Was the contract unjust within the meaning of the Contracts Review Act?
95 The first task in considering the claim for relief under the Contracts Review Act is to determine, on the facts that I have found, whether the loan agreement or the mortgage or any of their provisions were unjust in the circumstances relating to them at the time they were made. The Court must have regard to the public interest and to all the circumstances of the case including any relevant matters under s 9(2) of the Act.
96 As noted in Mr Leopold's submissions, the unjust factors relied on by Mrs Satchithanantham appear to be coercion by Mr Satchithanantham, lack of understanding of the transaction, lack of independent advice and Mrs Satchithanantham's impecuniosity at the time she entered the transaction.
97 Having regard to Mrs Satchithanantham's concession that she knew they were going to National Australia Bank to save the house and my finding that she may have been prepared, independently, to mortgage her house for $400,000 to pay out the Bankwest loan, I cannot accept that the mortgage and the loan agreement were unjust in their entirety, notwithstanding coercion by Mr Satchithanantham and the lack of independent advice.
98 However, on the findings of facts I have made, I have come to the conclusion that the provision of the loan agreement that permitted funds to be drawn down to a limit of $680,000 rather than the $400,000 contemplated by Mrs Satchithanantham was unjust within the meaning of the Act.
99 My findings of fact are set out above. The following is a summary of the principal matters relevant to my conclusion. The loan was negotiated between Ms Colbran on behalf of the bank and Mr Satchithanantham. Mrs Satchithanantham was not involved in those discussions and had only two meetings with Ms Colbran. At the first, on 23 December 2002, Ms Colbran asked Mrs Satchithanantham to sign an application form for a home loan that her husband had inquired about on her behalf. The information on that form had not been provided by Mrs Satchithanantham. She was told, in Ms Colbran's presence, that the application was for a loan of $400,000. She believed she was signing an application for a home loan in that sum. She did not request or consent to the higher limit of $680,000 later sought by her husband.
100 The bank knew that Mrs Satchithanantham was in receipt of a Centrelink allowance of $1430 per month. Even a cursory analysis of the documents provided in support of her supposed additional income from letting the security property would have cast doubt on the existence of that income. Equally, the prospect of generating any immediate income with the funds to be advanced should have appeared doubtful. With scant regard to the purpose of the loan or capacity to repay, the bank approved a loan of more than 80% of the valuation it held. It should not have been satisfied that Mrs Satchithanantham had any capacity to repay such an amount other than by selling her home, especially when the facility could be cancelled by the bank at will. The transaction may be characterised as pure asset lending.
101 When Mrs Satchithanantham executed the mortgage on 10 January 2003, she did not appreciate that the limit of the facility being offered was $680,000. She assumed it was to secure a loan of $400,000. Regardless of that assumption, however, she signed the mortgage and a document she believed was the loan agreement out of fear of reprisal if she did not do as her husband requested.
102 If Mrs Satchithanantham had brought her independent will to bear at that time, she may have been prepared to mortgage her home to secure a loan in the order of $400,000 in order to repay Bankwest, but not to secure a business facility of up to $680,000 to provide additional funds for the use of her husband. She received no independent legal or financial advice either before she executed any transaction documents or before the funds were drawn down. She received the benefit of about $408,665.86 of the funds drawn down.
103 In reaching my conclusion, I have had regard to the matters considered in Elkofairi especially at [79] per Beazley JA and Koshaba especially at [70] to [85] per Spigelman CJ. I reject the bank's submission that this case is on fours with Kyabram Property Investments v Murray [2005] NSWCA 63.
104 I am mindful of the fact that I was not able to conclude, in respect of the defence on the equitable ground of unconscionability, that the bank was sufficiently aware of any disability suffered by Mrs Satchithanantham to warrant a finding of unfairly taking advantage. The ignorance of the lender is relevant, but not determinative. Chief Justice Spigelman had regard to the same issue in Koshaba at [94] to [96], but reached the conclusion that relief should not be refused, placing greater reliance on the lender's indifference to the purpose of the loan; see also at [119] per Basten JA. Similarly, in Elkofairi, Beazley JA (at [79]) placed particular emphasis on the fact that it was a substantial loan, the security for which was the appellant's only asset and the respondent's knowledge that the appellant had no income or other assets.
105 Similar considerations in the present case point, in my judgment, to the conclusion that the approval of the additional amount requested by Mr Satchithanantham was unjust, even if the bank was ignorant as contended in Mr Leopold's submissions.
Mrs Satchithanantham's unjust conduct towards the bank
106 Before Mrs Satchithanantham executed the present transaction documents, she was successful in an appeal from a decision of the District Court in proceedings to enforce a guarantee executed by her. Her grounds of defence in those proceedings included the contention that she had signed the guarantee induced by the undue influence of her husband.
107 The bank relied on those circumstances as a matter going to the issue whether the contract was unjust within the meaning of s 7(1) of the Contracts Review Act and also as a factor militating against the exercise of the Court's discretion to grant relief (reply paragraph 10). In its written submissions, the bank also relied on certain concessions made by Mrs Satchithanantham in her evidence in the proceedings as to her awareness of her husband's dishonesty.
108 Mrs Satchithanantham sought to distance herself from an appreciation of what had occurred in the proceedings in the District Court. She said, in effect, that her husband gave instructions in those proceedings on her behalf.
109 In respect of the present transaction, she said that she did not like getting the loan because she knew her husband was not doing "the correct thing" (T175.21). She said she signed the documents entirely on the pressure of her husband (T176.13). She denied that she signed the documents intending to get out of any proceedings brought by the bank.
110 I accept Mrs Satchithanantham's evidence on that issue. I do not think she was so cynical as to sign the documents intending to default on the loan with a view to relying on the familiar defence if proceedings were commenced.
111 I am satisfied, however, that Mrs Satchithanantham must have had some appreciation when she signed the present transaction documents of the risk of a repeat of past events. She knew that she had no capacity to service any loan. She had always relied on her husband to do that, and he had a poor record in that respect. She must have appreciated the risk that he would again fail to make the repayments, with the likely consequence that the bank would seek to enforce the mortgage. She must have anticipated in that event that Mr Satchithanantham would seek to intervene to resist the claim against her, as she says he had in the past.
112 This issue is complicated, however, by the fact, as I have accepted, that Mrs Satchithanantham's will was overborne when she entered the agreements. I am satisfied that the same fear would have precluded her from disclosing the relevant history to the bank.
113 As to her evidence in the proceedings, Mrs Satchithanantham agreed (at T226.25) that as at December 2002 she believed that her husband was not an honest man and that she knew he was known for saying false things.
114 There was also the following exchange in cross-examination (at T233.39):
"Q. When you signed that form you knew that there was a real possibility that your husband would use the form to include in it information just like that information about the gross rental income, that is false information as to income, didn't you?
A. I did not realise that he would do that at that point of time but I realise that now.
Q. You knew at the time, that is December 2002, that your husband's degree of honesty was such that he might try to inflate the income figures in the form to trick the bank into lending the money, correct?