Permanent Mortgages Pty Ltd v Michael Robert Cook and Karen Cook

Permanent Mortgages Pty Ltd - Plaintiff PARTIES : Michael Rober Cook and Karen Ann Cook - Defendants Michael Robert Cood and Karen Ann Cook - Cross-Claimants Permanent Mortgages Pty Ltd - Cross Defendant

FILE NUMBER(S) : SC 12632 of 2003; 13381 of 2004

COUNSEL : A. Rogers - Plaintiff S. Donaldson SC with R Francois - Defendants

SOLICITORS : R L Kremnizer & Co - Plaintiff Legal Aid Commission of NSW - Defendants

• 46 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION POSSESSION LIST

No: 12632 of 2003 and No: 13381 of 2004

Michael Robert Cook and Karen Ann Cook - Defendants

Michael Robert Cook and Karen Ann Cook - Cross-Claimants

JUDGMENT INTRODUCTION: 1 These two actions and cross-claims raise not uncomplicated issues of fact and law. That there are two sets of proceedings between the same parties arises from the circumstance that a defence to action 12632 of 2003 (the earlier action) asserted non-compliance with s80 of the Consumer Credit Code (the Code) in relation to the giving of a default notice before commencing enforcement proceedings. 2 Whilst continuing to deny the validity of the defence on the ground that the Code had no applicability to the transaction but, in an attempt, for more abundant caution, to overcome it, the Plaintiff gave a notice purporting to comply with s 80 and upon its expiration commenced proceedings 13381 of 2004 (the later action). As Sully J pointed out in his interlocutory judgment of 23 August 2003, it is appropriate that all issues raised in both actions be dealt with at the one hearing in the interests of the saving of cost, if for no other reason. 3 Mention should be made of a third action 12123 of 2003 where, although the Defendants are the same, the Plaintiffs are a Mr & Mrs Agius. As will appear, there is a relationship between the transactions which give rise to the actions before me and the action by Mr & Mrs Agius. However, the action by Mr & Mrs Agius has been stayed pending judgment in these matters in the hope, as I understand it, that it may be resolved without further litigation. 4 In relation to the matters before me, it was common ground that the Defendants executed in favour of the Plaintiff a mortgage (the subject mortgage), dated 19 May 2003, over their home at 13 Currans Hill Drive Currans Hill, in the State of NSW. The mortgage purported to secure, inter alia, the principal sum of $200,000 and the payment of interest thereon. It specified that the principal became repayable on 19 May 2004 and that interest in the meantime was payable by monthly instalments at the rate of 13.8% per annum, with the proviso that the mortgagee would accept interest at the lower rate of 8.8% per annum if paid within seven days of the due date and "all other covenants of the mortgages have been observed by the mortgagor". 5 It was also common ground that, in the intervening period of more than 3 years, no interest has been paid by the Defendants and no part of the principal has been repaid. THE DEFENDANTS AS BORROWERS:

6 In order to put the issues in context, it is important that I make mention of the Defendants' personal and financial history. In that regard, I accept the substantial truth of the following paragraphs taken from the affidavit of Mr Cook sworn 29 June 2005. (I have omitted material which simply identifies documents or relates to irrelevant matters). "3. I was educated to Year 10 in South Australia. In Year 10 I was in a special class for children who were assessed as not having the capacity to do Years 11 and 12. The class concentrated on life skills aimed at assisting students to get into the workforce. Students in the special class did not sit for the Year 10 certificate. I have not undertaken any formal education since leaving school. In 1990 I attended TAFE to get a forklift licence and learn about warehousing. I did an internal course in explosives whilst employed with the Department of Defence. 4. I married Karen Ann Cook on 13 March 1993. We had been living together since 1990. 5. In 1992 Karen and I purchased our land at 13 Currans Hill Drive in joint names using $40,000 Karen had been given by her grandfather, money we had saved and some additional money from Karen's parents. At that time I was working as a storeman with the Department of Defence and I continued in that employment until I was made redundant in June 2000. 6. At the time I started work with the Department of Defence I did not know how to read beyond a very basic level. I learnt to read better whilst working for the Department because I had to teach myself to read orders and do data input into computers. By the time I left the Department my reading level was sufficient to enable me to read the Daily Telegraph. 7. After buying our land in 1992, we obtained a home loan from St George Bank for about $53,000 to build a house. I don't recall going to a solicitor in relation to that loan but may have done so. I recall that St George took a mortgage over the property and I recall signing mortgage documents. I don't recall the mortgage being explained but I knew then anyway that a mortgage meant that if we didn't make our loan payments our home could be sold. The house (Our Home) was complete by late 1992 or early 1993 and Karen and I moved in on 25 March 1993. 8. Between 1992 and 1995 Karen and I ran up about $12,000 in personal debts on an AVCO line of credit. 9. In 1995 Karen and I borrowed about $100,000 from AGC secured over our home and used that money to pay out the St George loan, some personal loans, and to do some renovations. We didn't use a solicitor in relation to that loan as far as I recall. I remember signing a number of documents to obtain the loan but can't now remember what they were. 10. On 18 June 1996 our first child, Jessica Ann Cook was born and on 11 September 2003 our second child Tara was born.

11. Two weeks after Jessica was born I felt a lump in my groin. I was told by the doctors that it was a non-Hodgkins lymphoma which had gone malignant. By the time I had all the treatments I was too sick to work and had to have about 8 months off from my job with the Department of Defence. The treatment continued till about December 1996. I returned to work in about February 1997. Although I was receiving holiday pay and sick pay for some of the time I was off work the sick pay ran out and I had to go onto Centrelink benefits which was less income than what I'd normally earn. As a result Karen and I had difficulties in meeting our expenses and payments on the AGC loan and Karen's father helped us meet the payments.

Commonwealth Bank loan 12. Sometime after I returned to work with the Department of Defence in 1997, Karen and I took out a 25 year loan for about $110,000 with the Commonwealth Bank to pay out the loan from AGC. I have seen a document from the Commonwealth Bank suggesting the loan was taken out in December 1998. That accords with my recollection. 13. I don't recall using a solicitor in relation to the Commonwealth Bank loan. I recall signing a mortgage at the Commonwealth Bank in Narellan. I can't remember if it was explained to me or not. It may have been. 14. In June 2000 the Department of Defence made me redundant. Although it had been difficult keeping up with the payments to the Commonwealth Bank and we'd fallen behind at times we were up to date at the time I was made redundant. I was given a redundancy payment of about $46,500. We used the money to pay $10,000 to Karen's father for the assistance he had provided when we had difficulty paying the AGC loan, go on a holiday to the United States, pay some bills, buy some things for the house and meet living expenses. We had intended to use some of the money to meet the mortgage payments but when Karen's father asked to be repaid we were unable to do so. 15. After I was made redundant I could not find full-time work. I wasn't eligible for social security for much of that period and we had to use the redundancy money to survive. 16. In April 2001 I got full time work as an employed driver with Neverfail Springwater. About a month after starting with Neverfail I was injured on the job and went off on compo for a few months. When I returned to work on light duties in about mid July Neverfail gave me work I wasn't able to do because of my injuries, and told me that if I was not prepared to do the work they gave me there was no point coming in to work. After that I felt I couldn't go back to work for them. That was in October 2001. I then started doing agency work as a truck driver through a number of agencies. 17. I continued to do agency work driving trucks for a number of agencies until I started full time as an agency driver with Toll Autologistics in about November 2002 and continued to work there on an agency basis until I obtained my current permanent, full-time position as a truck driver with Toll Autologistics on 9 August 2004. 18. Karen and I started falling behind on the payments on our Commonwealth Bank loan in about September or October 2000 because I wasn't able to get enough casual work. The Commonwealth Bank started phoning and sending notices. I think they may have commenced court proceedings seeking possession. I tried to refinance through other banks but was unable to do so. I panicked at the prospect of losing the house. I didn't think my marriage would survive the loss of the house. Karen's mentality is that the husband is the wage earner, the wife stays at home looking after the kids, and you own your own house. I started looking in the local Yellow Pages under "Home Loans". I phoned a number of mortgage lenders and explained our situation and eventually made an appointment to go in to see Wizard Home Loans at Campbelltown ("Wizard") . Singleton Loan 19. I went in to the office of Wizard and a man introduced himself as Dom Llavero ("Dom") . Dom proceeded to arrange the loan to pay out the Commonwealth Bank. 20. ………. 21. The Loan Submission describes Karen and me as "Self-employed: DJ Hospitality". I didn't have a business called "DJ Hospitality" or any other business. I remember telling Dom that I worked both as a truck driver and casually as a disc Jockey. I never told Dom that the Commonwealth Bank Loan had been obtained to raise business capital for DJ Hospitality or to raise money for any other business purpose. I told Dom words to the effect: "I've fallen behind in my loan repayments and want to get a home refinance". 22. Karen and I signed a number of documents in relation to the loan on 14 December 2000 at Wizard. We signed those documents before Marina Llavero, who had been introduced to us as the wife of Dom Llavero. Marina witnessed our signatures on some of those documents. 23. ……………. 24. ……………. 25, The loan was a one year loan for $120,000 which was used to pay out the loan from the Commonwealth Bank. The payout figure was $110,513.31. After that amount and various fees were paid Karen and I received about $4,200 for our own use. 26. We missed the April payment on the loan and payments after that and judgment was obtained. Hipsley Loan 27. In July 2001 I went to Wizard mortgage brokers to try and obtain another loan to pay out the Singleton Loan. Wizard arranged another one year loan for $138,000. 28. …………. 29. ………….. 30. …………. 31. According to the Certificate of Mortgage Investment the money was advanced on 28 August 2001. That accords with my recollection. Of the $138,000 advanced about $133,000 went to pay out the loan to Singleton. Of the $5,000 balance I can't remember how much went on brokerage fees to Wizard and how much Karen and I received. 32. We had to make arrangements with Modern Conveyancing to pay their fees by instalments because we didn't have enough money to pay them straight out. 33. We had difficulties meeting the repayments on the Hipsley loan and were in arrears by the end of September 2001. We received a notice from R L Kremnizers and Co ("Kremnizers") dated 18 October 2001. 34, In December 2001 Karen and I were served with a Statement of Claim in relation to this loan. 35. We remained in arrears and in March 2002 I applied to APRA for release of my superannuation money. By this time the lender had obtained a Writ of Possession. APRA Application 36. Sometime in early February I faxed through a request to Kremnizers, who were acting for the lender, for the information required by APRA from the lender. 37. We received notice from the Sheriff dated 19 February 2002 telling us that they would be around to execute a writ for possession on 6 March 2002. On the day the Sheriff came or the next day I phoned Kremnizers and spoke to a woman by the name of Nicole Stern or Nicole Stein ("Nicole") and had a conversation to the following effect: Me: "Is there any way that I can make an arrangement to catch up on my loan." Nicole: "No there isn't but if you can pay the arrears out everything will go back to normal." Me: "I haven't got the amount to pay the arrears now but I've been told that I'd be able to draw on my superannuation through APRA. Is there anyway to stop this notice of repossession?" Nicole: "If you apply through APRA and pay the ($200 or so dollars) to our office we can call off the sheriff's department." Me: "How much are the arrears?" Nicole then told me an amount which I cannot recall which was just under $6,000. 38. Within a few days I paid the $200 odd dollars to Kremnizers. I rang Kremnizers that day to confirm that they had received the cheque. I think I spoke to Nicole. 39. On 27 February Kremnizers sent us a letter containing information to support our application to APRA. 40. On 4 March 2002 I completed an application to APRA for release of $6000 of my superannuation and faxed it to them. 41. The application I sent in to APRA asked for $6000 to be released on the basis of what I'd been told by Nicole when I first spoke to her and the letter from Latrobe dated 27 February 2002. 42. APRA approved release of the $6000. 43. I had another conversation with Nicole on 11 March referred to in her letter to me dated 12 March 2002. 44. As a result of the conversation on 11 March it became clear that more than $6000 would be required because Kremnizers were also asking for another $5116 for their legal fees. 45. I then put in a further application to APRA on 18 March 2002 asking for a total of $11,157 to be released to meet the mortgage debt. On 26 March 2002 APRA approved the additional release of a $9000 on top of the earlier $6000 already approved. 46. APRA released the money and on 22 April I mailed a cheque for $12,000 to Kremnizers to pay off the arrears. Although APRA released $15,000 I only received $12,000 because tax had to be taken out. 47. We couldn't meet the loan payment due in May. On about 29 May 2002 we received another default notice from Kremnizers. Liberty Loan 48. By about July 2002 Karen and I had managed to obtain finance through Liberty Financial ( "Liberty" ) to pay out the July 2001 loan. The loan was brokered through a broker, Jim, in Burwood whose name I'd found through the newspaper. I can't remember the name of the firm. 49. The payout figure for the Hipsley loan was $147,490.32. The repayments on the Liberty loan were $1136 per month. I was hoping to get enough agency work driving trucks or a permanent job so I could meet the payments. On the basis of what Jim told me I thought the Liberty loan was a proper home loan for 25 to 30 years but shown to me at the time of affirming this affidavit is a document stating that the loan was for a period of one year and I have no reason to believe that this was not the case. 50. …………… 51. Settlement occurred on 1 August 2002. 52. We failed to make the September payment of $1137.50 or the October payment in the same amount. A default notice dared 3 October 2002 was sent to Karen and me. Cash King Loan 53. In or around late September or October 2002 we got into contact with Cash King Pty Ltd (" Cash King "). We found them from an ad in the newspaper. It was a small ad. I don't have a copy. 54. We managed to borrow $22,000 from Cash King so that we could catch up on the loan payments to Liberty. The Cash King loan was secured by a mortgage over our home. I don't recall signing the mortgage documents. According to documents later served on us by Cash King the date of the mortgage was 25 October 2002. 55. In relation to the $22,000 loan from Cash King, organised around 25 October 2002, the persons I dealt with in relation to that loan were Louis Swart and Danny Swart. That was the first dealing I had had with either of them. 56. At the time I obtained the $22,000 loan from Cash King, Danny Swart said "What do you want the money for?" I said "Debt consolidation. I need to catch up on some bills and my mortgage payments." 57. ……………. 58. ……………. 59. The repayments on the Cash King mortgage were very high. We only realised this after we had obtained the loan. I made our payment for the first month's interest on 27 November 2002. The payment was for $1870 and I have the receipt for that. At the time we signed for the Cash King loan I hadn't asked what the interest rate was or how much the repayments would be. 60. Karen and I missed the December payment to Cash King and I started trying to reorganise refinance to pay out the Cash King and Liberty loans. In about December 2002 I went to see Wizard Home Loans to see if they could broker refinance. They weren't able to assist and referred me to Magney Mortgages in late January, early February 2003. 61. Karen and I received a default notice from Cash King dated 9 January 2003 on about 11 or12 January 2003. 62. ………….. 63. By February 2003 Karen and I managed to obtain approval for 2 loans from Magney, the first loan being for $226,000 secured by a first mortgage and the second loan being for $29,000 secured by a second mortgage. 64. Magney told us we should find someone to handle the "legal side of things" so I found a firm of solicitors from the phone book to act for us on the mortgage. The solicitors, Meehan Solicitors, were acting for Karen and I by 24 February 2003. The solicitor at Meehan's who was handling our matter was Tiffany Hart. 65. After receiving from Wizard the facsimile from Magney on 12 February Karen and I signed the pages bearing facsimile imprint 005,006,007,011,012,and 013. Karen and I signed on 17 February 2003. Because I was short on money and couldn't pay the newsagent to fax the documents back to Magney I went in to Wizard and asked them to fax in our acceptance, which they did. 66. On about Saturday 15 February 2003 Karen and I were served with a Statement of Claim, issued by Cash King on 10 February 2003 seeking an Order for Possession. 67. On about 19 February 2003 we paid $660 to Magney for valuation fees and legal expenses. I recall that we raised that from our own resources. 68. On about 26 February 2003 we deposited another $275 into Magney Mortgages' account to pay for valuers fees for another valuation because the first valuation had valued the property at less than expected. On 5 March 2003 Magney faxed a letter to our solicitors confirming approval of mortgage finance of $225,000 and on 11 March sent a letter approving $26,000 by way of a second mortgage. I don't think the total amount on offer from Magney was as much as $251,000. 69. The money on offer from Magney was not enough to pay out both Liberty and Cash king and Meehan's wrote offering Cash King a reduced amount to payout their mortgage to enable the loan to proceed. 70. On 22 March 2003 Cash King sent a fax to Meehans refusing to accept the $26,000 offered and offering to arrange a loan to cover the short-fall arising because of the amount they say was owed to them. Tiffany Hart informed me that Cash King would not accept the reduced amount but that Cash King might be able to organise the refinance. Current Loans 71. After Tiffany told me that I telephoned Cash King and told Danny Swart or Louis Swart that the refinance had fallen through. They told me that they could organise a loan for more money and would get back to me in a couple of days. 72. On 24 March 2003 Cash King sent a fax containing two loans offers. One was for$195,000 with an establishment fee of $3,600 payable to Bleier Mortgage Corporation. The other offer was for $45,000 with an establishment fee of $2,200 payable to Bleier Mortgage Corporation. It was probably faxed to Meehans as we don't have a fax machine at home and Cash King knew that Meehans were our solicitors. Karen and my signatures are on that offer of loan. We signed that soon after 24 March 2003. 73. I have been shown a document which appears to be a facsimile of loan offers signed by Karen and me sent on 26 March 2003 by Cash King to Kremnizers along with a copy of a cheque for $500. 74. We didn't provide the $500 directly from our own funds. We had entered into an agreement with Cash King to provide the money needed for the establishment of the loan. I don't remember what arrangements we made with Cash King in relation to the repayment of that $500. 75. On 31 March 2003 Cash King sent another offer to Meehans by facsimile being a loan offer for $45,000 with an establishment fee of $2,200 payable to Bleier Mortgage Corporation and $200,000 (first mortgage) with an establishment fee of $3,750 payable to Bleier Mortgage Corporation. I think Karen and I signed that at the offices of Meehans. 76. On 3 April 2003 we went to Meehans after receiving a phone call to say that the documents were there. I drove Karen in. Jessica was at school. 77. We arrived at Meehans and were greeted by the receptionist Kathy. She told us that Tiffany Hart had just had a baby and that Bill Meehan would be doing the documents. 78. Bill Meehan called Karen and I into his office and we went in together. He said words to the effect of "we have the mortgage documents and other documents relevant to the mortgage'. He handed us documents to sign and we signed them. He would hand me the documents one at a time. We spent about 2 hours or so at the office. We got to Meehans a little after 10.00 am and left between about 12.00 and 12.30 pm. We waited in reception about 15 to 30 minutes before we went into Mr Meehan's office. Almost all the time that we spent with Bill Meehan in his office was spent watching him read through all the documents. He was not asking us any questions, he was just reading the documents to himself. 79. I don't remember the order in which I was handed the documents. Bill Meehan gave a brief description of each document as he handed each one to me. He pointed out some details on the documents like "that's you", 'that's Permanent Mortgages", "this is the mortgage", "this is where you sign". 80. I didn't read the documents before I signed them. I only glanced at them. 81. I didn't read the Consumer Credit Declaration in relation to either loan. I signed the paperwork to save the house. Nothing was read out to me by Bill Meehan regarding the Oaths Act. I didn't know what the Oaths Act was. 82. All I can recall thinking about at the time was "I've saved the house again". 7 The evidence of Mrs Cook was that she left school at the end of Year 10 and has not since done any formal study. She has not been in the paid workforce since 1991, is largely financially dependant upon her husband, and has a Social Services allowance as her only source of income. 8 Some documentation relating to the subject mortgage emanated from La Trobe Capital & Mortgage Corporation Limited (La Trobe), which has described itself in correspondence and documents as the Plaintiffs manager. La Trobe, according the evidence, was also involved in what was described by Mr Cook as the "Singleton Loan" and the "Hipsley loan". R L Kremnizer and Co (Kremnizer) acted for the mortgagee in enforcement proceedings following the Defendants default in respect of both those loans. 9 The evidence does not seem to establish precisely how it came about that La Trobe became involved in the subject mortgage and the mortgage to Mr & Mrs Agius. There seems to have been a connection between Cash King Pty Ltd, Kremnizer, Bleier Corporation and La Trobe which was not entirely explained. There was evidence that on the "web site" of Kremnizer, Bleier Corporation was described as its "in house broker". THE PLAINTIFF'S CLAIM: 10 The relief sought by the Plaintiff in each action is an order for possession and leave to issue a writ forthwith. No oral or affidavit evidence was given at the hearing by any officer of the Plaintiff. Rather, the Plaintiff, apart from the tender of a large quantity of documents, principally relied upon the affidavit and oral testimony of solicitors employed by Kremnizer, Ms Nicole Stein and Ms Jamie Khoury. Ms Khoury had principal responsibility for the loans made by the Plaintiff and by Mr and Mrs Agius to the Defendants. Ms Stein testified that she has the carriage of this litigation on behalf of the Plaintiff. As I have indicated, it was not disputed that no interest has been paid by the Defendants, nor has any part of the principal been repaid. On the face of it, the Plaintiff was, and is, entitled to the orders it seeks. THE LOANS BY THE PLAINTIFF AND Mr AND MRS AGIUS:

11 Ms Stein in her affidavit sworn 22 September 2004 identified two letters of instructions from La Trobe dated 9 May 2003 each of which commenced: "Dear Sir/Madam, Application For Finance - Official letter of Instruction Borrower(s): Michael Robert Cook & Karen Ann Cook Property: 13 Currans Hill Drive Currans Hill NSW 2756 We advise that we act as Manager for the Mortgagee and the enclosed Application for Advance has been approved. We request you act on our behalf in accordance with our standing instructions, as accepted by you, and these further specific instructions by attending settlement, conducting all usual mortgage property inquiries and complete the following: .……….." 12 The first set of instructions related to a loan of $200,000 which ultimately became secured by the subject mortgage. It stated that the purpose of the loan was "Refinance and Investment" and nominated the Plaintiff as mortgagee. The letter inter alia contained these provisions: "Conditions that must be referred to La Trobe prior to settlement: a) Satisfactory Property Insurance Policy receipt consistent with general clause (6) of the borrowers Letter of Offer. b) Receipt of letter from Borrower's Accountant confirming Serviceability and Loan Details. c) Valuer to sight Certificate of Title to confirm Valuation should a title search reveal any covenant or restrictive encumbrance. d) Provide written confirmation that existing Liberty Funding Pty Limited loan has been conducted in accordance with approval arrangement, (six months bank statements). Conditions that must be satisfied prior to settlement: e) Completion of original application form and satisfactory assessment of your application including satisfactory CRAA check, valuation and final approval by the Lender. f) Receipt of signed La Trobe Capital & Mortgage Letter of Offer. g) $1,540.00 is to be paid to R L Kremnizer & Co as legal costs (including GST), in addition to the fee above the Borrower agrees to pay the disbursements, insurance premium and stamp duty and any other costs properly incurred by it to the date of completion of the Mortgage. h) Receipt of signed P. D. C. Authority to debit Loan Repayment from Bank Account. i) Satisfactory valuation is to be re-assigned to La Trobe Capital & Mortgage Corporation at the cost of the borrower. j) The Application Fee of $750.00 and Lenders legals will be deducted at settlement." 13 The second letter, in somewhat similar terms, related to a loan of $45,000 to be secured by second mortgage. However, the name of the mortgagee was not stated except by the reference, "As specified by R L Kremnizer & Co". It is to be inferred that Kremnizer subsequently specified Mr and Mrs Agius as mortgagee.

14 Notwithstanding that the two letters of instructions were not dated until 9 May 2003, it is plain that well before then Kremnizer had prepared documentation in relation to the two mortgages and had submitted it to Messrs Meehans, the solicitors nominated by the Defendants. How this actually came about is unclear but it is apparent that the documentation is that referred to in paragraphs 76 and following, of Mr Cook's affidavit, which was signed and considered in Mr Meehan's office on 3 April 2003, over a month before the letters of instructions dated 9 May 2003. 15 Indeed, on 1 April 2003 La Trobe had sent a letter to Mr & Mrs Cook which commenced: "Mr & Mrs M Cook 13 Currans Hill Drive, CURRANS HILL NSW 2567 Dear Mr & Mrs Cook, R L KREMNIZER & CO APPLICATION - LOAN OFFER "We are pleased to advise that your Application for Loan has been approved and is now offered to you by La Trobe (Credit Provider's representative) on the terms set out below …….." 16 That letter, which contemplated a loan of $200,000 by the Plaintiff to Mr & Mrs Cook, stated that the mortgagee's solicitors would be Kremnizer and contained several pages of terms and conditions. Three of those conditions, contained among other conditions in a list of "special conditions to be satisfied before the loan can proceed to settlement", were: "a) Completion of original application form and satisfactory assessment of your application including satisfactory CRAA check, valuation and final approval by the Lender. c) Receipt of letter from Borrower's Accountant confirming Serviceability and Loan Details. j) Provide written confirmation that existing Liberty Funding Pty Limited loan has been conducted in accordance with approval arrangement, (six months bank statements)." 17 The letter of offer indicated the method of acceptance as follows: "If you wish to accept this Offer of Loan, you should acknowledge your acceptance by signing and dating the Acceptance of Offer of Loan (Duplicate) page 9 attached, and return it to La Trobe within seven (7) days of receipt in the envelope provided." 18 The form of acceptance which the Defendants signed and dated in Mr Meehans office on 3 April 2003 was: "I/We accept this Offer of Loan on the terms and conditions contained in this Offer of Loan together with the General Terms and Conditions pages and Schedule of Related Charges page and Special Conditions listed below, which I/we have received, which have been read and are understood. I/we declare the loan will be used for the purpose(s) stated in the Letter of Offer." 19 The acceptance, according to the evidence, was posted by Meehans under cover of a letter dated 10 April 2003 and received by Kremnizer on 14 April. Assuming that the acceptance constituted a binding contract between the Plaintiff and the Defendants, such contract came into being between 10 April 2003 and 14 April 2003. There may, I think, be doubt as to whether there was indeed a contract between the parties in the sense of mutually enforceable obligations at any time prior to settlement on 19 May, but I do not need to decide that question. For present purposes, I am content to assume that a contract was entered into between the Plaintiff and the Defendants between 10 and 14 April 2003. 20 It was submitted on behalf of the Defendants that the relevant contract was made a few days earlier by the Defendants signing and returning to Kremnizer a letter of offer of a loan of $200,000 made by Cash King dated 31 March 2003. I reject that submission and agree with the Plaintiff's contention that any contract arising out of acceptance of the offer dated 31 March was made between the Defendants and Cash King not between the Defendants and the Plaintiff. PERFORMANCE OF CONDITIONS: 21 The implementation by Kremnizer of the instructions given by La Trobe was not without its difficulties. In the first place, the formal Application for Mortgage Finance signed by the Defendants in the office of Meehans on 3 April 2003 was not completed in a way which satisfied the requirements of La Trobe and Kremnizer in a number of respects. On the first page of the application were two questions to be answered by the Defendants, namely, "Loan Purpose", and "Is the loan purpose predominantly (more than 50%) for investment or business purpose or for both purposes?" Both questions, as will hereafter appear, had significance in relation to the Code. 22 The Defendants failed to answer either question although in a later part of the form they gave attention to a quite prominent section: "INVESTMENT OR BUSINESS PURPOSE DECLARATION ONLY I/we declare that the credit to be provided to me/us by the Credit Provider is to be applied wholly or predominantly for business or investment purposes (or for both purposes). YES NO IMPORTANT You should not sign this declaration unless this loan is wholly or predominantly for business or investment purposes. By signing this declaration you may lose protection under the Consumer Credit Code." 23 Within that section the box marked "yes" had been ticked and both the Defendants had signed at the foot of the section and dated it. 24 Another part of the form required the Defendants to set out particulars of their assets and liabilities. They also failed to complete that section. 25 Upon return of the partly completed form to her office, Ms Khoury re-submitted it to Meehans, indicating in pencil where further attention was required. 26 These matters were dealt with in paragraphs 86 to 92 inclusive of Mr Cook's affidavit as follows: "86. Apparently Karen and I had only partly completed the Application for Mortgage Finance on 3 April. Sometime after 3 April 2003 we were told to come into Meehans because the Application for Mortgage Finance was not complete. 87. I went into Meehans and saw Tiffany Hart. I can't remember if Karen was with me. Tiffany pointed out to me the parts of the application we had to complete. The additional three sections - Loan Purpose, Statement of Assets and Liabilities, and the boxed section on the top of the third page, on the two Applications for Mortgage Finance were completed by Karen. The parts we had to complete were marked "Please complete" and bracketed. 88. Karen filled in those additional sections at home. I was standing beside her. When she got to the section headed "Loan Purpose" she said to me "What do I put here?" I said "Refinance" and Karen wrote that in. She then asked me "What do I circle here?" in relation to the question "Is the loan purpose predominantly (more than 50%) for investment or business purposes (or both purposes)?" and I read it and said "Circle no, because we are not going for a business loan we are going for a home finance". Karen said "OK" and circled "NO". 89. I then told Karen she needed to write in the section headed "Statement of Assets and Liabilities' and she wrote down what I told her. I then told her what to tick for questions 1-5 on the third page of the Applications for Mortgage Finance and she ticked what I told her. I don't recall reading question 6 on that day or ticking any boxes in relation to it. Soon after Karen and I made those changes I drove to Meehans and took the documents in. 90. Sometime after this Karen and I went into Meehans after receiving a phone call from them saying that we had to either fill out or change some documents. We went into Meehans soon after receiving the call. 91. When we went in we saw Tiffany Hart who told us "You've filled out the loan purpose section incorrectly. You have to circle yes instead of no and add to the description of loan purpose." 92. I was the one who crossed out "refinance of existing debt and home improvement" and changed "No" to "Yes". I crossed out "Refinance" on both applications and wrote in "Refinance of existing debt and home improvement". Tiffany Hart told us that we had to do that to get the loan approved. 27 In the result the application in its final form as returned to Kremnizer stated the loan purpose as "Refinance of existing debt and Home Improvement" and answered "yes" to the question "Is the loan purpose predominantly (more than 50%) for investment or business purposes (or for both purposes)?" 28 Although Kremnizer seems, at first, to have regarded this aspect of the mortgage application in its final form as satisfactory, it was moved as late as 9 May 2003 to query the situation by including in a letter to Meehans of that date a paragraph: "1. Application for Mortgage Finance - We note that you indicated that the loan was not predominately for business purposes. Please confirm if this is true. If no, we require confirmation that the loan is predominately for business purposes and an explanation as to why this question was answered no and authority to amend your clients answer to "yes" on the relevant form."

Kremnizer accepted the rather unconvincing reply of Meehans conveyed by facsimile transmission of 12 May 2003: "We also enclose herewith amended and initialled Application for Finance form. We note that our clients completed this form without assistance and as such misunderstood the question and answered incorrectly." 29 Two other of the conditions stipulated by La Trobe, namely conditions (c) and (j) specified above in paragraph 16, had the potential to create difficulties. The condition relating to the Defendants' performance of their obligations to Liberty Funding Pty Ltd seems ultimately to have been waived, although it was mentioned by Kremnizer in their letter of 9 May 2003. On the face of it, the Defendants, who were constantly in default, would have found it difficult to comply with the condition. 30 However, Kremnizer did, seemingly, take more seriously the matter of compliance with condition (c) as they sent two pro forma certificates to Meehans, probably with the documents referred to in paragraphs 76 to 79 of Mr Cook's affidavit, early in April 2003. 31 It appears that Mr Cook simply took the pro formas themselves to Mr Llavero of Wizard who returned them later with the addition of the name "Simon Michael Jones", inappropriately positioned, and an illegible signature at the foot. The requirement in the pro formas that they be completed on the letterhead of an accountant was ignored. Without comment so far as the evidence relates, Meehans simply returned the pro formas to Kremnizer. 32 Mr Cook said that he did not see or speak to a Mr Simon Jones and had no idea who he was. I accept that evidence and I am satisfied that a man of that name was never the accountant of the Defendants. 33 Kremnizer unsurprisingly rejected the pro forma certificates as they were not on an accountant's letterhead and, apparently, communicated that fact to Meehans. Mr Cook then sought to overcome the problem by referring it to Cash King which, in due course, produced certificates purporting to be on the letterhead of Judith Laurenson and Associates "Accountant and Registered Tax Agent", and to be signed by a Ms Diane Laukkanen. That relating to the Plaintiff's mortgage (the other certificate related to the mortgage to be given to Mr and Mrs Agius), read: "I certify that: 1. I am a practising Accountant and have been working in Public Practice for 10 years. I am a Professional member of the National Institute of Accountants. 2. I have been retained by Michael and Karen Cook to advise them of their obligations under this agreement. 3. I understand that the borrowers have applied for an interest only loan of $200,000.00 repayable by monthly instalments of $1,466.67 over 12 months at an interest rate of 8.80% per annum interest only. 4. I am aware of the borrowers income and expenditures and based that (sic) knowledge and my understanding of the Mortgagors financial position I am of the opinion that the Mortgagor (sic) is able to pay the interest on the loan and repay the principle (sic) in accordance with its terms and can do so without substantial hardship. 5. I am not aware of any factors which may affect the Mortgagors ability to make the repayments or which may cause substantial hardship to the Mortgagor (sic) to make repayments. 6. I understand that the loan approved is subject to various conditions which are contained in the letter of offer. This letter is provided to satisfy one of those conditions. I wish to advise that in accordance with our clients' instructions no audit has been performed with respect to preparation of any financial statements which we have prepared for and on behalf of our clients. Consequently I am unable to express any opinion as to the accuracy of the information contained within those reports. 34 The certificates departed significantly from the pro forma submitted by Kremnizer in that paragraph 2 of the pro forma provided: "I am accountant to Michael Robert Cook and Karen Ann Cook ("Mortgagor") and have acted for the Mortgagor in that capacity for the last (number or years), and still act as their current accountant." 35 Even so, Mr Cook's evidence, which I accept, was that he never met a Ms Laukkanen and provided no material upon which she could base her certificate. Despite the alteration to the Pro Forma and the disappearance of any reference to Mr Jones, Kremnizer did not question Ms Laukkanen's certificate and both mortgages proceeded to completion on or about 19 May 2003. 36 At completion of the mortgages, the total advanced namely $245,000 ($200,000 by the Plaintiff and $45,000 by Mr & Mrs Agius) was applied, by direction of Meehans, as follows:

"1. Bank Cheque Cash King Pty Ltd $38,778.01 2. Bank Cheque Liberty Funding Ltd $191,166.3 3. Bank or Trust Cheque Hind & Associates $85.00 4. Bank or Trust Cheque Wignalls $137.50 5. Bank or Trust Cheque Hind & Associates $110.00 6. Bank or Trust Cheque OSR $252.00 7. Bank or Trust Cheque Meehans Solicitor Corporation $239.35 8. Bank Cheque RL Kremnizer & Co $7,687.00 9. Bank or Trust Cheque Land and Property Information $248.00 10. Bank Cheque Cash King $5,582.50 11. Bank or Trust Cheque Sydney Water $148,85 12. Bank or Trust Cheque Camden Council $455.48 13. Bank or Trust Cheque La Trobe $110.00

Total $245,000.00" LA TROBE'S LENDING PROCEDURES: 37 Admitted into evidence as part of Exhibit 3 was the Lending Procedure Manual of La Trobe dated June 1997. The manual demonstrates, if demonstration be necessary, the danger, at least from a lenders point of view, of failing to maintain proper lending standards and procedures. Some passages from the manual identify safeguards and procedures which on any view of the evidence were lacking in this case eg: " Loans we DON'T Do La Trobe will not lend on highly specialised securities (abattoirs, caravan parks, waterslides etc) nor will we consider loans for individuals or companies with a blemished credit history and or subject to current legal proceedings by another lender. We are not "hard-money" lenders (chasing poor quality customers to charge a higher rate), such sub-prime opportunities may pass to other operators. …………. Serviceability and Documentation Requirements Debt Service Owner Occupied Properties Commercial - Where a loan is for owner-occupation, the ongoing viability of the business producing the income to service the debt will be assessed. If the business entity is different to the borrowing entity guarantees will be obtained. Residential - Where a loan is for owner-occupation, total debts analysed will be assessed utilising La Trobe's Net Disposable income calculator, Excel program held by La Trobe's Senior Manager Lending and distributed to each approved correspondent originator and La Trobe personnel. Ratios for high income borrowers shall be assessed at management's discretion. Self-employed borrowers are assessed on their merits after establishing serviceability. Investment Properties Industrial, Commercial and Residential - Net income from the mortgaged property should not be less than 50% of the amount of interest required to service the debt. It must be clearly demonstrated that stable income from other sources is available to meet any deficit and other financial commitments. In the case of owner occupation of industrial or commercial properties each case will be carefully judged on the merit of the transaction. Other income may be considered at the discretion of Management. Evidence of debt service shall include: · Regular and stable income with which to meet mortgage payments; · An employment history of three years; · If self employed, evidence of two year's income tax returns for all servicing entities or letter from accountant attesting serviceability; · Other financial obligations; · Signed and dated asset and liability statements for all natural persons; · And corporate borrowers and guarantors; · Satisfactory credit checks from independent agencies (eg CRAA) must always be obtained. Adverse findings must be fully explained in writing prior to CRAA being approved and application progressed; · Equity contribution or saving history; · Relevant information pertaining to the purpose of the loan, (that is in the event of purchase, a copy of executed Contract of Sale and deposit receipt; · For refinanced loans a loan statement for previous 6-12 months confirming balances and conduct of the loan being refinanced. Borrowers with an unsatisfactory history of repayments, writs of possession and unpaid judgments on their CRAA will not be considered as satisfying La Trobe's requirements for demonstration of serviceability. ………………… Eligibility Criteria To qualify for a Mortgage Loan applicant(s) must meet the following criteria: · Be a natural person at least 18 years of age, or a corporate entity. · If a natural person be permanently employed with stable employment history and have sufficient income and ability to service the loan required. Companies to provide past two (2) year financials. · Have an acceptable credit history, and can afford the repayments. · Have sufficient funds from own savings and/or other assets to cover all costs above loan to valuation ratio of the subject property. ……………………. Debt servicing is of great importance. The Institutional Investor will be lending against the future cash flow of the borrower so it is essential that the borrower clearly demonstrates the ability to repay the loan from obvious long-term streams of income. ………………….. Borrowers must be able to demonstrate the capacity to service all commitments (i.e. personal loan, credit cards, leases, other Mortgages as well as all day to day living expenses). ………………..….

Credit Requirements Thorough investigation of applicant borrower's circumstances when properly verified and tested against accepted criteria is most important in credit assessment. Where the borrower's credit assessment is otherwise strong some latitude may be allowed with respect to some of the guidelines below. However, exceptions, and the mitigating circumstances, should be clearly explained in an underwriting memo, which is to accompany the mortgage submission. …………………………. An Underwriter must be completely satisfied as to the overall ability of a borrower to service its obligations under a proposed loan, and should apply fully the tests expected of a prudent lender. …………………………. Credit History The applicants satisfactory credit history is to be verified by providing: · A signed and dated statement of assets and liabilities: · A Current CRAA report. · Copies of the loan statements or a reference evidencing the satisfactory conduct of all credit. · Evidence of payroll deductions." THE INCOME OF THE DEFENDANTS: 38 I should indicate that the Plaintiff did not totally ignore those requirements of the manual which focused on a borrowers means of servicing the loan. Although there was no apparent objection to the Defendants leaving blank the section of the mortgage application requiring them to state their income, they completed a separate document addressed to La Trobe dated 3 April 2003, which read as follows: "Dear Sir LOAN REPAYMENT ABILITY DECLARATION I certify, warrant and represent to you that:

1. I understand that I have applied for an interest only loan of $200,000.00 through La Trobe payable by monthly instalments of $1,466.67 over 12 months fixed at 8.80% per annum fixed (lower rate).
2. My current gross income per annum is $ 63,400 Mr Cook $ 5,500 Mrs Cook (a) I am aware of our financial obligations under our proposed loan with you; and (b) I have fully disclosed to you all details of my income and expenditure:
3. I know my income and expenditure and based on that knowledge and my understanding of my current financial position, I declare to you that I am able to make all the required monthly repayments and repay the loan in accordance with its terms and can do so without substantial hardship. 4. I am satisfied that my obligations to you will not adversely impact on my ability to meet all my other financial obligations (including living expenses) as and when they fall due. 5. I am not aware of any factors, for example, a possible claim made against me involving payment of an amount of money, ill health or disability, or other factors which may result in a decrease in income or increase in expenditure, which may affect my ability to make the repayments or which may cause substantial hardship to me to make repayments. 6. I acknowledge that you recommend that I take independent legal and financial advice in regard to this loan. 7. I confirm to you my declaration on my Application for Mortgage Finance stating that I have never been declared Bankrupt or insolvent, assigned my Estate for the benefit of Creditors, that I have never had any Court judgments against me or defaulted on any previous loans. I have never been a Shareholder or Officer of a Company of which a Manager, Receiver and/or Liquidator have been appointed or that has had any Court Judgments entered against such Company 8. I acknowledge that you are relying on this letter in agreeing to make a loan. Yours Faithfully (signed M Cook) MICHAEL ROBERT COOK

(signed K Cook) KAREN ANN COOK Date…03 /04/ 03……………." 39 A similar statement was made in relation to the mortgage to Mr and Mrs Agius. 40 Significantly on the copy of the form in evidence produced from the records of the Plaintiff there is an endorsement written, according to the evidence of Mr Cook, by Mr Meehan under paragraph 8 and above the signatures: "This loan is to pay out a previous loan with Liberty Financial which is in default." 41 Thus the Defendants claimed a total income of $68,900 per annum. Other evidence established that for the financial year ended 30 June 2002 Mr Cook's gross earnings were $36, 493 and for the financial year ended 30 June 2003 $27,775. For this two year period Mrs Cook's Social Security payments totalled about $27,000 42 So far as the evidence reveaIs, no attempt was made by the Plaintiff, or anyone on its behalf, to verify either the amount or source of the income stated by the Defendants. 43 Mr Cook was cross-examined as to his income at the relevant time. As I understand his evidence, it emerged that he truthfully told Meehans on 3 April 2003 what his then weekly earnings were and Meehans simply extrapolated an annual figure. No account was taken of the fact that at the particular time, Mr Cook was temporarily driving on night shifts and, as a result, earning considerably more than he was likely to average over the year. Although it was submitted on behalf of the Plaintiff that the reduction in income was unexpected, as I understand the evidence of Mr Cook, his night shifts were always likely to be temporary, a circumstance which the Plaintiff would have ascertained had it enquired as to the source and nature of Mr Cook's income, as the lending manual required. RELEVANT STATUTORY PROVISIONS: 44 By their defences and Cross Claims, the Defendants have raised issues arising, or alleged to arise, under both the Code and the Contracts Review Act. It is convenient to say something about those pieces of legislation. 45 The Code drives statutory force from the Consumer Credit (new South Wales) Act. Some provisions have particular relevance to this case: 4. Meaning of "credit" and "amount of credit" (1) For the purposes of this Code, "credit" is provided if under a contract-- (a) payment of a debt owed by one person (the debtor) to another (the credit provider) is deferred; or (b) one person (the debtor) incurs a deferred debt to another (the credit provider). (2) For the purposes of this Code, the "amount of credit" is the amount of the debt actually deferred. The "amount of credit" does not include-- (a) any interest charge under the contract; or (b) any fee or charge-- (i) that is to be or may be debited after credit is first provided under the contract; and (ii) that is not payable in connection with the making of the contract or the making of a mortgage or guarantee related to the contract.

5. Meaning of "credit contract" For the purposes of this Code, a "credit contract" is a contract under which credit is or may be provided, being the provision of credit to which this Code applies

6 Provision of credit to which this Code applies (1) This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of pre-contractual obligations) is proposed to be entered into-- (a) the debtor is a natural person ordinarily resident in this jurisdiction or a strata corporation formed in this jurisdiction; and (b) the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes; and (c) a charge is or may be made for providing the credit; and (d) the credit provider provides the credit in the course of a business of providing credit or as part of or incidentally to any other business of the credit provider. (2) If not all the debtors under a credit contract ordinarily reside, or are strata corporations formed, in this jurisdiction, this Code applies only if credit is first provided under the contract in this jurisdiction. (3) If this Code applies to the provision of credit (and to the credit contract and related matters)-- (a) this Code applies in relation to all transactions or acts under the contract whether or not they take place in this jurisdiction; and (b) this Code continues to apply even though the debtor ceases to be ordinarily resident in this jurisdiction. (4) For the purposes of this section, investment by the debtor is not a personal, domestic or household purpose. (5) For the purposes of this section, the predominant purpose for which credit is provided is -- (a) the purpose for which more than half of the credit is intended to be used; or (b) if the credit is intended to be used to obtain goods or services for use for different purposes, the purpose for which the goods or services are intended to be most used.

8 Mortgages to which this Code applies (1) This Code applies to a mortgage if-- (a) it secures obligations under a credit contract or a related guarantee; and (b) the mortgagor is a natural person or a strata corporation. (2) ………………………….. (3) ………………………….

11 Presumptions relating to application of Code (1) In any proceedings (whether brought under this Code or not) in which a party claims that a credit contract, mortgage or guarantee is one to which this Code applies, it is presumed to be such unless the contrary is established. (2) Credit is presumed conclusively for the purposes of this Code not to be provided wholly or predominantly for personal, domestic or household purposes if the debtor declares, before entering into the credit contract, that the credit is to be applied wholly or predominantly for business or investment purposes (or for both purposes). (3) However, such a declaration is ineffective for the purposes of this section if the credit provider (or any other relevant person who obtained the declaration from the debtor) knew, or had reason to believe, at the time the declaration was made that the credit was in fact to be applied wholly or predominantly for personal, domestic or household purposes. For the purposes of this subsection, a relevant person is a person associated with the credit provider or a finance broker (or a person acting for a finance broker) through whom the credit was obtained. (4) A declaration under this section is to be substantially in the form (if any) required by the regulations and is ineffective for the purposes of this section if it is not. 12 Credit contract to be in form of written contract document (a) A credit contract must be in the form of: (a) written contract document signed by the credit provider: or (b) a written contract document signed by the credit provide and constituting an offer to the debtor that is accepted by the debtor in accordance with the terms of the offer.

……………………………………………. …………………………………………… 70 Court may reopen unjust transactions (1) Power to reopen unjust transactions. The Court may, if satisfied on the application of a debtor, mortgagor or guarantor that, in the circumstances relating to the relevant credit contract, mortgage or guarantee at the time it was entered into or changed (whether or not by agreement), the contract, mortgage or guarantee or change was unjust , reopen the transaction that gave rise to the contract, mortgage or guarantee or change. (2) Matters to be considered by Court. In determining whether a term of a particular credit contract, mortgage or guarantee is unjust in the circumstances relating to it at the time it was entered into or changed, the Court is to have regard to the public interest and to all the circumstances of the case and may have regard to the following-- (a) the consequences of compliance, or non-compliance, with all or any of the provisions of the contract, mortgage or guarantee; (b) the relative bargaining power of the parties; (c) whether or not, at the time the contract, mortgage or guarantee was entered into or changed, its provisions were the subject of negotiation; (d) whether or not it was reasonably practicable for the applicant to negotiate for the alteration of, or to reject, any of the provisions of the contract, mortgage or guarantee or the change; (e) whether or not any of the provisions of the contract, mortgage or guarantee impose conditions that are unreasonably difficult to comply with, or not reasonably necessary for the protection of the legitimate interests of a party to the contract, mortgage or guarantee; (f) whether or not the debtor, mortgagor or guarantor, or a person who represented the debtor, mortgagor or guarantor, was reasonably able to protect the interests of the debtor, mortgagor or guarantor because of his or her age or physical or mental condition; (g) the form of the contract, mortgage or guarantee and the intelligibility of the language in which it is expressed; (h) whether or not, and if so when, independent legal or other expert advice was obtained by the debtor, mortgagor or guarantor; (i) the extent to which the provisions of the contract, mortgage or guarantee or change and their legal and practical effect were accurately explained to the debtor, mortgagor or guarantor and whether or not the debtor, mortgagor or guarantor understood those provisions and their effect; (j) whether the credit provider or any other person exerted or used unfair pressure, undue influence or unfair tactics on the debtor, mortgagor or guarantor and, if so, the nature and extent of that unfair pressure, undue influence or unfair tactics; (k) whether the credit provider took measures to ensure that the debtor, mortgagor or guarantor understood the nature and implications of the transaction and, if so, the adequacy of those measures; (l) whether at the time the contract, mortgage or guarantee was entered into or changed, the credit provider knew, or could have ascertained by reasonable inquiry of the debtor at the time, that the debtor could not pay in accordance with its terms or not without substantial hardship; (m) whether the terms of the transaction or the conduct of the credit provider is justified in the light of the risks undertaken by the credit provider; (n) the terms of other comparable transactions involving other credit providers and, if the injustice is alleged to result from excessive interest charges, the annual percentage rate or rates payable in comparable cases; (o) any other relevant factor. (3) Representing debtor, mortgagor or guarantor. For the purposes of subsection (2)(f), a person is taken to have represented a debtor, mortgagor or guarantor if the person represented the debtor, mortgagor or guarantor, or assisted the debtor, mortgagor or guarantor to a significant degree, in the negotiations process prior to, or at, the time the credit contract, mortgage or guarantee was entered into or changed. (4) Unforeseen circumstances. In determining whether a credit contract, mortgage or guarantee is unjust , the Court is not to have regard to any injustice arising from circumstances that were not reasonably foreseeable when the contract, mortgage or guarantee was entered into or changed. (5) Conduct. In determining whether to grant relief in respect of a credit contract, mortgage or guarantee that it finds to be unjust , the Court may have regard to the conduct of the parties to the proceedings in relation to the contract, mortgage or guarantee since it was entered into or changed. (6) Application. This section does not apply to a change in the annual percentage rate or rates payable under a contract, or to an establishment fee or charge or other fee or charge, in respect of which an application may be made under section 72 (Court may review unconscionable interest and other charges). This section does not apply to a change to a contract under this Division. (7) Meaning of unjust . In this section, "unjust" includes unconscionable, harsh or oppressive. 71. Orders on reopening of transactions The Court may, if it reopens a transaction under this Division, do any one or more of the following, despite any settlement of accounts or any agreement purporting to close previous dealings and create a new obligation-- (a) reopen an account already taken between the parties; (b) relieve the debtor and any guarantor from payment of any amount in excess of such amount as the Court, having regard to the risk involved and all other circumstances, considers to be reasonably payable; (c) set aside either wholly or in part or revise or alter an agreement made or mortgage given in connection with the transaction; (d) order that the mortgagee takes such steps as are necessary to discharge the mortgage; (e) give judgment for or make an order in favour of a party of such amount as, having regard to the relief (if any) which the Court thinks fit to grant, is justly due to that party under the contract, mortgage or guarantee; (f) give judgment or make an order against a person for delivery of goods to which the contract, mortgage or guarantee relates and which are in the possession of that person; (g) make ancillary or consequential orders. 72 Court may review unconscionable interest and other charges (1) The Court may, if satisfied on the application of a debtor or guarantor that-- (a) a change in the annual percentage rate or rates under a credit contract to which section 59(1) or (4) applies; or (b) an establishment fee or charge; or (c) a fee or charge payable on early termination of a credit contract; or (d) a fee or charge for a prepayment of an amount under a credit contract; is unconscionable, annul or reduce the change or fee or charge and may make ancillary or consequential orders. (2) For the purposes of this section, a change to the annual percentage rate or rates is unconscionable if and only if it appears to the Court that-- (a) it changes the annual percentage rate or rates in a manner that is unreasonable, having regard to any advertised rate or other representations made by the credit provider before or at the time the contract was entered into, the period of time since the contract was entered into and any other consideration the Court thinks relevant; or (b) the change is a measure that discriminates unjustifiably against the debtor when the debtor is compared to other debtors of the credit provider under similar contracts. (3) In determining whether an establishment fee or charge is unconscionable, the Court is to have regard to whether the amount of the fee or charge is equal to the credit provider's reasonable costs of determining an application for credit and the initial administrative costs of providing the credit or is equal to the credit provider's average reasonable costs of those things in respect of that class of contract. (4) For the purposes of this section, a fee or charge payable on early termination of the contract or a prepayment of an amount under the credit contract is unconscionable if and only if it appears to the Court that it exceeds a reasonable estimate of the credit provider's loss arising from the early termination or prepayment, including the credit provider's average reasonable administrative costs in respect of such a termination or prepayment.

……………………………………….. 80 Requirements to be met before credit provider can enforce credit contract or mortgage against defaulting debtor or mortgagor (1) Enforcement of credit contract. A credit provider must not begin enforcement proceedings against a debtor in relation to a credit contract unless the debtor is in default under the credit contract and-- (a) the credit provider has given the debtor, and any guarantor, a default notice, complying with this section, allowing the debtor a period of at least 30 days from the date of the notice to remedy the default; and (b) the default has not been remedied within that period. Maximum penalty--50 penalty units. (2) Enforcement of mortgage. A credit provider must not begin enforcement proceedings against a mortgagor to recover payment of money due or take possession of, sell, appoint a receiver for or foreclose in relation to property subject to a mortgage, unless the mortgagor is in default under the mortgage and-- (a) the credit provider has given the mortgagor a default notice, complying with this section, allowing the mortgagor a period of at least 30 days from the date of the notice to remedy the default; and (b) the default has not been remedied within that period. Maximum penalty--50 penalty units. (3) Default notice requirements. A default notice must specify the default and the action necessary to remedy it and that a subsequent default of the same kind that occurs during the period specified in the default notice for remedying the original default may be the subject of enforcement proceedings without further notice if it is not remedied within the period. (3A) Combined notices. Default notices that may be given under subsections (1) and (2) may be combined in one document if given to a person who is both a debtor and a mortgagor. (4) When default notice not required. A credit provider is not required to give a default notice or to wait until the period specified in the default notice has elapsed, before beginning enforcement proceedings, if-- (a) the credit provider believes on reasonable grounds that it was induced by fraud on the part of the debtor or mortgagor to enter into the credit contract or mortgage; or (b) the credit provider has made reasonable attempts to locate the debtor or mortgagor but without success; or (c) the Court authorises the credit provider to begin the enforcement proceedings; or (d) the credit provider believes on reasonable grounds that the debtor or mortgagor has removed or disposed of mortgaged goods under a mortgage related to the credit contract or under the mortgage concerned, or intends to remove or dispose of mortgaged goods, without the credit provider's permission or that urgent action is necessary to protect the mortgaged property. (5) Non-remedial default. If the credit provider believes on reasonable grounds that a default is not capable of being remedied-- (a) the default notice need only specify the default; and (b) the credit provider may begin the enforcement proceedings after the period of 30 days from the date of the notice. (6) Other law about mortgages not affected. This section is in addition to any provision of any other law relating to the enforcement of real property or other mortgages and does not prevent the issue of notices to defaulting mortgagors under other legislation. Nothing in this section prevents a notice to a defaulting mortgagor under other legislation being issued at the same time, or in the same document, as the default notice under this section. Note: By virtue of section 161(2), a notice may contain information required to be given under other legislation or be included in a notice given under other legislation.

81 Defaults may be remedied (1) If a default notice states that the credit provider intends to take action because the debtor or mortgagor is in default under the credit contract or mortgage, the debtor, mortgagor or guarantor may remedy the default within the period specified in the notice, and the contract or mortgage is then reinstated and any acceleration clause cannot operate. (2) A debtor, mortgagor or guarantor does not remedy the default if, at the end of the period, the debtor or mortgagor is in default under the credit contract or mortgage because of the breach specified in the notice or because of a subsequent breach of the same type. 169 Contracting out (1) A provision of a contract or other instrument by which a person seeks to avoid or modify the effect of this Code is void. (2) ………………………………… (3) ………………………………... (4) ……………………………….. 170 Effect of non-compliance (1) A credit contract, mortgage or guarantee or any other contract is not illegal, void or unenforceable because of a contravention of this Code unless this Code contains an express provision to that effect. (2) Except as provided by this section, this code does not derogate from rights and remedies that exist apart from this Code. …………………………………….

176 Conduct of agents and related matters (1) The conduct of an officer, agent or employee of a credit provider acting within his or her actual or ostensible authority will be imputed to the credit provider and taken to be conduct of the credit provider. (2) …………………………………….. (3) ……………………………………… (5) A credit provider is not, for the purposes of this Code taken to know or have reason to believe something because an officer, agent or employee of the credit provider does so, unless the knowledge or reason to believe that thing is acquired by the officer, agent or employee acting in that capacity and in connection with the transaction concerned. 46 The Contracts Review Act contains, in sections 7 and 9, provisions which, in large measure, parallel those of sections 70 and 71 of the Code. In light of the view I have formed about the matter, it is, I think, unnecessary to make further reference to the provisions of that statute. DOES THE CODE APPLY? 47 As the Defendants have claimed in the proceedings that the mortgage to the Plaintiff is one to which the Code applies, the presumption in s11 (1) has the consequence that the Plaintiff, if it wishes to avoid the operation of the Code, must either rebut the presumption by evidence or rely upon the conclusive presumption provided by s11 (2). 48 There is no doubt, and Mr Rogers, counsel for the Plaintiff, did not suggest the contrary, that the actual purpose of the Defendants, at all times, was to obtain credit for the purpose of refinancing the mortgage over their home, which was seriously in default. Their intention contained no business or investment element. On the other hand, it is clear that the Plaintiff whilst perhaps indifferent to the Defendants' actual purpose, intended to ensure that the transaction was not affected by the Code. 49 Mr Rogers submitted that on its proper construction s6 of the code looks primarily at the intention of the lender and does not necessarily have regard to the actual application of the funds. There is, of course, as a matter of logic, some force in that submission as, in many cases a credit provider may have no control over the actual application of credit once it has been provided. 50 In Park Avenue Nominees Pty Ltd v Boan (2001) NSWSC 700 Master Harrison seemed to accept the view of Brabazon DCJ in Rafiggi v Wacal Investments Pty Ltd (1998) ASC 1550-024 (District Court of Queensland) that, in determining intention, one looked at "what a reasonable person standing in the shoes of the credit provider would have understood the predominant purpose for which the credit is provided". However, Shaw J in Jonsson v Arkway Pty Ltd 58 NSWLR 451 at 456 said: "Regrettably, there has been some divergence of judicial interpretation in relation to this provision. It seems to me that insufficient attention has been given to the need to broadly and liberally interpret beneficial legislation of this kind. The Tribunal has observed the principles articulated in a number of judgments, in particular, Rafiqi v Wacal Investments Pty Ltd [1998] ASC 155-024 (QDC) per Brabazon DCJ; Linkenholt Pty Ltd v Quirk [2000] VSC 166 per Gillard J; and Park Avenue Nominees Pty Ltd v Boon [2001] NSWSC 700 per Harrison M. 29 In contrast to the distinction drawn by the learned District Court Judge in Queensland, Brabazon DCJ, in Rafiqi , I would prefer the approach taken by Gillard J in Linkonholt . His Honour said at [98]: It is appropriate to consider what the money was used for in order to determine the purpose of the provision of the credit. In considering the question it is important to look at the substance of the transaction in the context of its performance… 30 His Honour's emphasis was that the Court should consider the substance and reality of the transaction (at [121])." 51 It would, I think, be a rare case where the above propounded tests produce a different result. In this case, I think the conclusion would be the same whether regard be had either to the view of a reasonable person standing in the shoes of the Plaintiff or to "the substance and reality" of the transaction. 52 The presumption to be rebutted by the Plaintiff is that the transaction fell within s6 of the Code. The words in parenthesis in the introductory part of subsection (1) create some difficulty, in that they refer to pre-contractual "obligations", a contradiction in terms. The phrase, in my opinion, does no more than indicate that it is relevant to consider the applicability of the four criteria stated for the whole of the period from commencement of negotiations up to the time of contract. It is, therefore, appropriate to consider the state of knowledge and the intention of the Plaintiff, in the period up to, at the latest, 14 April 2003. By that date, I would conclude that the Plaintiff intended no more than that the transaction be documented in a way which would take it outside the Code. 53 The Plaintiff knew that the credit was required to refinance a mortgage in default over the Defendants' home, a circumstance which, prima facie, at least to my mind, indicated a personal domestic or household purpose. 54 Moreover, by 14 April, it had the documents returned to it by Meehans, including the incomplete application form and knew, or ought to have known that the lending manual had not, in a number of material respects been complied with. In those circumstances, I am of the opinion that, leaving aside whether there was a declaration which satisfied s11 (2), the Plaintiff has failed to rebut the presumption created by s11 (1). 55 It next needs to be considered whether the Plaintiff is entitled to rely on a declaration made in compliance with s11 (2). The form of the declaration referred to in that subsection is prescribed by clause 10 of the Consumer Credit Regulation 1995. The wording of the declaration in the mortgage application as signed by the Defendants on 3 April 2003 corresponds precisely with the wording prescribed. However, in the box headed "Important", according to the regulation, that word and the word "not" on the first line and the word "lose" on the penultimate line should be in bold type. The word "Important" on the signed declaration is indeed in bold type but the other two words are not. 56 The question is, therefore, whether with those deficiencies, the declaration is "substantially" in the form prescribed as required by s11 (4). Mr Donaldson SC, who appeared with Ms Francois for the Defendants, submitted that it was not.

57 Master Harrison conveniently collected a number of relevant cases in her judgment in Park Avenue. In Equipment Investments Pty Ltd v M J Dowthwaite & Co (1969) 16 FLR 23, a decision of Gibbs J, sitting in the ACT Supreme Court, the Hire Purchase Act 1960 (as material) required that before any hire purchase agreement is entered into, the owner or dealer "shall give or cause to be given to the prospective hirer a statement in writing duly completed in accordance with the form in the First Schedule". The statement actually given, arguably, did not comply precisely with the First Schedule, a fatal deficiency according to submissions made on behalf of the defendants. 58 In the course of his judgment at p30 Gibbs J said: The defendants' submission was that, to comply with s. 3(1), a dealer must give a statement in a form that corresponds exactly with that in the schedule; the latter form must be slavishly followed, and the least departure from it, however apparently insignificant, will render the statement inefficacious for the purposes of s. 3(1). It was submitted that there were three respects in which every one of the statements now in question failed to accord with the form in the schedule--first, the words "with Equipment Investments Pty. Limited" were inserted in the heading after the words "Hire Purchase Agreement"; secondly, the word "the" was inserted after the words "cash price of" and before the word "goods" in the first sentence in the body of the form; and thirdly, under the heading "Other Charges" the statement contained the words "For Bank Exchange" which are not to be found in the form in the schedule. An additional objection of a more substantial kind was raised to Annexure B which, as I have said, stated that the amount of £14 12s. was charged for bank exchange. The defendants relied upon the facts that s. 3(1) provides that the statement shall be "in accordance with the form" in the schedule, and not merely that it shall be to the effect of that form, and that it does not contain the not unfamiliar legislative provision that strict compliance with the form is not necessary and that substantial compliance is sufficient. On the other hand the section does not say that the statement shall be "in the form". However, the intention of the legislature as expressed in s. 3(1) cannot be ascertained without considering the object for which the section was enacted. That object was not to require the dealer to recite in writing an incantation whose words had significance for their own sake, and of which no syllable might be altered without destroying its value, but to ensure that the financial obligations of the hirer should be clearly brought to his notice before he entered into the agreement. This object might be achieved notwithstanding the fact that the form was not strictly followed, and it would be absurd to impute to the legislature an intention that, for no sensible reason, there should be so exact a correspondence between the statement and the form that the least disconformity--even the addition of one word which in no way altered the meaning--should result in the serious consequences mentioned in s. 3(4) as well as in penal consequences. 59 His Honour, after referring to Ex parte Stanford; In re Barber (1886) 17 QBD 259, a case concerning bills of sale proceeded at p31: "On behalf of the defendants before me it was submitted that this case is distinguishable because although it is possible to say what is the legal consequence or effect of a bill of sale, which operates both as an agreement and a conveyance, the same is not true of a statement given for the purposes of s. 3(1), which is a mere notice. There are, of course, essential differences between a bill of sale and a statement given under s. 3(1), but that is not to say that the observations of the Court of Appeal as to the meaning of the expression "in accordance with the form" are inapplicable when those words are used in s. 3(1). The judgment in that case confirms me in the view that I would in any case have reached having regard to the purposes of the section, that a statement is "in accordance with the form" within the meaning of s. 3(1) if it is substantially in accordance with it and does not depart from it in any material respect. A divergence from the form would be substantial or material if it caused the statement to convey less information than the form requires or to confuse or mislead the prospective hirer as to the matters which the form is designed to bring to his notice. The dealer is not entitled to abandon the form completely, and to claim the right to present the relevant information to the hirer in quite a different way, but in my opinion he does not substantially or materially depart from the form simply by including additional words, unless their presence in some way distorts or obscures or minimizes the information which the form is designed to give. 60 This case is stronger from the Plaintiff's viewpoint than Equipment Investments as s11 (4) of the Code employs the phrase, "substantially in the form". In my opinion, the declaration was substantially in the form required by the regulation. I would apply the quoted observations of Gibbs J and hold that the omission to produce the words "not" and "lose" in bold type could not be said to have conveyed less information than the form requires or to have operated to confuse or mislead the Defendants. 61 The declaration was dated 3 April 2003 when it was signed in the office of Meehans by Mr and Mrs Cook which, in accordance with the view already expressed, was before the agreement was entered into. However, in my opinion, s11 (3) in its reference to "the time the declaration was made" is not to be construed literally. 62 Mr Donaldson submitted that in order to give sensible effect to s11 (3), it is appropriate to consider the state of mind of the lender from the time the declaration was made up to the time of providing credit. There is some attraction in that argument, having regard to the apparent purpose of the legislation, but the difficulty I see is that is does undue violence to the unambiguous words "at the time the declaration was made". In my opinion, the phrase is to be construed as if it means "the time the declaration was made to the provider". Such a construction seems to me to be consistent with the earlier reference to "any other relevant person who obtained the declaration from the debtor". 63 Thus, I would hold that in this case the declaration was "made" to the Plaintiff when it was received by its agents with the other documents sent by Meehans between 10 and 14 April 2003. 64 The knowledge of the Plaintiff when it received Meehans letter of 10 April comprised, inter alia, that the Defendants were refinancing a mortgage in default over their home; that they had furnished no statement of assets and liabilities; that they had provided no evidence of any business or investment; that they had failed to complete the questions in the mortgage application form as to the purpose of the loan and that, in a number of significant respect, the Lending Procedure Manual of La Trobe had not been complied with. 65 Having regard to all these circumstances, I am satisfied that when the declaration dated 3 April 2003 was made to the Plaintiff, in the sense I have indicated, the Plaintiff, or 'relevant person" within s11 (3), knew or had abundant reason to believe that the credit was to be applied wholly or predominantly for personal domestic or household purposes. I would thus hold that the Code applied to the credit provided by the Plaintiff to the Defendants. THE STATUS OF THE EARLIER ACTION: 66 As, admittedly, no notice in compliance with s 80 (2) of the Code was given prior to the commencement of the earlier action exposing the Plaintiff to a penal sanction at least, the question arises whether it was validly commenced. 67 Mr Rogers submitted that the only consequence of failure to serve a notice pursuant to s80 is the pecuniary penalty provided for. Alternatively, he submitted that his client is entitled to the benefit of subsection (4) (a). As to this latter submission, it will, I think, suffice to say that, in my opinion, there was simply no evidence that the Plaintiff was induced by fraud on the part of the Defendants to enter into the mortgage. There was no evidence that the Defendants knew that the consequence of a false declaration of purpose had any adverse effect, except to themselves, as the form of declaration expressly stated. 68 As to the earlier submission, a not dissimilar point was argued in Graham v Aluma Lite Pty Ltd (1996) 39 NSWCA 58. That case concerned proceedings under The Credit (Home Finance Contracts) Act 1984. In the course of his judgment at page 61Clarke JA (with whom Priestley JA, and in a separate judgment Cole JA concurred) said: "Accordingly, it is necessary to consider the second question which depends upon the proper construction of s7 of the Act which, so far as is relevant, reads: "7(1 ) A credit provider under a home finance contract shall not institute proceedings, or exercise a right, under the contract, or a mortgage or guarantee that relates to the contract (being proceedings that may be instituted, or a right that may be exercised, as a consequence of a default under the contract) until after the expiration of one month after service in accordance with subs(2) of a notice in the prescribed form that specifies the proceedings or right.Penalty: In the case of a body corporate - 100 penalty units or, in any other case - 50 penalty units. .... (3) Where a credit provider fails to comply with subs(1), a court or the Tribunal may, on the application of the debtor, order the credit provider to compensate the debtor for any loss suffered by the debtor as a result of that failure.(4) Where there is a mortgage relating to a home finance contract and the provisions of any other Act require the mortgagee to give notice to the mortgagor before instituting proceedings, or exercising a right, under the contract or mortgage - (a) nothing in this Act derogates from the requirement to give the notice under the other Act; and (b) a notice required by this Act to be given before the proceedings are instituted, or the right exercised, does not fail to comply with this Act by reason only that it includes matter required to be specified in a notice required by the other Act to be given before the proceedings are instituted or the right exercised."

…………………………………….. In some cases questions arise whether substantial compliance with a statutory requirement is sufficient. In others, the question may simply be - in the event of non compliance does invalidity result? The present is in the latter category.A conclusion that a credit provider could maintain proceedings despite a failure to comply with s7 is, as it seems to me, inimical to the scheme of the Act. It means, or could mean, that a credit provider could press on to judgment, or a sale of a property under a power of sale in a mortgage, and in that way deprive a debtor, who has no defence to the action, of the practical benefit of the s5 procedures. I accept that in certain circumstances subs(9) may afford a measure of protection to a debtor who had sought to take advantage of the s(5) procedures after receiving a writ, or upon becoming aware that a power of sale was being exercised, but whether that subsection was to be of any practical assistance to the debtor would depend upon whether the mater had been referred to the Tribunal before, for instance, a power of sale had been exercised or a judgment for possession entered. Those considerations provide a strong basis for reaching a different conclusion to his Honour.There are additional considerations, including one which I regard as very strong indeed, which reinforce me in my view that his Honour was incorrect. The first of these is that s7 expressly prohibits the taking of proceedings or the exercising of rights in the absence of the service of a notice upon payment of a penalty. A breach of the section is, prima facie, an unlawful act. It is true that s22 provides a defence in which the onus lies on the credit provider to prove that it did not know that, had no reason to believe that and had made reasonable enquiries as to whether, the contract to which the proceedings related was a home finance contract. But this does not detract from the proposition that, prima facie, the proceedings were unlawfully instituted. Nor does that defence, which is only available in proceedings against the credit provider, detract from the proposition that in terms the requirement laid down in s7 operates as a condition precedent to the exercising of a right or the instituting of proceedings." 69 Although there are obvious differences between the Code and the Credit (Home Finance Contracts) Act, there is such a degree of similarity that, in my opinion, I should regard myself as bound by, and obliged to follow, the reasoning of the Court of Appeal in Graham v Aluma Lite. The consequence of so holding is that the earlier proceedings are susceptible to an order that they be summarily dismissed as sought by the Defendants. 70 This is not a case to which the recent decision of the High Court in Berowra Holdings Pty Ltd v Gordon (2006) 80 ALJR 1214 has application. Although, following Berowra Holdings the earlier proceedings are not a nullity, it was open (as occurred) to the Defendants to seek to rely upon the Plaintiffs' failure to comply with s80 by way of defence or in support of an application for summary judgment. The earlier proceedings should be dismissed. THE LATER ACTION: 71 As I have indicated, the Plaintiff purported to give notice complying with s80 and waited the appropriate period before commencing the later action. The Defendants contend that the notice did not comply with the section. The sole basis for that contention is that the notice served in August 2004 failed to specify all the Defendants' alleged defaults. It relevantly provided: "Default under the Mortgage and details of the default You are in default under the Mortgage. The details of your default are that, under the terms of the Mortgage; (i) You became liable, on 19 May 2004, to pay to the mortgagee the sum of $200,000.00 such sum having been advanced to you by the mortgagee on 19 May 2003 and with no part of such sum having been repaid to the mortgagee as at 19 May 2004; (ii) You did not, on 19 May 2004, pay to the mortgagee the sum of $200,000.00 or any part of such sum and have not, since 19 May 2004, paid to the mortgagee the sum of $200,000.00 or any part of such sum.

Action necessary to remedy the default To remedy the default, you must, within 30 days of being given this notice, pay to the mortgagee the sum of $200,000.00. In addition to any other method of payment, it will be sufficient compliance with this notice if the said sum of $200,000.00 is, within 30 days of you being given this notice, received at the offices of R.L. Kremnizer & Co., solicitors, 1st Floor, 369-371 New South Head Road, Double Bay, New South Wales, 2028." 72 It will be observed that the notice makes no reference to the Defendants' failure to pay interest. Mr Donaldson submitted that s80 (3) requires all significant defaults to be specified in order that the mortgager may know what they are and have an opportunity to rectify them. No authority was referred to in support of this contention and I find it impossible to accept, at least in a situation where, as here, the notice is but a prelude to possession proceedings. The argument may be stronger if the action were one to recover a debt, which included interest. 73 Accordingly, I hold that the later action was validly commenced and subject to my conclusions on the cross-claim, the Plaintiff is entitled to judgment in possession and an order for the issue of a writ of execution. WAS THE SUBJECT MORTGAGE UNJUST? 74 The question whether the subject mortgage was unjust within s70 of the Code requires an evaluation of the matters listed in sub-section (2). 75 Although English was the first language of the Defendants and they had considerable experience in borrowing money, both secured and unsecured, they were of limited education and relatively unsophisticated. However, they had the benefit of a solicitor to advise them. 76 Neither Mr Meehan nor Ms Hart gave evidence and no explanation was given for this. On the face of it, I would have thought that they could have given relevant testimony in relation to the declaration of purpose and the furnishing of the accountant's certificate, and it is, I think, appropriate to infer that their evidence would not have assisted the Defendants' case. Mr Cook gave various explanations as to how he came to complete the declaration which stated that the borrowing was for business and investment purposes. In evidence during interlocutory proceedings he agreed that he lied in order to deceive the Plaintiff. In his affidavit he proffered this somewhat different explanation: "I am told that the evidence I gave indicates that at the time I signed the documents I knew I was deceiving Mr and Mrs Agius. I did not mean to give that impression. I am not good with understanding concepts and I was very nervous when I gave evidence. What I meant was that at the time of the hearing I knew that the documents I had signed were not correct and that the documents were deceptive. I also knew by the time of the hearing that the difference between business and personal was important. However when I signed the documents I was not aware that they were deceptive. I just signed whatever I was told was necessary to get the loan. I didn't think there would be anything improper in the documents because we had a solicitor acting for us. The italics in this paragraph are for emphasis."

77 I find it impossible to escape the conclusion that he knew he was making a false statement of a material kind when he made it and that the falsity was of some significance, apart from being detrimental to himself. However, I accept that he was probably unaware of the nature of that significance. As I have already indicated, provided the formalities were observed, the Plaintiff, in my view, was indifferent to the underlying factual situation. On the face of it the Defendants' solicitors seem to have been complicit in the falsity, although there was evidence as I have said, that the handwritten notation on the document declaring a capacity to service the loan was in the handwriting of Mr Meehan. In all the circumstances, while the false declaration of the Defendants and their procuring of what must have been the false statement of an accountant should be deprecated and taken into account as a relevant factor within s70 (2) (a), they are not, in my opinion, necessarily decisive of the issues before me. 78 The public interest is one of the matters that the court must have regard to under s70. On this issue over the objection of the Plaintiff, I admitted evidence by Dr Steve Keen, Associate Professor of Economics and Finance at the University of Western Sydney. 79 After reviewing the Defendants' borrowings, for reasons which he gave in a lengthy and detailed report, he categorised the subject mortgage as evidencing a "Ponzi" loan, namely one which "can only be repaid by either taking out a larger subsequent loan, or by selling the asset that was financed using the loan". He also described it as a "low doc" loan, that is one where borrowers self verify their income in the application process. He said that such loans are: "designed mainly for the self-employed or those with irregular income who do not have the documentation required to obtain a conventional housing loan." 80 As to the public interest involved in "low doc" and "Ponzi" loans, Professor Keen said: "(a) Standard home loans are limited in size by the need for the borrower to establish that he/she can repay the loan out of income. (b) Legitimate "Low "Doc Loans" are a necessary development of income-based loans in light of the changing composition of the Australian workforce. (c) Ponzi Loans are loans that can only be repaid by either taking out a larger subsequent loan, or by selling the asset that was financed using the loan. (d) Ponzi Lending can occur in Low Doc Loans because the loosening of income-verification standards enables loans to substantially exceed the size that could be met out of borrower's actual income. (e) The Subject Loan to the Cooks was a Ponzi Loan. …………………………………………. (g) Were the practice of Ponzi Lending to become widespread, it would substantially increase the tendency of the Australian financial system to asset bubbles and subsequent financial crises, by: i accelerating the accumulation of excessive debt during the up-swing to an asset bubble; ii accelerating the rate of decline during the bursting of the bubble; and iii causing the recovery to take much longer. (h) Ponzi Loans thus have adverse economic consequences that extend well beyond the immediate parties to the loan agreement. 81 Associate Professor Keen gave oral evidence and was cross-examined upon it and upon his report. His evidence in chief included the following exchange with Mr Donaldson: "Q. You selected the Commonwealth Bank as a guide for the purpose of assessing how the Cooks' capacity to service a loan compared with the loan that they obtained? A. Mm.

Q. Why the Commonwealth Bank? A. I actually considered five at the time. I went through the major banks and one of the building societies and the numbers that came out of the - the rough estimate entry of the data was so extreme in every case that I thought I would simply use one of the biggest lenders and leave it at that - -

Q. When you say "extreme" what do you mean by that? A. Well the difference was $100,000.

Q. You mean the disparity-- A. The disparity was enormous.

………………………………….. Q. When you say the differences were extreme you mean the differences between - - A. The differences between the amount that the Cooks were lent under loan 5 and the amount that any of the bank calculators would allow them given their actual income. " 82 Nothing, which arose out of the cross-examination by Mr Rogers, in my view, undermined the thrust of Professor Keen's evidence. 83 I also permitted the tender of an expert report (Exhibit 10) by Mr Stuart Carraill, Senior Underwriter at Austral Mortgage Corporation Pty Ltd. After pointing out, inter alia, that while the Defendants had equity in the property to be mortgaged they had no savings of any note, Mr Carraill concluded his report of 9 January 2006: "In my opinion, the borrowers would have had difficulty in refinancing to a Principal and Interest loan to bank & non-bank lenders based on the history detailed above. The only other available repayment option is on an interest only basis. The lenders that I have detailed in paragraph 1 of Question 1 (Adelaide Bank Limited, Interestar, Macquarie Mortgages, AFIG, Commonwealth Bank, HSBC, St George and Homeside) would not have accepted this loan on an interest only basis. The primary option then available to the borrowers would have been to explore alternative funders such as solicitor's funds or private investor. These lenders loans are invariably short term in nature (1-3 years) require interest only repayments and attract a significantly higher interest rate. In most instances the loans feature excessive fees and charges in comparison to bank and non-bank lenders. Lenders of this type also require the loan to be unregulated under the UCCC (Uniform Consumer Credit Code)." 84 Mr Carraill also gave oral evidence and was cross-examined by Mr Rogers. He conceded that the financial circumstances of the Defendants could have changed for the better, leading them to be able to service the loan and refinance at the end of the term. He maintained, however, as I understand his evidence, that it would be unlikely that a major lender would provide a housing loan repayable over a lengthy term, by instalments of principal and interest. 85 Against any public interest in discouraging loans of the type identified by Professor Keen and Mr Carraill, there is, of course, a public interest in the enforcement of contractual obligations freely entered into. In the result, I do not regard the public interest as of much significance in resolving this case. Rather, I think the greater focus should be upon factors personal to the Defendants, or more directly concerned with the particular transaction. 86 Obviously, the consequences of the Defendants' failure to comply with the terms of the mortgage put them in jeopardy of losing their home. Equally obviously, their bargaining power relative to the Plaintiff was weak, but they were, as the evidence of Mr Cook makes clear, extremely anxious to obtain the loan and to that end willing to make false statements of a material kind. Moreover, there was nothing particularly unjust, in my view, in the terms of the mortgage itself. No contrary submission was made. The lower interest rate of 8.8% pa seems to me not unreasonable although if, as I believe, there was little, or no prospect of the Defendants being able to service the interest at the lower rate of 8.8% pa, the same may not be able to be said about the higher rate of 13.8% pa, which would then be payable. I base my belief that the Defendants would be unlikely to be able to pay the interest even at 8.8% pa, upon their very dismal credit history, coupled with the financial information set forth in Mr Cook's affidavit of 19 September 2005, which was not challenged. 87 Although the introductory words of s70 (2) are restricted to "a term of a particular credit contract mortgage" etc. the subsequent provisions of the subsection seem to make it clear, consistently, in my view, with subsection (1) that a credit contract, mortgage etc. may be categorised as unjust within s70, even though there is nothing particularly unjust in its actual terms. The requirement to have regard to the public interest as well as many or most of the paragraphs within subsection (2) seem to make this plain. 88 Whether I should hold the mortgage unjust in this case involves a balancing exercise. On the one hand are the circumstances that the Defendants speak English as their first language; were experienced borrowers; had the services of a solicitor; were extremely anxious to obtain the loan; and were prepared to sign false statements and procure false certificates. On the other hand, the beneficial nature of the Code indicates that it was intended to protect the unsophisticated and meagrely educated, such as the Defendants, from their own foolishness. Given the means of the Defendants and their credit history, the Plaintiff, in my view, was aware, or would have been aware, had it made the most perfunctory of enquiries, that the Defendants were not capable of servicing the loan even at the lower rate of interest and could only satisfy their obligations by selling the mortgaged property for a sum sufficient to cover the principal and interest. It was likely that they would thus become obligated to pay interest on the amount of the credit, not at 8.8% p.a., but at the much higher rate of 13.8%. 89 No authority upon the Code was referred to me but I was referred to a number of authorities on the Contracts Review Act, which seem apposite. The most recent is that of the Court of Appeal in Perpetual Trustees Co Ltd v Khoshaba (2006) NSWCA 41. That case concerned a loan of $120,000 secured over the home of two pensioners. Neither the appellant nor anyone on its behalf was concerned in the purpose of the loan, which was, in fact, for the most part invested by the borrowers in a pyramid selling scheme involving shopping trolleys promoted by Karl Suleman Enterprises Pty Ltd. The scheme collapsed, leaving the borrowers without an expected flow of revenue and a debt to the lender. The trial judge had found the loan agreement between the lender and the borrowers and the mortgage given pursuant to that agreement to be unjust within s9 of the Contracts Review Act despite the lack of any involvement by the lender in the failed scheme. 90 In the course of his judgment Spigelman CJ made these observations: "63 In many respects this case, in its basic structure, is similar to that considered by this Court in West v AGC (Advances) Ltd (1986) 5 NSWLR 610 where the Court held, by majority, that the contract was not "unjust". The Appellant in this case relies on a number of steps in the reasoning in West in support of its contention that the contract in the present case should not be found to be "unjust". 64 Of course each case must depend upon its own facts. Furthermore, West is now 20 years old. When the Parliament adopts so general, and inherently variable, a standard as that of 'justness', Parliament intends for courts to apply contemporary community standards about what is just. Such standards may vary over time, particularly over a period of two decades. 65 There have been observations in this Court that the standards may have changed from those applied in 1986 in West. (See Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413; (2003) 11 BPR 20,841 at [79].) 66 The Appellant relied on the distinction drawn by McHugh JA in West at 621 between the contract and the overall transaction, relevantly the loan and the investment of the funds. On the basis of that distinction the Appellant submitted (T p22 cf T 31) that the investment agreement was not part of the "circumstances relating to the contract" within s7(1). In my opinion this submission should be rejected. 67 Nothing McHugh JA said in West suggests that the purpose for which a loan is obtained is not one of the relevant "circumstances". His Honour was drawing attention to the fact that the ultimate focal point of consideration under s7(1) must be the contract sought to be set aside or varied. 68 In my opinion, the purpose for which a loan is advanced is a relevant circumstance. This is confirmed by s9(2)(l) which includes, amongst the matters to which a court shall have regard in determining whether a contract is unjust: "The commercial or other setting, purpose and effect of the contract." 69 The purpose of a loan is a concern of a lender, because it is usually a material consideration in determining whether the particular lender is able to service and repay the loan. The Appellant's own Guidelines confirm the relevance of this matter, both in identifying the requirement that the purpose be specified and in the structure of the Guidelines themselves. In detail not necessary to be set out, the Guidelines specify quite distinct criteria, including different maximum amounts of loans, for different kinds of purposes to which the loans will be applied. 70 Accordingly, the purpose of the loan is a relevant circumstance relating to the contract within the meaning of s7 of the Act. ……………………………………….. 76 Plainly, the conduct, whether by act or omission, of the party resisting a finding of unjustness under the Act is highly relevant, and will often be determinative. However, the scope of relevant circumstances is not confined to what the person resisting an order under s7(1) did or did not do and knew or ought to have known. The critical phrase in s7(1) - "the circumstances relating to the contract at the time it was made" - cannot be so limited. Section 9(1) provides that when determining unjustness "the court shall have regard to the public interest and to all the circumstances of the case". Furthermore, s9(2)(l) includes, as I have noted, amongst the relevant circumstances "the commercial or other setting, purpose and effect of the contract". 77 In the present case, the Appellant submitted, correctly in my opinion, that the fact that the Appellant had no involvement of any kind in the investment was entitled to significant weight in its favour. 78 The Appellant's submissions as to how this Court determine the issue of 'unjustness', against the background of uncontested factual findings, focused on the two particulars which Rolfe DCJ had emphasised: failure to comply with the Guidelines and failure to recommend independent advice. With respect to the first of these I set aside, for the reasons discussed above, any use of the Guidelines as an indication of prudent lending practice. 79 The Appellant submitted that the failure to observe its own Guidelines was not entitled to substantial, let alone determinative, weight. The Appellant accepted that the failure was a relevant consideration. However, it submitted that the Guidelines were designed for the purpose of protecting the lender, not the borrower. Their purpose was to enable the Appellant to assess and minimise its own risk. 80 This proposition can be accepted, but it does not lead to the conclusion, urged on the Court by the Appellant, that the failure is entitled to minimum weight when determining what is just in all the circumstances. The benefit to the borrower from a proper risk assessment may be indirect, because unintended, but that does not mean that it cannot, in appropriate circumstances, be entitled to significant weight in the determination of unjustness. It is clear from the list of factors contained in s9(2) and (3) of the Act, that a substantial purpose of the legislative scheme is to protect persons who are not able to look after themselves. 81 Rolfe DCJ's finding of fact, which is not challenged, that if the Guidelines had been observed the Appellant would never have advanced the loan to the Respondents was justified. The finding does not go only to causation. It is a factor entitled to be taken into account and given weight in the determination of unjustness. 82 I have set out above in the extract from his Honour's findings on the Guidelines issue each of the respects in which the Appellant failed to observe its own Guidelines. Of these failures the most significant, in my opinion, is the fact that the section of the standard form application about the purpose of the loan was left blank. This indicates that, as in Elkofairi supra at [79], the Appellant "was content to lend on the value of the security". In my opinion, that approach is entitled to significant weight in the determination of unjustness. (I note that nothing like this occurred in West where the purpose of the loan was known.) 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. 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. I do not suggest that the matter can be approached, as his Honour appeared to do, on the basis that the Appellant should be fixed with the knowledge it would or may have acquired if the Guidelines had been observed. 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." 91 Handley JA and Basten JA, in separate judgments, agreed with the Chief Justice The judgment of Basten JA contains the following paragraph of particular relevance to this case: "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." 92 Undoubtedly, the Defendants were foolish but, in my opinion, the circumstances of this case constitute the "something more" contemplated by Basten JA, in that the Plaintiff or its agents who were, or should have been, aware of the foolishness had, in effect, encouraged it. I am of the opinion that the subject mortgage and the credit contract, pursuant to which it was given, should be held to be unjust within s70 of the Code.

SHOULD THE TRANSATION BE REOPENED: 93 As Spigelman CJ pointed out in Khoshaba (paragraph 234), the Contracts Review Act s7 (1) requires a two step procedure, namely, a finding that the contract was unjust and, if so, a determination whether and, if so, as an exercise of discretion what, if any, orders should be made. In my opinion, the same two-step enquiry is mandated by s70 of the Code. 94 As, in my opinion, in this case, it was unjust that the credit was given and the mortgage entered into, the court should re-open the transaction. S71 of the Code prescribes the orders available to the court in that regard. Such orders, I believe, should reflect the unjustness of the transaction and seek to redress that unjustness. They should not be used as an instrument to punish the Plaintiff. Indeed, there is nothing before the court as to the constitution or conduct of the Plaintiff, itself. How it came to be nominated as the provider of credit by its manager, La Trobe, does not seem to have been explained. RELIEF TO BE GRANTED: 95 Consistently with what I have said, I think the Defendants should, so far as possible, be returned to the position they were in as at April 2003. To that end, they should, in my opinion, be relieved of the costs and expenses incurred in respect of the credit provided by the Plaintiff and the principal should be reduced to the sum which was actually applied for their benefit, namely, the discharge of their outstanding debts. On that basis, seemingly, I should relieve the Defendants of the obligation to pay to the Plaintiff such portion of the principal secured by the subject mortgage or payable under the Credit Contract as is represented by items 8, 9, 10 and 13, totalling $13,627.50, listed in paragraph 36 above. I would also relieve the Defendants from payment of interest at a rate exceeding simple interest of 8.8% pa, and of any obligation to pay the Plaintiff's costs and expenses following default. It is not appropriate, in my opinion, to set aside the mortgage as this would result in the Defendants obtaining a benefit from the transaction they seek to impugn and would result in injustice to the Plaintiff. 96 I would dismiss the earlier action, but in the later action hold the Plaintiff entitled to judgment in possession and to the issue of a writ. I would postpone execution for a short period. ORDERS: 97 The only order appropriate is that the matter stand over to 31 October 2006 at 9.30am, or such other date and time as may be arranged with my Associate, when I direct the parties to bring in Short Minutes of Order to reflect these reasons. I also reserve until then the matter of costs.

98 HIS HONOUR: Following the judgment which I gave in this matter on 24 October 2006, several matters have been debated today and both parties have submitted draft minutes of order. 99 Two matters are in issue as to the adjustment to be made to the principal which the mortgage is to be deemed to secure. In paragraph 95 of my judgment, I said: "Consistently with what I have said, I think the defendants should, so far as possible, be returned to the position they were in as at April 2003. To that end, they should, in my opinion, be relieved of the costs and expenses incurred in respect of the credit provided by the plaintiff and the principal should be reduced to the sum which was actually applied for their benefit, namely, the discharge of their outstanding debts. On that basis, seemingly, I should relieve the defendants of the obligation to pay to the plaintiff such portion of the principal secured by the subject mortgage or payable under the credit contract as is represented by items 8, 9, 10 and 13, totalling $13,627.50, listed in paragraph 36 of my judgment." 100 The first submission made this morning is that further items from paragraph 36 of the judgment should be included, namely items 3, 4, 5 and 6, the first three of which relate to law stationer expenses, apparently, and the fourth of which relates to stamp duty. I think logically, in accordance with the reasons I have provided, those four items which total $654.50 should be the subject of relief to the plaintiff as a deduction from the principal sum. 101 The second matter argued was that I contemplated, in paragraph 95 of the judgment, that the defendants should be relieved of only a proportion of the amounts referred to in paragraph 36 of the judgment by reason of the fact that those items also related to the mortgage given to Mr and Mrs Agius who are not parties before me. 102 Mr Rogers, counsel for the plaintiff, submitted that it would be unfair to, in effect, penalise the plaintiff in respect of all of the items which I identified in paragraph 36 in light of the fact that the items represented sums attributable to the Agius mortgage. 103 Miss Francois, on the other hand, for the defendants, submitted that it would be fair to give the defendants the benefit of the whole of the amounts, on the basis, so she submitted, that Mr and Mrs Agius are individual mortgagees, whereas the present plaintiff, at least from its name, appears to be an institutional lender. 104 There is, as I pointed out, no evidence as to the constitution of the plaintiff, nor indeed is there any evidence as to the circumstances of Mr and Mrs Agius who, for all I know, might be in the business of lending money secured by mortgage. 105 I think, in the result, that I should accept as a matter of fairness the submission of Mr Rogers in relation to this aspect which results in the defendants obtaining relief as well as the other relief identified by me of a proportion, roughly 80 percent, of the additional sum of $684.50. 106 The remaining matter argued today concerns the question of the costs of the proceedings which were the substantial subject of the hearing before me, namely proceedings 13381 of 2004, although it must be said that the plaintiff did not abandon the other proceedings, 12632 of 2003, despite having brought fresh proceedings designed to overcome the defence based on non-compliance with s 80 of the Consumer Credit Code relied upon in relation to the earlier proceedings. In the result, I held that the Code applied and that the earlier proceedings should be dismissed. 107 Those proceedings, as I think is common ground, should be dismissed with costs, although Mr Rogers in the draft short minutes of order submitted that there should be a limitation on those costs by virtue of them, in a sense, being overtaken by the subsequent proceedings. I think that the form of order proposed by Mr Rogers should be accepted, that is that the plaintiff should pay the defendants' costs of the earlier proceedings up to 18 October 2004, other than costs not wasted by reason of the subsequent proceedings. 108 As to the costs of the proceedings to which in fact most of the hearing time was devoted, Mr Rogers seeks an order for costs in his favour and Miss Francois seeks an order for costs in favour of her client. 109 Mr Rogers points out that the plaintiff has been successful in obtaining an order for possession and has also pointed out that the relief to which the defendants have been held entitled is limited to a relatively small reduction in the principal secured and in a reduction, albeit significant, of the interest payable. Mr Rogers also pointed to the difficulties experienced by the plaintiff in having the defendants particularise the precise relief which they sought. On the other hand, as Mr Rogers concedes, no offer of compromise was made. 110 Miss Francois, on the other hand, in support of her submission that her client should be entitled to costs, points to the fact that her client succeeded in establishing that the Credit Code applied, was successful in obtaining significant relief and that no offer of compromise was made by the plaintiff. 111 The competing submissions, I think, are such that justice will be best served in this case if there be no order for costs. That is what I would propose in respect of the later proceedings. 112 In the result, I can make these orders: (1) Proceedings number 12632 of 2003 are dismissed;.

(2) I order the plaintiff to pay the defendants' costs of proceedings 12632 of 2003 up to and including 18 October 2004 and thereafter costs, if any, shown to be exclusively related to proceedings 12632 of 2003;

(3) I order that there be judgment for the plaintiff for possession of the whole of land contained in folio identifier 5047/817994, being the property known as 13 Currans Hill Drive, Currans Hill; (4) I give the plaintiff liberty to issue a writ of possession, but I order that such writ lie in the office until 9 December 2006; (5) I order that the mortgage between the plaintiff and the defendants, being registered mortgage 9623400, be varied by the addition of clause 29 in the following terms: "(29) Notwithstanding anything which might otherwise appear in this mortgage (in particular notwithstanding clauses 2, 3, 17, 18, 19, 20 and 27) or in any other document referable to this mortgage, the following shall apply:

(a) The mortgagor shall be deemed to have borrowed an amount of $188,398 from the mortgagee, which sum shall be regarded for all purposes as the principal sum;

(b) The mortgagor will pay simple interest on the principal sum at the rate of 8.8 percent per annum;

This clause shall operate to the exclusion of all other clauses or provisions of this mortgage or any other document."

I record that I do not intend to interfere with any prior costs order made in either set of proceedings. I give both parties liberty to apply on seven days notice.

15/11/2006 - Typing error - Paragraph(s) 95 24/08/2007 - Paragraphs 98 -112 added. - Paragraph(s) 98 -112

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.