Perpetual Trustees Victoria Ltd v Kirkbride & anor

LEGISLATION CITED : Contracts Review Act 1980 Real Property Act 1900

Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413; (2003) Aust Contract Reports Garcia v National Australia Bank (1998) 194 CLR 395 Kowalczuk v Accom Finance [2008] NSWCA 343 Perpetual Trustee Company Limited v Albert and Rose Khoshaba [2006] NSWCA 41 CASES CITED : Riz v Perpetual Trustee Australia Ltd [2007] NSWCS 1153 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd 219 CLR 165; [2004] HCA 52 West v AGC Advances Limited (1986) 5 NSWLR 610 Wilton v Farnworth [1948] HCA 20; (1949) 76 CLR 646 Yerkey v Jones (1939) 63 CLR 649

TEXTS CITED : (2003) Aust Contract Reports The Essential Guide to Mortgage Law in New South Wales, Bransgrove M, Young M, LexisNexis Butterworths, 2008

PARTIES : Perpetual Trustees Victoria Limited (Plaintiff) Robert Kirkbride and Silvia Fabiana Rodao-Kirkbride (Defendants)

COUNSEL : Ms L Young for the Plaintiff Mr D Loewenstein for the second Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

15188/06 Perpetual Trustees Victoria Limited v Robert Kirkbride and Silvia Fabiana Rodao-Kirkbride

JUDGMENT 1 HIS HONOUR: The plaintiff seeks relief against the two defendants by way of an order for possession of three properties the subject of a mortgage. The first defendant has played no active part in the proceedings and judgment was sought against him upon the close of the plaintiff's case. The second defendant has filed a defence and has cross claimed against the plaintiff seeking an order pursuant to s 7 of the Contracts Review Act 1980 declaring the mortgage void.

2 The plaintiff's case was not in dispute. I am satisfied of the following facts.

3 The defendants are the registered proprietors of the whole of the land contained in certificate of title folio identifiers 72/248474, 31/SP74800 and 32/SP74800, being the properties known as 8 Crest Road, Albion Park, 31/188 South Parade, Auburn and 32/188 South Parade, Auburn respectively. On 11 July 2005 the defendants entered into a loan agreement with the plaintiff whereby there were three loan facilities with a total principal sum of $980,000. Monthly repayments were to be made over a period of slightly in excess of 29 years. The loan was to be secured by a first registered mortgage on the three properties. The mortgage was allocated dealing number AB634681 and was registered on the titles of the properties.

4 By a statement of claim filed on 25 October 2006 the plaintiff sought an order for possession of the properties, which was founded on the claim that the defendants had defaulted on their obligation to repay the moneys secured by the mortgage.

5 Monthly payments in respect of the three facilities totalling $6,116.32 were required. The defendants failed to make a payment that was due on 15 March 2006. There was also a failure to make a payment of $2,888.96 in respect of one of the facilities on 15 July 2006. Notices pursuant to s 57(2)(b) of the Real Property Act 1900 were issued to the defendants on 15 August 2006. The total amount due was $9483.78 (including enforcement expenses). The account balance was $1,005,633.47.

6 The defendants failed to rectify the default. This enlivened the plaintiff's power under the mortgage, inter alia, to enter and take possession of the properties. Apart from some payments that were dishonoured there have been no further payments made to the plaintiff since the acts of default.

7 I am satisfied that judgment should be entered against the first defendant.

8 The cross claim of the second defendant relies upon a number of features which she asserts attended the execution of the mortgage. The cumulative effect of these features was said to establish that it was an unjust contract in the circumstances relating to it at the time it was made giving rise to this Court having the discretion to provide relief for the purpose of avoiding an unjust consequence: s 7 of the Contracts Review Act ("the Act"). In the cross claim itself what was sought was simply a declaration that the contract is void but during the course of the hearing that was refined to a submission that I should make orders that would permit the second defendant to obtain some share of the proceeds of the sale of the home that she now accepts is inevitable.

9 I do not intend to embark upon an essay on the jurisprudence that has developed around the Act. I am grateful to counsel for the many references to relevant authority. I record that I have had regard to them, particularly statements of principle and the authorities referred to in Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413; (2003) Aust Contract Reports 90-157; Perpetual Trustee Company Limited v Albert and Rose Khoshaba [2006] NSWCA 41; and Kowalczuk v Accom Finance [2008] NSWCA 343.

10 The approach to a matter such as this has been identified as to first make primary findings of fact where the facts are disputed, then to make an evaluative judgment as to whether the contract was unjust, and, if so, to consider the discretion as to the granting of relief: see Khoshaba, for example at [99].

11 Ms Young, counsel for the plaintiff, submitted, correctly in my view, that the second defendant, Mrs Rodao-Kirkbride, has the burden of establishing that the taking of the loan was improvident and, if so, then she must show that the plaintiff either knew of the improvident circumstances, or was put on notice of them, or was content to lend on the value of the asset and was thus recklessly indifferent to the existence of the improvident circumstances: see Khoshaba at [41]; Elkofairi at [53] and [79]; The Essential Guide to Mortgage Law in New South Wales, Bransgrove M, Young M, LexisNexis Butterowrths, 2008, at [11.15], the latter appearing to be the source of the submission.

12 Mrs Rodao-Kirkbride's case was that her husband conducted all financial dealings in the course of their marriage. She claimed to be a woman of limited education and intellectual capacity. She was, however, educated to Year 10 and obtained the School Certificate. She then had employment in a factory and in the catering section of the railways department until she was married and had her first child at the age of 22. She was divorced from her first husband in 1998 and married the first defendant in 1999. She has four children, now aged about 20, 18, 9 and 6.

13 Mrs Rodao-Kirkbride claimed that she deferred to her husband in relation to all business and financial matters. He operated a transport business. They had a joint bank account but she never used it. He paid most of the bills. She said she did not own a credit card until 2007. When they were first married they jointly purchased a home at Balarang. In 2001 they sold that home and purchased the house at Albion Park where she has lived since. It was first subject to a mortgage to IMB Limited. She recalled seeing solicitors in connection with the purchase but claimed that her husband organised everything.

14 Mrs Rodao-Kirkbride asserted in her first affidavit that she had never had any investments. She did, however, agree in cross-examination that she and her husband had purchased an investment property at Kimbeth Crescent, Albion Park that was sold in 2003. She claimed that her husband made all the arrangements for that purchase and subsequent sale. In addition to the claim in that affidavit that she had not owned a credit card until after she and her husband separated, she also said in her evidence that she had not had any ATM cards enabling her to access any bank account of her husband. Statements for an account Mr Kirkbride held with St George Bank Limited show a number of EFTPOS purchases at supermarkets and the like. Mrs Kirkbride generally did the grocery shopping but denied that she had made EFTPOS purchases. She said she did the shopping only with cash that her husband gave her. Entries on the statement for 22 September 2005 show transactions at 10.19am and 10.30am at Blooms the Chemist and Tandy at Shellharbour. It also shows transactions at 9.54am and 10.01am at Ingleburn. Mrs Rodao-Kirkbride denied involvement in any of those transactions. It is impossible, however, for her husband to have made those transactions at Shellharbour and Ingleburn within that short span of time.

15 Mrs Rodao-Kirkbride said that in about June 2005 her husband announced that he had "bought two units" and that "someone from the real estate is coming for you to sign some papers". She asked him where they were and how much they cost. He replied, "Auburn. The people at Park Trent, Ron Cross, said I won't lose money. I'll make a lot of money without having to pay too much on it. The rent from the units will cover the payments. All you have to do is sign some papers to acknowledge your name is on the land". She said she was angry with her husband for buying the units without talking to her first. She did not like the idea of having another payment to make. Her husband had recently sold his business and did not have a job, although she was aware that he received some money from the sale of the business.

16 Mrs Rodao-Kirkbride said that either on that day or a few days later a woman, who she understood was "from the real estate", came to the home and presented some papers to her and her husband for signature. It is common ground that this was on 15 June 2005. She said they had "sign here" stickers on them. She said to the woman, "I'm not signing my life and my home away am I?" Her husband and the woman both said, "No". The woman added, "It's just for the units". She said she just signed the papers where she was directed to sign by the woman. She did not read anything. The meeting lasted no more than 15 minutes. She immediately left because she was due to pick up the children from school.

17 I interpolate that the claims of concern about her husband buying the units without consulting her first, having to make another payment, and the possibility that by signing the papers she might be "signing (her) home away" is rather at odds with her general claims of financial naivety, deferring to and leaving the conduct of all such matters to her husband, and of having a practice of signing legal and financial documents at the request of her husband without concerning herself with what they were about.

18 Mrs Rodao-Kirkbride said she understood that her husband was borrowing money to buy the units. She did not know how much. She had no idea the transaction was in any way linked to their home. The next thing she knew about the matter was when she received the default notice in August 2006. She noticed that reference was made to the house so she asked her husband about it. He told her not to worry and that he had everything under control. When subsequently speaking to her solicitors she was shown documents that indicated that she had a 1 per cent interest in the Auburn units with her husband having a 99 per cent interest. She was not previously aware of her interest in those units.

19 Mrs Rodao-Kirkbride separated from her husband in early 2007. She remains in the home at Albion Park with her four children. Her only source of income is a sole parent pension.

20 The cross claim relies upon the following assertions: (a) Mrs Rodao-Kirkbride recalls signing some papers put before her by a female person in the company of the first defendant that contained stickers marked "sign here" and was told that it was "just for the units"; (b) She is a woman of limited education and experience and did not understand the nature of the documentation she was required to execute; (c) There was material inequality in bargaining power between the parties to the contract; (d) None of the provisions of the documentation were the subject of negotiations either prior to or at the time of the execution of the documentation; (e) It was not reasonably practicable for the second defendant to negotiate for the alteration of the documentation or to reject any of the provisions of the contract; (f) The documentation executed by the second defendant was expressed and in the circumstances was presented in terms that rendered it largely unintelligible to a person of the limited financial and legal experience of the second defendant; (g) The second defendant received no independent legal or expert advice prior to execution of the documentation; (h) The plaintiff and/or its agent having regard to the purpose of monies secured by the three properties mortgaged to the plaintiff being primarily to finance the purchase of the properties known as 31/188 Auburn Parade, Auburn and 32/188 Auburn Parade, Auburn in the State of New South Wales as investment properties, failed to have any or any proper regard to the fact that the second defendant was to hold only a one percent (1%) interest in each of these properties as a tenant in common, while having an interest as joint tenant in her matrimonial home, (being one of the three properties that was mortgaged to the plaintiff); (i) The plaintiff and/or its agents failed to have any or any proper regard to the fact that the first defendant and or second defendant was not in employment at the time of the mortgage transactions; (j) The plaintiff and/or its agent failed to have regard to prudent lending practice; (k) The plaintiff and/or its agents failed to undertake any or any proper investigation of the true income of the first defendant by requiring production of income tax returns or any other documentation; (l) The plaintiff failed and/or its agents failed to advise the second defendant to obtain legal and/or accounting and/or financial advice as to the advisability of entering into the mortgage transactions.

21 At this point I should set out some further details as to how the mortgage came into being. It appears that the first defendant negotiated the purchase of the Auburn units with Park Trent Real Estate ("Park Trent"). He was referred to Easy Plan Finance Services Pty Limited ("Easy Plan"), a mortgage broker, to arrange finance. Mr Ron Cross of Easy Plan submitted some documents to Howard Pacific Finance Pty Limited trading as Howard Pacific Finance with a request for a loan calculation estimate. That request was complied with and, on about 16 June 2005, Howard Pacific Finance received a loan application and a "LoDoc Declaration of Financial Position" both of which were signed by the two defendants on 15 June 2005. A "LoDoc" loan was sought on the basis that the defendants were said in the loan application to be both self employed and documents evidencing their financial position were unavailable.

22 I will not detail all of the steps that were then taken, although it will be necessary to mention some later, but ultimately Howard Pacific Finance submitted the matter to Interstar Wholesale Finance Pty Limited ("Interstar"), which may be described as a mortgage originator. (Challenger Mortgage Management Pty Limited has since acquired Interstar). Interstar managed the approval of the loan, which upon settlement, resulted in the plaintiff advancing the money sought in exchange for first registered mortgages over the three properties.

23 I am satisfied that Easy Plan acted as agent for the borrowers in arranging the loan. They both signed a finance brokerage agreement authorising Easy Plan to lodge finance applications on their behalf. That document includes reference to the Albion Park home as the "property being refinanced or offered as security". Mrs Rodao-Kirkbride claims, in effect, that she was misled by both her husband and the woman "from the real estate" into believing that the documents she signed on 15 June 2005 were "just for the units". That woman was in fact a person by the name of Dianne Powell. She was the person at Easy Plan who managed the loan application on behalf of the defendants. Mrs Rodao-Kirkbride has not sought to be relieved from the finance brokerage agreement nor raised any complaint in relation to it. 24 Before proceeding further, it should be noted that Mrs Rodao-Kirkbride placed no reliance upon the equitable defences for which Yerkey v Jones (1939) 63 CLR 649 and Garcia v National Australia Bank (1998) 194 CLR 395 are authority.

Observations about the evidence of Mrs Rodao-Kirkbride

25 It is important to observe that Mrs Rodao-Kirkbride maintained that there was only the one occasion on which she signed documents. I have earlier outlined her account of that occasion. Her evidence is unsupported and so there is a question as to whether I should accept it. Neither Ms Powell nor her husband was called to give evidence. I am firmly of the view that the party who could have been expected to call them was Mrs Rodao-Kirkbride. There has been no acceptable explanation for not calling them. In the circumstances it is appropriate to conclude that their evidence would not have assisted Mrs Rodao-Kirkbride. That does not necessarily mean that I must reject her account, but it calls for a greater level of scrutiny and circumspection before deciding to accept it.

26 I have already noted some matters that raise a question as to whether Mrs Rodao-Kirkbride's evidence is accurate and reliable. There were other occasions of inconsistency during the course of cross-examination. For example, at one point she said that at the time "the lady from Park Trent" came to get her to sign documents she did not know that her husband was arranging a loan. She did not know that until her husband told her a few days after the lady had been. She was then referred to a portion of her affidavit in which she said, "After that meeting, Robert and I did not discuss the matter any further". She then reverted to saying that there was no discussion about the units after the attendance of the lady from Park Trent. The claim of not knowing that her husband was arranging a loan sits rather uncomfortably with her version in her affidavit in which she says she expressed concern to her husband about the prospect of having "another payment to make" and the claim in her second affidavit that if she "had known that the rent from the units would not be enough for the payments for the units (she) would not have agreed to buy them".

27 At another point in her evidence she said that she understood that her husband was saying that with the money he was borrowing for the units he was going to "pay the rest of the house and the units". She thought there was about ninety thousand dollars outstanding on the house. At a later point she said that from the time the lady from Park Trent came around until August 2006 (when the default notice was received) she had no idea that the loan had anything to do with the Crest Road property.

28 I accept that Mrs Rodao-Kirkbride is, as was submitted by Mr Loewenstein, "not a person who was possessed of any significant intellectual capacity". I accept also that in relation to financial and legal matters she is far from sophisticated. There is also the difficulty in sorting out what her state of knowledge and understanding was in 2005, as opposed to what it is now, having gone through the process of being shown documents and having had matters explained to her by her present solicitors. Nevertheless, having read her affidavits and seen her give evidence for about five and a half hours over two days, I was left with the distinct impression that she was prone to exaggerate in minimising the extent to which she understood the general purpose of the documents she signed. This does not mean that I reject all of her evidence. What it does mean is that I should be cautious about what I do accept. One thing I do accept, for example, is that she signed the documents on 15 June 2005 without reading them.

29 There are 16 documents signed by the two defendants that bear the date 15 June 2005. They are: 1. Applicant Declaration Authority and Acknowledgment 2. Loan Disclosure Form 3. LoDoc Declaration of Financial Position 4. Loan Purpose Checklist 5. Declaration as to Purpose of Credit 6. Privacy Act Consent 7. Discharge Notice 8. Financial and Investment Advice Warning 9. Contract of Sale for Unit 31 10. Contract of Sale for Unit 32 11. Purchase Application 12. Finance Brokerage Agreement 13. Consent to Disclose Personal Information to Australian Finance Group Limited 14. Loan Application 15. Contract for Sale Unit 31 (a second version) 16. Contract for Sale Unit 32 (a second version)

30 The loan agreement and, critically, the mortgage document were not signed on 15 June 2005 but were signed sometime between 2 and 11 July 2005, most likely on 2 July. The mortgage bears the date 11 July 2005, but that date was placed on the document upon settlement. The mortgage is the contract in question that Mrs Rodao-Kirkbride asks the Court to find "to have been unjust in the circumstances relating to the contract at the time it was made". However she has no recollection of the occasion on which she joined in the making of this contract by signing it. Ms Joanne Brown, a Justice of the Peace, witnessed the signatures of the two defendants on the mortgage. Ms Brown was not called to give evidence and there is no suggestion of an inability to locate her. I note that her business address is written underneath her signature.

31 In relation to this aspect of the case Ms Young submitted that with the defendants' signatures being on the mortgage and there being no evidence to establish that the circumstances surrounding the contract at the time it was made rendered the contract unjust, the cross claim must fail. She submitted that the events of 15 June 2005, at their highest, merely established a context of events preceding the execution of the contract in question. In the alternative, if I was to have concern about a factual misrepresentation made to Mrs Rodao-Kirkbride by the person from Easy Plan about the loan only being in relation to the two units and not the house, then that was something between her and her agent, Easy Plan. Relief against the plaintiff was an inappropriate response for a contract being held to be unjust because of the actions of the borrower's agent.

32 Mr Loewenstein submitted that the events of 15 June 2005 were relevant in my assessment of the circumstances attending the mortgage contract. It did not matter that the two events were some weeks apart. He submitted, in effect, that the two events were all part of the one overall transaction.

33 In my view it is appropriate to look at all of the circumstances that lead to Mrs Rodao-Kirkbride coming to execute the mortgage. That is consistent with the broad and beneficial approach that the authorities speak of as being appropriate in cases of this nature.

34 Mrs Rodao-Kirkbride spoke in her evidence of a practice of signing documents at the request of her husband without reading them. That is what she said she did on 15 June 2005 and she said she had acted similarly on prior occasions. Despite the absence of evidence from her as to how she came to sign the mortgage, I am satisfied that it is safe to assume that it is likely she adopted the same practice and did not read it.

35 There is nothing wrong with a person signing a contract without reading it and being held bound to its terms. The common law recognises that a contract is binding whether or not a party reads it before signing it: see Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd 219 CLR 165; [2004] HCA 52 at [42] - [48]. See also Wilton v Farnworth [1948] HCA 20; (1949) 76 CLR 646 at 649. Section 9 of the Act requires the Court determining a claim made for relief under s 7 to have regard, inter alia, to "all the circumstances of the case". I regard the inference that Mrs Rodao-Kirkbride signed the mortgage without reading it as one of those circumstances.

36 One of the major bases of the claim for relief is that Mrs Rodao-Kirkbride was unaware that the mortgage concerned the family home at Albion Park as well as the two investment units at Auburn. Her account of the circumstances of her signing the documents on 15 June 2005, if accepted, would support the proposition that she did not know of the involvement of the family home at that time. However, there is a problem with the absence of any evidence relating to the signing of the mortgage document. I have just indicated that I am prepared to infer that she did not read that document. However, there is an absence of evidence as to what was said at the time. It is possible that on that occasion somebody told her that this was a mortgage concerning all three properties. I cannot speculate in the absence of evidence, but nor can I conclude that there was nothing said by anyone, or that there was a further statement made, similar to the one she claimed was made on 15 June 2005, that it was "just for the units". Mrs Rodao-Kirkbride bears the onus of proof on this issue and accordingly I must conclude that she has not discharged it.

37 Section 9(2) of the Act provides a list of matters the Court "shall have regard ... to the extent that they are relevant to the circumstances". Mr Loewenstein made submissions in relation to a number of them. However, rather than approaching these provisions in the manner of a checklist and placing ticks or crosses against the various matters relied upon, a better approach is to look at the real issues raised on behalf of his client. Mr Loewenstein attempted to try and fit some of the submissions that were made into s 9(2) criteria but that was akin to trying to fit square pegs into round holes. For example, it was submitted that there were "provisions of the contract that imposed conditions which were unreasonably difficult to comply with" (s 9(2)(d)) but all this amounted to was a contention that Mrs Rodao-Kirkbride had an inadequate income to meet repayments. It was submitted, "it was not reasonably practicable for Mrs Rodao-Kirkbride to negotiate for the alteration of the documentation or to reject any of the provisions of the contract" (s 9(2)(c)). However, there was no submission as to what alteration of the documentation she might have wanted to negotiate for, or what provisions she might have wanted to reject. Indeed, there is no complaint about any of the provisions of the contract. The complaint is about what Mrs Rodao-Kirkbride thought it was about.

38 The case for Mrs Rodao-Kirkbride as to these types of matters really amounts to a contention that she did not know that the papers she signed involved putting up her home as part of the security for the loan. She thought her husband had already bought the units at Auburn and this paperwork was something to do with that. When the default arose, she discovered the involvement of the home for the first time. In seeking relief under the Act she relies, in part, upon the following matters.

39 It was contended that she was a woman of limited intellectual capacity and was naive as to financial matters. Her understanding of mortgages in general was rudimentary to say the least. She was not a woman who asserted herself. It was submitted that she "suffered from a disability in that respect". She deferred to her husband with respect to financial matters. He took care of everything. It was submitted that the consequences of this should not be visited upon her on the basis that she allowed her joint financial affairs to be managed in this way.

40 There was the contention that Mrs Rodao-Kirkbride had an insufficient income to meet the repayments required that I have already referred to. Then, it was submitted that whilst Stacks were retained to act for the borrowers, there was no legal advice given by anyone to Mrs Rodao-Kirkbride. If there was any correspondence from Stacks, Mr Loewenstein referred me to his client's evidence that she did not open any mail addressed to her husband, or that was addressed to both herself and her husband.

41 There was quite a deal of time spent at the hearing in cross-examination of Mrs Rodao-Kirkbride, and in submissions, about whether she understood what a mortgage was. Whatever can be said about her limited intellectual capacity, I am satisfied that at the time she signed documents in June and July 2005 she had a sufficient understanding. She agreed that she knew that it involved borrowing money from a bank or other financial institution and thereby having a responsibility to make repayments. She also knew that if the repayments were not made the bank or other institution was entitled to take possession of the secured property.

42 I am also satisfied that she had the capacity to read documents and to understand in a general sense at least what they were about. She also had the capacity to identify any portion of a document she did not understand and to ask questions. I am satisfied that if she saw reference to her home as the "property being refinanced or offered as security", as appeared in the finance brokerage agreement, she had the capacity to understand the implications, or at least to question why her home was so described. Ms Rodao-Kirkbride also understood the implication of signing documents. She agreed in cross-examination that placing her signature on a document conveys that she agrees with what is set out in the document.

43 As to the claim that Mrs Rodao-Kirkbride had insufficient income to meet the repayments there are a number of matters to note. First, the loan was applied for and granted on the basis that both borrowers would be responsible for meeting the repayments. Secondly, a document signed by her, and her husband, on 2 July 2005 entitled "Applicant's Financial Summary" indicates in very prominent bold type that the loan amount was $980,000. It also indicated that their joint annual income was $310,680 and their expenses, including the proposed repayments, would be $230,430, leaving a surplus of $80,250. There was also disclosure of the value of their assets and liabilities such that the net asset figure was shown as $870,000. The third point to note is that despite what income tax returns might have disclosed, in the seven months prior to the loan from the plaintiff being drawn down, the borrowers had been making repayments to the outgoing mortgagee, IMB Limited, in amounts ranging from $8,146 to $9,646 per month. The loan from the plaintiff required repayments of $6,296 per month, a figure that obviously would not have stretched their repayment capacity at all. It is rather difficult, to say the least, to find that there was anything in relation to the capacity to make repayments that supports a finding of unjustness.

44 The last matter to deal with concerns the matter of Mrs Rodao-Kirkbride receiving no independent legal advice. There were solicitors engaged to act for herself and her husband so there was an obvious and presumably ready source of such advice. It was open to her to avail herself of advice is she wished. The fact that she did not is probably a symptom of her deference to her husband in such matters. That was nobody's fault. It is to be noted as well that in the loan agreement that they both signed, probably on 2 July 2005, there are a number of "Acknowledgements", including that it had been recommended that the borrowers obtain independent legal and financial advice about the loan and that they had had the opportunity to do so.

45 In the pleadings it is contended that the "plaintiff and/or its agents failed to advise Mrs Rodao-Kirkbride to obtain legal and/or accounting and/or financial advice as to the advisability of entering into the mortgage transactions". No authority was cited in support of the proposition (and there is authority to the contrary - see West v AGC Advances Limited (1986) 5 NSWLR 610 at 621G) but, in any event, it is untenable in the circumstances I have just mentioned and because of the following.

46 There was nothing about the loan in this case that should have alerted the plaintiff, or its agents, to a heightened need for the borrowers to be professionally advised. There was no inherent or unusual risk over and above the norm. The purpose for which the loan was sought was relatively straightforward. The borrowers disclosed information that indicated that the repayments were well within their capacity. The value of the security offered was reasonable having regard to the amount of the loan sought. Even if the plaintiff, or its agents, had done more to advise the borrowers to seek advice, it is unlikely to have made any material difference in so far as Mrs Rodao-Kirkbride was concerned as she would likely, in accordance with her practice, have simply left it to her husband.

Other circumstances relied upon by Mrs Rodao-Kirkbride

47 I will now deal with further specific matters relied upon by Mrs Rodao-Kirkbride. It was submitted that the cumulative effect of these matters warrants the conclusion that the contract was unjust. Mr Loewenstein referred to there being a "mixture of blameworthiness and unjust circumstances which render this transaction unsatisfactory". He referred to the matters as falling into three categories: (a) a conflict of interest between Park Trent Real Estate and Easy Plan Finance; (b) a failure to comply with the Mortgage Industry Association of Australia (MIAA) Code of Practice and Interstar's internal Code of Conduct; and (c) matters relating to the LoDoc documentation.

48 Mr Loewenstein also submitted that these matters should be considered in conjunction with the Mrs Rodao-Kirkbride's subjective circumstances discussed above.

49 It was submitted that because Mr Ron Cross of Easy Plan was also involved with the real estate agents Park Trent, there was a conflict of interest in that he was a director of the real estate agents who were selling the two units and the first defendant was referred by them to Easy Plan, of which he was also a director, to secure finance. That is not quite correct. At the relevant time Mr Cross was a shareholder of each entity. He became a director of Park Trent some 9 months later. Nevertheless, it was submitted that Mr Darran Wade of Howard Pacific Finance was aware of the dual role of Mr Cross and that Mr Wade had said in his evidence that it was not a matter of concern. I do not read Mr Wade's evidence as including the latter. Nevertheless I am prepared to assume that if it was a matter of concern he might have done something or made some inquiry about it. Why it would be a matter of concern is unclear. Mr Graeme Wort of Interstar said that he was not aware of it and that if he were, he would have made some further inquiries. Just what inquiries he would have made, and why he would have made them, was not explored with him.

50 There was no attempt to place evidence before me as to exactly what role Mr Cross played in the sale of the units and the work done by Easy Plan on behalf of the defendants in securing finance. There was evidence that Ms Powell was the person at Easy Plan who processed the loan application on behalf of the defendants. In these circumstances I am not prepared to conclude that there was any conflict of interest, let alone one that might have had any bearing on the justness of the mortgage contract.

(b) Failure to comply with MIAA Code of Practice and Interstar's internal Code of Conduct

51 According to its Code of Practice document, the MIAA comprises individuals and organizations that are specialists in the finance sector, particularly housing finance. Its membership includes mortgage originators (those who bring together potential borrowers and credit providers), mortgage managers (those who manage mortgages on behalf of credit providers) and lenders or credit providers. The Code of Practice (the MIAA Code) itself is said to be a statement of principles designed to set a standard of good industry practice and fair dealing between consumers and MIAA members. It is binding on MIAA members. It is also said to specify minimum standards of professional conduct and good industry practice to be adhered to by members.

52 Part 3 of the MIAA Code provides for "Practice Standards for MIAA Members". Two clauses within that Part were referred to: 21A A Residential Loan Member must suggest or recommend to an applicant only those arrangements for mortgage finance that the Member genuinely and reasonably believes are appropriate to the needs of that applicant.

24 A Residential Loan Member must always make such enquiries as are necessary to determine an applicant's capacity to repay the proposed loan.

"Residential Loan Member" is defined in clause 19 as, inter alia: A Member who acts for a party to a transaction which involves or may involve the provision of credit secured by way of mortgage over residential real estate.

53 Mr Loewenstein referred me to the MIAA Code without suggesting it prevailed over the Act. He did, however, submit that it, amongst other things, provided a "reference point" against which to assess the nature and calibre of the conduct of the plaintiff and the other parties involved in the mortgage contract coming into existence. He referred me to Khoshaba at [79] - [81] where a similar code had been considered. The primary judge there found that if the guidelines had been followed the loan would not have been made and this was a factor entitled to weight in the determination of the question of unjustness.

54 It was submitted that the plaintiff, Interstar and Howard Pacific all had obligations under the MIAA Code. Reference was made to the following in the introductory section of the document: Although many Lenders still provide their own 'face to face' dealings with consumers, the Mortgage Industry has seen a rapid growth in the activities and status of mortgage intermediaries. These intermediaries bring together the consumer and the Lender. They play a key role in assisting a consumer to obtain the kind of finance that is best suited to their own particular circumstances, i.e. appropriate finance. (Emphasis added).

55 Mr Loewenstein submitted that the highlighted portion of that passage represented an "obligation" which neither Howard Pacific or Easy Plan complied with. In my view, if the MIAA Code document has the significance in these proceedings for which it was contended, then it is the actual provisions of the code itself that should be considered, not the introductory remarks.

56 The submissions on behalf of Mrs Rodao-Kirkbride in relation to this topic appear to me to have amounted to a challenge to the system of LoDoc loans generally. The essence of the contention was that the plaintiff, and other involved parties, should not have simply accepted the assertions in the documents which had been signed by both defendants but should have actively inquired and ensured that the loan sought by the defendants was "appropriate to (their) needs" (Cl 21A of the MIAA Code) or were "best suited to their particular circumstances" (the introduction to the MIAA Code). LoDoc loans operate on the basis that the borrower makes a claim about his/her financial circumstances but is not able to provide documentary verification. Such a scheme operates with a significant degree of good faith and trust. The borrower is, in effect, saying, "I would like you to lend me money. These are my financial circumstances but I cannot verify them. Please trust me". The argument on behalf of Mrs Rodao-Kirkbride is, in effect, that the lender should respond, "I will lend you the money but only if you first verify that your financial circumstances are correctly disclosed". If lenders were required to respond in that way it would make it very difficult for there to be LoDoc loans at all.

57 Mr Loewenstein submitted that one way a lender could seek verification of the financial circumstances claimed by a prospective borrower was to interview the borrower. That may be so, but it seems to me that if a prospective borrower is prepared to exaggerate his/her financial circumstances in a loan application, and does not have documents to confirm what is claimed, asking the borrower in an interview virtually the same questions that were asked in the application would be rather unlikely to be fruitful. It must be borne in mind as well that the borrower has to take some responsibility in all of this.

58 There are, of course, safeguards. Apart from legislation, such as the Act, the MIAA Code exists for the protection of borrowers. For example, clause 21A of the MIAA Code would not countenance a Residential Loan Member arranging a mortgage over residential real estate in respect of a sum that exceeded the value of the property, or for a sum, or at an interest rate, that required repayments beyond the disclosed capacity of the borrower to repay.

59 Aside from this, Mr Loewenstein also submitted that there was no explanation given by anyone from Easy Plan or from Howard Pacific Finance "in accordance with 21A" of the MIAA Code. There certainly was not by anyone at Howard Pacific Finance on whose behalf Mr Wade gave evidence. Whether there was, or was not, by anyone from Easy Plan is unknown with Ms Powell, the obvious witness from that organisation, not being called. In any event, cl 21A does not provide for any "explanation". It imposes a limit on what a Residential Loan Member can suggest or recommend. The evidence is silent upon what was, or was not, suggested or recommended by anyone from Easy Plan or Howard Pacific Finance. Certainly, on the face of the documents signed by Mr and Mrs Kirkbride, the type of finance sought would not have been regarded as unreasonable. The documents indicated that they sought a loan of $980,000 for which repayments would be $6,288.30 per month; they were offering as security their home as well as the two home units sought to be purchased; they had assets worth $1,045,000; and they had an income of $311,200 p.a. There was no suggestion made in the course of submissions as to what "suggestion or recommendation" should have been made as to "appropriate finance" that was in any way different to that which was sought.

60 It was also submitted that there was a breach of Interstar's own internal Code of Conduct. Reference was made to clause 3.2 which has the heading 'LoDoc Program" and includes: "(a) The Program is designed for borrowers who are unable to provide financial statements or taxation returns at the time of their application for a loan".

61 Mr Loewenstein's submission was to the effect that Interstar interpreted this as meaning the LoDoc loan program was designed for borrowers who state that are unable to provide financial documents. In other words, if a borrower says he/she cannot provide such documents, then that was good enough for Interstar. I understand it to be contended that as the clause is worded, it does not avoid an obligation to make inquiries as to why the borrower is so unable. In dealing with this, however, I return to what I said earlier about the LoDoc loan process operating on a level of good faith and trust.

62 Further, it was not as if the loan application was received and processed without any inquiry or consideration. Quite to the contrary, there is the following in the evidence of Mr Wort of Interstar: Q. My learned friend put to you, Mr Wort, that you didn't make any consideration of the genuine and reasonable needs of the applicant in relation to the loan in these proceedings and you responded with words to the effect of, "From what I have seen in the file, we did"? A. That's correct.

Q. Why do you say that you did make that assessment? A. I am looking at the overall file. I am looking at the fact that we had, as you mentioned earlier, we looked at the refinance statements on the existing loan where we saw the clients were meeting those payments. There was also some line of credit where there were larger lump sums coming in. Looking at the credit worthiness, based on the age of the applicant, length of employment, looking at their credit reports with independent credit agencies to ensure there were no defaults or judgments based on the applicant's financial records for those parties. We then looked at the employment statistics. Looking at the applicant's overall credit history, their employment, how long they had been employed with their current industry as an owner/driver. From there, we would have looked at the statements from IMB, to ascertain that they had been making payments correctly, and also looking at other payments coming through those accounts. And finally, we would have done our assessment on their income, based on the income disclosed and taking into consideration the cost of living and any other commitments to ensure that they met our servicing requirement.

Q. And what is that servicing requirement? A. They must have a one time positive cut off. So on this application I am asserting it comes out 1.55, so well above our minimum requirement. That also includes a higher interest rate in that calculation as well, for future borrowing or changes in rate.

63 The internal Code of Conduct of Interstar indicated that the type of finance sought by Mr and Mrs Kirkbride was a suitable facility for borrowers unable to provide documentation to verify their income. There was no evidence as to why Mr Kirkbride sought such a loan, that is, why he did not have documentation to verify his, and his wife's, income. That is one of the problems that flow from the failure of Mrs Rodao-Kirkbride to secure evidence from him. In any event, the point that was sought to be made by Mr Loewenstein was that there were a number of matters in the documentation submitted to Interstar via Howard Pacific Finance that should have "rung alarm bells". The submission was made, in effect, that it was imprudent lending practice for the loan to have been made without further inquiring into the income of the prospective borrowers. This was a basis for the further submission that what was involved in this transaction on behalf of the plaintiff, through its agent, Interstar, was pure "asset lending". That is, the making of a loan with the sole regard being the security available and without any regard for the ability of the borrower to meet the required repayments.

64 Brereton J described asset lending, in the context of a claim for relief under the Act, in Riz v Perpetual Trustee Australia Ltd [2007] NSWSC 1153 as follows: 70 The substantive unfairness is said to be found in the "asset lending" element. Although asset lending is not necessarily unjust, such contracts have the potential for injustice. The perceived injustice in "asset lending" is sourced in what is described in Khoshaba by Basten JA (at [128]) as the futility of the exercise: if the loan is not serviceable, then it is not in substance a loan but an asset sale, in which the lender risks nothing but the borrower risks the asset. Such a transaction involves no risk to the lender, but considerable risk to the borrower, given the likely inability of the borrower to perform and the probability if not certainty of resort to the security, with the lender being in a better position to protect itself against loss. The substantive unfairness lies in the imbalance of risk. Where that is voluntarily accepted, such a transaction may not be unjust. But where in the circumstances in which the transaction is made - particularly where the family home is involved - the borrower has a less than full appreciation of the risks or consequences, or is under some misapprehension or pressure, so as to provide an element of procedural unfairness, such a loan may be unjust. And even apparent comprehension of the transaction and its legal and practical effect and voluntariness is not entirely prophylactic: the purposes of the Contracts Review Act include protection of those who are not able to protect themselves, and while the Act is not a panacea for the greedy, it may come to the aid of the gullible.

65 I am satisfied that this was not a case of "asset lending". Based upon all that was done by Interstar, as agents of the plaintiff, and also by Howard Pacific Finance, I am prepared to accept as correct the following answer given to Mr Loewenstein by Mr Wort: Q. Do you say that your organisation's interests were as much concerned with the ability to meet the repayments as it was concerned with the ability to meet the indebtedness if there was a default by sales of the securities? A. Yes, servicing is paramount in the assessment.

66 One of the matters that it was submitted should have "rung alarm bells" in this case was that Mr Kirkbride was said to work as an "owner/driver" and that he had done so for 10 years. It was contended that there would therefore be an expectation that there would be documents available that would provide verification of his income. It was also suggested that Mrs Rodao-Kirkbride also being said to work as an "owner/driver" should have caused inquiries to be made. Various suggestions were made in the cross-examination of Mr Wade and Mr Wort that further inquiries should have been made. Often the response was to the effect that no such inquiries were made because, as this was a LoDoc loan application, reliance was placed on the declaration made by the borrower. Mr Loewenstein likened such responses to a mantra and submitted that it provided no excuse for a failure to inquire.

67 In my view the nature of the inquiries and assessments made in respect of this loan application were appropriate and adequate in the context of the type of loan that the borrowers were seeking. I have earlier referred to what Mr Wort said about the inquiries made by Interstar.

68 Some specific matters that were suggested as warranting inquiry were (a) the inclusion of an ABN number in the application, indicating the possibility that there would be documents available such as profit and loss statements, business invoices, the existence of an accountant and the like; (b) the reference to there being assets including $380,000 in cash and $120,000 worth of furniture; and (c) Mr Kirkbride's signature appearing on the "LoDoc Declaration of Financial Position" form twice, once as "borrower" and again in the section where an accountant would sign if an accountant's declaration was required. (The form indicates that such a declaration was required if there was an ABN/ACN which was less than 2 years active, which was not the situation in the present case). Not all of these matters were put in the course of cross-examination and so Ms Young was inhibited in making a response. In any event, I do not think there is any substance in this contention when regard is had to the nature of the loan sought and the inquiries and assessments that were in fact carried out prior to the application being approved.

69 The next matter was that asserted was that if the true facts as to the borrowers' income were known, further inquiries would have been prompted. Mr Wort agreed that if he had been made aware that Mr Kirkbride's income in the 2004/05-tax year was $83,000, and in each of the previous 3 years was $46,000, he would have been interested in an explanation for the difference in the latter year. I doubt that this is a significant issue. The tax returns would not have provided a useful guide as to the financial resources of the borrowers because they clearly had more available to them than the returns indicated. Moreover, taxable income and actual earnings are not necessarily the same, as the ability of the borrowers to service the IMB facility would indicate in this case.

70 There was nothing wrong, imprudent, unfair or unjust in the manner in which the loan transaction was handled by the plaintiff or its agents. That, or course, is not the end of the matter: see Khoshaba at [60].

71 The problem in this case for Mrs Rodao-Kirkbride arose from her preparedness to sign documents without reading them on the implied assurance of her husband that all was in order. She knew that by signing them she was agreeing to be bound by them. She had a sufficient knowledge of the basic concepts of mortgages in that she was aware that if repayments were not made the borrower could lose the security property.

72 There is evidence that at the time she signed the various preliminary documents on 15 June 2005 she was told they concerned the Auburn units and not the matrimonial home at Albion Park. Accepting that proposition depends upon acceptance of her evidence alone in circumstances in which there were two witnesses available to support her version that she did not call. Even if, somewhat generously, her version as to that were to be accepted, there is absolutely no evidence about the circumstances in which she signed the actual mortgage. No conclusion can be reached, in the absence of such evidence, that she was mislead by somebody on that occasion into thinking that it did not concern the Albion Park home. If she did not know, that was because she must have employed on that occasion her usual practice of signing without reading. That was her choice and no fault of anyone else's. However, as I indicated earlier at [36], I am not prepared to accept the contention that she signed the mortgage without knowledge that it concerned the house as well as the units.

73 I am not satisfied that the contract, the mortgage in this case, or any provision of it was unjust in the circumstances relating to the contract at the time it was made.

74 One cannot help being sympathetic to a woman in Mrs Rodao-Kirkbride's plight, particularly having regard to her children. However, the result of a case such as this cannot be determined on the basis of sympathy. I do not have any residual discretion but even if I did, one of the matters that would have to be taken into account is the public interest. The banking and financial industry must be able to have confidence in courts enforcing contracts that are not shown to be unjust. A loss of such confidence would be against the public interest.

75 There will be judgment for the plaintiff against the first and second defendants and an order for a warrant of possession in respect of the three properties. The cross claim will be dismissed. I will hear submissions as to costs. **********

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