...
(3) Without in any way limiting the matters to which the court may have regard for the purpose of determining whether a corporation or a person (the supplier ) has contravened subsection (1) or (2) in connection with the supply or possible supply of goods or services to a person or a corporation (the business consumer ), the court may have regard to:
(a) the relative strengths of the bargaining positions of the supplier and the business consumer; and
(b) whether, as a result of conduct engaged in by the supplier, the business consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and
(c) whether the business consumer was able to understand any documents relating to the supply or possible supply of the goods or services; and
(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the business consumer or a person acting on behalf of the business 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 business consumer could have acquired identical or equivalent goods or services from a person other than the supplier; and
(f) the extent to which the supplier's conduct towards the business consumer was consistent with the supplier's conduct in similar transactions between the supplier and other like business consumers; and
(g) the requirements of any applicable industry code; and
(h) the requirements of any other industry code, if the business consumer acted on the reasonable belief that the supplier would comply with that code; and
(i) the extent to which the supplier unreasonably failed
to disclose to the business consumer:
(i) any intended conduct of the supplier that might affect the interests of the business consumer; and
(ii) any risks to the business consumer arising from the supplier's intended conduct (being risks that the supplier should have foreseen would not be apparent to the business consumer); and
(j) the extent to which the supplier was willing to negotiate the terms and conditions of any contract for supply of the goods or services with the business consumer; and
(ja) whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the business consumer for the supply of the goods or services; and
(k) the extent to which the supplier and the business consumer acted in good faith.
(4) Without in any way limiting the matters to which the court may have regard for the purpose of determining whether a corporation or a person (the acquirer ) has contravened subsection (1) or (2) in connection with the acquisition or possible acquisition of goods or services from a person or corporation (the small business supplier ), the court may have regard to:
(a) the relative strengths of the bargaining positions of the acquirer and the small business supplier; and
(b) whether, as a result of conduct engaged in by the acquirer, the small business supplier was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the acquirer; and
(c) whether the small business supplier was able to understand any documents relating to the acquisition or possible acquisition of the goods or services; and
(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the small business supplier or a person acting on behalf of the small business supplier by the acquirer or a person acting on behalf of the acquirer in relation to the acquisition or possible acquisition of the goods or services; and
(e) the amount for which, and the circumstances in which, the small business supplier could have supplied identical or equivalent goods or services to a person other than the acquirer; and
(f) the extent to which the acquirer's conduct towards the small business supplier was consistent with the acquirer's conduct in similar transactions between the acquirer and other like small business suppliers; and
(g) the requirements of any applicable industry code; and
(h) the requirements of any other industry code, if the small business supplier acted on the reasonable belief that the acquirer would comply with that code; and
(i) the extent to which the acquirer unreasonably failed to disclose to the small business supplier:
(i) any intended conduct of the acquirer that might affect the interests of the small business supplier; and
(ii) any risks to the small business supplier arising from the acquirer's intended conduct (being risks that the acquirer should have foreseen would not be apparent to the small business supplier); and
(j) the extent to which the acquirer was willing to negotiate the terms and conditions of any contract for the acquisition of the goods and services with the small business supplier; and
(ja) whether the acquirer has a contractual right to vary unilaterally a term or condition of a contract between the acquirer and the small business supplier for the acquisition of the goods or services; and
(k) the extent to which the acquirer and the small business supplier acted in good faith.
(5) A person is not to be taken for the purposes of this section to engage in unconscionable conduct in connection with:
(a) the supply or possible supply of goods or services to another person; or
(b) the acquisition or possible acquisition of goods or services from another person;
by reason only that the first mentioned person institutes legal proceedings in relation to that supply, possible supply, acquisition or possible acquisition or refers to arbitration a dispute or claim in relation to that supply, possible supply, acquisition or possible acquisition.
(6) For the purpose of determining whether a corporation has contravened subsection (1) or whether a person has contravened subsection (2):
(a) the court must 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 circumstances existing before the commencement of this section but not to conduct engaged in before that commencement.
(7) A reference in this section to the supply or possible supply of goods or services is a reference to the supply or possible supply of goods or services to a person whose acquisition or possible acquisition of the goods or services is or would be for the purpose of trade or commerce.
(8) A reference in this section to the acquisition or possible acquisition of goods or services is a reference to the acquisition or possible acquisition of goods or services by a person whose acquisition or possible acquisition of the goods or services is or would be for the purpose of trade or commerce.
(9) A reference in this section to the supply or possible supply of goods or services does not include a reference to the supply or possible supply of goods or services at a price in excess of $3,000,000, or such higher amount as is prescribed.
(10) A reference in this section to the acquisition or possible acquisition of goods or services does not include a reference to the acquisition or possible acquisition of goods or services at a price in excess of $3,000,000, or such higher amount as is prescribed.
(11) For the purposes of subsections (9) and (10):
(a) subject to paragraphs (b), (c), (d) and (e), the price for:
(i) the supply or possible supply of goods or services to a person; or
(ii) the acquisition or possible acquisition of goods or services by a person;
is taken to be the amount paid or payable by the person for the goods or services; and
(b) paragraph 4B(2)(c) applies as if references in that paragraph to the purchase of goods or services by a person were references to:
(i) the supply of goods or services to a person pursuant to a purchase; or
(ii) the acquisition of goods or services by a person by way of purchase;
as the case requires; and
(c) paragraph 4B(2)(d) applies as if:
(i) the reference in that paragraph to a person acquiring goods or services otherwise than by way of purchase included a reference to a person being supplied with goods or services otherwise than pursuant to a purchase; and
(ii) a reference in that paragraph to acquisition included a reference to supply; and
(d) paragraph 4B(2)(e) applies as if references in that paragraph to the acquisition of goods or services by a person, or to the acquisition of services by a person, included references to the supply of goods or services to a person, or the supply of services, to a person, as the case may be; and
(e) the price for the supply or possible supply, or the acquisition or possible acquisition, of services comprising or including a loan or loan facility is taken to include the capital value of the loan or loan facility.
(12) Section 51A applies for the purposes of this section in the same way as it applies for the purposes of Division 1 of Part V.
(13) Expressions used in this section that are defined for the purpose of Part IVB have the same meaning in this section as they do in Part IVB.
(14) In this section, listed public company has the same meaning as it has in the Income Tax Assessment Act 1997. "
85 In final submissions the parties did not focus upon the question of which if any of ss 51AA, 51AB or 51AC of the Trade Practices Act applied. Section 51AAB provides that neither s 51AA nor s 51AB applies to conduct engaged in in relation to financial services or the supply or possible supply of services that are financial services. Sections 51AA, 51AB and 51AC of the Trade Practices Act are mirrored by ss 12CA, 12CB and 12CC of the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act"). The plaintiffs did not plead a contravention of ss 12CA, 12CB or 12CC of the ASIC Act. Perpetual neither pleaded nor submitted that the plaintiffs could not rely upon ss 51AA, 51AB or 51AC of the Trade Practices Act because the impugned conduct was engaged in in relation to the supply of financial services.
86 Prima facie, Perpetual's loan was a provision of a financial service, although that conclusion is only arrived at through a labyrinth contained in Division 2 of Part 2 of the ASIC Act and a construction of the definition of "credit facility" in reg 2B(3) of the Australian Securities and Investments Commission Regulations 2001 that may be debatable (in particular in relation to whether the particular forms of "credit" provided for in reg 2B(3)(b) stand independently of the definition in para 2B(3)(a)). There is no relevant difference between the substantive provisions of ss 51AA, 51AB and 51AC of the Trade Practices Act and their equivalents in the ASIC Act, nor in the remedies provided. If Perpetual had pleaded that the impugned conduct was engaged in in relation to the supply of financial services, the plaintiffs would have been entitled to rely upon the equivalent provisions of the ASIC Act and I would have given leave to amend the statement of claim to permit them to do so. I will proceed on the basis that it is the Trade Practices Act that applies, although my prima facie view is that that is not the case.
87 Section 51AB of the Trade Practices Act does not apply because the services supplied by Perpetual, namely the loan, were not of a kind ordinarily acquired for personal, domestic or household use or consumption (s 51AB(5); Begbie v State Bank of New South Wales Ltd (1994) ATPR 41-288).
88 Section 51AA of the Trade Practices Act does not apply to conduct that is prohibited by s 51AC. Section 51AA incorporates equitable principles of unconscionable conduct for a contravention of which statutory remedies are provided. Whilst s 51AA is inapplicable if the conduct is prohibited by s 51AC, the prohibition in s 51AC(1) and (2) on a corporation or person engaging in conduct that is unconscionable necessarily directs attention to the same concepts, albeit that the section has a wider operation than s 51AA because of the matters in s 51AC(3). That is to say, a corporation or person may engage in conduct that is unconscionable even if that conduct does not involve the taking advantage of a special disability under which the opposite party labours. If, however, a party does labour under such a special disability and unconscientious advantage is taken of it, then s 51AC(1) or (2) would apply if the transaction is one within the ambit of s 51AC(7), (8), (9), or (10).
89 The plaintiffs' purpose in acquiring the loan was for the purpose of trade or commerce so that s 51AC is attracted (s 51AC(7)). That is so because the plaintiffs' purpose in acquiring the loan was in order to make an investment in the property development being carried on under the management of Stefan Allan.
90 To attract the equitable principles for relief against unconscionable dealing the plaintiffs must establish that they entered into the transaction with Perpetual under a special disability or disadvantage of which Perpetual through its agent or subagent knew, or ought to have known, and that Perpetual took an unfair or unconscientious advantage of the plaintiffs' position of special disadvantage (Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447 at 462, 475).
91 I accept the plaintiffs' submission that they were in a position of special disadvantage. They were persons of no great education. They were ill-equipped to understand the risks of the property development in which they were induced to participate. They were reliant on their son to advise them about that transaction. Their son was willing to risk his parents' assets for his profit, although he shared no part of the risk. The plaintiffs were easily seduced by Stefan Allan's blandishments. They did not have the education to make an informed judgment about the proposed investment and the risks associated with the borrowing. They knew nothing of Stefan Allan, except what he told them about himself and what their son may have said about him. Yet they placed blind faith in him. In many ways their position was analogous to that of the plaintiffs in Commercial Bank of Australia Limited v Amadio.
92 I also accept that Perpetual, through its subagent The Mortgage Group, ought to have known of the plaintiffs' position of special disadvantage. Had Perpetual, through its subagent The Mortgage Group, spoken to the borrowers to confirm the details of the loan application, it would have learned that the money sought to be raised was for a speculative investment in a property development about the details of which the plaintiffs had no idea, that the plaintiffs did not have the capacity to repay the loan from their own income, and that the plaintiffs' agent had falsified the loan application.
93 However, Perpetual did not take an unconscientious advantage of the plaintiffs' position of special disadvantage. The plaintiffs' position of special disadvantage was in relation to their investment with Stefan Allan. Perpetual and its agent and subagent knew nothing about that. Perpetual made a loan at a commercial rate of interest containing no unusual or disadvantageous terms to the borrower. Its position was quite unlike that of the bank in Commercial Bank of Australia Limited v Amadio which sought to improve its security position by taking a mortgage from the plaintiffs to secure an existing overdraft of the plaintiffs' son.
94 Rather than Perpetual's taking advantage of the plaintiffs' position of special disadvantage, it was the plaintiffs who took advantage of Perpetual's failure to investigate the proposed borrowing by misleading Interstar about their financial position and the purpose of the loan.
95 No undue influence or pressure was applied by Perpetual or its agent or subagent. Nor were any unfair tactics used by Perpetual or its agent or subagent against the plaintiffs. Perpetual and its agent and subagent acted in good faith, although the plaintiffs did not.
96 Counsel for the plaintiffs submitted that Perpetual acted unconscionably because it engaged in what has been called "pure asset lending", that is, lending without regard to the ability of the borrower to repay the loan, knowing that the security will be sufficient to recover the loan on default. Such conduct may lead to a court's finding that a contract of loan and mortgage is unjust in the circumstances in which it was entered into, entitling the borrower to relief under the Contracts Review Act (Elkofairi v Permanent Trustee Co Limited [2002] NSWCA 413; (2003) 11 BPR 20,841 at [79]; Perpetual Trustee Co Limited v Khoshaba at [82], [128]; Riz v Perpetual Trustee Australia Limited [2007] NSWSC 1153 at [70]).
97 There is an obvious similarity between the matters listed in s 51AC(3) to which the court may have regard for the purpose of determining whether a supplier has contravened s 51AC(1) or (2) and the matters to be considered by the court under s 9 of the Contracts Review Act where a court is asked to find that a contract or a provision of a contract was unjust in the circumstances relating to the contract at the time it was made. (See para [127] below.) However the inquiries are not the same. A contract may be unjust in the circumstances in which it is made, notwithstanding that the parties seeking to enforce the contract did not behave unconscionably when the contract was entered into (Perpetual Trustee Co Limited v Khoshaba at [115]; see as an illustration Andrews v Racken Pty Ltd [2007] NSWSC 1010 at [220]-[231]). As Spigelman CJ said in Attorney General (NSW) v World Best Holdings Limited [2005] NSWCA 261; (2005) 63 NSWLR 557 at [119]-[121], albeit in a different context, unconscionability is a concept requiring a high level of moral obloquy going beyond concepts of what is unfair or unjust.
98 A conclusion that Perpetual engaged in mere asset lending would not necessarily lead to a conclusion that it engaged in unconscionable conduct. Thus, in Perpetual Trustee Co Limited v Khoshaba, Spigelman CJ (with whom Handley JA agreed) regarded the conflicting considerations as to whether the contract in that case was unfair or unjust as being finely balanced. It could not be inferred from the decision in Perpetual Trustee Co Limited v Khoshaba that because in that case the lender engaged in mere asset lending which rendered the contract of loan unjust, it would also have been held that the lender acted unconscionably.
99 In the present case, I do not accept that Interstar acted without regard to whether the borrowers could service the loan. Because Interstar did not seek to verify the information provided about the borrowers' ability to service the loan, it undoubtedly relied on its security in the event of default. In some respects the case has similarities with Perpetual Trustee Co Limited v Khoshaba, but there are important differences. In that case, as in this, the loan application submitted to the lender falsely stated the borrowers' income. In Perpetual Trustee Co Limited v Khoshaba the amount of the loan was $120,000. The loan application stated that the borrower's income was $43,000 per annum. This was false, but (unlike this case) the borrowers had no responsibility for the false statements. According to Basten JA (at [124]) the loan repayments were approximately $10,000 per year and the stated income fell within the relevant guidelines for the lender as to acceptable income to service the loan. Perhaps critically in Perpetual Trustee Co Limited v Khoshaba, the loan application form left the purpose of the loan blank. This fact indicated to Spigelman CJ that the lender was content to lend on the value of the security (at [82]). His Honour said:
" [83] On the information actually available to the Appellant, a husband and wife - one with a $43,000 per annum income and the other a pensioner - borrowed $120,000 for, as far as the Appellant cared to know, immediate expenditure. Enforcing a security against the personal residence of such borrowers should not be treated as if it were the first resort. That is what, on paper, the Appellant can be described as having done. "
100 The implicit assumption in para [83] quoted above is that the stated income would be insufficient to service the loan. In Kowalczuk v Accom Finance Pty Ltd [208] NSWCA 343; (2008) 252 ALR 55, Campbell JA (with whom Hodgson and McColl JJA agreed) (at [96]) said that the basis for the decision in Perpetual Trustee Co Limited v Khoshaba was that the stated income of the applicants of $43,000 per annum, coupled with the absence of information about the purpose of the loan, indicated that the transaction involved "pure asset lending". It is hard to see how that conclusion could be drawn unless it were the case that the stated income was considered to be insufficient to service the loan.
101 In Perpetual Trustee Co Limited v Khoshaba, Spigelman CJ added:
" [84] This conclusion is reinforced by the Appellant's concomitant failure to verify or follow up, in the way identified by Rolfe DCJ, other details in the loan application. ... However, the other failures, such as not verifying employment and income and not ensuring documents were properly executed, reinforce the conclusion that the Appellant was prepared to act on the basis of adequate security alone.
[85] Where the security is the family home of a low income earner and a pensioner, this posture on the part of a lender is entitled to significant weight against the lender in the determination of unjustness. "
102 His Honour concluded that the lender's failure to make any inquiries about the purpose of the loan suggested that it was content to proceed on the basis of enforcing the security (at [92]).
103 Basten JA held:
" [124] In the present case, the trial judge found that the agent of the lender, Mr Tadros, had not made any inquiries as to the purpose of the loan or the income of the borrowers. The loan application stated, falsely, that the husband was in employment and had an income for $43,000 per year. The loan repayments of approximately $10,000 per year fell, broadly speaking, within the relevant guideline. However, in the absence of any attempt to verify the accuracy of the figure, the lender should be taken not to have relied upon the ability of the borrowers to make instalment repayments on time, in accordance with the terms of the contract.