Conley v Commonwealth Bank of Australia

LOWER COURT JURISDICTION : Supreme Court - Common Law Division LOWER COURT CL 12804/96 FILE NUMBER(S) : LOWER COURT Master Malpass JUDICIAL OFFICER :

COUNSEL : Appellant in person Respondent - G K Burton SOLICITORS : Appellant in person Respondent - L E Taylor

Bank Integration Act 1991 (Cth) Credit (Home Finance Contracts) Act 1984 LEGISLATION CITED : Real Property Act 1900 (NSW) Trade Practices Act 1974 (Cth) Fair Trading Act 1987 (NSW) Contracts Review Act 1980 (NSW) Elders Rural Finance Ltd v Smith (1996) 41 NSWLR 296 Huntsman Chemical Co Australia Ltd v International Pools Australia Ltd (1995) 36 NSWLR 242 CASES CITED: Mifsud v Campbell (1990) 21 NSWLR 725 Kiama Constructions Pty Ltd v Davey (1996) 40 NSWLR 639 House v R (1936) 55 CLR 499 Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 DECISION : Appeal dismissed; the appellant is to pay the respondent's costs of the appeal

THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

CONLEY v COMMONWEALTH BANK OF AUSTRALIA JUDGMENT

1 HANDLEY JA: I agree with the judgments of Powell JA and Heydon JA. 2 POWELL JA: I have read in draft the Judgment which has been prepared by Heydon JA. Although I agree with his Honour's conclusion that neither the provision of the Personal Credit Line loan in April 1991 and the taking of the second mortgage which provided security for it, nor the extension of that loan in June 1992, was unjust in the circumstances at the time when the loan was made and the loan was extended, I have reached that conclusion by a different route from that which his Honour has taken. 3 Since I have reached that conclusion by a different route from that taken by Heydon JA, it is proper that I record the route which I have taken, albeit that as, in the end, I have reached the same conclusion as his Honour and agree with the Orders which he proposes, I shall do so but shortly. 4 Despite the variety of circumstances to which the Court is required by the provisions of s.9(2) of the Contracts Review Act 1980 ("the Act") to have regard, it seems to me that, in the present case, the most important of those matters are those provided for in paragraphs (k) and (l) of s.9(2) of the Act. 5 It would appear that, at the time of the Respondent's provision of the Personal Credit Line loan in April 1991, the Appellant had been a customer of both the Respondent and the Savings Bank for a number of years - the Preliminary Application For Advance which was made in March 1991 records that the Appellant had been a customer of the bank for ten years, his average balance during the preceding financial year being $1,974.00 credit and his average balance in the then current financial year being $2,871.00 credit while the Appellant had been a customer of the Savings Bank for ten years the average balance during the previous twelve months being $10,017.00 credit and the balance at the time of the making of the Preliminary Application For Advance being $9,503.00 credit; the Preliminary Application made in June 1992 in connection with the extension of the loan recorded that the Appellant had been a customer of the Respondent for twenty-two years and had been a customer of the Savings Bank for twenty-five years. 6 Although the full detail of lending transactions between the Respondent and the Savings Bank on the one hand and the Appellant on the other is not revealed by the material which is before the Court, it seems clear enough that, during the period when the Appellant was a customer of the Respondent and of the Savings Bank, the banks made advances to the Appellant on a number of occasions for varying purposes and in varying forms, as also is it clear that on at least one other occasion the Appellant had obtained a loan from another financial institution. That this was so can readily be demonstrated:

the first of the two personal loans which was to be refinanced as part of the Personal Credit Line loan made in April 1991 was a loan of approximately $20,000.00 made by the Respondent to the Appellant in March 1991. The Personal Loan - Loan Inquiry form records as previous borrowings from either the Respondent or the Savings Bank, two personal loans, one for a sum of $10,656.00 (?) made in 1982 and later repaid and another for a sum of $18,300.00 made in 1985.

the loan which was made by the Respondent to the Appellant in March 1989 was for the purpose of enabling the Appellant to purchase a second-hand motor car and to provide for its insurance, that loan being for a period of sixty months at interest of 19 %, the loan and interest to be repaid by monthly instalments of $519.00;

the loan of $50,000.00 which was made by the Savings Bank to the Appellant in October 1989 was made for the purpose of enabling the Appellant to pay out a Credit Union loan. That loan was made at a time when the current interest rate was 17 % and was to be repaid together with interest by monthly instalments of $734.00 over a period of twenty years;

the second of the personal loans which was to be refinanced out of the proceeds of the Personal Credit Line loan made in April 1991, was made in December 1990, the Personal Loan - Loan Enquiry form which led to the making of that loan recorded that the loan of $18,300.00 which had been made to the Appellant in April 1985 had been repaid in March 1990;

the loan which was made in December 1990 was of $20,000.00 at an interest rate of 19% repayable and payable by monthly instalments of $519.00 over a period of sixty months, the purpose of that loan being to "have road constructed on Mudgee property and to connect power & the telephone"; 7 The loan which was made by the Respondent to the Appellant in April 1991 and which was secured by the second mortgage the subject of the proceedings at first instance was, as Heydon JA has recorded, for the sum of $84,000.00 at an interest rate of 17.25% repayable by monthly instalments of $1,480.00 over a period of ten years, the purpose of the loan being to refinance the two existing personal loans to which I have earlier referred and to enable the Appellant to construct a house on his Mudgee property, "the pay-out" on the personal loans being $33,860.00 and the suggested cost of the construction of the house being $50,000.00. The Preliminary Application For Advance which was prepared in relation to the Personal Credit Line loan recorded, among the Appellant's other assets, his motor vehicle - the subject of the advance in March 1989 - the value of which was said to be $16,000.00, the credit balance in the Appellant's current account with the Respondent which was then $2,609.00 and the credit balance in the Appellant's account with the Savings Bank which, as I have earlier noted, as said to be $9,503.00. Under the heading "General and Recommendations" which appeared on that form, the preparing officer, Mr. McBurnie wrote (inter alia): "Client of bank for many years with an excellent repayment record. P/L 228 200844 was approved to enable power & telephone to be connected to Mudgee property and have an access road constructed. ……… Reliable client with reasonable average balances. Recommended approval."

8 In the light of the various matters which have been considered by Heydon JA in his Judgment under the heading "The April 1991 Contract Considered" (paras. 61 et seq) and, in particular, his Honour's comments as to the capacity of the Appellant to service the existing home loan and the loan made in April 1991, I pause, here, to note the following:

as will be apparent from what I have earlier recorded, the sum of $48,511.00 then outstanding under the first mortgage to the Savings Bank, represented the balance owing of moneys advanced to the Appellant to enable him to discharge a pre-existing debt to a Credit Union;

the $33,860.00 representing the "pay out" on the then existing personal loans, represented the balance of sums advanced by the Respondent to the Appellant to enable him either to acquire an asset or to improve the Mudgee property;

the balance of the proposed loan of $84,000.00 was intended to be used by the Appellant further to improve his Mudgee property by building a cottage;

each of the pre-existing loans and the proposed loan of $84,000.00 had been, or was to be, made on the application of the Appellant who, in so doing, had sought an advantage for himself;

although, under the hearing "Irrelevant Considerations", Heydon JA (para. 81) expresses the view that the fact that it was some time before the Appellant fell into financial difficulty, was of no, or only marginal, significance, it seems to me that that fact is of relevance, for it tends to indicate that, at the time when the Personal Credit Line loan was made, it was within the then present, and the foreseeable, capacity of the Appellant to finance both his home loan and the Personal Credit Line loan and, thus, that the terms of the latter loan were not unjust. 9 The extension of the Personal Credit Line was made pursuant to a "Loan Enquiry" apparently made by the Appellant in May 1992, the purpose of the extension of the Personal Credit Line being "to assist complete home renovations $35,000.00". It should, however, be noted that the application was not limited to the extension of the Personal Credit Line but also sought a restructuring of the obligations of the Appellant under his home loan with the Savings Bank. At the time when the "Loan Enquiry" was made the amount outstanding under the Appellant's home loan with the Savings Bank was apparently $44,123.00, while the amount outstanding under the Personal Credit Line loan was $76,720.00; the repayments in respect of those two loans were $735.00 per month in respect of the home loan and $1,480.00 in respect of the Personal Credit Line loan, a total of $2,215.00 per month. 10 Under the title "General and Recommendations", Ms. Pritchard, who was then a loans officer/preparing officer wrote on the "Loan Enquiry" (inter alia): "Mr. Conley is a long term customer of Corporation A/c 14 years (?) always has (?) conducted satisfactorily & good A/c balances maintained. Existing loans have been within arrangements & he has today requested a revision on payments on both his H/L & P/C/L. If this increase is approved total repayments would not increase & loans would still be repaid within (?) terms. CBA (?) Payments New H/L 735 465 P/C/L 1480 1736 2215 2201 ……… In view of past repayment record approval recommended."

11 Among the investigations which appear to have been carried out in connection with the Appellant's "Loan Enquiry" was one which recorded that the monthly instalments of $1,480.00 payable in respect of the Personal Credit Line loan had, during the period 1 January 1992 to 1 June 1992, been paid regularly, apparently pursuant to a formal authority to debit the Appellant's current account with the Respondent. 12 By letter dated 19 June 1992, the Respondent advised the Appellant that the increase in his Personal Credit Line loan to the amount of $111,720.00 had been approved. In that letter, the Respondent informed the Appellant that the loan was repayable on demand but, until demand, was for a term of 9 years based on a nominal interest rate of 12.75% per annum. A formal request and authority signed by the Appellant for the increase in his Personal Credit Line loan by $35,000.00 to $111,720.00 on the usual terms and conditions appears to have been received by the Respondent on 23 June 1992. 13 As Heydon JA has noted in his Judgment under heading "The 1992 Advance", while the making of this further advance led to the Appellant becoming further indebted to the Respondent, the revision of the monthly instalments payable in respect of the home loan meant that the Appellant's financial position was otherwise not inferior to what it was in April 1991. This conclusion draws support from the fact that, despite the increase in the Appellant's home loan by two further sums of $50,000.00 (13 April 1993) and $23,836.00 (December 1993) taking the amount of the Appellant's home loan to $114,358.00, repayable by monthly instalments of $1,106.00, the Appellant continued to meet the instalments payable in respect of both loans until December 1994. 14 I pause here to note that the purpose for which the amount of the Personal Credit Line loan was increased was to enable the Appellant to carry out renovations or extensions to his home at Narrabeen, as also was the purpose for which each of the increases in the amount of the Appellant's home loan which increases were made in April and December 1993. 15 In summary, in the period from October 1989 to December 1993, the Respondent and the Savings Bank advanced to the Appellant sums totalling $242,836.00, $84,000.00 of which represented sums advanced for the purpose of enabling the Appellant to refinance existing debts and $158,836.00 of which represented sums advanced to the Appellant for the purpose of enabling him to carry out improvements to properties owned by him, all of which advances were made at the request of the Appellant. 16 It is the facts which I have recorded above which have led me to the conclusion that neither the advance by the Respondent to the Appellant in April 1991 nor the further advance in June 1992 was in all the circumstances unjust. 17 Although, in the light of that conclusion, it is unnecessary for me to do so, I should add that even if, contrary to that conclusion, I had considered that the loans made in April 1991 and June 1992 were, in some respect, unjust, I would have concluded that the Appellant ought to be required to repay the principal amount of each of those advances together with a reasonable rate of interest, the relief afforded to the Appellant being limited to his being relieved of any obligation to pay interest on the amount of those loans beyond a reasonable rate of interest. 18 As will be apparent from what I have earlier recorded, I agree with Heydon JA that the appeal should be dismissed and that the Appellant should pay the Respondent's costs of the appeal. 19 HEYDON JA: Background

On 26 March 1991 the defendant, a customer of the plaintiff bank, was interviewed by Mr E G McBurnie, who was employed by the plaintiff bank as a loans officer. The defendant applied for a loan of $84,000. The purpose of the loan was to pay out two existing personal loans (totalling approximately $33,860) and to pay for the construction of "a basic cottage" on the defendant's 150 acre property at Mudgee. 20 Before the interview, the defendant had two categories of debt. 21 He owed $48,511 secured on first mortgage dated 10 October 1989 over his home at 52 Carefree Road, North Narrabeen ("the defendant's home"). It had been the defendant's home since 1978. That was a loan advanced not by the plaintiff bank but by the Commonwealth Savings Bank of Australia. However, the plaintiff bank did not distinguish between itself and the Commonwealth Savings Bank of Australia, which in the documents of the plaintiff bank is called "CSB". Thus Mr McBurnie, who signed the first mortgage and evidently approved it, described that transaction in paragraph 9 of his affidavit as "Mr Conley providing a mortgage to the Bank". This approach may stem from the fact that, according to the plaintiff bank, pursuant to the Bank Integration Act 1991 (Cth), the plaintiff bank and the CSB have become the same legal person. The plaintiff bank also treated itself and the CSB as having identical commercial interests even before that development. Thus in deciding to make the $84,000 loan, the plaintiff bank took account of the period of time during which the defendant had banked both with it and with the CSB, and the average balances with each bank over the previous twelve months: Exhibit B page 14 lines 7-9. And the letter informing the defendant of the $50,000 CSB Home Loan dated 22 September 1989 was on the letterhead of the plaintiff bank, not the CSB. This loan on first mortgage was referred to in the plaintiff bank's documents as "H/L" or "H/LOAN" and bore the number "272978805". 22 The defendant also owed $33,860 on the two personal loans. 23 The total of the loans owed by the defendant before the interview was $82,381. 24 As a result of the interview, Mr McBurnie recommended, and his acting branch manager Mr R W Hunt approved, the advance of $84,000, which increased the defendant's net indebtedness to approximately $132,381. 25 The letter of approval from the plaintiff bank to the defendant was sent on 3 April 1991. The defendant executed an application for accommodation on 16 April 1991. The advance was to be secured by a second mortgage over the defendant's home. This mortgage was executed on 16 April 1991 and became registered as No Z657316. The plaintiff bank described the advance as a "Personal Credit Line loan", and the account was numbered "220800201548". 26 Before the interview the defendant had monthly repayment obligations on the loans to him of $1,772, about 50% of his gross monthly earnings of $3,500 and 58% of his earnings after tax. After the second mortgage was created in consequence of the interview, he had monthly repayment obligations of $2,214, about 55% of his gross earnings and 73% of his earnings after tax. After loan repayments and credit card payments of $18 per week, and after allowing for living expenses of $150, the defendant had a weekly surplus of $180 before the interview, but only $80 after the second mortgage was granted. 27 On 19 June 1992 a further $35,000 was advanced on the Personal Credit Line loan secured on the second mortgage. Since the $84,000 principal had been reduced by repayments to $76,720, the total principal became $111,720. On the calculations of the plaintiff bank, there was a weekly surplus of $308 after allowing for credit card expenses and living expenses of $150 per week. However, the repayment figure on the Personal Credit Line loan was $1,736 per month. The repayment figure on the Home Loan was to fall from $735 to $465 per month. This left a total monthly repayment figure of $2,201 (compared to $2,215 before the $35,000 was advanced). Since the defendant estimated his gross monthly earnings at this time at $4,000, repayments were approximately 55% of gross income, and since the bank recorded a weekly post tax salary of $785, repayments were approximately 68% of net income. 28 On 13 April 1993 the plaintiff bank approved a loan to the defendant for a further $50,000. It was an increase in the Home Loan, and was secured by way of first mortgage on the defendant's home. The increase took the Home Loan to $92,811, with monthly repayments of $924. This meant the total repayments on the three loans secured on the two mortgages had risen to $2,660. The defendant estimated his gross monthly earnings at the time at $4,800: thus repayments were 55% of gross income. 29 On 6 December 1993 the plaintiff bank approved a loan to the defendant for $23,836. It was another increase in the Home Loan, and was also secured by way of first mortgage on the defendant's home. The increase took the Home Loan to $114,358, with monthly repayments of $1,106. This meant that repayments had risen to $2,842 per month. Since the defendant estimated his gross monthly income at that time as $4,800, repayments were 59% of gross income. 30 It is significant that the plaintiff bank did not tender any evidence directly relating to either of the 1993 loans, though their consequences can be detected in bank documents after the debtor fell into difficulties. The direct evidence for these loans arises from the defendant's tender of the approval letters (pages 19-25 of his second affidavit). Though the plaintiff bank's position was that only the second mortgage was relevant and the 1993 loans were secured by the first mortgage, the plaintiff bank did not object to those tenders. 31 For some time the defendant apparently maintained repayments on both the Home Loan and the Personal Credit Line loan satisfactorily. For example, on 14 July 1993 the plaintiff bank wrote to the defendant and said in relation to the Personal Credit Line loan account: "we would like to thank you for the excellent way in which you have conducted your account" (Exhibit B page 40). 32 But on 20 December 1994 the defendant requested suspension of his January 1995 Home Loan repayments and his Personal Credit Line loan repayments (Exhibit B page 47). 33 On 4 January 1995 the plaintiff bank arranged for the defendant to call to discuss the suspension of payments on his loans for the next two months. The plaintiff bank's diary note reads: "Work has been slow with the cut back of many overtime hours and penalty rate shifts."

The note also records that the defendant's Home Loan repayment obligation had risen to $1,106 per month, a considerable rise from $465 in June 1992, while his Personal Credit Line monthly repayment obligation was $1,606, a fall from $1,736. The note said: "Commitment level based on the above is 78% of gross income."

The note continued: "Based on the above it is clear that client needs to look at alternative means to clear his indebtedness with the CBA. In addition to the current commitments with the recent increase interest rates the commitment level will increase further."

The note observed that until the end of February 1995 repayments on neither loan would be made and a decision on future conduct would depend on whether the defendant decided to sell his home: see Exhibit B pages 42-43. 34 By 23 February 1995 the position had not changed. A diary note of that date by Mrs Marie Philp, Lending Manager, Mona Vale Group, recorded: "Mr Conley has been finding it tough to meet commitments since his overtime and penalty rates were cancelled. This has reduced his income by approx $400 pw. He is hoping that the overtime will recommence in the near future but is not holding his breath."

The diary note recorded an income of $800 per week gross and $3,466 per month gross. It said that if the Home Loan commitment of $1,106 was made, and half the payments on the Personal Credit Line loan (i.e. $803), together with credit card debt, 60% of gross income would be committed (Exhibit B page 44). 35 Mr Warne, Lending Manager of the Mona Vale Group of the plaintiff bank, on 28 February 1995 noted on Mrs Philp's diary note: "It is obvious that the current debt load is much too high for his income and sale of assets will be the only way to reduce the debt load" (Exhibit B page 45). 36 The defendant made unsuccessful attempts to sell his home. 37 On or about 23 November 1995 the defendant was served with a Home Finance Contract-Notice pursuant to s 7 of the Credit (Home Finance Contracts) Act 1984 alleging arrears of $19,272, being twelve payments from 28 December 1994 to 22 November 1995 due under the Personal Credit Line loan. 38 On 11 January 1996 the plaintiff bank sent a notice under s 57(2)(b) of the Real Property Act 1900 (NSW) requiring payment of $19,272. 39 On 12 July 1996 the plaintiff bank advised the defendant that his Personal Credit Line Account was in arrears in the sum of $30,514. It demanded payment of the full balance of the account, being $117,749.12, and pointed out that interest was accruing at $41.70 per day.

The Pleadings 40 By Statement of Claim dated 14 June 1996 the plaintiff bank claimed relief in relation to the second mortgage. It alleged that as at 23 November 1995 the amount owing under the mortgage by the defendant to the plaintiff bank was $19,272. Judgment was claimed in the sum of $114,077.75 with interest. An order for possession of the defendant's home was also sought. 41 By an Amended Statement of Claim filed on 29 October 1996, the plaintiff bank claimed $117,749.12 as owing as at 12 July 1996, with interest at 13% ($41.52 per day) from that date. 42 By a Defence filed by solicitors for the defendant on 29 November 1996, the defendant admitted ownership of the mortgaged land and admitted the second mortgage, but not the balance of the Amended Statement of Claim. The Defence also propounded four positive defences. The first was non-compliance with the Credit (Home Finance Contracts) Act 1984, in consequence of which it was alleged that the defendant was entitled to be released of any contractual burden. The second was non-compliance by the plaintiff bank with its own guidelines, in consequence of which it was alleged that the defendant was entitled to relief in equity from the further performance of his obligations. The third was based on the Contracts Review Act 1980 (NSW). The fourth alleged misleading conduct in breach of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (NSW). 43 By an Amended Defence filed on 5 June 1997, by the defendant personally and not by any solicitor acting on his behalf, the defendant did not plead to, and thereby admitted, all the allegations in the Amended Statement of Claim. He also put allegations in relation to the provisions of the second mortgage as at 16 April 1991 based on the Contracts Review Act. That was the date of the second mortgage, securing the advance of $84,000. Paragraphs (a), (d), (h) and (i) of s 9(2) were relied on. The Amended Defence also put Contracts Review Act allegations in relation to an advance of $35,000 pursuant to the second mortgage, made on 19 June 1992. Paragraphs (a), (d), (h), (i) and apparently (j) of s 9(2) were relied on. The other matters appearing in the Defence were not referred to. No Reply was filed, so that an implied joinder of issue arose on the defence.

The Contracts Review Act 44 The provisions of the Contracts Review Act 1980 (NSW) which are relevant to these proceedings are as follows: " 4. (1) In this Act, except in so far as the context or subject-matter otherwise indicates or requires: … ' unjust ' includes unconscionable, harsh or oppressive; … 7 (1) 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, do any one or more of the following: (a) it may decide to refuse to enforce any or all of the provisions of the contract; (b) it may make an order declaring the contract void, in whole or in part; (c) it may make an order varying, in whole or in part, any provision of the contract; (d) it may, in relation to a land instrument, make an order for or with respect to requiring the execution of an instrument that: (i) varies, or has the effect of varying, the provisions of the land instrument; or (ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the land instrument. (2) Where the Court makes an order under subsection (1) (b) or (c), the declaration or variation shall have effect as from the time when the contract was made or (as to the whole or any part or parts of the contract) from some other time or times as specified in the order. (3) The operation of this section is subject to the provisions of section 19. 9. (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; … (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; … (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. … (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."

The Trial 45 The trial took place on 30 June 1999. The plaintiff bank was, but the defendant was not, legally represented. Though it was not necessary to do so in view of the implied admissions in the Amended Defence, in chief the plaintiff bank tendered a Certificate of Indebtedness (Exhibit A) and a bundle of documents from the plaintiff bank's files (Exhibit B). 46 The defendant's case then opened. It consisted of an affidavit purportedly sworn on 27 November 1997 and filed on 4 December 1997. 47 He also relied on another affidavit dated 12 November 1998 which was in reply to four affidavits relied on by the plaintiff bank in answering his first affidavit. The Master said that he would "briefly read through them for the purpose of getting the flavour of the material" (T page 3 lines 39-40). The plaintiff bank then said it had some objections to the admissibility of the affidavit material. The Master said: "You identify what your objections are and maybe I should then read it subject to objection because I suspect maybe we should not be too technical about this" (T page 3 lines 51-54).

The plaintiff bank then described its objections in detail. The Master was then taken to affidavits filed for the plaintiff bank by Mr McBurnie, Mr Hunt, Ms Pritchard and Mr Woutersz, which he said he would read before reading the second of the defendant's affidavits. The Master then said: "I have been through that material." 48 The defendant said he did not wish to cross-examine. The plaintiff bank's cross-examination of the defendant occupied three and a half pages of transcript. The plaintiff bank's address occupied the better part of three pages. The defendant's address occupied about three quarters of a page. The plaintiff bank's reply consisted of two sentences.

The Master's Reasons for Judgment 49 By a reserved judgment delivered on 27 July 1999, the Master concluded that no relief should be granted pursuant to the Contracts Review Act. In consequence he directed entry of judgment for possession of the mortgaged land and gave liberty to the plaintiff bank to apply for judgment in a monetary sum and for leave to issue a Writ of Possession. 50 The structure of the reasons for judgment of the Master was as follows. Paragraphs 1-11 set out some factual and procedural background. In paragraph 12 the Master said: "The defendant has prepared his own pleading. Whilst there is no Cross-claim as such, the Amended Defence contains material which might be read as a claim for relief in respect of the lending arrangements."

The Master then said (paragraphs 13-14): "Broadly speaking, in submissions, the defendant has identified three areas upon which he seeks to defend the plaintiff's claim. Firstly, he relies on the provisions of the Contracts Review Act 1980 (the Act). Secondly, he says that there was active encouragement by the plaintiff to him to take out further loans without regard to his current level of financial commitment. Thirdly, he said that the plaintiff was in breach of its lending guidelines. The second and third matters do not of themselves constitute individual defences to the plaintiff's claim for relief. To the extent that they are relevant, they are to be seen in the context of the claim for relief under the Act." 51 The totality of the Master's reasoning on the issues so defined then appears in paragraphs 15-21 in the following terms: "The material does reveal correspondence from the plaintiff to the defendant which may be seen as encouraging him to use the lending facilities provided by the Bank. Despite this encouragement, I am not satisfied that he was led to a position where he entered into financial commitments which he was not able to service. I am not satisfied that there was any breach of relevant guidelines. The picture revealed by the material is one of a customer well able to service the relevant financial commitments over a period of many years. His difficulties did not arise until some years after the entry into of the last of the relevant transactions. The Amended Defence does recite many of the matters which may be found in the provisions of the Act. The mere recitation of some of these matters (together with proof thereof) does not thereby lead to an entitlement to relief under the Act. In this case, there was a lack of proof of matters. It does appear that the defendant did not have the benefit of any expert advice. The plaintiff did not have any duty to give him advice. It seems that the transactions were made between the parties themselves. In his oral evidence, the defendant conceded that he had entered into each of the transactions as a matter of his own choice. It is not said that he lacked understanding of the relevant transactions. The material does not reveal any need for independent or expert advice. He appears to have capably handled his affairs over many years. The mortgage is in standard form. No particular provision thereof has been identified as the subject of any complaint. Section 7 of the Act confers a discretion on the Court to grant any one or more of the heads of relief identified therein where it finds that certain threshold requirements have been satisfied (inter alia, where it finds a contract to have been unjust in the circumstances relating to it at the time it was made). See Nguyen v Taylor (1992) 27 NSWL4R 48 at 55-57 and 71-72 and Younan & Anor v Beneficial Finance Corporation Limited (Court of Appeal, 21 November 1994). It may grant relief if it considers it just to do so and for the purpose of avoiding as far as possible an unjust consequence or result. I have read the material relied on by the defendant. I have had reference to that which is relevant. In my view, the defendant falls well short of satisfying the relevant threshold requirements and/or demonstrating an entitlement to relief."

The Defendant's Position on the Appeal 52 The Notice of Appeal was filed by the defendant. No solicitor acted on his behalf at any stage in the appeal. Under the heading "orders sought", the Notice of Appeal stated: "The Court overturns the judgment of MASTER MALPASS and the Court grants relief to the Appellant in the matter of the two mortgages in effect between the Appellant and the Respondent."

The Written Submissions filed by the defendant in support of the appeal, after referring to certain parts of the Master's reasons for judgment, stated: "5. The above mentioned deal only with a second mortgage. 6. I contend that the Master failed materially to take into account my evidence which described two mortgages. 7. The fact of the two mortgages being omitted from the Judgement indicate that the Master did not take into account my whole evidence and considered only a part of it. 8. The Master dealt only with the second mortgage. The first mortgage was not considered. 9. The deliberate consideration of approximately half of the debt caused a finding for the plaintiff. My evidence describes the debts in unambiguous language. 10. My defence is based on the fact of the whole debt in effect between Lender/Borrower. 11. My defence mentions the whole debt (Two mortgages) many times."

Paragraph 14 stated: "The Contracts Review Act, soliciting of lending and lending guidelines all mentioned in my defence become meaningless if only a part of the debt is considered by the Court."

In fact the Amended Defence (as distinct from the Defence and the defendant's oral evidence and oral argument to the Master) did not mention the lending guidelines. The point the defendant was seeking to make was put thus in paragraph 14.3 of his first affidavit: "The defendant complains that the Commonwealth Bank maintains an internal policy that it should not lend any more than an amount that could be repaid by applying 30% of the borrower's gross earnings."

In paragraph 14.4 he said that the two loans, one secured by the first mortgage and one secured by the second mortgage, "were entered into by the plaintiff in breach of its own lending guidelines", and he stated that he relied on the Contracts Review Act . The defendant's Written Submissions continued (paragraphs 15-17): "15. The application of the Contracts Review Act to approximately half the debt instead of the whole debt will show that the aspect of the percent of gross earnings necessary to repay that debt is approximately half of the amount in fact required to pay the debt. Actual percent of gross earnings to service debt 60%. Percent, That court dealt with, 30%. The amount of 30% being near the norm. By ignoring the actual repayment, the Bench could not find a claim could be made for relief under the Contracts Review Act. 16. With the other aspects of my defence that is the Soliciting of lending and the lending guidelines. 17. Whatever letters from the Lender to myself were viewed by the Master is not clear. I take it that those viewed were only those relating to borrowings which the lender sued on."

The defendant then asked that certain parts of his evidence be paid particular attention. The defendant's Written Submissions also contended that there were numerous errors in the transcript and suggested what the correct position was in each case. 53 In its Written Submissions, the plaintiff bank did not in terms dispute the plaintiff's suggested transcript corrections, but it did "object to any attempt at this late stage to 'correct' or supplement the transcript or the recording of the evidence." 54 It is convenient to deal at this point with the last matter raised. The corrections suggested in the defendant's Written Submissions are for the most part corrections of obvious transcript errors or of material which is questionable, or points which the defendant wishes to advance by way of argument. While no doubt transcript correction is a matter which in cases of bona fide and significant controversy must be resolved by the court the proceedings of which were transcribed, the attempt by the defendant, as a litigant in person, to correct the transcript via his Written Submissions was not, in the present circumstances, irrational. The material to which the plaintiff bank objects appears to be innocuous.

The Adequacy of the Master's Reasons 55 At the hearing of the appeal the defendant, whilst stating that "Master Malpass behaved as a perfect gentleman", repeated his complaint that the Master failed to take into account his evidence in relation to both mortgages and the totality of the debt between himself and the plaintiff bank. He said: "A considerable part of my evidence was not mentioned in the Master's judgment and that is what I would like to have your Honours look at and if you do find for the judgment, I would request that you explain it to me please."

Underlying these repeated complaints is a serious point. 56 The defendant's case - particularly his reliance in paragraphs 2(b) and 3(b) of the Amended Defence, on s 9(2)(d) of the Contracts Review Act - highlighted as a central question for consideration whether the provisions of and in relation to the second mortgage, whether considered as at the date of its creation on 16 April 1991 or as at the time when the further $35,000 was advanced under it, imposed conditions with which it was unreasonably difficult to comply. It is true that particulars were given of these allegations which were not well directed. The particulars to paragraph 2(b) of the Amended Defence, in relation to the mortgage as at 16 April 1991 were: "The agreement contained in the mortgage permitted further advances to be made which would be secured on the said mortgage and could, in the event of further advances being made by the plaintiff to the defendant, require the defendant to make monthly repayments which could vary between 40% and 60% of his weekly income before income tax."

The particulars given to paragraph 3(b) of the Amended Defence, in relation to the advance of the $35,000, were: "The advance referred to in the Schedule and secured on the said mortgage required the defendant to make monthly repayments which, which considered [sic] with the defendant's obligations to make repayments to the plaintiff under another mortgage, amounted varied between 40% and 60% of his weekly income before income tax."

These particulars were not well directed because the potentiality for further advances which the defendant was not obliged to accept could scarcely be unjust in itself; whether any further advances actually made had unjust elements would depend on the terms on which they were made and the circumstances at the time when they were made. 57 However, the primary obligations of the defendant as mortgagor were to service the interest and repay the principal. The defendant's two obligations were to be met by the stipulated monthly payments. The substantive allegations made in the Amended Defence called for concentration, as a primary inquiry, on whether as at 16 April 1991 the provisions of the second mortgage imposed conditions with which it was unreasonably difficult to comply. That in turn called for a comparison of the financial obligations of the defendant before the mortgage was granted, in particular those arising under the first mortgage, with the financial obligations of the defendant after it was granted, in particular those arising under both mortgages, against the background of the defendant's overall position in life. 58 It is not possible to infer from the reasons for judgment of the Master that any such comparison was undertaken in detail. The Master in paragraph [15] of his reasons for judgment did pose the issue of whether the defendant was placed by the second mortgage in "a position where he entered into financial commitments which he was not able to service." The Master concluded that that was not the case. But no reasons were given for that conclusion. Accordingly it is not possible to demonstrate by textual means the truth or falsity of the defendant's contention that "the Master failed materially to take into account my evidence which described two mortgages." There are thus lacking reasons provided by the Master for his judgment on the vital issue thrown up by the defendant's Amended Defence and the evidence in the case. The same is true of the following passage: "I have read the material relied on by the defendant. I have had reference to that which is relevant. In my view, the defendant falls well short of satisfying the relevant threshold requirements and/or demonstrating an entitlement to relief."

Even making allowances for the very busy lists and the pressure of work on the Masters, the reference to having read the totality of the evidence, and the relevant evidence, and a statement of a conclusion, is not to give reasons for that conclusion.

The Attitude of the Plaintiff Bank to the Appeal 59 It would seem that the failure of the Master to give reasons for the conclusion at which he arrived on the central question stems from the failure of the parties in address to direct his attention to that question. That position prevailed in the Written Submissions of both parties on appeal. Omitting citations of authority and references to evidence, the Written Submissions of the plaintiff bank were as follows: "1. There was no arguable defence below and no arguable appeal has been raised on the materials provided. 2. No error of principle in the way the Master exercised his discretion to refuse relief under the Contracts Review Act has been identified, and there is none. … 3. The appellant was the borrower and received the benefit of the advances. Some of that benefit was by way of refinance of earlier loans. The appellant admitted these matters … which in any event were plain on the various loan applications and approvals shown to the appellant in cross-examination (which appeared in his own documents as well as the Bank's). … 4. There was no improvidence in the advances at [sic] time of each respective advance; on the evidence, there is a proper positive finding to the contrary. 5. The appellant conceded that he entered into each of the transactions as a matter of his own choice. … He admitted that he provided the information to the Bank which appears on the lending applications, including what he wanted to borrow the money for … Even if there had been any relevance or substance in the allegations about lending guidelines and encouragement to borrow, the appellant's choice and actions would destroy the necessary reliance. … 6. The appellant presented, sought (and seeks) to present himself as a capable person who understood what he was doing. He later found himself unable to meet his commitments. That may be a sad and common occurrence. It does not ground a claim for relief. 7. The appellant did not challenge the indebtedness until after proceedings for possession were brought … He serviced the loan until late 1995 [in fact it was late 1994]. 8. The appellant was excused from filing written submissions beyond what is in the Red Book. The respondent can assist the Court no further than the above until it knows what exactly the appellant wishes to make of the contents of the Red Book itself. In the respondent's submission the contents of the Red Book bear out the correctness of the Master's judgment and orders. The respondent would object to any attempt at this late stage to 'correct' or supplement the transcript or the recording of the evidence. The transcript discloses that other arguments made below by the appellant disclosed no arguable case … there was no unlawful inducement to borrow in the material which the appellant received; there was no 'breach' of the bank's lending guidelines relevant to this loan." 60 These submissions present the following difficulties. 61 First, while the Master had to arrive at decisions as to whether, on weighing the s 9(2) factors, there was injustice, and, if so, whether and what remedy should be granted under s 7 of the Contracts Review Act, he could not make these decisions until he had reached a conclusion on any factual issues raised by s 9(2). The decisions as to remedy were discretionary. Mahoney JA has said that the decision as to injustice is also discretionary, though that may be controversial: Elders Rural Finance Ltd v Smith (1996) 41 NSWLR 296 at 301. But a decision as to the factual position in relation to any of the matters described in s 9(2) was not a discretionary decision. It would have been easy, in relation to the matters referred to in the Amended Defence, to reach a conclusion about the matters described in s 9(2)(a), (h) and (i). Indeed, it would have been easy also to reach a conclusion about those described in s 9(2)(b) and (c). By itself arrival at factual conclusions on those subjects favourable to the defendant could not advance the defendant far towards obtaining a s 7 order, since many contracts have those factual characteristics without being unjust. The vital question was posed by s 9(2)(d). A decision as to whether a provision in a contract imposes a condition which it is unreasonably difficult to comply with turns on a criterion which is to some degree indeterminate. But it is not a discretionary decision, any more than the decision whether there has been a breach of a duty to use reasonable care is a discretionary decision or the decision whether a covenant is no wider than is reasonably necessary to protect the legitimate interests of the covenantee is a discretionary decision. 62 Secondly, the finding that the defendant was able to service financial commitments, which was relevant to whether s 9(2)(d) was satisfied, is a finding which the plaintiff bank's written submissions on appeal call "a proper positive finding to the contrary" of "improvidence". Whether that finding was a discretionary decision or not, it was not a decision supported by any reasons. The plaintiff bank did not convincingly submit on appeal that it was. The need for a court to give reasons for many (though not all) of its decisions is an incident of the judicial process. It is desirable so that the losing party will know why the case was lost, thereby diminishing the grievance that that party may feel. It is desirable so that justice may appear to be done. And, where rights of appeal exist, it is desirable so that the losing party can give consideration to whether the right to appeal should be exercised and so that the appellate court can examine the reasoning employed. See generally Huntsman Chemical Co Australia Ltd v International Pools Australia Ltd (1995) 36 NSWLR 242 at 256-8 per Rolfe AJA (and cases there cited); Mifsud v Campbell (1990) 21 NSWLR 725 at 727-8 per Samuels JA; Kiama Constructions Pty Ltd v Davey (1996) 40 NSWLR 639 at 640 per Mahoney P and 647 per Meagher JA. 63 To the defendant these proceedings, involving possible eviction from the home he had lived in since 1978, were very significant, carrying the possibility of a major personal disaster. Underlying the defendant's complaints about the Master's non-consideration of evidence favouring him is an inability on his part to discern from the integers of the expressed reasoning what evidence was in fact considered. For present purposes, the important point is not only that the want of reasons is in itself an appellable error, but also that, so far as the Master's conclusion about the defendant's ability to service financial commitments is concerned, it is not possible to evaluate the plaintiff bank's submission in paragraph 2 of its Written Submissions on appeal that there is no error of principle in the Master's reasoning of the type described in House v R (1936) 55 CLR 499 at 504-505. The same is true of the bald findings in paragraph [17] that there was "a lack of proof of [s 9] matters" and in paragraph [21] that "the defendant falls well short of satisfying the relevant threshold requirements". 64 Thirdly, in any event there are errors falling within House v R.

(a) One error is that if the finding that the defendant's ability to service financial commitments is intended to negate a s 9(2)(d) finding favourable to the defendant, it involves a misdirection since it does not correspond with the statutory language.

(b) A second group of errors comprises certain errors of fact in the reasons. It was not correct to find that "until about late 1995/early 1996 the defendant was able to service the lending arrangements": his inability to do so began on 20 December 1994. Nor, for the same reason, was it correct to say that the defendant "fell into default in late 1995/early 1996". Similarly, it was not correct to find that the defendant's "difficulties did not arise until some years after the entry into the last of the relevant transactions": even if the last relevant transaction is the advance of June 1992, his difficulties arose only two and a half years later, and if the last relevant transaction is that approved on 6 December 1993, his difficulties arose one year later. The Master did not say which, in his opinion, "the last of the relevant transactions" was. These factual errors afford some support for the defendant's contention that the Master did not consider the whole of the evidence. They were also contributed to by the plaintiff bank's submission to the Master (T page 10 lines 33-39): "What has happened is Mr Conley has fallen on hard times. In 1995 his overtime went down and consequently he is on sickness benefits."

This error as to date was repeated in the plaintiff bank's Written Submissions on appeal. Further, the Master's reference to "some years after the entry into the last of the relevant transactions" does suggest that the Master did not consider, and gave no reason for not considering, the defendant's tender of the material relating to the two 1993 loans. If these findings by the Master about post June 1992 events are significant at all, which is questionable, errors in them are also significant.

(c) The third error arises out of the finding of the Master in paragraph [18]: "The plaintiff did not have any duty to give [the defendant] advice." If that was propounded as a proposition of positive law, it was true, but irrelevant. If it was propounded as a summary of s 9(2)(h) and (i), it was incorrect in the sense that if the plaintiff bank wished to avoid the risk of those preconditions to the making of a s 7 order being satisfied, it was obliged to procure the giving of independent expert advice and to explain the practical effect of the mortgage terms.

(d) Fourthly, the Master's finding in paragraph [18] that the "material does not reveal any need for independent or expert advice" is erroneous. Mr Wearne, Lending Manager, Mona Vale Group, stated in his diary note of 4 January 1995, at a time when he thought the defendant's base salary was $44,564 per annum (i.e. only $4,000 less than the defendant's income in 1991 and 1992 and $14,000 less than it apparently was in 1993), that the defendant's commitment level on loans to the plaintiff bank was 78% of gross earnings (Exhibit B page 42). On 28 February 1995 Mr Wearne said in a file note: "The current debt level is much too high for his income" (Exhibit B page 45).

He said the same on 1 March 1995 (Exhibit B page 49). The plaintiff bank was here treating the defendant's debts globally - it was adding what was due under both the first and the second mortgage. The first mortgage comprised three debts, $50,000 advanced in October 1989, $50,000 advanced in April 1993 and $23,836 advanced in December 1993. The second mortgage secured two debts, $84,000 advanced in April 1991 and $35,000 advanced in June 1992. The defendant's inability to service the "current debt level" which was "much too high" arose partly from a fall in income but partly from a rise in debt. Taken in totality, these circumstances do suggest that the debtor needed independent or expert advice at least from 1991 onwards. The peril that came to pass was a peril in respect of which the defendant should have received a warning if the risk of injustice was to be minimised.

Should the Court of Appeal Reconsider the s 9 Issues and Re-exercise the s 7 Discretion? 65 The Master's failure to state reasons is an appellable error. But it does not follow that there should be a new trial. That would only be necessary if the issues turned on credibility, or if some other factor made it undesirable for the Court of Appeal to deal with the case. 66 There is one issue on which credibility might have mattered, though in the way the trial was conducted it was not perceived as arising. As is explained below, the issue turns on whether what the plaintiff bank's officer, Ms Pritchard, wrote down in relation to the application for the $35,000 advance correctly recorded what the defendant said. While from this Court's point of view it would have been desirable for the matter to have been explored below in cross-examination of the defendant and of Ms Pritchard, the point does not appear sufficiently decisive to call for a new trial.

The Events of March-April 1991 67 It is necessary to examine closely the circumstances which led to the creation of the second mortgage on 2 April 1991, since the plaintiff bank is suing on that mortgage and on the provisions of related transactions. 68 On or about 26 March 1991 Mr McBurnie met the defendant. Mr McBurnie referred in paragraphs 6, 9 and 10 of his affidavit to the loan of $20,000 to the defendant by the plaintiff bank on 20 March 1989 to buy a car, to the Home Loan of $50,000 on first mortgage dated 19 October 1989 over his home, and to the loan of $20,000 in December 1990 to construct a road on, and to connect power and a telephone to, the defendant's Mudgee property. In paragraph 13 of his affidavit he said: "My next dealing with Mr Conley occurred on or about 26 March 1991 when I was the preparing officer for an application for finance for a personal credit line application for the net amount of $84,000 made by Mr Conley (the 'PCL Application). Based on the conduct of existing loan accounts and facilities referred to in paragraphs 6, 9 and 10 and my satisfaction that his income and commitments position at the time of the application demonstrated his ability to meet all commitments and still show a surplus income position, I recommended approval of the application. Apart from the bank account details the remainder of the PCL Application was written by me as Mr Conley gave me the information to complete the form [Exhibit B pages 12-15]."

In paragraph 17 he said: "To my observation while he gave me the personal information to fill out the application, Mr Conley appeared to understand the financial obligation he was undertaking."

He did not say what matters conveyed that appearance to him. Following Mr McBurnie's recommendation, Mr Hunt approved the application, an approval letter was sent on 3 April 1991, the defendant executed an application for accommodation on 16 April 1991 and the second mortgage was executed on 16 April 1991. In his signed application for accommodation, the defendant acknowledged the following: "2. It is clearly understood that the following terms and conditions shall apply to all accommodation granted to the applicant(s) by the Bank from time to time:- (a) Such accommodation shall be granted on the Bank's usual terms and conditions, the terms and conditions set out elsewhere in this Application and on such other terms and conditions as the Bank may from time to time impose. … (c) The Bank may from time to time at its pleasure cancel or vary the limit of accommodation granted to the applicant(s) and/or vary the rate of interest and/or rate of discount and the charge for accepting or endorsing bills of exchange or other engagements applicable to the accommodation granted to the applicant(s)."

The "Bank's usual terms and conditions" were set out in the letter of 3 April 1991. That document stated, among other things: "The loan is subject to the Bank's usual terms and conditions generally, for loans of this type, and in particular to the following: Term of Loan: 10 years, approximately, based on the current interest rate. Repayments: Monthly instalments of $1,480, are required to cover repayment of loan principal and interest. The first instalment will be due one month after the loan is funded. Interest Rate: Interest is calculated daily on the outstanding balance of the loan account and is charged quarterly and on repayment of the advance. The rate applicable to this loan is 17.25% per annum and may vary without notice at any time during the course of the loan. Should the loan not be conducted on the Bank's usual terms and conditions, the Bank may, at its discretion, apply a higher interest rate. Security: Security must be to the Bank's satisfaction and will comprise a mortgage over your North Narrabeen property." 69 The significant aspect of Mr McBurnie's evidence is that he experienced "satisfaction that [the debtor's] income and commitments position at the time of the application demonstrated his ability to meet all commitments and still show a surplus income position." In this way, though the defendant did not in terms either in his Amended Defence or in submissions draw express attention to the question of the surplus income position, the plaintiff bank did. It is therefore material to consider it in view of the defendant's reliance on s 9(2)(d). 70 The contemporary evidence for Mr McBurnie's satisfaction consists of the "Preliminary Application for Advance" dated 26 March 1991 (Exhibit B pages 12-15). On page 13, an "Income and Expenditure" table was set out. That recorded the only income as $760 per week after tax. There was a space for "Regular overtime" which was left blank. The evidence does not make it clear whether the $760 includes an element of regular overtime, or averaged irregular overtime and penalty payments. The table recorded the following commitments per week: living expenses of $150, house mortgage repayments of $170, Bankcard/MasterCard obligations of $18 and "Repayments on this loan" of $342. That totalled $680, leaving a surplus of income over expenditure of $80. It is that rather small figure which Mr McBurnie in his affidavit must have been describing as "a surplus income position". 71 The figure of $170 per week as "House mortgage repayments" is a reference to repayments on the loan secured by the first mortgage which, according to page 12, then stood at $48,511. The figure of $170 per week is equivalent to $728 per month. According to the defendant (first affidavit page 27) his monthly repayments at that time were $934. If that were so, it would mean that the weekly mortgage repayments in the table on page 13 would have been understated by $50, thus nearly wiping out the surplus. However, though it is possible that the $934 figure reflected a sudden rise in interest rates, in this respect the defendant's evidence appears to be incorrect: "934" appears to be a misprint for "734", since the sum of that figure and the $1,480 figure for the second mortgage which is given on page 27 is $2,214. If the correct figure were "934", the figure of "2,214" would be wrong. Further, the figure of $734 is given for the first mortgage as at 22 September 1989 on page 26 of the annexures to the defendant's first affidavit, and the letter of 22 September 1989 on the plaintiff bank's letterhead approving the Home Loan stipulates monthly payments of $734: page 12 of the annexures to the defendant's first affidavit. 72 The Preliminary Application for Advance recorded the following facts. The defendant would be 46 that year. He was single and without dependants. His occupation was "first aid man". He had been employed by "Waterside Workers (AEWL)" for 22 years. He had a surplus of assets over liabilities of $533,834. His principal assets were his house, valued at $500,000; his furniture, valued at $61,000; and the 150 acres at Mudgee, valued at $42,000. Mr McBurnie noted that the valuation of $500,000 was the defendant's estimate. Mr McBurnie reduced that to $400,000, noted that the money secured by the first mortgage was $48,511, and after deducting that figure and 30/70 of it, arrived at equity of $330,699. As has already been said, the defendant's post tax income was recorded as $760 per week: the defendant estimated his income at the time at $4,000 per month gross. The document notes "100% req'd" - that is, the defendant was not funding any part of the construction of the house on the Mudgee property out of his own assets. 73 The document records "able to meet all commitments". Under "General and Recommendations" appeared the following: "He recently had an option for a redundancy payment due to some restructuring on the wharfs. If he left now he would receive $82,000 but after July it would be $122,000. He has decided in the meantime to construct a basic cottage on the Mudgee property. When redundancy money received (if he decides to leave), he may pay out this loan, make a bulk red'n or sell security property and clear all debts. He may also move to Mudgee for a while to assess viability of living there and rent out N'been property. Whichever he decides our debt would be safe. (N'been property is a large block, able to be sub-divided). Reliable client with reasonable average balances. Recommend approval."

The 1992 Advance 74 The "Preliminary Application for Advance" dated 9 June 1992 was filled out by Ms Pritchard. Her recommendation to advance a further $36,000 was approved by Mr Woutersz on or about 9 June 1992. On 19 June 1992 an approval letter was sent to the defendant. He requested the increase "on the Bank's usual terms and conditions" by a letter received on 23 June 1992. The "Preliminary Application for Advance" recorded as the main change in assets an increase in the value of the Mudgee property from $42,000 to $115,000. Why so large an increase was recorded is not explained. It does not seem to follow from the construction of "a basic cottage", as Mr McBurnie described it on 26 March 1991. The net asset position was recorded as $583,047. Weekly post tax income was recorded as having risen from $760 to $785. 75 A new income item appeared - "Rent Mudgee $200". This was not stated to be net of income tax. There was no equivalent item for income tax under "Commitments per week". Like the figure given for the value of the property, it seems improbably high. The major expenditure items (except for "Estimated living expenses") can all be inferred from other material. The weekly salary after tax ($785) approximates to the defendant's estimate of gross annual earnings of $4,000 per month. It also has a precision which suggests that it was sourced from documents such as pay slips. The defendant said in his second affidavit (page 11 paragraph 7): "Ms Pritchard makes no mention of the fact that also missing from the bundle of documents are evidence of earnings which I always provided to her by way of supplying Four (4) recent wages packets which she photocopied and placed with Loan Application."

He said the same in relation to Mr McBurnie. In contradistinction, then, to the position for all other major items except "Estimated living expenses", there is no other evidence that the Mudgee property having on it only "a basic cottage", as Mr McBurnie described it on 26 March 1991, did produce a rent of $200 per week. A question must arise as to whether Ms Pritchard misunderstood something which the defendant said about his hopes for renting the property. Ms Pritchard said of the Preliminary Application for Advance in paragraph 7 of her affidavit: "Apart from the bank account details the remainder of the application was written by me as Mr Conley gave me the information to complete the form."

She also said in paragraph 8 it was her "practice and responsibility" among other things "to take the personal balance sheet and income and expenditure commitments position from the applicant, and from this assess the applicant's ability to repay the loan and intention to repay". The defendant did not cross-examine Ms Pritchard. In the cross-examination of the defendant appears the following (page 5, lines 53-58): "Q. Mr Conley, I take it you do not disagree with what the various bank officers say when they say that you provided the information and they filled out the forms on each of these personal loan applications? A. Yes, that's right." 76 That is not useful evidence. There were four personal loans, and hence four personal loan applications. The bank officers wrote a great deal on the "forms" that did not come from the defendant. What the defendant supplied in the case of the 9 June 1992 form appears to have comprised at least twenty items of "information". The same is true of the 26 March 1991 form. The forms leading to the two personal loans before 1991 are not in evidence, but the same is doubtless true of them. The question was thus directed to at least eighty items of information. Whether or not the question was admissible for some purpose, the answer to the question as framed has no probative value in determining whether the defendant told Ms Pritchard that he was in possession of $200 rental income from the Mudgee property as distinct from hoping for it. If light is to be cast on that issue, it is necessary to find a question specifically dealing with it. There is none. One piece of evidence about the $200 is that Mr Woutersz said he came "to the view that service ability was more than sufficient based on [the defendant's] weekly wages as well as his rental income from his Mudgee property". If this reflects an actual recollection as distinct from a reconstruction of probable practice, it betokens astonishing powers of memory five and a half years after the event, though perhaps fewer powers of critical inquiry into the tax position, but it does not cast further light on whether the defendant actually said that that rent was being received. 77 The weekly surplus recorded in the 9 June 1992 form was $308. If the questionable rent payment is excluded, it would have been $108. 78 Under "General and Recommendations" appeared, among other things, the following" "Additional funds required for property improvements prior to selling - top floor needs to be finalised. It is understood that Mr Conley could take a redundancy package from waterfront. He would move to Byron Bay area, but is still undecided."

The April 1991 Contract Considered 79 The issue is whether any contract, or any provision of any contract, between the defendant and the plaintiff bank was unjust in the circumstances relating to the contract at the time it was made. The only relevant provision is the duty to make repayments - the duty to pay interest as it operated in conjunction with the duty to repay principal - in relation to the $84,000 loan. Of the factors set out in s 9(2) to which the court is to have regard, the central matter is whether the provisions about repayment imposed a condition which it was unreasonably difficult to comply with. 80 The $84,000 had to be repaid in ten years "based on the current interest rate", which was 17.25%. That produced a monthly repayment figure of $1,480. Those obligations had to be considered against a background of the defendant's existing obligation to repay the loan secured by the first mortgage over his house at the rate of $734 per month over twenty years, of which eighteen years were still to run. The terms relating both to the loan secured by the first mortgage and the loan secured by the second mortgage entitled the plaintiff bank to change the interest rate at any time. On the figures to which the plaintiff bank had regard, the defendant had a weekly surplus of only $80. It would only take a significant rise in interest rates (unless the repayment term were extended) or an interruption to the defendant's employment to wipe out that surplus. If the surplus went and a deficit arose, the relevant conditions imposed would be impossible to comply with unless the defendant's modest expenditure of $150 on living expenses were cut. That is to say, viewed from the moment of the advance, the terms imposed conditions of which it can be said that they "are unreasonably difficult to comply with". Where the contract in question calls for performance over so long a period as ten years in circumstances where the defendant had concurrently to perform the contract associated with the first mortgage (having eighteen years to run) the evaluation of whether it is reasonably difficult to comply with the contract is not something that can be limited to the point in time at which the contract was made, but must extend to the points in time at which it is to be performed, so far as circumstances at those future times can reasonably be foreseen at the time the contract was made: Contracts Review Act s 9(4). 81 There are three material matters going to whether it was unreasonably difficult to comply with the repayment obligations incurred in April 1991. 82 First, the documents in evidence reveal a degree of change in the interest rates charged by the plaintiff bank and the CSB, no doubt reflecting the volatility of interest rates in the market generally. For example, the CSB charged 17% on the Home Loan secured by the first mortgage in 1989. The plaintiff bank charged 19% on the first personal loan in 1989 and 19% on the second personal loan in 1990. The plaintiff bank charged 17.25% on the $84,000 loan in 1991 and 12.75% ("an annual effective rate of 13.37%") on the $35,000 advanced in 1992. The interest charged on the $50,000 advanced in 1993 was 9.9% ("10.36% effective rate per annum") and the interest charged on the $23,836 advanced in 1993 was 8.75% ("9.11% effective rate per annum"). In 1991-1993 the rates fell. But, within the meaning of s 9(4), it was reasonably foreseeable that they might have risen, and might have risen after 1993. It would have been well known to the bank officers that interest rates had risen sharply in their lifetimes from the late 1960's to the end of the 1980's. 83 The second material matter is the employment position of the defendant as at April 1991. His employer was evidently offering redundancy payments. If the defendant had been made redundant, he would have no capacity to service the loans totalling $132,511 ($48,511 and $84,000). It is true that with any redundancy payment he could have repaid principal, but not all of it if the figures of $82,000 and $122,000 mentioned in the "Preliminary Application for Advance" dated 26 March 1991 were a guide. And if the redundancy monies had been so used, the defendant would have had little or nothing left to live on. There was no evidence that he had any particular skills beyond those necessary for the job of first aid man. That was the only job he had ever had during his adult life. A man of the defendant's age and position in life would have been highly unlikely to have obtained comparable, or perhaps any, employment if he were declared redundant, or if he resigned on health grounds, or if he were dismissed. These circumstances, too, were reasonably foreseeable in 1991. 84 The third material matter relates to the fraction of the defendant's income which had to be devoted to repayments. The effect of the April 1991 loan was to increase the defendant's monthly repayment obligations from $1,772 to $2,214, being a rise from 50% of gross monthly earnings of $3,500 and 58% of earnings after tax to 55% and 73% respectively. The defendant, in his first affidavit, said in paragraphs 14.3 and 14.4: "The defendant complains that the Commonwealth Bank maintains an internal policy that it should not lend any more than an amount that could be repaid by applying 30% of the borrower's gross earnings. He alleges that the loan agreements were entered into by the plaintiff in breach of its own lending guidelines and induced the defendant to enter into borrowing obligations beyond the financial means of the defendant. …"

The plaintiff bank objected to those paragraphs, but nonetheless read paragraph 16 of Mr McBurnie's affidavit to the following effect: "I refer to paragraph 14.3 of the filed and sworn affidavit of Mr Conley dated 4 December 1997 ('Mr Conley's affidavit') and say that, as I am no longer employed by the Bank, I do not know and cannot say what the current position is with regard to the Bank's lending policy; however, my recollection at the time of the PCL Application [on 26 March 1991] was that such policy applied only to home loan applications and not to the PCL Application, serviceability of which was determined by consideration of net income and commitments position."

In paragraph 17 he said: "I refer to paragraph 14.4 of Mr Conley's affidavit and deny that I breached any lending guidelines. …."

Ms Pritchard denied in paragraph 10 that she breached any lending guidelines. This denial did not appear in Mr Woutersz's affidavit, but in paragraph 10 he said: "I refer to paragraph 14.3 of Mr Conley's affidavit and say, from my recollection of the Bank's internal policy at the time that such policy was in relation to home loan lending but not personal credit line lending."

Mr Hunt said nothing about guidelines. The plaintiff bank did not tender any document containing the guidelines to which three of its witnesses referred. It does not appear that discovery of documents took place. 85 As the Master said, a breach of lending guidelines by itself would not bring the matter within the Contracts Review Act. But the existence of lending guidelines for home loan applications, many no doubt secured by first mortgage, suggests that there was a level beyond which, as the plaintiff bank's experience had taught it, it was not prudent to lend. In oral argument the plaintiff bank accepted that there might be such experience, but would not make any admissions on the subject. Mr McBurnie in effect agreed that the home loan application 30% guideline applied to gross income. Hence it would have been correspondingly higher where net income was concerned. The defendant's income was at no stage large. Whether the matter is looked at in gross or net terms, and whether the matter is looked at in terms of a surplus after allowing for all other outgoings or not, the quantum of the loans was very high from April 1991 on. 86 For these reasons, the provisions for repayment in place after April 1991 imposed conditions which were unreasonably difficult to comply with if reasonably foreseeable events came to pass. 87 Apart from that matter, described in s 9(2)(d), the court must have regard to the following factors. One is whether or not there was any material inequality in bargaining power between the parties to the contract: s 9(2)(a). Obviously there was. 88 Another is whether or not prior to or at the time the contract was made its provisions were the subject of negotiation: s 9(2)(b). There is no evidence that they were. 89 Another is whether or not it was reasonably practicable for the defendant to negotiate for the alteration of or to reject any provisions of the contract: s 9(2)(c). Obviously it was not. The contract was a contract of adhesion. 90 Another matter is the relative economic circumstances, educational background and literacy of the defendant: s 9(2)(f)(i). He was literate. There is no evidence as to his specific educational background. Relatively to the plaintiff bank, his economic circumstances gave him only minuscule strength. 91 Another matter is whether or not independent legal or other expert advice was obtained by the defendant: s9(2)(h). The defendant did not have any independent legal advice or any other form of expert advice. In particular, expert financial advice might have been valuable in warning him of the risks associated with entry into the contract. 92 Another matter is the extent to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the defendant, and whether or not the defendant understood the provisions and their effect: s 9(2)(i). There is no evidence that any bank officer explained the provisions of the contract or their legal and practical effect. There is no contemporary evidence that the defendant understood the potential financial effect of the provisions, though there is no evidence that he did not understand the provisions themselves. 93 Another matter is whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the defendant by the plaintiff bank: s 9(2)(j). There is no evidence of any undue influence or unfair pressure. The plaintiff bank did in correspondence seek to encourage the defendant to avail himself of its services. This was no accident, since in, for example, the "Preliminary Application for Advance" dated 26 March 1991 the printed form commanded the bank officer as follows: "Consider the following - · was the full range of Commonwealth Bank's services discussed with customer in conjunction with this application? Include under 'general' brief details of the outcome of these discussions or if not discussed the reasons."

There was no material of that type under the heading "General and Recommendations". There was also a heading on the form "Collateral Advantages" in relation to which the bank officer was to "Give brief detail of present collateral advantages and those in prospect." That section was not filled in. But, for example, letters to the defendant from the plaintiff bank of 7 November 1988, 13 March 1990 and 31 December 1990 contained suggestions with a greater or lesser degree of force that the bank was willing to give further accommodation to the defendant. These tactics were intended to persuade, but they were not unfair. 94 It is also necessary to have regard to the commercial setting, purpose and effect of the contract: s 9(2)(l). The commercial setting was that the defendant desired to build a cottage and the plaintiff bank desired to earn fees and interest by lending him money for that purpose. The purpose of the contract was to fund the defendant's desire to build a cottage. It was not part of either party's contractual purpose to bring about a state of affairs in which the defendant would lose his home. The plaintiff bank certainly paid attention to the issue of whether "our debt would be safe". However, its purpose was to earn interest and be repaid in the ordinary way, not via foreclosure or forced sale. It was not part of the purpose of the contract to compel the defendant to sell his home. A forced sale was only a mechanism of last resort, to deal with an unforeseen and undesired outcome. Neither party entered the transaction foreseeing and desiring a forced sale. A contract performance of which carried the reasonably foreseeable possibility that there could be a forced sale was inconsistent with the contractual purpose of funding for the Mudgee property cottage. Hence so far as the provisions of the contract created the reasonably foreseeable risk of a forced sale, they contained the potentiality of injustice. 95 The criterion which the court is to apply in considering the applicable s 9(2) matters is the criterion of justice. The court is not to grant s 7 relief unless it concludes that the contract or a provision of the contract was "unjust in the circumstances relating to the contract at the time it was made". "Unjust" includes "unconscionable, harsh or oppressive". Though this definition is not exhaustive, it would only rarely, if ever, be the case that anything not of that general character would be unjust. 96 The repayment provisions were not unconscionable, harsh or oppressive. They were very burdensome. They were in a sense unreasonable, because of the plaintiff bank's complete discretion in relation to interest levels. They amounted to a hard bargain, because they strongly preferred the interests of the plaintiff bank to those of the defendant. But it cannot be said that they showed no regard for conscience or that they displayed that type of unreasonableness which is harsh or oppressive. That is because the circumstances which might trigger their truly catastrophic consequences as reflected in the outcome of these proceedings, though reasonably foreseeable, were not sufficiently likely to justify that characterisation.

The 1992 Advance 97 The position of the defendant worsened after this advance in the sense that he became further indebted to the extent of $35,000. If some crisis arose in his affairs in future, he was correspondingly less able to deal with it. If in fact he was receiving $200 in rent from the Mudgee property, the share of his gross income needed to service the loan fell from 55% to a slightly lower figure and the percentage of net income would also have fallen from 73% to 68%. If he was not receiving $200 in rent from the Mudgee property, the percentage stayed at 55% gross and fell from 73% to 68% net. Further, if the defendant was receiving $200 in rent, he would have enjoyed a weekly surplus of $308 instead of $80. Even if he was not receiving $200 in rent, his position, viewed as at 19 June 1992, does not seem inferior to his position in April 1991. Accordingly, there was no injustice arising out of the June 1992 advance.

The 1993 Advances 98 Though these advances, which were secured on the first mortgage, are not being sued on, and though the defendant is not seeking any relief in respect of them, they are a factor in the financial collapse of the defendant in late 1994. By then his indebtedness had reached a very high level, and a commitment level of 78% of gross income. In 1993 his commitment level had risen to 59% of gross income. However, the 1993 advances do not appear to have any causative significance which is different from the 1989, 1991 or 1992 loans. It is curious that the plaintiff bank is not seeking to finalise its affairs with the defendant in these proceedings by enforcing the obligations secured by the first mortgage as well as the second, even though the defendant is apparently as much in default of the first mortgage as he is of the second. That curiosity is not explained in the evidence and was not explained otherwise. However, the fact is that the plaintiff bank is not seeking to finalise its affairs in that way, and it is not necessary to consider the application of the Contracts Review Act to the 1993 advances further. A question may arise as to whether the plaintiff bank is entitled to curial enforcement of the first mortgage in later proceedings: Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589.

Irrelevant Considerations 99 In oral submissions below, written submissions on appeal, and oral submissions on appeal, the plaintiff bank stressed a number of matters of no, or only marginal, significance. These included the fact that it was some time before the defendant fell into difficulties; the fact that the loans benefited the defendant; the fact that the defendant voluntarily entered the transactions and requested that the plaintiff bank enter them; and the fact that the defendant did not complain until the proceedings began. It is common for unjust contracts to be made, even though the element that makes them unjust does not have practical consequences for some time; even though they confer benefits; even though the complaining party takes the initiative in bringing them about and enters them voluntarily; and even though no complaint is made until a late stage, particularly where the injured party is not legally represented. The fact that the relevant provisions in the contracts were not unjust does not depend on the factors just described. 100 The plaintiff bank also drew attention to evidence indicating that it did not immediately enforce its rights when the defendant defaulted. That circumstance is irrelevant to whether the contractual provisions were unjust, though it might have relevance to a question which does not arise, namely whether it is just to grant relief.

Remedy 101 The question of what remedy would have been appropriate, if any, if injustice had been established does not arise. If it had, questions of some difficulty would have presented themselves, for the defendant would not have been entitled to relief from all his obligations.

Lack of Representation 102 It is not easy to suppress an uncomfortable feeling that had the defendant been able to engage competent legal representation, he might have been able to present a more focussed case. Further, though it is not here intended to criticise the plaintiff bank for conduct which there is no sufficient basis to criticise, the defendant might, with competent legal representation, by utilising the processes of discovery and subpoenas, the facility of better evidence in chief, and the tool of cross-examination, have elicited material favourable to his case. The court room contest revealed a gross disparity in power between the plaintiff bank and the defendant. The plaintiff bank was legally represented, was very experienced in this type of litigation, and was prepared to make full use of the opportunities which the rules of evidence and procedure afford a party not bearing the burden of proof in an adversary system. The defendant was not represented, was wholly inexperienced and was evidently almost wholly unable to do his cause any justice. The disparity in forensic power was akin to their disparity in economic power. Though different cases are rarely comparable in this area, it can be imagined how the outcome in Elders Rural Finance Ltd v Smith (1996) 41 NSWLR 296, which was favourable to the borrowers, would have been affected if they had not been legally represented, and how great an imbalance between the two sides would have been observed. However, it is not open to courts to seek to redress that type of disparity beyond the limit to which the Master went.

The Defendant's Request for an Explanation 103 The defendant requested an explanation of why a great part of his evidence was not considered by the Master. It is true that a considerable part of it was not mentioned in the Master's reasons for judgment. Though the reasons for judgment do not demonstrate that the Master read it all, and that he paid appropriate regard to that which was relevant, there is no reason to believe that the Master did not read it and did not pay appropriate regard to that which was relevant. That which was not relevant, or centrally relevant, comprised principally the material relating to post June 1992 events; material relating to the defendant's complaints to government agencies about the events giving rise to the litigation and the conduct of the litigation; and material describing what the plaintiff bank's witnesses had failed to refer to in their affidavits. There was other material which, though relevant, was technically inadmissible because of its argumentative character. 104 As indicated above, the Master ought to have given fuller reasons for his conclusions, and in particular ought to have considered the position of the defendant under the second mortgage against the background of the obligations which the first mortgage created. However, had he done so there is no reason to suppose either that his ultimate conclusions would have altered or that they were wrong.

2. The appellant is to pay the respondent's costs of the appeal.

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