Section 7 Contracts Review Act 1980
100The Defendant's final written submissions identified her claim for relief as being under s.7(1) Contracts Review Act 1980 . There is a significant overlap between this claim, and her claims in negligence and unconscionability (in particular), which have been addressed so far in this judgment.
101In the Plaintiff's Statement of Issues prepared in advance of the hearing, a foreshadowed issue was whether the contract for the loan of $672,000.00 was excluded from review by s.6(2) Contracts Review Act 1980 . That provision excludes the grant of relief under that Act to a person 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. At the hearing, Mr Combe did not press an argument that s.6(2) operated to exclude the Defendant from seeking relief under the Act. He pointed to the distinction between the Defendant and Amadeus, a separate corporate entity carrying on the business, referring to the decision in Australian Bank Ltd v Stokes (1985) 3 NSWLR 174.
102Accordingly, the question to be considered is whether the Defendant has established, on the balance of probabilities, a basis upon which relief ought be granted to her under s.7 Contracts Review Act 1980 .
103Section 4 Contracts Review Act 1980 defines "unjust" to include the terms "unconscionable, harsh or oppressive" .
104Section 7 Contracts Review Act 1980 is in the following terms:
"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."
105Section 9 provides for matters to be considered by the Court in determining whether a contract or a provision of a contract is unjust in the circumstances relating to it at the time it was made:
"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."
106The Court may have regard to any circumstance existing at the time of the contract whether or not a party was aware of that circumstance, but the Court cannot have regard to any injustice arising from a circumstance that was not reasonably foreseeable at the time when the contract was made: West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 620.
107The purpose for which a loan is advanced is a relevant circumstance: s.9(2)(l) Contracts Review Act 1980 : Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41 at [68].
Submissions of the Parties
108The Defendant submitted that relief should be granted to her under s.7(1) Contracts Review Act 1980 so as to return Loan 1 (which she described as the "home loan" ) to its original amount of $290,000.00, discounting what she described as unreasonable fees and charges inhibiting her from properly servicing this loan amount, and setting aside the remaining mortgage contract on the Floraville property, including what she described as all the accumulated and unreasonable fees and charges as evidenced on the loan account statement.
109The Defendant submitted that the purpose of the loan was predominantly for the unit development on the Fassifern property by Amadeus, a separate legal entity to herself. The Defendant submitted that her difficulties with Mr Foteades placed her at a situational disadvantage. She submitted that she was under pressure in the circumstances.
110Whilst accepting that the Manual may only be a guideline for loan assessments and documentation, the Defendant submitted that any discrepancies between initial applications and subsequent documentation should have alerted La Trobe at the time, so that it should have carried out further investigations to completely satisfy itself that the borrower was able to meet the repayments. The Defendant submitted that La Trobe should have insisted upon obtaining a certificate from the borrower's accountant to the effect that the Defendant had received advice concerning her ability to meet repayment obligations. The Defendant asserted that there was a discrepancy between documentation and a declaration which she denied had been provided to La Trobe in completed form, so that La Trobe and the Plaintiff should have made further enquiries. I have already rejected the Defendant's evidence on this aspect (see [24] above). I accept that the documents in question were submitted by her in completed form, and that she was aware of the contents of the documents at the time.
111The Defendant relied upon the decision of Forrest J in Perpetual Trustees Australia Limited v Schmidt . The Defendant submitted that this case supports her argument based upon La Trobe not following its own lending guidelines in this case. The Defendant submits that, if the loan was not serviceable, then in substance it is not a loan, but an asset sale.
112The Defendant's written submissions included the somewhat extraordinary proposition (paragraph 7):
"It is unreasonable to expect the defendant to disclose on the loan application or supporting documentation initially submitted, that they are unable to meet loan servicing of the development/construction loan, given the stress and pressure on the defendant to obtain the loan to facilitate the construction of the four units at Fassifern."
113The Defendant's written submission proceeded to assert a "common practice" to present an (inaccurate or incomplete) picture in an application to ensure success, apparently based upon the expectation that a lender would investigate the matter fully thereafter.
114Express reliance was placed by the Defendant upon the following statement by Forrest J in Perpetual Trustees Australia Limited v Schmidt at [207] (footnote excluded):
"Acceptance of the concept of situational disadvantage extends the reach of the doctrine to cases involving asset lending where there is intentional moral obloquy, contrary to good conscience on the part of the financier or the procurer of the loan in relation to its dealings (including the processing of the loan application) with the borrower. It is not limited to knowledge of linguistic, educational or intellectual difficulties, but, I think, extends to a situation where the loan documentation alerts the financier or its representative to real issues (such as the patent discrepancies exposed in this case) concerning the borrower's ability to repay the loan, particularly where the security, in the form of the borrower's family home, is his or her only asset."
115The Defendant submitted that undue weight should not be attached to evidence concerning her education and business experience, because of the context of that business experience involving her ex-husband.
116Mr Combe submitted that the Defendant had not established any basis for relief under s.7 Contracts Review Act 1980 . He made detailed submissions by reference to considerations under s.9(2) of that Act, contending that it was the Plaintiff, in the end, which was hard done by in the events surrounding this litigation.
Determination Concerning Contracts Review Act 1980
117I am not persuaded that the Defendant is entitled to relief under the Contracts Review Act 1980 with respect to any aspect of this contract. In general terms, I accept the submissions of the Plaintiff as to why the Defendant's claim ought be rejected.
118The subject loan from the Plaintiff to the Defendant in the sum of $672,000.00 was obtained in a commercial setting for the predominant purpose of the unit development on the Fassifern property by Amadeus, a company of which the Defendant was the sole director and shareholder. I accept that the Defendant stood to make a profit or a substantial benefit from this development, by virtue of the fact that she was the sole shareholder and director of Amadeus. The Defendant was the mind and will of that company.
119Central to the Defendant's submissions is the issue of serviceability of the loan. The Plaintiff (through La Trobe) relied on certifications as to income provided by the Defendant. I am satisfied that all certifications as to income were provided with the full knowledge of the Defendant as to their contents. There is no relevant inconsistency between parts of the documentation provided by the Defendant.
120Aspects of the Defendant's submissions come perilously close to an argument that a borrower may submit inaccurate or incomplete information to a lender (because that is what may serve the interests of the borrower) and that the lender is under a duty to investigate the documents provided by the borrower, despite the contents of the documents which have been furnished. I reject this submission.
121I reject, as well, the Defendant's submission that the Manual required further investigation or the demand for further material (such as an accountant's letter). The evidence reveals that the Defendant had an accountant and a solicitor at the time of the application. Fairly read, the Manual is a guideline only and did not require the provision of an accountant's letter in support of an application. Nor did the Manual require anything more if an application involved the use of presales contracts. The evidence reveals that Mr Lawrence turned his mind to the Manual as guidelines, and that he satisfied himself with respect to the issues raised by the application, including serviceability, in a manner explained in his evidence (see [29]-[30] above).
122I accept the submissions of the Plaintiff concerning s.9(2) factors to the following effect.
123As to s.9(2)(a), there was no material inequality in bargaining power between the Plaintiff and the Defendant. The Defendant was a sophisticated and well-educated businessperson and company director, who had the services of a solicitor and accountant available to her.
124As to s.9(2)(b) and (c), the loan contract was the subject of negotiation. The Defendant sought and was granted a split facility. She was provided with an indicative, and then a final letter of offer. In her application, the Defendant specifically requested a low-doc construction loan or lite-doc loan.
125As to s.9(2)(d), there is no evidence that the loan agreement for $672,000.00 imposed conditions that were difficult for the Defendant to comply with, or were not reasonably necessary to protect the legitimate interests of the Plaintiff. The Defendant offered security over the Floraville property.
126There is no evidence of asset lending such that the only means of securing a loan was to sell the property. As Allsop P observed in Fast Fix Loans Pty Limited v Samardzic [2011] NSWCA 260 at [43], "asset lending" is not a label or a legal frame of reference. It is a convenient expression to "describe a form of lending where the lender has little, if any, regard for the capacity of the borrower to repay and rests satisfied with the security to protect itself" . In my view, that is far removed from the circumstances of this case.
127The Defendant stated that her income was $139,000.00 per year, which would have enabled her to service the loan. This case is entirely distinguishable from the type of case considered in Perpetual Trustees Australia Limited v Schmidt . Indeed, many of the principles relied upon by Forrest J in that case operate to support the Plaintiff in the resolution of the present case.
128As to s.9(2)(e) and (f), there is no evidence that the Defendant was unable to protect her interests. The evidence is that she approached the Plaintiff by way of a mortgage broker, and had the services of a solicitor who acted for her on the presales contracts, as well as the services of an accountant.
129I accept that the relative economic circumstances, educational background and literacy of the Defendant were good. In my view, the loan contract was easily intelligible.
130As to s.9(2)(h) and (i), the loan contract recommended that the Defendant should obtain independent legal and financial advice. The loan contract would not have needed explanation to the Defendant. She had previous experience in lending and the use of low-doc loans.
131As to s.9(2)(j), there is no evidence of undue influence, unfair pressure or unfair tactics being used by La Trobe or the Plaintiff. The Defendant applied for a loan, with La Trobe sending an indicative letter, and then a final letter of offer to the Defendant. Clearly, the Defendant took time to consider the contents of these documents before accepting them in writing.
132The Defendant raised, in a general and unparticularised way, conversations which were said to have occurred with Mr Lawrence in which she said that she could not repay any part of the loan of $672,000.00. The Defendant had not included in her affidavits any specific conversation identified in time and using direct speech. There was, in effect, a general assertion of this type which was met (understandably) by a general denial by Mr Lawrence in his affidavit sworn 30 August 2011.
133I do not accept the evidence of the Defendant that any statement was made to Mr Lawrence, prior to the completion of the loan transaction, that she could not repay any part of the loan. Indeed, at the time when the contract was entered into (that being the relevant time), the Defendant believed that the presales contracts would be completed. It was not until 2008 that these contracts fell through.
134In my view, the contemporaneous documentation reflects the reality of what the Defendant was conveying to La Trobe at the time. It is apparent that, at some point after the entry into the contract, the Defendant was not able to meet the requirements of the loan and defaulted. Any discussions which occurred between her and any officer of La Trobe or the Plaintiff, after the contract was entered into, cannot assist her for the purpose of the claim for relief under the Contracts Review Act 1980 .
135I am not satisfied on the balance of probabilities that the Defendant conveyed orally to Mr Lawrence, or any officer of La Trobe or the Plaintiff, prior to the entry into the contract, that there were problems with her servicing the loans which she sought to obtain.
136Although the Defendant sought to rely, in various respects, upon the presales contracts for the units to be constructed on the Fassifern property, she did not tender the contracts in evidence. However, the cross-examination of the Defendant disclosed that:
(a) each presale contract was for sale of the unit for $395,000.00;
(b) the presales contracts were prepared for Amadeus by Mr Foteades, who was retained by the Defendant;
(c) the presales contracts were signed by the Defendant on or about 3 May 2007 as a director of the vendor, Amadeus;
(d) Special Condition 52 of the Contract for Sale in each case provided for a deposit of $5,000.00, and payment of a further $34,500.00 on the completion date, that date being the date of registration of the strata plan - when combined, these two deposit sums amounted to $39,500.00 per unit, being 10% of the sale price;
(e) the purchaser in each case was Reya Holdings Pty Limited - the purchaser and vendor of the units were both corporations so that there was no inequality in bargaining power;
(f) the contracts were unconditional in the sense that there was no contingency which the purchaser had to meet such as finance;
(g) at the time of the acceptance of the loan offer, the Defendant had no reason to believe that the purchaser would not proceed with settlement and the Defendant communicated no such belief to the Plaintiff prior to 30 May 2007.
137I accept the Plaintiff's submission that the cumulative effect of this evidence (summarised in the preceding paragraph) is that the presales contracts were transactions of a commercial nature, created by an agent of a company of which the Defendant was the sole director and shareholder. The Defendant stood to make a personal gain from any profits Amadeus made from the unit development on the Fassifern property. It was her intention to continue property development, including the planned New Lambton project with a gross realisable value of $4.8 million (Exhibit SL1, page 97).
138I accept that the Defendant's mind and will was that of the vendor company, Amadeus. She was the sole executive and owner of the company. The company's state of mind and knowledge of the presales contracts was therefore also that of the Defendant. I accept the Plaintiff's submission that the Defendant was not a victim of an unscrupulous or otherwise avoidable commercial arrangement with respect to the presales contracts. In reality, the Defendant had been party to the creation of the presales contracts.
139I accept the submission of the Plaintiff that the loan offer dated 25 May 2007 for the $672,000.00 personal loan points to the presales contracts having little bearing on that matter. There is no reference to the presales contracts as a condition of that offer. As mentioned above (at [33]), the conditions of that offer involved provision of security over the Floraville property, discharge of a previous loan with Perpetual Trustees (Vic) Limited and cross-collaterisation of the Fassifern property loan. In contrast, the letter of offer for the advance to Amadeus (Exhibit A, page 9A) provided that the presales contracts were to be unconditional, and that this was established by solicitors acting for the Plaintiff as lender.
140The ultimate relevance of the presales contracts to the personal loan was that they provided, in the words of Mr Lawrence, "a comfort factor" in the NDI serviceability calculator assessment (see [30] above).
141I accept the Plaintiff's submission that, in any event, it was not foreseen by the Plaintiff or the Defendant that the purchaser of the Fassifern property would not proceed to settlement. Events after 30 May 2007 are irrelevant, and the subsequent failure of the contracts can have no bearing on this case.
142I have made a number of findings which stand in the way of the Defendant establishing an entitlement to relief under s.7 Contracts Review Act 1980 .
143Reference was made in submissions to a number of other decisions in this State under the Contracts Review Act 1980 , in particular, Elkofairi v Permanent Trustees Co Limited [2002] NSWCA 413; (2002) Aust Contracts Reports No. 90-157, Perpetual Trustee Company Limited v Khoshaba and Kowalczuk v Accom Finance Pty Limited [2008] NSWCA 343. These cases are far removed from the circumstances of the present case.
144In Perpetual Trustee Company Limited v Khoshaba , the sum of $120,000.00 was lent to a couple with an income of $43,000.00 and a pension for immediate expenditure in a pyramid scheme. The lending was on the strength of the security alone and the lender was indifferent to the purpose of the borrowing. In the present case, the Defendant, as borrower, declared a substantial income of $139,000.00 per annum and disclosed presales contracts. The Plaintiff, as lender, satisfied itself of the purpose of the loan and serviceability. I am satisfied that the Plaintiff in this case was not indifferent to the purpose of the borrowing.
145In Elkofairi v Permanent Trustees Co Limited , there was a substantial loan to a wife for the benefit of her husband. The wife had no income and the wife's only asset was the security property, being her home. The lender was aware of the absence of an income and was lending on the basis of a security. In the present case, the Defendant, as borrower, declared a substantial income and disclosed presales contracts. The lender satisfied itself as to the serviceability of the loan.
146The Plaintiff submitted that the present case is closer to the circumstances in Riz v Perpetual Trustee Australia Limited [2007] NSWSC 1153; (2008) NSW Conv R No. 56-198. There, the plaintiffs borrowed $275,000.00 on the security of their home. Of this sum, $110,000.00 was applied to discharge an existing home loan with Citibank and $150,000.00 was invested in a commercial enterprise with Karl Suleman Enterprises, which later failed. The lender satisfied itself as to serviceability and was aware of the purpose of the loan (part for refinance and part for investment). Brereton J found at page 56,599 [85] that the lender's assessment of the loan application did not manifest the indifference that was crucial in Perpetual Trustee Company Limited v Khoshaba , and that the lender knew the purpose of the loan. In those circumstances, Brereton J observed that the lender could be regarded as "an innocent party" . This part of the findings of Brereton J was not appealed against, and was undisturbed by the Court of Appeal in its judgment in Dominic v Riz [2009] NSWCA 216.
147Mr Combe submitted that the reasoning of Brereton J at pages 56,598-56,599 [83]-[88] rejecting the claim under the Contracts Review Act 1980 was applicable here. I accept that the reasoning in Riz v Perpetual Trustee Australia Limited may be utilised in a manner which assists the Plaintiff in the present case.
148In reaching this conclusion, I have kept in mind that there is no requirement upon the Defendant to establish a degree of moral obloquy on the part of the lender: Fast Fix Loans Pty Limited v Samardzic at [50]. To frame unjustness under the Contracts Review Act 1980 in terms of "innocence" of the other party, is to misdirect the enquiry under the Act, which requires an "overall evaluation in determining both unjustness and the justness of granting relief, which involves a consideration of all the relevant circumstances of the case": Fast Fix Loans Pty Limited v Samardzic at [50]. The Defendant has not established unjustness in this case.
149I do not consider that anything said in Perpetual Trustees Australia Limited v Schmidt assists the Defendant in this case. The present case is not one of asset lending in any sense of the word. The Defendant certified her income and made statements to La Trobe to demonstrate serviceability of the loan. The Plaintiff and La Trobe were entitled to rely upon the material being advanced by the Defendant as part of the application. There was no material inconsistency in any of the documents advanced in support of the application.
150The monies were advanced to the Defendant but thereafter, the sale of the units did not proceed. These later events do not assist the Defendant to avoid compliance with her obligations under the loan and mortgage arrangement entered into by her with the Plaintiff.
151I am entirely unpersuaded that any basis has been demonstrated for the Defendant to obtain relief under the Contracts Review Act 1980 .