Small & Ors v Gray & Ors

Supreme Court of NSW|2004-02-11|Before: McDougall J, Dougall J

Introduction 1 The plaintiffs seek to enforce their rights under a registered mortgage over the property 63 Adelaide Street, St Marys. The third and fourth defendants are the registered proprietors of that property. It is accepted that the third defendant's signature on the mortgage was forged. Nonetheless, the mortgage has been registered. It is common ground that, subject to the fourth defendant's defences, the plaintiffs, being innocent of the forgery, are entitled to enforce their rights. The defences that are propounded, of unconscionability and under the Contracts Review Act 1980, raise the familiar problem, namely which of two innocent parties should suffer for the wrongdoing of a third. 2 Without wishing to be disrespectful, I shall refer to the defendants respectively as "Jarrod", "Katrina", "Rodney" and "Kristine". Kristine is the mother of Jarrod. Katrina is Jarrod's wife. Rodney is a former de facto partner of Kristine. Although Jarrod was not born to the relationship of Rodney and Kristine, Rodney was "in essence a father figure with reference to the position of [sic] Jarrod": T 39.45. 3 Jarrod and Katrina wanted to buy a house at 28 Thompson Street, St Marys. They had no savings and needed to borrow the entire purchase, including stamp duties and legal fees. The purchase price was $239,500. The amount required (including, as I have said, stamp duty, legal fees and some commissions) was $270,000. The plaintiffs were prepared to lend this sum but they required additional security. The additional security proposed was over Rodney and Kristine's house, 63 Adelaide Street. 4 The purchase was settled on 2 November 2001. Jarrod and Katrina made default almost immediately thereafter. Their house has been sold (default judgment having been recovered against them in September 2002, and a writ of possession having issued later that month).

(1) When she signed the mortgage documents, she instructed the solicitor in whose presence she signed them, Mr Joseph Trimarchi, not to return the mortgage to the plaintiffs unless and until Rodney had approved the transaction;

(2) Her signature on the mortgage was not witnessed (although it was signed in Mr Trimarchi's presence, he did not witness it because Rodney had not signed);

(3) She received no part of the loan nor any other benefit under the mortgage;

(4) She understood that the loan was to be made to Jarrod and Katrina, who would use it to purchase 28 Thompson Street as their home and who would make all repayments that were due;

(5) The property at 63 Adelaide Street is Kristine's home and only significant asset;

(6) The mortgage was improvident from her point of view;

(7) She received no independent legal or other advice about the mortgage;

(8) At the time she signed the mortgage, she did not appreciate the true magnitude and extent of the risk, namely that Jarrod and Katrina would not meet their obligations to the plaintiffs, so that in consequence she might lose her home; and

(9) She was under a special disadvantage when she signed the mortgage as she did so under pressure from her son Jarrod. 6 It is said that the plaintiffs knew or ought to have known of those matters. In the circumstances, it is said that the mortgage is unjust for the purposes of s 7 of the Contracts Review Act or, alternatively, that it is unconscionable for the plaintiffs to rely on the mortgage. 7 The defence that was filed also raised issues of unconscionability and under the Contracts Review Act on behalf of Rodney. However, at the hearing, all defences were abandoned. Since it was accepted that the plaintiffs have made out their case in chief, it must follow that they are entitled to judgment against Rodney.

Credibility 8 Before I set out my findings on the facts, I will note that:

(1) I found Kristine to be an impressive and truthful witness, upon whose evidence I could rely. Accordingly, I accept her evidence, including in preference to that of other witnesses to the extent that there is a conflict.

(2) I found that Rodney was an honest witness, but that he did not have a particularly clear recollection of events. Nonetheless, to the extent that he did recall events, I accept his evidence.

(3) I do not accept the evidence of the solicitor, Mr Trimarchi, to the extent that it is in conflict with that of Kristine. I do not think that Mr Trimarchi was seeking to be dishonest. However, it was clear that he had an imperfect recollection of events and that his evidence in some respects consisted of reconstruction based upon scanty materials in his file. It is also clear that Mr Trimarchi did not pay the attention that he should have to the transaction. I refer, in particular, to the form of a document styled "acknowledgement of legal advice by mortgagor" that he caused to be sent to the plaintiffs notwithstanding that, plainly, it was incorrect in one very material respect. I shall refer to this later in the evidence.

(4) I do not accept the evidence of Mr Joe Anthony Michael to the extent that it conflicts with that of Kristine. Mr Michael was an accountant who was retained, purportedly, to enquire into and certify as to the capacity of the defendants to repay the loan. I cannot accept that any enquirer, let alone an accountant, who made even the most rudimentary enquiries of the defendants (apart from Rodney) could possibly have concluded that they were able to repay the loan except through the sale of the mortgaged properties. Further, Mr Michael made no enquiry whatsoever of Rodney; but despite this shortcoming, he had no difficulty in certifying to the plaintiffs, knowing that they would rely upon his certification, that "[o]n the 25th October 2001, I have spoken [sic] to Rodney and Christine [sic] Gray … " and that "having explained" certain things to them he was "satisfied that [he] had covered the financial risks associated with entering into a first Mortgage of $270,000 in the present financial climate".

The proposed purchase of 61 Adelaide Street 9 At all material times, Kristine has lived at 63 Adelaide Street. Her parents live next door to her, at 65-67 Adelaide Street (a double block). 10 In about July 2001, No 61 Adelaide Street (on the other side of Kristine's house) was on the market. Jarrod and Katrina wished to buy it. However, they had been bankrupt (they became bankrupt in August 1995, and were discharged by operation of law in August 1998). They had no money for a deposit, let alone for legal fees, stamp duty and the like. 11 Jarrod approached Kristine and told her of his desire to buy 61 Adelaide Street. He said that he did not have a deposit, but that he could get a loan "if you put up your house for the deposit". Kristine said that she did not want to do this because she did not want to lose her house. Jarrod said that she would not:

"You won't lose your house. I've lost a house before because of HomeFund. I won't lose my next house if I get a chance to buy one." 12 Kristine told Jarrod to "speak to your father first": a reference to Rodney. 13 Shortly afterwards, Jarrod told Kristine that he had spoken to Rodney, who had "said it's alright providing he sees all the paperwork first". Kristine spoke to Rodney who confirmed that this was his view. Kristine thereupon spoke to Jarrod and said that, provided that Rodney looked at the paperwork first and said that everything was "OK" she would "go along with it". 14 Kristine was attracted to the idea that her family would own four blocks in a row in Adelaide Street. Rodney said that this was attractive to him, because the blocks were particularly deep. The land was, he thought, zoned for townhouses or some other form of medium density development and, he thought, four contiguous blocks would represent a substantial development site. 15 Rodney says further that, before he agreed to participate in the proposed purchase, he discussed the matter not only with Kristine but with another of Kristine's children, Heath. Kristine agreed that the discussions centred on the ability of the family as a whole to meet repayments on 61 Adelaide Street if Jarrod and Katrina did not. It seems that Rodney thought that this was a distinct possibility: "Knowing Jarrod, and I have known him all his life, he is the most unreliable bloke on the planet, and family wise [sic] … the guy is so unreliable … The other consideration I have got is, not only his mother, but he has got a brother and sister who live in that home [63 Adelaide Street] too, which I sort of - I personally would not risk their future on Jarrod." : T 31.35-.40. 16 In summary, the evidence of Kristine and Rodney, which I accept, was that they considered it worthwhile to assist Jarrod and Katrina with the purchase of 61 Adelaide Street because it would be an investment for the whole family. It was contemplated that Jarrod and Katrina would live in the house and make the repayments. If they kept up the repayments then the home would remain theirs. If they did not, then the property could be let and any shortfall between rental and the repayments would be met by the family (including, specifically, Rodney, Heath and Heath's wife). It is clear that there was little consideration, and less understanding, of the legal structure that would be needed to accommodate this plan.

The proposed purchase of 28 Thompson Street 17 Jarrod and Katrina were unable to obtain finance to purchase 61 Adelaide Street and the proposal lapsed. Thereafter, Jarrod and Katrina became interested in 28 Thompson Street. In about October 2001, Jarrod told Kristine that she needed to come "and see my loan broker about the loan". They visited a broker, whose first name was "Armond". This, the evidence showed, was Mr Armond Shoostovian of a company known as the Loan Enquiry Centre Pty Limited. Jarrod, Katrina and Kristine met Mr Shoostovian. In the course of that meeting he said: "To get Jarrod the loan, we need to say you are buying 28 Thompson Street as an investment property. You can change your mind later after the mortgage is finalised and let Jarrod moved [sic] in. That's the only way we can get him a loan." 18 If the property 28 Thompson Street were bought "as an investment property", then a truthful declaration could be made under s 11 of the Consumer Credit Code. The effect of such a declaration, subject to s 11(3), is that the Code would not apply to the loan contract or to any mortgage in support of it. In turn, that would mean (among other things) that the disclosure requirements of, and the restrictions on enforcement proceedings imposed by, the Code would not apply.

The meeting with Mr Trimarchi 19 Kristine did not see any paperwork relating to the proposed purchase until, on about 15 October 2001, she, Jarrod and Katrina went to see Mr Trimarchi. However, it appears that Jarrod and Katrina had received a loan offer dated 13 September 2001 from a company known as Bleier Mortgage Corp Pty Limited. Although Jarrod and Katrina accepted that offer, it does not seem to have proceeded. They received a subsequent offer from a company known as La Trobe Capital and Mortgage Corporation Limited ("La Trobe"). That appears to have been issued originally on 24 September 2001 and reissued on 17 October 2001. It was addressed to "Mr R and Mrs K and Mrs K and Mr J Gray" at 63 Adelaide Street. 20 On 15 October 2001, Jarrod, Katrina and Kristine went to see Mr Trimarchi. Mr Trimarchi told them "you are here to sign the papers on the house that Jarrod and Katrina are buying". Kristine says that there were "a large number of papers" and that Mr Trimarchi went through them and explained them. She gave no evidence in chief of, and was not cross-examined on, the detail of the explanation. 21 Kristine's evidence is that, before she signed the papers, she told Mr Trimarchi that she did not wish to sign them until Rodney had read them and said it was "OK" because "I don't understand all this legal talk". She says that Mr Trimarchi assured her: "If you sign them now they are not legal until Rod signs them. If you sign them now I will send them up to Rodney. If he doesn't sign them then that is the end of it." 22 Mr Trimarchi denies that he said "that nothing was legal until Rodney signs the documents". He does not deny the rest of the conversation that I have summarised. I accept Kristine's evidence on this point in preference to that of Mr Trimarchi. I find that there was a conversation substantially in the terms that I have set out. It is likely that Mr Trimarchi would have considered that a mortgage by joint tenants of the property jointly owned by them would not be effective unless both signed the mortgage. It is therefore likely that if (as I find happened) Kristine said that she did not want to sign until Rodney had approved, Mr Trimarchi would have responded in the way that Kristine says he did. 23 Kristine says that she then signed "the documents placed in front of me". She does not recall what they were. It is apparent that Jarrod and Katrina also signed documents, including a mortgage over 28 Thompson Street. Mr Trimarchi witnessed their signature on that mortgage. He did not witness Kristine's signature on the mortgage over 63 Adelaide Street. 24 It is not clear when the loan offer from La Trobe was signed. As I have said, the document that was signed bears an amended date of 17 October 2001. If this date is correct, it could not have been signed in front of Mr Trimarchi, given that the only meeting with him appears to have been that which took place on 15 October 2001. 25 Mr Trimarchi gave evidence of the advice that he gave Jarrod, Katrina and Kristine on 15 October 2001. He did so by reference to a file note. His file note read (according to his evidence in the witness box): "Mortgage 2 years. 11% reducing to 8.5 if it was paid on time. Early payment would result in two months worth of penalty interest, or interest. 57(2B) notice. $400." : T 61.5. 26 It continued, according to Mr Trimarchi: "Loan offer. A statutory declaration re the purpose. Stat dec re the property. 5 is "direction". 6 is "replies to requisitions" and 9 is the acknowledgment of legal advice. That's done contemporaneously by me at the time I see the clients." : T 61.10. 27 Based on those notes, Mr Trimarchi said that what happened was: "Clients attended at my Newtown office for explanation of mortgage documents. One of the parties was not present, a Mr Gray senior. … Documentation was explained and signed in my presence and then the bundle was given to the parties to take away to obtain a signature of Mr Gray senior as he wasn't present at the time. I also asked them to bring those back witnessed by the relevant party, a justice of the peace or a solicitor." : T 61.20-.30. 28 Mr Trimarchi's oral evidence was that Kristine did not sign the mortgage (over 63 Adelaide Street) in his presence on 15 October 2001. He was unable to explain this. I do not accept that evidence. Kristine said plainly in her affidavit that she signed the mortgage document (and other documents) in Mr Trimarchi's presence. Mr Trimarchi swore an affidavit in reply, in which he took issue with some of her evidence. He did not, in his affidavit, suggest that she had not signed the mortgage in his presence. His oral evidence on this point was, I think, a reconstruction based upon his belief that, had Kristine signed the mortgage in front of him, he would have witnessed her signature. It was not suggested to Kristine in cross-examination that she did not sign the document in Mr Trimarchi's presence. I find that she did. 29 On 28 November 2001 - after the purchase of 28 Thompson Street had settled and approximately six weeks after he saw Jarrod, Katrina and Kristine in conference - Mr Trimarchi wrote to Jarrod purporting to confirm the explanation that he had given of the documentation. That documentation included the mortgage over 28 Thompson Street, the acceptance of the loan offer from La Trobe, a statutory declaration concerning the condition of the property, a declaration of purpose (I infer, under s 11 of the Code) and a number of other documents. 30 It does not appear that any copy of this letter was sent to Kristine. 31 I have difficulty in accepting the detail of the purported explanation set out in Mr Trimarchi's letter of 28 November 2001. Firstly, as I have noted, it is unlikely that the loan offer could have been accepted in his presence on 15 October 2001, given that it was dated 17 October 2001. Secondly, the letter in some respects goes beyond the matters referred to in Mr Trimarchi's file note and in his oral evidence. Thirdly, the letter goes well beyond what is recorded in the written "acknowledgement of legal advice by mortgagor" that appears to have been signed by at least three of the defendants (i.e., not including Rodney) and that is dated 15 October 2001. I infer that this was a document prepared by Mr Trimarchi or under his direction and that he procured Jarrod, Katrina and Kristine to sign on the occasion when he saw them. 32 The acknowledgment refers to the advice given by Mr Trimarchi in the following terms: "3. The advice given to me/us by my/our solicitor included that: (a) by signing the mortgage documents I/we will be liable for regular payments of Interest and repayment of the amount of the loan at the due date; (b) if I/we fail to make any payment on time, the lender can charge a higher rate of interest, and the lender's costs of rectifying that failure; (c) if I/we fail to comply with any of the terms and conditions of the mortgage documents including the obligations to pay principal or interest: (i) the lender can sue me/us personally; and (ii) the lender may take possession of my/our property; and (iii) after notice, sell my/our property to recover the amount owing with interest together and other costs including solicitor's costs, the costs of selling the property and the costs of maintaining the property; and (iv) if the proceeds of the sale of my/our property are insufficient to satisfy the debt to the lender, the lender can sue me/us for the deficit; and (v) the additional obligations, rights and remedies set out in the mortgage documents if the Consumer Credit Code applies; (vi) by making a Statutory Declaration verifying the giving of the advice I/we am/are making a statement having the force of an Oath which can be relied upon by the lender." 33 One obvious discrepancy is that the only legal advice relating to the Code, according to the acknowledgement, is that in paragraph 3(c)(v). If that were the advice given in respect of the Code, then it could not have conveyed to the Grays that, by signing the declaration of purpose, they were forgoing the protection of the Code. The acknowledgment in terms purports to be inclusive rather than comprehensive. However, one would think, Mr Trimarchi would be likely to have included in the acknowledgment the salient features of the advice given. 34 Advice in terms of paragraph 3(c)(v) of the acknowledgment could be read as suggesting that the mortgagors might have additional rights. In truth, the situation was that, by signing the declaration of purpose, they were losing rights. Advice in terms of the acknowledgment would not convey that to them. Advice on this topic in terms of the letter of 28 November 2001 (if given) might. But even in that case, if all that the mortgagors were told was that "the loan is not governed by the scope of the Consumer Credit Code", it would hardly convey to them the substance of the protections that they would lose by signing the declaration of purpose. 35 There is one more thing to note about the acknowledgment of legal advice. It purports to have been signed by Rodney. Rodney says that it is not his signature. His evidence was corroborated by Kristine and by the evidence of an independent expert, Mr Stephen Dubedat. It is now accepted that he did not sign the document. Nonetheless, on its face, the document stands as an acknowledgment by Rodney, among others, of receipt of legal advice from Mr Trimarchi on the terms set out. Mr Trimarchi received that acknowledgment and caused it to be sent off to the plaintiffs' solicitors. He did not check it. As he acknowledged when it was shown to him in the witness box, it was clearly misleading in that, on its face, it acknowledged the receipt of advice that had never been given. It is troubling that someone in Mr Trimarchi's position should send off important documents without either himself checking, or ensuring that someone competent checked, to see that they were in order. This, to me, suggests that the transaction was not one to which Mr Trimarchi paid a great deal of attention and that, as a result, his recollection of it may not be reliable. 36 Kristine says that Mr Trimarchi undertook to send the documents to Rodney by air express. Mr Trimarchi did not expressly deny that. However, he said, after Jarrod, Katrina and Kristine had signed, he gave the documents to Jarrod so that Jarrod could obtain Rodney's signature. I think that Mr Trimarchi did say that he would send the documents to Rodney by air express. His notes of the conference include a note of Rodney's address in Queensland. Kristine's evidence was that Katrina had given that address to Mr Trimarchi. It is difficult to see why he would have wanted it unless (as Kristine said was the case) he had undertaken to send something to Rodney. 37 However, I find, Mr Trimarchi did not himself send the documents to Rodney. The probabilities are that, as he said, he gave them to Jarrod so that Jarrod could obtain Rodney's signature. If the documents had been sent to Rodney by air express, then it is hard to see how his signature could have been forged unless he declined to sign them and returned them to someone who did forge his signature. This was not put to him. Indeed, his evidence, which I accept, was that he never received the documents. Given that someone forged his signature, it must follow, I think, that Mr Trimarchi, as he said, gave the documents to Jarrod and that Jarrod returned them at some later stage. 38 The mortgage document signed by Kristine and purportedly signed by Rodney purports to have been witnessed by Mrs Bessie Gray, who is Kristine's mother. Kristine denies that she signed the document in front of her mother. It is accepted that she did not. No one has suggested that, in fact, Mrs Bessie Gray did sign the mortgage document as witness. The unchallenged evidence of Mr Dubedat is that Mrs Bessie Gray's signature was forged.

Subsequent events 39 On about 31 October 2001, Kristine gave the certificate of title to 63 Adelaide Street to Mr Michael O'Doherty (who was the solicitor acting for Jarrod and Katrina on the purchase). She said: "I got a phone call off O'Doherty to bring down the mortgage papers for the house. … and that was while Rod was overseas, so I presume that the papers had gone up and Rod had signed them." : T 24.5. 40 She said that she "presumed that Rod had signed all the paperwork" and that she had tried to check with him and could not, because he was overseas: T 24.40-.45. 41 Rodney was absent overseas from about 30 October 2001 until about 12 or 13 November 2001. While he was away, Jarrod and Katrina completed the purchase of 28 Thompson Street. Obviously enough, Kristine became aware that this had happened. She said that she spoke to Rodney by telephone after his return from overseas. He said that he had not seen the paperwork on Jarrod's house. She told him that Jarrod and Katrina had moved in. He said: "They must have organised finance without our house being used". 42 Kristine was content to accept this explanation because she had not been given any document confirming settlement, or confirming that a mortgage had been taken over 63 Adelaide Street. She was not aware that this had happened until she got a copy of the mortgage document from Mr O'Doherty in June 2002. 43 Kristine's evidence on this point was that, although she knew that Jarrod and Katrina would require assistance from someone to buy 28 Thompson Street, she assumed that they had obtained assistance from Katrina's family: T 26.10. This, she thought, might have happened if he had made a number of applications for finance, another of which had come through : T26.30. She did not think further about this because she was busy with other matters, including that her mother was undergoing coronary by-pass surgery. It may be for this reason that she did not consider why, then, it was that she had had to give the certificate of title to Mr O'Doherty.

Mr Michael's certificate 44 At some stage, Kristine spoke to Mr Michael. Mr Michael said that this conversation occurred on 25 October 2001. He fixed this date by reference to a note that he had made on a facsimile transmission from the Loan Enquiry Centre whereby he was instructed to furnish "a standard type of Accountants [sic] Certificate". 45 Kristine's evidence was that the conversation with Mr Michael occurred "some weeks after the Mortgage over my property was entered into". However, it became apparent that, by this, she meant some weeks after she had seen Mr Trimarchi on 15 October 2001. Ultimately, she could not deny that the conversation with Mr Michael may have occurred on 25 October 2001. 46 It is clear that Mr Michael prepared a certificate. That certificate was dated 25 October 2001. It is clear that he faxed it to Mr Trimarchi (together with another certificate, relating to Jarrod and Katrina) on 25 October 2001. It is clear that Mr Trimarchi sent the certificates on to the plaintiffs' solicitors. 47 On balance, I think it likely that the conversation did take place on 25 October 2001. Although Kristine had initially denied that it took place on or about that date, she later, as I have said, agreed that it may have. This is consistent with her evidence that it took place within a week or two of the meeting with Mr Trimarchi. Further, she was unable to say whether the conversation took place before or after Jarrod and Katrina settled the purchase of 28 Thompson Street. 48 However, the certificate requires closer consideration. In it, Mr Michael certified, as I have said, that he had spoken to both Rodney and Kristine and that, from those discussions, he had in substance satisfied himself that they understood the financial risks associated with the mortgage. On any view, he did not speak to Rodney. That part of the certificate must be regarded as fabrication. Nor does his explanation, which was that from time to time, if he was satisfied by speaking to one joint obligor, he would not trouble to speak to the other, improve the position. 49 Further, I find that the conversation that he did have was substantially in the terms deposed to by Kristine. She says that Mr Michael told her that he had to make sure that she could make the repayments and that she said "well I know I can't". She says that he then asked about Jarrod and Katrina and that she said that they could "if they pulled their belts in a bit, they could do it". 50 Kristine explained that, at the time Mr Michael contacted her, she was unemployed. If, as he said was his practice, he had asked her for details of her employment and income and if, contrary to her practice, she had responded, she would have told him that she was unemployed and had no income. (The reference to "her practice" picks up her evidence that she would not give out information over the telephone to unsolicited callers whom she did not know. I accept this evidence.) 51 Mr Michael's handwritten note was in the following terms: "Spoke to Christine [sic] Gray. She understood the terms of the mortgage. Had the capacity to pay." 52 I am satisfied that Kristine did not say anything to Mr Michael that could possibly have satisfied him that she had the capacity to pay the mortgage other than through the sale of her own house. 53 The role of Mr Michael is very troubling. On any view, his certification was important. It appears to have been a prerequisite to settlement. It was part of the process by which, no doubt, the plaintiffs sought to protect themselves against defences of the very kind that are now raised. But it was lamentably defective. Firstly, in so far as it suggested that Mr Michael had spoken to Rodney and had satisfied himself that Rodney understood the implications of the loan, it was false. Secondly, there is no basis upon which Mr Michael could have satisfied himself, so as to be able to certify, that Kristine understood the financial risks associated with the mortgage. If, as Kristine says, he did not enquire of her capacity to repay then he could not have formed the view that he expressed. If he did enquire, and had been told either nothing or that Kristine was unemployed, he could not have formed the view that he did. 54 Strictly speaking, the certificate does not say that Kristine could afford to make repayments. It says that Mr Michael "enquired of [Rodney and Kristine] as to their financial circumstances and their capacity to pay the Mortgage payments as they fell due and their capacity to repay the principal sum upon expiration of the Mortgage". It does not say that he was satisfied, from what he had been told, that they had the capacity either to pay the mortgage payments as they fell due or to pay the principal sum. However, it does certify his satisfaction that he "had covered the financial risks associated with entering into a first Mortgage of $270,000 in the present financial climate". The clear implication was that Mr Michael was satisfied, from the information that he had been given by Rodney and Kristine, that they had the capacity to meet their obligations under the mortgage. Even leaving aside the falsity of the certificate in so far as it relates to Rodney, I find that Kristine said nothing to him that could have conveyed to him this impression. 55 Another troubling aspect of Mr Michael's role is that he was commissioned by the Loan Enquiry Centre to provide "a standard type of Accountants [sic] Certificate". The instructions that were given to him showed that the loan required was $270,000. However, they said nothing of the term of the loan, the interest rate, the monthly (or other) repayments. He could not have got these details from Kristine, nor did he suggest that he did. But even leaving aside these deficiencies, my concern is that Mr Michael was retained by the Loan Enquiry Centre. The Loan Enquiry Centre was not the agent of the plaintiffs in any way. On the evidence, it was acting in the interests of Jarrod and Katrina, and was remunerated by them, although the funds for its remuneration were provided out of the mortgage advance. If Mr Shoostovian had made any enquiry of Jarrod, Katrina and Kristine at the time of their meeting, it must have been apparent to him that they could not afford to meet their obligations under the proposed loan. Yet he was prepared to commission Mr Michael, as a purportedly independent expert, to provide a certificate that conveyed the very opposite impression. It is apparent that Mr Michael had received many such referrals from the Loan Enquiry Centre. It is apparent that he was remunerated well for his services: the evidence suggests that he received a fee of $220 for what must have been no more than five or ten minutes' work.

Kristine's personal circumstances 56 Kristine's evidence of her personal circumstances was in substance unchallenged. She is 48 years of age. She left school in third form at the age of 15. When she left school she cared for her sister, who was then pregnant, for some 3 months. 57 Thereafter, Kristine worked for 2 years as a factory worker. She fell pregnant and left work to care for her newborn son. When her son was 18 months old she undertook a TAFE course in clothing construction techniques. That course occupied 12 months. 58 For the next 10 years, Kristine worked only as a babysitter for friends. She then had twins and, for 5 years thereafter, she was occupied full time at home. 59 From 1991 until July 2001, Kristine worked with Mission Australia in the field of child care. From July 2001 until the end of 2001 she worked on a casual basis through an employment agency. She then worked as a child care assistant at a preschool until July 2002. Thereafter, until December 2002, she worked on a casual basis through an employment agency. From December 2002 until December 2003 she was a child care assistant at another preschool. She has been unemployed since 19 December 2003. 60 Kristine's understanding was that the loan was required for Jarrod and Katrina and not for her. She understood that (as was the case) the loan would be applied entirely for their purposes. She received no part of the loan monies. She had no legal interest in the property at 28 Thompson Street. 61 As I have recorded in para [11] above, Jarrod approached Kristine on the basis that he could get a loan "if you put up your house for the deposit". She says that she understood that her involvement in the transaction "was only to secure a deposit for the purchase of his house". 62 In general terms, Kristine understands the nature of a mortgage in that she understands that it is a security over property for the repayment of money lent. When she and Rodney bought 63 Adelaide Street, they borrowed money and gave a mortgage. 63 However, Kristine's evidence is that she did not believe that there was a real risk that Jarrod and Katrina would not meet their obligations to the plaintiffs or that, as a result, she would lose her home. She said: "Had I believed there to be real risk, I would not have entered into the transaction as I was of the understanding that within six (6) months time my son and his wife would refinance this loan and as a result there would be no risk whatsoever." 64 The evidence does not disclose the basis upon which Kristine acquired the understanding that she referred to. However, her evidence on this point was unchallenged. Her evidence as to "real risk" is a little problematic: see, for example, para [11] above where, as I have found, Kristine told Jarrod that she did not want to lose her house. However, I infer, once Rodney had effectively given his approval to the purchase of 61 Adelaide Street, Kristine's fears were (perhaps unwisely) alleviated. Further, as Kristine told Mr Michael (see para [49] above), she thought that Jarrod and Katrina could meet their repayment obligations "if they pulled their belts in a bit". Accordingly, on balance, I accept her evidence as summarised in the first sentence of the preceding paragraph. 65 Finally, Kristine said that her only assets are her interest in the property 63 Adelaide Street and "a 1985 Mitsubishi Nimbus which is in a state of disrepair". She said, and I accept, that she had no means of repaying the mortgage other than through the sale of 63 Adelaide Street.

Preliminary issue: "is there a contract?" 66 Before I turn to consider Kristine's defence under the Act, it is necessary that I deal with the submission of Mr M W Young of Counsel, for the plaintiffs, that in the circumstances of this case there was no contract that is susceptible of analysis, let alone review, under the Act. This was so, he submitted, because Rodney's signature to the mortgage had been forged. 67 The starting point of the submission was that all the parties contemplated that there would be no contract until everyone had executed the mortgage. That would appear to be correct, as least so far as Kristine is concerned: see, for example, para [21] above. 68 Thus, it was submitted, the effect of registration was to make the mortgage valid as a charge, and to make the plaintiffs' interests as mortgagees paramount (Real Property Act 1900 s 42), but "there is simply no contract between the mortgagee plaintiffs in this case and either of the two parties [i.e., Rodney or Kristine]": T 94.20. 69 In support of this submission, Mr Young relied on the decision of Young J in Katsaitis v Commonwealth Bank of Australia (1987) 5 BPR 12,049. In that case, his Honour, having reviewed the authorities, said at 12051 "that where a document is expressed to be one to be made by more than one person of the one part, such document is subject to a precondition that it will not come into operation until all have signed, if the effect of it coming into operation earlier would be to impose on those who have signed a greater liability than it was ever intended that they should bear." (emphasis supplied) 70 The condition that I have emphasised is significant. In Katsaitis, one of two joint tenants signed a mortgage in circumstances where the mortgagee required the other joint tenant to sign. The other joint tenant declined to sign. The mortgage provided that references to "mortgagors" included the mortgagors or any of them, and that the mortgagors' covenants in the mortgage imposed joint and several liability. 71 In those circumstances Young J held, at 12053, that the first plaintiff's execution of a mortgage would not "subject [him] to any greater burden than he would have intended to bear because he would already be subject severally to the covenants in the mortgage." 72 In my view, his Honour's reasoning applies directly to the facts of the present case. The mortgage signed by Kristine contained similar (although differently expressed) provisions in clause 12.2: the singular includes the plural and vice versa; if two or more people are named as mortgagor, then references to the mortgagor are to each of them and all of them and their promises bind each of them and all of them. The effect of clause 12.2 is that the failure of Rodney to execute the mortgage does not subject Kristine to a greater burden than otherwise she would have borne. 73 Accordingly, I do not think that the premise of Mr Young's argument is made out. However, if I am wrong in this, there is another answer. 74 By s 36(11) of the Real Property Act, a dealing upon registration has "the effect of a deed duly executed by the parties who signed it". On any view, Kristine signed the mortgage; and the mortgage was signed on behalf of the plaintiffs by their solicitor. The effect of registration, therefore, was to make the mortgage effective as a deed between the plaintiffs and Kristine notwithstanding that Kristine did not intend to be bound by the mortgage unless and until Rodney signed it. 75 As Giles J pointed out in PT Ltd v Maradona Pty Ltd (1991) 25 NSWLR 643, 679, what is attained by registration of an instrument is, as s 42 of the Real Property Act makes clear, an estate or interest in the subject land. His Honour said that "[r]egistration does not validate all the terms and conditions of the instrument which is registered", but only "those which delimit or qualify the estate or interest or are otherwise necessary to assure that estate or interest to the registered proprietor." Further, as his Honour said at 681, registration would confer validity, or indefeasibility, on the personal covenant of the mortgagor, because "her personal covenant was so connected with the estate or interest with respect to which [the mortgagee] attained indefeasibility that it also achieved indefeasibility, and bound [the mortgagor]." 76 PT was a case of non est factum, not a case of forgery. But I think that what his Honour said applies exactly to the present case. 77 Mr Young relied on the decision of Dunford J in Permanent Trustee Co Ltd v Frazis [1999] NSWSC 319. In that case, the defendants sought to set aside a default judgment for possession. There was evidence to support the proposition that the defendants' signatures to the mortgage had been forged; but the mortgage had been registered. There was no suggestion that the plaintiff played any part in, or was aware of, the forgery or other circumstances of fraud. 78 The defendants raised a number of suggested defences, including one based on the Act. Dunford J said, at [17], of this defence, that: " … the applicant's [sic] complaint in this case is not that a contract they entered into with the plaintiff was unjust, their case is that they never entered into such a contract at all; and I fail to see how parties who deny that they entered into a contract can at the same time argue that such contract was unjust. The Contracts Review Act 1980 is an Act designed to review unfair contracts, not an Act to set aside relationships or obligations constituted by forged documents. The applicants' present predicament is not due to them having entered into a contract which was "unjust" within the meaning of that Act, but to the operation of the relevant provisions of the Real Property Act 1900 and in particular to the force and effect which that Act gives, on registration, to forged instruments. I am not aware of, and was not referred to, any case where relief has been granted under the Contracts Review Act 1980 to set aside a contract where the documents evidencing such alleged contract have been forged." 79 In the case before his Honour, each of the signatures was forged. In the present case, only Rodney's signature was forged; Kristine acknowledges that she signed the mortgage. It does not appear from his Honour's reasons that he was referred to s 36(11) of the Real Property Act. It is at least arguable that that subsection would have had no application to the facts before his Honour, because neither of the applicants could be described as "parties who signed" the relevant mortgage. Had Rodney pursued his defence under the Act, then the reasons of Dunford J in Frazis would have put a substantial barrier in his path. However, I do not think that his Honour's reasons can be extended to encompass the situation of Kristine. I therefore do not need to consider whether his Honour's decision was (as Mr Walsh submitted) incorrect. 80 It therefore follows that the effect of registration is to give the mortgage the effect of a deed as between the plaintiffs and Kristine, and that the terms of that deed include, at the very least, Kristine's personal covenant. In my view, that deed including at least that covenant is a "contract" for the purposes of the Act. 81 I therefore turn to the questions, whether the mortgage was unjust in the circumstances relating to it at the time when it was made and, if it was, whether any and if so what relief should be granted.

The Contracts Review Act defence: legal principles 82 Mr Walsh of Counsel, who appeared for Kristine, relied heavily on two decisions of the Court of Appeal. Firstly, he referred to Baltic Shipping Company v Dillon : The "Mikhail Lermontov" (1991) 22 NSWLR 1, and in particular to the reasons of Kirby P at 20, where his Honour said, in substance, that s 9 of the Act did not include "an obligation to show that the contract was unjust because it was produced by unfair conduct or unjust conduct on the part of one of the parties to it". Secondly, Mr Walsh relied upon Elkofairi v Permanent Trustee Co Ltd (2003) 11 BPR 20, 841, where the Court, in finding for the appellant mortgagor on the ground of unconscionability and under the Contracts Review Act, placed particular weight upon the fact that the respondent was prepared to lend only on the basis of the security, knowing that the appellant had no ability to meet repayments under the mortgage. 83 In West v AGC (Advances) Ltd (1986) 5 NSWLR 610, 620, McHugh JA noted that under s 7(1) of the Act, "a contract may be unjust in the circumstances existing when it was made because of the way it operates in relation to the claimant, or because of the way in which it was made or both." His Honour described those two kinds of injustice (for the purposes of the Act) as "substantive injustice" and "procedural injustice". The former focussed on the terms, consequences or effects of the contract. The latter focussed on the methods used to make it. As his Honour said, "[m]ost unjust contracts will be the product of both procedural and substantive injustice." 84 At 621-622, McHugh JA drew a distinction between the contract and the underlying transaction. He said:

(1) "It is important to bear in mind that it is the contract or its provisions which must be unjust."

(2) "If a defendant has not been engaged in conduct depriving the claimant of a real or informed choice to enter into a contract, and the terms of the contract are reasonable as between the parties, I do not see how that contract can be considered unjust simply because it was not in the interests of the claimant to make the contract or because she had no independent advice."

(3) " … under this Act, a contract will not be unjust as against a party unless the contract or one of its provisions is the product of unfair conduct on his part either in the terms which he has imposed or in the means which he has employed to make the contract." 85 The Act, and the decision of McHugh JA in West, have been the subject of close analysis in many following cases. The following propositions, relevant to these proceedings, may be stated:

(1) There is a distinction between the s 9 issue (whether the contract is unjust) and the s 7 issue (whether relief should be granted, and if so in what form): Nguyen v Taylor (1992) 27 NSWLR 48, 54-55 (Kirkby P), 71 (Sheller JA).

(2) Thus, a contract may be found to be unjust but nonetheless, in the exercise of its discretion, the court may refuse to grant relief (for example, because the party against whom relief is claimed was innocent of relevantly unfair conduct): West at 621-622 (McHugh J) ; Nguyen at 70 (Sheller JA) .

(3) Where a contract has been found to be unjust, it would in general be unsound to grant relief under s 7 where the party against whom relief is claimed was both innocent and ignorant of the circumstances giving rise to that injustice: Collier v Morlend Finance Corporation (Vic) Pty Ltd (1989) ASC ¶55-716, 58, 433 (Meagher JA); Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256, 277 (Meagher JA).

(4) In considering whether or not to grant relief, it is appropriate to take into account the policy of the law that contracts should be honoured; Nguyen at 61 (Meagher JA), 71 (Sheller JA) ; Baltic Shipping at 9 (Gleeson CJ) .

(5) The distinction between the contract and the underlying transaction may be illusory rather than real where the person against whom relief is sought was closely involved in the decision to enter into the underlying transaction: Elders Rural Finance Ltd v Smith (1996) 41 NSWLR 296, 309 (Handley JA);

(6) Nonetheless, a contract will not be unjust merely because it was not in the claimant's interests to enter into it, or because the claimant cannot perform when called upon to do so, or because enforcement of the contract will lead to the loss of the claimant's home: Esanda Finance Corp Ltd v Tong (1997) 41 NSWLR 482, 491 (Handley JA).

(7) In considering whether a contract is unjust, the court may look not only at the terms of the contract to see whether they are unjust, but also at the circumstances in which the contract was made, and at the effect that performance of the contract would have, having regard to those circumstances: Elkofairi at 20, 855 (Beazley JA). 86 I do not think that the comment of Kirby P in Baltic Shipping (see para [82] above) can bear the weight that Mr Walsh put on it. It was clear that his Honour was considering the s 9 issue: i.e., whether the contract was unjust. As I have already noted, a contract may be found to be unjust notwithstanding that the person against whom relief is claimed is innocent of relevantly unfair conduct. However, particularly bearing in mind the distinction that has been drawn consistently between the s 9 issue -injustice - and the s 7 issue - relief - I do not think that what Kirby P said in Baltic Shipping can be extended from the s 9 context to the s 7 context. In other words, I think, analysis of the issues under s 7 must start from the general proposition that I have sought to summarise in para [85 (3)] above. 87 It is also necessary to recognise, as Mahoney P pointed out in Elders Rural Finance at 298, that "the meaning of injustice lies in the reaction of the individual judge, informed by what has been said [by] those to whom he should pay regard". It is to inform myself of what has been said by those to whom I should pay regard that I have burdened these reasons by the preceding paragraphs.

The s 9 issue: "was the mortgage unjust?" 88 In my judgment, the mortgage was unjust in the circumstances relating to it at the time it was made. Adopting the terminology of McHugh JA in West, I think there was at least procedural injustice. 89 The circumstances that have led me to conclude that the mortgage was procedurally unjust include the following:

(1) Kristine was asked to make her house available as security for Jarrod and Katrina on the basis that her involvement "was only to secure a deposit for the purchase of [their] house": see paras [11] and [61] above.

(2) Kristine understood that Jarrod and Katrina would refinance the loan within 6 months, as a result of which there would be no risk: see para [63] above.

(3) Kristine was given no adequate explanation of, at least, the consequences of her signing the declaration under s 11 of the Consumer Credit Code: see paras [33] and [34] above.

(4) Kristine was not willing to sign the mortgage (and, I would infer, other documents) until Rodney had read them and said that it was OK, but signed them because Mr Trimarchi assured her that "they are not legal until Rod signs them … [i]f he doesn't sign them then that is the end of it": see paras [21] and [22] above.

(5) Mr Trimarchi's conduct in: not witnessing Kristine's signature (see paras [23] and [28] above); telling Kristine that he would send the documents to Rodney by air express but instead giving them to Jarrod to obtain Rodney's signature (see paras [36] and [37] above); and failing to check and thereby discover the clearly misleading acknowledgment of legal advice purporting to have been signed by Rodney (see para [35] above) facilitated, although without any knowledge on Mr Trimarchi's part or intention of doing so, the fraud that in fact occurred.

(6) Whatever may have been the merits of the explanation of the documents (apart from the certificate under s 11 of the Consumer Credit Code) given by Mr Trimarchi, Kristine received no explanation whatsoever of the financial implications of signing the mortgage (see paras [44] to [55] above).

(7) Mr Michael's action, in furnishing an Accountant's Certificate that was in one respect false and in another respect misleading, was a prerequisite to settlement of the transaction: see again paras [44] to [55] above. Had Mr Michael furnished a certificate that was true in word and in substance, it is impossible to believe that the plaintiffs (or their solicitors) would have proceeded to settlement. 90 In summary, Kristine's signature to the mortgage was procured by a representation that turned out to be inaccurate; the document became binding upon her as the result of a fraud that could and should have been prevented; and settlement of the transaction (so that it became binding upon her) would not have occurred but for a separate and fundamental misrepresentation. 91 The question of whether there was also substantive injustice is more difficult. On balance, however, I think that there was. In coming to this conclusion, I have relied in particular on the approach of Beazley JA in Elkofairi that I have summarised in para [85(7)] above. I take this approach because the effect of the procedural injustice was to deprive Kristine of the opportunity of having Rodney's approval of the transaction (see, in particular, paras [21], [22] and [89 (4), (5)] above. Rodney's evidence, which I accept, was to the effect that if the proposal had been put before him, with the documentation, he would not have proceeded. In those circumstances, I infer, Kristine would not have proceeded. The effect of the procedural injustice was to deny her that opportunity to withdraw from the transaction. 92 The circumstances that have led me to conclude that there was substantive injustice include the following:

(1) Kristine's interest in the property, 63 Adelaide Street, is her only substantial asset.

(2) Kristine had no income from which she could hope to keep up payments under the mortgage if Jarrod and Katrina fell into default.

(3) The amount borrowed ($270,000) for the purchase of 28 Thompson Street was more than the purchase price ($240,000) and more than the value of that property ($240,000).

(4) The only alternative source of relief was Rodney. But the application for mortgage finance did not disclose that he had any assets (apart from his interest in 63 Adelaide Street) or any income.

(5) Thus, barring some substantial increase in property values, it was highly likely (if not inevitable) that if Jarrod and Katrina made default - particularly in the early months of the loan - then both 28 Thompson Street and 63 Adelaide Street would need to be sold to cover the mortgage debt (particularly when account is taken of the costs and expenses of sale).

(6) The purpose of the loan, as stated in the application for mortgage finance, was to enable the purchase of 28 Thompson Street to proceed. That was to be purchased in the names of Jarrod and Katrina only. 93 In summary, the transaction was improvident in the highest from Kristine's perspective. She received no part of the loan funds, and nothing of value by reason of their application. It put at risk - substantial risk - her dwelling and only asset of significance. It was inevitable that if she were called upon to perform her obligations, she would lose her dwelling. There was a real likelihood that she would be called upon.

The section 7 issue: should relief be granted? 94 In considering this issue, I start from the position summarised in para [85 (2), (3) and (4)] above. I also bear in mind what Handley JA said in Tong (see para [85 (6)]). 95 There is no basis for thinking that the plaintiffs knew, or ought to have known, of any of the circumstances of procedural injustice that I have referred to in para [89] above. In this context, I note that Mr Walsh conceded that the Loan Enquiry Centre could not be regarded as the plaintiffs' agent. It follows that, to the extent that the Loan Enquiry Centre was responsible for, or had knowledge of, any of those circumstances of procedural injustice, that responsibility or knowledge cannot be attributed to the plaintiffs. 96 However, the position is different as to the circumstances of substantive injustice that I have referred to in para [92] above. As to the first and second of those circumstances: they were clearly disclosed by the application for mortgage finance given to La Trobe. La Trobe accepted the application for mortgage finance on behalf of the plaintiffs. It instructed the plaintiffs' solicitors to act on the loan. Even if the plaintiffs did not have actual knowledge of those circumstances, they had the means of knowledge through the information required by and given to La Trobe. La Trobe was, in substance, the agent for the plaintiffs for the purpose of placing their money out on mortgage. 97 As to the circumstance referred to in para [92 (3)]: the first (amount borrowed exceeded purchase price) is, again, disclosed by the application for mortgage finance. The second (value of 28 Thompson Street) is disclosed by a valuation commissioned for the plaintiffs and produced from the custody of their solicitors. 98 As to the fourth of those circumstances: the evidence disclosed that Rodney was possessed of substantial net assets (apart from his interest in 63 Adelaide Street) and earned a reasonable income. However, none of that was known to the plaintiffs. On what the plaintiffs knew, Rodney's only ability to contribute to any shortfall would come through his interest in 63 Adelaide Street. 99 As to the sixth circumstance: there was no basis, on the information available to the plaintiffs, upon which they could conclude that the "investment" was one for the benefit of Kristine (or Kristine and Rodney), rather than for the benefit of Jarrod and Katrina. Not only did Kristine in fact receive no material benefit from the loan, or from its application, there was no basis upon which the plaintiffs could think, on the material available to them from La Trobe, that she would. 100 Thus, it was apparent on the face of the transaction that the role of Kristine was, in substance, as a guarantor of a loan for the benefit of Jarrod and Katrina. 101 It was also apparent, on such material as the plaintiffs had, that if Kristine were called upon to perform her obligations then, as I have said, it would involve the loss of her residence and only substantial asset. 102 The risk of loss was real. Jarrod and Katrina needed to borrow every dollar, not just for the purchase but for all associated expenses. (Thus, they had "negative equity" in the property 28 Thompson Street.) Further, as was known to the plaintiffs, they had both been bankrupt. A bankruptcy search produced from the files of the plaintiffs' solicitors showed that each had become bankrupt on 15 August 1995 and had been discharged by operation of law on 16 August 1998. 103 Finally, the inference is open - indeed, I think, inevitable - that the plaintiffs chose to lend solely upon the basis that they were amply secured (as a result of the mortgage of 63 Adelaide Street) in circumstances where they had no basis for thinking that Jarrod and Katrina, or for that matter Kristine or Rodney, could keep up payments under the mortgage. Indeed, on the information available to the plaintiffs, none of those persons could. 104 In my judgment, these matters are a sufficient basis for the exercise of discretion under s 7 of the Act: compare Elkofairi at 20, 855 [79]. Before I consider the question of the relief that is appropriate, I will deal briefly with the alternative defence of unconscionability.

Unconscionability 105 In Elkofairi at 20, 850 [53], Beazley JA set out a number of circumstances that led to the conclusion that the appellant was in a special position of disadvantage. Her Honour, however, noted that "none of the matters were known to the respondent" so that "it is necessary to consider whether there were any other features of the transaction which made it unconscientious for the respondent to enter into this transaction with the appellant given the circumstances in which her execution of the contract was procured." 106 In reaching the conclusion that the transaction was unconscientious, her Honour focused, at 20, 851 [57], [58] on the circumstance that "the respondent was only concerned with its ability to recoup any amount outstanding on the loan in circumstances where it must be taken to have known … that the appellant, who was exposed to liability for the whole of the loan, had no ability to make even the first payment." There was therefore "both immediate and real" risk that the appellant would lose her only asset. This was not excused by the "vague and unparticularised" accountant's letters dealing with the appellant's husband's ability to repay: her Honour concluded that the material that was available to the respondent could not support the proposition that he would (and, I infer, could) "bear the liability for the repayments". 107 In the present case, what might be called the personal circumstances of special disadvantage that were present in Elkofairi (educational background, inability to read or write English or to understand other than the most basic spoken English, and difficult domestic circumstances) are absent. Further, in the present case, the plaintiffs were entitled to assume that Kristine had received legal advice on the documents that she signed. 108 However, as Beazley JA made clear in Elkofairi, a finding of unconscionability may be made even though the particular circumstances of the claimant have not been made known to the respondent. Her Honour's judgment shows, in the passages to which I have referred, that unconscionability may be demonstrated from the circumstances in which, to the knowledge of the respondent, the transaction is entered into coupled with the nature of the transaction. 109 It is, of course, correct to say that the application of the reasoning in Elkofairi is a matter for the circumstances of each particular case. It cannot be said that, because the particular loan in Elkofairi was unconscionable for the particular reasons given, that every other loan that exhibits those features must likewise be unconscionable. However, the reasons do show that it may be unconscionable for a lender to lend on the basis of security only, knowing that the borrower has no means of repayment and knowing that default will cost the borrower his or her only asset. 110 Where unconscionability is said to arise from the nature of the transaction, then it is relevant to look at any explanation that was given to the person alleging unconscionability, and equally to what the other party could reasonably have known as to any explanation that might have been given. In this case, it may very well be that there were, as I have indicated, deficiencies in the explanation given by Mr Trimarchi. However, on what the plaintiffs knew (through the acknowledgment of legal advice signed by, among others, Kristine, and furnished to the plaintiffs by Mr Trimarchi), the basic nature of the mortgage transaction, and the plaintiffs' rights in the event of default, had been explained. 111 It might also be thought that the plaintiffs knew (through Mr Michael's certificate, which was also furnished to them on settlement), that some enquiry had been made of Kristine's capacity to meet her obligations under the mortgage and that she understood what was involved from a financial perspective. However, even the most cursory check of Mr Michael's certificate against the application for mortgage finance would have shown a considerable discrepancy. If the plaintiffs wished to rely on Mr Michael's certificate to give them comfort as to Kristine's ability to meet her obligations, it was incumbent on them to seek to reconcile that certificate with the information on the application. (Absent such reconciliation, one or other document was plainly wrong.) Otherwise the plaintiffs were left with an insoluble problem: how could a person with no income service the mortgage? 112 It appears that the plaintiffs were not troubled by this discrepancy (if, indeed they noticed it) and gave it no consideration. Indeed, this might suggest that the plaintiffs sought the certification as a matter of form, not as the basis for any real consideration by them or their solicitors of the borrowers' ability to meet the loan. 113 In Elkofairi, Beazley JA concluded at 20, 852 [61] that the deficiencies in the explanation that had been given to the appellant did not affect, but rather reinforced, the conclusion that the transaction was unconscionable. 114 In my judgment, the circumstance that the plaintiffs failed (on the evidence) to consider, let alone make enquiry as to, what appeared to be a significant discrepancy in the information that they procured, as to Kristine's financial circumstances, is sufficient to make it unconscionable for them to rely on the mortgage in circumstances where they were lending only on the basis that they were well secured and where they had no reason to be confident that the borrowers could service the loan. In those circumstances, it must have been apparent to them that Kristine, having no material interest in the transaction, was at risk. Their action in proceeding was, I think, in all the circumstances unconscionable.

Relief 115 Kristine's case was that the mortgage should be set aside as void or, alternatively, should not be enforced. In my view, the latter is the appropriate course to take. Both under the Act and under the doctrine of unconscionable conduct, it is necessary to mould relief to the circumstances of the case. In my view, the circumstances that make the mortgage unjust require that it not be enforced. Likewise, the circumstances that render the mortgage unconscionable require that it not be enforced. As Kristine received no benefit from the mortgage, there is no basis upon which it can be argued that she should in some way do equity. 116 To go further, and avoid the mortgage, would do more than is necessary in all the circumstances. It might also have repercussions on the case between the plaintiffs and Rodney, to which I now turn.

The case against Rodney 117 During the hearing, Rodney withdrew his defences under the Act and on the ground of unconscionability. There was no other defence alleged. His claim was, in substance, against the Registrar-General under s 129 of the Real Property Act. He had cross-claimed against the Registrar-General on this basis and that cross-claim was resolved in the course of the hearing.

Conclusion and orders 118 In my judgment, Kristine's defences under the Act and on the ground of unconscionability succeed. The relief to which she is entitled is that the mortgage be not enforced against her. I think that the best way to achieve that result is to direct entry of judgment for Kristine on the plaintiffs' claim with costs. 119 The plaintiffs are entitled to succeed against Rodney. It would follow that I should direct entry of judgment for possession for the plaintiffs against Rodney with costs. 120 However, the parties may wish to consider these reasons and to put submissions on costs. Accordingly, the only order that I make at this stage is to stand the matter over, to a date to be arranged with my associate, but in any event no later than 26 March 2004, for the parties to bring in draft orders to give effect to these reasons and to put such submissions as they wish on the question of costs. ******

Last Modified: 03/08/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

CITATION : Small & Ors v Gray & Ors [2004] NSWSC 97 HEARING DATE(S) : 11 February 2004, 12 February 2004 JUDGMENT DATE : 5 March 2004

CATCHWORDS : CONTRACTS - Contracts Review Act 1980 (NSW) - whether contract of mortgage unjust - whether contract existed for the purposes of the Act - effect of forgery - section 9 - whether procedural injustice - whether substantive injustice - section 7 - whether relief should be granted - EQUITY - unconscionability - whether unconscionable where personal circumstances of the respondent not known to the claimant - whether nature of the transaction unconscionable Contracts Review Act 1980 LEGISLATION CITED : Consumer Credit Code Real Property Act 1900 Katsaitis v Commonwealth Bank of Australia (1987) 5 BPR 12,049 PT Ltd v Maradona Pty Ltd (1991) 25 NSWLR 643 Permanent Trustee Co Ltd v Frazis [1999] NSWSC 319 Baltic Shipping Company v Dillon: The "Mikhail Lermontov" (1991) 22 NSWLR 1 Elkofairi v Permanent Trustee Co Ltd (2003) 11 BPR 20, 841 CASES CITED : West v AGC (Advances) Ltd (1986) 5 NSWLR 610 Nguyen v Taylor (1992) 27 NSWLR 48 Collier v Morlend Finance Corporation (Vic) Pty Ltd (1989) ASC 55-716 Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256 Elders Rural Finance Ltd v Smith (1996) 41 NSWLR 296 Esanda Finance Corp Ltd v Tong (1997) 41 NSWLR 482 Judith Ann Small, Graham Douglas Owens, Helen Margaret Owens, Beth Moore, Douglas Walter Lack, Margaret Elaine Lack, Neil Mathie and Elizabeth Mathie PARTIES : v Jarrod Ian Gray, Katrina Elaine Gray, Rodney James Gray and Kristine Robyn Gray FILE NUMBER(S) : SC 11590/02 M W Young (Plaintiffs) COUNSEL : P B Walsh (Defendants 3 & 4) E G H Cox (for Registrar-General)

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