Greater Building Society Limited v Ljubisa Ristic

Supreme Court of NSW|2001-10-30|Before: Newman AJ, Cole J, Santow J

CITATION : Greater Building Society Limited v Ljubisa Ristic [2001] NSWSC 1052 CURRENT JURISDICTION: Common Law FILE NUMBER(S) : SC 10306/00 HEARING DATE(S) : 29-30 October 2001 JUDGMENT DATE : 23 November 2001

PARTIES : Greater Building Society Ltd (Plaintiff) Ljubisa Ristic (Defendant) JUDGMENT OF : Newman AJ at 1

COUNSEL : M.A. Jones (Plaintiff) R.M. Lovas (Defendant) SOLICITORS : Clayton Utz (Plaintiff) Harvey Law Firm (Defendant) CATCHWORDS : Contract - unjust at time of entry - unfairness - unconscionability - Duty of care - breach - Default - whether default fee was a penalty - foreseeability - Contracts Review Act 1980 ss 7(1), 9(2) LEGISLATION CITED : Contracts Review Act 1980 Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Car Co Ltd [1915] AC 79 Bridge v Campbell Discount Company Ltd [1962] AC 600 AMEV-UDC Finance Ltd v Austin & Anor (1986) 162 CLR 170 West v AGC Advances Ltd (1986) 5 NSWLR 610 CASES CITED : Westpac v Gordon & Reilly (unrep, SCNSW 1 Apr 93) Conley v Commonwealth Bank of Australia [2000] NSWCA 101 Commonwealth Bank of Australia v Cohen (unrep, SCNSW, Cole J, 22 Jul 88) Elders Rural Finance v Smith (1996) 41 NSWLR 296 Mahlo v Westpac Banking Corporation (unrep, NSWSC, Santow J, 6 Feb 98) Wyong Shire Council v Shirt (1980) 146 CLR 40 DECISION : para 42

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

10306/00 - GREATER BUILDING SOCIETY LTD v LJUBISA RISTIC

JUDGMENT 1 HIS HONOUR: The plaintiff in this matter seeks an order for possession of land and a judgment for monies outstanding on a home loan contract. The defendant seeks relief by way of a cross claim pursuant to, inter alia, the Contracts Review Act. 2 The defendant is the owner in fee simple of land comprised in certificate of title folio identifier 718/527700 known as 37 Lindsay Avenue, Valentine in the state of New South Wales. Prior to 19 September 1997 the subject property was unencumbered. 3 The evidence discloses that the subject property was purchased by the defendant and a building erected upon it as a consequence of the defendant having available to him funds which resulted from settlement of industrial accident litigation. As of 19 September 1997 and still the defendant was and is an invalid pensioner receiving fortnightly payments of his pension from the Department of Social Security. 4 There was no dispute that as at the date of trial the defendant was in default under his mortgage. As at 30 September 2001 the arrears under that mortgage totalled $74,416.50. The great bulk of the arrears is constituted by fees and charges, for his arrears without fees amounts to a mere $380.00. To ascertain how this situation arose it is necessary to recount the history of the defendant's relationship with the plaintiff and to advert to the various clauses of the security documents. 5 As I have already indicated the defendant first approached the plaintiff seeking a loan in September 1997. The loan he sought was in the sum of $10,000.00 and his purpose in seeking that loan was to complete his house at 37 Lindsay Avenue, Valentine. On 19 September 1997 the loan of $10,000.00 was paid to the defendant and he completed security documents including a mortgage and a Regulated Home Loan Contract. The language used in the Regulated Home Loan Contract is in the form known as 'plain English'.

Once we debit an amount to your loan account (if it is not already owed), you owe us that amount. Clause 2 deals with the question of interest in the following terms:

INTEREST CHARGES 2.1. Interest charges for each day are calculated on a daily basis by applying the daily percentage rate to the daily balance. The daily percentage rate is the annual percentage rate for that day divided by 366 in a leap year and 365 in all other years. 2.2. If an interest off-set applies to the contract we will: 2.2.1. calculate the notional interest that would have been raised each day on the balance of the deposit account or accounts to which the interest off-set applies had you been entitled to interest under that deposit account or accounts. However if the balance of that deposit account or the sum of the balances of those deposit accounts exceeds the loan account balance, we will not calculate notional interest on that part of the balance or balances of the deposit account or accounts that exceeds the loan account balance. If more than one deposit account applies we will make this calculation first by using the balance of the deposit account with the lowest notional interest rate. We will then use the balances of the remaining deposit accounts in ascending notional interest rate order until the sum of the balances used equals the loan account balance; and 2.2.2. reduce the interest charges calculated for a day in accordance with clause 2.1 by the amount of notional interest calculated in accordance with 2.2.1. above. The rate used to calculate the notional interest on the deposit account or accounts will not exceed the applicable annual percentage rate. 2.3. We can debit interest charges to your loan account monthly on the last day of each month. We can also debit interest charges to your loan account at the following times: 2.3.1. immediately before we credit to your loan account a payment that equals or exceeds the loan account balance at that time; and 2.3.2. on the day the loan account balance becomes due under clause 8 below. 2.4. The amount of interest charges debited to your loan account will comprise the sum of interest charges calculated for each day in the period commencing on: · in the case of the first interest debit, the settlement date; · otherwise, the day following the last day for which an interest charge was debited, and ending: · where the interest charge debit takes effect earlier than immediately before the end of the day on which it was debited, the day before the day on which the interest charge is debited; · otherwise, the day on which the interest charge is debited. 2.5. We can change the annual percentage rate at any time except during a fixed rate period. If any law regulates that change, we may only change to the extent permitted by, and subject to, the requirements of that law. 2.6. You can find out what any current reference rates under this contract are by asking any of our officers at any of our branches.

FEES AND CHARGES 3.1. You must pay to us or as we direct the following fees and charges (which are authorised by this contract): 3.1.1. government charges and you must pay them when they are debited to your loan account; and 3.1.2. the credit fees and charges set out in the Schedule which are payable at the times specified in the Schedule. 3.2. We can debit these fees and charges to your loan account. 3.3. We can debit the government charges to your loan account when the receipt or withdrawal to which those charges relate occurs. 3.4. We can change the amount of any credit fee or charge at any time. If any law regulates that change, we may only change to the extent permitted by, and subject to the requirements of that law. We can change this contract to impose a new credit fee or charge at any time (see clause 19). 6 The defendant's obligation to repay is set out in clause 5 which is in the following terms:

REPAYMENTS 5.1. You must pay the repayments we determine at the times we determine. As at the disclosure date the repayments are those set out in the Schedule and they must be paid at the times set out in the Schedule. 5.2. You must pay us the loan account balance plus any amounts charged, accrued or payable but not yet debited to your loan account at the end of the loan term if they have not become due and payable any earlier. 5.3. You can pay the loan account balance at any time. If you do this, you must also pay any amounts charged, accrued or payable but not yet debited to you loan account at that time. 5.4. We do not treat a payment as made until we credit it to your loan account. 5.5. If your loan is a construction loan, we calculate each repayment amount as follows: (Q + FID) x 1.002868 + 2 cents and rounded up to the nearest dollar where:

Q = A x i/12 x (1 + i/12)t (1 +i/12)t - 1

A = the amount of credit provided up to and including the date of calculation.

FID is calculated by multiplying Q by the FID rate and truncating the result to the nearest lower whole cent. 7 Clause 8 of that contract sets out what will happen should the defendant be in default. It reads as follows:

8.1. You are in default if: 8.1.1. you do not pay on or before its due date for payment any amount payable under this contract; or 8.1.2. you are in breach of any other provision of this contract; or

8.1.3. you or another person gives us incorrect or misleading information in connection with this contract or a security such as information given in an application from; or

8.1.4. we reasonably believe you or another person has acted fraudulently in connection with this contract or a security; or

8.1.5. you or a security provider is in default under a security or any other security interest that has been given to us or Greater Credit Union Ltd or a guarantor withdraws from a guarantee that is a security; or

8.1.6. you or a security provider becomes insolvent or steps are taken to make you or the security provider so; or

8.1.7. you are in default under any other credit contract you have entered into with us or Greater Credit Union Ltd; or

8.1.8. a power of sale arises under any security interest over a property which is secured by a security; or

What can happen then? 8.2. If you are in default, then subject to any law (including requirements as to notice) the loan account balance plus any amounts charged, accrued or payable but not yet debited to your loan account automatically become due and payable. 8.3. Enforcement expenses may become payable under this contract or any security (or both) in the event of a breach. 8.4. You must pay us all reasonable enforcement expenses we reasonably incur arising from any default under this contract or under any security. We can debit these amounts to your loan account.

8.5. If enforcement expenses are debited to your loan account they will become due and payable at the time they are debited.

8.6. Enforcement expenses include, in the case of any security, costs incurred in preserving or maintaining property subject to the security such as paying insurance, rates or taxes for the property after a default where they are authorised by the security. If the property the subject of a security can be insured, you must ensure insurance over that property is taken and maintained for at least the minimum insurable value. If you do not, we may take out that insurance and any premium we pay will be an enforcement expense. 8 Like the Regulated Home Loan Contract the memorandum of mortgage uses plain English. It contains similar provisions relating to the obligations of the defendant and what will happen when default occurs. I do not believe it is necessary for me to set out the specific clause in the memorandum of mortgage but merely to refer shortly to the relevant provisions. By clause 24. 1.1 of the Memorandum of Mortgage default includes non-payment. By clause 24.1.2 default includes doing something that the borrower agrees not to do. Thirdly, by clause 24.1.7 default can occur under any other contract entered into by the defendant with the plaintiff. 9 By clause 25.1.1 the plaintiff may sue for the amount owing on default and furthermore pursuant to clause 25.1.2 the plaintiff may take possession of the secured property. 10 Indeed the Memorandum of Mortgage required consent of the plaintiff to be obtained before any other security interests are created over the subject property (see clause 8.1.3). 11 The defendant admitted that the fees and charges imposed pursuant to clause 3 were in fact imposed pursuant to that clause of the Regulated Home Loan Contract and that the interest payments as calculated were also done pursuant to clause 2 of that document. Again it was admitted that the defendant was in default in the amounts thus calculated. 12 Thus the only issues in the case related to the defences raised by the defendant and if established the extent to which those defences would affect the final outcome of these proceedings. 13 It is thus of importance as I have already mentioned to turn to the relationship and the various dealings which occurred between the defendant and the plaintiff. 14 It is common ground that the first contact between the plaintiff and the defendant of importance was between Mr Graeme Browne, the then branch manager of the plaintiff's Warners Bay branch, and the defendant in September 1997. It was Mr Browne's evidence that he explained the contractual obligations arising under both the Regulated Home Loan contract and the Memorandum of Mortgage to the defendant in detail. The defendant on the other hand deposed that Mr Browne's approach to the explanation and execution of the relevant security documents was desultory. I shall return to the question of the difference in evidence between not only Mr Browne but also of other staff members of the plaintiff and the defendant over the explanation and execution of various security documents later in these reasons. 15 The original loan agreement between the plaintiff and the defendant required the defendant to make 120 monthly repayment over 120 months. The first twelve months was known as a discount rate period and the monthly repayments required there were $114.00. Thereafter the repayments would be at the rate of $115.00 per month. Whatever may have occurred between the plaintiff's staff members and the defendant he did in fact make the payments pursuant to the contract and the Memorandum of Mortgage on time until March 1998. 16 On 5 March 1998 the defendant saw Mr Browne and requested he receive a further loan of an additional $10,000.00. At this meeting the defendant completed the appropriate application forms for such a loan. Once more it was Mr Browne's evidence that he fully explained the nature of any proposed loan and the defendant's obligations. As was the case in relation to earlier meetings the defendant claimed that Mr Browne's explanation of the defendant's obligations was desultory. 17 On 16 March 1998 the defendant again attended upon Mr Browne at his branch office. The loan having been approved the defendant completed the appropriate security documents which were identical in form, save for details relating to the amount of the loan and the way in which the defendant was to discharge his obligations under the loan, to the security documents completed in relation to the loan advanced on 19 September 1997. The actual amount of the loan secured by the documents there executed was $19,687.75. The difference between the $20,000.00 sought and the sum actually advanced is explained by charges made by the plaintiff. In this instance the defendant executed an automatic transfer authority which authorised the plaintiff to transfer from the defendant's savings account a sum of $55.00 per week commencing on 20 March 1998 to the loan account which was established at the meeting on 16 March 1998. Once more a disparity occurred in the evidence between Mr Browne and the defendant as to the discussion which ensued between them relating to the defendant's obligations under the loan. In relation to the first transaction Mr Browne's evidence was that he gave the defendant very detailed advice as to how the loan should be handled by the defendant and the defendant's obligations under the loan and what would happen should he be in default. On the contrary the defendant deposed that Mr Browne's discussion with him on that occasion was as in the earlier cases of a very desultory nature. 18 In both of the Regulated Home Loan contracts entered into by the defendant on 19 September 1997 and 16 March 1998 provision was made for the debiting of a charge known as a default administration fee. The explanation found in the Regulated Home Loan contracts was as follows: 'Default Administration Fee This fee will be debited to your loan account immediately before the end of the last day of each month when you are in default of a payment obligation under this contract. It is payable when it is debited to your loan account. This fee will be $6.00 where you are in default of an amount that is less than two repayments and otherwise will be $20.00.' 19 In July 1998 the plaintiff forwarded to the defendant a notice informing the defendant of changes in the fees and charges payable to the society. Included in those changes was a change to the amount payable under the heading Default Administration Fee. By that notice the defendant was informed that from 1 September 1998 the fee would be $20.00 where he was in default for an amount that was less than two repayments and otherwise it would be $50.00. 20 Thereafter the defendant began to default on his repayments. His defaults occurred on a date when a transfer was to be made from his savings account to his loan account there were insufficient funds on occasions in his savings account to enable the transfer to be made. By the end of 1998 he was some $829.53 in arrears on his repayments. When default fees were added his default came to $1076.53. 21 In December 1998 the defendant contacted a Mr Stefanson, an accounts controller, employed by the plaintiff. In that conversation the defendant deposed that he was proposing to sell his house. Later on 27 January 1999 the defendant met with Mr Stefanson and another employee of the plaintiff, a Mr Paul Gibson, at the plaintiff's head office. At that meeting following a suggestion made by Mr Gibson the defendant agreed to capitalise his arrears and signed an authority which enabled that to occur. Further the defendant executed a fresh automatic transfer authority which changed his repayment regime. The change made was to substitute a fortnightly repayment of $110.00 in lieu of the weekly repayment of $55.00. The object of this change was to create a nexus between the payment of the defendant's social security pension and his obligation to repay the monies advanced to him by the plaintiff. 22 Again there was a clash between the evidence given by the defendant as to what happened at that meeting and the evidence of Mr Gibson. Mr Gibson was cross examined and Mr Stefanson's affidavit as to what happened at the meeting was tendered in evidence. In essence the defendant complained that no proper explanation of what was occurring was given to him by Mr Gibson. 23 Earlier in these reasons I adverted to the clash between the defendant's evidence of what happened with his meetings with Mr Gibson and Mr Gibson's evidence as to what occurred. Having made allowance for the fact that English is not the native tongue of the defendant and that his educational understanding appears not to be of the same calibre as that of the plaintiff's witnesses I am of the view that in certain respects the defendant's evidence was unsatisfactory. I formed the view that many of his answers to questions put to him in cross examination were tailored to obtain a situation favourable to his cause. On the other hand the oral evidence given by Mr Browne, Mr Gibson and indeed Mr Pickett to whom I shall make reference later in these reasons on behalf of the plaintiff I find entirely acceptable. Accordingly, I am of the view that wherever there is a clash between the evidence of Messrs Browne, Gibson and Pickett and that of the defendant I prefer the evidence of the witnesses called by the plaintiff. 24 Mr Pickett, a loans manager, gave evidence largely relating to the state of the defendant's indebtedness to the plaintiff. However, he also deposed as to a conversation he had with the defendant at a meeting on 2 September 1999. There he deposed he agreed to the defendant's request to defer payments for a period of four to six weeks on the condition that the defendant placed his property on the market. However, prior to the commencement of these proceedings on 14 February 2000 the defendant did not advise the plaintiff that he had placed his property on the market. 25 I should add that the defendant's property is currently on the market. Tendered in evidence by the defendant was promotional material from the Newcastle Herald in which the defendant's premises were advertised for sale at $399,950.00. 26 The disparity between what the defendant believes his property is worth and the amount of the loan may well provide an explanation of the defendant's attitude towards repaying the loan. In cross examination the following exchange occurred between the plaintiff's counsel and the defendant: Q. You understood at the time that if you didn't pay that they could take your property? A. They have to have a good reason, yes. They just can't take the house like that. Not for $20,000.00. I am sure should be some communication, some understanding and if I pay my loan -- 27 There are two other matters of evidence to which I should make reference. First, Mr Gibson also deposed that in November 1999 when the defendant was in arrears he spoke with him. There he deposed the defendant agreed to clear his arrears by raising his payments to $400.00 per month and a letter to that effect was written by the plaintiff to the defendant. Again the defendant did not comply with this agreement. 28 The other matter of evidence to which I should refer is the affidavit of Mr C.P. Curry, solicitor. There he deposed that on 29 March 1999 he met with the defendant at his office at Wallsend. At the time Mr Curry was acting for the defendant in litigation which was unconnected with the present proceedings. At that meeting the defendant executed a deed of charge and a Real Property Act mortgage over the premises. The permission of the plaintiff was not sought to this transaction. This unchallenged evidence is direct proof that the defendant was in breach of clause 8.1.3 of the Memorandum of Mortgage to which I have made reference above. I should add that if this were the only matter of concern to the plaintiff I doubt if the proceedings would have been taken. However, the matter has been raised and the evidence as I have indicated is all one way on this point. 29 The defendant being in default either by way of failing to make appropriate repayments or entering into a further security over the subject land without the plaintiff's permission the only question as I have indicated above is for the court to determine is whether or not the defendant has made out the matters he has raised in his defence and cross claim. 30 What then are the matters which the defendant raises? First, pursuant to the Contract Review Act 1980 he alleges that the loan and mortgage agreements were unjust at the time of entry (see section 7(1) of the Act). Second, he alleges that the default administration charge was in fact a penalty. Third, he alleges that there was a representation made by the plaintiff to the defendant that the repayments to the loan account would be taken from the defendant's pension or the proceeds of the pension. Fourth, a allegation of general unfairness or unconscionability. 31 I turn first to the question of whether the default administration fee is in fact a penalty. The classic statement of the law in this regard is to be found in the speech of Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Car Co Ltd [1915] AC 79. At 86-87 Lord Dunedin said:- The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage, and …whether a sum stipulated is a penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged as at the time of the making of the contract not at the time of the breach.

Later in Bridge v Campbell Discount Company Ltd [1962] AC 600 Lord Radcliffe observed in his speech at 621-622 that:- …a sum cannot be legally exacted as liquidated damages unless it is found to amount to 'a genuine pre-estimate of loss'…If it does not amount to such a pre-estimate, then it is to be regarded as a penalty. In Australia it was observed in AMEV-UDC Finance Ltd v Austin & Anor (1986) 162 CLR 170 at 193 by Mason and Wilson JJ that the test in considering whether a contract is penal in character rather than a genuine pre-estimate of damage is:- …is one of degree and will depend on a number of circumstances, including (1) the degree of disproportion between the stipulated sum and the loss likely to be suffered by the plaintiff, a factor relevant to the oppressiveness of the term to the defendant … 32 In my opinion the amounts of the default administration fee, being at most $50.00 for a situation of default, represents an estimate by the plaintiff of the administrative cost of dealing with a matter of default. It seems to me that no matter what the sum involved might be when a default occurs the amount of time to be taken by officers of the plaintiff in dealing with that situation would be similar. Accordingly, I am of the view that the default administration fee is in fact just what it says it is, namely an administration fee and not a penalty. Accordingly, the defendant's argument in this regard must fail. 33 It is also alleged that the plaintiff's employees had represented to the defendant that repayments would taken from the defendant's pension and that they failed so to do. The evidence is clear that all times the defendant's invalid pension was paid into his savings account. Prior to the agreement by the defendant to capitalise his arrears on 27 January 1999 his repayments were not dovetailed to the date on which his pension payments were paid into his savings account. That situation was rectified when the capitalisation agreement came into effect on 27 January 1999. There was no time when the pension payments were not paid into the defendant's savings account. Even when the change was made on 27 January 1999 to create a nexus between the payments in the pension and the payments out to the loan account from the savings account the defendant continued to default. I see no substance whatsoever in this ground and accordingly it must fail. 34 Because of the views I have formed as to the application of the Contract Review Act and the reasons which give rise to those views I am of the view that the dealings between the plaintiff and the defendant cannot fall under the head of either general unfairness or unconscionability and accordingly this defence must also fail. As I have said the considerations which give rise to my findings as to the application of the Contract Review Act in this instance determine this issue as well. 35 I turn then to the question of the applicability of the Contracts Review Act. Pursuant to s 7(1) of that Act a defendant can obtain relief in an action brought on a loan agreement if the defendant can establish that the agreement was unjust at the time he entered into the contract. Here the loan and mortgage agreements entered into by the defendant are alleged to have been unjust at the time of entry. 36 Section 9 of the Contracts Review Act sets out the factors which a court must take into account in determining whether a contract is unjust in the circumstances relating to the contract at the time it was made. In his work Lender Liability Professor O'Donovan at page 305 made the following observation as to the operation of s 9 of that Act, with which I agree:- In determining whether a contract is unjust in the circumstances relating to the contract at the time it was made, the court must have regard to the public interest and all the circumstances of the case. One aspect of public policy is that people should honour their contracts. However, the court will inquire whether the terms of the contract are reasonable and whether there was a real and informed choice to enter the contract. A contract will not be set aside simply because it was not in a party's interests to enter into the contract or because a party received no independent advice. Similarly, the fact that a party lacks the capacity to pay is not a sufficient reason for declaring that the contract was unjust. However, a contract can be unjust either because it is the product of procedural unfairness or because it imposes unfair terms. In other words, the Act embraces both procedural and substantive unconscionability. Apart from these general policies, the court is directed by s 9(2) of the Contracts Review Act 1980 (NSW) to a list of matters which it must take into account in determining whether the contract is unjust. Hence, the grounds on which relief can be granted are much wider than the equitable concept of unconscionable conduct. 37 Section 9(2) of the Act sets out a statutory list of specific matters to which the court must pay regard in determining whether the contract is unjust. Section 9(2) is in the following terms:- 9(2) [Specific matters] Without in any way affecting the generality of subsection (1), the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following: (a) whether or not there was any material inequality in bargaining power between the parties to the contract; (b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation; (c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract; (d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract; (e) whether or not: (i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests; or (ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented, because of his or her age or the state of his or her physical or mental capacity; (f) the relative economic circumstances, educational background and literacy of: (i) the parties to the contract (other than a corporation); and (ii) any person who represented any of the parties to the contract; (g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed; (h) whether or not and when independent legal or other expert advise 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. 38 On behalf of the plaintiff it was submitted there are a number of well established principles that apply in the context of the court's determination if a contract is unjust. I believe the submissions presented on behalf of the plaintiff are sound and I repeat them:- (a) a mortgage will not be unjust because it contains, inter alia, normal terms reasonably necessary to protect the legitimate interests of the lender: West v AGC Advances Ltd (1986) 5 NSWLR 610 at 621-622 per McHugh JA: It is important to bear in mind that it is the contract or its provisions which must be unjust … If a defendant has not been engaged in conduct depriving the claimant of a real or informed choice to enter into a contract and the terms of the contract are reasonable as between the parties, I do not see how that contract can be considered unjust simply because she had no independent legal advice … under this Act, a contract will not be unjust as against a party unless the contract or one of its provisions is the product of unfair conduct or his part either in the terms which he has imposed or in the means which he has employed to make the contract. In this respect it stands in marked contrast with the provisions of the Industrial Arbitration Act 1940, s 88F, which provides, inter alia, that the Industrial Commission may declare certain types of contract or arrangements void on the ground that they are "unfair". (one notes that the industrial legislation, unlike the Contracts Review Act, extends to contracts that become unfair over time) In Westpac v Gordon and Reilly (unrep, SCNSW, 1/4/93) per Sully J (adopting his comments from): It would not accord, I think, with the legislative will as thus expressed, so as to interpret and apply the provisions of the Act as to make any contract which falls within the theoretical ambit of the Act nothing more than a provisional engagement, the obligations and entitlements under which are entirely, or all but entirely, at large depending upon the view which happens to be taken by a particular Judge or Court in a particular case. …… [T]he present case is one involving a series of normal, commercial transactions between a Bank and a person wishing to borrow money from the Bank. In any such case the law has always imposed upon the Bank an obligation to be honest in its dealings with the intending borrower, and has always granted relief in a case of fraud or misrepresentation or other dishonest conduct on the part of the Bank. No doubt the Act may be understood as expanding the nature and the scope of circumstances in which the law will interfere with a contractual engagement that is on its face regular. But it does not follow, in my opinion, that in such a case the Bank is to be treated as though it were a charitable foundation, a social welfare agency, or a conduit for the provision of legal aid services. To hold otherwise would be, in practical terms, to destabilise normal commercial intercourse, a cardinal component of which is, in the nature of things, certainty as to entitlements and obligations. Conley v Commonwealth Bank of Australia [2000] NSWCA 101 per Heydon JA (with whom Handley and Powell JJA agreed) at [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. (b) material inequality in bargaining power between an institutional lender and an individual will rarely be of significance, as the courts recognise that the terms of contracts of that nature are generally fixed and there is usually little room for negotiation: Commonwealth Bank of Australia v Cohen (unrep, SCNSW, Cole J, 22/7/88). For inequality to have effect, one needs to identify "extreme" inequality, such as in Elders Rural Finance v Smith (1996) 41 NSWLR 296 (in that case Elders were more than a financier and were significantly involved in the evaluation of the business opportunity for which investment funds were sought). The expression was adopted in Mahlo v Westpac Banking Corporation (unrep, NSWSC, Santow J 6/2/98); (c) the scope for prior negotiation, whilst a reason the court may give for the grant of relief, is of no significance if the contract is otherwise fair and reasonable: Commonwealth Bank of Australia v Cohen supra; (d) the court shall not have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the contract was made: s 9(4) of the Act. 39 Accepting as I do the evidence given by the plaintiff's witnesses I am of the view that the Contracts Review Act is of no avail to the defendant in this case. I have no doubt that the details of the contractual documents and the defendant's obligations were clearly explained to him by the plaintiff's employees at each of the meetings which gave rise to the execution of security documents. While as I have already said English is not the defendant's native tongue, in evidence he was able to understand what was being put him, and while certain of his answers were not in my opinion satisfactory, that lack of satisfaction comes not from any inability to understand in my view but from the attitude taken by the defendant. In short I find that at all times the defendant did understand his obligations under the various security documents which he executed. There is nothing in the terms of those documents which was out of the ordinary. I agree with the plaintiff's submission that the terms of the various documents were standard terms designed to protect the legitimate interests of the plaintiff. While any repayments of the mortgage is a burden on the mortgagor the repayments here were well within the defendant's capacity to pay had he applied himself properly to that task. In fact the small amount owing in terms of actual repayments as against the amount represented when fees and charges are added to the repayments is indicative of this very fact. In my view the defendant is very much the author of his own misfortune in this case. In my view none of the matters referred to in s 9(2) are applicable in this case. Accordingly, the Contracts Review Act cannot be called in aid by the defendant here. 40 An argument was also advanced that the plaintiff had been negligent in its dealings with the defendant. This allegation is primarily based on the failure by the plaintiff through its officers to foresee the problems which would arise in the instant case relating to the defendant's ability to repay. 41 Insofar as it is alleged that the plaintiff had a duty to fully explain the ramifications of the loan transaction to the defendant and breached that duty, it follows that my acceptance of the evidence of the plaintiff's employees must lead to a conclusion that no such breach happened. 42 On the other hand the argument advanced that the plaintiff should have foreseen that the defendant would act as he did strikes me as being fanciful. It must be borne in mind that following the original loan being granted, the defendant in fact made appropriate repayments for about six months. Thereafter, when he defaulted, he did not fall far behind his financial obligation. This is an extraordinary case in that a mortgagor has allowed himself to be placed in jeopardy where the amount of default (excluding fees and charges) is so small. His conduct may be described as bizarre. This is why I find that the suggestion that the plaintiff society could have foreseen that the defendant would conduct himself as he did to be fanciful: see Wyong Shire Council v Shirt (1980) 146 CLR 40. Accordingly, the defendant's defence based as it might be in any way on negligence must fail. It follows that the plaintiff is entitled to judgment and an order for possession plus costs. oOo

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