Suncorp-Metway Ltd v Bellairs

(iv) The parties have liberty to apply to the Court on the question of costs and any other consequential order, including submissions on the minutes.

CATCHWORDS : MORTGAGE - Contracts Review Act 1980 (NSW) - imposition of condition to reduce principal - knowledge of cash flow difficulties - unnecessary for protection of legitimate interests - contract unjust - remedy granted - parties to recalculate amount owing without default interest and charges

Contracts Review Act 1980 LEGISLATION CITED : Evidence Act 1995 Farm Debt Mediation Act 1994

Arnison v Smith (1889) 41 Ch D 348 Beneficial Finance Corporation Ltd v Karavas & Ors (1991) 23 NSWLR 256 Berrigan Shire Council v Ballerini [2005] VSCA 159 Byrne & Frew v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410 Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413 Hadley v Baxendale (1854) 9 Exch 341 CASES CITED : Lawloan Mortgages Pty Ltd v Young [2008] NSWSC 1180 Laws v GWS Machinery Pty Ltd & 2 Ors; Laws v GWS Machinery Pty Ltd & Anor [2007] NSWSC 316 Municipal Officers' Association of Australia v Lancaster [1981] FCA 151; (1981) 54 FLR 129 Nguyen v Taylor (1992) 27 NSWLR 48 Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 West v AGC (Advances) Ltd (1986) 5 NSWLR 610

Suncorp-Metway Ltd (Plaintiff/Cross-Defendant) PARTIES : Anthony James Bellairs (First Defendant/First Cross-Claimant) Alan Barry Pike (Second Defendant/Second Cross-Claimant)

COUNSEL : J White (Plaintiff/Cross-Defendant) C Simpson (Defendants/Cross-Claimants)

SOLICITORS : Corrs Chambers Westgarth Lawyers (Plaintiff/Cross-Defendant) Somerville Laundry Lomax Solicitors (Defendants/Cross-Claimants)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

14346/07 Suncorp-Metway Ltd v Anthony James Bellairs & Anor

JUDGMENT 1 HIS HONOUR: The plaintiff, Suncorp-Metway Limited ("Suncorp") seeks possession of property for which it is a mortgagee on account of the default of the defendants Mr Bellairs and Mr Pike. The mortgage secured a loan, originally for $535,000, which was used by the defendants to purchase the land and a business called Valleyview Nursery. 2 As the name suggests, the business was a nursery and was purchased by the defendants for $675,000. The defendants, subject to a cross-claim and/or defence under the Contracts Review Act 1980 (the Act), concede that Suncorp is entitled to the possession orders that are sought. The defence and/or cross-claim seeks relief from the orders sought by Suncorp on the ground that the loan agreement (or provisions of it), secured by the mortgage, was unjust in the circumstances relating to the contract at the time that it was made: see s 7 of the Act. 3 While the factual issues between the parties are within very short compass, it is necessary to set out the circumstances of the defendants at the time that the loan was executed and the effect of the loan on the defendants. Facts And Circumstances 4 The defendants worked together at the Northern Rivers Rural Buying Service in Lismore, and in mid-2003 Mr Bellairs (for relevant purposes it is unnecessary to distinguish between the issues that affect each defendant) became aware that the Nursery business and land was for sale. The previous owners had retired and were selling the land without the use of an agent. 5 Mr Bellairs believed that the business had potential and that he could live in the house and, if necessary or desirable, could subdivide the land in the future, as the town expanded. 6 On his own, Mr Bellairs could not secure finance or operate the business, so he arranged with Mr Pike (the second defendant) to buy the land and for the two of them to run the business together. The arrangement between them was that they would be "equal partners", work weekends at the Nursery and retain their weekday jobs to "help make payments on the loan to buy the land". They would employ someone to operate the Nursery during the week. 7 Mr Bellairs was, of the two defendants, the person given the responsibility of organising and negotiating the finance. 8 In or about July 2003, Mr Bellairs spoke to Mr Poole (the Suncorp Branch Manager with whom he had previously dealt). Mr Poole referred Mr Bellairs to Mr Buttenshaw. Mr Buttenshaw was the Business Banking Manager (Commercial Banking, Suncorp Banking) and, relevantly, an employee (or agent) of Suncorp. 9 It was, according to Mr Bellairs, important to the defendants for any loan obtained from Suncorp to be an "interest only" loan because, according to Mr Bellairs, he was worried about his ability to reduce the principal in the early years of the loan from what would be, at least initially, a limited cash flow. An interest only loan, it seems, would, according to Mr Bellairs, allow the defendants to "build the Nursery business up". I accept his evidence, even though one must treat such evidence, given after the event, with caution: "Human nature being what it is, most plaintiffs will genuinely believe that, if he or she had been given an option that would or might have avoided the injury, the option would have been taken. In determining the reliability of the plaintiff's evidence in jurisdictions where the subjective test operates, therefore, demeanour can play little part in accepting the plaintiff's evidence. But given that most plaintiffs will genuinely believe that they would have taken another option, if presented to them, the reliability of their evidence can only be determined by reference to objective factors, particularly the attitude and conduct of the plaintiff at or about the time when the breach of duty occurred." ( Chappel v Hart [1998] HCA 55; (1998) 195 CLR 232 at 246 n (64), per McHugh J. See also Berrigan Shire Council v Ballerini [2005] VSCA 159 per Nettle JA citing with approval Arnison v Smith (1889) 41 Ch D 348 at 369, Laws v GWS Machinery Pty Ltd & 2 Ors; Laws v GWS Machinery Pty Ltd & Anor [2007] NSWSC 316. 10 On 7 July 2003, Suncorp sent the defendants a proposal in relation to a facility. This proposal was indicative only. The proposal was not intended to create a contractual obligation (and expressly contradicted that it would). Nevertheless, the letter (Tab 4, Exhibit A) indicated that the borrowing would be for $490,000 on an interest only basis with the defendants having the option of either a variable or fixed rate of interest. The variable rate of interest was, at that time, 7.25% and the fixed rate depended upon the period for which the loan was taken out, from 7.1% for a one-year facility to 7.75% for a five-year facility. 11 Apart from repeating that the loan structure would be on an interest only basis, with the interest payable monthly in arrears, the security would be a first registered mortgage over Valleyview Nursery, Main Street, Clunes and a registered mortgage over a residential unit owned by Mr Pike. There were the usual provisions as to application fees, establishment fees, stamp duty and the like. There was a request for information confirming the purpose of the loan, the total amount of investment and a request for tax returns and a cash flow forecast for the business for the next 24 months. 12 There was some issue, during the course of the proceedings, as to the relative value paid by the defendants for the land, as against that paid for the business. It is an inevitable inference that the business, at the time of the purchase by the defendants, had been rundown to some extent. The defendants offered to purchase the land and Nursery business for $675,000 plus stock. The proposal, in a letter from the vendors' solicitor, was that the sale of the land and business would be notionally split and the land would be sold for $669,000. A second contract would dispose of the Nursery. The Nursery purchase would include items such as the refrigerator, scales, igloos, benches and a shed. 13 On or about 28 August 2003, the defendants completed a form provided by Suncorp, being a "Loan/Credit Application", seeking, from Suncorp, an amount of $535,000. The stated purpose of the loan was to "purchase Valleyview Nursery freehold and business" for $675,000 (Tab 7, Exhibit A). The application makes clear that the defendants would supply $160,000 of their own money. 14 On 29 August 2003, Suncorp was supplied with a cash flow analysis of the Nursery, being projected earnings, and copies of business worksheets taken from the income tax returns of the current owners for 2001 and 2002. 15 On 1 September 2003, Suncorp created a schedule of outstandings relating to the defendants' security, borrowings and repayments (Tab 9, Exhibit A), and on the same date Mr Buttenshaw recommended that the loan be approved. On 3 September 2003, Mr Buttenshaw lodged, internally to Suncorp, a "Credit Approval Request Commercial". This document was presented to Gary Frankish, Credit Manager (Credit Bureau, Suncorp Banking). The document sought approval of a loan of $535,000 to the defendants on an interest only basis for a term of five years. At this stage, the securities that supported the loan were, according to the original Credit Approval Request, a first mortgage on an existing residential vacant block in Lismore Heights, said to be valued at $95,000, a first mortgage on an existing residential unit at Lismore Heights, said to be worth $220,000, and a mortgage on the rural Nursery at Clunes, said to be worth $675,000. 16 Ultimately (and the Exhibit, Tab 11, Exhibit A, has handwritten amendments recording these values), the market values of the properties were said to be worth $90,000, $200,000 and $575,000 respectively. Further, the existing properties (the vacant land and residential unit, each at Lismore Heights) had existing mortgages totalling $123,900. 17 The original Credit Approval Request sought security with a market value of $866,100 (taking account of the existing encumbrances) and, taking account of the valuations obtained by Suncorp, the loan was secured by real estate (after deducting the value of encumbrances) of $741,100. 18 The loan, as approved, represented 72.2% of the value of the security (after deducting current encumbrances). As earlier stated, Suncorp was in receipt of information which gave them projected net income of the Nursery, together with the income of each of the defendants and net rental income from other sources. The valuations were not received until some time after the initial discussions about the loans. 19 The credit approval request (Tab 11, Exhibit A) also noted an exemplary borrowing record with Suncorp and that the loan was expressed to be for the purpose of the "purchase freehold and business known as the Valleyview Nursery, Main Street, Clunes". There is a reference in the Credit Approval Request (which I reiterate is an internal Suncorp document) that the purchase price of the business and land was $675,000, which had been negotiated, and included all existing nursery fixtures and fittings including shade houses and watering systems, fridges, scales, plant and equipment and $6,000 worth of stock. 20 On 8 September 2003, Mr Frankish approved the loan (for internal purposes). This internal approval specified no additional conditions precedent or subsequent, but was subjected to the terms and conditions as outlined in the Credit Approval Request (or as amended). The internal approval memorandum stated: "The ability to amortise debt over a 10 year term is reliant on the increased profitability of the nursery. Based on cash flows provided this should be achieved. On an interest only basis, they have the ability to meet interest from existing incomes and historical nursery profitability. Given the uncertainty of the nursery profitability, I am only willing to provide a term of 2 year interest only. At the end of this term we will consider a further period of interest only. Valuation to be only based on land & buildings and we like the valuer to comment on the market for this style of property and whether the market would be for an owner occupied lifestyle type property i.e. no reliance on nursery business." The inevitable inference, from this memo, is that the defendants would have difficulty, in cash flow terms, with a loan that required the payment of capital, as well as interest. I accept that such a meaning was intended. 21 On the same date, i.e. 8 September 2003, and presumably because of Mr Frankish's internal memo regarding credit approval, Suncorp sent an Offer of Finance to the defendants. While repetitive, I shall repeat some of the terms.

(b) There were fees of the usual kind that were payable;

(c) The amount was to be paid in one single advance;

(d) The interest was to be payable in arrears on the last banking day of each month at the Higher Rate reducible to the Lower Rate if paid within 7 days of the date for payment and provided there was no existing default;

(e) The higher rate was 3% per annum more than the lower rate, which was 2% per annum above the Bank's bill rate from time to time. 22 Certain conditions precedent were specified, one of which was that there be a valuation obtained from a bank-approved valuer acting under instructions from the Bank noting a value of "not less than $675,000 on the property at Valleyview Nursery, Main Street, Clunes". Similar conditions were placed upon the valuation of each of the properties at Lismore Heights at values of $220,000 and $95,000 respectively. 23 The memorandum of 2 September 2003, mentioned above, indicated that the $675,000 purchase price, which included all existing nursery fixtures and fittings, as specified above, was likely to be confirmed. The memo stated: "The purchase price of the nursery is anticipated to be confirmed given it is fair market value with a very attractive outlook over the valley south-east of Clunes." 24 As earlier noted, the internal memo from Mr Frankish to Mr Buttenshaw required a valuation of the Clunes property to be based only upon "land and buildings", with comment as to its use for owner occupied lifestyle type property. If, as one must expect, and is confirmed by the memo cited immediately above, the market value of the property and business was that which was paid by the defendants, it could not have been expected that a valuation based only on land and buildings would satisfy the requirement in the Offer of Finance of 8 September 2003, namely that the land alone would be worth at least the amount that was paid for both the land and the business. It should be noted that the Offer of Finance of 8 September 2003 implemented the view expressed in the internal memo of that date and was a facility repayable by consecutive monthly repayments and was an interest only loan. The principal was, according to the Offer of Finance, to be payable at the expiry of the term of the loan facility. 25 At no stage, prior to obtaining finance (and it seems prior to the commencement of proceedings), were the defendants ever informed that the valuation was to be on a basis that was confined to land and buildings, with no reliance on the Nursery business or any of the fittings and fixtures associated therewith (which, it should be noted, were, in part, fittings and fixtures to the land). 26 On 11 September 2003, the contract for the sale of the property was executed, as was the contract for the sale of the business. 27 On 15 September 2003, the defendants executed the Offer of Finance dated 8 September 2003. 28 On 19 September 2003, Mr Frankish notified Mr Buttenshaw, by internal memo, that the "valuations of security properties … have a shortfall in security". The memorandum, at a later point, stated: "To remedy this debtors have agreed to make additional repayments of $2,740pm. This will see us within SVV in 12 months. Sale of unit & vacant land will also assist when this eventuates." 29 On the same date, 19 September 2003, a revised Offer of Finance (still dated 8 September 2003) was sent to the defendants, and reflected the principal reduction of $2,740 per month for the first 12 months. Any extension of time or different capital reduction programme to that in the revised offer required separate approval by Suncorp and incurred additional fees. 30 Notwithstanding the existence of valuations for each of the security properties, which valuations were conducted by a valuer chosen by Suncorp and were for figures less than the original amounts described in the first Offer of Finance, the second Offer of Finance contained the same conditions requiring, as a "condition precedent to first advance", a valuation of the properties at $675,000, $220,000 and $95,000 respectively. 31 At the time that Suncorp imposed the immediately foregoing "condition precedent", it knew that the condition precedent could not and had not been met. 32 On or about 26 September 2003, the defendants executed the second Offer of Finance. This was done despite the concerns by one or more of the defendants that they would be unable to meet the principal repayments and that the effect on their cash flow may cripple the business. Mr Bellairs attests to the proposition, and I accept it, that he considered that he had no choice, because he had already exchanged contracts for purchase of the business and would forfeit the deposit. His evidence, which I accept, was that he was most concerned, but was hopeful that the business could survive this additional impost. 33 The contract for the sale of the business was settled on 30 September 2003, and for the sale of the land on 21 October 2003. 34 At no relevant stage was Mr Bellairs aware that the shortfall in valuations was, in part at least, because the land was valued, without the business, while ignoring the value of the nursery, its fittings and fixtures. Post-Purchase Circumstances 35 As already stated, the settlement of the Nursery business contract occurred on 30 September 2003, after which the defendants occupied the land and commenced business operations. The premises were occupied prior to the settlement of the purchase of the land, which occurred on 21 October 2003. Suncorp advanced the sum of $535,000, and the defendants commenced payment of the interest and the reduction in principal of $2,740 per month. 36 The advance by Suncorp was made on 21 October 2003 and, pursuant to the second Offer of Finance, interest was calculated, for the period between 21 October 2003 and 31 October 2003, at $1,144.75. That amount was the subject of an automatic debit, which was dishonoured. The first payment on the loan account was for the first instalment of the reductions in principal, on 22 November 2003, for the amount of $2,740. The interest for November (calculated on 30 November 2003) was for $3,146.17, the direct debit for which was also dishonoured on 1 December 2003. A higher rate of interest was charged on 30 November 2003, it seems for interest otherwise payable throughout November, because of the alleged default, namely, the dishonouring of the direct debit on 1 November 2003 for the interest for the 10 days in October. 37 Without repeating, in these reasons, each of the payments and reversals, it seems clear that, at least for the period until February 2004, there were significant cash flow issues that delayed the payment of interest by the defendants. This is not surprising. It accords with the concern expressed by Mr Bellairs and is consistent with the view taken of the financial position of the defendants by Suncorp in its internal memo. I will return to the latter aspect when discussing the merits of the matter. 38 Nevertheless, despite the cash flow problems obviously experienced by the defendants, by 31 August 2004, the defendants had reduced the principal to $512,765.61 (from $535,000), including all of the interest, even the interest charged at the higher rate, except the differential interest for the higher rate for the month of August itself. In just over 12 months of the loan (from 22 October 2003 to 31 October 2004), the defendants had paid a total of $70,756, which the Bank had allocated, pursuant to the above issues, to principal and interest payments. In the same time, the principal had been reduced from $535,000 to $516,506.35 (including all interest, whether at the higher rate or otherwise). 39 Following 31 October 2004, because the defendants had not reduced the principal to the extent required by Suncorp, and otherwise, there was default and the higher interest rate applied to the balance of the loan. 40 In the second year of the loan, the defendants made payments totalling approximately $24,000. During the course of the first and second year, the Bank charged a series of fees relating to the dishonouring of cheques and automatic deductions, which were otherwise made. 41 Towards the end of 2004, the second defendant, Mr Pike, was diagnosed with bowel cancer, which required extensive treatment that he undertook. 42 The original loan was for a period of two years. During that time the defendants made total payments of approximately $95,000 and at the end of the two-year period (assuming that it concluded on 31 October 2005) the outstanding principal, according to the accounts of Suncorp, was $550,579.44. The last mentioned amount included interest at the higher rate throughout most, if not all, of the period, in addition to fees for the dishonouring of cheques, occasioned by the cash flow issues to which reference has already been made. 43 If, as was originally anticipated, the loan were to have been for interest only (even taking account of any increases in interest rates during the course of the two year period), all interest would have been paid and some reduction in the principal would have occurred. In any event, at the end of the two-year period, no more than the original $535,000 would have been owed to the Bank. 44 The evidence before the Court is that in the first half of 2005 Mr Pike, who was, as previously stated, unwell, wanted to sell his shares. There were one or more purchasers, who, either singularly or together, wished to purchase the shares, or agreed in principle to the purchase of the shares for an amount of $340,000, subject to refinancing of the original acquisition. Mr Bellairs' understanding was that the Commonwealth Bank would refinance the loan to the amount of $516,000. The Commonwealth Bank confirmed to Suncorp that it was prepared to refinance (conversation between Mr Buttenshaw and Chris Iver of the Commonwealth Bank, see Tab 46, Exhibit A and elsewhere). While some objection was taken to the terms of the Affidavit of Mr Bellairs to this effect, most of the information upon which he relies is otherwise contained in the internal memos of Suncorp, which were admitted and which prove that the Commonwealth Bank was prepared to finance the outstanding loan, that there was approximately $11,654 more outstanding to Suncorp than the Commonwealth Bank was prepared to finance, and that Mr Bellairs was prepared to pay that amount on extended credit facility on his visa card with Suncorp, if Suncorp allowed it (see Tabs 44, 45, 46, 47, 48 and 49, Exhibit A). 45 The documents are business records and, even if they were subject to objection (which they were not), would be admitted under s 69 of the Evidence Act 1995. 46 One further matter relating to the abovementioned proposal should be noted, namely, that Suncorp refused to allow the differential between that which the Commonwealth Bank would finance and the amount outstanding to Suncorp to be paid (or charged) to an increased visa card limit on the visa card issued through Suncorp. On an earlier occasion, Suncorp had requested (or insisted) that an amount outstanding on the loan be paid by a visa charge. However, there is a distinction between the two payments. The earlier occasion, being the request from Suncorp, was a payment within the credit limit already established on the visa card it issued, whereas the later request by Mr Bellairs was, essentially, a request that the visa limit be extended to accommodate the payment. An extension of credit limit, in those circumstances, is another means of obtaining a further, but limited, loan facility. 47 As a result of the foregoing, the sale of Mr Pike's shares in the business did not proceed and the refinancing with the Commonwealth Bank did not occur. 48 In or about March 2006, Suncorp commenced enforcement proceedings, one of the effects of which was notification to lessees/licensees of the relevant premises, which lessees/licensees, on notification, terminated the leases or licences. Contracts Review Act Provisions And Principles 49 The principles applicable to the application of the Contracts Review Act are well known and have been the subject of authoritative exposition. There is no issue, in these proceedings, that the Act applies to the contract in question. Even though the contract was entered into in the course of or for the purpose of a trade or business carried on by the defendants, that business was a horticultural undertaking and, by definition, a farming undertaking within the terms of s 6(2) of the Act. The definition of "farming undertaking" is a shortened version of the definition of "farming undertaking" contained within the terms of the Farm Debt Mediation Act 1994. 50 The Farm Debt Mediation Act applies to this loan. In accordance with the provisions of that Act, a certificate of mediation has been filed and there is otherwise compliance that allows Suncorp to proceed against the defendants for possession. As to the definition of "farming undertaking" see Lawloan Mortgages Pty Ltd v Young [2008] NSWSC 1180. I take a similar view to the meaning of "farming undertaking" as contained within the provisions of s 6(2) of the Contracts Review Act. 51 Therefore, the Contracts Review Act applies to this mortgage and relief may be sought under s 7 of the Act. The purpose of the Act was described by the Court of Appeal in the following terms: "It is in my opinion a mistake to think that a contract or one of its terms is only unjust when it is unconscionable, harsh or oppressive. Contracts which fall within any of those categories will be 'unjust'. But the latter expression is not limited to the so-called 'tautological trinity'. The Contracts Review Act 1980 is revolutionary legislation whose evident purpose is to overcome the common law's failure to provide a comprehensive doctrinal framework to deal with 'unjust' contracts." ( West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 620-621, per McHugh JA.) 52 The Act, however, does not act as an anodyne - soothing every ill caused by contract. The jurisdiction of the Court to make orders under the Act is predicated on an evaluation, by the Court, that the contract was unjust: Nguyen v Taylor (1992) 27 NSWLR 48 at 71; Beneficial Finance Corporation Ltd v Karavas & Ors (1991) 23 NSWLR 256 at 260, 270; Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413. 53 As has been made clear by the Court of Appeal, on a number of occasions, a contract may be unjust in one of two ways: the contract, or the terms thereof, may be, in and of themselves, unjust; and/or, the circumstances that led to the making of the contract may make the contract itself unfair (within the statutory meaning). Thus, the Court of Appeal has said: "Under s 7(1) [of the Contracts Review Act ] a contract may be unjust in the circumstances existing when it was made because of the way it operates in relation to the claimant or because of the way in which it was made or both. Thus a contractual provision may be unjust simply because it imposes an unreasonable burden on the claimant when it was not reasonably necessary for the protection of the legitimate interests of the party seeking to enforce the provision…. In other cases the contract may not be unjust perse but may be unjust because in the circumstances the claimant did not have the capacity or opportunity to make an informed or real choice as to whether he should enter into the contract." (See West v AGC (Advances) Ltd , supra, at 620.E per McHugh JA, with whom Hope JA agreed, Kirby P not deciding. See also Elkofairi v Permanent Trustee Co Ltd , supra and Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41.) 54 This approach is an approach applied generally to "unfairness" in a number of statutory formulations and has been applied by the High Court in other circumstances: see Byrne & Frew v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410 at 465, per McHugh and Gummow JJ. In Byrne & Frew, supra, the High Court was dealing with the construction of a statute concerned with industrial law, the contract of employment and its implications, and the construction of an Award. The High Court said: "[129] The distinction between procedure and substance is elusive. This is so even in those fields of private international law, the statute law dealing with limitations of actions and the effect of repeal upon accrued rights, and the Statute of Frauds, where it has an entrenched operation. In our view, it is unhelpful and contrary to the tenor of the Award to introduce it into [the clause].

[130] That is not to say that the steps taken, or not taken, before termination may not in a given case be relevant to consideration of whether the state of affairs that was produced was harsh, unjust or unreasonable. Thus, it has been said that a decision which is the product of unfair procedures may be arbitrary, irrational or unreasonable. But the question under [the clause] is whether, in all the circumstances, the termination of employment disobeyed the injunction that it not be harsh, unjust or unreasonable. That is not answered by imposing a disjunction between procedure and substance. It is important that matters not be decided simply by looking to the first issue before there is seen to be any need to enter upon the second." ( Byrne & Frew , supra, per McHugh and Gummow JJ at 465-466.) 55 However, it is not unfair conduct that is remedied by the Contracts Review Act. The Contracts Review Act deals with an unfair contract, and the conduct leading to the making of the contract is relevant only to the extent that it renders the contract between the parties unfair, as discussed in West v AGC, supra. If there be a pre-existing relationship between the parties, which imposes on one or more of them a duty to act in a particular way, then breach of that duty may be a circumstance, which would render the contract unfair. However, it is unnecessary for there to be a pre-existing relationship or duty between the parties, and the circumstances of the making of the contract (together with the terms of the contract) may, in and of themselves, render the contract unjust. 56 The term "unjust" is defined in s 4 of the Act to include "unconscionable, harsh or oppressive". This "tautological trinity" (as McHugh JA described it in West v AGC, supra) was said not to be exclusive of what may be unjust. The similar but different term "harsh, unjust or unreasonable" has been the subject of much authority: see Byrne & Frew, supra. It was also defined in a different industrial context when referring to the trade union equivalent of harsh or oppressive corporation rules: "Those three words are used objectively in the clause and each of them is to be given its ordinary strong meaning. Plainly, their meanings overlap and definition is liable to adulterate the strength which the words possess. Nonetheless, it seems desirable that I indicate the meaning which I ascribe to them. To be oppressive, a condition, obligation or restriction must be burdensome, harsh and wrongful (see, for example, Scottish Co-operative Wholesale Society v Meyer [1959] AC 324 at 342; Re Jermyn Street Turkish Baths Ltd [1971] 3 All ER 184 at 199; Allen v Townsend (1977) 16 ALR 301 at 337). To be unreasonable, it must be immoderate and inappropriate. To be unjust, it must be contrary to right and justice and to ordinary standards of fair play (see, for example, Re Kempthorne Prosser & Co's New Zealand Drug Co Ltd [1964] NZLR 49)." ( Re Municipal Officers' Association of Australia v Lancaster [1981] FCA 151; (1981) 54 FLR 129, per Deane J at 165.) 57 However tempting it may be, it is inappropriate to apply, blindly, definitions from one context to another. The Contracts Review Act is beneficial legislation and should be construed accordingly. Nevertheless, the descriptions of the terms "harsh" and "oppressive" and the ordinary meaning of the term "unjust", given by Deane J as part of the Full Court of the Federal Court of Australia, seem appropriate and applicable. Ultimately, the terms of the contract must, either by their very nature or by the circumstances that gave rise to them, be contrary to the ordinary standards of fair play. 58 Further, the provisions of s 9 of the Act require the consideration of the public interest and all of the circumstances of the case, including the consequences arising from compliance and non-compliance with the contract and any or all of its provisions. Further, the Court is required to take account of those matters set out in s 9(2) of the Act. 59 Like the terms "unjust", "unconscionable", "harsh" and "oppressive", the criteria in s 9(2) of the Act overlap. Nevertheless, each of them must be, and have been, considered. Consideration And Conclusion As To Whether Contract Is Unjust 60 I do not deal, seriatim, with each of the sub-paragraphs of s 9(2) of the Act. Each of them has been considered. I will deal only with the most relevant of the considerations, without specifying under which of the sub-paragraphs the factor falls. 61 First, I deal with the issue of the nature of the loan and whether it should have remained interest only. The second Offer of Finance altered dramatically the terms and conditions under which the finance was initially offered. It converted an interest only loan into a loan with a required reduction in the principal over the first 12 months of more than $32,000. As is obvious, this had significant consequences on the cash flow of the defendants. 62 Further, as is clear from Suncorp's internal memos, it was the expectation of Suncorp that the defendants could afford (in terms of cash flow) no more than an interest only loan for the first two years, after which time a reassessment could occur, but inferentially that reassessment would be likely to result in a continuation for a further three years of the interest only facility. 63 The terms of the second Offer of Finance were not negotiated and, in the circumstances, were incapable of being negotiated. To that extent, it reflected a material inequality of relative bargaining power of Suncorp, on the one hand, and the defendants, on the other. 64 Further, the conditions imposed upon the first Offer of Finance were, as would either be known or expected by Suncorp, impossible to fulfil. Suncorp, in its own internal memoranda, accepted that the price paid for the land and business was a fair market value. Nevertheless, it imposed upon the defendants a condition that the value of the land (without the value of the business) would equal the purchase price. Moreover, the valuation of the land excluded fittings and fixtures, which were associated with the conduct of the business. 65 During the course of the proceedings, issues arose as to the relative value of the land as against the business. To some extent at least, the relative value of the land and business is irrelevant. However, once one accepts (as did Suncorp in its internal memo) that the price paid for the business and land was the market value, and one valued the land (excluding the value of fittings and fixtures associated with the business) at $575,000, the irresistible conclusion is that the business was valued at $100,000. 66 The contracts for the sale of the land and the business did not reflect that estimate. There may be a number of reasons for that differentiation. One that readily comes to mind is the tax treatment that would be afforded the sale price of a business (and any capital gain) from the sale price of the land, which was relevantly used as a residence. Nevertheless, neither party adduced evidence of the independent valuation of the land and the business at the time of the purchase, save for the valuation obtained by Suncorp, which was of the land alone, without regard to certain fittings and fixtures. 67 Further, the existence of a valuation equal to the purchase price of the land was a precondition specified in the second Offer of Finance, at a time when Suncorp knew that the condition was not capable of being satisfied. 68 I next turn to the issue of whether the reduction in principal was a condition that was reasonably necessary for the protection of the legitimate interests of Suncorp. It is clear that Suncorp sought the reduction in principal and did so because it increased its protection. But was that increased protection reasonably necessary for the protection of Suncorp's legitimate interests? 69 Somewhat surprisingly, no evidence has been adduced as to the loan/value ratio required by Suncorp as a matter of general policy. There are figures used in the application for loan, but it is not said that these are either generally applicable or necessary for the protection of the legitimate interests of Suncorp. 70 The evidence before the Court, however, includes material from which can be inferred a ratio that Suncorp considered would provide reasonable or legitimate protection. The mortgage Agreement (Section C, Part 17) provides for an agreed lending margin and a maximum amount of facility. Pursuant to the terms of that clause, the moneys secured must not exceed the Agreed Lending Margin. If it does exceed the Agreed Lending Margin, the mortgagor is required, on request, to redress the excess by the delivery of additional securities. 71 The Agreed Lending Margin is defined in Section A, Part 1, Clause 1.1 as "the sum which is equal to eighty percent (80%) (or such other percentage as the Bank may require from time to time of the security properties value)". The loan amount of $535,000 was approximately 72% of the securities proffered. I conclude that the imposition of the condition, namely, that the principal be reduced over the first 12 months of the facility, was not reasonably necessary for the protection of the legitimate interests of Suncorp. 72 I do not consider that the educational background and literacy of the parties is particularly relevant. Nor do I consider that the physical form of the contract is unfair or a factor that should be taken into account in determining unfairness. Likewise, the absence or presence of independent legal or other expert advice is, if relevant at all, not persuasive. It could not be said that the defendants were unaware of the obligations that they were undertaking. Nor could it be said that better legal or other expert advice would have altered their situation. 73 The defendants accepted the first Offer of Finance. Suncorp, utilising the condition as to valuation of the land with even further restrictions as to that which would be included in that valuation, insisted upon the second Offer of Finance, with the consequential requirement to reduce principal. The first Offer of Finance had been accepted. For the foregoing reasons, the condition requiring reduction of the principal was unjust, within the meaning of the Contracts Review Act. 74 The foregoing reasons disclose that the contract is unjust because of both its terms and the circumstances in which it was made. 75 Neither the public interest nor any other factor persuades me to the contrary. There is a public interest in ensuring certainty in commercial relations, as reflected in the Act itself. However, the Act establishes how that is to be accommodated and renders this contract amenable to orders under the Act. 76 Related to that issue is the factor that the defendants agreed to the additional conditions in the mortgage, albeit in the circumstances described. 77 Nevertheless, in my view, weighing all factors, the contract is unjust and the defendants should be compensated to the extent necessary to relieve them of any additional cost or burden caused thereby. Appropriate Remedy 78 Suncorp submits, correctly, that the defendants have obtained the benefit of the loan and ought to be required to pay for that benefit. Further, Suncorp submits that the defendants could have breached the contract for the sale of land, which the defendants had executed after the acceptance of the first Offer of Finance, and thereby ameliorated any losses that would otherwise have occurred. 79 The remedy under the Act is statutory. Nevertheless, the submission of Suncorp seems to be to the effect that the defendants did not mitigate their losses. 80 There is, of course, no duty to mitigate, unless a contract or statute imposes such a duty. A party seeking damages is required, by the principles applicable to mitigation, not to act unreasonably. The onus of proof, at least in contract, is on, relevantly, Suncorp, to prove that the defendants did not mitigate their loss. See, inter alia, TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 at 158. 81 However, if there be a duty to mitigate, the defendants have not failed to mitigate their losses. The submission of Suncorp is that the defendants should have breached their contract for purchase of the land and the business. Suncorp submits that such conduct would result in the losses being confined to the loss of the deposit. Such a conclusion is not necessary or obvious. The contracts for the purchase of the land and the business were binding on the defendants. If losses were occasioned by their breach, subject to the rule in Hadley v Baxendale (1854) 9 Exch 341, those losses would be the responsibility of the defendants. Moreover, given that the contracts were not adduced in evidence (only part of the contracts were in evidence), it is a possibility (or probability) that a court would order specific performance of the purchases, or a greater level of damages than the loss of the deposit. The circumstances in this case mean that the submission on the absence of mitigation is untenable. 82 Further, if the submission were accepted, the Court would be requiring the defendants to breach one contract in order to minimise the losses for which Suncorp would otherwise be responsible (or for the Court to give its imprimatur to such a course by reducing damages because the defendants failed to act in that way). That is not a course, in the present circumstances, which the Court would undertake or condone. 83 As is made clear from the foregoing, I have taken the view that the imposition of the condition relating to the reduction of principal is unjust and the contract is, to that extent, unjust and the defendants should have a remedy. It is necessary to determine, in the exercise of the Court's powers, the extent of that remedy and its nature. 84 As earlier stated, absent the reduction in principal, the defendants would have paid all of the interest required by the terms of the loan and would not have had (or probably would not have had) the imposition of the higher rates of interests to which they were subject. 85 The interest rates on the loan varied during the course of the loan. Even over the first two years of the loan, the interest rates varied from 7.25% (the lower rate at the time of the first Offer of Finance) to 7.15% by the end of October 2003 and increased to 10.07% (approximately) and then fell to 8.025% by December 2008. 86 During the time of the loan, it seems (on the material available and subject to checking of arithmetic) that the defendants paid a total of $177,269.28 to Suncorp. If the interest had remained steady at 7.25% over the entirety of the period, the required payments of interest would have amounted to approximately $213,332. 87 The issue of the refinance with the Commonwealth Bank is a difficult one. On one view, refinancing would have significantly advantaged the defendants. However, refinancing may still be available and, if refinancing were to have occurred, the Commonwealth Bank would have charged interest in any event. 88 While it may be more difficult in the current economic climate to sell a half-share in (or the whole of) the Nursery, it is not the role of the Court to ameliorate, nor the responsibility of Suncorp to compensate, the prejudicial effects of the current global financial crisis. 89 In the circumstances, the appropriate remedy is that all higher rates of interest be remitted for the entire period between the inception of the loan and the date of this judgment. Further, the daily interest ought to be calculated on the basis of the lower interest rate that would have prevailed from time to time under the mortgage, from which should be deducted the amount paid in interest and in reduction of capital by the defendants. 90 Two further matters need to be mentioned. There are, in the accounts, ordinary fees and other fees charged on account of either the dishonouring of a direct debit or bank transfer. Fees payable on account of the past non-compliance with the terms and conditions of the mortgage ought not be brought into account in determining the total amount owed by the defendants. In other words, the Court would make orders having the effect that the interest would be calculated at the lower rate for the period of the loan to the date of judgment (excluding any fees or charges payable on account of default), to which would be added any ordinarily payable fees and from which would be deducted the amounts paid by the defendants, both on account of interest and principal. 91 The net amount payable, to be calculated by the parties, will be the order of the Court. Further, there will be a stay, on the writ of possession for the land, for a period of six months, so that the parties are able to regularise, to the extent possible, any future commercial arrangements, or sell or refinance the business. 92 The Court orders:

(i) Judgment for the cross-claimants/defendants on the cross-claim;

(ii) The parties are, within 14 days of the date of this judgment, to provide the Court with short minutes of order reflecting the foregoing judgment;

(iii) The possession proceedings be stayed for six months from the date hereof;

(iv) The parties have liberty to apply to the Court on the question of costs and any other consequential order, including submissions on the minutes.

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