Teresa Starceavich & 1 Or v Swart & Associates Pty Ltd

Consumer Credit (NSW) Code Uniform Civil Procedure Rules NSW (2005) Farm Debt Mediation Act 1995 (NSW) LEGISLATION CITED : Real Property Act 1900 (NSW) Contracts Review Act 1980 (NSW) Conveyancing Act 1919 (NSW) Imperial Acts Applications Act 1969 (NSW)

Vacuum Oil Co Limited v Ellis [1916] 1 KB 693 Australia and New Zealand Banking Group Ltd v Comer (1993) 5 BPR 11,748 Zanzoul v Westpac Banking Corporation (1995) 6 BPR 14,142 E L G Tyler, PW Young and C Croft, Fisher & Lightwood's Law of Mortgage, 2 ed, 2005 Croft v Kennaugh (1945) VLR 40 Long Leys Co Pty Limited v Silkdale Pty Limited (1991) 5 BPR 11,512; NSW ConvR 55-162 Macrae v St Margaret's Hospital (1999) 19 NSWCCR 1; [1999] NSWCA 381 Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41 MacDonald v Levy (1833) 1 Legge 39 Takemura v National Australia Bank Ltd (2003) 11 BPR 21 Guardian Mortgages Pty Ltd v Miller (2004) 12 BPR 22,833 CASES CITED : Barrett v Hartley (1866) LR 2 Eq 789 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 Bridgewater v Leahy (1998) 194 CLR 457 Australian Consumer and Competition Commission v CG Berbatis Holdings (2003) 214 CLR 51 ANZ Banking Group v Karam (2005) 64 NSWLR 149 Asia Pacific International Pty Ltd v Dalrymple [2002] 2 Qd R 29 Commonwealth Bank of Australia v Verwayen (1990) 170 CLR 394 Harvey v McWatters (1948) 49 SR (NSW) 173 E & P Developers Pty Ltd v DJ Capital Solutions Ltd [2005] NSWSC 1110 Parist Holdings Pty Ltd v Perpetual Nominees Ltd [2006] NSWSC 599

Teresa Starceavich & 1 Or PARTIES : v Swart & Associates Pty Ltd

COUNSEL : Plaintiffs: In person Defendant: J Swart - director of defendant - in person

SOLICITORS : Plaintiffs: N/A Defendant: N/A

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3961/06 Teresa Starceavich & Anor v Swart & Associates Pty Ltd JUDGMENT 1 HIS HONOUR: This is an application for an interlocutory injunction to restrain the defendant from exercising a power of sale over the plaintiffs' property at 211 Fernleigh Close, Windellama, and to restore possession of that property to the plaintiffs. The defendant holds a registered second mortgage over the property. The mortgage secured an advance of $45,000 made by the defendant to the plaintiffs, or at their direction, on 27 January 2005. It also secures interest and other moneys payable unto the mortgage. The mortgage was initially taken over properties at 211 and 171 Fernleigh Close. The property at 171 Fernleigh Close has recently been sold. 2 Interest is payable by monthly instalments at the rate of 126% per annum, reducible to 72% per annum if payments are made on time. The defendant can capitalise unpaid instalments of interest. The principal and all outstanding interest was due to be paid on 25 January 2006. 3 The plaintiffs defaulted in making payments of interest after the first instalment and have not repaid the principal.

Loan Documentation 4 The plaintiffs signed a number of documents before the loan was taken out. The rates of interest to be charged were prominent in the documents which they signed, although the clause permitting the charging of compound interest at monthly rests was not. The plaintiffs also signed documentation acknowledging that they had received legal advice and understood the consequences of not making mortgage payments. They signed an acknowledgment that the loan was taken for the purpose of completing improvements to the subject properties, which they described as investment properties. It appears, therefore, that the contract is not regulated by the Consumer Credit (NSW) Code (see ss 61(b) and 6(4)). The plaintiffs also executed a declaration of their gross income and of their ability to make the required monthly repayments at the lower rate of 72% per annum, and to repay the loan, without substantial hardship. 5 The extent to which the plaintiffs understood what they signed, and the extent to which they received explanations in relation to the mortgage documents, will be matters that can only be determined at a final hearing. 6 The first plaintiff, Ms Starceavich, deposes to not knowing the interest rate charged. She says she did not understand the plaintiffs would be charged 126% per annum, or anything like it. She says that the only explanation the plaintiffs received from a solicitor, Mr Sisinni, was to the effect that, "I have read through all these documents. They are fairly tough contracts." Both plaintiffs say that they told the solicitor that they were only borrowing for three months. The second plaintiff, Mr Roth, says that he signed the documents proffered without reading them and without them being explained to them. 7 Apart from the provisions relating to interest to which I have already referred, the mortgage contains a number of clauses which operate harshly against the mortgagors. Clause 5 provides that if any part of the principal sum is repaid prior to the expiry date, the mortgagor is still liable to continue paying interest on the entire principal sum advanced until the mortgage is discharged. However, it seems from clause 8 that the loan could be wholly repaid before the expiry date by a payment of interest due up to the time of repayment, and the payment of a further one month's interest at the higher rate. 8 Clause 12 provides that if the mortgagors are in default and the mortgagee has taken steps to enforce the mortgage, then to obtain a discharge, the mortgagors must execute a deed of release or else provide $15,000 by way of security for costs of meeting any later dispute the mortgagee may have with the mortgagee. It also empowers the mortgagee to demand a higher amount as security for costs if circumstances warrant it. 9 Clause 17 provides: " 17. In the event the Mortgagor defaults under this mortgage that event shall create a caveatable interest by the Mortgagee in any real property owned now or in the future by the Mortgagor ("Other Property"). The Mortgagee shall have the right to take possession of that Other Property and exercise power of sale and/or foreclose to recover monies owing under the Mortgage and the Mortgagor shall yield and surrender possession of the Other Property to the Mortgagee in the event of a default. " 10 The intended effect of clause 17 appears to be that the mortgagors agree to grant a charge over other property they own upon making a default under the mortgage, which charge will further secure the moneys owing under the mortgage. The plaintiffs' statement of assets and liabilities furnished at the time of obtaining the advance suggests that they did own other real property to which the clause could apply. 11 Clause 18 sets out amounts which the mortgagee or its solicitor would be entitled to charge for enforcing the mortgage. This includes directors charging for their time at $250 per hour, solicitors charging for their time at $388 per hour, and photocopies being billed at $1 per page. 12 Clause 20 provides for standard items to be charged on a separate liquidated basis. Events Following Default 13 The plaintiffs explain the default in paying interest. They say that the second plaintiff, Mr Roth, fell from a roof and was injured in March 2005. As a result his income ceased. 14 There is evidence that on 15 March 2005, Ms Starceavich wrote a letter asking for a pay-out figure on the loan, as the plaintiffs intended to pay it off as soon as possible. She also deposes that on or about 17 April 2005, she sent a further letter saying: " I urgently require a pay out figure on the above loan as I do not want to continue with this loan, we cannot afford the month repayments and I have organised enough money to pay it out. " 15 There is no evidence contradicting the evidence that these letters were sent and not responded to. I understood from statements made at the Bar table by the director of the defendant, who appeared for it, that this evidence may be in dispute. 16 On 23 May 2005, the defendant filed a statement of claim in the Common Law division (proceedings 12123/2005), seeking an order for possession. On 20 December 2005, those proceedings were dismissed under rule 12.8 of the Uniform Civil Procedure Rules NSW (2005), as no party had taken any step in the proceedings for over five months. The plaintiffs placed reliance on the dismissal of these proceedings. However, there was no determination of the proceedings on their merits. The dismissal of those proceedings creates no estoppel against the defendant taking possession or otherwise seeking to enforce its security. 17 On 8 September 2005, the defendant apparently issued a notice under s 8 of the Farm Debt Mediation Act 1994 (NSW) giving notice of its intention to take enforcement action against both properties. The debt then claimed to be due was $94,639.07. The plaintiffs say that somehow they were not offered the opportunity to mediate the matter under the Act. However, a certificate was issued on 9 June 2006 pursuant to s 11 of that Act certifying that the Act did not apply to the mortgage. 18 On 29 June 2006, the defendant decided to take possession of both properties. The locks were changed on 13 July 2006, real estate agents were then instructed to commence a six-week marketing campaign, and an auction date has been set for tomorrow, 9 September 2006. 19 On or about 30 June 2006, the defendant sent a notice under s 57(2)(b) of the Real Property Act 1900 (NSW) to the plaintiffs at their post office box in Double Bay. The plaintiffs say that the notice was not received by them until 17 July 2006. (Their solicitor was sent a copy of the notice on 29 June 2006 and he responded to it on 7 July 2006.) 20 The s 57(2)(b) notice claimed a debt as at 29 June 2006 of $222,599.50. This debt is claimed to be due in respect of the loan made 17 months earlier of $45,000. It is the equivalent of a loan at simple interest of about 350% per annum. This indicates the effect of compounding. 21 On 17 July 2006, the plaintiffs offered to pay $100,000 in full settlement of the defendant's claims. This offer was rejected on 24 July 2006. 22 The plaintiffs changed the locks after they had been changed by the defendant on 13 July 2006. However, on 31 July 2006, the defendant changed the locks yet again and it has remained in possession of the property. 23 These proceedings were commenced on 27 July 2006. On 1 August 2006, orders were made by consent to facilitate the sale of lot 26, that is, the property at 171 Fernleigh Close. The parties agreed on a regime to permit that sale to proceed. That property was sold for $182,000. The evidence is that that price was insufficient to satisfy the debt owed to the first mortgagee. There is evidence that the first mortgagee was prepared to accept $160,000 from the proceeds of sale with the balance to be paid to the defendant. The evidence is unclear as to what, if any, sum has been paid to the defendant from the sale of that property to reduce the mortgage debt. I was told from the Bar table by the defendant that it received about $1,044 from the sale of that property. The Issues 24 The issues on the present application are as follows. The first issue is whether, independently of claims to set aside or vary the contract of mortgage under the Contracts Review Act 1980 (NSW), or pursuant to equity's jurisdiction to relieve against unconscionable conduct, there is a serious question to be tried that:

(a) the defendant is not entitled to take physical possession of the property; and

(b) the defendant is not entitled to exercise the power of sale. 25 The second issue is whether there is a serious question to be tried that the plaintiffs are entitled to relief under s 7 of the Contracts Review Act, extending to the Court's refusing to enforce provisions of the mortgage, or varying those provisions, so as to preclude the defendant from taking possession of the land, or exercising a power of sale over the land. 26 The third issue is whether there is a serious question to be tried that the plaintiffs are entitled to equitable relief on the ground that they suffered from a special disadvantage of which unconscionable advantage was taken by the defendant. 27 The fourth question is whether any interlocutory injunction must be refused unless the plaintiffs pay into court the whole of the debt claimed by the defendant. 28 The fifth question is whether the balance of convenience favours the granting or withholding of interlocutory relief. To put it another way, if the plaintiffs succeed on the earlier questions, or some of them, the question will be whether the granting or withholding of interlocutory relief carries the lower risk of injustice to one party or the other. 29 The sixth question is what conditions should be imposed on any grant of interlocutory relief. 30 I turn to the first question: that is, the second mortgagee's right to possession.

Second Registered Mortgagee's Right to Possession 31 The defendant claimed to be entitled to possession of the property following the plaintiffs' default pursuant to s 60 of the Real Property Act, and by virtue of clause 17 of the mortgage. 32 At common law, a first mortgagee is entitled by virtue of its legal estate to possession of the mortgaged property, irrespective of whether the mortgagor is in default, but subject to whatever right to possession is conferred on the mortgagor under the mortgage. At common law, the second mortgagee has no such right. It takes a mortgage of the equity of redemption. Its estate in land confers no right to possession of the mortgaged property. Its entitlement to possession, either before or after default, depends on the terms of its contract with the mortgagor, and, of course, the first mortgagee's prior rights (Vacuum Oil Co Limited v Ellis [1916] 1 KB 693 at 703; Australia and New Zealand Banking Group Ltd v Comer (1993) 5 BPR 11,748 at 11,755). 33 Under the Real Property Act, a registered second mortgagee takes a statutory charge with all such rights as are conferred by the Act. Section 60 provides: "60 In case of default, entry and possession, ejectment

The mortgagee, chargee or covenant chargee upon default in payment of the principal sum or any part thereof, or of any interest, annuity, or rent-charge secured by any mortgage, charge or covenant charge may: (a) enter into possession of the mortgaged or charged land by receiving the rents and profits therefor, or (b) (Repealed) (c) bring proceedings in the Supreme Court or the District Court for possession of the said land, either before or after entering into the receipt of the rents and profits thereof, and either before or after any sale of such land effected under the power of sale given or implied in the mortgage, charge or covenant charge, in the same manner in which the mortgagee, chargee or covenant chargee might have made such entry or brought such proceedings if the principal sum, interest, annuity, or rent-charge were secured to the mortgagee, chargee or covenant chargee by a conveyance of the legal estate in the land so mortgaged or charged. " 34 It is established that a registered second mortgagee can bring proceedings for possession (Zanzoul v Westpac Banking Corporation (1995) 6 BPR 14,142). So far as I am aware (and I have not had the assistance of counsel or the time properly to research the question), there is no case which decides whether a registered second mortgagee, by virtue of the power conferred by s 60, can take physical possession of the mortgaged property, as distinct from bringing proceedings for possession, or taking possession of the rents and profits. No such case is cited in E L G Tyler, PW Young and C Croft, Fisher & Lightwood's Law of Mortgage, 2 ed, 2005 at paras [19.6]-[19.8]. 35 The right to enter into possession by s 60(a) is expressly confined to a right to enter possession by receiving the rents and profits from the land. That does not cover what the defendant has done in this case. It has not received any rents or profits. There is no evidence that there are any. 36 The right under s 60(a) is conferred in the same manner as if the mortgagee had a legal estate in the mortgaged land. The legal estate confers a right to possession. However, it is seriously arguable that the rights of a holder of a legal estate which are attributed to the mortgagee by s 60 are attributed only for the purpose of describing the manner in which the mortgagee can exercise the limited right of possession conferred by s 60(a). That is to say, it is seriously arguable that the concluding words of s 60 do not extend the mortgagee's right to possession conferred by s 60(a) or s 60(c). 37 In Zanzoul v Westpac Banking Corporation, Handley JA held that a registered second mortgagee could bring proceedings pursuant to s 60(c). His Honour applied the statement of Lowe J in Croft v Kennaugh [1945] VLR 40 at 42, that the statute gives the second mortgagee similar rights to the first mortgagee, so that the second mortgagee may sue for ejectment. That reasoning applies the concluding words of s 60 to a registered second mortgagee bringing ejectment proceedings under s 60(c). The same words will give a registered first, or subsequent, mortgagee, the right to enter possession by receiving rents and profits in the same way as if it held the legal estate. However, it is a large step to say that the Act confers on a registered mortgagee the right physically to enter into possession otherwise than by receiving the rents and profits. This question was not the subject of informed argument. I express no concluded view on it. Suffice it to say, it is seriously arguable that s 60 does not authorise the defendant's taking of possession. 38 There is no provision in the mortgage other than clause 17 which confers on the defendant the right to enter possession. I have set out clause 17 earlier in my reasons at para [9]. The defendant submitted that the mortgaged property came within the definition of "Other Property" because it was property then owned by the mortgagors. Therefore, it was said, the defendant was entitled to take possession of the mortgaged property in the event of default. 39 Clause 17 must be read as a whole. On the giving of the mortgage, the plaintiffs immediately gave the defendant a caveatable interest over the mortgaged property. The first sentence of clause 17 provides for the creation of a caveatable interest over the "Other Property" upon the plaintiffs' default under the mortgage. It makes no sense to say that a caveatable interest is created over the mortgaged property if the mortgagor defaults. Read in the context of the sentence in which it appears, the words "any real property owned now or in the future by the mortgagor" must mean any such property, other than the mortgaged property. That, it can be inferred, is why it is called "Other Property". It is only over such "Other Property" that a right to take possession on default is conferred. 40 The conferral of a right to take possession over such "Other Property" in the event of default, and the absence of such provision in respect of the mortgaged property, is apparently explicable by the draftsman's reliance on the powers conferred by the Real Property Act and the Conveyancing Act 1919 (NSW). (See clause 6 of the memorandum, Q860000, which is incorporated by reference in the mortgage.) 41 The defendant submitted that no notice was required under s 57(2)(b) of the Real Property Act before it was entitled to take possession, citing Long Leys Co Pty Limited v Silkdale Pty Limited (1991) 5 BPR 11,512; NSW ConvR 55-162. That is true, but irrelevant. 42 For these reasons, I conclude that the plaintiffs have a seriously arguable claim that the defendant was not entitled to take possession of the mortgaged property. That is so irrespective of the arguments based on the Contracts Review Act and the jurisdiction to relieve against unconscionable conduct to which I will come later. Right to Exercise Power of Sale 43 I turn to the question of the defendant's right to exercise the power of sale. Leaving aside questions of unconscionable conduct and the Contracts Review Act, the only issue which arose during argument as to the defendant's right to exercise its power of sale was whether the s 57(2)(b) notice had been served as required by that subsection. Section 57(2)(b) provides: "57 Procedure on default

… (2) A registered mortgagee, chargee or covenant chargee may, subject to this Act, exercise the powers conferred by section 58 if: … (b) where: (i) the default relates to that payment, or (ii) in the case of a mortgage, the default does not relate to that payment and notice or lapse of time has not been dispensed with under section 58A, a written notice that complies with subsection (3) has been served on the mortgagor, charger or covenant charger in the manner authorised by section 170 of the Conveyancing Act 1919 , …" 44 Subsection 170(1) of the Conveyancing Act provides: " 170 Regulations respecting notices (1) Any notice required or authorised by this Act to be served shall be in writing, and shall be sufficiently served: (a) if delivered personally, (b) if left at or sent by post to the last known residential or business address in or out of New South Wales of the person to be served, (b1) in the case of a mortgagor in possession or a lessee, if left at or sent by post to any occupied house or building comprised in the mortgage or lease, (b2) in the case of a mining lease, if left at or sent by post to the office of the mine, (c) if delivered to the facilities of a document exchange of which the person on whom it is to be served is a member, or (d) in such manner as the Court may direct. " 45 Here, the notice was served on the plaintiffs at their post office box in Double Bay. It is unnecessary to decide whether this was a mode of service authorised by s 170 of the Conveyancing Act (see Macrae v St Margaret's Hospital (1999) 19 NSWCCR 1; [1999] NSWCA 381). It is also unnecessary to decide whether service in a manner authorised by s 170 of the Conveyancing Act is the only mode of service which can satisfy the requirements of s 57(2)(b) of the Real Property Act. This is because on 28 June 2006, the second plaintiff gave notice to the defendant not to send mail to the plaintiffs' street address, but always to use their post office box. The plaintiffs would be estopped from denying that service to their post office box was effective service under s 57(2)(b). 46 The plaintiffs say they did not collect the notice until 17 July 2006. This is not relevant. The notice required the alleged default to be rectified within one month after service of the notice, failing which the defendant proposed to exercise its power of sale. That is in accordance with s 57(3)(d) of the Real Property Act. The one-month period after service has expired. The notice complied with s 57(3) in other respects. Therefore, independently of the Contracts Review Act, or equity's jurisdiction to relieve against unconscionable conduct, I do not think there is a serious question to be tried that the defendant is not entitled to exercise its power of sale. Contracts Review Act 47 A party is not entitled to relief under the Contracts Review Act in relation to a contract entered into in the course of, or for the purposes of, a trade, business or profession he or she carries on, unless it is a farming undertaking. The evidence is that the loan was for the purpose of improving an investment property. There is no evidence that the loan was entered into in the course of any trade, business or profession of the plaintiffs. If it were, it would seem that any such trade or business was a farming undertaking, having regard to the defendant's recourse to the Farm Debt Mediation Act certificate. Prima facie, therefore, the Act applies to this loan. 48 Under s 9, the court is required to consider the public interest and all of the circumstances of the case in determining whether a contract, or a provision of a contract, was unjust in the circumstances relating to the contract when it was made. A non-exhaustive list of matters to be considered is set out in subsection 9(2). The matters in s 9(2)(b), (c), (d), and (i) seem to be of most relevance from the plaintiffs' perspective, and those in s 9(2)(a), (f), (g), (h), and (j) from the defendants' perspective. Of course, it is not just a matter of adding up competing criteria on one side of the ledger or the other. The most important consideration pointing to there being a serious question to be tried as to the application of this Act is whether the terms which I identified earlier go beyond what is reasonably necessary to protect the legitimate interests of the defendant (s 9(2)(d)), and the public interest (subs 9(1)). 49 The defendant advanced $45,000 on second mortgage security. At the time of the advance the properties over which security was taken were valued at $260,000 and $320,000. The evidence is that the first mortgage secured an advance of about $260,000. Therefore, there was substantial security for the defendant's advance. In these circumstances, a mortgage on terms requiring the payment of interest at 126% per annum, reducible to 72%, and on terms where the lender could capitalise unpaid interest at monthly rests at the higher rate, is arguably exorbitant and oppressive. 50 Other provisions of the mortgage for the obtaining of additional security, the charging of fees, and the provision of security for costs of future actions following enforcement of the security, strengthen such a case. 51 In my view, the plaintiffs have demonstrated that there is a serious question to be tried that they are entitled to relief under s 7 of the Contracts Review Act with respect to the mortgage. At this early stage, the claim appears to be seriously arguable. 52 The Act is concerned not only with the question of whether the plaintiffs have been deprived of a real and informed choice in entering into the contract, although that is a relevant consideration entitled to significant weight (Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41 at [73]). Even if this were a decisive consideration, there is still a serious question to be tried as to whether the plaintiffs made an informed decision in entering into the contract. 53 If, at a final hearing, the plaintiffs establish that the provisions to which I have referred are unjust, or that the contract of loan and the mortgage taken as a whole are unjust, then prima facie the plaintiffs would not only be entitled to orders under s 7 modifying the rate of interest, the terms for capitalisation of interest, and the other terms relating to the payment of moneys on the taking of enforcement action. Prima facie, they would also be entitled to orders varying the mortgage so as to preclude the defendant from enforcing its security to claim a debt going beyond that which the Court found to be justly due. Equitable Jurisdiction to Relieve Against Unconscionable Conduct 54 I assume that no common law against usury applies in New South Wales (MacDonald v Levy (1833) 1 Legge 39; Takemura v National Australia Bank Ltd (2003) 11 BPR 21, 185 at [19]; Guardian Mortgages Pty Ltd v Miller (2004) 12 BPR 22,833). This does not mean that the Court may not relieve against usurious transactions under other heads of jurisdiction (Barrett v Hartley (1866) LR 2 Eq 789 at 795; Takemura v National Australia Bank Ltd at [21]-[24]). One such head is where a party takes unconscientious advantage of a position of special disadvantage under which the other party suffers. A person is not under a position of special disadvantage merely because of an inferior bargaining position (Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; Bridgewater v Leahy (1998) 194 CLR 457; Australian Competition and Consumer Commission v CG Berbatis Holdings (2003) 214 CLR 51; ANZ Banking Group v Karam (2005) 64 NSWLR 149). 55 At this interlocutory stage, it is not necessary to consider too closely what may suffice to establish a position of special disadvantage, or the implications of the High Court's decision in Bridgewater v Leahy. In my view, there is a serious question to be tried as to whether the plaintiffs were in such a position and whether unconscientious advantage was taken of them. That can only be assessed at a final hearing. However, the terms of the contract which the plaintiffs entered into suggest that the plaintiffs' vulnerability to exploitation is seriously arguable. It is seriously arguable that no-one who was not in desperate need, and who understood the terms of the bargain, could rationally have agreed to the terms proffered by the defendant. In my view, oppressive and unreasonable terms of the loan may both be evidence that the person taking the loan is specifically vulnerable, and that the money lender has acted unconscionably in taking advantage of the borrowers' position. 56 That seems to have been the view of Sheppard J in Asia Pacific International Pty Ltd v Dalrymple [2002] 2 Qd R 229. His Honour there held that borrowers were entitled to relief on the principles in Amadio, and as discussed by Deane J in Commonwealth v Verwayen (1990) 170 CLR 394 at 441, where the borrowers had obtained a loan for business purposes at a lower rate of 15% per month. If the loan were in default, interest was payable at 20% per month and was capitalised monthly. The borrowers were given independent advice, including as to the provisions for capitalisation. There was no evidence that they did not understand the terms of the contract. They were apparently comfortably off when they took the loan. Transactions were conducted at arms-length, and the borrowers were experienced in the commercial world. They were, however, urgently in need of a short-term loan. His Honour concluded that the plaintiffs were entitled to relief because the terms of the loan for capitalisation of interest, read in conjunction with the higher default rate of 20% per month, were oppressive and unreasonable, with the result the loan debt increased astronomically. 57 In this case, the debt has increased astronomically. 58 The defendant says it is not now pressing for the full amount which is owed, but will accept $150,000 on the advance of $45,000 made in January 2005. The debt itself must now be over $280,000. To my mind, that concession only highlights the point that it is seriously arguable that the terms of the loan were oppressive and, therefore, there is a serious question to be tried as to whether the plaintiffs were in a position of special vulnerability of which unconscientious advantage was taken. Is Payment into Court of the Whole Sum Demanded a Condition of Relief? 59 Having concluded there is a serious question to be tried on these matters, the next question is whether the plaintiffs are required to pay the whole sum demanded into court as a condition of obtaining interlocutory injunctive relief. If the plaintiffs succeed at a final hearing they will still be required to repay the principal sum advanced at a rate of interest which does not produce an unjust consequence or result. As they have only an arguable claim for that relief, and as they have defaulted in payment of the principal sum when due as well as the interest owing under the terms of the mortgage, the question of whether they are required to pay the whole amount into court arises. 60 In Harvey v McWatters (1948) 49 SR (NSW) 173, Sugerman J said that in the ordinary case, if the mortgagor is to restrain the exercise of the mortgagee's power of sale, the mortgagor must pay into court the amount sworn to by the mortgagee as the amount owing, or a lesser amount if it appears from the terms of the mortgage instrument that a lesser amount is due. An "ordinary case" is one where there is a dispute about the amount due under the mortgage, or where there is a challenge to the way the mortgagee is exercising the power of sale. In other cases, such as where the existence of the power of sale is challenged, there is no such stringent requirement. The question is rather whether there should be any payment into court to provide adequate security in case the plaintiffs' undertaking as to damages is insufficient protection for the mortgagee (E & P Developers Pty Ltd v DJ Capital Solutions Ltd [2005] NSWSC 1110; Parist Holdings Pty Ltd v Perpetual Nominees Ltd [2006] NSWSC 599). 61 Here there is a serious question to be tried that the plaintiffs are entitled to relief which, so far as is practicable, avoids unjust consequences or results of the contract being found to be unjust. Such relief may well extend to refusing to allow the defendant to enforce the provisions of the mortgage, or may result in variation of the mortgage, in order to achieve that result. Therefore, this is a case where, if the plaintiffs are entitled to final relief under the Contracts Review Act, or in equity's exclusive jurisdiction to relieve against unconscionability, the defendant may be restrained from exercising its power of sale. In those circumstances, even if the rule in Harvey v McWatters is given its full application, the plaintiffs are not required to pay the full amount claimed by the defendant into court as a condition of obtaining interlocutory relief. Balance of Convenience 62 The balance of convenience clearly favours the granting of the relief sought. Restraining the defendant from exercising its power of sale, or from keeping possession of the property until the final hearing of the proceedings, will not deprive the defendant of its security. It is true that the debt the defendant claims will quickly escalate beyond the value of the security, and it may escalate beyond the capacity of the plaintiffs to pay. However, it would be an enormous windfall to the defendant to recover such a debt. When the defendant lent the money at 72% interest in January 2005, it could have expected, or at least should have expected, that up to January 2006 it would receive about $78,400. There is no evidence that the property is inadequate security for a debt of that amount, plus commercial interest from January 2006, after allowing for the first mortgagee's debt. The defendant cannot complain of hardship if it does not recover $280,000 with compounding monthly interest, or even $150,000 plus continuing interest. (Of course, it is also seriously arguable that a simple rate of interest at 72% may be regarded as unjust, but that is not the present question.) 63 On the other hand, if the plaintiffs succeed on their claims at a final hearing, they will suffer injustice if the property is sold, or they remain excluded from possession. It is not obvious that they would then have a claim for damages against the defendant. No cross-undertaking as to damages has been proffered. Nor is there any information as to whether the defendant could satisfy a claim for damages if such a cause of action were available to the plaintiffs. I consider that the balance of convenience clearly favours granting the relief sought.

Conditions of Relief 64 The question then is what conditions, if any, should be imposed on the relief, other than the usual undertaking as to damages. 65 The plaintiffs have offered to pay into court the advance of $45,000 with simple interest at 9% per annum from 27 January 2005 until the date of payment in. They offer to make such a payment within 14 days. Any such payment is by way of additional security for the defendant's debt. 66 I do not think it necessary or appropriate to speculate upon the likely final outcome of the proceedings if the plaintiffs succeed in a claim under s 7 of the Contracts Review Act, or on a claim for relief against unconscionable conduct. Such a course might be necessary if a payment into court were proffered as an alternative to the existing security. It is not appropriate where the payment proffered is by way of additional security. 67 In these circumstances, I propose to grant the interlocutory relief sought. That relief will be given upon the plaintiffs giving the usual undertaking as to damages. The plaintiffs have confirmed in the hearing before me that that undertaking is offered. It will also be given on the basis of the further undertaking which is offered by the plaintiffs in relation to payment of money into court. If the parties could agree upon an appropriate controlled moneys account into which the payment can be made, which is jointly controlled by the parties, or by their solicitors if they have legal representation, then that may be a more appropriate course to maximise the investment of the moneys. 68 It seems to me that these proceedings should continue on pleadings. Neither party has been legally represented. That is unfortunate. The nature of the case is such that both parties would be assisted by legal representation, and the Court would be assisted by their having legal representation. I propose to give directions for the filing of pleadings and also to stand the matter into the expedition list. 69 For these reasons, I make the following orders:

1. Upon the plaintiffs (a) giving to the Court the usual undertaking as to damages; and (b) undertaking that within 14 days they will pay into Court, or into a controlled moneys account agreed in writing with the defendant, the sum of $45,000 plus interest at 9% per annum from 27 January 2005 to the date of payment, to abide the further order of the court, I order that until the final determination of these proceedings or further order: (i) the defendant by itself, its servants or agents, be restrained from exercising, or purporting to exercise, or taking any further steps for the purpose of exercising, any power of sale over the property, being folio identifier 25/103 4131, known as 211 Fernleigh Close, Windellama, ("the property"); and

(ii) the defendant, by itself, its servant or agents: (A) forthwith do all such things as may be necessary to be done on its part to allow the plaintiffs uninterrupted possession of the property; and (B) be restrained from interfering with the plaintiffs' possession and quiet enjoyment of the property.

I order that the proceedings continue on pleadings. 70 [The parties addressed on timetable.]

I direct that the plaintiffs file and serve a statement of claim by 15 September 2006.

I direct the defendant to file and serve its defence by 22 September 2006.

I stand over the proceedings to the expedition list on 29 September 2006.

I dispense with the requirement for the filing of a notice of motion and affidavit in support of an application for expedition.

I order that the costs of the application be the plaintiffs' costs in the proceedings.

28/09/2006 - Added SC file no to coversheet - Paragraph(s) 0

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