State Bank v Lo [2000] NSWSC 1191 | Case summary

State Bank v Lo [2000] NSWSC 1191 | Case summary | Zoe

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JUDGMENT The three proceedings 1 These are three proceedings arising out of a dispute between Mr and Mrs Lo and the Bank concerning its loans to them and their mortgages to it. The first two proceedings were brought by the Bank in the Common Law Division of this Court (Nos 10580 and 10581 of 1991), seeking to recover possession of property. The third proceeding was brought by Mr and Mrs Lo in the Equity Division (No 3905 of 1996) seeking relief in respect of the transactions upon which the Bank based its claims to possession. 2 Proceeding No 10580 of 1991 was brought by the Bank against Mr and Mrs Lo, who are the registered proprietors of a property in Liverpool Street, Cowra. The statement of claim, filed on 8 February 1991, seeks possession of the Liverpool Street property for non-payment of money due under a loan agreement secured by mortgage. The defendants lodged a notice of appearance of 18 March 1991, and filed a defence on 19 May 1993. On 8 October 2000 the Bank amended the statement of claim to plead an entitlement to possession of land in Hartley Street Cowra registered in the name of Mrs Lo, though no orders are sought in respect of the Hartley Street land because it is subject of another proceeding, mentioned below. 3 The amended defence alleges (inter alia) that the Bank accepted an offer in full and final settlement of moneys outstanding, and that the Bank is now estopped from proceeding to claim possession. It asserts a breach of s 52 of the Trade Practices Act and the equivalent provisions of the Fair Trading Act, and consequently an entitlement to relief, although Mr and Mrs Lo informed the Court when the case commenced that reliance was no longer placed on the Trade Practices Act. It also claims that Mr Lo is entitled to relief under the principles contained in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 and/or Yerkey v Jones (1939) 63 CLR 649 as elucidated by Garcia v National Australia Bank Ltd (1998) 194 CLR 395. Obviously these matters are, at least in part, in the nature of cross-claims not properly raised in a defence. 4 Proceeding No 10581 of 1991 was brought by the Bank against Mrs Lo in respect of the Hartley Street property (sometimes referred to in the evidence as the Boundary Street property). It was commenced by statement of claim in the Common Law Division of this Court, filed on 8 February 1991, seeking possession of the Hartley Street property on the ground that Mrs Lo had failed to pay money due pursuant to a mortgage of the property. No defence was filed and judgment was entered against Mrs Lo on 14 May 1991. A writ of possession was issued on 1 July 1991 but it was not executed. Another writ of possession was issued on 30 April 1993. It has not yet been executed. 5 Mrs Lo made an application by notice of motion on 4 April 1996 for an order that the judgment entered on 14 May 1991 be set aside. On 2 August 1996 that application came before Master Greenwood, who stood it over generally with liberty to restore, noting an undertaking by the Bank not to proceed to execution until the application to set aside judgment had been determined. 6 The third proceeding was brought by Mr and Mrs Lo against the Bank in the Equity Division by statement of claim filed on 4 November 1996 (No 3905 of 1996). They seek declaratory orders that the judgment obtained in proceeding No 10581 of 1991 has been satisfied by payment of $50,000, and that by accepting that sum the Bank is estopped from continuing proceeding No 10580 of 1991. They also seek relief under the Contracts Review Act and the Fair Trading Act. In substance, proceeding No 3905 of 1996 is a cross-claim and defence to both of the other proceedings, elaborating more fully the grounds stated in the amended defence to proceedings No 10580 of 1991. 7 On 2 September 1997 the Registrar made orders by consent, transferring proceedings Nos 10580 and 10581 of 1991 to the Equity Division to be heard with proceeding No 3905 of 1996. The common law proceedings became, respectively, Nos 3848 and 3847 of 1997. At the commencement of the hearing of the three proceedings I made orders, by consent, that the evidence in each proceeding be evidence in the other proceedings.

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Financial history of Mr and Mrs Lo 8 Mr Lo was born in Canton, China, in 1920. He received only two or three years of formal education. He worked in a market garden and as a room boy and a kitchen hand in a hotel, and a soldier during the Second World War. He emigrated to Australia in 1950, where he worked as a waiter and a cook in a Chinese restaurant in Campbell Street, Sydney before moving to Canberra where he worked as a cook until starting his own Chinese restaurant building in Cowra. He cannot read or write English, although he can identify and sign his name. He can read Cantonese, but not well. He has difficulty understanding spoken English, and in being understood in English. He gave evidence in Cantonese, through an interpreter. 9 He married Mrs Lo in 1963. They have five children. In 1979 he became very ill and eventually in 1982 he had to stop working because of his continuing poor health. 10 Mrs Lo is not Chinese and has no difficulty in communicating in and understanding English, in written and spoken form. She met Mr Lo while working as a waitress and general assistant in a Chinese restaurant in Cowra in 1957. Because of his very limited understanding of English, she handled their financial affairs after they were married. 11 Mr and Mrs Lo became partners in the restaurant business in 1960. In 1962 or 1963 they purchased the property at 29 Liverpool Street, Cowra. The vendor took a mortgage which Mr and Mrs Lo repaid. The property became and still is their family home. 12 In 1979, after Mr Lo became ill, they sold the restaurant business and bought the property in Kendall Street, Cowra where the business was conducted. During the period 1980 to 1982 they carried on a catering business for the local golf club, but when Mr Lo became more seriously ill in 1982 and ceased work permanently, their nephew took over that business. Mrs Lo continued to work there for a time but ceased to work in about September 1982. 13 In 1983 Mrs Lo made a claim on an insurance policy, apparently a disability policy, with National Mutual Insurance. The company refused to meet the claim and she did not receive any benefit from the policy until 1991, when she received a settlement of $100,000 out of which legal costs of $20,000 were deducted, and she dealt with the balance in the manner described below. 14 Once Mr and Mrs Lo stopped work in 1982, they received sickness benefits for approximately three to six months and some instalment payments from the purchaser of their business for a while, and rent from the Kendall Street property until it was sold, but otherwise their only source of income has been social security payments. They sold the premises in Kendall Street, Cowra in 1983 and used the proceeds to pay out bank loans in the manner described below. 15 Mrs Lo acquired some vacant land in Hartley Street, Cowra in 1975. She still retains it. She bought it from her sister. It had been in their family for many years. 16 She also acquired a property in Victor Street, Cowra during the 1970s. Although she assisted in paying off the mortgage over that property, she says (and there is no contrary evidence) that she holds it solely for the benefit of her sister, who lives in the property.

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Their relationship with the Bank up to 1984 17 Mr & Mrs Lo granted a mortgage of the Liverpool Street property to the vendor, in November 1962. They discharged their obligations under it. In September 1970 they mortgaged the property to secure a loan from the Bank (then the Rural Bank of New South Wales) of $2,415.39. They granted the Bank an overdraft mortgage in August 1974. They continued to have dealings with the Bank throughout the 1970s. They took out a personal loan which they repaid in 1978. Mrs Lo granted a mortgage to the Bank over the Hartley Street land to support advances to herself and her husband in November 1978. They conducted a joint current account with the Bank to which they were both signatories, and Mrs Lo had a current account in her own name. At least from time to time during the 1970s, they owed money to the Bank. Bank documents were signed by both of them. 18 By May 1981, two years after Mr Lo had become ill, Mrs Lo had a current account debt with the Bank of $8,328.76. There were also three term loans by the Bank to Mr and Mrs Lo. The Bank wrote to Mr and Mrs Lo saying that it had reviewed their overall financial situation and had agreed to carry their present debt until December 1981, but it required authorisation to deduct $200 per week from their joint current account. The Bank's statement in September 1981 shows that their joint current account, which had been in credit, had gone into overdraft to the extent of $503.28. The Bank wrote to them requiring that the overdrawing be adjusted immediately. Presumably some arrangement was subsequently made. 19 In October 1982 the Bank wrote to them, in response to a request, setting out the debts owing on the three term loan accounts. The total amount owing was over $72,000. The debt had risen to over $80,000 by July 1983, and the Bank decided that interest rates applicable to the loans would vary with any general interest rate fluctuations. 20 At the end of August 1983 Mr and Mrs Lo were able to pay out their three term loans and adjust their current account debt, by selling the property at Kendall Street, Cowra. Their mortgages over both the Liverpool Street and Hartley Street properties were discharged on 1 September 1983. 21 It appears more likely than not (though there is no direct evidence) that the Bank retained the title documents for the two properties after discharge of the mortgages. Counsel for Mr and Mrs Lo invited me to find that the Bank did not inform his clients that the mortgages had been discharged, or that they could recover the title deeds. The evidence does not enable me to conclude that the Bank did or did not convey this information to Mr and Mrs Lo. On 1 September 1983 the Bank wrote to them confirming repayment of the term loans and an adjustment of the current account debt. Discharges of the two mortgages were executed on 1 September 1983, but were not registered until later, after new mortgages were entered into in the circumstances described below. Once Mr and Mrs Lo incurred further debts (after 1 September 1983) without seeking to recover their title deeds, the Bank retaining the title deeds while allowing the debts to be incurred, it is probable that the Bank had an equitable security arising out of the retention of the title deeds. 22 By November 1983 the current account was overdrawn, and the Bank wrote to Mr and Mrs Lo again. It appears that by 2 February 1984 Mr and Mrs Lo were indebted to the Bank in an amount of at least $2,000 by way of overdraft. Mrs Lo has given evidence that she believes the debt was about $2,000, and there is in evidence a bank statement for the period December 1983 to April 1984 which shows an overdraft of $2,222.07 as at 2 February 1984.

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The mortgage over the Hartley Street property 23 That was the state of affairs on 2 February 1984, when Mrs Lo granted a mortgage to the Bank over the Hartley Street property. The mortgage was expressed to be subject to the previous mortgage to the Bank, but (as I have said) the earlier mortgage had in fact been discharged. The 1984 mortgage ('the Hartley Street mortgage') secured advances to Mr and Mrs Lo. Mr Lo was referred to as the 'Customer'. It covered all moneys then and thereafter owing by Mr or Mrs Lo by way of overdraft, term loan, fixed loan or any other advance. It provided: 'FOURTHLY - The Mortgagor will upon demand or until such demand at such time or times and in such manner as may have been agreed upon between the Mortgagor or the Customer and the Bank pay to the Bank the moneys hereby secured and in the event of this covenant becoming merged in any judgment or order will pay interest on the amount for the time being owed under such judgment or order at the rate aforesaid.' 24 The mortgage incorporated a registered memorandum number S709315, the terms of which included the following: '20. A statement in writing signed by any duly authorised officer of the Bank of the amount due or owing upon or secured by this Mortgage at the date mentioned in such statement shall be and be accepted as absolutely final and conclusive and binding upon the Mortgagor who shall not be entitled to make any objection thereto and such statements shall be prima facie evidence that such amount is so due and owing or secured.' 25 Clause 22 purported to vary the power of sale conferred by the Real Property Act to make it exerciseable immediately or at any time after default in payment of any moneys secured by the mortgage, and stated that no notice or expiration of time apart from such as is mandatory under the statute was required for the exercise of the power. 26 The terms of the mortgage are consistent with the proposition that an overdraft is, in the normal course, repayable on demand: Weaver & Craigie, The Law of Banker and Customer in Australia , para [7.120]; Crips (RA) & Son v Wickenden [1973] 1 WLR 944 at 952-3; Williams & Glyn's Bank Ltd v Barnes [1980] Comlr 250 at 210; Parres Holdings Pty Ltd v Commonwealth Bank of Australia [1998] FCA 682 (12 June 1998, Spender J). 27 Although there is no direct evidence of negotiations or arrangements at the time, I infer that the granting of the Hartley Street mortgage was part of some arrangements made between the Bank and Mr and Mrs Lo to permit them to remain indebted and to increase their debt. This is supported by the fact that the overdraft debt increased from about $2,000 at the beginning of February 1984 to just over $15,000 by 21 September 1984, when additional security was taken. By 1984 they were not working and were dependent on social security payments. But Mrs Lo had made an insurance claim and would have hoped to receive a substantial payment. I infer that she informed the Bank of her expected payment when making arrangements which included the Hartley Street mortgage, and her oral evidence is consistent with this inference. 28 Mrs Lo gave affidavit evidence that she was called to the Bank in February 1984 to discuss what was happening with the insurance claim. A bank officer told her that the Bank would 'have to have something to cover the debt that is outstanding'. She told him that she could not pay anything until the insurance claim was finalised and he told her that she would have to sign a 'piece of paper', and that this would 'keep head office happy'. She says that she signed a document but did not know what the document was, and that the bank officer did not explain the document to her or tell her that it was a mortgage. She claims that she subsequently came to understand that it was a mortgage over the Hartley Street property. 29 I reject this evidence, to the extent that it asserts that Mrs Lo did not understand the nature of the document that she signed on 2 February 1984 at the time of signing it. It was evident from cross-examination that by 1984 Mrs Lo understood the basic concept of a mortgage. She had already entered into and discharged a mortgage with the Bank, and had been involved in several other mortgages. She was aware that the purpose of her signing the document on 2 February 1984 was to provide the Bank with security, and that it was necessary for her to do so in order to keep borrowing money from the Bank. She persuaded the Bank to allow her to do so by providing security over the Hartley Street property and explaining to the Bank that she had an insurance claim which, when it was finalised, would enable her to repay her borrowings. 30 Her evidence on this point was unsatisfactory in other ways. She said she could not remember when she found out that the Hartley Street mortgage was a mortgage, but eventually conceded it was likely that she knew it was a mortgage when she signed it. 31 Nor do I accept her evidence that the bank officer did not explain the document to her or recommend that she obtain independent advice. In light of her prevarication about whether she understood the document was a mortgage, I regard her evidence on this point as an unreliable reconstruction. The bank officer with whom she dealt has not been identified, and there is nothing else in the evidence to enable me to form a view as to whether the bank officer gave her an explanation or recommended that she seek advice. To the extent that Mr and Mrs Lo seek to challenge the Hartley Street mortgage on grounds related to those matters, they have not discharged the onus of proof which they bear to establish their complaint.

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The mortgage over the Liverpool Street property 32 On or shortly before 21 September 1984 the Bank established an 'Additional Temporary Overdrawing Advance' of $10,500, making a total advance of $15,000. The Bank informed Mr and Mrs Lo that their current account was overdrawn to the extent of $15,015.66, and required them to confine their drawings within their limit (presumably the $15,000 that had been agreed). 33 On 20 September 1984 Mr and Mrs Lo executed a mortgage over the Liverpool Street property ('the Liverpool Street mortgage'), evidently as part of the arrangements to secure the additional facility of $10,500. Since the Liverpool Street property was at that stage under Old System title, the mortgage is in a somewhat different form from the Hartley Street mortgage, which was a Real Property Act mortgage. However, the terms are similar in relevant respects, and I note that the Liverpool Street title was subsequently converted under the Real Property Act. The Liverpool Street mortgage also incorporated memorandum S709315, which was referred to above. The moneys secured were defined similarly to the Hartley Street mortgage, to encompass all moneys then and thereafter to become owing by Mr and Mrs Lo or either of them. By clause 3(a)(ii) Mr and Mrs Lo agreed to repay the money secured upon demand, or until such demand in accordance with any agreement as to time and manner of payment. 34 Mr Lo gave affidavit evidence as to the circumstances surrounding the execution of the mortgage over the Liverpool Street property. He said he went to the Bank's premises in Cowra and saw a person whom he believed to be the manager. The manager said words to the effect 'we have lent you money and you have to sign this paper'. He showed Mr Lo a white paper which Mr Lo and his wife signed. Mr Lo said he did not know what the paper was. 35 Mr Lo's oral evidence was inconsistent with his affidavit and internally inconsistent. He began by giving evidence of a recollection of a meeting on 20 September 1984, but then disavowed any real memory of events. He could not recall purchasing the property at Kendall Street nor selling it. He subsequently agreed that he had no recollection of going to the Bank on 20 September 1984. Then he denied signing his affidavit. He could not even recall going to Canberra to sign it. The result is that I cannot accept any of his evidence as probative of any issue. 36 According to Mrs Lo's affidavit evidence, some time after she had signed the Hartley Street mortgage in 1984 she received a letter from the Bank threatening to take legal action, and was asked to attend the Bank to discuss the balance of the accounts. The bank officer told her that the land at Hartley Street was not sufficient security and that she must sign another paper, which must also be signed by her husband. She says that shortly afterwards she and her husband attended at the bank, and were given a piece of paper and told where to sign it. She says she was very nervous and agitated and was not told what she was signing, and no explanation was given. 37 I have already rejected Mrs Lo's evidence as to her understanding of the Hartley Street mortgage and the explanation she received on that occasion. I reject her evidence on these matters with respect to the Liverpool Street mortgage, for the same reasons. It is clear from her cross-examination that she understood what a mortgage was before signing the two mortgages in 1984, having entered into several previous mortgages. She was aware that she and her husband were signing a document giving the bank security over the Liverpool Street property. Her objective at the time was to persuade the Bank to grant financial accommodation pending her receipt of the proceeds of her insurance claim, and she understood that the Bank required security for that purpose. She has not established that no advice was given by the Bank before she signed. 38 Mr Lo's understanding is more difficult to ascertain. He had little formal education and a very poor grasp of English. But he went to the Bank in the company of his wife, who gave evidence that she told him he had to sign the Liverpool Street mortgage, and he agreed to do so. In my opinion, observing his demeanour and relatively good comprehension of questions in the witness box, it is more likely than not that he had sufficient understanding of the financial position of himself and his wife, and was given sufficient explanation by his wife, to understand the basic nature of the document he signed. That is, he understood that the document gave the Bank security over the Liverpool Street property, in the sense that the document would permit the Bank to put them out of the house if repayments were not made in a manner acceptable to the Bank. 39 In summary, the assertion by Mr and Mrs Lo that they did not understand what they were signing is an opportunistic attempt to improve their position, which does not accord with the facts.

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The 1985 term loan 40 Upon the execution of the Liverpool Street mortgage the position was that Mr and Mrs Lo had an overdraft limit of $15,000, fully drawn, secured by mortgages over the Liverpool Street and Hartley Street properties. The overdraft limit expired on 6 February 1985, and by 5 March 1985 the debit balance was $16,674.29, well above the limit. The Bank wrote on that day asking them to call for an interview. 41 It appears that there were further negotiations and eventually on 30 August 1985 a term loan was arranged for $28,000, supported by the two mortgages. The loan was to be repaid over a term of 15 years by monthly instalments of principal and interest, instalments at that time being $440 per month. The interest rate was at that time 17.25%. The whole of the amount owing, together with interest, was to become payable if default was made in payment of any instalment or other money from time to time owing. Both Mr and Mrs Lo signed a document setting out the conditions of the loan, together with incidental documents including an authority to deduct monthly instalments from their current account. 42 There is very little direct evidence of the negotiations leading to the term loan, but it is plain that Mr and Mrs Lo had exceeded their overdraft limit and were under pressure from the Bank to make some satisfactory arrangements to reduce it. I infer that the term loan must have been made acceptable to the Bank by some representations on behalf of Mr and Mrs Lo with respect to their ability to service the loan. According to Mrs Lo's oral evidence, one of the representations was that Mrs Lo anticipated a substantial recovery in her insurance claim. 43 The Bank's letter of 30 August 1985 sets out clearly the arrangements that the Bank proposed, in response to Mrs Lo's representations. The conditions of the loan were set out in brief and straightforward terms and were signed by Mr and Mrs Lo. The evidence provides no basis for suggesting that they did not understand what they were signing, or the nature of the arrangements to which they thereby agreed.

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The deterioration of the accounts after 1985 44 Increasing interest rates caused the Bank to revise instalment payments so that by 30 December 1985, the monthly instalments had increased to $467. The Bank wrote to Mr and Mrs Lo on 6 March 1986 seeking information about the 'pending Insurance Claim'. By 17 March 1986 their current account was overdrawn again to the extent of $419.56, and the Bank required them to adjust the account as soon as possible. By 10 June 1986 the debit balance in the current account was $663.59, and by 25 June 1986 it was $741.31. 45 Mrs Lo wrote to the Bank on 27 June 1986 apologising for the overdraft and asking for an increase. She explained that she was taking legal proceedings against the insurance company and had to go to Sydney to see doctors, and enclosed a letter indicating that she had been granted legal aid. She asked for an extension of the overdraft to permit her to pay an insurance premium and health insurance, and the costs of her visit to Sydney to consult doctors. The Bank wrote to her inviting her to come for an interview, but there is no direct evidence of what happened at the interview. However, the overdraft remained and the debt increased, the Bank continuing to ask for progress reports on the insurance claim. 46 By 12 November 1986 the term loan of $28,000 was in arrears of $1,868, and the current account was overdrawn by $3,253.44, the approved limit at that time being $2,000. The Bank's letter to Mr and Mrs Lo of that date records that she had informed the Bank that family members would be helping to meet their commitments, but that help had not been forthcoming. The letter said that the deterioration of the accounts was causing the Bank concern, and gave notice that the debt should not be allowed to increase any further; and that the overdraft would expire on 31 December 1986, when the position would be reviewed; and advised them to give serious consideration to selling the Hartley Street land. By 20 January 1987 the current account was overdrawn, the overdraft standing at $5,596.38, and the Bank asked Mr and Mrs Lo to call immediately with 'expense and income figures up to March 1987'. 47 Therefore by early 1997 Mr and Mrs Lo had debts on term loan and current accounts. The term loan debt was increasing steadily through non-payment of some instalments and interest. The current account overdraft was also increasing through drawings and interest. Interest rates were very high. The Bank held security over the Liverpool Street and Hartley Street properties. It was prepared for the time being to carry the accounts, but it was looking to the proceeds of the insurance claim to reduce the overall debt, and it was also encouraging Mrs Lo to sell the Hartley Street property in order to reduce debt. 48 Not a great deal changed during the period from early 1987 until March 1990, except that the debt was much higher by the end of that period. In retrospect the Bank appears to have been very tolerant during this period. It applied pressure in correspondence, seeking reports as to the current state of the insurance claim (in letters dated 25 June 1987, 13 January 1988, 25 January 1988, 11 April 1989 and 12 October 1989) and repeatedly advising that Mrs Lo should sell the Hartley Street property (in letters dated 13 January 1988, 25 January 1988, 11 April 1989, 7 June 1989 and 12 October 1989). But it allowed the situation to drift on without taking any definitive steps.

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The notice of demand 49 On 21 March 1990 solicitors acting for the Bank sent a notice of demand to Mr and Mrs Lo. The notice referred to the Liverpool Street and Hartley Street mortgages and the term loan agreement, the debit balance in the current account and default in making monthly instalments under the term loan agreement, and demanded payment of a total amount of $85,607.39 within seven days. 50 Counsel for Mr and Mrs Lo attacked the validity of the notice of demand on the ground that it gave the wrong date for the term loan agreement. According to the notice of demand, the loan agreement was dated 3 September 1985. In fact, the Bank wrote to Mr and Mrs Lo on 30 August 1985 offering to advance $28,000 subject to the conditions attached to the Bank's letter, and asking Mr and Mrs Lo to acknowledge their acceptance by signing and returning a duplicate of the conditions. 51 The duplicate set of conditions is endorsed 'The conditions in respect of the loan of $28,000 described in the letter of approval dated 3/9/1985 are accepted', and is signed by Mr and Mrs Lo. The date '3/9/1985', which is not the correct date for the letter of approval, appears to have been inserted by Mrs Lo, and I infer that she did so when she signed the document. Next to her signature and her husband's, there is an initial and the date '4/9/85'. That appears to have been an initial by a bank officer, and I infer that Mr and Mrs Lo called into the Bank with their documents, already signed, on that date. 52 In all the circumstances, I find on balance that the correct date for the loan agreement is 3 September 1985, which appears to have been the date that the documents were signed by Mr and Mrs Lo. However, if the correct date had been 4 September 1985, but the notice of demand had stipulated 3 September 1985, that mistake would have made no difference to the validity or efficacy of the notice of demand, in my view. Mr and Mrs Lo cannot possibly have been misled by the notice stipulating 4 September rather than 3 September, and the variance has no other significance. In any case, a valid demand need not take any particular form, as long as it brings home that the Bank is demanding repayment of its money: see O'Day v Commercial Bank of Australia Limited (1933) 50 CLR 200, 216; Bunbury Foods Pty Ltd v National Bank of Australasia Limited (1984) 153 CLR 491, 502-4; Commercial Development Bank of Australia Limited v Cochrane (NSWSC, Giles J, 28 October 1998, unreported). Moreover, the Bank subsequently made further demands in the form of notices under s 57(2)(b) of the Real Property Act 1900 (NSW), as noted below. 53 Mrs Lo responded to the notice of demand by expressing surprise, and giving a further report about her insurance claim. Still the Bank did not take any further definitive step, asking to be advised when there was a definite date for the court hearing of the insurance claim. Correspondence referred to attempts by Mr and Mrs Lo to obtain finance from another institution, but evidently nothing emerged. By early August 1990 the total debt was $92,666, and Mr and Mrs Lo were not meeting any interest or principal repayments.

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The s 57(2)(b) notices 54 On 22 August 1990, the Bank gave notices under each of the Hartley Street and Liverpool Street mortgages, pursuant to s 57(2)(b) of the Real Property Act 1900 (NSW). A notice was also served under the Credit (Home Finance Contracts) Act 1984 (NSW), but the Bank concedes that this notice was unnecessary. 55 The notice for the Liverpool Street property was directed to Mr and Mrs Lo. It referred to their mortgage dated 20 September 1984 'to secure inter alia repayment of the principal sum of $28,000 and interest thereon advanced… pursuant to the Loan Agreement dated 3 September 1985'. It claimed that instalments due from 1 July 1986 to the time of the notice remained unpaid and that Mr and Mrs Lo were in default under the mortgage. It referred to the notice of demand relating to 'payment of the balance then outstanding under the Loan Agreement' and noted that the amount demanded remained unpaid. The notice then demanded payment of the total amount of principal and interest outstanding under the loan agreement and secured by the mortgage, which at the date of the notice amounted to $62,847.58. It said that unless that amount, together with costs of preparation and service of the notice in the sum of $100, was received within one calendar month of date of service of the notice, it was proposed to exercise a power of sale in respect of the mortgaged land. The notice was expressed to be given pursuant to s 57(2)(b) of the Real Property Act 1900. 56 The notice for the Hartley Street property was directed to Mrs Lo. It said that she mortgaged the property by mortgage dated 2 February 1984 to secure repayment of all moneys then or thereafter to become owing or payable to the Bank by her and/or by Mr Lo either alone or jointly, and referred to the notice of demand by which the Bank had demanded payment of the debit balance in the joint cheque account with the Bank's Cowra branch, noting that no payments had been made since the time of service of notice of demand. The notice demanded payment of the total amount of principal and interest outstanding and secured by the mortgage, which at the date of the notice amounted to $29,401.80. It said that unless that amount together with costs of preparation and service of the notice in the sum of $100 was received within one calendar month of the date of service of the notice, it was proposed to exercise a power of sale in respect of the mortgaged land. The notice was expressed to be given under s 57(2)(b). 57 Counsel for Mr and Mrs Lo submits that these notices are invalid for several reasons. First, he submits that the first notice is invalid because it refers to a loan agreement dated 3 September 1985 rather than 4 September 1985. I reject that submission for the reasons already given. 58 Secondly, he submits that the notices are invalid because the amounts demanded do not bear any relationship to the amounts demanded in the notice of demand of 21 March 1990. I reject that submission. It is clear from the text of the notices that they specify the amounts owing, respectively under the term loan account and the joint cheque account, at the time of the giving of the notices. Those would necessarily be different amounts from the amounts owing several months earlier, when the notice of demand was given. The explanation for the amounts claimed in the notices is given in the body of the notices, in a manner that is clear and satisfactory, in my opinion. 59 Counsel also submits that the notices do not comply with s 57 because they do not specify particular defaults and ask for those particular defaults to be remedied. I take this submission to be a reference to s 57(3)(b)(ii), which requires that a notice under s 57(2)(b) must require the mortgagor (relevantly) to pay the principal and interest 'in respect of the payment of which the mortgagor… made default'. In my opinion the notices adequately comply with this requirement. They identify that the mortgagors made default by failing to pay instalments, in the one case, and by failing to respond to a demand to reduce the overdraft in the other case, and they claim payment of amounts which had become due for payment by virtue of the defaults. 60 In my opinion, therefore, the notices are valid notices under s 57(2)(b).

[15]

After the notices - proceedings for possession 61 Mrs Lo responded to the s 57(2)(b) notices by protesting that the Bank had led her and her husband to believe that it had agreed to carry the account on the basis that it would be paid 'in full' when the insurance claim was finalised. The Bank replied on 6 September 1990, saying that it could not carry the accounts indefinitely and strongly recommending that the Hartley Street land be sold. The letter contemplated that this may enable the Bank to suspend legal action until a definite hearing date for the insurance claim was known. 62 As previously mentioned, proceedings for the possession of the Liverpool Street and Hartley Street properties were filed on 8 February 1991. On 28 February 1991 the Bank wrote to Mr and Mrs Lo saying they had been informed by Mrs Lo's solicitors that the court hearing for the insurance claim would not be until late in 1991, and that therefore the Bank had no alternative but to continue with legal recovery of the Bank debt. This would first involve sale of the Hartley Street land by public auction. 63 Although an appearance and defence were filed in the proceeding for possession of the Liverpool Street property, no defence was filed in the proceeding for possession of the Hartley Street property. Judgment was entered with respect to the Hartley Street property on 14 May 1991, and a writ of possession was issued on 1 July 1991. As previously mentioned, neither that writ nor a subsequent writ has been executed. 64 On 13 August 1991 the Bank wrote to Mr and Mrs Lo confirming its decision to suspend a proposed auction sale of the Hartley Street property until the end of October, on the basis that a hearing date for the insurance claim was likely to be set for 28 October 1991. The position was to be reassessed at the end of October. 65 By 20 September 1991 the amount outstanding had reached $91,730, and according to a bank document ('Advice of Out of Order Account') the Liverpool Street property had a value of $108,000, and the Hartley Street property had a value of $32,000. The 'loanable sum' on the security of these properties was $113,133, so the amount in fact owing was within the security limit. 66 By 2 October 1991 the amount owing on the term loan account was $53,169.17 and the overdraft was $21,354.92, the overdraft limit being $15,000.

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The events of 12 December 1991 79 In her affidavit Mrs Lo says that she received a telephone call from Mr Malouf on about 12 December 1991. She claims that the following conversation occurred: Malouf: 'The bank has accepted the offer to pay your debts to the bank. When will you receive the money?' Mrs Lo: 'I have the money in cheques one for $50,000 and one for $30,000.' Malouf: 'When will you be able to come down and deposit it?' Mrs Lo: 'I can come down today. When can I get my deeds back? Can I have them today?' Malouf: 'You will have to wait for the cheques to clear. It will take a couple of days. We will notify you when the cheques are cleared. Right, this is what I want you to do. Deposit $50,000. In return you will get a bank cheque for $9,393.82. The $30,000 is for a new cheque account. All creditors will be paid out of this account. The pension will be paid into this account. I cannot do anything about what you owe your children but everything else will be a fresh start.' Mrs Lo: 'Can you repeat all this so I can write it down?' Malouf: 'That will not be necessary as I will leave instructions with the Cowra branch at the Bank as to what to do when you get there.' 80 Mrs Lo says that when she went to the Cowra branch on the same day she spoke to a bank officer called Julie Smith. She gave Ms Smith a cheque for $50,000 and she says the following conversation then occurred: Ms Smith: 'I am to give you a cheque for $9,393.82. Do you know what that is for?' Mrs Lo: 'No I don't.' Ms Smith: 'It could be for home repairs.' 81 Mrs Lo then gave Ms Smith a cheque for $30,000 and according to Mrs Lo, Ms Smith said: 'This is to start you with a new cheque account. You can pay all creditors you owe out of this account and we will have your pension and your husband's pension paid into this new account. Do not use your old cheque book. I will give you a new one.' 82 Mrs Lo signed for a new cheque book on behalf of her husband and herself, together with an authority for their pensions to be paid into the new account. She received from Ms Smith a cheque for $9,000 and cash of $393.82. She deposited the cheque for $9000 into a credit union account in her name. She received two deposit slips from the Bank, one for $30,000 and the other for $40,606.18. 83 A bank statement for the current account of Mr Mrs Lo shows that the account was closed on 13 December 1991 after a deposit of $40,606.18 and a transfer of $7.12 from the newly opened account extinguished the debit balance and various fees. On 13 December 1991 Mrs Lo wrote out various cheques to pay other creditors. These payments substantially depleted the new account, and by 8 January 1992 the balance in the account was down to $1494.63. 84 Evidence of these events and circumstances was given by Ms Smith. In her affidavit made on 17 October 2000 she said that Mrs Lo came into the Cowra branch with two cheques totalling $80,000. She said she remembered dealing with Mrs Lo because the circumstances of the transaction struck her at the time is being unusual. She said she did not recall the specific transaction that Mrs Lo wished to carry out, other than that it involved opening a new account and was an unusual transaction. While Mrs Lo waited, Ms Smith made a telephone call to Mr Malouf in Canberra. She said that she could not recall the precise terms of the telephone conversation but that Mr Malouf gave her some instructions in relation to Mrs Lo. She then arranged for the two cheques produced by Mrs Lo to be deposited, caused a bank cheque for $9,000 to be issued to Mrs Lo and gave her some cash, no more than $400.

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93 The second reason is that Mrs Lo's conduct from December 1991 until at least November 1992 was inconsistent with any belief on her part that the debt had been extinguished by the events of 12 December 1991. I shall now turn to that conduct. Events after 12 December 1991 94 On 17 December 1991 the Bank wrote to Mr and Mrs Lo to thank them for depositing sufficient funds to enable the old current account to be closed and informing them that their debt to the Bank had been reduced to $86,509.35, an amount representing the balance outstanding (including accrued interest) on the term loan. The letter invited the assistance of Mr and Mrs Lo to formulate a strategy for repayment of this debt, and asked them to call at the Cowra branch to arrange a meeting with David Hart, who would need a statement of their assets and liabilities and weekly income. 95 If Mrs Lo believed that the Bank had agreed to accept the payment made on 12 December 1991 in full satisfaction of the debt, one would have expected her to react to the letter of 17 December 1991 with a strong protest. In fact her reaction was quite different. 96 She attended an interview with David Hart at the Cowra branch on 13 January 1992, and supplied him with a brief statement of assets and liabilities. According to his inter-office memorandum of the following day, she told him that her children were interested in purchasing the Hartley Street land, but that they were waiting on the Bank's decision 'as to the future repayment arrangements'. Mr Hart's memorandum refers to the $9000 which Mrs Lo received on 12 December 1991 and continues: 'She is not willing to apply these funds in reduction of debt until directed by the Bank, as she considers this a hardship case and the remaining debt only consists of interest and charges. (Hoping for the Bank to write the debt off I suspect!) Unable to provide me with principal debt she could handle agreed $100/Fn could be met.' 97 The memorandum shows that Mrs Lo endeavoured to negotiate a favourable outcome with Mr Hart at the meeting. This conduct implied a belief on her part that the debt was still owing, and therefore that negotiations were needed to arrange for repayments and a possible writing off. 98 Mrs Lo wrote to Mr Malouf on 13 January 1992. She said: 'I'm too nerved up to remember all that was discussed but the main issue is the debt owing and my inability to repay because of my hardship and serious health problems that prevent me from ever returning to work.' 99 She explained that payment of $100 every fortnight would be very difficult and set out some hardship grounds, and said: 'If you take my land and sell it that still won't pay the debt, that is interest left, the $40,606.18, would have paid the principal of both accounts. I paid that amount into the bank on the 12-12-91.' 100 Here she specifically refers to the transaction on 12 December 1991, and yet she makes no claim that the transaction extinguished the balance of the debt. 101 She wrote again to Mr Malouf on 21 February 1992. The purpose of the letter was to complain that 'two large amounts of money' had been taken from the new cheque account, and to ask for a reply to her earlier letter seeking an indulgence on grounds of hardship. Again, she made no allegation that the debt had been extinguished by consent. 102 The Bank wrote to Mrs Lo and Snedden Hall & Gallop on 21 February 1992, rejecting the offer of 2 December 1991 and proposing arrangements for discharge of the balance of the debt. The proposal was that Mr and Mrs Lo pay $6000 before 31 March 1992 and immediately list the Hartley Street property for sale, and that they maintain fortnightly payments of $100 commencing on 27 March 1992. The Bank would cease charging interest on the loan provided that the land was sold by 30 June 1992, and would not take action for recovery of its debts. 103 Snedden Hall responded 2 March 1992 saying they were taking instructions and asking the Bank to take no further action in the meantime. Nothing was said about extinguishment of the debt. 104 The Bank wrote to Mrs Lo on 4 March 1992 referring to the settlement proposal of 2 December and saying that the Bank had replied to Mrs Lo's solicitors on 21 February. The letter explained that the amounts debited to the new cheque account were monthly periodical payments, and invited Mrs Lo to contact the writer (Mr Malouf) if she was experiencing financial difficulties. 105 There is an undated office minute, evidently prepared by Mr Malouf at about this time, noting his conversation with Mrs Lo in which she told him that the Bank's proposal of 21 February was unfair and he told her that the Bank had no alternative but to enforce its security, and that it would do so after 14 days had elapsed. 106 One can imagine the Bank's frustration at that time. They were aware that Mrs Lo had received $9,000 on 12 December 1991, and that she still retained the Hartley Street land which had not been sold. Nonetheless she was alleging hardship and saying that she could not pay even $100 per fortnight. The Bank wrote to Mr and Mrs Lo on 3 April 1992 saying that as they had not accepted the Bank's proposal of 21 February or submitted a satisfactory counter-proposal, the Bank would commence legal action for recovery but would allow until 14 April for them to give the matter some consideration. 107 From early April 1992 Mrs Lo conducted negotiations with Creditline, evidently a mortgage broker or financial adviser. Creditline wrote to the Bank on 8 April 1992 asking for a moratorium of eight weeks to enable them to go through Mrs Lo's file and understand the positions of Mrs Lo and the Bank. The Bank consented to a period of eight weeks but insisted that interest would continue to run, though repayments would not be necessary. 108 Creditline attempted to negotiate some arrangements with the Bank on Mrs Lo's behalf. They wrote to the Bank on 19 May 1992 asking the Bank to reconsider the offer of 2 December 1991, and to cease charging interest while Mrs Lo endeavoured to sell the Hartley Street land. On 26 May 1992 they wrote to Mrs Lo advising her that she must make an offer to the Bank under which the Bank would receive the proceeds of sale of the land, an immediate cash payment and weekly instalments, and that it was necessary to prove to the Bank that Mrs Lo was 'completely genuine' and that she did not have 'money hidden under the mattress'. There were further negotiations and discussion, all to no avail, but it is noteworthy that throughout Creditline's involvement there was no assertion by them that the debt had been extinguished. 109 Mr Malouf met with Mr and Mrs Lo, a representative of Creditline, and members of the Lo family at their house on 13 August 1992 to discuss the situation. Nothing concrete emerged from that discussion. Mrs Lo later alleged that the Bank agreed to do nothing until they responded to her request for consideration on hardship grounds. In my view it is unlikely that the Bank gave any firm commitment of that kind. The meeting would have given Mr and Mrs Lo the opportunity to claim that the debt had been extinguished but there is no evidence that any such claim was made. 110 On 9 November 1992 the Bank wrote to Mr and Mrs Lo insisting that they immediately make arrangements for the sale of the Hartley Street property, and informing them that the Bank would issue a notice of its intention to take possession of that property. Mrs Lo replied to that letter, saying that she and her husband were very upset by the contents of the letter having regard to the meeting with Mr Malouf on 13 August 1992, during which (the letter alleged) Mrs Lo was told to do nothing until she heard from the Bank. In this letter, evidently for the first time, Mrs Lo alleged that the Bank responded to her solicitor's offer of 2 December 1991 by instructing her to make the deposits of 12 December 1991, without indicating that the offer would not be acceptable. The letter asked the Bank to release the mortgages and said that Mrs Lo would vigorously defend all action by the Bank taken against her husband and herself. 111 Several things should be said about this letter. First, the allegation that the offer of 2 December 1991 was accepted on 12 December 1991 came forward only after 9 November 1992, and Mrs Lo's conduct in the meantime was inconsistent with any belief that the debt had been extinguished. Secondly, the letter did not assert that the Bank had accepted the offer to extinguish the debt, but only that the instructions given to her to make deposits on 12 December were a response to the offer, and that the Bank did not at that time indicate that the offer was unacceptable. It was only subsequently that Mrs Lo put forward the claim that the Bank had agreed to the offer by its conduct. Thirdly, parts of the letter imply reiteration of Mrs Lo's request that her case be dealt with on a hardship basis, and this is inconsistent with the idea that the debt had been extinguished. 112 In subsequent correspondence Mrs Lo developed her contention, saying that in their letter of 21 February 1992 the Bank had failed to disclose the transaction of 12 December 1991, and this had complicated and confused the matter (Mrs Lo's letter of 21 February 1992. These contentions were taken up by Snedden Hall & Gallop, who wrote to the Bank on 4 May 1993 asserting specifically that in responding to Mr Malouf's instructions in December 1991 Mrs Lo believed the Bank was acting in response to the offer of 2 December 1991 and accepting her deposits in satisfaction of the debt. Thereafter Mrs Lo and her solicitors repeatedly maintained that by arranging for the deposits on 12 December 1991 the Bank had accepted her offer of 2 December 1991 and consequently the debt was extinguished at that time. The Bank rejected this contention and continued to charge interest on the account. By 5 October 2000 the debt had risen to $267,013.52. 113 The Bank served further notices under s 57 (2) (b) of the Real Property Act in respect of the Liverpool Street mortgage on or about 4 June 1993 and 19 July 1993. Mr and Mrs Lo submit that the fresh notices constituted a waiver of any demand previously issued, and therefore they say that the Bank had no entitlement to possession of the land in the proceedings. In my opinion, however, there is no factual basis for the waiver claim. As Young J observed in Silkdale Pty Ltd v Long Leys Co Pty Ltd (1995) 7 BPR 14,414, at 14,425, long delay in enforcing one's rights can amount to waiver, but the waiver must be clear and unequivocal and the other party must have altered his position in reliance on it, or at least acted on it. Those conditions are not satisfied in the present case. 114 Counsel for Mr and Mrs Lo says that the giving of the subsequent notices gave the recipients a further opportunity to comply, and doing this is inconsistent with the proposition that a default already existed. Consequently, by giving the later notices the Bank extinguished the default upon which the possession proceedings were based. But an argument of this kind was considered and rejected by Young J in the Silkdale case at 14,425, where his Honour said: '[U]nless there is conduct on the part of the mortgagee which shows that the mortgage[e] does not intend to rely on any breach contained in the notice or acquiescence by both parties in resuming their former positions, the notice will continue to govern the parties' relationship'.

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The Bank's entitlement to possession 117 The Bank seeks judgment for possession of the Liverpool Street property in proceeding No 10580 of 1991. As mentioned earlier, judgment for possession has already been granted in respect of the Hartley Street property in proceeding No 10581 of 1991, but Mrs Lo has made an application to set the judgment aside and the Bank has undertaken not to proceed to execution until the application to set aside judgment has been determined. The Bank seeks an order setting aside Mrs Lo's notice of motion filed on 4 April 1996, on the basis that it will thereafter be free of its undertaking. 118 To the extent that the Bank's claims for relief in proceedings No 10580 and 10581 of 1991 depend upon establishing that money is owing, demands have properly been made and default in payment has occurred, I am satisfied that the Bank has made out its case. The correspondence to which I have referred demonstrates that from shortly after the making of the term loan agreement in September 1995, Mr Mrs Lo fell into arrears with respect to their overdraft and the term loan. The Bank served a demand for repayment on about 21 March 1990, and serve notices under section 57 (2) (b) in respect of both mortgages on about 22 August 1990. I regard those notices as effective for the reasons I have given, but regardless of their force and effect as notices under section 57 (2) (b), the notices constituted demands for repayment for the purposes of the mortgages and the term loan: Turnbull v National Mutual Royal Bank Ltd (1992) 26 NSWLR 361, 369-70. 119 By reason of the Bank's demands, the whole amount owing under the overdraft became due and payable, as a debt payable on demand. In the case of the term loan, the demands amounted to an exercise by the Bank of its option to make the balance immediately payable. Additionally, by reason of the demands the whole amount became due and payable under the terms of the mortgages. Although they paid out and closed the overdraft account on 12 December 1991, Mr and Mrs Lo remained in default of payment of the term loan. 120 Therefore the Bank was entitled to possession of both properties under section 60 of the Real Property Act, subject to the matters to which I now turn, when the proceedings for possession were commenced, and is entitled to possession of both properties now. 121 Mr and Mrs Lo submit that at the time when the proceedings for possession were taken, the Bank was not entitled to demand payment because it had agreed not to do so until Mrs Lo's insurance claim was resolved; there was, accordingly, no 'default' on which a claim for possession could be brought under s 60. This submission fails because the facts do not establish that the Bank ever undertook not to demand payment until the insurance claim was resolved. The Bank merely, in its discretion, chose not to enforce its rights in the hope that resolution of the insurance claim would make it unnecessary to do so. 122 Mr and Mrs Lo also submit that the giving of a valid s 57(2)(b) notice is a prerequisite to entry into possession. This submission is answered by my finding that the s 57(2)(b) notices given in August 1990 were valid. Additionally, however, in the present state of the law of New South Wales it is not necessary to give a s 57(2)(b) notice in order to exercise the right to enter into possession. All that is needed, relevantly, under s 60 of the Act is a 'default in payment': Silkdale case, at 14,418, citing at Zanzoul v Westpac Banking Corporation (NSWCA, 14 June 1995, unreported).

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The claims by Mr and Mrs Lo, generally 123 Mr and Mrs Lo claim, in their amended statement of claim in proceedings No 3905 of 1996, a declaration that the judgment obtained by the Bank in proceeding No 10581 of 1991 has been satisfied by the receipt of the sum of $50,000, and a declaration that the acceptance of the sum of $50,000 estops the Bank from continuing with proceeding No 10580 of 1991. 124 The basis for this relief is their assertion that on and just prior to 12 December 1991 the Bank, by Mr Malouf and Ms Smith, engaged in conduct which amounted to acceptance of the offer of 2 December 1991 to accept $50,000 in full satisfaction of the debt, and therefore constituted accord and satisfaction, or constituted a binding representation that the Bank would not seek to recover the balance of the debt. My findings of fact, set out above, simply do not support the assertions of Mr and Mrs Lo. 125 In addition, Mr and Mrs Lo challenge the validity or enforceability of the loan agreement and mortgages upon general law principles, under the Contracts Review Act and the Fair Trading Act. Essential to these grounds are their assertions that the loan agreement and the mortgages were unjust and/or unconscionable, and that the Bank's reliance on its strict legal rights was unconscionable conduct either at general law or under the Fair Trading Act. In my view their claims fail on the facts, quite apart for any legal difficulties which may be entailed. I shall deal with the general factual assertions in the amended statement of claim first, and then I shall deal with the particulars of the claims made under the Contracts Review Act (and general law unconscionability) and the Fair Trading Act. 126 Mr and Mrs Lo claim that at all material times from 1982 until 1991, the Bank through its officers well knew that they had no capacity to service the overdraft account or any other account, other than from their income from Social Security payments or from the proceeds of the insurance claim. My finding is that the Bank was aware that Mr and Mrs Lo had very limited income, but was persuaded by Mrs Lo's pleas to extend credit to her and her husband on the basis that they would be able to repay once the insurance claim was satisfied. The Bank's officers believed that the claim would be dealt with substantially earlier than proved to be the case. 127 Mr and Mrs Lo say that the Hartley Street mortgage was not given to secure money owed by Mr Lo. But in fact that mortgage, by its terms, supported advances to Mr Lo and Mrs Lo separately or together. They say that no money was advanced to them in consideration of the granting of the Hartley Street mortgage. But in fact that mortgage was security for advances subsequently made to both plaintiffs, and was relied upon by the Bank, to their knowledge as part of the Bank's security during all subsequent negotiations about their deteriorating state of accounts with the Bank. Mr and Mrs Lo benefited through the series of indulgences extended to them by the Bank on the basis that it had security over the Hartley Street property. 128 Mr and Mrs Lo say that no benefit accrued to them by reason of their granting the mortgage over the Liverpool Street property. At the time when the mortgage was executed the current account of Mr and Mrs Lo was overdrawn, and the mortgage was executed as part of arrangements to secure an additional facility that would regularise the overdrawing. They obtained a benefit from the mortgage because it temporarily removed their default. Additionally, they obtained a benefit through the continuing indulgences given to them by the Bank as the state of their accounts deteriorated, the Bank relying to their knowledge on the existence of the security. 129 Mr and Mrs Lo say that no part of the $28,000 advanced to them under the term loan was actually received by them, but instead the loan moneys were used to reduce the overdraft balance to zero. I have set out the facts concerning this transaction. To the extent that the loan proceeds were used to restructure the existing debt of Mr Mrs Lo, they benefited by new arrangements which temporarily removed their default and therefore took away for the time being the prospect of enforcement action under the mortgages. The loan agreement therefore conferred obvious benefits on them.

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The Contracts Review Act claim 130 Mrs Lo alleges that the Hartley Street mortgage was unjust within the meaning of the Contracts Review Act. She says this is because the mortgage was not given for any benefit for her, and the bargaining power between her and the Bank was unequal. Further, she says she was not given the opportunity to seek independent legal advice, the mortgage documents were not explained to her, and the Bank well knew that she did not have the capacity to repay or service the debt. 131 Mr and Mrs Lo say that the Liverpool Street mortgage was also unjust within the meaning of the Act, not only for the reasons given in respect of the Hartley Street mortgage, but also because Mr Lo did not speak English, the mortgage was not translated to him, and he was aged and infirm. Mr Lo says that he is also entitled to relief in respect of the second mortgage on the principles contained in Commercial Bank of Australia v Amadio (1983) 151 CLR 457, Yerkey v Jones (1939) 63 CLR 649 and Garcia v National Australia Bank (1998) 194 CLR 395. 132 For the Contracts Review Act to apply, the Court must be satisfied that the mortgages were unjust in the circumstances in which they were entered into - as to the meaning of the word 'unjust', see Elders Rural Finance v Smith (1996) 41 NSWLR 296, esp at 298. A 'hard' bargain is not unjust simply for that reason: Conley v Commonwealth Bank of Australia (NSW CA, 4 May 2000). 133 In my view there was nothing in the mortgages, nor the loan arrangements between the Bank and Mr and Mrs Lo, which could be characterised as oppressive, or burdensome or even hard towards them, let alone unconscionable. Although Mr and Mrs Lo did not discharge their onus of proof in this respect, I am prepared to assume that they did not receive independent advice or any significant explanation of the consequences of the mortgages before they were executed. But they both knew, on each occasion, that they were signing mortgages and they generally understood the significance and effect of a mortgage. Mrs Lo may have had a more detailed understanding of the nature and effect of a mortgage than her husband, but he was content to leave the management of their financial affairs to her. 134 There is nothing in the evidence to indicate that if they had been given advice about the mortgages they would have acted differently. At the time they were anxious to provide additional security in order to obtain access to finance and prevent any enforcement action. They saw the mortgage transactions as part of a strategy to keep themselves financially afloat until the proceeds of the insurance claim came through. 135 Counsel for Mr and Mrs Lo submitted that the mortgages and the term loan were improvident transactions. He said that if independent advice had been sought, the only sensible advice would have been that they should not enter into those transactions. This was because they did not have the cash flow to service their debt to the Bank, and the proceeds of the insurance claim were at that stage uncertain and in any event, should not be expended before they were received. I disagree. At the time the transactions were entered into, the borrowings were well within the value of the securities and as far as the evidence goes, there were grounds for Mr and Mrs Lo to expect a favourable outcome on the insurance claim within a reasonably short time. 136 Notwithstanding cross-examination of the Bank's witnesses, it is not established that the Bank acted contrary to its lending guidelines and procedures as in force at the time, and it appears that the mortgages were regarded by Bank officers as regular transactions when they were entered into. 137 In the circumstances the mortgages were not 'unjust' for the purposes of the Contracts Review Act. The argument based upon the Amadio and Garcia cases fails through lack of any sufficient factual basis. While it is true that Mr Lo did not conduct in the negotiations regarding the Liverpool Street mortgage and the term loan, the evidence indicates, on balance, that he understood those transactions and was content to leave it to his wife to negotiate them, and that he benefited from them. The fact that he reposed confidence in his wife provides no ground for relief in the present circumstances, where there is no evidence that the transactions that she negotiated on their joint behalf were disadvantageous to him.

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Fair Trading Act claim 138 Mr Mrs Lo seek orders that the mortgages and loan agreement be set aside and discharged, and that they be relieved of any further liability in respect of them, on the ground that the Bank has behaved unconscionably within the meaning of s 43 of the Fair Trading Act 1987 (NSW). They rely upon the court's powers to entertain such an application under s 72 (1) or (2), and to grant relief under s 72 (5) (b), (c) and (h). Extensive particulars of the claim have been supplied in consequence of directions given by the early in the hearing. 139 Mr and Mrs Lo say that the Bank's continuing assertion of its 'strict legal rights' under the mortgages and in the proceedings for possession is unconscionable conduct in breach of s 43, partly because the Bank received $50,000 on 12 December 1991 in satisfaction of the judgment debt then owing, or the Bank's conduct in accepting payment on that day constitutes an estoppel. I have rejected, on the facts, the claims to accord and satisfaction and estoppel, and therefore I reject, also on the facts, the claim that the Bank's subsequent conduct in pursuing the debt and the proceedings for possession was in any way unconscionable. 140 The remaining particulars of the Fair Trading Act claim overlap with particulars of the Contracts Review Act claim and the claim based upon unconscionability at general law. Mr and Mrs Lo assert that the Bank's officers were well aware of their financial and other circumstances, that the Bank's procedures were not followed in the case, that the Bank gave them financial accommodation notwithstanding the history of overdrawing account limits, that they took mortgages which were clearly improvident from the point of view of Mr and Mrs Lo, without advising them and without their obtaining independent advice, that the Bank continued to debit the accounts of Mr and Mrs Lo with interest and charges prior to the settlement of her insurance claim, and instituted and pursued proceedings unfairly. 141 The Fair Trading Act claim fails, in my view, because there is no factual basis for asserting that the Bank's conduct was unconscionable at any stage. However, the claim would encounter serious difficulties even if there was a factual basis for it. The Act was assented to on 10 June 1987, and commenced (except for ss 1 and 2) on 1 September 1987. It therefore appears to have no application to the mortgage and term loan transactions. The loss particularised appears to relate, at least substantially, to those transactions. Additionally, most if not all of the conduct relied upon by Mr and Mrs Lo fell outside the limitation period in s 72 (6), given that the proceedings in which relief under the Act was claimed were commenced in 1996. To the extent that the claim relies upon conduct involving the institution of proceedings, it encounters difficulty under s 43 (3). The Bank questions whether the conduct complained of was 'in connection with the supply or possible supply of goods or services', but I am prepared to assume (without deciding) that there was conduct falling within this description. 142 In a bold submission, counsel for Mr and Mrs Lo contends that the Bank's current reliance on the mortgages and the loan agreement is unconscionable within the meaning of the Fair Trading Act, because (he submits) the statutory provisions must be taken to go beyond the general law of unconscionability, otherwise they would have no effect. For the purposes of the Act it is unconscionable, according to this submission, 'to take a security one knows will be forfeited by someone who does not have sufficient income to repay where, otherwise, the debt is unsecured, without explaining that consequence.' 143 The question whether s 43 goes beyond the general law (cf Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (No.2) (2000) 96 FCR 491) can be left for another time. The submission fails because the facts do not establish that when the securities were taken and the loan agreement was made, it was clear that Mr and Mrs Lo would be unable to repay. At the relevant times Mrs Lo was expecting an insurance payment that would have been more than adequate to repay the debt to the Bank, and she persuaded the Bank to continue to extend credit on the basis of her expectation.

State Bank v Lo

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Judgment (61 paragraphs)

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Legislation Cited (4)

Cases Cited (12)

Cited By (1)