oxyman or for shares upon the float (if it eventuated) of HVOF. It was entitled to stipulate that the moneys advanced should be repaid if it did not take up either option, and it was entitled to demand security for repayment of the advance. Barry Andrews could have understood the document relating to the loan had he asked for it. It was his decision not to ask for it. No undue influence or pressure was exerted on him. Nor were unfair tactics used against him. It was not unfair for McCracken to rely on all of the other parties to the transaction (that is, Richmond, Kelly, Garry Andrews, Barry Andrews and the Khans and their respective companies) to satisfy themselves as to the terms of the transaction. McCracken did not suspect that Barry Andrews had been kept in the dark as to the final form the transaction took, even though he should have understood that that might be the case.
229 Nor did Richmond or Kelly engage in unfair tactics or apply unfair pressure. They reasonably expected that Barry Andrews would obtain such information as he desired about the transaction from his son. Garry Andrews was provided with the email correspondence which showed the changes to the commercial terms from those which had been earlier discussed. I do not accept that Richmond or Kelly knew or should have known that Garry Andrews would not take the trouble to acquaint himself with the contents of those documents. In any event, I do not accept Garry Andrews' evidence that he did not acquaint himself with the content of those documents.
230 There is no evidence that the transaction could have been done on better terms with a different supplier of finance. There is no evidence as to the extent to which Racken's conduct towards Barry Andrews (and towards the other parties to the Agreement for Provision of Finance) was consistent with its conduct in similar transactions, if indeed, there were any such similar transactions. No party pointed to the requirements of any applicable industry code as bearing on the conscionability of the transaction. I do not consider that Racken unreasonably failed to disclose to Barry Andrews the risks of the transaction. The terms of the contract were negotiated and the parties acted in good faith. In my view, Racken did not, in connection with the supply of services, engage in conduct that was in all the circumstances unconscionable.
231 A contract may be unjust in the circumstances in which it is made, notwithstanding that the parties seeking to enforce the contract did not behave unconscionably when the contract was entered into (Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 per Basten JA at [115]). There is no inconsistency between my finding that the contract was unjust and my finding that Racken did not engage in conduct that was unconscionable when it negotiated and entered into the Agreement for Provision of Finance and made the advance of $250,000. Whether it would be unconscionable to enforce the contract against Barry Andrews is a different question. Having regard to my conclusions under the heading "Relief for Barry Andrews under the Contracts Review Act", it is unnecessary to decide that question.
232 There are two reasons it is unnecessary to decide whether Barry Andrews would be entitled to relief in equity from the Agreement for Provision of Finance. The first is that such a claim was not pleaded. The second is that if he were entitled to such relief, it would be on terms that he do equity. He would not be entitled to any greater relief than he obtains under the Contracts Review Act.
233 The claim against other defendants for contravention of s 51AC of the Trade Practices Act and s 12CC of the ASIC Act was misconceived as they were not relevantly the suppliers of services to Barry Andrews. In any event, I do not consider that any other defendant acted unconscionably.
234 It follows that these claims also fail.
Conclusion in Relation to Barry Andrews' Claim
235 For these reasons I conclude that: