At 144, Ms Hannay conceded that she was unaware of what investment was in mind and didn't think to enquire further, she didn't turn her mind to what benefit Mrs Spina would be getting from the transaction.
86 The primary judge did not take into account, judging by what he in fact did say, that there was no basis for the lender to assume that the plaintiff had been advised, properly or at all, in respect of the transaction. On the basis of the finding that there was nothing to suggest that Angelina was intellectually incapacitated, it was insufficient to say that she had "albeit by her attorney" been properly advised. Ms Hannay's answer shows that the solicitors on which the respondent relied, did not know whether she had received independent advice or not, and indeed, did not even turn their mind to it.
87 The appellant's amended written submissions attribute five alleged serious errors in the judge's treatment of the Contracts Review case. I have, in passing, in the above summary, dealt with some of them, but I should now focus on those five alleged errors.
88 The first alleged error is the erroneous treatment of the lack of adherence to guidelines. I have already dealt with that.
89 The second is failure to realise the injustice where, allegedly as here, there was indifference to the ability of the borrower to service the loan and the lender is content to proceed on the basis of enforcing the security.
90 This was one of the basic reasons for injustice in Khoshaba. The appellant recognises that this case is different from Khoshaba because here the lender was looking to a co-borrower to service the loan, but it was submitted that the fact remains that in assessing the injustice of the loan so far as Angelina was concerned, the lender was content to enforce the mortgage against Angelina if anything happened to Michael. Furthermore, Australian Lending Services showed in its documents its evident preparedness to rely on the market rental valuation of the Cherrybrook property without making any enquiries about the actual rental income. In Khoshaba this sort of attitude by the lender was regarded by the Chief Justice (see [82], [84] and [92]) as determinative of injustice. See also per Beazley JA in Elkofairi at [56]-[60]. The trial judge did not take this matter into account.
91 The third alleged error was the judge's failure to take into account that the transaction involved possible loss of Angelina's only significant asset.
92 Indeed, the judgment proceeds on the basis that the Cherrybrook property was not Angelina's home. It does not mention that in almost every document before the lender and its associates when the application for loan was made, the Cherrybrook property is described as Angelina's home. Indeed, this circumstance is said to negative any suggestion that the lender thought otherwise than Angelina was a whole and hearty person living in her own home. In my view, the transaction must be judged, so far as the lender is concerned, on its taking a security over an 86 year old lady's major asset and apparent home in circumstances where it only relied on the co-borrower's income to service the loan and had paid no attention at all, it would seem, to what would happen if the co-borrower ceased to produce income. The possibility of an 86 year old woman being deprived of her home given as sole security for a loan to her and her son where the latter, who is the only source of the interest repayments, defaults, is hardly a matter that can be blissfully ignored by a lender wishing to protect itself from an unjust contract claim.
93 The fourth alleged error was to assume too much about what Blessington Judd may or may not have advised Angelina. I have already dealt with this.
94 The fifth alleged error was not to acknowledge that the loan monies, apart from the discharge of the NAB mortgage, were not used to benefit Angelina. Instead what the judge did take into account were supposed benefits which Angelina gained by having the NAB and Across Australia Finance mortgages discharged.
95 The appellant says that because of these errors the judgment on the Contracts Review Act point cannot stand.
96 As to the first alleged error, the respondent's counsel acknowledges that the Court may have regard to departure from operations manuals when considering whether a contract is unjust. However, for the reasons that I have already referred to, it says that any failure did not, in the present case, make any difference.
97 As to the second alleged error, the present case is quite different from Khoshaba and Elkofairi. In both those cases the borrower had no legal assistance and in this case, as opposed to those cases, the respondent specifically considered the ability of the borrowers to service the loans.
98 As to the third alleged error, counsel for the respondent put that the primary judge did address this matter. Certainly, he mentioned the matter at point A in his paragraph [286], but in connection with the fact that the Cherrybrook property was not the plaintiff's home. He does not take into account that it was her only substantial asset (whether the property was her home or not), nor that at the relevant time, the lender thought it was her home.
99 In my view, the appellant's attack on the judgment on the Contracts Review point is made out and the decision of the learned judge must be set aside and this Court must itself consider whether the contract was unjust.
100 The above discussion has put forward the major factors as to why the contract may be unjust.
101 Before dealing with countervailing considerations, I should note that various authorities were put to the judge by counsel for Angelina which might assist him in his decision.
102 The judge took the view at [266], correctly, that consideration of whether relief should be granted to a party under the Act involves a two-step process. First, a determination as to whether the contract was unjust in the circumstances relating to when it was made, and secondly, what relief ought to be given to avoid an unjust consequence or result: Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256.
103 As Brereton J said in Riz v Perpetual Trustee Australia Ltd (2008) NSW Conv R 56-198 at [51], a passage approved by the Court of Appeal in Kowalczuk at [87], the first of these "is a conclusion of fact, albeit one of ultimate fact involving a broadly based value judgment. … The second, which arises only if the first is resolved in the affirmative, … involves the exercise of a judicial discretion."
104 Campbell JA said in Kowalczuk at [88]:
"Thus, if the contract is found unjust by reason of circumstances not known to one of the contracting parties, it does not automatically follow that relief will be given to remedy that injustice."
105 The primary judge acknowledged that the circumstances described in section 9(2) of the Contracts Review Act are not exhaustive, and that each case must be determined on its own facts. That also is, of course, completely correct. However, how the courts have treated analogous situations is a useful guide to judges considering whether the contract in the case before them is unjust. One reason for this is that for certainty in the law, decisions on the Act should show consistency.
106 In Pasternacki v Correy [2001] ANZ ConvR Cases 240, this Court, constituted by Sheller, Stein and Fitzgerald JJA, dealt with a similar case to the present and set aside a contract where a widowed mother of Italian origin, then an aged pensioner, mortgaged her principal asset, her family home, for her son to obtain funds for his business. Even though the mother had acknowledged she might lose her home if the loan went bad, she was given little guidance when making such a momentous decision.
107 One of the cases put to the primary judge by Angelina was National Australia Bank Ltd v Hall (1993) NSW Conv R 55-684, a decision of Dunford J. In that case, Mrs Hall, the mortgagor, was an elderly lady who owned a house in which she was born and had lived all her life. Her son-in-law operated a used car business. He needed bank accommodation for business purposes and he and the mortgagor's daughter asked her to go guarantee for the advance. The guarantee and mortgage were executed at one of the bank's branches, the documents were not discussed with or explained to the mortgagor, and she was not given copies. The son-in-law's business went into liquidation. Dunford J held that there was no equality of bargaining power between the mortgagor and the bank, she was not reasonably able to protect her interests, the documents were difficult to follow, she received no legal or other advice and although she stood to receive no benefit whatsoever from the transactions, she ran the risk of losing her only substantial asset.
108 The primary judge, however, found no assistance in that case. He said at [278] that although Mrs Hall stood to receive no benefit whatsoever from the transaction, but ran the risk of losing the house in which she was born, the case depended on the bank not dealing with her in any real sense, she merely turned up to sign documents and she did not have a lawyer. With respect, I consider that the Court is given more assistance from Dunford J's treatment of the situation before him than was acknowledged in that passage from the primary judge's judgment.
109 The primary judge also distinguished Elkofairi. He said at [282] that in that case the defendant was on notice that the co-borrower and principal debtor had limited prospects of meeting his obligations under the loan, whereas in the present case there was no evidence to suggest that Michael did not have the resources to meet the interest; indeed he paid it during his lifetime and there was no evidence that the estate could not afford it. Furthermore, rental income from Cherrybrook may not have been sufficient on its own to meet all the interest, but could meet at least half of it.
110 I agree with the submissions of Mr Leopold that in the present case, one cannot just say that because the lender reasonably assumed that one co-borrower could pay the current interest, that the other co-borrower was somehow or other protected. When one is looking to see whether there was injustice to the co-borrower, one must take into account the possibility that something might happen to that co-borrower to affect his or her ability to make payments. This does not seem to have occurred to the lender and with respect, it does not seem to have occurred to the learned trial judge.
111 The judge said at [286] and [289] that the countervailing factors included: (a) at the time the fact was that the Cherrybrook property was not the plaintiff's home; (b) the respondent did not seek to induce the plaintiff to enter into the contract; (c) there was no evidence that Michael exerted any undue influence on Angelina; (d) the terms of the loan and mortgage were not harsh, oppressive, unconscionable or unjust; (e) that Angelina obtained the benefit of the discharge of the mortgage to the National Australia Bank; (f) Angelina obtained the benefit of the discharge of the mortgage to Across Australia Finance; (g) there was no suggestion that Angelina might require any income from the Cherrybrook property to remain in the nursing home; (h) the respondent in no way inhibited Angelina from obtaining independent advice; (i) the respondent sought and obtained certificates as to legal advice from solicitors purporting to act for Angelina; (j) the respondent applied no undue influence, unfair pressure or unfair tactics on Angelina or any of her representatives.
112 Those were proper matters to take into account though (f) is probably wrong, (h) is equivocal in that the respondent knew only that Michael had received legal advice and (i) is, at the very least, also equivocal for the same reason. Critically, the solicitors did not obtain a certificate as to legal advice given to Angelina, but only given to Michael, albeit in his capacity as Angelina's attorney. However, against the remaining factors has to be placed the factor that the respondent was the master of the situation. It was in a position to dictate whether or not it would make a loan. It knew what it had to do to protect itself, and it issued its operations manual. There was no suggestion in this case (as there have been in some cases I have heard at first instance), that the manual was merely a public relations exercise: it must be assumed that it was seriously meant to protect the lender and, as the Chief Justice said in Khoshaba at [80], it had the incidental effect of protecting the borrower. The respondent knew that the mortgagor was an 86 year old lady with a shaky signature. They would have thought that the mortgage property was that lady's home. The documents strongly suggest that the proceeds were going to be used for Michael's benefit (apart from the discharge of the National Australia Bank mortgage).
113 In my view the factors favouring declaring this contract unjust outweigh those that do not.
114 As to discretion, the second of the two steps referred to earlier in this judgment, most of the same factors come into play. However, there are at least two additional factors: