Q. Did you understand that all or most people who lend money want to be repaid?
A. Maybe I didn't know - understand a hundred percent. Because they did not explain to me that its very dangerous.
73 Other evidence concerning the Defendant to which it is appropriate to refer is the following. She was born in January 1963 in Serbia. In 1984 she received a Diploma of Education and in 1990 a Master of Arts. In Serbia her main source of income was derived from both teaching to paint and painting icons in Bosnian churches. In 1996 she, her son and second husband, from whom she then separated, migrated to Australia. She said, and I accept, that she could not write or read English. The one with which I am concerned is the only mortgage into which the Defendant has entered.
74 At the time of entering into the Mortgage, and at the time of trial, the Defendant was renting an apartment owned by the Housing Department. Her income consisted merely of a Centrelink pension and she did not receive any rental assistance. To her knowledge the only outstanding liability she held at this time was $700.00 in outstanding Council rates.
75 There was a tenant in the unit at the time the Defendant acquired it and, in light of Mr Novakovic's advice that she could not afford to move into the unit, the Defendant allowed the tenant to stay. When the Defendant first received rent from the unit it was $185 per week of which the estate agent took $15. She has also had to spend monies on strata and other levies and rates. Over the intervening period there has been a time when the unit was unoccupied. She said that about 5 years ago she received some advice about the taxation authorities paying for repairs to the unit, went to see a taxation agent in Liverpool, and he advised her that because she was a pensioner and had to spend half of her pension on her mortgage, she did not need to file a return. She said that in fact since coming to Australia, she had never completed or filed a tax return and never had a tax agent do so on her behalf.
76 In a report clearly obtained for other purposes and dated 6 May 2002, Dr Shand, a psychiatrist, opined that the Defendant was suffering from schizophrenia of the paranoid type and considered her totally unfit for work of any kind on the open market. In evidence he gave in these proceedings, Dr Shand said that it was likely that the Defendant continued to suffer from chronic schizophrenia when she entered into the mortgage on 24 January 2003.
77 In his report, Dr Shand referred to a large number of symptoms that the Defendant had described to him but which it is unnecessary to detail. Some were indicative of a lack of motivation and therefore depression. In cross-examination Dr Shand agreed that that taking by the Defendant of active and significant steps towards purchasing a house, might indicate that at the time she wasn't "suffering so badly from depression or the psychosis, whatever it may be".
78 Dr Shand's report makes it clear that the Defendant seems to have had substantial psychiatric consultation or treatment since 1996.
79 Other evidence on the Plaintiff's side of the record was provided by a Mr Skwarek, a director of Howard Pacific. In 2002 he was the Account Manager managing accounts referred to Howard Pacific by Anagold, a company he conceded was connected to Master Tax Services. He said that although Anagold and Howard Pacific did business together, they were completely unrelated. It was not the practice of Howard Pacific to amend in any way documents forwarded by Anagold and if the documents were incomplete or needed further information Howard Pacific would, as a general practice, notify Anagold so they could liaise with their client and supply additional information.
80 Mr Skwarek said it was the practice of Howard Pacific in relation to loan applications it forwarded to Challenger to verify details provided by a client either directly or through someone such as another broker. Mr Skwarek said that, by way of example, to verify self-employment details and tax returns an employee of Howard Pacific would contact the accountant who prepared the tax returns provided in support of an application. According to Mr Skwarek Howard Pacific had never knowingly forwarded loan applications and documents to Challenger where the veracity of information was questionable.
81 Mr Skwarek annexed to his affidavit an Accountant Verification form completed by one of Howard Pacific Finance's employees Kylie Smith and which he said was forwarded to Challenger in support of the Plaintiff's loan application. The Verification form was dated 5/12/02, contained the Plaintiff's surname, said that the following self employment details were confirmed for the above borrower, named as "Contact" Anastasia Sourlas, described her as "Accountant", recorded what was apparently her phone number, and the response "Yes" in a typed line that read, "Verification of preparation of Taxation Return for above client". Ms Smith was Mr Skwarek's assistant at the time and she was the person who processed the Plaintiff's loan application.
82 Another document also apparently prepared by Ms Smith and dated 2/12/2002 was entitled "SEND TO LENDER" and stated its purpose as "To assist the lender with settlement please complete the following information." The document recorded a number of matters including fees paid or payable to the valuer, Howard Pacific and First Title, purported to confirm that a number of things had been done, said that the borrower had not contacted Howard Pacific directly but been referred by Master Tax Service and certified, inter alia:-
a. "We have made full and complete enquiries in relation to this loan application …
c. The authenticity of all the information and documentation supporting this loan application has been independently verified by us …
e. We have made full and complete enquiries to satisfy ourselves that:
i. All of the borrowers clearly have a good command of the English language;
f. All of the information given by us in relation to this loan application is true in all material aspects …
83 On the same day a further document was generated, it appears within Challenger. It is contained in Exhibit 1 and entitled "Interstar Decision". It refers to an Application Summary generated by Kylie Smith, and records some 12 "Underwriting Decisions". Included in the details of those decisions was the following:-
68 Please obtain document verification for the genuine equity item "Long Term Savings $42,000". If this is not possible forward application for manual review.
6 Ms Slavica Bodiroza - No third party mortgage issues - applicant's ability to commit transaction is within guidelines
3 Sufficient documentation has been sighted to verify income amounts for Mrs Slavica B…
51 Satisfactory Individual Credit Report ahs been obtained …
84 Mr Wort who, as I have said, was a senior employee of Challenger said that in the case of a self employed applicant applying for a loan of the nature of that applied for by the Defendant, the loan originator was required to submit taxation returns for the two preceding financial years in order to confirm evidence of income of a potential borrower and to research and verify employment information. The tax returns would be relied upon by Challenger.
85 Evidence as to the Plaintiff's knowledge of the Defendant's financial circumstances at the time of the making of the loan was provided by Mr Merceica who the recoveries manager of Challenger Mortgage Management Pty Ltd. He said that this consisted of:-
(i) The information provided in the initial loan application.
(ii) The 2001 and 2002 tax returns; and
(iii) The information provided in the "Applicant's Financial Summary"
86 He said also that at the time of approving and entering into the Loan Agreement and Mortgage the Plaintiff was unaware that the Defendant was on any Centrelink benefits, had no reason to believe the tax returns were not authentic and accurate and that the Plaintiff was unaware of any language difficulties or mental incapacity suffered by the Defendant.
87 Except if and insofar as Howard Pacific's knowledge may be imputed to Challenger, I accept this evidence.
88 I should make further reference to the lengthy "Mortgage Management" and "Loan Origination and Mortgage" Agreements between Challenger and Howard Pacific that came into evidence. They were annexed to an affidavit of Mr Wort and there was also a 147 page "Interstar Guidelines Manual" that recites it had been prepared to assist (Loan Originators) with the origination of mortgage loans for the Interstar program. The Manual required that originators strictly adhere to and comply with their obligations under the Manual. Mr Rogers, Counsel for the Plaintiff conceded at one stage that Howard Pacific Finance was a mortgage manager for the Plaintiff.
89 The first of these, and which was current at the time the loan to the Plaintiff was made, provided that Howard Pacific could provide a submission to Interstar. If Interstar was prepared to arrange for the Plaintiff to advance money on a mortgage referred to in a submission, it would then provide to Howard Pacific an Offer and Acceptance Notice. Howard Pacific would manage and service the mortgage. There was provision for Interstar to pay Howard Pacific a fee for performing its obligations under the agreement and for Interstar to require Howard Pacific to pay to the Plaintiff losses arising from any Approved Mortgage. The document provided that "nothing herein contained shall be deemed or construed by the parties hereto of by any other person creating the relationship of partnership or of principal and agent".
90 The second document was along broadly similar lines although it came into force only in January 2004
91 I turn to the issues that arise for decision. A convenient starting point is the question of whether all of the signatures purporting to be those of the Defendant are hers. In the case of the documents I have numbered (ii), (iii), (iv) and (v), all dated 25 November 2002, I am satisfied they are not. I have said enough to indicate that, the Defendant's evidence, at least considered in isolation, is entitled to little if any weight in this connection. However, her evidence does derive support from Mr Vlasic and also, in my view, from a comparison with her purported signatures of those documents and on others such as the mortgage and those witnessed by Mr Miljevic. It is unnecessary for present purposes to attempt to describe all of the differences in signature I perceive but prominent differences lie in the fact that in the documents of 25 November, the "S" of Slavica takes a form similar to a complete "8", the "l" in that name contains no loop, and the "i" is not dotted (or missing); in Bodiroza, the tail or end of the "B" returns to overlap the bottom of the upright in that letter and the dotting of the "i" has been omitted or placed very much to the right. The Defendant's signatures on the mortgage, acceptance of the offer, and Borrowers Acknowledgment, all apparently signed on 20 December 2002 and/or witnessed by Mr Miljevic, and her affidavits do not have these features. Again I acknowledge that it would have been better if I had all originals for the purposes of comparison but the differences are sufficiently clear for me to rely on them.
92 Other features of the documentation tend in the same direction. Living as the Plaintiff has near Liverpool, it is unlikely that she would employ a Tax Agent south of Wollongong. Apparently without a driving licence or vehicle, it is unlikely that she would have incurred the motor vehicle expenses recorded on the tax return. Furthermore, my observation of the Plaintiff and the evidence concerning her medical condition argue - persuasively, not conclusively - against her having the success as a dressmaker that the copy tax returns suggest.
93 The Plaintiff's command of English can at best be described as very poor. Kylie Smith's recording on Exhibit 4 that she had made full and complete enquiries to satisfy Howard Pacific that the Plaintiff had a good command of the English language also indicates that someone acting to further the Defendant's application to the Plaintiff for loan funds was quite prepared to lie in the course of that pursuit. On that topic the "someone" cannot have been the Plaintiff.
94 On the other hand, I am satisfied that the signatures purporting to be those of the Defendant appearing on the mortgage, acceptance of the offer, and Borrowers Acknowledgment, all apparently signed on 20 December 2002 and/or witnessed by Mr Miljevic, and those appearing on the Applicant's Financial Summary and Direct Debit Request of the same date are genuine signatures of hers. I accept what Mr Miljevic had to say in this regard but quite independently, the inherent likelihood of the situation where conveyancing documents are sent to solicitors for signature and then returned argues for the signatures on those documents being genuine. The signatures also do not display the features that argued for the earlier documents being forged.
95 The signature purporting to be that of the Defendant appearing on the document of 26 November 2002 that I have numbered (xi) does not display all of the features that have led me to conclude that those on documents dated 25 November are not those of the Defendant and the issue is not made any easier to resolve by the poor quality of the photocopy. However the "S" contains the same features and the similarity between the handwritten printing of the Defendant's name on the documents of 25 and 26 November leads me to the view that they were probably done by the same hand and that the signature on that last mentioned document is also not that of the Defendant.
96 There are further features of the transaction and its documentation that seem out of the ordinary. Because Mr Vlasic was not asked questions on the topic, I should not take this aspect too far but there is no apparent and legitimate reason why he sent documents to Anagold rather than directly to Howard Pacific. With similar hesitancy, because of the absence of specific allegation in the Defence (although it is asserted that the Plaintiff knew or should have known that the Defendant's income was but Centrelink payments), I am also satisfied that the Tax Returns were not genuine returns of the Plaintiff and in all probability were prepared by Anagold's associate, Master Tax Services. Given that the Defendant's application to Howard Pacific came to that organisation from Anagold or Master Tax Services and Anastasia Sourlas' role in those organisations, Kylie Smith's "Accountant Verification" from the same source cannot be described as other than dissembling. As she seems to have made no enquiries of anyone else at that time, her statements in the "SEND TO LENDER" document of having made "full and complete enquiries" in relation to the loan application, to satisfy Howard Pacific that "All of the borrowers clearly have a good command of the English language" and that "the authenticity of all the information and documentation supporting this loan application has been independently verified by us" were wrong and must have been known to be wrong.
97 During the course of his address, counsel for the Plaintiff submitted that if there was any falsification of documents it occurred at Master Tax Services. I think a more correct account of events is that Mr Vlasic, Master Tax Services and Kylie Smith so arranged and documented events that the loan was approved when it otherwise would not have been.
98 In her affidavit of 25 October, the Defendant asserted that prior to entering into the mortgage no independent legal advice was provided to her as to the legal rights and obligations arising under it. Although Mr Miljevic provided an affidavit to the Plaintiff's solicitors and was called by the Plaintiff's counsel he was not asked whether he had given the Defendant any explanation as to the effect of the documents and gave no evidence that he had. On behalf of the Defendant attention was drawn to the fact that the account from Stoikovich Banfield Macri was for acting on the purchase of the unit the Defendant bought and contained no reference to acting on the mortgage. I have already adverted to the fact that Mr Miljevic was not asked and gave no evidence to suggest that he gave advice to the Defendant.
99 However, the 18 December 2002 Stoikovic Banfield Macri file note of an appointment for the Defendant on 20 December 2002 and the more detailed notes that appear to refer to what happened in such a meeting argue strongly for the Defendant's solicitors having given her some explanation of the documents. So do the inherent probabilities of the situation. On the other hand, it is proper to note the limited topics referred to in those detailed notes. Though there is a reference to "6.45", (the interest rate), default provisions and some other matters there is no reference indicative of any consideration of the Defendant's capacity to afford the mortgage payments. That is perhaps not surprising given that contracts for the purchase of the property had by that time been exchanged (on 11 December) and the logical time for any consideration of the Defendant's capacity to pay was prior to that.
100 Even if the Defendant never saw the documents copies of which were included in the 29 page fax of 2 December 2002, in combination the group of documents signed by the Defendant and included within those returned by Stoikovich Banfield Macri make very clear the substance of the transaction into which the Defendant was entering and her financial situation as represented to the Plaintiff. It is difficult to believe that she simply signed the documents without bothering to find out, and without being given some account of, the substance of them.
101 On the other hand, at face value the transaction into which the Defendant entered was so obviously an improvident one that it is hard to believe she entered into it with knowledge in the sense of appreciation of what was involved. If she did not lease the unit to others, she had to find $860 per month for interest payments and other monies for body corporate fees and rates and, of course, something for other living expenses. Her only income was the disability pension. Leasing the unit of course provided another $730 (4.33 x $170) a month but that still left a difference between rent (when received) and $860 interest payments of $130 per month and there were still rates and body corporate fees to pay.
102 I am inspired by these figures to consider again whether the Defendant's actual or anticipated income may have been higher than simply the pension, either because she had some other source of income, whether as a dress-maker or otherwise, or anticipated that her son who by the time of her affidavit of October 2007 was receiving another $230 every 2 weeks from the Department of Social Security may have made some contribution. However, in the end I am satisfied that the evidence provides no basis for such possibilities.
103 Furthermore, I am not persuaded that the financial impossibility into which the Defendant was entering was pointed out to her. Certainly, she conceded that Mr Novakovich told her that she would have to rent the unit, but there is nothing to indicate that he had the knowledge that I do that even that course would not be sufficient. There is no evidence that Mr Miljevic had any cause to doubt the figures in the documents that he received and hence to embark upon an exercise similar to that which I have done though I do think it likely that he would have pointed out to the Defendant what her monthly payments to the Plaintiff would be.
104 (I should add to the above remarks that the evidence does not reveal what the "subsidy" or "contribute" - possibly "contributions" - referred to towards the end of the Stoikovich, Banfield Macri handwritten note may have been. Although the Defendant denied that she was receipt of it, one possibility is a rental subsidy sometimes paid by the Social Services Department to those pensioners who pay rent and which would presumably be lost if the Defendant moved into the unit. However, whatever the references may have been, I am satisfied that they do not affect the general picture I have referred to.)
105 In the result, and despite her signature to documents that should have made the situation clear to her, I think the probability is that the Defendant did not know, in the sense of appreciate, the extent of the transaction she was entering into. On the other hand, I have no doubt that she knew she was borrowing money, obliged to pay interest, giving a mortgage and that the interest rate might change if she did not pay her interest on time. I have no doubt she must have known that the lender had additional rights against the property if she defaulted. In that connection, it is to be noted that in her affidavit of 25 October 2007, while the Defendant mentioned the word "mortgage" on many occasions, nowhere did she say that she did not understand the meaning of that term.
106 Against this background I turn to the legal bases upon which the Defendant relies. Section 7 of the Contracts Review Act empowers the Court to do a variety of things if it "finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made". The conclusion at which I have arrived is that the contract was unjust. It was unjust because of the combination of the following reasons or factors.
107 One was the contract's improvidence to the Defendant and the fact that she was undertaking a liability she could not, as a practical matter, meet and that the effect of not meeting her liability was likely, indeed virtually certain, to deprive her of virtually her only asset, the $42,000 or so she was employing in the purchase of the unit.
108 A second was that the Defendant was not able to protect her own interests. I draw that inference because, despite the opportunity the Defendant had to avoid entering into the contract and to appreciate the consequences of doing so, and to recognise the errors in some of the documents she was signing, she went ahead. For want of some other obvious cause, it seems likely that the Defendant's inability was at least partly due to her inability to read English and to the fact that she has mental health issues.
109 In that latter connection I should record also my impression that, despite her academic qualifications, the Defendant is not particularly intelligent. While I regard some of her answers, for example those to questions from me that I have quoted, as dissembling, her answers on other topics such as the number of documents signed and signatures imposed in front of Mr Miljevic, were so extraordinarily inconsistent even when close together, that I do not regard her thinking or understanding as normal.
110 I should add that I incline to the view that my conclusion about the Defendant's inability to protect her own interests falls within the expression "reasonably able" in s9(2)(e) though I do not regard this further element as critical to my overall view concerning the unjustness of the contract.
111 A third factor was that the Defendant seems to have had no expert advice to the effect she could not afford the mortgage (and purchase of the property mortgaged). Put another way in deference to the terms of s9(2)(i) of the Contracts Review Act, the practical effect of the mortgage was not explained to her, or at least not explained adequately. In so concluding I do not ignore the evidence to the effect that Mr Novakovich told the Defendant she could not afford to live in the unit but the truth of the matter is that she could not afford it at all.
112 A fourth lies in the forgery and falsity of the documents that were prepared in order to induce Challenger and the Plaintiff to agree to make the loan to the Defendant. I do not ignore the fact that the Defendant had the opportunity to correct at least some of the misrepresentations that were made and the likelihood that Challenger's desire for information of the nature of that which was falsified was primarily to protect Challenger and the Plaintiff. However, information of that nature is also calculated to protect potential borrowers and the Defendant was deprived of that protection.
113 A fifth lies in the misrepresentations made by Kylie Smith of Howard Pacific in the "Accountant Verification" document (Table (xxi)) and in Exhibit 4 (Table (xvii)). Remarks made in the immediately preceding paragraph apply to these documents also.
114 I am of course conscious that many of the matters to which I have referred do not fall within the precise terms of s9(2) of the Contracts Review Act. However, the matters there stated are not definitive and exhaustive of the matters to be taken into account and the matters to which I have referred may usefully be compared with the reference to consequences in s9(1) and to paragraphs (e), (h), and (i) of s9(2).
115 I also recognise that there are a number of matters referred to in s9(2) that either do not argue for a finding of unfairness or indeed argue in the opposite direction. Factually, the circumstances contemplated in paragraphs (a) to (d) existed but I do not regard them as relevant in this case. The sheer volume of the contract argues against the Defendant comprehending most of its terms and it is difficult to see that anything like its volume was reasonably necessary for the Plaintiff's protection. Again however, I do not regard that fact or the terms of paragraph (g) as significant in this case. I incline to the view that Howard Pacific, the actions of whose employee Kylie Smith contribute to my conclusion of unfairness, appeared to be acting on behalf of the Plaintiff. I do not see any of the matters referred to in paragraphs (k) and (l) as relevant here.
116 One matter that is of relevance is the public interest in holding parties to their contracts freely entered into. Another is that the Plaintiff itself has not been guilty of any conduct that could be characterised as unfair or misleading. Indeed, its form of Loan Offer and Acceptance and the Borrower's Acknowledgment were calculated to fully inform the Defendant that she was undertaking a significant liability and of the importance of obtaining legal advice.
117 It is appropriate to say something more about the apparent relationship between the Plaintiff and Howard Pacific. Clearly, the Plaintiff has sought to establish a method of operation whereby it is brought into contact with, and ultimately contracts with, borrowers who, individually, will be in widely different circumstances. To further its interests in that regard it entered into an arrangement with Howard Pacific, and no doubt others, to make or receive contact with such borrowers, and to remunerate Howard Pacific for its efforts. No doubt Howard Pacific was acting in its own interests in the transaction and also, at least in some respects, in the interests of the Defendant. However it was also acting in the Plaintiff's interest and although it was not the Plaintiff's agent, it does not seem to me that one should regard as entirely irrelevant to the concept of unjustness in the contract, the relationship between Howard Pacific and the Plaintiff. Though not master and servant, in effect the Plaintiff was employing Howard Pacific to do the sorts of things that the Plaintiff would have otherwise to do itself if it wanted to make a business of lending money.
118 The conclusion at which I have arrived does not mean that the Court must grant relief. Section 7 of the Act provides that where a court finds a contract or a provision of a contract to have been unjust … it may interfere.
119 The parties agreed that, if I decided that the contract was unfair, my final decision should await the provision of further evidence relating to events, particularly receipt of rent and payments by the Defendant since this matter was heard. However, counsel for the Defendant made it clear that the relief she was seeking was:-
(i) That the Plaintiff's application for possession not be granted;