Was the contract unjust at the time it was made
93The starting point, of course, is identifying the contract and when it was formed. With respect, to some extent those appearing for Mr Robert Brown in both his capacities focus on the wrong contract at the wrong time by considering the contract of guarantee actually signed by each of the Brown brothers on 24th or 25th September 2006. As I have found this was but a step in putting into effect a contract that had been formed in July 2006, and certainly no later than 4th of August 2006 when Mrs Papantoniou exchanged contracts to purchase the sisters' shares in the property. That is the relevant contract and the relevant time for considering the statutory question. What occurred in September and October culminating in settlement of Mrs Papantoniou's purchase on 5th October 2006 were steps in the implementation of an already formed agreement. Those matters are relevant because they form part of the circumstances of the case as consequences or results arising from compliance with the provisions of the contract, but they are not part of the relevant contract itself.
94The contract is partly evidenced by the acknowledgment of 14th July 2006, but doubtless also partly oral. Its essential terms are:
(a)Mrs Papantoniou would purchase the sisters' shares totally 34 percent, matching, as a proportion, the offer of $470,000 which had been made after the auction;
(b)Robert Brown and James Brown would maintain and continue to hold their respective interests as adjusted pursuant to the settlement;
(c)Mrs Papantoniou would fund her purchase by way of mortgage to which she, James Brown and Robert Brown would be mortgagors;
(d)Robert Brown and James Brown would guarantee her indebtedness (under the mortgage) with the exception of some legal fees to which I will return, neither James Brown nor Robert Brown were to be borrowers, and had no need to borrow to acquire their respective shares in the property. That their promise to guarantee Mrs Papantoniou's indebtedness was a term of the contract was obvious from Mrs Papantoniou's evidence that she advised Robert Brown and James Brown of the effect of a mortgage and guarantee, and did not require them to obtain independent legal or financial advice;
(e)It was a feature of the contract that Mrs Papantoniou would have no exposure to any risk of the objects of the contract failing because her substantial personal assets (she had a net worth of $2.3m) would not be in any way put forward. Apart from paying the interest running on the monies she borrowed it was not possible for her to make any actual loss, over and above her acquired share, because she borrowed every dollar that she expended in implementing the contract right down to the 10 percent deposit and the interest payable for the agreed term of the mortgage of 12 months;
(f)It was a feature of the agreement that Mrs Papantoniou would be protected from the risk of loss by the consideration that the security of the property was more than adequate to cover her indebtedness, and the personal guarantees provided by James Brown and Robert Brown would provide another layer of security for the lender.
95The purpose of the contract, as found by me, was to enhance the value of the property by holding it until an application for the development of the site by the erection of townhouses or home units was approved by the local government council. When this primary objective was achieved a decision would be made about whether to sell then at an enhanced value because of the development approval, or proceed, as a secondary objective to undertake the development to make a greater profit by selling the individual townhouses or units. That the secondary objective was in contemplation from the outset can be inferred from the evidence of Robert Brown, and also from the type of financial advice that Ms Griffin gave to the brothers on 7th September 2014. She discussed in some detail the nature of the project, the likely costs and the hope for profit. This information could only have come from Mrs Papantoniou. I reject her evidence that she was never interested in undertaking the development and that she was only concerned with putting a roof over the head of James Brown. According to Mr Singh's evidence, which I accept in this regard, Mrs Papantoniou secured the signature of James Brown on a further development application and agency agreement just before his death. By then she had doubtless abandoned the second objective. Time had run out on the mortgage. But I find she still hoped to make a profit.
96As I have said before, human motivations are likely to be complex, moreover a profit motive is not a bad thing. It is not the profit motive of Mrs Papantoniou, or of James Brown and Robert Brown for that matter, which is unjust. But the objectives of each of the parties is relevant to the question of injustice.
97Adapting the language of McHugh J from West the provisions of the contract which, as a practical matter, imposed the whole of the risk of financial failure on the Brown brothers was unjust because it imposed an unreasonable burden on them which was not reasonably necessary for the protection of the legitimate interests of Mrs Papantoniou. She was better placed than any of them to bear the risk of the financial failure of the project. Yet she sought to quarantine her assets and personal wealth from it.
98The contract was also unjust because in the circumstances in which it was formed, the Brown brothers did not have the capacity or opportunity to make an informed or real choice as to whether each of them should enter into the contract.
99It is this "combination of the operation of the contract and the manner in which it was made" that renders the provisions imposing that part of the financial risk that should have been borne by Mrs Papantoniou upon James Brown and Robert Brown unjust in all the circumstances of the case.
100In reaching this conclusion I have had regard to the matters referred to in s 9(2) so far as they are relevant to this case. I am satisfied that there was material inequality in bargaining power between Mrs Papantoniou on the one hand, and James Brown and Robert Brown on the other. In particular in relation to James Brown, he was extremely vulnerable. Not only was he a client whose rights Mrs Papantoniou was professionally bound to protect, but she knew that he depended upon her for "protection" beyond the scope of the ordinary confidential relationship of solicitor and client, on the basis of the findings I have made above. Robert Brown was not entirely in the same category. However, he was a relatively unsophisticated, ordinary working member of the community. He had modest means and modest assets, especially when compared to Mrs Papantoniou. In many ways, although like the others he was happy to contemplate the possibility of a profit, his interest would have been better served, like his sisters, by insisting upon a sale. I find he acted mostly out of concern for his brother. He was also an unrepresented litigant in the family provision litigation. From this Mrs Papantoniou knew he had had no legal advice. She appreciated that he trusted her.
101Mrs Papantoniou, as a legal professional did not refer her own client for legal and financial advice about the venture before entering into the contract. She may have had no ethical obligation towards Robert Brown, but it must have been obvious to her that at some stage the lender would require that each of them receive independent advice. The time for that to be done was before the contract was entered into and they all became committed, not just to each other, but also to the sisters, in the first instance, and then to the lender on settlement.
102There was no real opportunity for negotiation on the part of Robert Brown and James Brown. James' relied upon Mrs Papantoniou. More generally, I have accepted that the venture was her idea; that she first suggested it to the brothers on the day of the auction; and that she followed it up with them over several days until 14th July 2006. In fact, from the authority of 12th July 2006 and the acknowledgment of 14th July 2006, I infer that she obtained their commitment to the proposal before committing herself. This is why the authority refers to them holding their interests at least up until an offer of $500,000 might be forthcoming and why she is identified only as an interested party. Similarly with the acknowledgment, James Brown and Robert Brown appear to commit themselves to the idea that if Mrs Papantoniou commits herself, her participation will be funded entirely by a mortgage against the property.
103Once the interests of other persons became involved, like the sisters and the mortgagee, it was not reasonably practicable for James Brown and Robert Brown to renegotiate or to reject any of the provisions of the contract. As I have found, by the time the contract for the sale of the sisters' interest to Mrs Papantoniou was exchanged on 4th August 2006, they were committed. In reality, they were in no position to reject any of the documents explained to them by Ms Griffin. It was already too late for that then.
104I have found this already, but I record that I have been influenced by the provisions of s 9(2)(d). The provisions of the contract making James Brown and Robert Brown personally liable for any default of Mrs Papantoniou in respect of her borrowings was entirely unnecessary, given her assets and personal wealth, for the protection of her legitimate interests.
105I have made findings of the nature of the relationship between James Brown and Mrs Papantoniou. Given that relationship of dependency, James Brown was not reasonably able to protect his own interests, and he was not afforded the opportunity of legal or financial advice at the relevant time, independent of Mrs Papantoniou, Robert Brown's position was similar, but not the same. He trusted Mrs Papantoniou, and became a de facto client of hers in as much as she gave him, at least legal advice in relation to the proposed mortgage and guarantees. He was not equal to her. He considered her "smart", wealthy and an honourable person who would "pay her mortgage". It is also a factor that the relative economic circumstances, and educational background of James Brown and Robert Brown on the one hand, and Mrs Papantoniou on the other, were uneven to the disadvantage of each of the Brown brothers.
106I have referred repeatedly to the absence advice of a legal and financial type. I should interpolate that during the course of the Trial some criticism was levelled at Ms Griffin. Her competence to advise about the relatively complex language of the guarantee was impugned and her independence was questioned. The latter on the basis of her prior relationship with Mrs Papantoniou. I have already found that, in any event, the involvement of Ms Griffin came too late. And it seems to me that her involvement neither lessens nor increases the injustice of the contract. I should say, however, that she struck me as a reasonable suburban solicitor of ordinary competence. I am of the view that she did her work conscientiously on behalf of James Brown and Robert Brown. Whether she had a thorough expertise in the law of guarantee is not to the point. The advice she gave was essentially accurate about the risk that signing the guarantee involved.
107Although I accept that Mrs Papantoniou gave some advice to each of the brothers about the legal effect of the mortgage and the legal effect of the guarantee, the actual content of that advice prior to the formation of the contract is not in evidence. It certainly does not appear from Robert Brown's evidence that he had the expectation that she would not pay her debts, or that he had any real appreciation of the risk that she would default. I infer her advice was inadequate.
108From what I have said already about the nature of the relationship between James Brown and Mrs Papantoniou, there is a flavour of a degree of undue influence of her over him. He was extremely vulnerable. I accept that she was well motivated towards him, but that is not the point. Her dominant purpose was to make a profit from the development without personal risk.
109The essential injustice here, is that Robert Brown and James Brown were put in a position where they could well be left "holding the can" for Mrs Papantoniou's debt if she defaulted and chose not to remedy her default. That is in fact what happened here. This was a reasonably foreseeable result at the time the contract was made. Indeed, the contract was structured so that if things went "pear-shaped", as they did, Mrs Papantoniou would be largely unaffected. I accept that after she defaulted by failing to repay the principal at the end of the extended term, she continued to pay by way of direct debit the normal interest rate, but not the higher rate due on her default. But in substance that does not ameliorate the general feeling of injustice I have formed from my findings of primary fact.
110I also accept that had James Brown and Robert Brown received independent advice prior to entering into the contract with Mrs Papantoniou, they may well have been advised that any lender is very likely to require any mortgage over the property to be granted by all tenants in common and not just the borrower. The advice may well have been that at a practical level this was unavoidable. Moreover, they may also have been advised that in circumstances where a loan is advanced to one of three tenants in common, the lender very likely would seek a guarantee of the obligations of the borrower from the others. Again, to some extent at a practical level such an arrangement may have been difficult to avoid.
111Moreover, independent financial advice may well have been to the effect that the contract as proposed prior to its formation had obviously foreseeable consequences, should Mrs Papantoniou default for any reason. The vagaries of the development game may also have been pointed out including the uncertainty of a profit being realised.
112Had advice of this nature been provided, it might also have been pointed out to Robert Brown that he may have been able to achieve his dominant objective of looking after his brother by himself acquiring his sisters' share by selling McGraths Hill. Had he received the proper advice at the time, I infer he would have accepted it. Subsequent events demonstrate that he would have been in a position to proceed in this way.
113The finding that the contract was unjust that I have made is enhanced by the consideration that it is most unfair that a disability support pensioner with health and substance abuse issues, and an ordinary working member of the community, should underwrite the liabilities of a successful professional.
114I find that the contract unjust in the provisions which required James Brown and Robert Brown to bear the risk that Mrs Papantoniou would default on her obligations on the loan she borrowed.