223 Elio Coppola submits that based on these findings that were the first loan still on foot, he would not be liable, under the first loan or its security.
Justice of the First Loan and hypothetical relief
224 The first loan objectively had a substantial benefit to Elio Coppola. Despite the fact he was ignorant of it being taken out, for this reason it is difficult to conclude that it was "unjust" either within the Contracts Review Act or the Code.
225 When the Court considers the justice of the first loan transaction for the purposes either in Code s 70 or Contracts Review Act ss 7 and 9 it is not necessary to treat each of the statutory relevant considerations exhaustively. In this case a number of relevant considerations identified in the legislation are brought into more immediate focus and are of greater weight in the determination of justness of the first loan transaction in this case. They are dealt with below.
226 Inequality in bargaining power, lack of negotiation and excessive terms. As the chronological account above shows, a powerful burden upon the Coppolas created by the first loan was the all properties clause in the letter of offer, clause 10 and in clause 101 of the memorandum of mortgage. This clause went well beyond the legitimate security interests of Fast Funds at the time of the first loan which after all was an advance of just a little over $50,000. No legitimate interest of Fast Funds was served by an all properties clauses securing Elio's interests in Number 9, Number 11, the Kandos property, the Coledale property and the Stanmore property. Fast Funds did not make a case that it was genuinely commercially concerned about the security value of Number 9 in relation to the amount advanced. There was no identified threat to the integrity of its second mortgage security.
227 Where relief is being sought under the Code in respect of the first loan the all properties clause would be void in any event: Code s 40. This provision of the Code assists in defining what is the public interest in relation to such provisions. Under both the Code and the Contracts Review Act, the Court is entitled to take into account the public interest as well as the circumstances of the case.
228 The all properties clause in this case caused particular mischief for the Coppolas at the time of the third loan. As the history recounted above shows, the Coppolas felt pressured into acceding to demands to work with the broker Artex, to their great disadvantage, in part because a mortgage and caveat from the time of the first loan existed over Number 9. The actual use of the March 2008 mortgage and caveat over Number 9 at the time of the third loan is, although not decisive on its own, a factor inclining the Court to the view that when it comes to considering relief in relation to the second loan that the obligations of clauses 10 and 101 in the first loan should be treated as void.
229 Another factor pointing in the same direction was the lack of negotiation about this the all properties clause. Whilst I am not inclined to the view that there was a strong material inequality in bargaining power in this case with respect to the first loan, for reasons I will shortly explain. Such inequality did exist with respect to the all properties clause. The lack of any competent legal advice being available to Elio Coppola at the time of the first loan goes a long way to explaining why the existence of this clause was not picked up and rejected or made an item for negotiation.
230 Background, Literacy, Form of the Contract and Inability to Protect Self-Interest. Without any countervailing factors, my findings as to Vanessa's conduct in using the power of attorney without her father's consent would normally make out a strong case for setting aside the first loan transaction entirely. However, in this case it must be remembered that Elio Coppola substantially benefited from this transaction. He was the one who was in default under the MDN mortgage and the other mortgages in default at the time of the first loan. He was content to allow Vanessa to act generally in his interests, although he was not aware that she was going as far as she was. In the sense that she saved Number 9 from sale by MDN she did act in his interests. His trust in her abilities was not entirely misplaced. She of course wanted to keep him away from the transaction because of her fear of explaining to him what had happened to the family's money. Despite that aspect of the relationship, curiously, she did act in his interests and this is an important consideration making it impossible in my view to set aside the first loan transaction entirely despite Elio Coppla's lack of knowledge.
231 Although I find that because of Elio's lack of knowledge that the whole contract was unjust in the circumstances in which it was made, it is important for the Court to focus on what is the minimum relief required to do justice between the parties and that to focus on a causative connection between the relevant injustice found and the unjust consequence which requires relief to be granted.
232 Applying these principles to the first loan I fail to see how Elio being informed of this loan by his daughter Vanessa would really have made any difference. His trust in and fondness for her was immense. He is likely to have followed her advice even about refinancing after full disclosure of the facts. She is likely to have made much the same kind of arrangement and without legal advice even if Elio had known all the facts. Subject to one matter, a grant of relief in respect of the first loan would not require an alteration of any of its other terms, except its terms as to interest.
233 I am conscious if relief was sought under the Code that the cap would be applied to interest on the first loan but relief is not sought in respect of the first loan so that the interest caps do not apply. Nevertheless they can be taken into account when granting relief in relation to the second loan. And the way that the second loan should be approached is that the interest that accrues on the first loan should accrue at the maximum rate permitted by the Code and Regulations on the first loan. I see no reason to reduce the rate below the maximum rate in this case. Particularly for the reasons that follow.
234 Commercial setting. When considering the justice of the first loan it is of considerable significance in the commercial setting of the loan that Vanessa Coppola was propounding false documents and engaging in misleading conduct against Fast Funds for what she perceived was her father's best interests. She was successful in this. Mr Hall was misled. This had the result of making Fast Funds, through its agent, Mr Simon Hall an innocent party at the time of the first loan transaction. The fraud practised upon Fast Funds, of which it was unaware at that time was most unjust to Fast Funds. I am not inclined therefore to do any more than reduce the interest charged on the first loan to the statutory maximum permitted under the Code.
235 The exception though relates to the $10,000 paid to Vanessa. Through Mr Hall, Fast Funds was on notice of the benefit of $10,000 from the first advance going to Vanessa rather than Elio. Mr Hall knew the importance of paying the loan advance into the correct account. He was reluctant in later loans to pay loan advances other than to the named borrower. He had reason to suspect that this $10,000 was going to Vanessa, not to Elio. On the other hand he was reasonably satisfied through Vanessa's forged letter of 14 March that Elio was aware of the whole loan. As Fast Funds was aware that these funds were not being paid to Elio Coppola, Mr Coppola should not have to repay interest on them and relief should be fashioned to effect this result.
RELIEF AND THE SECOND LOAN
Is the Second Loan Regulated by the Code?
236 Elio and Maria Coppola did not sign a declaration under Code s 11(2) for the second loan. The second loan and its securities are presumed to be Code regulated: Code s 11(1). The statutory presumption is capable of being rebutted by evidence that the second loan was not provided or intended to be provided wholly or predominantly for personal, domestic or household purposes: Code s 6(1)(b). Elio and Maria Coppola contend that the statutory presumption is rebutted and Fast Funds contends that it is not.
237 Fast Funds' contention on this issue reflects its contention in relation to the first loan. Fast Funds says that the $72,118 applied from the second loan in repayment of the first loan and the $38, 713.17 applied in repayment of the MDN loan.
238 Fast Funds says that the same arguments to infer business or investment purpose apply to the second loan as were deployed in relation to the first loan.
239 In response Maria and Elio Coppola rely upon the lack of declaration in relation to the Code for the second loan and that there is no basis for the statutory presumption to be rebutted. They say that because more than half of the second loan was used to discharge the first loan that the purpose of the second loan will be determined by my findings about the purpose of the first loan.
240 The Coppolas' contentions are persuasive. I have determined that the first loan was provided or intended to be provided wholly or predominantly for personal, domestic or household purposes. As a substantial proportion of the second loan was used to pay out the first loan and the mortgagee of Number 9, MDN, I find that the second loan has the same purpose as the first loan. Therefore Code s 11(1) is enlivened and the second loan transaction is one to which the Code applies.
Has Fast Funds Breached the Code?
241 As with the first loan, Fast Funds breached the Code with the second loan. Fast Funds took no steps to comply with the Code.
242 Fast Funds properly conceded that if the Credit Code applied that the second loan was not Code compliant in a number of respects. As the credit provider Fast Funds did not give the debtor a pre-contractual statement setting out the matters required to be included in the contract under s 15 Consumer Credit Code. The credit provider did not provide an information statement in the form required by the regulations of the debtor's rights and obligations. The first loan charges interest beyond that provided for in the Code.
243 Fast Funds acknowledges that if the Code applies that it breached parts of ss 14, 15, 21, 40 and/or 43 of the Code and that it charged interest in excess of that permitted by the Code. Fast Funds also admits that it has failed to comply with the notice requirements of s 80 of the Code. I have dealt with these notice requirements separately below both in relation to the second and third loans and they can be put to one side for the moment.
244 The real contest in relation to loan 2 took place upon the territory of whether the second loan agreement and the mortgage were "unjust" within the meaning of s 70 of the Code and within the meaning of s 7 of the Contracts Review Act.
245 In light of my findings, Fast Funds concedes that orders should be made effectively restricting the ability of Fast Funds to claim interest under the second loan through an amount of not more than 48% per annum being the maximum rate prescribed by the Code and Regulations.
246 Fast Funds also accepts in light of my findings that the payment of such interest under the second loan as remains claimable by Fast Funds and which has not otherwise already been paid by Elio and Maria Coppola should be secured only by the Coledale property. This is because Fast Funds properly concedes that the application of the Code means that any all properties clauses in the second loan transaction are avoided by Code s 40.
247 Fast Funds contends that it should not be liable for the payment of any civil penalties for breaches of the Code because Fast Funds entertained a mistaken but honest belief that it had complied with the procedures required to exempt the second loan from the Code. Fast Funds says the appropriate outcomes is to restrict the calculation of interest on the second loan to the maximum rate prescribed by the Code and Regulations. Fast Funds says this already provides significant compensation for relief for the Coppolas.
248 In response Elio and Maria Coppola have put detailed submissions as to the injustice of the second loan transaction and the need for the imposition of civil penalties. I will now deal with the question of the justness of the second loan and what relief is appropriate.
Whether the credit transaction was unjust within Code s 70 and Contracts Review Act s 4
249 Authority establishes uncontroversial principles as to how the contract may be found to be "unjust" under the Act or as a credit transaction under s 70 Code. These have been well summarised in respect of the first loan.
250 The principal features of unjustness relied upon by Elio and Maria Coppola in relation to the second loan are: MDN were claiming judgment for possession; no refinancing of the MDN facility had been arranged despite promises to the contrary; Elio Coppola was misled by his wife and daughter about the purpose of the loan; the solicitor Mr Andresakis did not advise Elio Coppola properly about the transaction; Elio and Maria Coppola did not have the benefit of Code s 14 disclosures; the lender was asset lending on the second loan; most of the second loan advance was taken in repayment of the first loan; and the second loan was otherwise on the same challengeable terms and conditions as the first loan. These features are dealt with in more detail below. But first it is necessary to consider the effect of a feature peculiar to the second loan that Elio and Maria Coppola apparently had legal advice for the loan.
Mr Angelo Andresakis
251 Mr Angelo Andresakis, a solicitor, conferred with Elio, Maria and Vanessa Coppola about the loan and mortgage documentation relevant to the second loan. Three family members saw Mr Andresakis. He was free of any association with the defendants. They were able to ask him whatever they needed to about the wisdom of his entering into the second loan. However, Vanessa's evidence was that Mr Andresakis gave them "very little advice". Just what that meant was not made very clear in the evidence. A contest developed between the parties as to who bore any applicable burden of proof regarding the inadequacy or extent of Mr Andresakis' advice to them.
252 If a lender is to rely upon the fact of independent legal advice being given to the borrower it is necessary for the independent advice to actually be received by the borrower; but the position would be different if the borrower were incapable or if the transaction were clearly for her benefit or if the transaction was a purely commercial one with no flavour of possible influence from or benefit to some relative or friend: Spina v Permanent Custodians [2009] NSWCA 206 at [60]-[64]. The crucial matter is whether the person seeking to set aside the transaction was denied the opportunity to have the assistance of a disinterested legal adviser: Bridgewater v Leahy (1998) 194 CLR 457, at 486 [100].
253 The contention of Fast Funds was that as the Coppolas were alleging that the second transaction was unjust in all the circumstances and that they had acknowledged that some advice was given to them by Mr Andresakis, their failure to call him as a witness required the Court to draw an inference that if he remained uncalled that his evidence would not have assisted them: Jones v Dunkel (1959) 101 CLR 298.
254 In response to this the Coppolas' case was that no adverse inference should be drawn from their failure to call Mr Andresakis. They said that it was clear from their evidence that they were critical of the advice of Mr Andresakis and that their interests were at odds with his. They submitted they were not obliged to call a witness who could be expected to be unfavourable given the criticism of him that they had offered in their evidence. Their case was that without serving a subpoena to testify on Mr Andresakis they would not expect him to assist their case, particularly it is said because of the provision commonly found in professional indemnity policies prohibiting the making of admissions by insured persons. They further submitted that they had clearly waived privilege over the communications occurring at this meeting. Therefore there was no impediment to Fast Funds calling Mr Andresakis in its case and it was appropriate that it do so. The Coppolas submitted that the Court should assume that Mr Andresakis had interests to protect which were adverse to those of Elio and Maria Coppola and that the relationship between him and his former clients had become, as the Coppolas put it "a potential source of conflict rather than a reason for calling him".
255 In response Fast Funds developed its submission that a Jones v Dunkel inference should not be drawn against it. Fast Funds pointed out that the mere fact that the Coppolas wished to make an adverse assertion about Mr Andresakis' conduct does not automatically create a proper excuse for not calling him as a witness. This submission was advanced both on the evidence in this case and as an issue of law. Fast Funds argued that there was in fact no evidence to support the conclusion that misconduct was being alleged against Mr Andresakis, or that his conduct was being impugned. It was also put that even if there was a sufficient evidentiary basis for it to be found that there was criticism of the conduct of Mr Andresakis that that did not as a matter of law justify the drawing of a Jones v Dunkel inference in this case. In support of this argument Fast Funds relied upon the following statement of Bray CJ in Smith v Samuels (1975) 12 SASR 573 at 581:
"For the unfavourable inference to be justified the witness not called must be available: it must be "in the power" of the party to call him. He may be unavailable through absence of illness. He may be unbailable because he would not be a competent witness. In my view he may also be unavailable in the relevant sense, or at least no unfavourable inference should be drawn from his absence, when there are strong reasons for not calling him other than the falsehood of the story he might be expected to confirm, such as hostility to the party or, I would say, jeopardy or grave prejudice to the witness himself."
256 Based on this passage the Fast Funds' submission was that an unfavourable Jones v Dunkel inference should not be drawn where there are strong reasons for not calling the parties such as the witness' hostility to the party, or the likelihood of jeopardy or grave prejudice to the witness himself.
257 Fast Funds characterised the Coppola's submission here as well short of such strong reasons for resisting a Jones v Dunkel inference. Fast Funds said that the Coppola's submission amounted merely to a statement that "one would not expect [Mr Andresakis] to admit that he gave inadequate advice" and then to seek to resist the drawing of an unfavourable inference from his absence. The Fast Funds' submission is that there are no strong reasons for not calling him "other than the falsehood of the story he might be expected to confirm".
258 In response to this the plaintiff says that the position here is similar to that considered by Mahoney JA in Fabre v Arenales (1992) 27 NSWLR 437 in which his Honour stated at 449-450:
"I have to this point dealt with what the judge did upon the assumption that an inference was properly to be drawn from the fact that Mr Arenales was not called. But, in my opinion, that assumption is not correct: at least, it did not appear to the judge necessarily to be so. The significance to be attributed to the fact that a witness did not give evidence will in the end depend upon whether, in the circumstances, it is to be inferred that the reason why the witness was not called was because the party expected to call him feared to do so. But there are circumstances in which it has been recognised that such an inference is not available or, if available, is of little significance. The party may not be in a position to call the witness. He may not be sufficiently aware of what the witness would say to warrant the inference that, in the relevant sense, he feared to call him. The reason why the witness is not called may have no relevant relationship to the fact in issue: it may be related to, for example, the fact that the party simply does not know what the witness will say. A party is not, under pain of a detrimental inference, required to call a witness "blind".