Spina v Permanent Custodians Limited

Civil Procedure Act 2005, s 101 LEGISLATION CITED: Contracts Review Act 1980, ss 7, 9, 19 Powers of Attorney Act 2003

Abbott v UDC Finance Ltd [1992] 1 NZLR 405 (CA) Accom Finance Pty Ltd v Mars Pty Ltd (2007) 13 BPR 24,729 Ardern v Bank of New South Wales [1956] VLR 569 Barclays Bank plc v O'Brien [1994] 1 AC 180 Barclays Bank plc v Thomson [1997] 4 All ER 816 Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256 Bridgewater v Leahy (1998) 194 CLR 457 Elkofairi v Permanent Trustee Co Ltd (2002) 11 BPR 20,841 Garcia v National Australia Bank Ltd (1998) 194 CLR 395 CASES CITED: Kleinwort Benson Australia Ltd v Armitage (Cole J, 26 April 1989, unreported) Kowalczuk v Accom Finance Pty Ltd (2008) 252 ALR 55 Longmate v Ledger (1860) 2 Giff 157; 66 ER 67 National Australia Bank v Hall (1993) NSW Conv R 55-684 National Australia Finance Ltd v Fahey [1990] 2 NZLR 482 Pasternacki v Correy [2001] ANZ ConvR 240 Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41 Ribchenkov v Suncorp-Metway Ltd (2000) 175 ALR 650 Riz v Perpetual Trustee Australia Ltd (2008) NSW Conv R 56-198 Vakele Pty Ltd v Assender (1989) 4 BPR 9591 Vella v Permanent Mortgages Pty Ltd (2008) 13 BPR 25,343

PARTIES: Joe Spina (Appellant) Permanent Custodians Limited (Respondent)

COUNSEL: A Leopold SC and J Clifton (Appellant) S A Gregory (Respondent)

SOLICITORS: Grogan & Webb Solicitors (Appellant) Hicksons Lawyers (Respondent)

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT JUDICIAL OFFICER: Hammerschlag J

LOWER COURT MEDIUM NEUTRAL CITATION: Angelina Spina v Permanent Custodians Ltd [2008] NSWSC 561

N THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40313/08 SC 2393/06

TOBIAS JA CAMPBELL JA YOUNG JA

Wednesday 22 July 2009 SPINA v PERMANENT CUSTODIANS LIMITED

On 24 October 2003, Angelina Spina (who is now deceased) and her son, Michael (who is also, now, deceased), on the one part, and Permanent Custodians, the respondent, on the other part, entered into a Loan Agreement. Under that agreement, Permanent Custodians Ltd obtained a mortgage over Angelina's Cherrybrook property, her only asset, as security for the $400,000 loan to Angelina and Michael. At the time of contracting, Michael Spina held a power of attorney in relation to Angelina Spina's affairs. Angelina Spina was an Italian-born woman who was 86 years old at the time of contracting and lived in a nursing home, had no income and the Cherrybrook property was virtually her sole asset.

The appellant, Joe Spina, as executor of the estate of Angelina Spina, appeals from a decision of Hammerschlag J who dismissed a claim brought by her tutor, Sarina Spina (Angelina's daughter-in-law) to have a loan agreement and supporting mortgage given to the respondent, Permanent Custodians Ltd, set aside on the grounds of unconscionable conduct of Permanent Custodians or that it was 'unjust' under the Contracts Review Act 1980.

Joe Spina appeals against the trial judge's findings a) that Angelina Spina was at no special disadvantage and b) that Angelina Spina was not entitled to relief under the Contracts Review Act.

The power of the attorney to act as Michael did was not challenged on appeal.

There was no evidence that Angelina was incapacitated. The mortgagee obtained a certificate that Michael had received independent legal advice, but did not obtain one to the effect that Angelina had received such advice. In fact, she had not.

The mortgagee's lending guidelines were not observed when making the subject loan. This was a significant factor to consider when judging whether the contract was unjust or unreasonable.

In such circumstances where the mortgagee was "asset lending" over the home of an elderly person who apparently received no advice, for the sole benefit of a relative, the transaction should be varied to relieve Angelina of liability to repay monies she did not receive.

Usually it is preferable to approach the enforceability of such contracts under the Contracts Review Act rather than under principles of unconscionability.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40313/08 SC 2393/06

TOBIAS JA CAMPBELL JA YOUNG JA

Wednesday 22 July 2009 SPINA v PERMANENT CUSTODIANS LIMITED

1 TOBIAS JA: I agree with Young JA. 2 CAMPBELL JA: I agree with Young JA. 3 YOUNG JA: This is an appeal from a decision of Hammerschlag J who dismissed the claim of Angelina Spina to have a loan agreement and supporting mortgage given to the respondent with respect to her property 153 Shepherds Drive, Cherrybrook, set aside. The grounds of the application which are still relevant were that the transaction was brought about as a result of the unconscionable conduct of the respondent or ought to be set aside under the Contracts Review Act 1980. 4 Since the case below was argued, the plaintiff has died: the present appellant is her executor. 5 Probably the bulk of the primary judge's judgment involved considering the operation of the Powers of Attorney Act 2003. Although his Honour's finding on that issue was originally included in the notice of appeal, it was abandoned. This confined the appeal to grounds challenging the primary judge's findings on "unconscionability" and the "Contracts Review Act". 6 An amended notice of appeal was filed with leave which noted that no attack was made on that part of the judgment dealing with the power of attorney's validity. The grounds were renumbered and, in some respects, were expanded. Grounds 1 to 15 put forward alleged errors on unconscionability. Grounds 16 to 29 are grounds as to why orders should be made under the Contracts Review Act. 7 As was logical, appellant's counsel put their submissions principally on the Contracts Review Act grounds. 8 The appeal was heard on 20 May 2009, Mr A Leopold SC and Mr J Clifton appeared for the appellant and Mr S A Gregory for the respondent. 9 The thrust of the appellant's complaint appears from para 5 of his counsels' amended written submissions which I will quote: "5. The trial judge declined to hold that a mortgage to the respondent (Blue 1 29) over the only significant asset of Angelina [Spina], who was at the time of contracting an infirm, 86-year-old woman who resided in a nursing home, and which secured a loan (Blue 1 1) for $400,000 to Angelina and her son, Michael, was neither unconscionable in equity nor ' unjust ' under the Contracts Review Act 1980 (NSW), even though a substantial portion of the loan was applied in a way which was of no benefit to her and even though, to the respondent's knowledge, there was a real question whether Angelina personally could service the loan if Michael for any reason could not." 10 Taking further facts from the judgment of the primary judge, Angelina Spina was born in 1917 in Sicily and emigrated to Australia in 1952. Her husband died in 1983 and she purchased her Cherrybrook property in 1987 in which she lived alone until 2002 when she had a fall. 11 As a consequence of the fall, Angelina went to live with her son Michael and daughter-in-law, Sarina, for three or four months and in early 2003 Michael became involved in managing the plaintiff's affairs and was given a power of attorney. In March 2003, Angelina moved into the Scalabrini Nursing Home at Austral and ceased to live in the Cherrybrook property. 12 Michael Spina operated a company known as "Spywing Pty Ltd" which traded as Action Fruit supply from a stand or nodule at the Flemington Markets near Sydney. 13 Michael Spina died suddenly and unexpectedly of a heart attack on 6 December 2005 aged 66 and Sarina Spina became the sole director of Spywing Pty Ltd. At her instigation, Spywing Pty Ltd was placed into administration on 30 March 2006 and later went into liquidation on 3 May 2006. 14 The present proceedings were commenced by Angelina by her tutor Sarina on 23 June 2006. Angelina Spina died on 29 June 2008 and the reasons of Hammerschlag J were published the next day. 15 The transaction involved in this appeal took place in 2003. However, it is necessary to go back a little before this transaction. 16 As I have noted, Angelina was admitted to the nursing home in March 2003. On 26 March 2003, in a letter addressed to "Mr M Spina" at a Dundas Valley address, the National Australia Bank offered Michael and Angelina Spina their FlexiPlus mortgage for $150,000. 17 There is a second copy of letter of 26 March addressed to "Mrs A Spina" at her Cherrybrook address and in Blue 448 is Angelina's very spidery signature indicating her acceptance of the offer. The mortgage which was over Angelina's Cherrybrook home, bears date 26 March 2003. There is not sufficient evidence to show where the money received from the National Bank pursuant to these documents went. 18 In August 2003, an unregistered mortgage over the Cherrybrook home was purportedly given by Angelina Spina to Across Australia Finance Pty Ltd. It was signed by Michael Spina as attorney. The terms of the mortgage were that it was at 72% per annum, the first interest payment due on settlement. It would appear that the proceeds were used for Michael or Michael's business. 19 I now pass to the subject transaction. It needs to be understood that the respondent is the trustee of a mortgage trust which is administered by Australian Mortgage Securities Ltd a company which appears to be associated with G E Capital Finance Australasia of Victoria. 20 The trust obtains its "customers" by financial advisers and brokers approaching one of its "Correspondents". The correspondent prepares the paperwork for the loan and, if it is granted, "services" the loan by collecting payments and chasing defaults etc. For ease of reference, these reasons will often use the term "lender" indiscriminately to refer to some organ on the lender's side of the transaction. 21 The contract and mortgage the subject of this appeal seem to have been initiated by Michael Spina consulting a financial consultant, Prestige Financial Corporation Pty Ltd of Burleigh Heads, Queensland, a company which was represented by Mr Prestia. Mr Prestia obtained a valuation of the Cherrybrook property which set out its value at $720,000. Mr Prestia forwarded an application for finance to Australian Lending Services of Surfers Paradise, Queensland which was a correspondent. By facsimile of 13 October 2003, Mr Cornford of that company, asked Mr Prestia: "A couple of things I am not clear on. - Purpose - need $400,000 but only have a statement for $148,000 Will need at least 6 months' statements on all refinances - Financials - do you have the 2002 profit accounts statements. Please call." 22 On 13 October 2003, Mr Prestia sent the accounts of Spywing Pty Ltd to Australian Lending Services. 23 On the same day Australian Lending Services sent to "Mr M & Mrs A Spina" c/- Prestige Financial Corporation Sydney, a letter advising that the loan had been approved. The lender would be Permanent Custodians Ltd, the "servicer" would be Australian Lending Services Pty Ltd, the aggregate of the loan, $400,000 and then come the words "Purpose of loan: acquisition of investment and refinance existing loan". The acceptance is signed by Michael Spina who also seems to have signed "A Spina", presumably pursuant to the power of attorney he held. A declaration for the purpose of the Consumer Credit Code that the credit was wholly or predominantly for business or investment purposes, was signed in the same way as were other ancillary documents. 24 Australian Lending Services then prepared internal documentation with respect to the loan. One Melissa Dyer certified that she had checked with M Spina's accountant as to his base income. She noted his address at Dundas. The purpose of the loan she inserted:

"Purchase investment property (future) $230,000 Refinance $150,000 Anticipated costs and expenses $20,000 Total $400,000."

She noted the security was the Cherrybrook home which was "Owner-occupied". Under background she wrote "Borrowers are son and mother who have operated a wholesale produce business from Flemington Markets for 16 years." On the next page she noted how she had computed Michael's average income. 25 On 16 October 2003, Australian Lending Services told Prestige Financial Corporation the loan had been approved. On 17 October 2003, Mr Prestia informed Australian Lending Services that Blessington Judd, Solicitors, of Sydney were now acting for M and S Spina. 26 On 22 October 2003, Melissa Dyer sent to Australian Mortgage Securities Ltd a request to "purchase" the subject mortgage. The internal paperwork of this corporation shows that it was sending correspondence to Michael Spina at Dundas, that the mortgage property was the Cherrybrook property which was described as "Residential Owner Occupied". The paperwork seems to have been compiled by a Ms Dominique Broudou. She put under loan purpose description "Acquisition of future investment" and then in handwriting "Expense for Mr ?" (possibly "Expense for Mr S"). 27 Appellant's counsel say that whichever way one reads this, it signified an appreciation that it was at least a real possibility that a substantial part of the loan monies would be paid to Action Fruit Supply operated by Mr Spina. The respondent denies this and says the better view is that it is a question mark rather than an "S" and that it signifies a query rather than any appreciation by Ms Broudou or her employers. The mark appears to me to be a question mark, but I consider that the appellant's construction of the handwriting is more likely to be correct. 28 On 22 October 2003, Ms Broudou sent to Ms Dyer a facsimile asking for confirmation "whether Mr pays rent/mortgage at his residence". Ms Dyer faxed back "No, O/O unencumbered". 29 On the same day, Ms Broudou sent to a Queensland firm of solicitors, via Ms Dyer, instructions to prepare mortgage and ancillary documents. The loan purpose was given as "Acquisition of future investment for $230,000, refinance home loan $150,000 and associated costs $20,000". [Actually by mistake $115,000 was inserted instead of $150,000]. 30 The Queensland solicitors, on 31 October 2003, sent to Australian Mortgage Securities Ltd and to the present respondent described as "trustee" a certificate that everything was in order. The certificate would seem to be in a form that would have been prohibited under NSW law though that law did not prevent a Queensland solicitor issuing such a certificate in Queensland even in respect of a mortgage of NSW land. The mortgage to complete the transaction was signed by Michael Spina as Angelina's attorney as were ancillary documents. 31 The lender's organisation required an acknowledgement of legal advice by the proposed borrower. Michael Spina provided this for himself and also as attorney for Angelina Spina. This was not sufficient for the lender's purposes. Accordingly, on 30 October a declaration was made in the following form: "I Michael Spina of … Dundas NSW DO SOLEMNLY AND SINCERELY DECLARE as follows: 1. I am the attorney for the borrower Angelina Spina … as named in certain loan and security documents in favour of Permanent Custodians Limited (Lender) relating to property located at … Cherrybrook. 2. I have received independent legal advice regarding the loan and security documents referred to in paragraph 1, as attorney for the borrower Angelina Spina. 3. After receiving that advice I have freely and voluntarily signed the following documents as attorney for the borrower Angelina Spina; (a) LOAN AGREEMENT (b) MORTGAGE …". 32 Australian Lending Services sent Michael Spina a settlement notice indicating that the transaction would be settled on 4 November. 33 Blessington Judd by telephone (Blue 369) instructed that the settlement monies be paid to Across Australia Finance $114,640, the National Australia Bank $152,000, Blessington Judd's account and the balance to Michael Spina - Action Supply. The monies were indeed transferred to Blessington Judd who accounted for them accordingly. 34 I should note that the Queensland solicitors charged $275 for the work they did. The work involved legal work in NSW which they may not have been qualified to do, though everything they did do was done across the border in Queensland, the majority of the work being performed by a paralegal. However, it would seem that there is no Contracts Review Act in Queensland and that the ramifications of that legislation were at no stage present to the mind of the paralegal who "processed" the transaction. However, the lender's operations manual of which the Queensland solicitors had a copy drew attention to the general problem for lenders of courts setting aside unfair contracts. 35 Australian Lending Services also seemed to have sought and obtained a Baycorp Consumer and Commercial Report in respect of Michael Spina and Action Fruit Supply. There is also a one page Baycorp report with respect to Angelina. It gives her address at Dundas and shows nil in respect of all matters including whether employed. 36 On 18 November 2003, there was registered a discharge of the mortgage from Angelina to the National Australia Bank and the mortgage to the present respondent was registered (the security given to Across Australia had never ever been registered). 37 The primary judge noted that mortgages held by the respondent are originated by so-called "Correspondents" of which Australian Lending Services was one. Australian Mortgage Securities issues to its correspondents, as it did to Australian Lending Services, an operations manual for internal use. This manual required correspondents to assess loan applications according to criteria specified by Australian Mortgage Securities. 38 This operations manual is reproduced in the Blue Appeal Book pages 655 and following. Those guidelines contain the following guidelines with unnecessary words omitted. "4.5 LOAN PURPOSE Evidence of the purpose for which funds are to be borrowed must be held on the Correspondent's file. Examples of satisfactory evidence include: … For a refinance, statements for the previous six months or letter from the outgoing mortgagee confirming satisfactory conduct of the loan over the last six months; For an investment, a copy of the investment plan from the financial adviser or a statutory declaration from the borrower containing details of the proposed investment …. 4.9 BORROWER'S INCOME Correspondents must not submit loan applications to AMS for approval unless the Correspondent is completely satisfied, having made all reasonable enquiries of the borrower, that the borrower will be able to meet its obligations under the loan contract in accordance with its terms without substantial hardship. The Code empowers the Courts to reopen transactions giving rise to a contract, mortgage or guarantee if it is satisfied that, in the circumstances when it was entered into or changed, it was unjust. Whether or not the loan is governed by the Code, Correspondents are required to satisfy themselves of the borrower's ability to afford the loan. … 6. LOAN SUBMISSION PROCESS 6.1 Process… STEP 1 INITIAL ASSESSMENT AND INTERVIEW … Every borrower and guarantor must be identified. The introducer who will complete Section B of the Record of Interview and Identification form … may undertake this process. Each borrower/guarantor must be identified by the introducer during a face-to-face interview at which time the introducer sights two original forms of identification … 7.5.2 INDEPENDENT LEGAL & FINANCIAL ADVICE TO THE BORROWER A Declaration by Borrower is attached to the Loan Contract for all product types. However, this is optional, as the borrower may elect to sign the Borrower's Acknowledgement, if the borrower chooses not to take independent legal advice … 7.5.3 INDEPENDENT LEGAL ADVICE TO BORROWER/GUARANTOR The approved solicitor must ensure that the appropriate conformation of independent legal advice is held. … The solicitor must also take all reasonable steps to satisfy himself that the borrower's solicitor (if the Borrower has taken legal advice) and the guarantor's solicitor have obtained and retained on their file an acknowledgement of legal advice (in the prescribed form) from the borrower/guarantor." 39 The appellant says that as to loan purpose, not only were there inconsistencies in the various application forms, but the words "investment" or "future investments" were just cryptic words on forms. There were never any details as required by the guidelines. The words "expense for Mr ?" at the very least showed that a substantial part of the loan monies might be paid to Spywing. There was no "investment plan" of the kind required by clause 4.5. Had it been obtained, it would have emerged that the so-called "investment" was really an injection of working capital into a business with a gross profit margin of just 14.5%. The submission cites the Spywing 2003 accounts which had been furnished. The submission goes on to say that compliance with clause 4.5 would also undoubtedly have revealed that of the $230,000 increase in borrowings, a large proportion was going into a business which, as a "retired" 86 year old, was plainly not one in which Angelina was involved. Thus, had clause 4.5 of the guidelines been adhered to, there was a real chance the transaction would not have proceeded in the form it did, if at all. 40 As to 4.9, it would appear that neither the respondent, nor anyone connected with it, gave any consideration to the possibility that Michael might predecease Angelina, which in fact occurred, or might become incapacitated because no enquiries were made as to the ability of Angelina to service the loan in the event that something happened to Michael. Her occupation in the documents was shown as "Retired". The financial information obtained concerned only Michael. The summary of the application proceeds on the assumption the loan would be serviced entirely by Michael or his company, not Angelina, and that the direct debit request form revealed explicitly that all repayments were to be made by Michael's business. 41 The appellant thus submits that the correspondent could therefore not have been "completely satisfied" as required by clause 4.9 of the guidelines that Angelina would be able to meet her obligations under the loan without substantial hardship in the (not remote) event that Michael predeceased her or became otherwise incapacitated. It is put that such lack of satisfaction would have been appropriate because, as conceded by the respondent, interest repayment ceased immediately after Spywing went into liquidation which was only about five months after Michael's death. Bearing in mind that interest rates may well rise when the transaction was viewed at the date of the mortgage, there was a very real possibility that Angelina, without Michael's support, would have to service monthly interest repayments in excess of $3,000 and additional components of principal in later years. 42 Had the lender investigated Angelina's financial situation, it would have found that her expenses at Scalabrini Village, exceeded her pension by $200 per month and that even with the expected rent from Cherrybrook, it was quite clear that if Michael predeceased her, Angelina would have about $1,150 per month to meet interest payments of somewhere between $2,184 per month and perhaps in excess of $3,000 per month and to meet principal as well if she lived beyond 96. It would have been impossible for any correspondent to have been able to have reached the stage of satisfaction required by the guidelines. 43 As to the declaration of independent advice, the primary judge as will be seen shortly, took the view which he was quite entitled to take, that there was no evidence before him on which he could find [239]-[241] that whilst the respondent undoubtedly knew of the plaintiff's age, it had no reason to consider she lacked any necessary intellectual capacity and that advanced years should in no way be equated with nor presumed to entail lack of intellectual capacity. 44 However, it would appear that whilst it may have been that the prime thrust of the appellant's case at first instance was that she was so incapacitated, the learned primary judge did not take sufficiently into account what the situation would be under the Contracts Review Act or principles of equity in the light of his finding that Angelina was not shown to be intellectually disabled. 45 This raises the point about independent legal advice, a very important point in view of the way in which the primary judge dealt with the case. For instance he said at [231]: "Because she had solicitors acting for her I do not consider that the plaintiff has established that she was, vis-a-vis the defendant, in a position of special disadvantage in respect of their mutual dealings. For this reason alone the plaintiff's claim based on the assertion of unconscionable conduct by the defendant fails." 46 Again he said at [247]: "The defendant and its solicitors were entitled to assume that the plaintiff had, albeit via her attorney, been properly advised in respect of the transactions. This would be so even if the plaintiff did not in fact get such advice, although there was no evidence in this case that she did not and documentary material to the effect that she did."

Those last eight words appear to be in error. Certainly no such material was identified to us on appeal. 47 At [248] the judge said in his last sentence: "The material also indicated that she [ie Angelina] had a connection with Spywing's business, albeit that she was retired."

Again, there does not appear to be any factual material to support that sentence. 48 Then at [250] he says: "Even if there was a potential conflict of interest between the plaintiff and Michael, and Blessington Judd were acting in the face of it, this does not mean that the plaintiff did not receive the benefit of proper advice. There is nothing to suggest that Blessington Judd avoided its duty to her. I do not consider that the inference is open that they failed in their duty to either of their clients. Either way it was not for the defendant (through its solicitors, or at all) to go behind her lawyers."

The judge cited Kleinwort Benson Australia Ltd v Armitage (Cole J, 26 April 1989, unreported). 49 It was principally for these reasons, as appears from [260] and [261] that the judge virtually gave no weight at all to the guidelines. He said at [261]: "I have already found that it was not incumbent on the defendant to go behind the plaintiff's solicitors and that nothing it did can fairly be described as unconscionable. Its guidelines are predominantly its own internal prudential standards. Its deviation from them in no way points to unconscionable conduct on its part." 50 Unfortunately, these utterances do not appear to have taken into account some very significant matters. 51 The clear procedure of the respondent and its associates was to counsel the borrower to obtain independent legal advice. The reason for that is clear as a matter of commercial reality. Decisions of this and other courts over the last 30 years have shown that transactions where a third party puts up his or her house as guarantor for a child or niece or nephew's business purposes are ones in which the guarantor needs to be seen personally and needs to understand the ramifications of the transaction or else it may be set aside. 52 For instance, the House of Lords' decision in Barclays Bank plc v O'Brien [1994] 1 AC 180 at 196-7 as modified for Australia by Kirby J in Garcia v National Australia Bank Ltd (1998) 194 CLR 395 at 432 and following, have made it abundantly clear that where a lender is lending money in a scenario where a reasonable person would be put on inquiry that there is an emotional subservience between the person getting the benefit of the borrowing and somebody else whose property is being mortgaged, then the credit provider must take precautions if it wishes to be sure that the transaction will survive attack. 53 As Kirby J said in Garcia at [77] p 433: "In the absence of known facts suggesting that influence is not only possible but probable, the duty of inquiry will be satisfied if the credit provider explains to the surety, at a meeting not attended by the debtor, the extent of liability he or she is undertaking and the risk which he or she is incurring, and advises him or her to take independent advice. In cases where the influence is not only possible but probable or where the risks are large, the creditor provider will only be safe if independent advice is taken." 54 Indeed, these matters were recognised by the lender in its operations manual. The present situation was not quite like a surety giving a mortgage over her property in respect of another person's borrowing; it was a joint borrowing, but the facts and circumstances on the application form show that the transaction was very similar to a guarantor situation. There was no material that has been put to us to show that Angelina was connected with the business or with the investments that were proposed to be made. Her son held a power of attorney and was signing documents for her. The situation cried out for someone to actually talk to Angelina face to face. 55 The lender sought to obtain a certificate of independent advice. Had the finding been that Angelina was not capable intellectually of understanding the transaction, it may be that the statutory declaration made by the donee of her power of attorney might have sufficed. However, if the situation was that there was no reason to suspect Angelina's intellectual capacity, a certificate by the donee of the power of attorney was worthless. What had to be obtained was material to show that the donor of the power of attorney fully understood what was happening, and that was never obtained. Instead, the lender and its Queensland solicitors accepted the statutory declaration of the donee which referred only to advice given to that donee. 56 There is little in the authorities to provide guidance as to whether, when the borrower acts by an attorney, it is sufficient merely to ensure that the donee has independent legal advice or whether the advice should be given to the donor. 57 There are two New Zealand cases which deal with a seemingly analogous situation. 58 The New Zealand Credit law requires that certain disclosures must be made to the borrower if a loan is to be enforceable. In two cases where the borrowing was made by a fully authorised attorney and the disclosure was made to the donee of the power of attorney, the borrower argued that the disclosure was insufficient. The New Zealand Courts rejected this submission see National Australia Finance Ltd v Fahey [1990] 2 NZLR 482 and Abbott v UDC Finance Ltd [1992] 1 NZLR 405 (CA). 59 Although at first blush these cases are analogous to the present situation, they really are not when one considers the purpose for which independent advice needs to be given in the case of an elderly person who is putting her most substantial asset on the line for the benefit of her son who is also the donee of her power of attorney. 60 As three justices said in Bridgewater v Leahy (1998) 194 CLR 457, 486 [100] following Longmate v Ledger (1860) 2 Giff 157, 163; 66 ER 67, 69, the crucial matter is whether the person seeking to set aside the transaction was denied the opportunity to have the assistance of a disinterested legal adviser. 61 There are, of course, cases, where advice has been given, but by a lawyer who also acts for a party in an opposing interest, where, in the circumstances of the particular case, the court has held that the advice together with other matters was not disqualified from being disinterested advice; see eg Barclays Bank plc v Thomson [1997] 4 All ER 816; Ribchenkov v Suncorp-Metway Ltd (2000) 175 ALR 650. 62 In such cases, as they hold, the lender is entitled to rely on the certificate of a solicitor that he or she has explained the transaction to the plaintiff personally. The present case is distinguishable because the lender's solicitor sought a "proper" declaration, got a declaration that went half way, but did not follow up its requisition. It never was told that Angelina had personally received independent legal advice and on the face of Michael's statutory declaration set out at [31] above, she had not. 63 In my view in the present set of circumstances, if a lender is to rely on independent legal advice being given to the borrower, the latter herself must receive the independent legal advice. 64 Of course, the position would be different if the borrower were clearly incapable, or if the transaction were clearly for her benefit, or if the transaction was a purely commercial one with no flavour of possible influence from or benefit to some relative or friend. 65 The primary judge, as I have noted, considered that the guidelines predominantly were internal prudential standards and deviation did not point to unconscionable conduct. At [266] his Honour referred to the decision of Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41. Unfortunately he did not refer to the judgment in detail. 66 In that case, the District Court judge had found a contract unjust because the lender and its associates had not followed their own lending guidelines. However, on appeal, the Court did not consider that ground because the case below did not proceed on the basis that one of the particulars of injustice was a failure on the part of the appellant to observe prudent lending practices represented by its guidelines. 67 As appellant's counsel submitted, there are dicta at paras [42], [69], [75], [80] and [81] of the judgment of Spigelman CJ (with whom Basten JA and Handley AJA substantially agreed), that the fact of departure from lending guidelines was a relevant consideration in the determination of whether a contract is unjust and that, in appropriate circumstances, that factor is entitled to significant weight in the determination of unjustness. 68 In Kowalczuk v Accom Finance Pty Ltd (2008) 252 ALR 55 at 78 [102], Campbell JA (with whom Hodgson and McColl JJA agreed), summarised what Spigelman CJ had said in Khoshaba as follows: "In Khoshaba Spigelman CJ at [80]-[82] regarded a lender's failure to observe its own lending guidelines as entitled, in the circumstances of that particular case, to significant weight. The way in which it was relevant was twofold. First, while the guidelines were designed to enable the lender to assess and minimise its own risk, and thus were for the purpose of protecting the lender rather than the borrower, following the guidelines conferred an indirect benefit on the borrower through risky loans not being made, and one of the legislative purposes of the Contracts Review Act was to protect people not able to look after themselves. The second way in which it was relevant was, in the circumstances where the lender had no idea for what purpose the loan was being borrowed, the failure to observe the lending guidelines assisted the inference that the lender was lending on the value of the security." 69 Whilst on Kowalczuk's case, I should set out what Campbell JA said at 76 [96]: "It can be accepted that pure asset lending - described by Basten JA in Khoshaba at [128] as being 'to lend money without regard to the ability of the borrower to repay by instalments under the contract, in the knowledge that adequate security is available in the event of default' - is in at least some circumstances unjust within the meaning of the Contracts Review Act or unconscionable."

His Honour quoted various paragraphs from Khoshaba and also from the Court of Appeal's decision in Elkofairi v Permanent Trustee Co Ltd (2002) 11 BPR 20,841. 70 His Honour continued at [96]: "However whether lending on the basis that the loan can adequately be repaid from the security, is in the circumstances of any particular case unconscionable or unjust, depends on other matters as well. Thus, in Elkofairi the facts that neither the applicant nor her husband had any income, the loan in question was for five years, and the security was over the applicant's only asset … and that the secured property was the applicant's home, were all relevant matters in reaching the conclusion that the transaction was both unconscionable and unjust. In Khoshaba, other factors relevant to the consideration of injustice were that the applicants were a husband and wife, one of whom earned $43,000 pa and the other of whom was a pensioner, the lender had no information at all about the purpose for which the loan was being sought, and the security was over their home." 71 The case for relief under the Contracts Review Act on the unconscionability ground failed in Kowalczuk when all the factors were taken into account. 72 There can be no criticism of the learned primary judge in not referring to Kowalczuk because it was not decided until about six months after he had given his decision. Nor can he be criticised in not referring to the case at first instance before Windeyer J which is reported as Accom Finance Pty Ltd v Mars Pty Ltd (2007) 13 BPR 24,729 because although Windeyer J makes some comments about independent financial advice at p 24,745, he does not say anything about the significance of lending guidelines and at first instance, the case also failed. 73 The judgment of the learned primary judge falls basically into three parts: (a) the power of attorney point; (b) unconscionability; and (c) Contracts Review Act. We do not have to consider (a) as the challenge on that part of the judgment has been abandoned. 74 On the remaining issues, the judge first dealt with unconscionability and then with the Contracts Review Act. I do not intend to follow that order of proceeding because it seems to me that with the possible exceptions listed below, it is always preferable to deal with the Contracts Review Act point first. Not only is the jurisdiction probably wider under that Act than when dealing with equitable principles of unconscionability, but where, as has happened time and time again through history, statute has been enacted to cover the same ground as an equitable principle, the equitable principle is usually put into abeyance. After all, equity only operates where the common law is inadequate. 75 There can, of course, be some situations where unconscionability will apply where the Contracts Review Act does not. Without meaning to be exhaustive, this will occur when the transaction impugned is not a contract within the meaning of the Contracts Review Act or where there is an exemption from the application of the Act such as some situations where the plaintiff has been carrying on a business or where there are problems involving the Real Property Act 1900 where the statute cannot quite cover the field. Otherwise, it is best to look at the statutory ground first. 76 What happened in this case is that the learned primary judge looked first at unconscionability. At [259]-[262] of his judgment, he dismissed entirely the significance of the guidelines in his treatment of unconscionable conduct, though without reference to the Chief Justice's dicta in Khoshaba. When he came to deal with the Contracts Review Act, he did not take the guidelines into account at all. 77 Mr Gregory, for the respondent, pointed out that there is nothing in the pleadings about the operations manual and it was only in counsel's closing address that it was referred to at all. He does not submit, however, that the point cannot be taken on appeal. In any event, he says that any departure from the operations manual did not cause any problems because: (1) the ability of the borrowers to service the repayments was in evidence; (2) whilst the rental income from the Cherrybrook property was not sufficient on its own to meet all the interest, it was sufficient to meet a substantial part of it; (3) as interest only was repayable for the first ten years, there was no imminent likelihood of the mortgagee acquiring the property; (4) although in fact interest stopped being paid after Michael's sudden and unexpected death, there was no evidence that Michael's estate was not capable of continuing to make payments; (5) there was no foundation for the submission that departure from clause 4.9 may have materially contributed to the loan not proceeding at all. 78 The primary judge approached the matter of the Contracts Review Act by saying at [268] and [269]: "As to the matters specified in s 9(2) of the Contracts Review Act , the plaintiff's submissions were limited to reliance on sub-paragraphs (a), (b), (c), (e), and (h) of that subsection. Paragraphs (a) and (b) of s 9(2) were submitted to be 'peripherally relevant'." 79 At [274] his Honour did say that the court had to have regard to the public interest and to all the circumstances of the case and that the public interest requires account to be taken of the position and rights of the defendant and not only of the plaintiff. The judgment is a little unclear as to whether the learned trial judge limited himself to the paragraphs referred to as having been submitted by the plaintiff (if he did not, why did he mention this at all) or whether, as he purports to do at [287], he took account of "all the circumstances of this case". 80 Surely there can be no doubt that, in making its decision, s 9(1) of the Contracts Review Act mandates the court have regard to the public interest and to all the circumstances of the case. Subsection (2) is merely a list of the major factors to be considered. The court must consider these whether or not the submissions are limited, but of course, practically speaking, those submissions will indicate to the court which of the matters on which the parties are placing emphasis. His Honour does not appear to have taken into account the significance of the guidelines, nor does he seem to have taken into account the matters set out in s 9(2)(i) of the statute, that is: "The extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect." 81 The judge took the view that it was not incumbent on the defendant to go behind the plaintiff's solicitors, there was nothing to suggest that Blessington Judd had avoided its duty to Angelina, the defendant was entitled to assume that the plaintiff had, albeit by her attorney, been properly advised and that the lender's solicitor knew that Blessington Judd were acting for the plaintiff who had provided advice for her benefit at least through her lawfully appointed attorney. 82 However, merely listing those things show that one of the circumstances that needed to be taken into account was that there was no evidence that the legal and practical effect were adequately explained by any person to Angelina herself or whether she understood it. If everyone was entitled to assume that Angelina had no intellectual incapacity, as I indicated earlier, merely explaining things to the attorney and getting a statutory declaration that the attorney understood, was insufficient. 83 At the time of the trial, Angelina was too incapacitated to give evidence. Evidence was given by the present appellant, Angelina's son Joe, as well as by Michael's widow, Sarina. Sarina, who also was the plaintiff's tutor in the proceedings, gave evidence that her husband, from 1993, conducted the fruit business alone and that after July 2003, Angelina had a walking frame and was usually just confined to her room. 84 Ms Hannay, the paralegal employed by the Queensland solicitors, gave evidence. Ms Dyer did not. Ms Hannay said that Ms Dyer was on maternity leave, but being on maternity leave is no reason why a person cannot give evidence. Ms Hannay noticed the spidery signature of Angelina on some of the documents. She was familiar with the "solicitors pack" which the lender sent to solicitors on their panel as to what they expected. In cross-examination she was asked at Black 138: "And as at 2003 you knew did you not that lenders need to be careful when they are advancing money and taking mortgages over peoples' houses because in certain circumstances the mortgage can be set aside and the loan can be set aside? A. Yes." 85 She was then asked, at 139, whether she noticed the signature of Angelina: "And do you recall thinking to yourself anything about that signature? A. It's an old signature, an old person's signature. Q. It's an extremely old person's signature? A. Yes."

At 140: "Q. So you were aware prior to the advance of the settlement monies that Mrs Spina was the mortgagor weren't you? A. Yes. Q. And you assumed that she must be old? A. Mm mm

Q. And somewhat frail? A. Yes. Q. And her house was being mortgaged to support a loan to herself and to her son? A. Correct. Q. Now, given you accepted that you knew at the time about the possibility that mortgages and loan agreements could be set aside in certain circumstances, what did you think when you saw this signature and saw that the power of attorney was executed in favour of the son? A. I didn't really think anything as power of attorneys are like this all the time.

… Q. And were you supervised in your role at the time, 2003? A. Yes, by my boss. Q. By a partner of the firm? A. Yes. Q. And would you have shown him these documents? A. I couldn't recall I'm sorry if I did or not."

At 143: Q. You inferred that Mrs Spina was an elderly lady slightly frail? A. Elderly. Q. And with a frail signature, scratchy signature? A. Yes. Q. And I take it you inferred from the fact she hadn't personally signed any certificate of independent advice, that she personally had not received any? A. I am not, no I didn't know if she had received it or not. Q. You didn't turn your mind to it? A. No."

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:

(a) as Meagher JA said in Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256, 277 that whilst there is jurisdiction to make orders in favour of a person who suffered from a relevant disability, even though the other party to the contract is unaware of that disability, in general it would be unsound to exercise the jurisdiction in those circumstances. See also what Campbell JA said in Kowalczuk already cited; and

(b) there may be difficulties, in the light of what may have subsequently occurred, in justly restoring the parties to their previous positions or, third parties are so affected that it would be inappropriate to make an order. There may be other considerations. 115 It was conceded by the appellant that if relief were to be granted under the Contracts Review Act it could not be unconditional relief. The relief sought in the amended notice of appeal is: "(a) an order having the effect of varying the Loan Agreement between the parties so as to treat the amount advanced on 7 November 2003 as having been only $76,000 and so as to preclude the defendant from exercising any right to claim enforcement expenses; (b) an order having the effect of precluding the defendant from exercising any right to claim enforcement expenses under the Mortgage … ". 116 The reason for choosing $76,000 is that this is half the amount received from the respondent which was used to discharge the National Australia Bank mortgage. It is convenient to digress at this point and deal with the question of that amount before dealing with discretion generally. 117 The argument for the appellant is that Angelina and Michael were each equally liable to pay the monies to the National Australia Bank and accordingly the only benefit that Angelina received was half the amount required to discharge the mortgage as she had a right of contribution against Michael for the other half. The respondent does not agree with this. There was not very much discussion in the submissions on this particular point. The competing arguments are that as there is no evidence that Michael's estate is not able to pay its full legal obligations, the executor will recover $76,000 of the $152,000 from Michael's estate so that one must realistically say that the only benefit Angelina received was $76,000 from the repayment of the National Australia Bank mortgage. The other way of looking at it is to say that the obligation of Angelina to the Bank was to pay the whole lot of the $152,000 as being jointly and severally liable, and that if she had a right of contribution against Michael for half, she still has that right of contribution. Accordingly, she would benefit to the extent of $152,000. 118 I considered this sort of problem in an analogous situation in Vella v Permanent Mortgages Pty Ltd (2008) 13 BPR 25,343 at 25,387 and following. The circumstances in that case were quite different. The question was, if a bank pays out monies wrongly from a joint account, one out of two joint holders can recover the whole of the amount or only half. Cases such as Ardern v Bank of New South Wales [1956] VLR 569, and the other cases referred to in my judgment in Vella, suggest that the answer is one-half. I think, both by analogy with that line of cases and also because for Contracts Review Act purposes one must look at substance, that the proper figure to include in any conditional order is $76,000. 119 But returning to the main question of discretion, the approach would be that the discretion should be exercised in favour of setting aside an unjust contract or varying it unless there are sufficient reasons to the contrary. As I have said, the main ground relied on to resist the granting of any relief was that the respondent was "innocent" of fault or had no actual or constructive notice of the disabling factors. As to this, two things should be said. First of all, "innocent" in this context does not refer to any tortious or criminal or fraudulent activity, but rather whether the lender's activity or failure to involve itself in good commercial practices was a material factor in bringing about the problem. In this sense, the lender was not innocent. It was the master of the situation; it knew what to do in its operations manual and that was not complied with in a case where it was quite clear that an 86 year old lady was putting her only substantial asset on the line in a situation where she may lose the lot without herself receiving independent legal advice. 120 Again, when considering the question of constructive knowledge, as Kirby J noted in Garcia at 432 [75], in cases of unconscionability and a fortiori the Contracts Review Act, the doctrine of constructive notice is to be understood as a principle which is wider and more flexible than the strict conveyancing standard. 121 The key is to identify the circumstances in which the credit provider will be taken to have notice of the matters which make the contract unjust. In this regard, the authorities also quite clearly show that facts that are known to the solicitors for the lender or its associates, even though they be independent contractors, are brought home to the lender. Indeed, the primary judge acknowledged this; see [234]-[235]. 122 In my view, the conclusion must be that the order should be made as set out in the amended notice of appeal to which I have already referred. 123 The conclusion of the Contracts Review Act makes it unnecessary to deal with the question of unconscionability. However, intermediate appellate courts are strongly urged to deal with every matter that is before them in case the matter goes elsewhere, so that I should briefly deal with the matter. 124 Broadly speaking, the same sort of factors are relevant in a case based on unconscionability as those based to get relief under the statute. However, as the learned primary judge pointed out, to succeed in showing there is unconscionable conduct, a plaintiff must show that the defendant's conduct fell short of the standards accepted by courts of equity and the focus is on the defendant. Under the Contracts Review Act, the focus is on the weaker party as to whether the contract operates unjustly towards the weaker party. Furthermore, under the Contracts Review Act relief may be given even if the relevant circumstances are not known to the other party when the contract was entered into, but this is not the case where the allegation is unconscientious conduct. 125 In submissions that were made to us, the phrase "cause of action" was used in connection with the claim of unconscientious conduct. This is inappropriate. There were causes of action at common law because prior to the reforms of 1832, particular forms of writ had to be issued if certain claims were made, there was a writ for nuisance, a writ for trespass to land and so on. Equity, however, was never so formalistic. Whilst equity could never fairly be said to vary as the Chancellor's foot, equity was not a system of separate compartments, but rather asked the broader question whether, in all the circumstances, the defendant's conscience had to be assuaged by equity giving relief to the plaintiff. 126 Some of this unorthodox way of thinking has unfortunately crept into the reasons of the primary judge. At [205] and following, his Honour sets out a series of principles about which little quarrel can be made. However, he then formulates at [206] three elements which the plaintiff, he says, has to establish, namely: (1) that vis-a-vis the defendant, the plaintiff had a special disadvantage; (2) that the defendant either knew of that special disadvantage or the possibility of it or knew facts which would have raised that possibility in the mind of a reasonable person; and (3) that the defendant unconscientiously used its superior power to bring about the transaction. At [207] he says: "The plaintiff's submissions did not approach the matter by seeking to identify each of these three elements of her cause of action."

[The italics are mine]. 127 I do not consider this is the orthodox way of proceeding. One must look at all the facts and circumstances and put them together. 128 Having identified three elements his Honour then went on to find that the plaintiff failed on all three. As to the first he said at [231]: "Because she had solicitors acting for her I do not consider that the plaintiff has established that she was, vis-a-vis the defendant, in a position of special disadvantage".

As pointed out earlier, she may have had solicitors acting for her, but there was no material to the knowledge of the lender and its solicitors, that she had ever actually been given independent legal advice. This circumstance, plus those already referred to when dealing with the Contracts Review Act issue, indicate to me that she was in the situation of special disadvantage as understood by the authorities. 129 As to the second element, whilst his Honour acknowledged that material known to Australian Lending Services and the Queensland solicitors was knowledge held by the respondent, his Honour thought the answer was "No", partly based on the involvement of solicitors acting for Angelina, but at [251] he said: "Even leaving aside the interposition of legal advice, I do not consider that a finding on the facts is reasonably open that the defendant had knowledge of any special disability or knowledge of facts that would have raised that possibility in the mind of a reasonable person in its position." 130 With respect, that passage does not explain what were the facts his Honour considered to reach that opinion. All that is apparent is that those facts were other than the fact that Blessington Judd acted as solicitors representing Angelina. 131 It is difficult for me to agree that a reasonable person would not see a "red light" when considering the scenario that the application for finance was being made:

(a) by an 86 year old retired lady; (b) by her son as her attorney; (c) in circumstances where the son took a benefit; (d) over the 86 year old's major asset; (e) where there was no material to show the lady personally had been given legal advice; (f) where, if the son died or was unable to repay the loan out of his income, the lady's home was at risk. 132 His Honour then said the plaintiff failed at the third hurdle, again mainly on the basis of receiving legal advice. His Honour does not appear to have appreciated that, despite the lender's Queensland solicitors actually asking for a declaration that Angelina had received independent legal advice, all they got was a declaration from the donee of the power of attorney of a person who, as far as they knew, was fully compos, that only the donee had received independent legal advice. At that stage the solicitors did not pursue the matter and never obtained material to show that Angelina herself had received legal advice. 133 I need not go into all the details which I have already covered under Contracts Review Act, but it would seem to me that if the Contracts Review Act defence did not succeed, then the same result would follow under the principles of unconscionability. 134 The respondent filed a notice of contention (Red 141-2). However, it seems to me that when the power of attorney point was not pursued, the matters in the notice of contention fell away. 135 After the oral hearing the parties were given leave to furnish further written submissions as to the form of orders to be made should the appeal succeed in whole or in part and on costs. 136 Both parties took advantage of this leave, though the final submissions did not arrive until 5 June 2009. 137 Both sets of counsel set out forms of order which they suggested would be appropriate. I do not consider that either suggestion should be adopted in its entirety. 138 The basal differences between the two sets of orders are: (a) the appellant's primary order says that it is made under s 7 (1)(b) of the Contracts Review Act 1980, whilst the respondent's form bases the order under s7(1)(c). That is, the appellant seeks to say that the contract is void except as to certain aspects, whilst the respondent seeks to use the power to vary;

(b) the appellant says that the tutor's cost below should be considered as part of the appellant's costs, whilst the respondent says that the tutor is not an appellant and the order for costs made against her below should not be disturbed; (c) differences as to costs. 139 As to the power relied on to make the order, the traditional view is that orders do not usually state the power under which the order is being made, but merely make the order which may be supported by whatever power there is to support it. Thus, I would not include any reference to either s7(1)(b) or 7(1)(c) of the Act. 140 However, that does not absolve me from stating what the I intend the court should do. In my view, I am exercising both the power in s 7(1)(b) to declare something void in part and also the power under s 7(1)(c) to vary. 141 As I noted in Vakele Pty Ltd v Assender (1989) 4 BPR 9591, 9600, I have difficulty in merely varying a contract as the statute does not appear to justify an order which varies a contract to a plaintiff's disadvantage nor is there any statutory equivalent of the duty to do equity. Doubtless, orders can be made on accepting undertakings, but that makes the form of order even more complicated. The simplest way forward is both to vary and declare the agreement partially void. 142 As to the tutor's costs below, the respondent says that an order was made below that the tutor personally pay its costs, the tutor did not appeal, thus that order should not be affected. 143 I should point out that Angelina died the day before judgment was handed down by the primary judge. The proceedings did not abate. 144 Counsel informed us that the primary judge made orders on 29 September 2008:

(a) appointing Giuseppe (Joe) Spina to represent the estate of Angelina Spina for the purposes of (the proceedings at first instance);

(b) adding Giuseppe (Joe) Spina as the plaintiff and cross defendant in substitution for Angelina Spina (Orange 97U-98G). 145 The primary judge made formal orders on 30 October 2008. 146 Just why the costs orders were in the circumstances made against the tutor only by name is unclear, especially as, at that time, the tutor would have ceased in any sense to be a party to the proceedings. 147 It is true that a tutor is personally liable for costs. However, the tutor would have an indemnity against the estate. The present appellant as executor of Angelina's estate is in exactly the same plight. It would be completely inappropriate, in my view, to distinguish between the two. 148 The simplest and most just way of curing any problem is to equate the tutor and the executor. 149 Both sets of draft orders otherwise seem to produce very similar results. 150 I will set out at the end of these reasons the order which I propose that the Court should make. These are based predominantly, but not entirely, on the draft form of order submitted by the appellant. 151 I am not completely sure that the orders set out below do not need some slight adjustment to reflect fully the fact that the variation of the loan agreement is only qua Angelina and not Michael or his estate. Again, the fact that the Cherrybrook property has, since the decision at first instance, been sold and that there is now a sum of money in a trust account may need to be taken into account. 152 If counsel consider that there needs to be some reformulation, an application should be made to vary provided it is made no later than 18 August 2009. 153 Mr Leopold put that as Angelina had substantially succeeded, she should not suffer any deduction in costs because of the power of attorney issue which only occupied a fraction of the time at the trial. 154 Mr Gregory said that this was a major issue on which Angelina failed and that if the appeal succeeded, there should be no order for costs at first instance. 155 In my view the power of attorney issue was a significant issue, but did not take up much hearing time. Angelina should have her costs below, less 15%. 156 As to the costs of the appeal, both sides accept that, if the appeal is substantially allowed, the appellant should have his costs subject to an order dealing with the costs of the amendment to the notice of appeal and the costs thrown away by that amendment. 157 In my view, the following orders should be made: (1) Appeal allowed.

(2) Orders made by Hammerschlag J on 30 October 2008 be set aside and in lieu order as follows: A. Without affecting in any way the rights of the defendant against Michael Spina or the obligations of Michael Spina to the defendant, declare that the loan agreement made 22 October 2003 between Angelina and Michael Spina and the respondent ("Loan Agreement") is void as against the plaintiff except to the following extent and order that the same be varied accordingly: (i) the principal amount advanced under the Loan Agreement (to which any liability on the part of the plaintiff, whether joint and/or several or otherwise, attaches) upon settlement on 7 November 2003 is deemed to have been $76,000; (ii) the liability of the plaintiff, and the entitlement of the defendant, for any costs or expenses of the kind referred to in clauses 23.5 or 23.6 of the Loan Agreement (or any other provision of the Loan Agreement entitling the defendant to recover enforcement expenses) is limited in the following ways: (a) the plaintiff has no such liability and the defendant is to have no such entitlement to the extent that such costs or expenses were incurred in the course of these proceedings or, subject to (b) below, in the course of the appeal; (b) the plaintiff does have such a liability and the defendant does have such an entitlement to the extent that such costs or expenses were thrown away by virtue of the amendment of the notice of appeal in the appeal proceedings; (c) otherwise, the plaintiff's liability and the defendant's entitlement to such costs or expenses is to be limited to 76/400ths of the amount reasonably incurred by the defendant. (iii) the liability of the plaintiff, and the entitlement of the defendant, for any " arrears charges" or "serious arrears fees" is limited to 76/400ths of the amount, if any, permitted under the Loan Agreement; (iv) all payments made to the defendant in respect of the Loan Agreement be credited to the plaintiff only to the extent of 76/400ths of the amount of each payment; (v) interest, at the "Annual Percentage Rate" which is the "Standard Variable Rate" (as those rates are defined in the Loan Agreement), as varied from time to time in accordance with clauses 11 and 18 of the Terms and Conditions Release 1.06" and compounded monthly, is to be calculated from 7 November 2003 until the date of these orders, on the amount outstanding by the plaintiff from time to time in accordance with (i) to (iv) above. B. Order pursuant to s 7(1)(d) of the Act that Registered Mortgage No AA224574V is varied to the extent the defendant may not enforce, or otherwise make any claim under, clause 17 in Mortgage Memorandum No 2584554 (or any other provision having the effect of entitling the defendant to expenses relating to enforcement of the Mortgage) except to the following extent: (i) the defendant has no such entitlement to the extent that such costs or expenses were incurred in the course of these proceedings (or in the course of the appeal), except in relation to the costs referred to in order D made below in the appeal proceedings; (ii) otherwise, the defendant's entitlement to such costs or expenses is to be limited to 76/400ths of the amount reasonably incurred by the defendant. C. Liberty to any party to apply to a judge of the Equity Division for an order under s 19 of the Contracts Review Act to perfect order B. D. Judgment for the cross-claimant on the cross-claim in an amount calculated in accordance with order A above. E. Order that should the parties not agree on the proper amount of the judgment within 14 days of the delivery of these reasons, the same is referred to an Associate Judge in the Equity Division. F. Pursuant to section 101 of the Civil Procedure Act 2005, from the date of making of these orders, interest at the "Annual Percentage Rate" which is the "Standard Variable Rate" (as those rates are defined in the Loan Agreement), as varied from time to time in accordance with clauses 11 and 18 of the "Terms and conditions Release 1.06" and compounded monthly, be payable on so much of the judgment debt the subject of order D as is, from time to time, unpaid. G. The further amended statement of claim and the amended cross-claim are otherwise dismissed. H. The defendant is to pay 85% of the plaintiff's costs (including the costs of her tutor) of her claims in the proceedings below. I. On the cross-claim, no order as to costs below except for the costs of preparing and filing the pleadings and affidavit evidence.

(3) The appellant is to pay the costs thrown away by the respondent by virtue of the amendment of the notice of appeal.

(4) Otherwise the respondent is to pay the appellant's costs of the appeal.

(5) Liberty to apply to reformulate these orders if application is made within 14 days.

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