Garas v Maharaj

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4497/03 MAHER GARAS v SEINI JIKO MAHARAJ & ANOR JUDGMENT 1 The plaintiff, Maher Garas, provided some vendor finance at 20% to the defendants, Geoffrey Byron Maharaj and Seini Jiko Maharaj on their purchase of his property. The amount of the loan is in dispute. Additionally, Mr and Mrs Maharaj claimed that the agreement in relation to interest was unjust in terms of the Contracts Review Act 1980 or the agreement was unconscionable. 2 Carol Schultz, a solicitor of this court, acted for both the vendor and the purchasers in the conveyance. She recognised her signature on a letter of 18 May 1995 to Mr Garas. It enclosed a memorandum of account that included professional costs for drawing up a loan agreement with Mr and Mrs Maharaj. It also enclosed a document entitled "epitome of mortgage" that named Mr and Mrs Maharaj as mortgagors, Mr Garas as mortgagee and set out details of principal, interest, repayment amount and due dates for payment. 3 Mr Maharaj said he had been encouraged to purchase a house rather than rent one by a real estate agent. He and Mrs Maharaj were shown Mr Garas' property. The real estate agent told him he could arrange 100% finance and he and Mrs Maharaj could move in whenever they liked and the finance and paper work could be dealt with later. Mr and Mrs Maharaj accepted the proposal. They moved into the house and paid a licence fee during their occupation. 4 The purchase price was $180,000.00. Mr Maharaj had been told by a neighbour that he should ensure that the loan covered other expenses. He applied for a loan of $189,000.00. The bank approved $160,000.00 at 9.25% secured by first mortgage over the property. $1,968.00 was to be deducted for a mortgage insurance premium. 5 Mr and Mrs Maharaj had been in the house for about a fortnight when the real estate agent informed them that the house had not "made valuation". Mr Maharaj asked whether that meant they would have to move out because they did not have any additional moneys. The real estate agent said: "not necessarily". He would talk to Mr Garas. 6 Mr Garas and the real estate agent met with Mr and Mrs Maharaj at the premises about a week before settlement which was due on 15 May 1995. Mr Maharaj said that one loan agreement was executed by him and his wife. The document was not stapled or clipped together. The last page was extracted from it and he and his wife signed. 7 Mr Maharaj said he asked whether they should sign each page but was told it was unnecessary. Mr Maharaj said he was given a copy of the document. It recorded an advance of $23,568.00 with monthly instalments of $1,147.47. The copy was of an unexecuted document. 8 Mr Maharaj said that at the meeting Mr Garas said he would lend the difference between the bank loan and the settlement sum at 20% interest. 9 In cross examination, Mr Maharaj said he did not regard 20% on $23,568.00 as excessive. He had a borrowing from AGC for a motor vehicle at 17% or 19%. The loan document irrevocably charged the property with due payment under the agreement and asserted a caveatable interest in the property. 10 Mr Maharaj said he was hesitant about entering into the agreement because if he lost overtime he would not be able to make the repayments. He said he was told by Mr Garas that he would not try to take the house from them and that he would pay for the carpet and the solicitor's fees. 11 Mr Maharaj said the copy document in evidence was different from the document signed by him and his wife. The document appears to have been altered by hand to change the monthly instalments to $1,047.47. 12 Mr Garas said he was approached by the real estate agent and told that Mr and Mrs Maharaj could not come up with the shortfall. He and the real estate agent calculated the shortfall at $23,568.00. He said he was prepared to lend this amount at 20%. He instructed Ms Schultz to draw up a loan agreement in that amount. The document in evidence was a copy. He said he gave a copy to the real estate agent. 13 Mr Garas said that a few days later the real estate agent told him that Mr and Mrs Maharaj could not come up with the moneys they thought they could and needed additional funds to cover stamp duty, solicitor's fees, carpet upgrade and a licence fee. He and the real estate agent made a further calculation of the shortfall at $31,941.61. He instructed Ms Schultz to draw up a loan agreement in this amount and separate loan agreements with Mr Maharaj and Mrs Maharaj separately for half the amount. 14 Mr Garas said that these were the loan agreements signed by Mr and Mrs Maharaj when he visited their home with the real estate agent. He said each of the agreements was stapled, he gave each to Mr and Mrs Maharaj and asked them to read them carefully before signing. The real estate agent witnessed the signatures. 15 One loan agreement dated 15 May 1995 was for $31,941.61 from Mr Garas to Mr and Mrs Maharaj. Interest was 20% and the monthly instalments were $1,419.63. The loan agreement between Mr Garas and Mr Maharaj of 15 May 1995 was for $15,970.81 at 20% with monthly instalments of $709.82. The loan agreement with Mrs Maharaj was in like terms. 16 In cross examination, Mr Maharaj accepted that the documents had been signed by him and his wife but he had no recollection of having done so. 17 Mr Maharaj appeared for himself and as agent for his wife. He cross examined Mr Garas and Ms Schultz. The three executed loan agreements were inspected by Ms Schultz. She said that it was too long ago and she could not say whether she had prepared them. 18 Ms Schultz' letter of 18 May 1995 stated that the first instalment of $1,419.63 was due on 12 June 1995. The enclosed epitome identified the principal as $31,941.61, the interest rate at 20% and the instalments at $1,419.63. 19 $31,941.61 was the shortfall. The settlement sheet for the conveyance showed an amount due on settlement of $183,383.61. The bank advanced $160,000 less $1,968.00 for the mortgage premium less a fee of $190.00. The shortfall before expenses was $25,541.61. Stamp duty was $5,375.00, Ms Schultz' fees were $750.00 and the carpet upgrade was $275.00, a total of $31,941.61. 20 Mr Maharaj submitted that since Ms Schultz was unable to identify the loan agreements executed by him and his wife, I should have doubts as to the documents and the sequence of events. 21 In my view, however, the inevitable inference to be drawn from the circumstances is that the unexecuted document produced by Mr Maharaj was a copy of the originally drawn agreement that was given by Mr Garas to the real estate agent. Since it came into the possession of Mr Maharaj, the inference is that it was given to him by the real estate agent. 22 The evidence clearly establishes that Ms Schultz drew up a loan agreement for $31,941.61 with annual monthly instalments of $1,419.63. Her letter of 18 May 1995 and its enclosed epitome identified this document. It was the document executed by Mr and Mrs Maharaj and their signatures appear on the other loan agreements that Mr Garas said he had Ms Schultz draw up. 23 I accept the evidence of Mr Garas. The copy document referring to a loan of $23,568.00 was never executed and the agreement between the parties was constituted by the three loan agreements dated 15 May 1995 executed by Mr and Mrs Maharaj. 24 I had some concern that an interest rate of 20% might have been unjust in terms of the Contracts Review Act 1980 in the circumstances of this case. The Act is to be interpreted liberally (West v AGC (Advances) Ltd (1986) 5 NSWLR 610). A contract is not unjust, however, because one party has made a good bargain and the other a bad one, provided the terms of the contract are reasonable and the parties had a real or informed choice to enter into the contract (Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398). 25 Mr and Mrs Maharaj had moved into the premises in the expectation of 100% finance at first mortgage interest rates which, in the case of the St George Bank, was 9.25%. When they learned that the interest rate on the shortfall was 20%, they were already in residence and had enrolled their children in nearby schools. Furthermore, Ms Schultz acted for both Mr Garas and Mr and Mrs Maharaj in the conveyance. 26 But Mr Maharaj did not regard 20% as excessive. He had experience of high interest rates on his loan from AGC. Also, when he informed the man who was to arrange the finance, who had been introduced by the real estate agent, that man offered him another house which would "make valuation". Mr Maharaj declined this offer. 27 Mr Maharaj also accepted that when he was informed of the shortfall and the interest rate he could have declined, moved out and sought alternative accommodation in the area of the schools to buy or to rent. He had asked the real estate agent whether he had to move out. 28 While this was the first acquisition of a house and neither Mr Maharaj nor Mrs Maharaj was sophisticated in such dealings, I do not regard there to have been such an inequality in bargaining power between the parties to justify relief under the Contracts Review Act 1980, s 7(1). While it would, no doubt, have been unpalatable for Mr and Mrs Maharaj to have moved out of the premises, they were in a position to do so and to reject the offer of a loan. 29 Nor do I find any unconscionability on the part of Mr Garas that would warrant intervention. I am satisfied that Mr Maharaj understood the nature of the documents that he and his wife executed. There was no doubt in Mr Maharaj's mind that he owed money to Mr Garas under a loan agreement. His complaint was that Mr Garas was seeking to enforce what Mr Maharaj believed to be a different loan agreement. The enforcement of the loan agreement against Mr and Mrs Maharaj is not unconscionable on the basis that they were vulnerable parties of the type referred to in Yerkey v Jones (1939) 63 CLR 649 and Garcia v National Australia Bank Ltd (1998) 194 CLR 395. 30 The parties are agreed on the repayments made by Mr and Mrs Maharaj and the dates upon which those payments were made. An interest calculation with a starting principal amount of $31,941.61 taking into account those repayments and bringing the interest calculation up to the date of judgment will need to be made by the parties. 31 I will enter judgment for Mr Garas in that amount. I will dismiss the cross claim. I will hear the parties on costs. I direct the parties to bring in short minutes of orders reflecting these reasons.

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