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[2012] NSWSC 1375
plaintiff. Judgment for the plaintiffs; proceedings stood over for directions to 9:15am 28 November 2012; plaintiffs' counsel to file short minutes of order by 23 November 2012; liberty to re‑list on two...
Button J held that the borrower, an experienced property investor, had entered the short‑term $440,000 loan in the course of her business, so she could not rely on the Contracts Review Act. Even if the Act applied, the Court found the contract was not unjust after weighing the statutory factors: she had business experience, obtained legal advice, understood the mortgage over two properties, and pressure from a broker was not attributable to the lender at the time of the second loan. The broker’s earlier aggressive emails were found to have pressured the borrower but did not make the lender liable. The Court refused claims of unconscionability and statutory misleading conduct (the latter excluded for financial services). The plaintiffs were awarded judgment; interest had been calculated on a simple basis and the lender could not later claim compound interest. Costs were to follow in accordance with the loan documents (see findings and orders at [193]‑[196], [227]‑[229], [157]‑[158], [262]‑[264]).
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Mrs Jill Richardson borrowed short‑term, high‑cost finance secured against two Lewisham/Summer Hill properties. Two successive short loans were arranged in mid and late 2010 after pressure from Bankwest for arrears to be remedied. The first loan (30 June 2010) was $137,000, arranged by broker Justin Goodwin and administered by HomeSec; the second loan (28 October 2010) was $440,000, repayable in four months, with large up‑front interest and fees and an option in the agreement to calculate compound default interest, though in practice HomeSec treated interest on a simple basis (see [37]‑[40], [58]‑[59], [156]‑[159]).
The borrower defaulted on the second loan on 28 February 2011. She defended enforcement and cross‑claimed, relying on (a) the Contracts Review Act 1980 (NSW), (b) unconscionability, (c) provisions of the Trade Practices Act and the Fair Trading Act, and (d) agency and misrepresentations attributed to the broker, Mr Goodwin (see [3], [4], [141]‑[152]). The lender plaintiffs sought possession and repayment. Button J heard the trial and entered judgment for the plaintiffs, rejecting the statutory and equitable defences (orders summarised at [262]‑[264]).
Key factual findings: the defendant was an experienced property investor/developer, had received independent legal advice shortly before the second loan, signed an acknowledgement that the broker acted as her agent, received funds and used them to discharge prior debts and other items, and in cross‑examination displayed business sophistication (see credibility and factual findings at [126]‑[136], [142]‑[156], [153]‑[156]).
The judgment turns on two interlinked legal conclusions: first, the Contracts Review Act threshold exclusion in s 6(2) removes the Act as a remedy because the second loan was entered into in the course of or for the purpose of the borrower's trade or business; second, even if the Act applied, the s 9 factors did not yield a finding that the contract was unjust under s 7.
s 6(2) threshold: Button J applied the 'ordinary incident' test (as explained in Collins v Parker and repeated in relevant authorities) to determine whether the loan was entered into as an ordinary incident of the borrower's business activity. The court found that the borrower was, in truth, a property investor/developer whose commercial activities were directly connected with the loan transaction, so s 6(2) excluded statutory relief (see [182]‑[196], especially [193]‑[196]).
s 7/s 9 evaluative inquiry (ancillary): Button J nonetheless analysed the factors in s 9 and concluded the contract was not 'unjust'. He balanced urgency and pressure against the defendant’s experience, her independent legal advice, the limited nature of the mortgage (not a first mortgage over both properties in the sense of a home loss case), and absence of proven exploitative conduct by the plaintiffs (see [199]‑[201], [202]‑[223], [224]‑[229]).
Agency and attribution: The defendant sought to attribute the broker Goodwin's pre‑contract pressure (emails of 10 and 29 June 2010) to HomeSec. Button J found that, although the early communications could have suggested an appearance of association, by the time of the second loan the defendant understood that Goodwin was her broker, had explicitly acknowledged that, and did not rely on him as representing HomeSec. There was no basis to hold HomeSec responsible for any misconduct by Goodwin at the time of the second loan (see [171]‑[179], [172]‑[176]).
Unconscionability: The equitable threshold (special disadvantage and exploitation) was not met. The defendant had business acumen, obtained legal advice, and the pressures faced were largely the product of her own commercial decisions (rejecting earlier long‑term offers, undertaking speculative development). Button J therefore refused equitable relief (see [232]‑[236]).
Statutory consumer protections: TPA/Fair Trading arguments failed because Part IVA and s 52 were excluded as to financial services by s 51AAB/s 51AF; the defendant conceded Part IVA had no application and could not properly rely on s 52 given the statutory exclusions and available ASIC Act regime (see [238]‑[247]).
Interest calculation: Although the contract permitted compound calculation, HomeSec had consistently applied simple interest. The court accepted that this constituted an election, precluding a later claim for compounded interest. The judge observed, obiter, that if compound monthly 144% p.a. were enforced, it would be 'utterly crushing' and unjust (see [157]‑[158], [229]).
Before this decision practitioners could rely on established principles:
Button J's decision applies these principles to short‑term, high‑interest property finance in a way that reinforces existing lines:
Thus the decision clarifies risk allocation for private lenders and brokers: lenders are not automatically liable for every pre‑contract communication by a broker styled with the lender’s logos if the borrower treated the broker as her agent and received advice.
Para 195: "I accept that the defendant was engaged in a business of property investing...", Plain English: The judge found Mrs Richardson was operating as a property investor, not merely a private consumer, so the protections that apply to ordinary consumers under the Contracts Review Act do not help her.
Para 227: "I do not find that the second loan... were unjust...", Plain English: After weighing all the statutory factors, the court decided the loan was not unfair or unjust in the circumstances at the time it was made, so the judge would not cancel or change the contract.
Para 157: "Although the second loan agreement permitted... compound basis, that has not been done... I find that the calculations are founded on simple interest...", Plain English: The lender chose to charge interest on a simple basis each month; because of that choice, the lender cannot later claim the much higher compound interest amount.
Para 229: "If the plaintiffs had sought to enforce... compounded monthly... 'utterly crushing'.", Plain English: The judge warned that seeking to enforce compounded monthly interest at such a rate would have been so harsh the court would have intervened; that is a limit on enforceability.
Para 171–176 (agency analysis): Court quotes Bowstead & Reynolds and explains agency types. Plain English: The judge sets out the legal tests for when a broker is the agent of a lender or the borrower, and applies them to the evidence.
A commercially experienced borrower who uses loan funds connected to property investment (refinancing, paying arrears, funding development) and who signs loan acknowledgements and obtains legal advice: this outcome makes it hard to obtain relief under the Contracts Review Act (see [193]‑[196], [214]).
Cases where a broker used lender‑styled communications before a loan but the borrower later explicitly acknowledges the broker as the borrower’s agent and receives legal advice: the lender will not be liable for the broker’s earlier pressure unless the borrower actually relied on the broker as the lender’s representative at the time of the contract (see [171]‑[179], [146]).
Lenders who elect and consistently apply simple interest calculations cannot later recover compound interest; this is relevant where contracts include alternative bases for interest calculation but the lender's conduct selects one (see [157]‑[158]).
Situations where a borrower claims unconscionability but is commercially experienced, had access to independent advice, and made voluntary business decisions (such as rejecting prior refinancing offers): courts will scrutinise whether a 'special disadvantage' existed and whether the lender exploited it (see [232]‑[236], [100]‑[106] for facts showing borrower choices).
This judgment itself cites and follows the analytical approach in appellate authorities such as Perpetual Trustee v Khoshaba for structuring s 7/s 9 assessments (see [199], [201]). It also relies on the agency discussion in Tonto (Allsop P) to frame the agent/principal analysis (see [171]). While this is a first‑instance judgment, its careful application of s 6(2) is consistent with appellate authority emphasising the 'ordinary incident' test (Collins v Parker, Karacominakis citations at [186], [188]). Practitioners should treat Button J’s step‑by‑step approach as persuasive in New South Wales trials dealing with private short‑term lending and broker conduct; appellate courts will re‑examine the evaluative step but the primary‑fact findings (borrower experience, advice taken, acknowledgements signed) are the decisive features likely to be upheld if supported by the record.
Note: To assess how later courts have treated this particular judgment, one must review subsequent reported decisions; the judgment itself does not catalogue later treatments.
Attribution of broker misconduct where earlier communications suggest apparent agency but later acknowledgements exist: the judgment treats explicit borrower acknowledgements as decisive in the factual matrix. How would a court resolve a closer case where acknowledgement was ambiguous or where the lender's director knew of and passively acquiesced in broker representations without more? Button J found HomeSec 'countenanced' early emails ([146]) but not liable; borderline cases remain fact‑sensitive (see [146], [172]).
The boundary between 'business' and 'consumer' under s 6(2): Button J applied the 'ordinary incident' test and clear factual markers (tax returns, scale of activity, self‑description). In more marginal circumstances (small landlords, mixed personal/business uses) the outcome could turn on fine factual distinctions about purpose and dominant use of funds.
Compound interest: the judge treated the lender's prior exercise of simple interest as an election. Would a lender be able to recover compound interest if the contract explicitly preserved both methods and the loan documents contained a clear reservation of rights? Button J’s comments (and obiter condemnation of compound enforcement) highlight risk but leave open a closer contract drafting/quantification question (see [157]‑[158], [229]).
Interaction between ASIC regulatory remedies and state statutory protections: Button J dismissed TPA/Fair Trading arguments because of express exclusions for financial services; the practical pathway for borrowers alleging misleading conduct by brokers or lenders is thus often through ASIC regulatory frameworks or solicitor/client/contractual claims, not s 52. The litigation choices and pleading strategies warrant careful attention (see [241]‑[247]).
Practical takeaways for lawyers and compliance officers:
This decision is a useful, source‑grounded example of how Courts balance urgency and pressure against commercial experience and advice when assessing statutory and equitable defences to enforcement of short‑term secured finance. It underscores the importance of the factual matrix: borrower sophistication, acknowledgements, legal advice, and lender conduct are decisive.
Introduction 180Section 6(2) of the Act is as follows: "6 Certain restrictions on grant of relief (1) The Crown, a public or local authority or a corporation may not be granted relief under this Act. (2) A person may not be granted relief under this Act in relation to a contract so far as the contract was entered into in the course of or for the purpose of a trade, business or profession carried on by the person or proposed to be carried on by the person, other than a farming undertaking (including, but not limited to, an agricultural, pastoral, horticultural, orcharding or viticultural undertaking) carried on by the person or proposed to be carried on by the person wholly or principally in New South Wales." 181In short, s 6(2) excludes contracts that were entered into: (a)"for the purpose of a trade, business or profession"; and (b)"carried on by the person or proposed to be carried on by the person". There is no suggestion that the farming exception applies.
"For the purpose of trade, business or profession" 182This part of the section has only received the attention of the High Court of Australia twice since its inception, and on neither occasion was it the subject of detailed analysis. 183In the course of canvassing the consistency of statutory remedies with the operation of provisions of the Industrial Relations Act 1996, Kirby J referred fleetingly to s 6 of the Act in the decision in Fish v Solution 6 Holdings Limited [2006] HCA 22; (2006) 225 CLR 180. However, his Honour did not provide any analysis of the operation of s 6 of the Act. 184The provision was also quoted and analysed briefly in Wallis v Downard-Pickford (North Queensland) Pty Ltd [1994] HCA 17; (1994) 179 CLR 388. However, as that decision arose from an appeal from the Supreme Court of Queensland, the context in which s 6(2) was considered was limited. Section 6(2) was referred to in the course of interpreting "for the purpose of a trade, business or profession" which appeared in the terms of s 74(3) of the Trade Practices Act. 185In the course of considering s 74(3), Toohey and Gaudron JJ quoted the construction of s 6 of the Contracts Review Act that was adopted by Lee J in Collins v Parker (Supreme Court of NSW, Lee J, 11 May 1984, unreported). 186I consider that the judgment of Lee J is of assistance in construing the phrase "for the purpose of a trade, business or profession". The relevant portion of the judgment at p 18 is as follows: "The expression 'for the purpose of' has the meaning that the contract under consideration is entered into as an ordinary incident of the carrying on of a particular trade, business or profession then being carried on or proposed to be carried on." 187The approach of Lee J was also adopted by Young J in Ellison v Vukicevic (1986) 7 NSWLR 104 at 111. However, that case was concerned with a business that was a farming undertaking, and no further detailed analysis was deemed necessary by his Honour in resolving the issue. 188The "ordinary incident" test has received some, albeit reserved, endorsement in the Court of Appeal in Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 at [222]. 189In short, I propose to apply the "ordinary incident" test.
"Carried on by the person or proposed to be carried on by the person" 190This aspect of the section has been considered in a number of decisions of the New South Wales Court of Appeal, such as Ford by his Tutor Beatrice Ann Watkinson v Perpetual Trustees Victoria Limited [2009] NSWCA 186; and Brighton v Australia and New Zealand Banking Group Ltd [2011] NSWCA 152. These decisions are to do with situations in which both a natural person and a corporation have had an involvement in the circumstances surrounding an impugned contract. 191Here the defendant signed the second loan agreement on her own behalf. The Lewisham property, the Summer Hill property and the Lewisham terraces were all owned by her. Indeed, as I have noted, Ostara was not incorporated until October 2010. Although it received a brief mention in the loan application of 22 October 2010, it is clear on the evidence that Ostara had nothing to do with the contract and was not a vehicle used by the defendant over the years for her property activities or her antique business. 192In the circumstances, I do not consider that I need to analyse the cases to which I have referred. That is for the reason that, on the evidence, it is clear that, if there was a business being engaged in, it was on the part of the defendant herself.
Determination 193I have found that the defendant was a person who bought and sold many properties, rented at least two out, renovated them, and, in the case of the Lewisham terraces, sought to develop them. She borrowed significant sums for those purposes. She claimed as tax deductions expenses associated with the premises that were rented out, including interest expenses. The letter of 8 October 2010 to Northwest Commercial gives a flavour of how the defendant viewed herself, and was prepared to present herself, to a potential lender in 2010. As I have noted, in the short term loan application document that I extracted at [44] of this judgment, she described herself as a "Property Investor/Director ". 194In all of the circumstances, I accept the submission of counsel for the plaintiffs that the defendant was engaged in a business of property investing, developing, and renting out of properties. I find that that was the activity that in truth occupied the time and effort of the defendant, not being a part-time kindergarten teacher. Whilst the antiques business also found success, I consider that the main commercial focus of the defendant for many years was her activities with regard to developing properties. 195In light of the connection between the second loan and the arrears that existed with regard to the Lewisham property and the Summer Hill property, and in light of the purposes of the whole of the second loan identified in the agreement signed by the defendant, I find that the second loan was entered into "in the course of or for the purpose of" that business. 196It follows that I accept that the threshold prohibition in s 6 of the Act applies. Therefore I hold that the defendant cannot rely upon the Act to seek relief with regard to this loan and mortgage.
Statute 198I set out the most salient parts of the Act: "7 Principal relief (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. 4 Definitions (1) In this Act, except in so far as the context or subject-matter otherwise indicates or requires: ... unjust includes unconscionable, harsh or oppressive, and injustice shall be construed in a corresponding manner. ... 9 Matters to be considered by Court (1) In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of: (a) compliance with any or all of the provisions of the contract, or (b) non-compliance with, or contravention of, any or all of the provisions of the contract. (2) Without in any way affecting the generality of subsection (1), the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following: (a) whether or not there was any material inequality in bargaining power between the parties to the contract, (b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation, (c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract, (d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract, (e) whether or not: (i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or (ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented, because of his or her age or the state of his or her physical or mental capacity, (f) the relative economic circumstances, educational background and literacy of: (i) the parties to the contract (other than a corporation), and (ii) any person who represented any of the parties to the contract, (g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed, (h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act, (i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect, (j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act: (i) by any other party to the contract, (ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or (iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract, (k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and (l) the commercial or other setting, purpose and effect of the contract. (3) For the purposes of subsection (2), a person shall be deemed to have represented a party to a contract if the person represented the party, or assisted the party to a significant degree, in negotiations prior to or at the time the contract was made. (4) In determining whether a contract or a provision of a contract is unjust, the Court shall not have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the contract was made. (5) In determining whether it is just to grant relief in respect of a contract or a provision of a contract that is found to be unjust, the Court may have regard to the conduct of the parties to the proceedings in relation to the performance of the contract since it was made."
General Approach 199In Perpetual Trustee v Khoshaba [2006] NSWCA 41, Handley JA said: "99 In this appeal I have had the benefit of reading the reasons for judgment of the Chief Justice and Basten JA in draft form. I agree that a case under the Contracts Review Act involves a three stage process - the making of findings of primary fact where these are disputed, the formation of an evaluative judgment as to whether or not the contract is unjust, and why, and then, if necessary, the exercise of the Court's discretionary power to grant relief and determine its extent. 100 The first stage may involve credit findings, and the drawing of inferences which attract the usual standards of appellate review, the second involves a drawing of inferences and the application of an indeterminate legal standard which, as to fact is subject to review in accordance with Warren v Coombs (1979) 142 CLR 531, and as to law is open to full review. The exercise of the Judge's discretion on the nature and extent of relief is subject to review in accordance with the principles in House v The King (1936) 55 CLR 499. 101 I agree with Basten JA that the phrase "the unjustness calculus" is not helpful because it suggests, wrongly, that the exercise is mechanistic whereas in my view it is, within broad legal limits, impressionistic and evaluative." 200In the same case, and referring to the considerations under s 9, Basten JA said: "112 The considerations identified in s 9 are matters to which a court shall, to the extent that they are relevant, have regard. In judicial review terms, they would be described as mandatory considerations. They involve factors which may tend in different directions in a particular case or may simply be inapplicable. However, I do not, with respect, find it helpful to refer to them as part of "the unjustness calculus". This phrase appears to reflect a label adopted in relation to the exercise required of a court in determining whether there is negligence or not in a tort case, derived from Wyong Shire Council v Shirt (1980) 146 CLR 40 at 47, known as the "Shirt calculus". As was said by Gleeson CJ and Kirby J in Mulligan v Coffs Harbour City Council (2006) 221 ALR 764 at [2], the use of the word "calculus" is unfortunate, because it tends to misdescribe the process to be engaged in as a method of calculation. In mathematical terms, it has a precise meaning, as in reference to differential calculus, which gives it a flavour far distant from the exercise required to be undertaken under ss 7 and 9 of the Contracts Review Act. 113 One danger of identifying the exercise as some form of calculation is that it may lead, subconsciously, to an approach whereby the power is thought to be engaged when at least one criterion is satisfied and should be exercised when a reasonable number of criteria are satisfied. That approach would be incorrect. The exercise requires an assessment of the relevant circumstances in relation to a broad concept of unjustness."
Factors required to be taken into account 201A large number of matters are set out in s 9(2) to which I must have regard. I will relate each of them to the facts of this case.
"(a) whether or not there was any material inequality in bargaining power between the parties to the contract" 202There was a degree of inequality of bargaining power, in the sense that the defendant was in urgent need of a loan in order to stop the first loan defaulting, and in order to bring the loans from Bankwest into order. HomeSec, on the other hand, at least through Mr Stone, was reluctant to enter into the second loan. 203However, as I have discussed, the defendant had, some months before rejected long-term finance, on at least one occasion, that would have solved her problem. She rejected it on the basis that the interest rate was somewhat too high. The defendant had the assistance of an accountant and a solicitor. In the circumstances, I am not satisfied that there was material inequality in bargaining power.
"(b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation" 204As I have said, prior to the first loan, the solicitor for the defendant had made some alterations to the loan contract that had been accepted by the lender on that occasion. However, with regard to the second loan, there is no evidence of negotiations between the defendant and the plaintiffs.
"(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" 205As noted above, at the time of the first loan, at the suggestion of the solicitor for the defendant, certain terms of the loan contract were altered in favour of the defendant. 206On the evidence, I am not able to determine whether or not, if the defendant had sought alterations to the terms of the second loan, the plaintiffs would have agreed to such alteration in her favour. I suspect that, in the circumstances, there would have been no such agreement.
"(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" 207There is nothing about the conditions of the contract that makes them unreasonably difficult to comply with. In short, the defendant was required to repay the sum of money when it fell due or else face the possible consequence of having her two properties sold up in order to pay that sum with any interest owed. 208As for whether or not the contract imposes conditions that are not reasonable necessary for the protection of the legitimate interests of the plaintiffs, I have already indicated that, in the absence of expert or other evidence with regard to the business of very short term, high risk lending, I am not in a position to say whether the interest rate charged goes beyond what was reasonably necessary to protect the interests of the plaintiffs. 209In saying that I am referring to the default rate charged on a simple interest basis only. If the plaintiffs had sought to enforce the contract on the basis of compound interest, I would have regarded that as not being reasonably necessary for the protection of the legitimate interests of the plaintiffs.
(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" 210I do not consider that the defendant was unable to protect her interests because of her age or the state of her physical or mental capacity. Indeed, the evidence is to the opposite effect. 211I do not find that any person represented the defendant as defined in s 9(3), which is as follows: "(3) For the purposes of subsection (2), a person shall be deemed to have represented a party to a contract if the person represented the party, or assisted the party to a significant degree, in negotiations prior to or at the time the contract was made."
"(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" 212As at the time of entering into the second loan, the defendant owned properties that, very roughly, were worth $4 million. She also ran a successful antiques business that turned a not insubstantial annual profit. She was completely literate. Although I did not receive direct evidence of her level of educational attainment, I assessed her as intelligent, not unsophisticated, and possessing business acumen.
"(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" 213The contract and the mortgage are each lengthy and expressed in language that a layperson unused to commercial matters would have difficult understanding. Having said that, they are no more difficult to understand than the vast majority of legal documents.
"(h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act" 214The defendant obtained independent legal advice from her solicitor of longstanding very shortly before she entered into the second loan and attendant mortgage.
"(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" 215There is nothing to suggest that the solicitor for the defendant did anything other than fulfil his duty in explaining the provisions of the contract to the defendant. I have already indicated that I am satisfied that the defendant well understood the effect of the contracts into which she was entering. As I have indicated, I reject the proposition that she did not understand that she was signing a mortgage with regard to two properties as opposed to one. I am also well satisfied that the defendant knew that, if she defaulted on the second loan, there was a risk of losing both properties.
"(j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act:
(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" 216The second and third plaintiffs had no contact whatsoever with the defendant. 217As for HomeSec, neither Mr Stone nor any other employee of HomeSec had contact with the defendant. 218I have found that Mr Goodwin, at least at the time he sent the email on 29 June 2010 before the first loan, sought to elicit an emotional reaction from the defendant that would cause her to do something about the arrears to Bankwest. I have also found that the receipt of that email caused the defendant to feel upset and pressured. Because of the attributes of that and other emails, I consider that it can be said that, at the time of sending them, Mr Goodwin was "appearing or purporting to act for or on behalf of" HomeSec. Finally, it was also the case that Mr Stone was aware that Mr Goodwin was sending emails styled in that way and with those general contents. 219I have also found that, on the balance or probabilities, Mr Goodwin separately pressured the defendant between the first loan and the second loan. However, I am not satisfied that that behaviour can be sheeted home to Homesec. 220I consider that it could be said that that behaviour on the part of Mr Goodwin amounted to unfair pressure.
"(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" 221I have no evidence of similar contracts into which the plaintiffs had entered. As for the defendant, I am satisfied that she has entered into a large number of mortgages, and well understood them.
"(l) the commercial or other setting, purpose and effect of the contract" 222The commercial setting was that an experienced and successful business woman had run into financial difficulties, the precise causes and extent of which are not made clear in the evidence. Although I have found that the loan was for business purposes, the precise purpose is also unclear, to the extent that, although the arrears to Bankwest were paid from the proceeds of the second loan, and although the first loan was discharged by the proceeds of the second loan, a not insubstantial sum was paid to the defendant that was used for her own purposes. Why the defendant borrowed that amount, above and beyond what was necessary to discharge the arrears to Bankwest and discharge the first loan, at an extremely high rate of interest, is a mystery to me that is not solved by the evidence. In the witness box, the defendant did not satisfactorily explain it. 223The effect of the contract was that the defendant received a substantial sum of money, secured by her two properties, that led to her arrears to Bankwest being discharged and the first loan being discharged. It also had the effect that a very high rate of interest was to be prepaid, and that, if she defaulted in repaying the principal four months after the date of entry into the contract, she ran the risk of losing both her properties.
Evaluation 224Determining a defence under the Act requires a three step process: first, finding the primary facts; secondly, deciding whether the contract is unjust; and thirdly, if so, deciding whether in the exercise of discretion to make orders. 225As for the first step, I consider that I have found the facts, both generally and by direct reference to the mandatory factors, sufficient to determine the defence. 226As for the second step, although each case under the Act falls to be determined on its own facts, I have been greatly assisted by considering the approaches adopted in the judgments at first instance of James J in Chen v Song [2005] NSWSC 19, Adamson J in Permanent Custodians Ltd v Nobilo [2012] NSWSC 109, and Johnson J in Permanent Mortgages Pty Ltd v MacFadyen [2012] NSWSC 130. I have also considered the approach to this evaluation by the New South Wales Court of Appeal in Perpetual Trustee v Khoshaba, Kowalczuk v Accom Finance [2008] NSWCA 343 and Tonto Home Loans Australia Pty Ltd v Tavares. 227I do not find that the second loan and its attendant mortgage, or either of them as sought to be enforced, were unjust in the circumstances relating to the contract at the time it was made. I say that taking into account the fact that the defendant was under pressure from various sources. But balanced against that is the fact that the defendant was an experienced intelligent business woman, that she well understood the nature of the transaction into which she was entering, that she had received legal advice shortly before she entered into the second loan, that the mortgage was not a first mortgage over either the Lewisham property or the Summer Hill property, that the mortgage attached only partly to the family home (itself partly used to generate income), and finally that this is not a case of asset lending. 228I repeat that, on the evidence before me, and in light of the absence of any expert evidence as to the usual rates of interest pertaining in the very short term, very high risk lending market, I am unable to conclude that the rate of interest, when calculated on a simple basis, is unjust. It follows that I do not accept the ancillary submission of the defendant about adjusting the interest rate of the contract. 229Having said that, if the plaintiffs had sought to enforce, or were in the future to seek to enforce, an interest rate of 144 per cent per annum compounded monthly on a loan of $440,000 for four months, that would be, to use the words of Campbell JA in Kowalczuk v Accom Finance (with whom Hodgson and McColl JJA agreed) "utterly crushing". I would regard such a rate of interest as unjust within the meaning of the Act, and would have varied it. There is no need for me to provide a detailed calculation of the result, except to say that it would be in the order of an effective annual rate of interest of 290 per cent. Again, to adopt the words of his Honour, "there are some injustices too plain to need elaboration". 230As a result of my finding, the third step does not arise. 231In conclusion, I have borne in mind what McHugh JA (with whom Hope J agreed, and with whom Kirby P agreed on this point) said in West v AGC (Advances) Ltd (1986) 5 NSWLR 610 on this point at p 631 "The Contracts Review Act 1980 is beneficial legislation. It must be interpreted liberally." But, even adopting that approach, I do not find that this contract was unjust in the circumstances in which it was made.
Trade Practices Act claim 238The defendant also relied upon Part IVA and Part V of the Trade Practices Act as it stood at the time of the loan. 239I note that the Trade Practices Act has since been repealed by the enactment of the Competition and Consumer Act 2010 (Cth). However counsel for the defendant invited my attention to the transitional provisions of that Act and submitted that, as the loan was entered into on 28 October 2010, the Trade Practices Act is the correct statute to apply under this head of the defence and cross claim. Counsel for the plaintiffs did not submit to the contrary, and was content for me to proceed under the Trade Practices Act, subject to the submissions regarding the applicability of the Act that I discuss below. 240Relevantly, the defendant asserts that the first plaintiff contravened ss 51AA, 51AB or 51AC and also s 52 of the Trade Practices Act. As I understand the structure of the relevant sections, the first group of provisions concerns unconscionability, whilst s 52 provides that corporations will not act in a misleading or deceptive manner. 241Counsel for the plaintiffs drew my attention to the inapplicability of both Parts of the Trade Practices Act relied upon by the defendant. When pressed by me, counsel for the defendant conceded that ss 51AA, 51AB and 51AC had no application in the present litigation by operation of s 51AAB of the same Act, which provides that Part IVA (in which ss 51AA, 51AB and 51AC appear) does not apply to the provision of financial services. She also conceded that the present dispute is in relation to the provision of financial services. 242However, the position of counsel for the defendant regarding the applicability of s 52 of the Trade Practices Act was not made clear. It appeared that the defendant pressed this Court to make a finding that the first plaintiff had behaved in a manner inconsistent with s 52 of the Trade Practices Act. However, when I drew her attention to s 51AF of the Trade Practices Act, noting that s 51AF appeared to operate in a similar fashion to s 51AAB but in the context of Part V (in which s 52 appears), counsel for the defendant was unable to assist the Court any further. 243Counsel for the plaintiffs urged this Court to note that s 51AF excluded s 52 from operation when financial services are the subject matter of dispute. In support of this submission, he took the Court to the Australian Securities and Investments Commission Act 2001 (Cth), and invited my attention in particular to Part 2 of that Act, which he submitted to be mirror provisions of the Trade Practices Act as applicable to providers of financial services. 244Counsel for the plaintiffs also sought to hold the defendant strictly to the case that was pleaded, both in the amended defence and the amended cross claim. Neither of those pleadings made reference to the Australian Securities and Investments Commission Act, instead only referring to the Trade Practices Act. Nor did the defendant seek leave relevantly to amend the pleadings on which she sought to rely. 245In light of the position of the parties, I propose to consider only whether the Trade Practices Act sections identified in the pleadings may be relied upon by the defendant. To be clear, as counsel for the defendant conceded that Part IVA has no application, I am only considering whether s 52 founds the grounds of relief sought by the defendant. 246As I drew the attention of counsel for the defendant to s 51AF of the Trade Practices Act, it is useful to set out the section (as it stood at the time of the impugned loan agreement) in full: "51AF Part does not apply to financial services (1) This Part does not apply to the supply, or possible supply, of services that are financial services. (2) Without limiting subsection (1): (a) sections 52 and 55A do not apply to conduct engaged in in relation to financial services; and (b) if a financial product consists of or includes an interest in land, section 53A does not apply to that interest; and (c) section 63A does not apply to: (i) a credit card that is part of, or that provides access to, a credit facility that is a financial product; or (ii) a debit card that allows access to an account that is a financial product. (3) In subsection (2): credit card has the same meaning as in section 63A. debit card has the same meaning as in section 63A." 247I consider that s 51AF(2)(a) excludes the operation of s 52 regarding conduct engaged in which relates to financial services. As counsel for the defendant has properly conceded that the impugned loan agreement is "in relation to financial services", I am satisfied that s 52 of the Trade Practices Act does not operate to provide any relief to the defendant. 248In short, I would not uphold any of the relief sought pursuant to any of the provisions of the Trade Practices Act relied upon in the pleadings of the defendant.
Fair Trading Act claim 249I now turn to consider the claim based on the Fair Trading Act. 250The pleadings referred to ss 42 and 43 of the Fair Trading Act. However I indicated to counsel for the defendant that it appeared to me that the references to those provisions could be incorrect, as the current s 42 of the Fair Trading Act refers to the issuing of a subpoena, rather than being relevant to unconscionable conduct. 251Counsel for the defendant then indicated that it may have been the case that the provisions she sought to rely upon had been moved, particularly in light of the enactment of the Competition and Consumer Act. 252I consider that it is appropriate for me to examine ss 42 and 43 of the Fair Trading Act as at the date of the impugned agreement. 253They were as follows: "42 Misleading or deceptive conduct (TPA s 52) (1) A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. (2) Nothing in this Part shall be taken as limiting by implication the generality of subsection (1)." 43 Unconscionable conduct (TPA s 52A) (1) A supplier shall not, in trade or commerce, in connection with the supply or possible supply of goods or services to a consumer, engage in conduct that is, in all the circumstances, unconscionable. (2) Without limiting the matters to which the Supreme Court may have regard for the purpose of determining whether a supplier has contravened subsection (1) in connection with the supply or possible supply of goods or services, the Court may have regard to: (a) the relative strengths of the bargaining positions of the supplier and the consumer, (b) whether, as a result of conduct engaged in by the supplier, the consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier, (c) whether the consumer was able to understand any documents relating to the supply or possible supply of the goods or services, (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the consumer (or a person acting on behalf of the consumer) by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services, and (e) the amount for which, and the circumstances under which, the consumer could have acquired identical or equivalent goods or services from a person other than the supplier. (3) A supplier shall not be taken for the purposes of this section to engage in unconscionable conduct in connection with the supply or possible supply of goods or services to a consumer only because the supplier institutes legal proceedings in relation to that supply or possible supply or refers a dispute or claim in relation to that supply or possible supply to arbitration. (4) For the purpose of determining whether a supplier has contravened subsection (1) in connection with the supply or possible supply of goods or services to a consumer: (a) the Supreme Court shall not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention, and (b) the Court may have regard to conduct engaged in, or circumstances existing, before the commencement of this Act. (5) (Repealed) (6) A reference in this section to the supply or possible supply of goods includes a reference to the supply or possible supply of goods for the purpose of re-supply or for the purpose of using them up or transforming them in trade or commerce." 254Counsel for the plaintiffs did not submit to me that I should not consider the sections as they stood at the time of the impugned agreement. 255However, it is common ground between the parties that these provisions only operate insofar as against the second and third plaintiffs, as they are natural persons rather than corporations. 256Both of these sections are concerned with the quality of the conduct of a party, and in that regard can be distinguished from relief pursuant to the Act, which is concerned with the justness or otherwise of a contract in the circumstances relating to it at the time it was made. The claim, therefore, depends upon the ability of the defendant to demonstrate that the conduct of the second and third plaintiffs is in some way a contravention of the two sections above. 257I can dispose of this issue shortly. 258No evidence was tendered at the hearing that demonstrated that the second and third defendants were in any way involved in the arrangement of the loan. 259To the contrary, the plaintiffs led evidence that the role of the second and third plaintiffs was simply to invest funds and receive a return on their investment that the first plaintiff arranged. I accept the proposition that they had no responsibilities, and took no action, in any of the pre-contract negotiations. 260In these circumstances, I am unable to find that the second and third plaintiffs engaged in any conduct related to the procurement of the loan under consideration, let alone any conduct that may have fallen foul of ss 42 and 43 entitling relief under ss 60 and 72 of the Fair Trading Act. 261It follows that I would not uphold any claim for relief under the Fair Trading Act.
Costs 264With regard to costs, counsel for the plaintiffs submitted that there is a provision in both the second loan agreement and attendant mortgage that permits the plaintiff to seek costs on a solicitor/client basis arising from these proceedings. In light of my findings in this judgment, I propose to allow the plaintiffs to recover their costs in accordance with those provisions. Again, that should be the subject of draft orders.
Orders (1)Judgment for the plaintiffs. (2)Stand proceedings over for further directions to 9:15am on 28 November 2012. (3)Counsel for the plaintiffs to file and serve short minutes of order on or before 4pm 23 November 2012, setting out the orders he seeks in light of the judgment, including as to costs. (4)Liberty to the parties to re-list the matter before Button J before then, on 2 days' notice.
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 November 2012
HomeSec Finance Express Pty Ltd
Richardson
171I was helpfully referred by counsel for the plaintiffs to the discussion regarding agency of Allsop P (with whom Bathurst CJ and Campbell JA agreed) in Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389. I am content to rely upon [176] of that judgment as follows: "It is appropriate to set out the whole of Art 1 from Bowstead and Reynolds on Agency (19 th Ed) at 1 [1-001] since Art 1(4), in particular, posits a form of agency of some relevance here - one in which the agent has no power to create or affect legal relations: "(1) Agency is the fiduciary relationship which exists between two persons, one of whom expressly or impliedly manifests assent that the other should act on his behalf so as to affect his relations with third parties, and the other of whom similarly manifests assent so to act or so acts pursuant to the manifestation. The one on whose behalf the act or acts are to be done is called the principal. The one who is to act is called the agent. Any person other than the principal and the agent may be referred to as a third party. (2) In respect of the acts to which the principal so assents, the agent is said to have authority to act; and this authority constitutes a power to affect the principal's legal relations with third parties. (3) Where the agent's authority results from a manifestation of assent that he should represent or act for the principal expressly or impliedly made by the principal to the agent himself, the authority is called actual authority, express or implied. But the agent may also have authority resulting from such a manifestation made by the principal to a third party ; such authority is called apparent authority. (4) A person may have the same fiduciary relationship with a principal where he acts on behalf of that principal but has no authority, and hence no power, to affect the principal's relations with third parties. Because of the fiduciary relationship such a person may also be called an agent." (Footnotes omitted.)" 172I have found on the balance or probabilities that the emails of Mr Goodwin before the entry into the first loan were designed to elicit an emotional response in the defendant, and that that they in fact pressured and upset her. There is no dispute on the part of Mr Stone that he was aware of the email sent by Mr Goodwin on 29 June 2010 and its contents. I have also found that Mr Goodwin, between the entry into the first and second loans and their attendant mortgages, further pressured the defendant. 173However, I have also found that the defendant was well aware that Mr Goodwin was her mortgage broker. I have also found that she was aware that, although there may have been some working relationship between HomeSec and Mr Goodwin, he did not represent them. Furthermore, I do not find that the defendant relied upon what Mr Goodwin said or did as being the acts or words of Homesec. I find that the defendant, whilst believing that there was some business connection between Mr Goodwin and HomeSec, understood that she was being pressured to resolve her position by her mortgage broker, not by one of her prospective lenders. 174As Allsop P explained in Tonto Home Loans Australia Pty Ltd v Tavares, what the parties say about their relationships is not determinative, but nevertheless important. It is important that there was an agreement between Mr Goodwin and HomeSec to the effect that Mr Goodwin was not the agent of HomeSec. It is also important that, as between HomeSec and the defendant, there were acknowledgements by the defendant that Mr Goodwin was acting as her agent. 175There is no evidence of express actual agency between HomeSec and Mr Goodwin. Nor is there is any evidence of an implied actual agency. Counsel for the defendant did not submit otherwise. 176It may well be that Mr Goodwin was, at the time of the first loan, the agent of HomeSec by way of the doctrine of apparent agency. I say that because of the form of the emails that Mr Goodwin sent to the defendant, and the fact that the director of HomeSec knew that Mr Goodwin was sending emails styled in that way. 177However, it is worth recalling a number of matters. The first is that the first loan, and those emails, predated the contract under consideration by some four months. The second is that I am not satisfied that, at any time, the defendant believed that the person whom she had retained as a mortgage broker was in fact representing someone else. The third is that, very shortly before entering into the contract under consideration, the defendant explicitly acknowledged that Mr Goodwin was her agent, and not the agent of HomeSec. The fourth is that, even if I were wrong in my finding of facts that the defendant did not consider, at the time of the first loan, that Mr Goodwin was in truth representing HomeSec, I would nevertheless maintain my finding that, by the time of the second loan, she was aware that he was her agent, in accordance with her acknowledgment. 178In short, even if one accepts that Mr Goodwin was the agent of HomeSec at the time of the first loan by way of apparent agency, it does not follow that he was the agent of HomeSec at the time of the second loan four months later. Finally, even if I am wrong in that legal characterisation, and he was indeed the agent of HomeSec at the time of the second loan, I am not satisfied that the defendant relied to any substantial degree on anything he said in deciding to enter into the second loan. 179That does not mean, of course, that the actions of Mr Goodwin are rendered irrelevant to the matter. They would certainly be relevant to, at the least, ss 9(2)(j)(ii) and (iii) of the Act. I will come to consider those provisions shortly.
[1994] HCA 17
(1986) 7 NSWLR 104
(2006) 225 CLR 180
(1959) 101 CLR 298
(1983) 151 CLR 447
(1994) 179 CLR 388
(1986) 5 NSWLR 610
(1979) 142 CLR 531
(1936) 55 CLR 499
(1980) 146 CLR 40
(2006) 221 ALR 764
Judgment for the plaintiffs; proceedings stood over for directions to 9:15am 28 November 2012; plaintiffs' counsel to file short minutes of order by 23 November 2012; liberty to re‑list on two days' notice (see Orders [1]‑[4], [262]‑[264]).