Citigroup Pty Limited v Middling

Introduction

1. These proceedings began on 15 February 2013 when Citigroup Pty Limited (Citigroup) filed a statement of claim claiming possession of property at Canley Heights (the Property) of which Dennis Middling was registered proprietor. Citigroup alleged that there had been default in the payments under a mortgage that Mr Middling had granted to Citigroup on 6 August 2008 (the Citigroup Mortgage). The monies advanced by Citigroup (the Citigroup Loan) which were secured by the mortgage were used to discharge an earlier mortgage that Mr Middling had granted to Perpetual Trustees Victoria Limited (Perpetual) in return for an advance of $238,500 in 2008 (the Perpetual Loan).
2. On 8 April 2013 Mr Middling filed a defence as well as a cross-claim, to which Perpetual and Citigroup were cross-defendants. Neither Mr Middling's defence nor his cross-claim contained any reference to the Contracts Review Act 1980 (NSW).
3. The matter was listed for hearing on 22 April 2014, at which time Mr Middling sought and was granted leave to amend the defence and cross-claim to include claims for relief under the Contracts Review Act. The hearing of the matter was adjourned as a consequence of the amendment: Citigroup Pty Limited v Middling [2014] NSWSC 474.
4. The proceedings between Citigroup and Mr Middling were resolved by a Deed of Release dated 17 December 2014 which capped the amount outstanding under the Citigroup Mortgage at $350,000, as long as it is paid on or before 30 June 2015.
5. Accordingly, the only matter remaining for determination, aside from the question of costs, was Mr Middling's cross-claim against Perpetual.

Mr Middling's background and circumstances

1. Mr Middling, who was born in 1953, has been on a disability support pension from about 2002. He had spent his working life doing manual work, including as an assistant to a carpet layer, a plumber's assistant and a boner at meatworks. He was in the Army Reserve for about six years as a Private, during which time his literacy skills, which had not been particularly good, improved somewhat. He is able to read, but can only do so slowly. He was married and had two children but was divorced sometime after 1979. In about 1986 he sustained a spinal injury in a serious car accident on his way to work. In 1986 he used a substantial portion of the damages from his common law claim to purchase his house at Canley Vale for about $54,000. He granted a mortgage over the Property to St George Building Society Ltd (St George). He later obtained personal loans, which caveats lodged against the title to the Property indicated were secured by unregistered mortgage to Avco Financial Services Limited (GE Finance).
2. On 3 June 1989 Mr Middling married Leslie, to whom he remains married. In about 1990 he started work as an armed security guard, drawing on his experience with the Army. In 2001 Mrs Middling suffered a severe stroke, from which she eventually recovered physically, although Mr Middling described her as "still frail and easily distressed and confused". He injured his back in about 2002 and has not worked since. Since 2002 he has had four strokes, the most recent of which occurred in 2010. Mr Middling's assessment is that each stroke has affected his memory and attention to detail.
3. Mr Middling races pigeons for pleasure. He has an aviary of 150 birds in his backyard. Although his pigeons sometimes win prizes, the prize money is used to maintain them, rather than as a source of income for Mr Middling and his wife. Mrs Middling is now on the age pension, which is paid at the same rate as the disability support pension. Accordingly, each has an income of about $575 per fortnight.

The loan from Perpetual

1. In about 2006 Mr Middling still owed $15,000 to St George under the mortgage over the Property. He also owed about $23,000 to GE Finance which, as referred to above, was secured by unregistered mortgage over the Property. Mr and Mrs Middling were having difficulty meeting the repayments.
2. One of Mr Middling's friends, Ray Thomson, mentioned to him that he had been helped by a man known as Eric Lu who had arranged for his house to be refinanced. Mr Thomson told Mr Middling that, as part of the refinance, he had borrowed more money which was used for an investment which generated income to service the debt.
3. In about March 2007 Mr Middling went to see Mr Lu, at premises in Hill Street, Cabramatta. Mr Middling came to learn that Mr Lu was the principal of a company known as Dollar Group Pty Limited (Dollar Group). Mr Middling told Mr Lu that the Property was worth about $260,000 and that his total debts were about $37,000, of which $15,000 was owing under the mortgage to St George Bank and the balance to GE Finance. The following exchange ensued: "Lu: That doesn't sound like a problem, we should be able to do that. I may be able to borrow more for you and we could use that for an investment which would bring you a return which would pay off the entire loan over 30 years. Would you be interested in that? Me [Mr Middling]: I don't know about the extra but it sounds good. Lu: How much do you earn and what do you do for a living? Me [Mr Middling]: I'm a disability pensioner since an accident at work in about 2002 and I get about $575.00 a fortnight. Lu: That's ok we can still get you the money. Dollar Group is a loan originator for Perpetual Trustees Victoria and I am sure it will not be a problem, we have got lots of loans from Perpetual for people like you."
4. Mr Lu gave Mr Middling some papers, including a Dollar Group Home Loan Application, which he took home, in part because he did not have sufficient proof of identity for the 100 point identity check, as he had only brought his driver's licence and Medicare card with him. He returned to the Dollar Group office on about 12 March 2007, at which time a woman in the office filled in the application for him. He signed the 100 point identity check form, which also appears to have been signed by Mr Lu. The form records that it was completed by "Linda Le". Mr Middling recalled only a woman called Michelle Lam.
5. The loan application that was signed by Mr Middling on 12 March 2007 described the purpose of the loan as being "Refinance - Owner Occupier". Mr Middling was unaware that his loan application included the following documents each of which was false: 1. A document that purported to be an Individual Consumer and Commercial Report from Veda Advantage that recorded that Mr Middling was employed by TN Telecommunications Pty Limited (TN); 2. A letter dated 13 March 2007, apparently from TN, in which TN confirmed that Mr Middling was employed full-time by TN as a technician for an annual income of $60,000; and 3. Documents that appear to be payslips issued by TN in respect of Mr Middling for the pay days 2 March 2007 and 9 March 2007 which record his gross annual salary as $60,256 and his gross weekly pay as $1,154.06.
6. A further document, which was included in the loan application and apparently signed by Mr Middling, was entitled "loan purpose / declaration checklist". Two purposes of the loan were identified: "to refinance an owner-occupier residence" as to $15,000; and "to have available credit to make personal purchase" as to $223,500.
7. The loan application was sent by Dollar Group by facsimile on 20 March 2007 to Challenger Mortgage Manager Pty Ltd (Challenger), which is relevantly the Mortgage Manager for Perpetual. The message on the cover sheet, apparently signed by "Linda Le", said, in part: "Please find attached a new application. It is a refinance loan at 90% LVR [loan to value ratio]. The LMI [lender mortgage insurance] will be capitalised."
8. Among the documents included in the loan application was a valuation of the Property at $265,000.
9. Under cover of letter dated 27 March 2007, First Title Secure, who appears to have prepared the documentation and acted on the settlement on behalf of Challenger (for Perpetual), forwarded the loan and transaction documents to Mr Middling. A document dated 27 March 2007, which was apparently signed by Linda Le of Dollar Group, recorded that the loan security documents were collected by Ms Le from the offices of First Title Secure's offices in Market Street, Sydney. On about 28 March 2007, Mr Middling received the loan offer from Perpetual for a loan in the sum of $238,500. He attended the offices of Dollar Group with his wife to accept the offer and sign the relevant documentation. Mr Middling gave evidence that while they were there the following exchange occurred: "Lu: I have borrowed an extra $200,000 for you so you could get a Perpetual investment going, just like I did for Ray. Me [Mr Middling]: That's not what we agreed, I only needed $38,500 odd, how can I pay the extra off. Lu: Don't worry. The return from the investment will be applied to the loan and will pay off the interest on the entire loan, you will be much better off and will be able to live a lot better."
10. I do not accept that this conversation took place in those terms. I am satisfied that Mr Middling knew that he had applied for the extra $200,000 and was prepared to borrow the additional money for Mr Lu to invest on his behalf.
11. On 28 March 2007 Mr Middling signed a Direction and Authority addressed to Perpetual in which he authorised the payment of certain fees and charges, including for lender mortgage insurance, and directed Perpetual to pay the balance, $233,078.65, into a specified Commonwealth Bank account in the name of Mr Lu. I am satisfied for the reasons given in more detail below that the Direction and Authority was filled in by the time Mr Middling signed it and that Mr Middling intended to borrow $238,500.
12. A further document in evidence, also dated 28 March 2007, appears to have been signed by Mr Middling, or at least to bear his signature, which read: "I Mr Dennis James Middling of [address of the Property] solemnly declare that I would like to have the surplus funds directly credited into the following account. The funds are used for investment purposes and that [sic] Eric Lu is my business partner. [details of Mr Lu's bank account are set out]"
13. I do not accept Mr Middling's evidence that he did not sign this document. He was, after all, prepared to sign a completed Direction and Authority which was to the same effect apart from the description of Mr Lu as his "business partner". In any event, the Direction and Authority was sufficient to authorise the payment to Mr Lu.
14. Mr Middling also signed a document entitled "Borrower's Acknowledgement" on 28 March 2007 in which he purported to acknowledge as follows: I ACKNOWLEDGE THAT: I have been handed a copy of the loan agreement and all security documents to be granted by me to Perpetual Trustees Victoria Ltd ('Documents') I have read the Documents and this Acknowledgement. I have been given the opportunity to obtain legal advice on the nature and effect of the Documents but have chosen not to do so of my own accord. I understand the nature and effect of the Documents, and do not require them to be translated into another language. I understand the obligations and risks involved in signing the Documents. I sign the Documents freely, voluntarily and without pressure from any person.
15. In addition to these documents, Mr Middling signed an investment agreement with Dollar Group for $200,000, with a specified return of $1,833.33 per month. The term of the investment was said to be 30 years and the interest rate was stipulated at 11% per annum. Mr Middling was provided with a copy of this agreement, and with the documents referred to above, which he later provided to police, as set out below.
16. On 16 April 2007 Damien Nguyen of Dollar Group sent an email to Sheree List of First Title which read in part: "I'm just writing to request some details on this client [Mr Middling]. I believe he is settling on Wednesday 18th April. Are you able to provide me with a Funds Disbursement Summary because the client wants to check every cost and where the surplus funds are going to."
17. The First Title Funds Disbursement Report, which was apparently processed by Sheree List, records the amounts of various cheques, including $4,572.90 to Dollar Group, a cheque to "GE Money" in the sum of $18,191.12 and a total of $214,549.28 in respect of "Manual Bank Cheques", which appears to include $199,845 in "surplus funds", which were paid to Mr Lu's account as specified on the Direction and Authority signed by Mr Middling on 28 March 2007.
18. On 18 April 2007 the loan from Perpetual was drawn down in the sum of $238,500. The loan from GE Finance was discharged by the payment of $18,181.12 from the funds advanced.
19. In or about July 2007 Mr Middling received a statement of account bearing the Challenger logo which identified the lender as Perpetual, the mortgage manager as Dollar Group and indicated that the closing balance of the loan was $238,765.46. Mr Middling gave evidence in his affidavit that he had queried both the amount and the dishonour fees and dishonoured payments with Mr Lu. According to Mr Middling, Mr Lu had reminded him of the investment of $200,000 that he had arranged, explained that the interest from the investment was used to pay off the Perpetual Loan and assured him that he would "have it rectified by the bank straight away". For reasons given in more detail below, I do not accept that this conversation occurred. I am satisfied, on the balance of probabilities, that Mr Middling appreciated that he had authorised the loan in the higher amount.
20. Also in July 2007 Mr Middling received a statement of account in his name with the Perpetual logo, on which was printed Mr Lu's name, phone number and the contact details of Dollar Group. The statement purported to be referable to a Portfolio Share Investment Account and showed, on the first of two pages, an opening account of $200,000 and credits of $5,499.99 and on the second of two pages indicated that the credits of $5,499.99 comprised the sum of three payments of $1,833.33, each described as interest, which were credited on 27 April 2007, 30 May 2007 and 29 June 2007 respectively. The interest rate was said to be 11%. The evidence does not establish that this document is other than genuine. The statements of account are consistent with a document sent to Mr Middling on Dollar Group letterhead which set out the terms of the investment of $200,000 for a term of 30 years.
21. The statement of account that recorded the line entries for the Perpetual Loan for its duration from advance on 18 April 2007 until it was discharged on 6 August 2008 recorded that, throughout the life of the loan, interest was being debited to that loan and payments were being made in reduction of the loan.
22. On 9 August 2007 Mr Middling received a letter from Dollar Group advising him that interest on his $200,000 investment had increased from 7.65% to 7.9%; a further letter dated 22 September 2007 notified that it had increased further to 8.05%.
23. On 23 January 2008, the balance of the loan account was $243,403.94. A payment of $1,840.58 made on 18 January 2008 had been dishonoured. By letter of 23 January 2008 Kemp Strang, solicitors for Perpetual, sent a notice to Mr Middling pursuant to s 57(2)(b) of the Real Property Act 1900 (NSW) requiring rectification of default within 31 days. As soon as he received the letter with the notice, Mr Middling tried to get in touch with Mr Lu, whom he found difficult to contact. Eventually, he received a letter dated 29 January 2008, which was apparently signed by Michelle Lam in which she said, in part: "We refer to the above matter and advise that all matters have been rectified for you."
24. At some time later in 2008, Mr Lu visited Mr Middling at the Property. While he was there he telephoned someone from Citibank. It appeared to Mr Middling that Mr Lu was arranging for the Perpetual Loan to be refinanced, which eventually occurred, although not until later. On this occasion Mr Lu told Mr Middling that he had been beaten up by a client. Mr Middling could see that he was recovering from a severe assault and felt sorry for him.

The refinance of the Perpetual Loan by Citigroup

1. In May 2008 Mr Middling was served with a notice to occupier and a statement of claim, which Perpetual had filed on 14 May 2008, claiming possession of the Property.
2. Mr Lu arranged for a loan application dated 4 July 2008 to be made to Citibank (on behalf of Citigroup) by or on behalf of Mr Middling for a loan of $263,694. It was supported by financial documents, including payslips, purporting to establish, contrary to the fact, that Mr Middling was employed as a sales representative on a gross weekly income of $1,250. The loan was approved by Citibank by letter dated 14 July 2008. Mr Middling authorised the discharge of the Perpetual Mortgage from funds advanced by Citibank, which in turn were secured by the Citigroup Mortgage, which was executed by Mr Middling. This transaction was settled on 6 August 2008 and Perpetual was paid $245,974.75.
3. At about this time, Mr Lu advised Mr Middling to pay him a further $10,000 to avoid any further dishonour fees. Mr Middling paid him $8,000, which he withdrew from an account with Westpac on 12 August 2008.
4. On 13 January 2009 Mr Middling received a loan account statement from Challenger, confirming that the loan amount of $238,500 from Perpetual had been discharged on 6 August 2008.
5. On about 21 January 2009, Mr Middling received a letter from Citibank advising him that the loan repayments for December 2008 and January 2009 were overdue. Mr Middling alleged, but did not prove, that Mr Lu misappropriated the loan monies. There was no evidence that the account into which the monies borrowed from Perpetual was deposited as an investment was not an actual account, or that the interest from the account was not paid to Perpetual as interest on the loan. The reason for the default on the Perpetual Loan and Mortgage appeared, from the account statements in Mr Middling's name, to be that the interest earned on the investment was not sufficient to pay the interest owing on the borrowings. It is reasonable to infer that any misappropriation of the investment monies occurred at about the time of, or after, the discharge of the Perpetual Loan and Mortgage, as the $200,000 was not re-invested in an account in Mr Middling's name, as Mr Lu had represented it would be.
6. It is not necessary to continue the narrative concerning the Citigroup transaction as that aspect of the proceedings has been resolved.

The police investigation into Mr Lu's conduct

1. In March 2009, Mr Middling reported the matter to police and obtained a document headed "NSW POLICE FRAUD REPORT FORM" to be filled in. His daughter, Wendy Middling, asked him to tell her what had happened so that she could fill in the form for him, which she did, by hand. Ms Middling recorded that Mr Lu had informed Mr Middling that when the Perpetual Loan was paid out the monies which had been invested with Perpetual would be invested with ING, which he told him was associated with Citigroup. On the page of the form headed "Financial/ Property Loss", the "actual total loss" is said to be $272,071.20. To the question "What is your aim in reporting this matter to Police?", Mr Middling's daughter wrote on his behalf: "To claim reimbursement/ compensation for all monies that was [sic] invested with Dollar Group Pty Ltd & Perpetual, which in turn was rolled over to Citibank by Dollar Group Pty Limited."
2. Mr Middling did not allege in his report to the Police that he had not authorised the payment of $200,000 to Mr Lu.
3. At some time after this, Mr Middling rang Perpetual Investment Management Limited and inquired about the Portfolio Share Investment Account in his name and read out the account number from the statement. Mr Middling gave evidence that the person on the other end of the line told him that there was no such account and that Perpetual had no record of any investment by him. This evidence was admitted on the limited basis that it established the terms of the communication. It is insufficient to found any inference that there was no such account. Indeed, the evidence, such as there is, tends to suggest that there was such an account, there being no evidence to show that the statements, which are apparently genuine, were other than as they appeared to be. Furthermore the company search of Perpetual Investment Management Limited, which Perpetual tendered, indicated that it was a separate company which was not apparently related to Perpetual. Accordingly, any statement made by the person on the other end of the line was not authorised by Perpetual and does not amount to an admission against Perpetual.
4. Mr Middling signed the form, which was dated 11 March 2009. Later, he attended Cabramatta Police Station and was interviewed by police, who prepared a typed statement which he signed on 16 September 2009, in which he relevantly deposed as follows: "12. In March 2007 I took out a second mortgage on the advice of Eric LU. This loan was through Challenger Bank in Victoria. This loan was to pay off my St George and GE Loans as well as invest with Perpetual Investments Limited. Perpetual is linked to or part of Challenger Bank. 13. The interest I earned from the investment with Perpetual was supposed to pay off the Challenger Bank Loan. This was to be managed by Eric LU. The total amount of the loan was $238,500.00. The amount of the investment was to be $200,000.00 and the remainder was to pay off the other two loans. Eric provided me with a number of documents for the mortgage and investment. 14. Eric LU gave me a copy of the loan offer from Perpetual Trustees Victoria Limited (Challenger Bank) for the amount of $238,500.00. I signed a copy of this offer and gave it to LU. I was also provided with a copy of this document. I now produce the ten page document titled Perpetual Trustees Victoria- Loan Offer' dated 27 March 2007. … 17. Eric LU gave me a 'Direction and Authority' document relating to the settlement of the loan. I signed a copy of this document and gave it to LU. I was also provided with a copy of this document. I now produce a three page document titled 'Direction and Authority' 18. Eric Lu gave me a one page document with the 'Dollar Group Logo' titled 'Portfolio Share Investment Account'. This document showed the investment amount of $200,000.00 and that I was to receive monthly payments of $1,833.22. I signed this document and handed it to Eric LU. He also gave me a copy. Eric also gave me a 'Dollar Group' document relating to the investment facility with Perpetual Investments Limited for the amount of $200,000.00. I signed a copy of this document and gave it to LU. I was also provided with a copy of this document. I now produce a one page document with 'Dollar Group' Logo titled 'Portfolio Share Investment Account'. I now produce a ten page document titled 'Dollar Group Portfolio Share Investment Account Terms and Conditions'."
5. The document referred to in [17] of the Police Statement, which was signed by Mr Middling, was filled in. It must have been in Mr Middling's possession since he took it, with other documents which he had retained, to the Police Station to make the statement. Mr Elliott, who appeared on his behalf before me, conceded that there were no copies of the Direction and Authority which bore Mr Middling's signature which did not have all the figures filled in. I do not accept that Mr Middling signed the Direction and Authority in blank. I am satisfied that it was filled in when he signed it.
6. Mr Middling did not allege in his statement to Police that he had not authorised the payment of $200,000 to Mr Lu. Indeed, he told Police that he had borrowed the money for an investment to be managed by Mr Lu.
7. It was common ground Mr Lu was charged with several counts of fraud and was convicted of fraud after a trial by jury in which Mr Middling gave evidence. The connection between the conviction and any of the facts in issue in the present proceedings was not established by the evidence. Accordingly, I cannot use it to find that Mr Lu misappropriated the funds or, if such misappropriation did occur, when or how it took place: s 91 of the Evidence Act 1995 (NSW).

Mr Middling's credibility

1. Mr Middling presented as a simple man. There was no suggestion, nor do I find, that he was dishonest. However, the disparity between the version in his affidavit and the versions contained in the report to police and his police statement leads me to the conclusion that his evidence in these proceedings is unreliable and can only be accepted if it corresponds with earlier versions given before the commencement of these proceedings.
2. I reject Mr Elliott's explanation for the discrepancies between his earlier versions and his evidence at the trial, which was that Mr Middling has had "more time to reflect", "advice" and "someone with a legal background to work out what has in fact occurred".
3. I am satisfied that Ms Middling attempted to elucidate the facts, as well as she could, when she questioned him and filled in the police report form in March 2009. I would not infer, in the absence of evidence from her (and she was not called as a witness), that she applied any pressure to him or failed to understand what he was saying. In September 2009 Mr Middling's police statement was prepared, on his evidence, over a course of many hours, and by reference to documents in his possession which he brought with him to the police station. I would not infer, without evidence to the contrary (and there was no such reliable evidence), that the police who interviewed Mr Middling did other than endeavour to find out from him what actually occurred. After all, when the Police officers prepared the statement, it was for the purposes of a potential prosecution in which Mr Middling would be called as a witness.
4. To the extent to which his evidence in these proceedings was, for example, that he did not realise that he had borrowed more than $38,500, or that he did not sign the Direction and Authority when it was completed, I regard him as unreliable and untruthful, although not deliberately so.

The relationship between Perpetual and Dollar Group

1. On or about 7 July 2004 Interstar Securities (Australia) Pty Ltd (Interstar) and The Mortgage Alternative Pty Ltd (TMA) entered into an agreement with Dollar Group entitled "Loan Origination and Management Agreement" (LOMA) pursuant to which loans from, relevantly, Perpetual, were originated and managed. Interstar, now known as Challenger, was, relevantly, Perpetual's "Manager"; Dollar Group was known as the "Originator".
2. Clause 3.3 provided: "The appointment of the Originator is a non-exclusive appointment and the Managers shall be entitled to receive Applications from any other persons."
3. Clause 4.1 provided: 4.1 From time to time, the Originator may submit an application to the Relevant Manager for the consideration of that Relevant Manager. The Originator shall also provide to the Relevant Manager such further information in relation to an application as may be requested by that Relevant Manager.
4. Clause 5 provided in part: "5. Origination and servicing loans 5.1 The Originator agrees that, in the process of originating proposed Loans, the Originator will: (a) submit Applications to the Relevant Manager; (b) carry out credit checks of Applicants through a credit bureau approved by the Managers; (c) provide Applicants with written correspondence setting out the proposed terms of a Loan; (d) arrange for the valuations of any Property which has been offered as security for a Loan; (e) do such other things as agreed from time to time between each Manager and the Originator; and (f) generally market and promote the loan products provided by the Managers. 5.2 In relation to a Settled Loan, the Originator shall, unless otherwise directed by the Relevant Manager: (a) continue to liaise with Borrowers in relation to Settled Loans; (b) where appropriate, answer any queries raised by Borrowers in relation to Settled Loans or refer those queries to the Relevant Manager; (c) in the case of an Interstar Loan and in accordance with the directions of Interstar, contact Obligors in relation to arrears owing under an Interstar Loan (or any other default) and liaise with Interstar in relation to those arrears or defaults; and (d) generally manage and service Settled Loans in accordance with the relevant Manual or as otherwise reasonably directed by the Relevant Manger."
5. Clause 6 provided in part: "6. Obligations of Originator 6.1 The Originator will (and will ensure that all of the Originator's Representatives will) at all times and in all things fulfil its obligations under this Agreement with a high degree of professional skill, care and diligence and in accordance with good mortgage origination and management practice and so as to protect the interests of each Manager and the Trustee. 6.2 Without limiting the general obligations under clause 6.1, the Originator will (and will ensure that the Originator's Representatives will): … (c) provide to a Manager all information that comes to the Originator's attention which may be relevant to the Manager's decision whether or not to approve an Application; … (g) ensure that all requirements contained in the Manuals are complied with by the Originator during the term of this Agreement as if the contents of the Manuals were set out in full in this Agreement as terms binding on the Originator; (h) act honestly in its dealings with all parties and not engage in misleading, deceptive or unethical conduct; … (k) maintain professional indemnity and other insurance cover of such types and for such amounts as required by each Manager from time to time with a responsible insurer and, upon request, provide a copy of the relevant certificate of currency to each Manager; (l) if at any time the Originator or Originator's Representative receives from an Obligor or from any other person any sum of money on account of principal, interest or other moneys which are otherwise due and payable to the Trustee as soon as practicable pay such money to the Trustee; … (p) not agree to any variation, amendment or modification of any of the terms and conditions of any Loan Security or accept repayment of any moneys secured by any Loan Securities or do any act, matter or thing which in the opinion of the Relevant Manager constitutes a diminution, restriction, waiver or modification of the Trustee's rights as Lender or Mortgagee or under any Loan Security without the Relevant Manager's prior written consent; … (r) take all or any necessary steps which a Manager may, in its absolute discretion, direct the Originator to take to ensure that the Trustee's rights under or in connection with any Loans or Loan Securities are not diminished, restricted or modified; (s) if the Originator or Originator's Representative become aware of any default by an Obligor pursuant to a Settled Loan or any event which may give rise to the Insurance Contact being void or voidable then as soon as practicable: (i) notify the Relevant Manager in writing of such default and comply with the provisions of the relevant Manual (if applicable); and (ii) promptly comply with all reasonable further directions and requirements of the Relevant Manager in relation to such default; …"
6. The term "Manuals" in cl 6.2(g) was defined in cl 1.1 to mean the procedures manuals provided by the Manager to the Originator on or before the date of the LOMA and as amended from time to time.
7. Clause 12 provided for access by the Originator and its representatives to the Manager's systems and services by password.
8. Clause 19 provided in part: "19. Originator is an independent contractor 19.1 The Originator is an independent contractor with respect to each Manager and the Trustee and nothing contained in this Agreement shall be construed as giving rise to any relationship of partnership, agency, employment or joint venture between the Originator on the one hand and a Manager and the Trustee (or any of them) on the other. 19.2 The Originator must not hold itself out or otherwise do or make or permit or acquiesce in the doing or making of any act or statement which would lead another person to believe that the Originator was a partner, agent, employee or joint venturer of a Manager or the Trustee (or any of them). The Originator has no authority to act on behalf of a Manager or the Trustee in any capacity or to bind a Manager or the Trustee to any arrangement with any party."
9. Clause 21 provided in part: "21. Confidentiality 21.1 The Originator must not, without the prior written approval of each Manager, disclose or use the Confidential Information other than for the purposes of the Agreement. 21.2 The Originator shall ensure that the Originator's Representatives do not make public or disclose the Confidential Information."
10. The term "Confidential Information" was defined by cl 1.1 of the LOMA to include the terms of the LOMA itself.
11. Clause 22.1 prohibited assignment of the LOMA by the Originator without the Manager's consent, which the Manager was entitled to withhold in its absolute discretion.

Mr Middling's case

1. Mr Middling's case was pleaded on the following alternative bases: 1. Perpetual is liable for the fraud of Dollar Group and Mr Lu in filling in the loan application and misappropriating the loan monies as they were acting as Perpetual's agents; 2. Mr Middling did not authorise an advance of any amount greater than $38,500 and therefore ought not be held liable for the balance; 3. Perpetual's conduct in claiming to be entitled to repayment of the loan of $238,500 together with interest and penalties was unconscionable within the meaning of s 51AC of the Trade Practices Act 1974 (Cth); 4. The Perpetual Loan and Perpetual Mortgage were unjust contracts within the meaning of the Contracts Review Act.
2. The relief claimed is, in substance, the amount of money required to enable Mr Middling to pay to Citigroup the amount agreed in the Deed of Settlement and be put in the position in he would have been had he borrowed only $38,500 (without any allowance for interest on that sum). Mr Elliott submitted that, on this basis, Mr Middling was entitled to damages calculated as follows: "Agreed borrowings $ 38,500.00 Funds borrowed $238,500.00 Funds diverted $199,845.00 Liability on Settlement with Citigroup $350,000.00 Damages Claimed Citigroup Settlement $350,000.00 less Agreed Borrowings 38,500.00 $311,500.00"

Whether Dollar Group or Mr Lu was Perpetual's agent

1. Each of the bases for Mr Middling's cross-claim set out above, apart from the claim under the Contracts Review Act, depended on his establishing that Dollar Group or Mr Lu was Perpetual's agent and, accordingly, that any wrongdoing by one or both of them can be attributed to Perpetual and Perpetual is fixed with knowledge of matters known to Dollar Group and Mr Lu. The claim under the Contracts Review Act also relied, but did not depend, on agency.
2. Mr Ashhurst SC, who appeared with Mr Newton for Perpetual, relied on the decision of the Court of Appeal in Tonto Home Loans Australia Pty Limited v Tavares [2011] NSWCA 389 (Tonto Home Loans). In Tonto Home Loans, the mortgage originator was found not to be the lender's agent but the borrower was granted relief under the Contracts Review Act, in part on the basis that the lender's loose attention to its own guidelines had contributed to the risk of fraud by the mortgage originator which, although not the lender's agent, was its chosen commercial counterparty.
3. Whether a person is an agent of another (the principal) requires consideration of the purpose for which the question is to be determined: Allsop P (with whom Bathurst CJ and Campbell JA agreed) in Tonto Home Loans at [173], referring with approval to Kirkpatrick v Kotis [2004] NSWSC 1265; 62 NSWLR 567 (Kirkpatrick) at [86]. In the present case, the question is whether Perpetual appointed Dollar Group to undertake tasks for it, short of creating a binding loan agreement, such that Dollar Group's knowledge became Perpetual's knowledge and Perpetual was to be held legally responsible for Dollar Group's conduct. It was common ground that Interstar and Challenger were, relevantly, agents of Perpetual and, accordingly, if Dollar Group was Challenger or Interstar's agent, it was also Perpetual's agent.
4. The two matters said to be attributed to Perpetual on the ground that Dollar Group and Mr Lu were the agents were: first, the provision of false information regarding Mr Middling's income and employment on the loan application; and secondly, the misappropriation of $200,000 by Mr Lu.

Whether Dollar Group or Mr Lu was Perpetual's agent for the purposes of the loan application

1. The terms of the LOMA are important to the analysis whether, when Dollar Group and Mr Lu were completing the loan application for Mr Middling, they were doing so for the purposes of their own business as mortgage introducers or as agents for Perpetual. The LOMA provided that Dollar Group was not contractually obliged to send the completed loan application to Perpetual (cll 3.3 and 4.1). Furthermore, if Perpetual had not accepted the loan application, Dollar Group was at liberty to submit it to other lenders (such as Citibank). It is apparent from these clauses that there was a general expectation that Dollar Group and Mr Lu would have their own customers, whose loan applications they might choose to forward to Challenger for Perpetual, or to some other lender. Dollar Group and Mr Lu could be expected to act in the interests of such customers and in good faith.
2. Clause 4.1 of LOMA provided that Dollar Group "may" submit an application to Challenger. The word "may" implies a choice and indicates that, if Dollar Group considered that a particular customer would be better served if the loan application were submitted to another lender, it would not be obliged to submit the application to Challenger. That Dollar Group had a choice is inconsistent with its acting on behalf of Challenger when preparing the loan application.
3. Dollar Group was contractually prohibited from disclosing the terms of the LOMA (cl 21) or from holding itself out as representing Challenger (cl 19.2).
4. Clause 19.1 of the LOMA expressly excludes agency. At [182] of Tonto Home Loans Allsop P said of a similar clause (cl 3.1): "Clause 3.1 . . . is not determinative. The true character of the parties' relationship is to be gathered from an examination of all the surrounding circumstances, including, in particular, the provisions of the deed. Though agency is consensual, it is sufficient that the parties have agreed to what amounts in law to such a relationship. The labelling of the relationship as not agency does not determine the question, though, unless a sham, the relevant provision is to be given proper weight. . . ."
5. Mr Elliott contended that the prohibition on assignment without consent was supportive of the relationship of agency. I regard it as a neutral factor.
6. Mr Elliott, who appeared on behalf of Mr Middling relied on Michalopoulos v Perpetual Trustees Victoria Limited [2010] NSWSC 1450 (Michalopoulos) and Tran v Perpetual Trustees Victoria Limited [2012] NSWSC 1560 (Tran).
7. Michalopoulos was decided before Tonto Home Loans. An important issue in Michalopoulos was whether the mortgage originator was the agent of the borrower. Justice White concluded, at [78], that the contractual obligation of the mortgage originator to notify the lender of all relevant information that may come to its attention regarding the loan application was inconsistent with the mortgage originator being the agent of the person applying for the loan. His Honour said: "[78] The Mortgage Group was required by cl 6.2(c) of the Loan Origination and Management Agreement to provide to Interstar all information coming to its attention which might be relevant to Interstar's decision whether or not to approve an application. That could, and in many cases would be expected to, include information adverse to the interests of the borrower. That is not decisive of the question whether The Mortgage Group was Interstar's agent, but is indicative of the fact that The Mortgage Group was not acting for the plaintiffs. The loan was not a contract of utmost good faith, where such disclosure is required. As previously noted, The Mortgage Group agreed only to employ such persons as might be necessary for it to carry out its obligations under the Loan Origination and Management Agreement. Without Interstar's approval it could not delegate any of its functions to a third party. That is inconsistent with its being merely an independent contractor. [79] In my view, in carrying out its functions under the Loan Origination and Management Agreement, including carrying out checks in respect of the applicants and submitting loan applications to Interstar, The Mortgage Group was acting as Interstar's agent. The knowledge it acquired and its acts and omissions are to be attributed to Interstar."
8. Justice White, as the passage set out above indicates, did not consider cl 6.2(c) of the Loan Origination and Management Agreement to determine the question whether the mortgage originator was the lender's agent, although that was ultimately his Honour's conclusion. The agreement considered in Tonto Home Loans contained a similar term, cl 2.1, to cl 6.2(c) in Michalopoulos and in the present case, but the Court of Appeal decided that the mortgage originator was not the lender's agent for the purposes of the loan application.
9. Mr Elliott also relied on Tran, in which Rein J decided the claim on the basis that the account had been debited with an unauthorised disbursement. Accordingly, his Honour's statements to the effect that, because Perpetual and Challenger "clothed mortgage originators such as Dollar Group with authority to act as their agents and subagents", cl 19.1 (the non-agent clause) was ineffective to exclude agency were strictly obiter. Furthermore, Rein J followed White J in Michalopoulos, the correctness of which may need to be reconsidered in light of Tonto Home Loans, to which Rein J does not appear to have been referred as it is not mentioned in his Honour's reasons. The final point of distinction is that in Tran the advice that Mr Lu gave to Mr Tran fell into the category of "loan management" (the re-deposit of a cheque) which the agreement specifically authorised the mortgage originator to perform on its behalf. As Campbell J said in Kirkpatrick: "[87] But it is also possible for one person to be the agent of another for purposes of the creation or existence of some particular legal right or obligation, but not, even in connection with the one transaction, for the purposes of the creation or existence of a different legal right or obligation. . . [89] In these ways, being "the agent of P" is not a characteristic that a person has always and in all circumstances and for all purposes."
10. This last point is also relevant to a consideration of Mr Elliott's reliance on the fact that Dollar Group was named as the "mortgage manager" and its telephone number shown on the statements of account issued by Challenger for the Perpetual Loan. This conduct occurred after the loan was approved and the agreements entered into and was specifically authorised by the LOMA. Mr Elliott relied on Perpetual Trustees Victoria Limited v Schmidt [2010] VSC 67, in which Forrest J concluded that, because the terms of the contract (as in the present case) contemplated that the mortgage originator would manage the loan after it was advanced, the mortgage originator was the agent of the lender for other purposes. For the reasons given by Campbell J in Kirkpatrick, and Allsop P in Tonto Home Loans at [173] and [188], such an approach is flawed.
11. I note for completeness that in the present case neither Perpetual nor Challenger could be said to have clothed Dollar Group or Mr Lu with ostensible authority by, for example, permitting them to use their logo or stationery during the period of the loan application. This is to be contrasted with the circumstances of Heperu Pty Ltd v Morgan Brooks Pty Ltd (No. 2) [2007] NSWSC 1438 in which Palmer J found that a mortgage originator and manager (Morgan Brooks) had permitted and encouraged Mr Cincotta, a sub-originator to represent himself as part of its business through stationery and other paraphernalia: [69]-[74]. His Honour concluded that Morgan Brooks held out Mr Cincotta as having apparent authority to enter into a contract for the investment of funds and that, accordingly, Morgan Brooks was bound by the contract.
12. A consideration of the arrangements established by the LOMA leads, in my view, to the conclusion that, when Dollar Group was completing the loan application for Mr Middling and submitting it to Challenger, it was doing so as principal of its own business, rather than as agent for Challenger or Perpetual. Although there are some differences between the clauses considered in Tonto Home Loans and those in the LOMA, I do not regard the differences as being material. The analysis undertaken by Allsop P at [170]-[197] and, in particular, [173], [179], [182], [186], [189]-[195] that led his Honour to conclude that S Loans was not the agent of Tonto Home Loans, when undertaken in the present case, leads to the same conclusion: that Dollar Group and Mr Lu were acting on their own account and not as Perpetual's agents when they prepared and submitted the loan application to Challenger.
13. It follows that the acts of Dollar Group and Mr Lu, including providing false information regarding Mr Middling's income and employment and persuading him to borrow $200,000 more than he had originally wanted to borrow, are not acts that can be imputed to Perpetual.

Whether Dollar Group or Mr Lu was Perpetual's agent for the purposes of the alleged misappropriation of the $200,000

1. A principal is liable for the wrongful act of an agent if the act is done within the scope of the agency. If the act is performed for the benefit of the principal, it is regarded as having been done within the agent's actual authority: Lloyd v Grace Smith & Co. [1912] AC 716 at 725 and 731. A principal is also liable for acts performed for the benefit of the agent alone that are within the agent's ostensible authority. Where the act involves fraud, the test applied is whether the fraud occurred during the performance of acts by the agent that were within the actual or ostensible authority of the agent: Uxbridge Permanent Benefit Building Society v Pickard [1939] 2 KB 248; see also Davis v Williams [2003] NSWCA 371 at [32]-[34] per Hodgson JA.
2. Perpetual did not confer either actual or ostensible authority on Mr Lu to receive the loan disbursements. Nor was any authority conferred on Dollar Group by reason of the fact that, once the loan was in place and the monies advanced, it had a limited role of "managing" the borrower, as indicated in the statements of account for the Perpetual Loan issued by Challenger, which are referred to above.
3. If Mr Lu misappropriated monies that Mr Middling had borrowed from Perpetual, he did so when acting as Mr Middling's investment adviser and agent. Mr Middling, by signing the Direction and Authority when it had been completed, as I find he did, had, in any event, expressly authorised the payment to Mr Lu's nominated bank account. If Mr Lu misappropriated the these funds after the Perpetual Mortgage had been discharged, he could not have been acting as Perpetual or Challenger's agent, since by that time the lender was Citigroup, the Perpetual Mortgage having been discharged and the Perpetual Loan repaid in full. Even if he had (contrary to the fact) misappropriated the funds before the Perpetual Loan was paid out, there is no basis for the contention that Perpetual had authorised Mr Lu to receive or disburse loan funds: see also Landa v Perpetual Trustees Victoria Ltd [2014] NSWCA 393 at [55]-[65] per Emmett JA, Macfarlan and Meagher JJA agreeing.

Summary

1. For the reasons given above I am satisfied that although Mr Middling may have initially wanted to borrow only $38,500, he was persuaded to borrow $238,500 and understood that he was borrowing that sum at the time. When Mr Lu and Dollar Group were preparing the loan application for submission to Challenger, they were acting on their own account and not as agents for Challenger. Mr Middling expressly authorised Perpetual to disburse a sum in the order of $200,000 to an account in the name of Mr Lu. Mr Lu invested that sum in an investment account which earned interest, which was used to pay interest to Perpetual in respect of the Perpetual Loan. Mr Middling authorised Citigroup to pay out Perpetual in full. Perpetual in turn discharged the Perpetual Mortgage. Accordingly, the claims based on the proposition that Mr Lu and Dollar Group were Perpetual's, or Challenger's, agents fail.

Alleged unconscionable conduct: s 51AC of the Trade Practices Act

1. The conduct alleged to have been unconscionable was the issue of the notice under s 57(2)(b) of the Real Property Act by Perpetual on 23 January 2008 and the demand for repayment. The bases on which it was said to be unconscionable were confined by [27] of the amended cross-claim to the following: "a. [Perpetual's] unauthorised advance and misdirection and payment of $199,845 of the loan funds to Mr Lu, b. [Perpetual's] liability as principal for, and imputed knowledge of, the fraud of Mr Lu and Dollar Group, c. [Perpetual's] charging of interest, penalties and charges thereon in respect of $199,845 misdirected by its agent's fraud."
2. Conduct will only be unconscionable where it demonstrates a high level of moral obloquy and is irreconcilable with what is right: see Allsop P's summary of principle by reference to the authorities in Tonto Home Loans at [291]. Although conduct that involves a party taking advantage of vulnerability or lack of understanding can amount to unconscionable conduct, the focus is on the party said to have acted unconscionably.
3. Notwithstanding that Perpetual and Challenger obtained a benefit of sorts from the Perpetual Loan and Mortgage (in that Perpetual's funds were deployed at a commercial interest rate upon a valuable security), they were not privy to the dishonest conduct of Lu and Dollar Group. The allegation of unconscionability in the present case was not based on constructive knowledge or the implementation of systems that were inadequate to protect someone such as Mr Middling from the predations of Mr Lu and Dollar Group. Rather, it was based solely on Perpetual's conduct in claiming to be entitled to repayment of the loan of $238,500 together with penalties and interest. None of the pleaded matters in support of the proposition that such a claim was unconscionable has been made out. Indeed, the evidence established that Mr Middling authorised the loan application for that amount and received the benefit of that amount by refinancing earlier debts and receiving interest on the money invested which was applied in repayment of the Perpetual Loan. For these reasons, the claim based on alleged unconscionable conduct fails.

Mr Middling's claim for relief under the Contracts Review Act

Legislative provisions and general principles

1. Section 7 of the Contracts Review Act empowers this court to alter the contractual rights of parties. The prefatory words of s 7 are: 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, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result …
2. Section 4 provides that "unjust" includes unconscionable, harsh or oppressive. Section 9 provides for the matters relevant to the determination of whether a contract is unjust. It 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. (2) Without in any way affecting the generality of subsection (1), the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following: (a) whether or not there was any material inequality in bargaining power between the parties to the contract, (b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation, (c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract, (d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract, (e) whether or not: (i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or (ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented, because of his or her age or the state of his or her physical or mental capacity, (f) the relative economic circumstances, educational background and literacy of: (i) the parties to the contract (other than a corporation), and (ii) any person who represented any of the parties to the contract, (g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed, (h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act, (i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect, (j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act: (i) by any other party to the contract, (ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or (iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract, (k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and (l) the commercial or other setting, purpose and effect of the contract. (3) For the purposes of subsection (2), a person shall be deemed to have represented a party to a contract if the person represented the party, or assisted the party to a significant degree, in negotiations prior to or at the time the contract was made. (4) In determining whether a contract or a provision of a contract is unjust, the Court shall not have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the contract was made. (5) In determining whether it is just to grant relief in respect of a contract or a provision of a contract that is found to be unjust, the Court may have regard to the conduct of the parties to the proceedings in relation to the performance of the contract since it was made.
3. The Contracts Review Act provides for a two-stage process. First, the court is required to determine whether the contract is just; and secondly, it is to determine whether, if so, it is appropriate to grant relief. The assessment of unjustness and the formulation of suitable relief involve an evaluative process which is to take into account all relevant circumstances: Provident Capital Ltd v Papa [2013] NSWCA 36, per Allsop P at [7]. The relevant circumstances are, however, confined by the pleadings. Accordingly, it is necessary to examine the basis for the allegation that the contracts between Mr Middling and Perpetual were unjust.
4. The relevant pleading is as follows: "[28] The liability of the Cross Claimant [Mr Middling] pursuant to the PTVL [Perpetual] loan agreement arose from a contract that was unjust within the meaning of s.7 of the Contracts Review Act (NSW) 1980 in the circumstances of its making by reason of: a. The unfairness of the methods used to make the loan, and b. The effects of the terms and conditions of the loan, Particulars of s. 9 Contracts Review Act Unjustness a. The Inequality of bargaining power between the Cross Claimant borrower and the First Cross Defendant lender [Perpetual] by its agent Dollar Group Pty Ltd and/or Lu, b. By the transaction the Cross Claimant incurred a liability he could not meet, except by selling the Land from his income, and c. The inability of the Cross Claimant to protect his interests by reason of his:- i. Education, ii. Numeracy skills, iii. Literacy skills, iv. Absence of independent legal and/or financial advice, v. Mental capacity, vi. Economic circumstances as an unemployed DSB recipient. b. The failure by First Cross Defendant to ensure that the Cross Claimant had legal advice before entering the PTVL loan agreement and/or mortgage, c. The conduct by the First Cross Defendant's agent, Dollar Group Pty Ltd and/or Lu of providing, without the knowledge or authority, of the Cross Claimant to the First Cross Defendant false information as the the (sic) Cross Claimant's income and employment as particularised at para 13 hereof."
5. These matters will be considered in turn.

Inequality of bargaining power

1. As to particular (a), there was undoubted inequality of bargaining power between Perpetual and Mr Middling. This is a hallmark of loans by financial institutions and individual borrowers and is but one factor to be considered. I have rejected the agency argument for the reasons set out above.

The incurring of a liability that could only be met by sale of the Property

1. Particular (b) carried the implication that Perpetual engaged in asset lending. This is not, on a proper analysis, what occurred. Mr Middling obtained a benefit from the transaction by amalgamating his existing indebtedness of $38,500. He chose to borrow a further $200,000 to invest, with a view to its providing a return which would service the borrowing of $38,500 as well as the loan of $200,000. It did not work out as contemplated because, at least in the first instance, the interest from the investment of $200,000 was insufficient to service the interest on the total loan and Mr Middling's actual income (as distinct from what was falsely represented in the loan application) was not sufficient to make up the shortfall. However, had the interest from the investment been sufficient to service the interest on the portion of the loan that related to the $200,000, Mr Middling would have improved his position, because the overall interest rate was lower than on the personal loan. It may be that the prospect of the income from the investment being sufficient to service the interest owing on the Perpetual Loan was remote and that Mr Middling was, from the outset, exposed to substantial risk of shortfall. However, I do not regard the evidence as establishing that proposition; nor was it put on behalf of Mr Middling, whose case was put on the basis that he had not authorised borrowings at that level, or the investment at all. Nor does the evidence permit the conclusion that Mr Middling would not have been able to service a loan of $38,500 at the interest rate offered by Perpetual.
2. It is also of importance that, although Mr Middling's income (aside from the interest on the monies that Mr Lu had invested on his behalf) was not sufficient to service the interest on the Perpetual Loan, neither Challenger nor Perpetual was aware of that fact.

Mr Middling's inability to protect his interests by reason of education etc.

1. As to particular (c), I accept that Mr Middling, though literate and numerate, could only read slowly and deliberately. Whether his presentation in the witness box was consistent with a deterioration in his competence since he entered into the Perpetual Loan and Mortgage cannot be determined from the evidence. He may have deteriorated in that period as he has had at least one stroke in the interim. His economic circumstances were modest in that he did not own his home outright and he and his wife were recipients of pensions. He did not obtain independent legal or financial advice.
2. Mr Middling attended Dollar Group's offices to sign the loan application with his wife, who did not give evidence in the proceedings although she was present in court throughout. I infer, accordingly, that her evidence would not have assisted Mr Middling's case.

Alleged failure by Perpetual to ensure that Mr Middling had legal advice before entering into the Perpetual Loan or Mortgage

1. As to the second-mentioned particular (b), Perpetual did not ensure that Mr Middling had legal advice before entering into the transaction with Perpetual. However, on the basis of what Perpetual knew and had been provided in the loan application, there was no reason for it to appreciate that it ought ensure that Mr Middling had legal advice. There was nothing about the transaction that, from Perpetual's point of view, indicated that it was in any way improvident or that Mr Middling would be unable to service the repayments. His employment and income had been verified by documents which, though false, were not known by Perpetual to be so.
2. Furthermore Mr Middling had signed a document in which he acknowledged, among other matters, that he had been given the opportunity to obtain legal advice and had chosen not to do.

Conduct by Dollar Group and Mr Lu as agents for Perpetual in providing false information about Mr Middling's employment and income

1. For the reasons given above, Mr Middling has not established that Dollar Group and Mr Lu were the agents of Perpetual in providing false information to Perpetual. To that extent, both Mr Middling and Perpetual were, in a sense, victims of dishonest conduct by Dollar Group and Mr Lu: Mr Middling, because it enabled him to obtain a loan that exposed him to a greater risk than had he borrowed the sum he actually required; and Perpetual, because it advanced money to someone who had no real capacity to service the loan, apart from income generated by the investment of $200,000. Although Perpetual was, in that sense, a "victim", the word is less apposite in its case in that it was, notwithstanding the false statements, able to profit from the transaction by reason of the interest earned on amounts outstanding and the protection afforded by the value of the Property, which secured the loan: see Tonto Home Loans at [212] per Allsop P.
2. Relief under the Contracts Review Act does not depend on the establishment of agency but, when it comes to consider the justice of a contract, it is relevant to consider the state of knowledge of each party. On the basis of my findings set out above, Mr Middling knew that he was applying to borrow $238,500. Although there is no evidence that he knew by what means Mr Lu or Dollar Group had persuaded Challenger to approve the Perpetual Loan in that amount, he had signed documents applying for a loan of that order and authorised payments from the funds advanced.

Other matters referred to in the course of the hearing which were outside the pleadings and particulars

1. Mr Elliott, in the course of the hearing, sought to rely on matters that had neither been pleaded nor particularised, in support of the claim for relief under the Contracts Review Act, including the following facts and contentions.
2. First, the loan security documents were collected from First Title Secure's premises at Market Street Sydney on 27 March 2007 by a representative of Dollar Group, rather than mailed to Mr Middling at the Property. Mr Elliott submitted that this was contrary to First Title Secure's usual practice of mailing out the loan documentation to the borrower, although there was no evidence of a practice to that effect. He submitted that the collection of the documents denied Mr Middling the opportunity to have the documents received at his home so that he and members of his family could read them and obtain advice on them.
3. Secondly, the signature that appears on the acknowledgment (of receipt of the transaction documents) referred to above, resembled that of Mr Lu, although the person named is Linda Le. Linda Le also appeared to have signed the facsimile cover sheet which accompanied the loan application when it was sent to Challenger. Linda Le, who is identified as Loan Administrator of Dollar Group on an email dated 5 April 2007 to Fran Evans of First Title Secure, wrote expressing regret that they were unable to meet for lunch the previous day. Mr Elliott also submitted that, although Linda Le had purported to witness Mr Middling's signature on the Perpetual Mortgage, it was Mr Lu who was with Mr Middling when he signed it. The person who signed the employment verification document on behalf of Dollar Group appeared to be "Rachel Lie", although Mr Elliott submitted that her writing resembled Mr Lu's. Mr Elliott also relied on the request dated 16 April 2007 for a funds disbursement authority made by Damien Nguyen. I understood that these three matters were relied on by Mr Elliott to establish that Linda Le, Rachel Lie and Damien Nguyen were false names used by Mr Lu, who used those names to conceal his identity. The evidence is not, in my view, sufficient to establish this.
4. Thirdly, the lender's mortgage insurance for the Perpetual Mortgage was to be capitalised, which Mr Elliott described as "desperation measures".
5. Fourthly, in the loan application, the purpose of the loan was said to be "refinance-owner occupier" but the amount of the loan gave rise to a 90% Loan to Value Ratio (LVR). The spaces in the loan application that were designed for a declaration of purpose of the loan were struck through. The document dated 28 March 2007 contained a declaration that the funds were to be used for investments purposes and that Mr Middling's business partner was Mr Lu. Mr Elliott submitted that these discrepancies ought to have put Perpetual on notice that the loan was not in order.
6. Fifthly, Mr Elliott submitted that Perpetual (through Challenger) ought to have heard alarm bells when it saw the Direction and Authority and noted that a large part of the money borrowed was to be deposited into an account of Mr Lu. Mr Elliott submitted that it should be inferred that First Title Secure was concerned about this because the signatures were verified against the signatures on file (as appears from an email dated 15 April 2008 from Denise Caffrey of First Title Secure reporting at a later time on the disbursement of funds). There was no evidence that verification of signatures represented other than Challenger's or First Title Secure's usual practice.
7. Sixthly, Mr Elliott said that the statements of account issued by Perpetual for the investment account were "fictitious". As referred to above, I am not satisfied that they were other than genuine.
8. Seventhly, Mr Elliott referred to cl 6.2(g) of the LOMA, which required the Originator to comply with all requirements in the Manuals. Although he conceded that the Manuals were not in evidence, he contended that I should infer a usual practice from such documents. As there is no evidence of Challenger's or Perpetual's usual practice and the Manuals are not in evidence, I do not consider that this matter need be considered further.
9. Although Mr Elliott suggested that Perpetual (through its agents Challenger and First Title Secure) had, in some unspecified way, failed to comply with its Manuals and that, had it done so, it would have realised that there was something suspicious about the loan, he did not (as referred to above) seek to tender any Manuals or articulate any non-compliance such as would ground a basis for relief under the Contracts Review Act. Accordingly, there was no basis for relief akin to the basis established in Tonto Home Loans where, although the borrower failed to establish agency, he obtained relief under the Contracts Review Act on the basis that the lender had failed to comply with its own guidelines, compliance with which would have alerted it to risks associated with the lending.
10. Mr Ashhurst confirmed, immediately after Mr Elliott's opening, that the case Perpetual had come to meet was the pleaded case and submitted that Mr Middling's case should be confined to the pleaded case. Mr Elliott did not apply for leave to amend the pleadings or augment the particulars to bring the further matters within the pleading. It can be inferred that he did not do so because he appreciated the considerable difficulties associated with such an application, particularly in circumstances where, as referred to above, an adjournment of the hearing had already been granted to enable Mr Middling to plead and prepare evidence to prove his claim for relief under the Contracts Review Act: Aon Risk Services Australia v Australian National University [2009] HCA 27; 239 CLR 175: see also Civil Procedure Act 2005 (NSW), ss 56, 57 and 58.
11. At the conclusion of Mr Middling's case, Mr Ashhurst indicated that Perpetual would not call any witnesses but would rely exclusively on documents, which were then tendered. When Mr Elliott made submissions on the basis of the extraneous matters set out above, Mr Ashhurst contended that he had made forensic decisions on behalf of Perpetual on the basis of Mr Middling's evidence and pleading and that it was not open to Mr Elliott to expand the case beyond the pleading.
12. I accept Mr Ashhurst's submissions as to the need for Mr Middling to be confined to the pleaded case. Accordingly, I do not propose to deal with the matters listed above which fall outside the pleading. Nor do I express any view about whether any one or more of them could have formed a basis for relief under the Contracts Review Act had they been pleaded and proved.

Conclusion

1. I am not satisfied, on the basis of the matters alleged in the pleading set out above, that the contracts between Perpetual and Mr Middling were unjust. Mr Middling, though vulnerable, armed Mr Lu and Dollar Group with documents bearing his signature which enabled him to obtain the loan he had been persuaded would be in his interests, namely $238,500. The dishonest conduct of Mr Lu and Dollar Group cannot be imputed to Perpetual. Mr Middling obtained the benefit of having the personal loan paid out and refinancing his mortgage with St George. He agreed to an investment being set up with the capital sum. That it did not work out is unfortunate, and may be unjust as between him and Dollar Group, but not as between him and Perpetual.

The Limitation Defence

1. It was submitted by Perpetual, in the alternative, that any claim for relief under the Contracts Review Act was statute-barred. For completeness, I propose to determine this issue. The relevant provision is s 16 of the Contracts Review Act, which provides: Time for making applications for relief An application for relief under this Act in relation to a contract may be made only during any of the following periods: (a) the period of 2 years after the date on which the contract was made, (b) the period of 3 months before or 2 years after the time for the exercise or performance of any power or obligation under, or the occurrence of any activity contemplated by, the contract, and (c) the period of the pendency of maintainable proceedings arising out of or in relation to the contract, being proceedings (including cross-claims, whether in the nature of set-off, cross-action or otherwise) that are pending against the party seeking relief under this Act.
2. Mr Elliott conceded that the periods referred to in subs 16(a) and (b) had expired. He contended that the cross-claim had been brought within the period specified in subs 16(c). He relied on Murphy v Overton Investments Pty Ltd [2002] FCAFC 129 (Murphy v Overton) in support of the proposition that the words "arising out of or in relation to the contract" should be given a broad interpretation so as to extend to a contract with a party other than the party seeking to enforce the contract in the initial proceedings. He contended that Murphy v Overton supported the proposition that the cross-claim against Perpetual was incorporated within "maintainable proceedings" because the Perpetual Mortgage had been discharged by the monies advanced by Citigroup that Citigroup was claiming, as well as possession of the Property under the Citigroup Mortgage, in the proceedings.
3. Murphy v Overton concerned a dispute between landlord and tenants in a retirement village. The landlord commenced proceedings in the Supreme Court; some of the tenants commenced proceedings in the Federal Court claiming relief on various bases, including under the Contracts Review Act. The landlord argued, in the Federal Court proceedings, that the claims by the tenants were out of time and submitted that the words "the period of the pendency of maintainable proceedings" applied only if the claim of the party relying on the Contracts Review Act was brought in the same proceedings as the claim by the person seeking to enforce the contract. This argument was rejected by the Full Federal Court, which found that the proceedings in the Federal Court were instituted within the period provided for by subs 16(c) of the Contracts Review Act. At [98] the Full Court (Lindgren, Sackville and Stone JJ) said: "In the present case, there is nothing in the language of s16(c) which suggests that it is to be confined to an application for relief in the maintainable proceedings themselves. The paragraph is concerned to specify the period for making an application for relief; it is not concerned with the forum in which a claim for relief might be made. To read the provision in the way suggested by Mr McInerney would mean that the fate of a claim under the Contracts Review Act could depend on the court or tribunal (see definition of "court" in s4(1)) in which the claim happened to be commenced. A proceeding might be time barred by reason of the claimant's choice of forum even if that choice was otherwise procedurally proper. In our view, it is not appropriate to read words into s16(c) so as to produce such a result."
4. Mr Elliott also sought to rely on the reference in Murphy v Overton at [97] to what Handley JA (Kirby P and Mahoney JA agreeing) said in Baltic Shipping Co. v Merchant "Mikhail Lermontov" (1994) 36 NSWLR 361 at 364-365 that the Contracts Review Act is a remedial statute, which should be interpreted so as to avoid anomalous or capricious results if another and wider meaning is fairly open on its wording.
5. The Full Federal Court in Murphy v Overton did not need to address the question whether "proceedings arising out of or in relation to the contract" in subs 16(c) of the Contracts Review Act extended to other contracts. Accordingly, Murphy v Overton provides no support for Mr Middling's argument on the limitation question. The general principle referred to by Handley JA, however, applies.
6. Mr Ashhurst submitted that the construction of subs 16(c) of the Contracts Review Act for which Mr Elliott contended was not open since it did not accord with the language of the section, it was at odds with the purpose of the legislation and it was inconsistent with Peddie v Stein (Unreported, Young J, 26 March 1987).
7. These proceedings were commenced on 15 February 2013 by Citigroup. They did not relate to or arise out of either the Perpetual Loan or the Perpetual Mortgage. The only proceeding that relates to the Perpetual Loan and Mortgage is the cross-claim. However the cross-claim is not "proceedings . . . that are pending against the party seeking relief under the Act", since it is Mr Middling, as cross-claimant, who seeks relief under the Contracts Review Act and not Perpetual, the cross-defendant. Accordingly subs 16(c) does not apply when the words are given their ordinary meaning.
8. Lest it be thought that this construction of subs 16(c) is harsh or would operate unfairly to Mr Middling, it is necessary to consider the purpose of the Contracts Review Act. The Act followed the draft Bill contained in the Peden Report (John R Peden, Harsh and Unconscionable Contracts: Report to the Minister for Consumer Affairs and Co-operative Societies and the Attorney-General for New South Wales, (1976)). Professor Peden explained, in his annotations to the text of the Contracts Review Act in Part II of The Law of Unjust Contracts, (1982, Butterworths) at 148 - 149: "The limitation periods for making application for relief under the Act are set out in s 16 and are available in the alternative. They confer upon a contracting party or a third party who may be affected under s 12 immunity from challenge under this Act within a much shorter period than the normal period in respect of contract claims, namely six years from when the cause of action first accrued: Limitation Act 1969 s 14(1). This is an important protection in view of the drastic effects of avoidance of a completed contract particularly upon third parties and in relation to land transactions. Period (a) would commence on the date of making the contract, usually the date of actual or deemed communication of the offeree's acceptance, and expire on the second anniversary thereof: Interpretation Act 1969 s 35 (II) … Period (c) can only be available to an applicant for relief by way of defence to an action brought against him in relation to the same contract. Under the previous 1979 Bill the subsection read: (c) the period of the pendency of maintainable proceedings arising out of or in relation to the contract. This was defective because 'maintainable proceedings' could have been interpreted as including any action by the applicant commenced within the normal six year period from accrual of cause of action, thereby subverting the obvious intention of sub-ss(a) and (b). However, the present section, makes clear that the extended limitation period is only available by way of the shield rather than as a sword."
9. Although the text, The Law of Unjust Contracts, unlike the Peden Report itself, does not fall within s 34(2) of the Interpretation Act 1987 (NSW), I regard it as falling within s 34(1) since it is capable of assisting in the ascertainment of the meaning of the provision to confirm the ordinary meaning (s 34(1)(a) of the Interpretation Act) and the intended breadth of the operation of the Contracts Review Act.
10. A similar point arose in Peddie v Stein. Young J, who also had regard to Professor Peden's book, considered the ambit of subs 16(c). His Honour said: "In my view subs(c) only applies to a situation where the cross-claim raises matters to which one defence is the Contracts Review Act and that defence is pleaded to the cross-claim. It would be unfair in such a situation for the person seeking to rely on the Act, when attacked, after the two year period had expired, not to be able to rely on the Act as a shield. It is to that case and that case alone that that par (c) is directed. In this respect I agree with the late Professor Peden in his book on Unjust Contracts, p 149 that 'The present section makes clear that the extended limitation period is only available by way of the shield rather than as a sword.' To my mind it would be quite an unjustifiable extension of par (c) to say that whenever a defendant as well as defending proceedings files as cross-claim at least in the situation where the cross-defendant does not plead the Contracts Review Act that any claim for relief on that Act in the statement of claim become automatically validated."
11. To adopt the construction for which Mr Elliott contended would be at odds with the wording of subs 16(c) and subvert its purpose as identified in the passages from Professor Peden's text and Peddie v Stein set out above. Even had Mr Middling otherwise established an entitlement to relief under the Contracts Review Act, his claim would not have been maintainable as it does not fall within subs 16(c).

Orders

1. For the foregoing reasons I make the following orders: 1. Judgment for the first cross-defendant on the cross-claim. 2. Unless either party makes an application for a different order for costs, order the cross-claimant to pay the first cross-defendant's costs of the proceedings, other than the costs of the adjournment and amendment ordered on 1 May 2014, which are the subject of a separate application.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 March 2015