The Contracts Review Act
73 The Act provides that where the Court finds a contract, or a provision of a contract, to have been unjust in the circumstances at the time it was made, it may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, grant relief by doing any of a number of specified things (s 7(1)). It is beneficial legislation whose evident purpose is to overcome the common law failure to provide a comprehensive doctrinal framework to deal with "unjust" contacts and it must be interpreted liberally: West v AGC (Advances) Limited (1986) 5 NSLWR 610 at 621, 631.
74 Accordingly, relief under the Act is not to be confined to situations and circumstances where there was previously power for the Court to set aside contracts, such as where the applicant was not aware or did not understand the nature and effect of the document being executed, non est factum: Petelin v Cullen (1975) 132 CLR 355, unconscientious conduct: Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447. It follows that whilst a party's understanding of the nature and effect of the documents being signed is relevant to whether the contract is "unjust" in the manner in which it was made, that is by no means the sole issue in the case.
75 "Unjust" includes unconscionable, harsh or oppressive, and "injustice" is to be construed in a corresponding manner, although these definitions are not exclusive: West at 620G. In determining whether a contract or a provision therein is unjust the Court must have regard to the public interest and to all the circumstances of the case, including the matters as specified in s 9(1) and (2), but once again such a list is not exhaustive and is not limited to cases where the contract or one of its terms is unconscionable, harsh or oppressive: West at 620-1.
76 A contract may be unjust because of the way in which it was made (procedural injustice) or because of the way in which it operates (substantial injustice): West at 620, and although it is always relevant, unfairness by the other party to the contract is not essential to a finding that the contract was unjust or to the granting of relief, nor is knowledge on the part of the other party: Antonovic v Volker (1986) 7 NSWLR 151, at 157-8, Collier v Morlend Finance Corporation (Vic) Pty Limited (1989) 6 BPR 13,337, although it is a factor which will tend against granting relief: Beneficial Finance Corporation v Karavas (1991) 23 NSWLR 256 at 277, Nguyen v Taylor (1992) 27 NSWLR 48, Esanda Finance Corporation Limited v Tong (1997) 41 NSWLR 482 at 490-491.
77 I was referred to a number of cases, but to a large extent such cases depended on their own facts, and care must be taken in deducing from the result of one case general rules of universal application to others: Karavas at 268. The primary direction in the Act is for the Court to consider the matters set out in s 9 and other relevant matters and, if it determines that the contract was unjust either in the manner in which it was made or because of the way in which it operates, the Court has a discretion whether to grant relief, and if so in what form.
78 However, before proceeding to consider these matters it is necessary to consider a submission by the plaintiff to the effect that Mr and Mrs Trimarchi were carrying on a business and are therefore denied relief by the operation of s 6 (2) of the Act. That subsection, so far as material, provides as follows:
"A person may not be granted relief under this Act in relation to a contract so far as the contract was entered into in the course of or for the purpose of a trade, business or profession carried on by the person or proposed to be carried on by the person, other than a farming undertaking … to be carried on by him wholly or principally in New South Wales".
79 It has been held that where the proprietors of a company give a guarantee to secure the debts of the company which carries on business, such proprietors are not prevented by the section from seeking relief under the Act because it is the company rather than themselves which is carrying on the business: Toscano v Holland Securities Pty Limited (1985) 1 NSWLR 145, Australian Bank Limited v Stokes (1985) 3 NSWLR 174. See also Collins v Parker (1984) NSW Conv R #55-212 at 57,469, Coombs v Bahama Palm Trading Pty Limited (1991) ASC #56-097 at 57,025.
80 The section refers to a contract entered into "in the course of", or "for the purpose of" a business etc, carried on by the applicant. These loans were not entered into "in the course of" any business carried on by Mr and Mrs Trimarchi because they were not in the business of entering into loan agreements, and the question arises whether they were entered into "for the purpose of" a business carried on by them.
81 Even if Domenico Trimarchi is to be regarded as having a beneficial interest in 72-74 Bathurst Street, it cannot be said that in any real sense he was carrying on a business in relation to investment in that property. He had no say in its management, organisation, or control. Investment in that property and in the other properties was a business carried on by his son Anthony Trimarchi, and in a very subsidiary sense by Heather Trimarchi. But it cannot be said in any realistic sense of the word that Domenico Trimarchi was carrying on the business of investing in, and letting the property at 72-74 Bathurst Street. Furthermore, Lucia had no interest in that property at all.
82 In any event, in so far as the securities were given to secure the overdraft account of Anthony Trimarchi, the solicitors' practice was entirely a business carried on or to be carried on by him and in which Domenico and Lucia Trimarchi had no part. For these reasons, the defendants are not excluded from relief under the Act by reason of s 6(2).
83 I now turn to consider, to the extent that they are relevant in all the circumstances of the case, the various matters set out in s 9(2).
84 There was clearly material inequality in bargaining power between the plaintiff on the one hand and the defendants on the other. This is normally the case where a person seeks to borrow money from a bank or finance institution to pay off an existing debt, as was the case here, but this consideration was aggravated in the present case by reason of the fact that whatever little bargaining power the defendants had, including the mere power to apply for or refuse the loan, was exercised without their knowledge, and behind their backs, by Anthony Trimarchi whose interests were different to theirs.
85 The defendants were not involved in the negotiations at all, and it would seem that they did not know, or at the most had only the vaguest idea, that any application for a further loan was being made. When the notices under the Real Property Act were served on behalf of National Mutual, Anthony Trimarchi told his mother that it was a mistake and not to worry, that he would fix it up; he did not tell her how he would "fix it up"; but it was not a mistake, as there was substantial default at the time under the National Mutual mortgage.
86 Similarly in relation to the National Mutual mortgage, once again, any limited bargaining power which the defendants had was exercised not by them but by their son and for his own benefit, resulting in an increase in their liability from $650,000 to $2,600,000, and this was all tied up with the buy-out of the Saccos in the property 72-74 Bathurst St, being the culmination of a series of conveyancing transactions which the defendants could not be expected to understand, even if they were aware of them.
87 In the case of neither the St George loan nor the National Mutual loan were any of the provisions the subject of negotiation by the defendants prior to, or at the time the contract was made. If there were any negotiations in relation to the St George contract, those negotiations were between Mr Briggs and Anthony Trimarchi, and any negotiations on his part would presumably have been for his own benefit rather than for the benefit of the defendants. Similarly, in the case of neither loan was it practicable for the defendants to negotiate for the alteration of any of the provisions of the contracts.
88 There are two respects in which the contract imposed conditions which were not reasonably necessary for the legitimate interests of any party and/or which were unreasonably difficult to comply with. Firstly, the inclusion of the overdraft account of the solicitor's practice as part of the moneys secured was not reasonably necessary for the protection of the legitimate interests of the Bank. It would appear from P 154 that it was not intended that this was to be "fully-crossed", as Mr Dwyer conceded (T 41), and no explanation was given or attempted as to why this change was made. Any explanation, if there was one, could only have come from the absent Mr Briggs.
89 Secondly, compliance with the terms of the agreement, particularly as to repayment, was unreasonably difficult because there was no provision made for amortisation (P 158) in the agreements or arrangements, and so, the only way the advance could be repaid was through highly speculative asset sales. Mr Young accepted that in 1994 this was a high-risk type of transaction (T 280-1). Similar considerations applied to the National Mutual loan: see evidence of John Findley (affidavit of 1 July 2002 and oral evidence at T 257-269).
90 Whilst short term, interest only mortgages are not uncommon in the property development business, this was a case where there was ever increasing debt, doubts as to the ability to repay, and particularly in relation to the St George advance, the necessity for that advance because of the inability to repay the National Mutual advance clearly indicated the difficulty which Anthony Trimarchi (and those associated with him) were going to face, and indicated that this was just a "holding operation" in the hope that something "would turn up". Moreover, it appears that at this stage Anthony Trimarchi's position was so desperate that he was misappropriating his clients' funds (a matter not known to either the defendants or the plaintiff).
91 There was nothing in the age or the state of their physical or mental capacity which rendered either of the defendants unable to protect their interests, but their economic circumstances, educational background and literacy were all of a poor standard. Because of their economic circumstances, which included their lack of business experience, their educational background and limited literacy, I am satisfied that the defendants had no real meaningful appreciation of what they were becoming involved in, either at the time of the St George loan or at the time of the National Mutual loan.
92 It was all completely over their heads, they were signing what their son, whom they trusted, told them to sign. He was the person who represented them in their so-called dealings with both the Bank and National Mutual and he was well educated and had an understanding of the relevant matters, but although purporting to act in their interests, he was acting in his own interests and using his parents to support those interests.
93 Both contracts where wholly in writing and although the letters granting approval and general terms of the loans in both cases were in reasonable, intelligible form, the mortgages themselves would, like most mortgages, particularly bank and finance house mortgages, be substantially unintelligible to the average layperson, let alone laypersons with the language and educational difficulties of the defendants.
94 Although I am satisfied that the signatures of Domenico and Lucia on the St George mortgage were executed in the presence of and witnessed by Anthony Matiussi, he did not claim to have given them any independent advice in relation to that transaction, and I have already dealt with what I regard as the deficiencies in the advice which he and Mr Matiussi gave them in relation to the National Mutual mortgage.
95 Of particular significance in relation to the St George loan is the fact that Mr Briggs did not comply with his own requirements for safeguards in the circumstances of the transaction. Not only was his recommendation that independent advice be obtained but also the express requirements of the approval dated 18 December 1995 and the plaintiff's policy no. G4/94 were ignored. In the absence of Mr Briggs there has been no explanation as to why these conditions were not complied with. If proper advice had been given to the defendants before they entered into the St George transaction, it would have included that consideration should be given to making application to have the National Mutual mortgage set aside as against them.
96 I am satisfied that unfair pressure and unfair tactics were exerted on or used against the defendants by Anthony Trimarchi who was another party to the contract, and I note that s 9(1)(j) refers to conduct "by any other party", and is not limited to the party against whom the applicants are seeking relief.
97 Not only did Anthony Trimarchi fail to fully inform his parents of the nature of the transactions, their involvement and the risks they were taking, but he actually forged their signatures on the application for loan and provided false information in such particulars as to their assets and liabilities. Whilst these matters were presumably not known to the Bank, his unfair tactics were made possible and facilitated by the Bank because it dealt only with him and did not involve the defendants, whom it purported to regard as principals, in the negotiations or pre-contract discussions at any stage, or in any manner, a practice which I commented on in National Australia Bank Limited v Hall (1993) ASC #56-234 at 58,414 where other similar cases are referred to.
98 The plaintiff placed considerable emphasis on the fact that the defendants had previously been parties to other mortgages which could be regarded as similar contracts; but they were very different types of mortgages, being mortgages over single residential properties to secure particular loans for those properties, they were discharged when the properties were sold, and they bore no relationship to the National Mutual or St George mortgages. As to the 1984 Westpac mortgage, it is not a matter which the plaintiff can rely on as a similar contract because of the circumstance of its execution by Anthony Trimarchi on behalf of his father.
99 Subsection (1) of s 9 requires the Court to have regard to "the public interest" and to all the circumstances of the case, including such consequences or results as those arising in the event of compliance or non-compliance with, or contravention of, all or any of the provisions of the contract. In considering these matters I note that the general policy of the law is that people should honour their contracts: Baltic Shipping Co v Dillon: "Mikhail Lermontov" (1991) 22 NSWLR 1 at 9 per Gleeson CJ, that the Bank has already recovered a number of properties in partial repayment of the outstanding debt, although if relief is given to the defendants, it will lose a large amount of the interest it would otherwise be entitled to on the moneys advanced, whereas if the contracts are enforced the defendants, who have worked hard since their arrival in this country, will lose not only their rental properties but also the home in which they live, all properties which they have acquired through their own efforts, and that such loss would be not as a result of any fault of theirs, but only because they were misled by their son and such position was facilitated by the Bank which never dealt directly with them.
100 In all the circumstances, including Mr Briggs' knowledge of Anthony Trimarchi's substantial debts and inability in the period leading up to the advance to keep the overdraft account within agreed limits, the St George advance should be regarded as being risky at the time it was made, and in those circumstances there is much to be said for the Bank bearing any loss that may arise on account of the risk coming to fruition.