NEWTON v EQUITITRUST LIMITED

PARTIES : KRISTINE LORRAINE NEWTON v EQUITITRUST LIMITED

COUNSEL : P: M W Young D: D Higgs SC/J King

SOLICITORS : P: Bransgroves Lawyers D: Jackson Lalic Lawyers

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

1 HIS HONOUR: On 23 September 2010, I granted leave to the plaintiff, Ms Kristine Lorraine Newton, to file a Summons dated 23 September 2010. The orders sought in the summons relate to declaratory and other relief. Ms Newton, in particular, sought an order setting aside consent orders made by Davies J on 27 May 2010. 2 On 23 September 2009, I directed that the summons be heard on an expedited basis. That took place on Wednesday 29 September 2010. Mr D Higgs SC appeared with Mr J King of counsel for Ms Newton. Mr M W Young of counsel appeared on behalf of the defendant, Equititrust Limited ("Equititrust"). That company is the plaintiff in proceedings (referred to in this judgment as "the principal proceedings") commenced by Statement of Claim filed on 22 September 2009 (proceedings No 2009/296415). 3 Before turning to the evidence and the issues arising on the Summons, it is necessary to refer to the background of the principal proceedings.

The claim by Equititrust 4 In proceedings 2009/296415, Equititrust sought orders for possession of the property (42 Blue Seas Parade, Lennox Head), an order for leave to issue a writ of possession and judgment in the amount of $6,207,332.86 plus interest and costs. 5 The plaintiff, Equititrust, relied upon the loan agreements referred to below and a first mortgage (AD201442). It claimed that an amount of $4,048,423.09 was due and owing under the first agreement and the amount of $2,158,908.89 under the second agreement. 6 Ms Newton, filed a defence on 28 October 2009. It appears that Ms Newton drafted the terms of it herself, perhaps with the assistance of Mr Massey, solicitor. In paragraph 2 she pleaded that, while she signed a declaration acknowledging that the predominant use of the funds was for business purposes, both Equititrust and she knew that that was incorrect. Ms Newton, accordingly, pleaded that Equititrust was required by s.80 of the Credit Code to issue a notice pursuant to that section but that it had failed to do so. Consequently, Equititrust, it was claimed, should be prevented from bringing the proceedings.

The procedural history of the proceedings 7 It is sufficient for present purposes to note that the proceedings have had a rather protracted history which resulted in some delay in fixing hearing dates. 8 On 13 May 2010, Davies J delivered a judgment on an application by Ms Newton to vacate the hearing dates, namely, 13 and 14 May 2010. 9 In that judgment, his Honour set out a number of matters concerning the history of the proceedings which initially came before him on 2 February 2010 for directions and thereafter on 8 March 2010 and 27 April 2010. In support of the application for the adjournment, Ms Newton, inter alia, relied upon two medical reports, one from her general practitioner and one from her psychiatrist. The latter indicated that Ms Newton would be incapable of instructing a solicitor or appearing in court until the end of May 2010. 10 Davies J, at paragraph 21 of his judgment, took the view that he:- "… could not ignore the medical report from Dr Petrov, the psychiatrist, as unsatisfactorily brief as it was. Nor could I ignore the fact that Ms Newton has, in acting for herself, albeit with some background assistance from Mr Massey, and has been refused legal aid. Further, the amount of the debt is a considerable one and, if the Plaintiff is successful, the Defendant will lose her home where she is also caring for disabled relatives. As far as was possible, it was necessary for the defendant to have legal representation to put forward whatever defence she had to the claim." 11 Accordingly, his Honour vacated the hearing dates and fixed the matter for hearing before him on 27 and 28 May 2010. 12 The writ of execution was due to be executed on 23 September 2010. On that date, I granted a stay of the writ until 7 October 2010. It is unnecessary here to record the basis upon which the stay order was made.

The present proceedings 13 In the Summons dated 23 September 2010, the relief claimed is in the following terms:- "1. In respect of the consent orders made by Davies J on 27 May 2010 in case number 14543 of 2009 (2009/00296415) ('the first proceeding'): a. in the first instance: i. an order that the consent orders be set aside pursuant to r 36.16(3); b. in the alternative: i. a declaration that the contract between the parties which formed the basis of the consent orders is void pursuant to s. 7(1)(b) o the Contracts Review Act 1980 (NSW); and ii. an order that the consent orders be set aside pursuant to the inherent jurisdiction' 2. An order that, pursuant to rr 1.12 and 14.3(1), the plaintiff be granted leave to file and serve an amended defence in the first proceeding. 3. Further or in the alternative, an order that, pursuant to rr 1.12, 9.1(1) and 9.10(1)(a), the plaintiff be granted leave to file and serve a cross-claim in the first proceeding. Interim relief 4. An order that the execution of the writ of possession issued on 27 July 2010 in the first proceeding be stayed until the plaintiff's claim for final relief has been determined." 14 At the hearing on 29 September 2010, Mr King of counsel indicated that the relief sought in paragraph 1(a)(i) of the Summons was not pressed on the basis therein stated. 15 The declaration and order sought in paragraph 1(b)(ii) was pursued upon the basis that the settlement agreement which led to the making of the consent orders is said to be an "unjust contract within the meaning of the Contracts Review Act 1980 (s.7(1)(b))". Accordingly, an order was sought pursuant to the inherent jurisdiction of the Court setting aside the consent orders made on the basis of the agreement. 16 In respect of the order sought in the Summons for leave to be granted permitting Ms Newton to file an Amended Defence and further, or in the alternative, a cross-claim, there was no draft pleading produced. However, Mr King stated that, if leave was granted, the plaintiff, Ms Newton, would plead and rely upon the doctrine of unconscionability at general law in respect of the loan agreements and the mortgage entered into in the years 2007 and 2008. Mr King also stated that the plaintiff did rely upon the Contracts Review Act for any relief in respect of those agreements. 17 Mr King indicated that, if leave were granted to file an amended defence, then it would be contended, firstly, that Mrs Newton, at the time of the making of the agreements, suffered from a special disadvantage and, in the circumstances in which her capacity to pay was not investigated by Equititrust, the loan was in the nature of asset lending. It was contended that the case was similar to Elkofairi v Permanent Trustee Co Limited [2002] NSWCA 413. Reference was made to and reliance placed upon the judgment of Beazley JA in that case in which relief was held to be available on the basis, inter alia, that the transaction was unconscionable in the sense explained in Commercial Bank of Australia Limited v Amadio (1988) 151 CLR 447. 18 In support of the Summons, Mr King relied upon the following affidavits:-

(1) Affidavit of Kristine Lorraine Newton sworn 23 September 2010.

(2) Affidavit of Kristine Lorraine Newtown sworn 28 September 2010.

(3) Affidavit of Kristine Lorraine Newtown sworn 27 July 2010.

(4) Affidavit of Gai Hart-Hughes sworn 23 September 2010.

(5) Affidavit of Faris Shehabi, solicitor, sworn 29 September 2010. 19 Mr King also relied upon a statutory declaration by Ms Newton (which had been read before Davies J) made on 6 May 2010 and a document entitled Credit Submission Summary, being Exhibit MM01 (pp.2-3) to the affidavit of Mark McIvor sworn 25 November 2005. 20 Mr Young, on behalf of Equititrust, relied upon the affidavit of Ms Lisa Eldridge, solicitor, sworn 16 September 2010 and the affidavit of Brad Duncalfe sworn 28 September 2010.

Factual matters 21 The plaintiff in proceedings 2009/296415, Equititrust, entered into three agreements with Ms Newton over the period 18 June 2007 to 16 September 2008, particulars of which may be shortly stated as follows:-

(1) A loan agreement dated 18 June 2007 secured by a registered first mortgage in the amount of $5.6 million, interest on the loan at 17.25% compounded reducing to 11.25% if paid in accordance with the agreement. The loan was for a 12 month period, repayable on or before 18 June 2008.

(2) A Deed of Variation of Credit Facility dated 16 September 2008. By this Deed, Equititrust reduced the credit level of the loan to $4 million. The varied principal was payable on or before 18 June 2009. The specified interest rate was 18.68% reducing to 12.68% if paid in accordance with the agreement.

(3) An agreement dated 16 September 2008 by way of a loan in the amount of $1,841,000 secured over the property, 42 Blue Seas Parade, Lennox Head to be repaid on or before 18 June 2009. The interest rate compounded monthly at a rate of 29.5% reducing to 23.5% if paid in accordance with the agreement. 22 The loans remain unpaid and are accruing interest at approximately $130,000 month. 23 In her affidavit sworn 27 July 2010, Ms Newton stated that she resides at the property with her three children and her aunt. Her daughter, aged 31, is autistic/epileptic and has suffered agoraphobia in recent times and requires constant monitoring. Her aunt, aged 82, is in a frail condition and requires special care and attention. 24 Ms Newton stated in the affidavit that she has endeavoured to find a buyer for the property in order to clear the debt. On the evidence, that is the only way that Ms Newton can repay the principal and any other monies that are due. 25 Ms Newton stated that a 1.85 hectare portion of the property is zoned 1(d) Urban Investigation and was the subject of a rezoning application lodged with Ballina Shire Council in June 2008. There has been extensive consultation with the Council since that time by Ms Newton with planners, solicitors and others in an effort to have the rezoning application approved. 26 In her affidavit sworn 23 September 2010, Ms Newton stated that she inherited the property from the estate of her late mother. 27 She also stated that, in or about 2004, she began looking at opportunities to develop the property. She had regular discussions with her former accountants as to what could be done with it. She said that she subsequently entered into a joint venture with these accountants. She made a submission to Ballina Shire Council about a rezoning of the land to residential but that her submission was not accepted. 28 She said her debts continued to mount and, in June 2004, she made a further application to Westpac Bank for finance. 29 Various consultants were engaged with a view to developing the property and she spent time in 2004 and 2005 working to produce a feasible and sustainable project for development. In mid-2005, the joint venture was dissolved and Ms Newton applied to Westpac to have the loan refinanced. 30 In late 2006, she was under pressure from Westpac to refinance. Mr Lazaar of Business Acquisitions Australia found alternate funding with Equititrust leading to loan offers and subsequent agreements as set out above. 31 In paragraph 27 of her affidavit, Ms Newton stated that she signed the letter of offer that had been sent dated 30 April 2007 and returned it. She stated that she was not asked for any details of her income or as to her assets and liabilities. A copy of the loan offer dated 30 April 2007 was annexed to her affidavit as Annexure D. The offer was for a draw down facility of $5.6 million and the term of the loan was for 12 months from the date of the initial draw down. Interest was to be pre-paid in the amount of $630,000. Paragraph 7 of the loan offer was in the following terms:- "7. Purpose of Loan To provide development funding for the refinance of a development site located at 42 Blue Seas Parade, Lennox Head and provision for expenses for obtaining a development approval for a proposed tourist resort. Balance of loan Establishment Fee $79,000 Outlays $152,000 Land Refinance $3,500,000 Caveat Loan $140,000 Working Capital $160,000 Professional Fees $949,000 Pre-paid Interest Provision $630,000

Total facility $5,600,000 " 32 In evidence, was a copy of the Credit Submission Summary in relation to Ms Newton's attempts to refinance. The document records, strangely, Ms Newton as both borrower and guarantor. The loan amount requested was specified to be "$5.2 million (net)". 33 The loan purpose was said to be:- "1. Refinance current 1st mortgage and caveat loan. 2. Working capital to fund preparation and lodgement of DA plans, Geo tech reports, engineers, architectural works, environmental and general consultants." 34 The term of the loan was recorded as 12 months "with option to roll over to land and construction funding". The existing first mortgagee was identified as Westpac in the amount of $3,350,000. 35 The notes on the Summary included the following:- "• Owner currently seeking approval to develop property with a tourist facility. No approvals have yet been granted.

• Development sought - 21 luxury tourism units, resort facility, spa facility & 5-7 individual treatment pavilions." 36 Against the reference "excess" the following points were noted:- "• Land & Construction funding then sale of individual residential accommodation to investors. • Sale of management rights to experienced operators." 37 The summary listed a number of "annexures" to it. These were said to have included a valuation dated 23 February 2007, a letter from the Department of Planning dated 6 February 2007 and "Jindawalla" information memorandum. These documents were not tendered in the present proceedings. 38 In her affidavit in the proceedings, Ms Newton said that, at the time of filing the Credit Facility Deed on or about 18 June 2007, she had no income and had not filed an income tax return since about 1994. She said she had no need to as she did not earn an income. 39 Ms Newton then set out the circumstances leading to what she termed the "consent judgment" (paragraphs 41 to 50).

Ms Newton's evidence on the settlement agreement 40 After the proceedings were set down for hearing on 13 and 14 May 2010, Ms Newton stated:- "44. Shortly after that date, I instructed Clarissa Heugill of Clarissa Heugill & Associates Lawyers to act on her behalf in relation to the final hearing. She acted for me for approximately six weeks. 45. During this time, Ms Heugill briefed Jim Johnson of Counsel to advise on the prospects of my pleaded defence. I was advised that on the defence that I had pleaded, the Court would most likely find against me. I was also advised that I needed to see if some agreement could be reached. 46. At no time was I advised that there may be other defences or a cross-claim available to me or that I could seek to amend my defence. I had drafted the defence myself with some input from Daniel Massey. 47. The two weeks before the hearing was scheduled to take place were extremely stressful for me. I had to find new legal representation and prepare the case for hearing within a short period of time. Until that time, I had mostly represented myself in those proceedings. I was concerned that I was about to lose my home and felt like I had no options, especially given the advice that I had received from Counsel. 48. Negotiations took place between my solicitor and the solicitor representing the defendant, and proposals were exchanged. I assume that I did instruct Clarissa Heugill to consent to an agreement, although I have no memory of doing so, or of giving much thought to a consent judgment. I think that this would have been by telephone." 41 Ms Newton then referred to her medical condition and annexed a copy of a report from Dr Igor Petrov (Annexure E). In that report, Dr Petrov stated that Ms Newton was suffering from an "Adjustment Disorder" with Anxious and Depressed Mood with Symptoms of Maximum Severity. He added:- "Her condition affects her ability to make rational decisions in times of extreme stress. Her anxious and depressed moods manifest themselves variously either in hyperactivity and frenetic behaviour and speech patterns or excessive crying, apathetic attitude and inactivity when confronted by stressful situations. When experiencing an anxious or depressed episode, Kristine is incapable of processing ideas in a logical and coherent sequence of reaching balanced conclusions."

Advice as to another available defence 42 Ms Newton in her affidavit sworn 23 September 2010, stated as follows:- "54. I was advised by Peter Jackson on 21 September 2010 that there was another defence available to me than that which I had had pleaded in the initial proceedings brought by the defendant. The defence is based on the following:- (a) Equititrust knew or ought to have known of the significant problems facing any rezoning or development application by virtue of the BSC's opposition and problems with the neighbouring property; (b) Equititrust knew or ought to have known when entering into the first loan agreement with me that one year was not a sufficient amount of time to gain approval for and carry out the planned developments on the Property; (c) Equititrust knew or ought to have known when entering into the second loan agreement with me that one further year was not a sufficient amount of time to gain approval for and carry out the planned developments on the Property; (d) Equititrust knew or ought to have known at the time of entering both loan agreements with me that I had no income and no capacity to repay interest or the loan at all; (e) in the above circumstances, Equititrust acted unconscionably in granting me a loan in the terms that it did." 43 Annexed to her affidavit and marked "F" was a copy of a letter from Mr Jackson dated 22 September 2010. 44 In her statutory declaration made on 6 May 2010, Ms Newton stated that she sought assistance in relation to the hearing scheduled for 13 and 14 May 2010. In paragraph 35 she stated:- "35. Upon advice, I rang Clarissa Heugill who is a solicitor in Ballina, which is handy to where I live. She said she would be happy to represent me. Although there was a box and a half a material to consider which is still in Sydney. She advised that I should seek this notice of Motion and apply for 6 weeks which would allow her the time to consider the documentation."

Defendant's affidavit evidence 45 Ms Eldridge, in her affidavit sworn 16 September 2010, recounted the history of the proceedings, in particular, the procedural history and directions given as well as applications for a stay of the writ of possession. In addition, Ms Eldridge refers to the steps taken to effect the execution of the writ of possession. 46 The affidavit of Ms Hart-Hughes, solicitor and licensed real estate agent, deals with a number of matters concerning the prospective sale of the property and, in particular, events that took place in August 2010. Ms Hart-Hughes referred to the fact that she had a potential buyer for the property. 47 It is unnecessary here to set out the detail of the matters dealt with in her affidavit and, indeed, there was no reference made to the matters deposed to by Ms Hart-Hughes during the course of submissions. She expressed an opinion that the current value of the property "would be at least $10 million" (paragraph 19). 48 Mr Duncalfe, in his affidavit sworn 28 September 2010, refers to a conversation deposed to by Ms Hart-Hughes that took place on 18 August 2010 in which Ms Hart-Hughes stated that she had a client who, she said, would make an offer over $7 million. He then deals with matters by way of follow up on that aspect of the matter. He also referred to an agency agreement which he said Ms Newton had entered into with PRD Nationwide dated 4 June 2010 for the sale of the property. He also explained why the plaintiff had not been marketing the property since August 2010 and the reasons for the urgency in obtaining possession. In paragraph 15, he stated that interest is continuing to accrue at the rate of 16% per annum or approximately $5,000 per day. 49 According to Mr Duncalfe, he says it is apparent to him that Ms Newton has no means of satisfying the debt other than the sale of the security property. He also stated that if Equititrust is not able to obtain possession and commence marketing, it will be detrimental to its business as it is unable to otherwise recover its substantial debt.

Submissions for the plaintiff 50 Mr King provided, in accordance with directions given last week, an Outline of Defendant's Submissions. These were supplemented with oral submissions by him and, as well, by submissions on particular matters by Mr Higgs SC. 51 Mr King's written submissions stated that Ms Newton sought an order declaring "the settlement agreement" void on the basis that the contract was "unjust" within the meaning of s.7 of the Contracts Review Act. He stated:- "5. If the Court finds that the contract was unjust, the defendant [referring to Ms Newton] must establish that its unjust consequences can be avoided only by the grant of the relief sought: s.7(1)." 52 It was further noted that, if the settlement agreement was declared void, then the orders made by Davies J would be deprived of their consensual basis and must be set aside: Harvey v Phillips (1956) 94 CLR 235 at 244. 53 It was contended that questions raised by the Summons included the following:- "(a) Do the defendant's proposed defence and cross-claim have reasonable prospects of success? (b) Was the agreement between the parties relating to the settlement of the first proceeding 'unjust' in its terms or consequences?" 54 Mr King, in his written submissions (paragraph 8), submitted that the issues raised by the Summons would, as a practical matter, be resolved by the answers to the first and second questions which have been reproduced above. 55 Mr King further submitted that if the defendant's proposed defence and cross-claim had reasonable prospects of success, and the settlement agreement was unjust in the circumstances, then there was no basis for allowing the "consent judgment" to stand.

Was the settlement agreement unjust? 56 It was argued for Mrs Newton:-

(1) The only legal advice that Ms Newton had received was that she could not succeed on the defence as pleaded and that she should settle the proceedings.

(2) However, injustice was occasioned by the agreement as she had an arguable defence on the merits.

(3) Ms Newton's ability to protect her interest was impaired by reason of what was described as her "mental capacity" . Reliance, in this respect, was placed upon the report of Dr Petrov. Accordingly, on this basis, it was said that she was not able to protect her interests by reason of her condition: s.9(2)(e) of the Contracts Review Act .

(4) That Equititrust either knew or must have known of Ms Newton's condition at the time.

(5) Ms Newton proceeded to settle proceedings without knowing that she had an arguable defence and cross-claim.

(6) If Equititrust was aware that the underlying loan agreement involved pure asset lending, then it or its legal representatives ought to have known that there was a defence reasonably open to Ms Newton based on the judgment of the Court of Appeal in Elkofairi (supra).

(7) The agreement was entered into at a time which was very stressful, being just prior to the re-scheduled hearing.

(8) A consequence of the settlement agreement was that "the defendant has lost her home and only asset" : paragraph 23(f) of the Defendant's Outline of Submissions .

(9) There was material inequality and bargaining power and it was not reasonably practicable for negotiation to occur. Equititrust was a "seasoned litigator. Although Ms Newton was not unintelligent, and she had been educated to Year 10, she had no relevant commercial experience. She was also in dire financial circumstances" : paragraph 23(g) of the Defendant's Outline of Submissions .

Defendant's submissions 57 Mr Young contended that the reality facing Ms Newton in May 2010 was that, if the proceedings went to a final hearing as scheduled, the very strong probability was that judgment would have been entered for Equititrust. Emphasis in this respect was placed upon what was in effect said to be the absence of any substantive defence. 58 Mr Young also emphasised in this respect, but for the settlement agreement, his client would, in any event have had judgment against Ms Newton. Mr Young contended what was being lost sight of was "the unfairness said to have flowed to the defendant as a result of the consent judgment being entered". 59 Mr Young submitted that on the application to set aside the consent orders the evidence of Dr Petrov was of limited assistance. The suggested diagnosis stated in his report was in fact merely a label. It was, in effect contended the report lacked detail and analysis. 60 Mr Young took issue with the submissions made as to any arguable case on the issue of unconscionability now sought to be pursued if leave was granted. Ms Newton had sought and obtained substantial lending facilities in her capacity as a property developer. Her present indebtedness was at least to a significant extent bound up with her proposed redevelopment project. He submitted her situation was very different to that of the appellant in Elkofairi (supra). Ms Newton's project was one that had all the possible benefits or losses that arise with property development projects. 61 Mr Young submitted that the Court's discretion in circumstances where now the proposed unconscionability case had only very recently been suggested by a legal practitioner should be exercised against the grant of relief sought in the summons. 62 Mr Young also submitted that this was not a case involving asset lending. The monies were to be paid back out of the redevelopment proceedings.

Consideration 63 I have summarised earlier the basis upon which it is suggested that Ms Newton has an arguable defence and cross-claim based on the equitable principles of unconscionability. 64 The matters said to support the proposition that she had, at the relevant time or times been in a "special position of disadvantage" are set out in paragraph 29(a) to (h) of the Defendant's Outline of Submissions. 65 It was, accordingly, submitted that a defence and cross-claim based on those matters would support the proposition that Ms Newton has a potential defence and claim with reasonable prospects of success. On that basis, it was contended Ms Newton should be allowed to contest the proceedings. 66 However, before dealing with that aspect, it is firstly necessary to determine whether Ms Newton has established a basis for a finding that the contract (the settlement agreement) is unjust within the meaning of s.7(1) of the Contracts Review Act and, if so, the question would then arise as to what, if any, relief should be granted in the event of a favourable finding on that issue. 67 It is well accepted that in proceedings for relief under the Act, s.7 involves two steps:-

• The first is whether the contract was "unjust" in the circumstances in which it was made, having regard to the factors referred to in s.9. This, it has been noted, is a conclusion of fact, albeit one of ultimate fact involving a broadly based value judgment: Riz v Perpetual Trustee Australia Limited (2007) ANZ Conv R 615, [2007] NSWSC 1153 per Bergin J.

• The second, which only arises if the first is resolved in the affirmative, is whether any and, if so, what relief should be granted. This involves the exercise of a judicial discretion: Perpetual Trustee Company v Khoshaba [2006] NSWCA 41 at [34] to [36] per Spigelman CJ, [109] per Basten JA. 68 Accordingly, in summary, the issues to be addressed are:-

(1) Whether the settlement agreement was "unjust" in the circumstances relating to it at the time it was made.

(2) Whether, in the event of such a finding, the Court ought conclude that it is just and, for the purposes of avoiding as far as practicable an unjust consequence or result, appropriate that relief should be granted of the type provided for in s.7(1)(a) to (d). Such relief includes declaratory relief in relation to the contract: s.7(1)(b). 69 In relation to the primary question as to whether or not Ms Newton has established that the contract was "unjust", it is necessary to have regard, firstly, to the definition of that term and, secondly, to the relevant factual matters established in evidence. 70 Section 4(1) of the Contracts Review Act provides:- " Unjust includes unconscionable, harsh or oppressive; and 'injustice' shall be construed in a corresponding manner." 71 It is important in evaluating a litigant's claimed rights under the Contracts Review Act in terms of the test of a "good arguable defence" (as for example on an application to set aside a default judgment) that both the broad nature of the evaluation exercise in determining the issue of an "unjust" contract as well as the nature and width of the discretionary power to grant relief be borne in mind. In State Bank of NSW v Drury (unreported 4 April 1996, BC 9601073 at 3), Ireland J expressed agreement with the approach that the then Master had taken with respect to the ground of defence sought to be raised based on s.7 of the Act. His Honour observed:- "The other defence which is raised is a defence under the Contracts Review Act and this always creates difficulty on summary applications. The relief under the Act is very much a discretionary relief and the Court must be very careful to ensure that in denying a hearing that justice is not denied because the Court has denied the opportunity of the trial judge exercising a discretion in favour of the unsuccessful applicant … It is essentially a balancing act for the Court in determining a summary application where the Contracts Review Act is invoked that there is some evidence to support the prospect of relief under the Act rather than the provisions of the Act being recited for the purpose of avoiding summary relief." 72 It is necessary then to consider the factual matters established by the evidence as to whether or not they would support a finding that the settlement agreement was "unjust" in the required sense of that term. 73 It is clear that the particular factual matters relied upon by Ms Newton include:-

(1) The stressful circumstances operating prior to the scheduled hearing of the proceedings.

(2) The fact that she had received legal advice upon her then existing defence but not on any prospective defence of unconscionability or as to any cross-claim on that basis.

(3) That, at the time, she was suffering from a diagnosed mental health condition as specified in the report of Dr Petrov.

(4) That Equititrust and/or its legal representatives was or ought to have been aware of the diagnosis of Dr Petrov, his opinion having been brought to light at an earlier stage in the proceedings.

(5) That there was a material inequality in bargaining power between her and Equititrust. 74 Notwithstanding the very brief terms in which the report of Dr Petrov was expressed, I am of the opinion that in these proceedings I should proceed upon the following basis. The report indicates that the doctor had examined and treated Ms Newton and that he concluded that she has suffered from the stated medical condition and that that has had effects on the defendant in relation to her ability to perform as detailed in his report. Those effects would be regarded as of significance in relation to her ability to enter into the settlement agreement. 75 Those matters, in conjunction with the other factual matters relied upon by Ms Newton, to which I have referred, would, in my opinion, be sufficient to establish a basis for a finding that the settlement agreement was "unjust" in the relevant sense. That said, I do accept the force of Mr Young's submission that the consent order should be seen against the background that if there had been no settlement reached in May 2010, the Court would very likely have found for his client, there being no strong or substantive defence. This would be a matter relevant to the exercise of the discretion in terms of possible relief under the Act. 76 However, notwithstanding a finding as referred to in [74] above, a further critical issue then arises. Section 7(1) of the Act requires the court to determine whether or not declaratory or other relief should be granted, "for the purpose of avoiding as far as practicable an unjust consequence or result" within the meaning of s.7(1). I now turn to consider that issue. 77 The basis upon which the declaratory and other relief is sought is that, unless the agreement and the consent orders are set aside, they will continue to operate so as to preclude Ms Newton from pursuing what she now claims is an arguable case on the basis of unconscionability. That would, so it is contended, provide the basis for making an order thereby avoiding an unjust consequence or result. 78 The first matter in that respect to be examined is whether or not, the evidence in support of the Summons establishes an arguable case on the merits that the loan contracts and associated mortgage all constituted "unconscionable" transactions of a kind which would attract the grant of some form of equitable relief, even if only of a limited nature. 79 In other words, the question is whether the evidence establishes an arguable case that, at the material times, Ms Newton suffered from a special disadvantage as that expression is properly understood. There is a separate question as to whether there is an arguable case that the loans constituted asset lending, as that concept is understood in the relevant authorities, if so, the significance of that matter. 80 In Amadio (supra), Gibbs CJ at 459 stated:- "In my opinion, it should not be held that this was the case of an unconscientious bargain of the kind which equity would set aside, even in the absence of fraud, misrepresentation or undue influence. Of course, the bank and the respondents did not meet on equal terms, but that circumstance alone does not call for the intervention of equity … A transaction will be unconscientious within the meaning of the relevant equitable principles only if the party seeking to enforce the transaction has taken unfair advantage of his superior bargaining power, or of the position of special disadvantage in which the other party was placed. The principle of equity applies 'whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands.' : Blomley v Ryan (1956) 99 CLR 362 per Kitto J at 415 …" 81 On the facts in Amadio (supra), Gibbs CJ observed:- "… In the present case it is true that the respondents were elderly, did not have a complete mastery of the English language and had no formal education. However, the bank did not take unfair advantage of any of those disabilities if disabilities they were …" 82 In any claim based on unconscionability, the onus would be upon Ms Newton to establish that, by reason of her circumstances, the loan transactions with Equititrust were entered into at times when she suffered from or was in a position of special disadvantage. As reliance was placed on the decision of the Court of Appeal in Elkofairi (supra), it is necessary to refer to certain of the factual findings in that case. 83 The appellant, Mrs Elkofairi, aged 56 at the time of trial, came from a poor rural background in Syria. She married her husband, the first defendant to the proceedings, and owned a Castle Hill property with him as joint tenants. The evidence was that her husband was domineering, non-consultative about family decisions and was aggressive and intimidating. Marital difficulties continued until about 1992 when the appellant attempted suicide. 84 The appellant was completely uneducated and could not read or write in either her first language or Arabic or English. She could not understand spoken English, except for a few very simple expressions. She was effectively "an illiterate woman, whose command of English was, at the best, extremely limited …" (at 6). 85 The Castle Hill property was purchased in 1994 partly financed by the sale of a home previously owned by the appellant and her husband. The previous property had been the subject of a mortgage. 86 The appellant was not consulted about the purchase of the Castle Hill property. She did not recall signing any papers in relation to its purchase. 87 In respect of a refinancing of the property by Westpac in 1995, the existing loan from ANZ was paid out and a balance of $78,000 was payable to the appellant and her husband. The appellant's evidence was that she was not aware that any monies had been received through the refinancing with Westpac and did not know where the money went. To the best of her recollection, she had never received any of the balance for her own benefit. 88 On the application for the loan in question (the St George Bank loan), the income section had been left blank. The appellant's husband's accountant wrote three letters which were used in support of the loan application, in effect, stating that the borrower would be able to repay the loan as required. There was no reference to the appellant or her financial position in the correspondence. The accountants did not purport to be her accountants or to know anything of her financial affairs. 89 Contrary to the position represented by the accountants, the appellant's husband owed $25,000 to the Australian Taxation Office and the appellant also owed slightly in excess of $25,000. Subsequently, arrangements were made to reduce the debt by instalments. 90 At the time of taking the loan with the respondent, the St George Bank was pressing to have its loan repaid which had increased to an amount of $468,775. The St George Bank had, in fact, commenced possession proceedings. 91 The total amount borrowed from the respondent was $746,000 and this was secured on the Castle Hill property. The appellant accepted that part of the refinance portion of the loan was applied to pay out the St George Bank loan (in the amount of $470,000). 92 In the course of her Honour's judgment in Elkofairi (supra), Beazley JA (with whom Santow JA and Campbell AJA (as his Honour then was) agreed) referred to the evidence which established that the appellant was, in effect, "an illiterate woman". No explanation had been given to her of the power of sale under the mortgage. 93 Her Honour also noted that no reference had been made in the document sent in support of the application for the loan to the appellant's financial position. At [56], Beazley JA stated:- "56. In my opinion, notwithstanding that the respondent did not have knowledge of the appellant's lack of education and her language and domestic difficulties, her lack of income, in the circumstances of this transaction - that is a large borrowing secured over her only asset, in circumstances where the application form failed to disclose any income for either husband or wife - placed her in a special position of disadvantage. Though the full extent of that special position of disadvantage was not known to the respondent, nonetheless, the absence of any relevant financial information was sufficient to put the respondent on notice of the appellant's lack of capacity to meet the repayment obligations under the mortgage. That left as the only source of repayment the selling of her only asset, as again the respondent must be taken to have known." 94 Her Honour also found that, in the circumstances of the case, the fact that the respondent had not been concerned as to the income of the appellant:- "… demonstrates the unconscientious nature of the transaction and the advantage the respondent took of the appellant's disadvantageous position. On its own submission, the respondent was only concerned with its ability to recoup any amount outstanding on the loan in circumstances where it must be taken to have known, because on the only information the respondent had, the appellant had no income, that the appellant, who was exposed to liability for the whole of the loan, had no ability to make even the first payment. The unconscientious nature of the transaction was that she was thereby at risk of losing her only asset. That risk was both immediate and real." 95 As Handley JA noted in Khoshaba (supra) at [123], the Court in Elkofairi:- "… held that a contract was unjust by reason of a combination of two circumstances , namely, that the borrower was in a position of special disadvantage (although unbeknownst to the lender) and, secondly, that the lender was 'content to lend on the value of the security only', knowing that the borrower had no income or other assets, with the result that it was likely that the borrower would lose her home: see [53] and [79] … The Court held that the loan contract was unjust, perhaps by reference both to the interests of the borrower and also in the public interest." (emphasis added) 96 See also Khoshaba (supra) at [123] per Basten JA. 97 I do not consider that the evidence on the present application establishes that Ms Newton has a good arguable case that the loan agreement made on 18 June 2007 and the subsequent agreements made on 16 September 2008 were unconscionable or unconscientious transactions. In particular, I do not consider that the evidence supports a finding that Ms Newton was, at the time of entering into the transactions, the subject of circumstances that constituted a position of special disadvantage within the accepted meaning of that phrase. 98 I do not, in particular, consider that it is reasonably arguable that Ms Newton could be seen to be in a position resembling that of Ms Elkofairi. I also do not consider that the factual matters pertaining to Ms Newton at the relevant times and to which I have earlier referred could properly be characterised as her being in a special position of disadvantage at the relevant time of the loan applications. 99 Further, the evidence does not, in my opinion, establish an arguable case that the circumstances reveal an unconscientious use of Equititrust's power to the detriment of a person suffering a special disability or placed in a special situation of disadvantage. 100 The evidence does not establish that Ms Newton was in a position of being led into a loan transaction for a purpose for which she had no real interest. To the contrary, having inherited the property, she, in later years, entered into significant financial obligations with Westpac directed at a property development of a very substantial nature. 101 According to paragraph 10 of Ms Newton's affidavit sworn 23 September 2010, in about 2004, she owed $850,000 to Westpac. Her then indebtedness was later combined into a $1,815,000 Westpac offer. 102 The evidence in the proceedings reveals a number of circumstances concerning Ms Newton, including her personal circumstances which are, at the least, unfortunate and which give rise to natural human sympathy. 103 So far as her financial circumstances are concerned, it appears from the evidence that serious problems developed before the subject loans were made by Equititrust. However, in that respect, the evidence does not indicate exactly how the loan funds from Westpac were utilised or expended. 104 As noted above, $3.5 million of the "development funding" received from Equititrust went to repaying the Westpac loan (that is, 62.5% of the initial Total Facility of $5.6 million). 105 On her own evidence, Ms Newton was very active in consulting with the Council, town planners, lawyers and others in seeking to have the land rezoned residential with a view to it then being redeveloped and the newly developed units being sold off with a view to achieving a return, no doubt including a reasonable profit margin. 106 The relevant loan documentation to which I have earlier referred evidences an intention in Ms Newton (whether it was a plan or intention that was realistic or not) to enter into short term loan arrangements with the objective of using the proposed development as a means of repaying the loan. An aspect of the arrangements made with Equititrust was that she would be entitled to capitalise the interest repayments rather than be required to make periodic payments during the short term loan periods. 107 In the earlier phase of the proposed project, Ms Newton had entered into a joint venture with her former accountants. She, no doubt, saw some benefit in proceeding with the project on that basis. She assumed a very active role in seeking to bring to fruition her development project. The loan monies made available were made available for her benefit and, in that respect, it was a situation quite unlike that that arose in Elkofairi. 108 Whatever are the matters that have led to Ms Newton's financial problems, it appears that she was still making representations to the Mayor of Ballina Shire regarding the proposed development as recently as July 2010: Ms Newton's affidavit sworn 27 July 2010, paragraph 24. 109 Although I have concluded that it has not been established that Ms Newton has an arguable case of unconscionability upon the basis of "special disadvantage", I will also make some observations on the further issue of "asset lending".

110 In Khoshaba (supra), a case in which the judge at first instance made orders under s.7 of the Contracts Review Act, the appellant had entered into a loan agreement with the respondent pursuant to which it advanced $120,000 net of brokerage fees. A security by way of first mortgage was given over the respondent's residential home. 111 Spigelman CJ considered the purpose of the loan in terms of s.9(2)(1) of the Act. The purpose of the loan, the Chief Justice observed at [69] is usually a material consideration in determining whether the particular borrower is able to service and repay the loan. In that way, it is an issue in a case under the Contracts Review Act as the purpose of the loan is a relevant circumstance relating to the contract within the meaning of s.7 of the Act. 112 In Khoshaba (supra), Basten JA observed:- "127 The issue with respect to an ill-advised investment was discussed, hypothetically, by McHugh JA in West (see the passage set out at [86] above) in terms of whether the lender in such circumstances acts "unfairly" in relation to the borrowers and, whether "the lender owed a duty to the borrower to ensure that she used the borrowed money wisely". In relation to the first limb of this approach, his Honour appears to have assumed that these circumstances might only give rise to a form of procedural unfairness. It is at least arguable that the contract may be unjust in a substantive sense. In relation to the second limb of the test, it would, in my view, be an error to look for a duty imposed under the general law to ensure such a result. A contract may be unjust without there being any breach of a general law duty: see Mahoney P in Elders Rural Finance Ltd v Smith (supra) 41 NSWLR at 299B.

128 To engage in pure asset lending, namely to lend money without regard to the ability of the borrower to repay by instalments under the contract, in the knowledge that adequate security is available in the event of default, is to engage in a potentially fruitless enterprise, simply because there is no risk of loss. At least where the security is the sole residence of the borrower, there is a public interest in treating such contracts as unjust, at least in circumstances where the borrowers can be said to have demonstrated an inability reasonably to protect their own interests, for the purposes of, for example, s 9(2)(e) or (f). That does not mean that the Act will permit intervention merely where the borrower has been foolish, gullible or greedy. Something more is required: see Esanda Finance Corp Ltd v Tong (1997) 41 NSWLR 482 at 491 (Handley JA) cited with approval in Elkofairi (supra) at [77] by Beazley JA." 113 The above observations and dicta, of course, deal with the issue of pure asset lending in the context of a case involving a loan and the application of principles in relation to the provisions of the Contracts Review Act to such a transaction. 114 The plaintiff, Ms Newton, does not, of course as I have earlier stated, seek to rely upon that Act for the purpose of establishing that the loan contracts were "unjust", she confining her present claim for relief in the summons to an arguable case of unconscionability in accordance with general law principles. 115 Asset lending, however, may be relevant to establishing unconscionability as Elkofairi (supra) illustrates. In the present case, as earlier discussed, the nature of the loan did not involve Ms Newton making monthly payments, the interest being compounded. Her capacity to make periodic payments under the loans then did not arise. That would not, in my view, necessarily, however, exclude the concept of asset lending. Exactly how far a lender in a case such as the present involving "project funding" must go in assessing the feasibility of a development proposal such as the one in the present case, has not been the subject of detailed submissions in the present proceedings. 116 On the basis of the conclusion which I have earlier expressed as to the "unjustness" finding in relation to the settlement agreement, I return to the question whether it would, in terms of s.7(1) and in light of any such finding, then be "just" and necessary (for the purpose of avoiding as far as practicable an unjust consequential result), that relief of the kind sought in the summons be granted. 117 On the basis of the conclusions that I have set out above, it follows that it would not be in accordance with s.7(1), whether as a matter of principle, for a declaration as sought to be made nor for an order that the consent orders be set aside. Those are conclusions based upon the fact earlier discussed, namely, that the evidence does not disclose an arguable case in relation to the loan transactions based on unconscionability principles. In any event, as a matter of discretion arising under s.7(1), this is not a case in which, in my opinion, the power to grant relief under s.7(1) should be exercised as the plaintiff seeks in the summons. In that regard, I take into account the conclusions I have reached on the question of an "arguable case" the very large amount of the outstanding loan, the extremely high interest that is running on the loan and the purpose for which Ms Newton acquired the loans. 118 On that basis, insofar as the plaintiff seeks final relief, the summons should be dismissed. 119 In relation to the interim relief sought in paragraph 4 of the summons, it follows that the summons should also be dismissed. 120 I will hear the parties on the question of costs. **********

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.