Permanent Trustee Company Limited v Michael Elkofairi

Supreme Court of NSW|2001-11-19|Before: Newman AJ, Sully J, Cole J, Santow J

Reported Decision : (2002) Aust Contract Reports 90-148 (2002) NSW ConvR 56-013

CITATION : Permanent Trustee Company Limited v Michael Elkofairi (aka) Mashour Elkofairi & 1 OR [2001] NSWSC 1113 CURRENT JURISDICTION: Common Law FILE NUMBER(S) : SC 12144/99 HEARING DATE(S) : 1, 13, 15-16, 19 November 2001 JUDGMENT DATE : 6 December 2001

PARTIES : Permanent Trustee Company Limited (Plaintiff) Alia Elkofairi (2nd Defendant) JUDGMENT OF : Newman AJ at 1

COUNSEL : V. Stefano (Plaintiff) P. Bolster (2nd Defendant) SOLICITORS : Hunt & Hunt (Plaintiff) Cumberland Frank (2nd Defendant) CATCHWORDS : Unconscionable bargain - Onus of proof - Husband and Wife - Confidential relation - Equitable relief - Whether wife a volunteer - Amadio principles - uneducated and illiterate wife accustomed to obey husband's directions in business matters - Contracts Review Act not applicable. LEGISLATION CITED : Contracts Review Act 1980 Yerkey & Anor v Jones (1939) 63 CLR 649 National Australia Bank Ltd v Garcia (1998) 194 CLR 395 Commercial Bank of Australia Ltd V Amadio & Anor (1983) 151 CLR 447 Cranfield v Commonwealth Bank of Australia [1998] VSC 140 Blomley v Ryan (1956) 99 CLR 362 CASES CITED : West v AGC Advances Ltd (1986) 5 NSWLR 610 Westpac v Gordon & Reilly (unrep, SCNSW, Sully J, 1/4/93) Conley v Cojmmonwealt Bank of Australia [2000] NSWCA 101 Commonwealth Bankof Australia v Cohen (unrep, SCNSW, Cole J 22/7/88) Elders Rural finance v Smith (1996) 41 NSWLR 296 Mahlo v Westpac Banking Corporation (unrep, NSW SC, Santow J, 6/2/98) DECISION : para 36

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

12144/99 - PERMANENT TRUSTEE COMPANY LIMITED v MICHAEL ELKOFAIRI (aka) MASHOUR ELKOFAIRI & 1 OR

1 HIS HONOUR: This is a claim for the possession of land and the recovery of monies outstanding on a loan secured by a mortgage. 2 The two defendants in the matter are husband and wife. The plaintiff has already signed judgment against the first defendant, the husband, Mr Mashour Elkofairi. 3 At all relevant times Mr and Mrs Elkofairi were the owners in fee simple of a property known as 15 Chain Mail Crescent, Castle Hill in this state being land comprised in certificate of title folio identifier 5079/707960. 4 Mr Elkofairi is a bankrupt. At the outset of the proceedings an appearance was announced on behalf of his trustee in bankruptcy. However, assurances having been given by the other parties that no order would be sought in the present proceedings which would affect the trustee in bankruptcy the solicitor who appeared on behalf of the trustee was given leave to withdraw. 5 Accordingly, these proceedings were confined to the claim brought against Mrs Elkofairi, the second defendant. 6 The plaintiff's claim was that the defendants had defaulted in repaying a loan of $746,000 secured by a memorandum of mortgage over the premises at 15 Chain Mail Crescent, Castle Hill which mortgage was dated 5 February 1998. 7 There was no issue in the proceedings that in fact default had occurred. Equally there was no issue that the appropriate notices under the Real Property Act had been issued and served by the plaintiff. Indeed the only issue in the case was whether the plaintiff is prevented from enforcing its rights under the mortgage following default by dint of matters raised in defence by the second defendant in her defence and cross claim. 8 The matters raised were tripartite. First, it was submitted that the equitable principals set out in Yerkey and Anor v Jones (1939) 63 CLR 649 and National Australia Bank Ltd v Garcia (1998) 194 CLR 395 prevented the plaintiff from exercising its legal rights in the circumstances of the case. Second, its was submitted that the dealings involved in the matter were unconscionable and thus this Court would intervene in the manner described by the High Court in The Commercial Bank of Australasia Ltd v Amadio and Anor (1983) 151 CLR 447 would apply. Third, that the mortgage was unjust in terms of s 7 of the Contracts Review Act 1980 and thus relief could be obtained. 9 In order to understand the nature of the matters raised by the second defendant it is necessary to refer to the evidence given relating to events which occurred before the subject mortgage was entered into. Mrs Elkofairi is now 56 having been born on 20 May 1945 in Syria. She is a member of a branch of the Islamic faith known as Druze. In 1969 she married her husband and migrated to this country in 1973. She has three children, the last one born in 1976. Between 1975 and 1995 Mrs Elkofairi worked in a variety of occupations. First she worked in a refrigeration factory at Lakemba. Thereafter, other than a return to the job in Lakemba for a short period, she has worked in businesses operated by her husband. First was a fruit shop in Punchbowl then later a coffee shop in Emerton and ultimately at either a take away food shop at Round Corner, Dural, or in a fish shop at Cherrybrook. 10 On 19 May 1994 Mrs Elkofairi and her husband purchased the property at 15 Chain Mail Crescent, Castle Hill. Mrs Elkofairi and her husband purchase the property as joint tenants for $210,500. It appears that the purchase of this property was financed by the sale of a home owned by the Elkofairis at Westmead and by loan from the ANZ Banking Group which was secured by way of a mortgage. The loan amount was $ 165,000. From May to December 1994 Mr Elkofairi borrowed a further $166,000 from the ANZ Bank which loans were secured by the subject property. 11 On 16 November 1995 the property was re-financed by way of a further loan being taken out this time with the St George Bank in the sum of $440,000. This mortgage was taken out in the names of both Mr and Mrs Elkofairi. ANZ were duly paid out. Ultimately on 6 February 1998 the mortgage which is the subject of these proceedings was taken out by Mr and Mrs Elkofairi with the present plaintiff in the sum of $746,000. Once more the previous mortgagee, the St George Bank, was paid out. 12 At the time when the St George Bank loan was taken out the property was valued at $900,000 and at the time of the loan, the subject of these proceedings, a valuation of $1.2 million was placed on the property. In respect of all of the dealings with the property at 15 Chain Mail Crescent, Castle Hill, a Mr C.P. Maley, solicitor, acted for Mr and Mrs Elkofairi. 13 Essentially it was Mrs Elkofairi's evidence that she had no idea that any of the transactions narrated above took place - albeit she lived at 15 Chain Mail Crescent, Castle Hill. She claimed that she was totally unaware of what a mortgage was and how much had been borrowed pursuant to the various mortgages. She contended that anything she did in respect of those conveyancing transactions was done because it was her husband's desire that such things would take place. Indeed she claimed that she had no recollection of signing any documents relating to the above transactions in the presence of Mr Maley, solicitor. Essentially her evidence in chief amounted to a claim that she was totally ignorant of anything which had occurred in the transactions I have narrated above. It was this position of ignorance and her being subject to the domination of her husband which underpinned the three matters raised by way of defence. In support of her claim that she was ignorant of the transactions she contended that she was illiterate not only in English but in her native tongue and that indeed her ability to understand spoken English was extraordinarily limited. 14 However, there were a number of matters raised in evidence which led me to the conclusion that Mrs Elkofairi is not to be accepted as a witness of truth. The first involves an exchange which took place in cross examination (T16-17): "STEFANO: Could the witness be shown her affidavit of 7 November 2001 (shown). Madam interpreter, would you please read paragraph 56 to the witness, which is on page 11. INTERPRETER (reads): Now that I understand what a Power of Attorney is I recall on an occasion when I was signing my signature in front of my husband him saying to me words to the effect of: Mashour: "Why don't you let me sign for you, because your so slow." Alia: "Don't you even dare to do it."

Q. That is true, isn't it, what you say in paragraph 56? A. Yes, it is true. Q. And the reason why you would not let your husband sign for you is because you did not trust him? A. It's personal. It is between my husband and I, so -- Q. Mrs Elkofairi, you did not trust him, did you? A. As I told you before, it is personal. I don't have to say if I trust my husband or not. Q. Would answer the question please: you did not trust him? A. No. Q. And you did not want him to sign a document that you did not know anything about, did you? A. Yes, that's for sure. Q. And if you signed the document, you wanted to know what it was, didn't you? A. Yes. Q. And when you signed the mortgage I front of Mr Maley you wanted to know what it was, didn't you? A. Actually, when I signed any kind of paper Mr Maley never explained to me what is in those documents and, as I said before, I was obliged to sign because I was scared that my husband will get upset from me and have a fight. Q. You knew what the document was, didn't you? A. No." 15 Then there is the evidence of Mr Maley, solicitor. Mr Maley as I have already stated acted for both Mr and Mrs Elkofairi in relation to all relevant transactions. Let me say at once that I am of the view that Mr Maley was a truthful witness and one upon whose testimony the Court can depend. It was his evidence that he explained the obligations which fell upon Mrs Elkofairi (and her husband) when they executed the various loan documents including the memoranda of mortgage. While he has no specific recollection of the actual meetings he had with Mrs Elkofairi he had no doubt that he adopted his usual practice when he saw her. He deposed that part of his experience as a solicitor included acting for a number of clients whose native tongue was not English. Again he deposed that it was his practice if he was in doubt as to the ability of a client to understand what he was telling them to employ an interpreter so that full understanding could be reached. He felt he had no need to do so in the case of Mrs Elkofairi. 16 Accepting Mr Maley as I do I find that Mrs Elkofairi at all relevant times well understood the nature of the transactions into which she entered. 17 There are several other factual matters to which I should make reference. The first involves Mrs Elkofairi's health. There was no dispute in these proceedings that Mrs Elkofairi suffers from very poor health. She has been diagnosed since the early 1990s as a non-insulin dependent diabetic suffering also from hypertension. Her cardiovascular vulnerability was demonstrated in 1997 when she suffered from a stroke. However, while her poor health plainly enough affects her physical abilities there is no suggestion in the medical evidence that she suffers from any mental dysfunction as a consequence of her underlying illnesses. In other words the medical evidence does not indicate that the second defendant's poor health in any way prevented her from understanding the nature of the conveyancing transactions which I have detailed above. 18 Finally, I refer to evidence given relating to events which occurred when documents concerning a claim being made by St George Bank in relation to the mortgage to that institution. Around the time when the mortgage, the subject of these proceedings, was taken out Mr and Mrs Elkofairi appeared to have been in default under the mortgage taken out with St George Bank. Proceedings were issued by St George for possession. Evidence was given by a process server, one Danny Crouch, as to a conversation which took place between himself and the second defendant and indeed the first defendant at the time of service. The purpose of the plaintiff calling Mr Crouch was no doubt to demonstrate that the level of Mrs Elkofairi's understanding of English was at a higher standard than that to which she deposed in evidence. However, the nature of the evidence given by Mr Crouch was so evanescent in character that for the purposes of any factual finding which I have been called on to make I have disregarded it. 19 I turn then to the defences raised by the second defendant. First I turn to the submission that the law as explained by the High Court in Yerkey v Jones and National Australia Bank v Garcia prevents the plaintiff from exercising its legal rights in this case. 20 In Yerkey v Jones a wife gave a mortgage over her property by way of a guarantee of her husband's obligations. On behalf of the wife it was contended that the circumstances surrounding the transaction constituted undue influence. At 675 Dixon J observed as follows: "But in the relations comprised within the category to which the presumption of undue influence applies, there is another element besides the mere existence of an opportunity of obtaining ascendancy or confidence and of abusing it. It will be found that in none of those relations is it natural to expect the one party to give property to the other. That is to say, the character or the relation itself is never enough to explain the transaction and to account for it without suspicion or confidence abused."

Having so determined Dixon J then went on to indicate that the 'marital relation had never been divested completely of three equitable presumptions of invalidating tendency'. He said at 675-6: "In the first place, there is the doctrine, which may now perhaps be regarded as a rule of evidence, that, if a voluntary disposition in favour of the husband is impeached, the burden of establishing that it was not improperly or unfairly procured may be place upon him by proof of circumstances raising any doubt or suspicion. In the second place, the position of strangers who deal through the husband with the wife in a transaction operating to the husband's advantage may, by that fact alone, be affected by any equity which as between the wife and the husband might arise from his conduct. In the third place, it still is or may be a condition of the validity of a voluntary dealing by the wife for the advantage of her husband that she really obtained an adequate understanding of the actual nature and consequences of the transaction."

It should be observed that in Yerkey v Jones the subject transaction was in fact upheld. 21 In National Australia Ltd v Garcia a married woman and her husband executed a mortgage over their matrimonial home in favour of a bank. The mortgage secured all monies which the mortgagors might owe the mortgagee including monies owning under any future guarantees given by either of them to the mortgagee. Subsequently the wife signed four guarantees in favour of the successor to the mortgagee bank relating to loans made to businesses conducted by her husband. The successor bank eventually demanded payment under the last of the guarantees executed by her. In the event the High Court held that the enforcement of the relevant guarantee against the woman would be unconscionable. At 408-9 the majority judgment observed as follows: " Yerkey v Jones begins with the recognition that the surety is a volunteer: a person who obtained no financial benefit from the transaction, performance of the obligations of which she agreed to guarantee. It holds, in what we have called the first kind of case, that to enforce that voluntary transaction against her when in fact she did not bring a free will to its execution would be unconscionable. It holds further, in the second kind of, that to enforce it against her if it later emerges that she did not understand the purport and effect of the transaction of suretyship would be unconscionable )even though she is a willing party to it) if the lender took no steps itself to explain its purport and effect to her or did not reasonably believe that its purport and effect had been explained to her by a competent, independent and disinterested stranger. And what makes it unconscionable to enforce it in the second kind of case is the combination of circumstances that: (a) in fact the surety did not understand the purport and effect of the transaction; (b) the transaction was voluntary (in the sense that the surety obtained no gain from the contract the performance of which was guaranteed); © the lender is to be taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect to the transaction to his wife; and yet (d) the lender did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her." 22 There are two features of the present case which in my view clearly distinguish it from both Yerkey v Jones and National Australia Bank v Garcia. In both those latter cases the wife was a surety. Here the second defendant was not merely a surety. She was as a joint tenant a beneficial owner of the land over which the mortgage was secured. The loan secured by the mortgage enabled her to obtain her beneficial interest in the land initially and the later mortgages enabled her to retain that beneficial interest. While it is true that her husband obtained his beneficial interest by reason of the self same loan and mortgage and also was able to obtain advances from the ANZ Bank as a consequence of that security, the second defendant's interest in the land in my view takes her out of the category of volunteer. 23 In the event that I were to find as I have that Mrs Elkofairi obtained a financial benefit from the transaction it was further submitted that this of itself would not disqualify her from being found to be a volunteer. It was put that what fell from Mandie J in Cranfield v Commonwealth Bank of Australia [1998] VSC 140 is applicable in this instance. There not only did the female involved enter into a mortgage over property she also guaranteed, inter alia, a bill discount facility given by the bank to Mr Cranfield. Mandie J at paragraph 104 and onwards specifically held 'her transaction with the CBA was voluntary in the sense that Guiseppina Papalia obtained no direct or immediate gain from the bill discount facility or other obligation of Cranfield which she guaranteed'. Later Mandie J went on to say 'in the light of the foregoing, it seems to me that the CBA is not able on the evidence to substantiate its proposition that Guiseppina Papalia was not a "volunteer" for the purposes for the principle in Yerkey v Jones'. 24 Again the fact that the woman involved was not only a mortgagor but also a surety determined the finding that she was a volunteer. No such situation arises here. Accordingly, insofar as the second defendant relies upon the proposition that she was a volunteer I am of the view that this proposition is not made out. I should add that in determining this matter it seems to me it matters not where the onus of proof lies. If the onus was upon the second defendant to establish that she was a volunteer, I am of the view that she has not discharged that onus but, if the onus were upon the plaintiff to establish that she was not a volunteer, I am of view that the plaintiff has discharged that onus. 25 Insofar as this defence relies upon the fact that Mrs Elkofairi did not understand the subject transaction I have already found that as a matter of fact she did. Accordingly, the principles adumbrated by the High Court in Yerkey v Jones and National Australia Bank v Garcia do not avail her in this case. 26 I next turn to the second defendant's submission that the circumstance surrounding the subject transaction were such that the Court would find that the principle of unconscionability applied and that the mortgage and loan agreements should be set aside. In this regard the second defendant relied upon what had fallen from the High Court in Commercial Banking Company of Australia v Amadio. Amadio's case may be seen as an expansion of the principles developed by courts in equity which allowed those courts to set aside catching any unconscientious bargains. As the learned authors of Equity Doctrines and Remedies (Meagher, Gummow and Lehane 3rd ed) say at page 398: 'It will be seen that the essence of these situations is (a) parties who meet on unequal terms, (b) the stronger party takes advantage of this, (c) to obtain a beneficial bargain. When this is shown by the weaker party, the onus will pass to the stronger party to show his conduct to have been fair, just and reasonable'. 27 In Amadio's case the majority, Mason, Wilson and Deane JJ, held that it was sufficient to attract the operation of these principles if 'that instead of actual knowledge of the plaintiff's disadvantage in relation to an intended transaction the defendant was merely aware of the possibility that the situation might exist or of facts would raise the possibility in the mind of any reasonable person; in either case equity will intervene if the defendant takes unfair advantage of his superior bargaining power or position by entering into that transaction'. In this regard reliance was placed upon what fell from Deane J at 478-9: "… there is no suggestion that Mr Virgo or any other officer of the bank has been guilty of dishonesty or moral obliquity in the dealings between Mr and Mrs Amadio and the bank. The evidence does, however, demonstrate that there was no proper basis at all for any assumption that Mr and Mrs Amadio had received adequate advice from Vincenzo as to the effect of the document which Mr Virgo presented to them for their signature. Even if that were not the case, it would be difficult to accept as reasonable a belief that Vincenzo had successfully explained to his parents the content and effect of a document which embodied eighteen separate covenants of meticulous and complicated legal wording in circumstances where, to Mr Virgo's knowledge, Vincenzo had himself never seen the document at the time when any such suggested explanation must have taken place. If there were otherwise room for doubt, what transpired when Mr Virgo called on Vincenzo in his office and on Mr and Mrs Amadio in their kitchen makes clear that Mr Virgo simply closed his eyes to the vulnerability of Mr and Mrs Amadio and the disability which adversely affected them. Mr Virgo gave evidence that Vincenzo did not trouble even to read the document before agreeing that Mr Virgos should take it to Mr and Mrs Amadio for execution. He also gave evidence that Mr and Mrs Amadio did not read it. In other words, in a situation where it was apparent to him that advice and assistance were necessary, he knew that no one who might have rendered such advice and assistance to Mr and Mrs Amadio had even read the document to ascertain whether its terms imposed no greater potential liability upon Mr and Mrs Amadio than that which they were prepared to undertake. In the circumstances, the only comment which either Mr or Mrs Amadio made as to the contents of the guarantee/mortgage on the occasion when they executed it, namely Mr Amadio's comment that it was only for six months, was of unmistakable significance. That statement revealed that Mr Amadio and, it must be assumed, Mrs Amadio were seriously misinformed as to a basic term of the transaction. It would, at least by that stage, have been plain to any reasonable person, who was prepared to see and to learn, that he was put on inquiry. The stage had been reached at which the bank, through Mr Virgo, was bound to make a simple inquiry as to whether the transaction had been properly explained to Mr and Mrs Amadio. The bank cannot shelter behind its failure to make that inquiry. The case is one in which "wilful ignorance is not to be distinguished in its equitable consequences from knowledge" (per Lord Cranworth L.C., Owen and Gutch v Homan (1853) 4 HLC at p 1035 (10 ER at p 767)). Mr and Mrs Amadio's disability and the inequality between themselves and the bank must be held to have been evident to the bank and, in the circumstances, it was prima facie unfair and "unconscientious" of the bank to proceed to procure their signature on the guarantee/mortgage. With that conclusion, the onus is cast upon the bank to show that the transaction was "in point of fact fair, just, and reasonable" ( Fry v Lane (1888) 40 ChD at p 321).

Similarly Mason J expressed himself as follows at p 467: "… the facts as known to him were such as to raise in the mind of any reasonable person a very real question as to the respondents' ability to make a judgment as to what was in their own best interests. In Owen and Gutch v Homan (1853) 4 HLC, at p 1035 (10 ER, at p 767), Lord Cranworth L.C. said: "… it may safely be stated that if the dealings are such as fairly to lead a reasonable man t believe that fraud must have been used in order to obtain" [the concurrence of the surety], "he is bound to make inquiry, and cannot shelter himself under the plea that he was not called on to ask, and did not ask, any questions on the subject. In some cases wilful ignorance is not to be distinguished in its equitable consequences form knowledge." The principle there stated applies with equal force to this case. The concept of fraud in equity is not limited to common law deceit; it extends to conduct of the kind engaged in by the respondents' son when he took advantage of the confidence and reliance reposed in him to induce his parents to enter into a transaction n order to serve his ends, thereby depriving them of the ability to make a judgment as to what is in their interests. As we have seen, if A having actual knowledge that B occupies a situation of special disadvantage in relation to an intended transaction, so that B cannot make a judgment as to what is in his own interests, takes unfair advantage of his (A's) superior bargaining power or position by entering into that transaction, his conduct in so doing is unconscionable. And if, instead of having actual knowledge of that situation, A is aware of the possibility that that situation may exist or is aware of facts that would raise that possibility in the mind of any reasonable person, the result will be he same." 28 It was submitted that notice had become the key issue in this regard and that the plaintiff should have been put on notice of actual misconduct on the part of the first defendant, the second defendant's husband. 29 However, in my view this is not a case where unconscionability arises. I have found that Mr Maley explained the ramifications of the subject transaction to the second defendant and that she understood it. This takes this case away from the principles explained by the High Court in Amadio and other cases such as Blomley v Ryan (1956) 99 CLR 362. Accordingly, I find that the bargain struck was not unconscionable and thus this court should not interfere on this basis. 30 Finally it was submitted that the s 7(1) of the Contracts Review Act applied and the mortgage and loan agreements should be set aside. It was submitted that: (a) there was a significant material inequality of bargaining power between Mrs Elkofairi and the Plaintiff; (b) the mortgage was not the subject of any negotiation; (c) the commercial context of the mortgage were not known to Mrs Elkofairi at the time she signed it; (d) it was reasonably practicable that, had Mrs Elkofairi obtained independent legal advice about the mortgage in its true context that she would not have proceeded with the loan and sought to challenge the St George mortgage; (e) Mrs Elkofairi was not reasonably able to protect her interests; (f) the mortgage, being in writing, was wholly unintelligible to Mrs Elkofairi; (g) the legal and practical effect of the mortgage was not accurately explained to Mrs Elkofairi by any person - including Mr Maley; (h) Mrs Elkofairi did not receive any expert legal or other advice in relation to the mortgage; (i) Mrs Elkofairi had not worked herself since going on the invalid pension in 1996 and (j) at the relevant time she was an invalid pensioner. She was there fore wholly incapable of servicing any loan. It follows that submissions (c), (d), (e), (f), (g) and (h) must fail because of my finding as to the explanation given to the second defendant of the obligations under the subject contract by Mr Maley. 31 Pursuant to s 7(1) of the Contracts Review Act a defendant can obtain relief in an action brought on a loan agreement if that defendant can establish that the agreement was unjust at the time he or she entered into the contract. 32 Section 9 of the Contracts Review Act sets out the factors which the court must take into account in determining whether a contract is unjust in the circumstances relating to the contract at the time it was made. In his work Lender Liability Professor O'Donovan at page 305 made the following observation as to the operation of s 9 of that Act, with which I agree:- "In determining whether a contract is unjust in the circumstances relating to the contract at the time it was made, the court must have regard to the public interest and all the circumstances of the case. One aspect of public policy is that people should honour their contracts. However, the court will inquire whether the terms of the contract are reasonable and whether there was a real and informed choice to enter the contract. A contract will not be set aside simply because it was not in a party's interests to enter into the contract or because a party received no independent advice. Similarly, the fact that a party lacks the capacity to pay is not a sufficient reason for declaring that the contract was unjust. However, a contract can be unjust either because it is the product of procedural unfairness or because it imposes unfair terms. In other words, the Act embraces both procedural and substantive unconscionability. Apart from these general policies, the court is directed by s 9(2) of the Contracts Review Act 1980 (NSW) to a list of matters which it must take into account in determining whether the contract is unjust. Hence, the grounds on which relief can be granted are much wider than the equitable concept of unconscionable conduct." 33 Section 9(2) of the Act sets out a statutory list of specific matters to which the court must pay regard in determining whether the contract is unjust. Section 9(2) is in the following terms:- "9(2) [Specific matters] Without in any way affecting the generality of subsection (1), the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following: (a) whether or not there was any material inequality in bargaining power between the parties to the contract; (b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation; (c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract; (d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract; (e) whether or not: (i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests; or (ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented, because of his or her age or the state of his or her physical or mental capacity; (f) the relative economic circumstances, educational background and literacy of: (i) the parties to the contract (other than a corporation); and (ii) any person who represented any of the parties to the contract; (g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed; (h) whether or not and when independent legal or other expert advise was obtained by the party seeking relief under this Act; (i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect; (j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act: (i) by any other party to the contract; (ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract; or (iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract; (k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party; and (l) the commercial or other setting, purpose and effect of the contract." 34 Since the passage of the Contracts Review Act a number of well established principles have been developed by the courts to determine if a contract is unjust. These include:- (a) a mortgage will not be unjust because it contains, inter alia, normal terms reasonably necessary to protect the legitimate interests of the lender: West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 621-622 per McHugh JA: "It is important to bear in mind that it is the contract or its provisions which must be unjust … If a defendant has not been engaged in conduct depriving the claimant of a real or informed choice to enter into a contract and the terms of the contract are reasonable as between the parties, I do not see how that contract can be considered unjust simply because she had no independent legal advice … under this Act, a contract will not be unjust as against a party unless the contract or one of its provisions is the product of unfair conduct or his part either in the terms which he has imposed or in the means which he has employed to make the contract. In this respect it stands in marked contrast with the provisions of the Industrial Arbitration Act 1940, s 88F, which provides, inter alia, that the Industrial Commission may declare certain types of contract or arrangements void on the ground that they are "unfair"." (One notes that the industrial legislation, unlike the Contracts Review Act, extends to contracts that become unfair over time). In Westpac Banking Corporation v Gordon and Reilly (unrep, SCNSW, 1/4/93) per Sully J (adopting his comments from): "It would not accord, I think, with the legislative will as thus expressed, so as to interpret and apply the provisions of the Act as to make any contract which falls within the theoretical ambit of the Act nothing more than a provisional engagement, the obligations and entitlements under which are entirely, or all but entirely, at large depending upon the view which happens to be taken by a particular Judge or Court in a particular case. …… [T]he present case is one involving a series of normal, commercial transactions between a Bank and a person wishing to borrow money from the Bank. In any such case the law has always imposed upon the Bank an obligation to be honest in its dealings with the intending borrower, and has always granted relief in a case of fraud or misrepresentation or other dishonest conduct on the part of the Bank. No doubt the Act may be understood as expanding the nature and the scope of circumstances in which the law will interfere with a contractual engagement that is on its face regular. But it does not follow, in my opinion, that in such a case the Bank is to be treated as though it were a charitable foundation, a social welfare agency, or a conduit for the provision of legal aid services. To hold otherwise would be, in practical terms, to destabilise normal commercial intercourse, a cardinal component of which is, in the nature of things, certainty as to entitlements and obligations." Conley v Commonwealth Bank of Australia [2000] NSWCA 101 per Heydon JA (with whom Handley and Powell JJA agreed) at [96]:

"The repayment provisions were not unconscionable, harsh or oppressive. They were very burdensome. They were in a sense unreasonable, because of the plaintiff bank's complete discretion in relation to interest levels. They amounted to a hard bargain, because they strongly preferred the interests of the plaintiff bank to those of the defendant. But it cannot be said that they showed no regard for conscience or that they displayed that type of unreasonableness which is harsh or oppressive. That is because the circumstances which might trigger their truly catastrophic consequences as reflected in the outcome of these proceedings, though reasonably foreseeable, were not sufficiently likely to justify that characterisation." (b) material inequality in bargaining power between an institutional lender and an individual will rarely be of significance, as the courts recognise that the terms of contracts of that nature are generally fixed and there is usually little room for negotiation: Commonwealth Bank of Australia v Cohen (unrep, SCNSW, Cole J, 22/7/88). For inequality to have effect, one needs to identify "extreme" inequality, such as in Elders Rural Finance v Smith (1996) 41 NSWLR 296 (in that case Elders were more than a financier and were significantly involved in the evaluation of the business opportunity for which investment funds were sought). The expression was adopted in Mahlo v Westpac Banking Corporation (unrep, NSWSC, Santow J 6/2/98); (c) the scope for prior negotiation, whilst a reason the court may give for the grant of relief, is of no significance if the contract is otherwise fair and reasonable: Commonwealth Bank of Australia v Cohen supra; (d) the court shall not have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the contract was made: s 9(4) of the Act. 35 In the light of my findings of fact as to the explanation given by Mr Maley of the principles involved I am of the view that none of the matters contained in s 9(2) of the Contracts Review Act are applicable here and that accordingly the second defendant's claim based upon s 7 of that Act must fail. 36 Accordingly, I am of the opinion that the matters raised by way of defence and cross claim by the second defendant must fail. The plaintiff is thus entitled to judgment and an order for possession and judgment in the sum of $1,022,450.37 in accordance with the affidavit of Sue Sclater of 30 October 2001 plus costs.

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