The case against Westpac in relation to the Westpac loan
47The process whereby Ikey Velingos, Mr and Mrs Velingos, Mr Ghezelbash, United Mortgage and Westpac all dealt with each other was that as he had done in the past, Ikey Velingos engaged a broker to act for he and his parents. This was Mr Ghezelbash. Mr Ghezelbash and United Mortgage had an agreement with Westpac, which was approached about this and a number of other loans, which Ikey Velingos and other family members wished to pursue at that time. Under this agreement, Mr Ghezelbash and United Mortgage earned commission on loans to which Westpac agreed and they also had targets to achieve.
48With the assistance of his wife, a number of loan applications were prepared and provided to Westpac by Mr Ghezelbash, on his evidence, in accordance with its guidelines. The applications were prepared on the basis of information provided by Ikey Velingos. The information provided was accurate, except for information which he provided as to certain claimed income, by way of a copy of an unsigned tax return. That information and the document proved to be false. It was not alleged that this was known to Westpac, Mr Ghezelbash or United Mortgage. They were all misled by Ikey Velingos. Nor, indeed, was it known to Mr and Mrs Velingos.
49It was Mr and Mrs Velingos' case that there were various deficiencies in the loan application documents prepared by Mr Ghezelbash. On their face, the applications did give an inconsistent picture of Ikey Velingos' assets and liabilities. The applications provided to Westpac, when considered together, disclosed his various assets and liabilities, but each application did not reveal the same picture. That was because, Mr Ghezelbash explained, of the way in which Westpac's guidelines required part ownership of certain assets to be dealt with, so that in the case of the defendants' application, for example, Ikey Velingos was considered to have a one third share in the property and his parents the rest. There is no reason to doubt Mr Ghezelbash's explanation. Nothing finally turns on this.
50Mr Ghezelbash always dealt with Ms Malpas at Westpac, unless she was away on leave. If Westpac was prepared to lend, Ms Malpas produced a printed Westpac loan application form, which she completed by having regard to the information provided by Mr Ghezelbash. This was provided to the borrower, who executed the application, if the borrower wished to proceed with the loan.
51In this case a number of borrowings were sought by various members of the Velingos family. The loan sought by Mr and Mrs Velingos and Ikey Velingos was approved. It finally proceeded, in accordance with documents Ms Malpas prepared and provided to them. The documents were checked by Mr Ghezelbash, who did not detect a number of inaccuracies. Nothing finally turns on these inaccuracies either.
52It was not sought to be shown for Mr and Mrs Velingos that had these difficulties with the documentation been identified, before the loan was entered, that they could not have been corrected, or that the loan would not have proceeded.
53What the documents also reflected was the inaccurate picture of earnings which Ikey Velingos had provided Mr Ghezelbash. This deception was not detected by either Mr Ghezelbash or Westpac. It was not, however, sought to be established for Mr and Mrs Velingos that Westpac accepting a copy of an unsigned tax return involved any departure from its applicable lending guidelines, or prudent lending practice.
54The loan documents were executed by Mr and Mrs Velingos, as well as by Ikey Velingos, at a meeting at Mr Ghezelbash's office at Double Bay. Mr and Mrs Velingos gave evidence of what occurred at the meeting. Mr Ghezelbash also gave an account of the meeting, as well as an account of what Ms Malpas' usual practice was, when explaining such documents to a borrower. His evidence was that her usual practice was followed that day.
55Mr Ghezelbash recollected that the meeting took longer than usual, over half an hour. Mr and Mrs Velingos remembered that it took only about 15 minutes, although when pressed, Mr Velingos agreed that it could have been longer. Mr and Mrs Velingos each insisted that at the meeting, nothing was explained to them about the documents they were signing and that their son Ikey Velingos translated none of the documents to them. The documents which they signed included advice that they should obtain independent advice.
56From his observations, Mr Ghezelbash believed that Ikey Velingos had translated things which were being said about the documents produced by Ms Malpas, in accordance with her usual practice, but he agreed that he could not be certain as to what was translated. He did not speak Greek.
57The evidence which Mr and Mrs Velingos gave in cross-examination as to their understanding of the Westpac transaction and the documents which they signed at the meeting, made it clear that they were aware of the increased sum which was being borrowed from Westpac; that they knew they were at the meeting to sign the loan documents; they were aware that it was intended to repay the NAB loan with part of those funds; they were not concerned about who provided those funds, or that their borrowings were to be increased significantly, for their son's investment purposes. They were also content to take the risks involved, if he was not able to repay these borrowings.
58This evidence explains the case finally pressed in closing submissions for Mr and Mrs Velingos, that the contract was unjust in the circumstances in which it came to be made, given Mr and Mrs Velingos' personal circumstances and the absence of independent advice about the proposed loan. While it was accepted that this was not a case of asset lending, it was argued that given that Mr and Mrs Velingos were not to receive the benefit of the loan and were putting their house at risk, in circumstances where if the real payer 'drops dead or goes bankrupt', they would be in dire trouble, the result was that Westpac's conduct was unconscionable. That conclusion accorded with that reached in Spina v Permanent Custodians Ltd [2009] NSWCA 206.
59Furthermore, it was argued, it was impermissible to speculate what Mr and Mrs Velingos would have done, had they received independent advice at the time. That conclusion was urged on the basis of what was observed in Bridgewater v Leahy [1998] HCA 66; (1998) 194 CLR 457, where it was said:
"[100] Where the complaint is of unconscionable dealing, the point is rather different. As Manning J put it in Re Levey; Ex parte Official Assignee (1894) 15 NSWR (B&P) 30 at 36., "the Court does not allow any person to take advantage of any known weakness of the vendor" and the Court asks whether that party had "the opportunity" of professional advice as to "the effect of what he [was] doing". This denial of the opportunity to have "the assistance of a disinterested legal adviser" Longmate v Ledger (1860) 2 Giff 157 at 163 [66 ER 67 at 69], rather than speculation as to what might have followed had it been pursued, is an element in the unconscientious conduct in respect of which equity intervenes to deny the entitlement of the disponee to retain the property in question, unless the disponee shows the disposition to have been "fair, just and reasonable" Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 474."
60That, it was submitted, provided 'the answer to this case'. It followed that the unconscionable conduct on the part of Westpac, in not ensuring that Mr and Mrs Velingos received independent advice about the loan, as its own lending guidelines envisaged, was 'the end of the matter'. That was disputed by Westpac, which argued that Bridgewater did not have the consequence claimed for the case brought against it under the Contracts Review Act . In my view that submission must be accepted.
61Bridgewater was a case concerned with a property transaction entered between certain family members, in respect of which complaints of undue influence and unconscionability were advanced. Section 7 of the Contracts Review Act , by way of contrast, empowers the Court to grant various relief, if it finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, if it considers it just to do so, and for the purpose of avoiding as far as practicable, an unjust consequence or result. 'Unjust' is defined in s 4 to include 'unconscionable, harsh or oppressive'.
62Section 9 specifies the matters which are to be considered, providing:
"(1) In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of:
(a) compliance with any or all of the provisions of the contract, or
(b) non-compliance with, or contravention of, any or all of the provisions of the contract.
(2) Without in any way affecting the generality of subsection (1), the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following:
(a) whether or not there was any material inequality in bargaining power between the parties to the contract,
(b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation,
(c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract,
(d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract,
(e) whether or not:
(i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or
(ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented,
because of his or her age or the state of his or her physical or mental capacity,
(f) the relative economic circumstances, educational background and literacy of:
(i) the parties to the contract (other than a corporation), and
(ii) any person who represented any of the parties to the contract,
(g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed,
(h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act,
(i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect,
(j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act:
(i) by any other party to the contract,
(ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or
(iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract,
(k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and
(l) the commercial or other setting, purpose and effect of the contract.
(3) For the purposes of subsection (2), a person shall be deemed to have represented a party to a contract if the person represented the party, or assisted the party to a significant degree, in negotiations prior to or at the time the contract was made.
(4) In determining whether a contract or a provision of a contract is unjust, the Court shall not have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the contract was made.
(5) In determining whether it is just to grant relief in respect of a contract or a provision of a contract that is found to be unjust, the Court may have regard to the conduct of the parties to the proceedings in relation to the performance of the contract since it was made."
63It follows that the statutory framework does not permit the conclusion urged for Mr and Mrs Velingos, namely, that the absence of independent legal advice is 'the end of the matter'. The absence of such advice is one of the factors which requires the Court's consideration, in determining whether a contract is relevantly 'unjust' and if so, what relief, if any, should follow. Of itself, it is not determinative.
64What was decided in Spina , can lead to no other conclusion. There, what arose for consideration was a contract under which Angelina Spina (deceased) and her son, Michael (also deceased), and the lender entered into a loan agreement under which the lender obtained a mortgage over Angelina's property, virtually her only asset, as security for a $400,000 loan to Angelina and Michael. At the time of contracting, Michael held a power of attorney in relation to Angelina's affairs. She was an Italian-born woman who was 86 years old at the time of contracting, who lived in a nursing home and had no income. The lender's guidelines were not observed and Angelina received no independent advice. There was a matrix of factors which led to the conclusion that the contract was unjust. It did not turn on the absence of legal advice alone. On the evidence in that case, it can readily be seen why it was concluded that Angelina had been denied the opportunity to receive legal advice. That Mr and Mrs Velingos were in a very different position is apparent.
65It was common ground that the Contracts Review Act requires consideration of the claim advanced by way of a two step process. Firstly, by a consideration of whether the contract was unjust, a matter of fact to be determined on the evidence. Secondly, if it is found to be unjust, whether relief should be granted as a matter of discretion (see Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 at [34] - [36]).
Was the contract unjust?
66In Spina it was observed at [124] '[u]nder the Contracts Review Act , the focus is on the weaker party as to whether the contract operates unjustly towards the weaker party. Furthermore, under the Contracts Review Act relief may be given even if the relevant circumstances are not known to the other party when the contract was entered into...'. The conduct of the stronger party, even in relation to adherence to its own guidelines, designed to protect its own position rather than that of the weaker party, is also relevant to be considered (see Khoshaba ).
67The question of whether the contract was unjust, must be determined as at the time that the contract was made. At that point, it was certainly apparent to Westpac that Mr and Mrs Velingos were elderly and that if their son were not to repay the loan, they were at risk of losing their home.
68Here, there is no question that Mr and Mrs Velingos did not receive independent legal advice about the Westpac loan. Westpac's guidelines envisaged that they would be advised to obtain such advice. They did not read or understand English well; they were retired and did not themselves have the means to repay either their existing NAB borrowings, or the increased borrowings which they and their son borrowed from Westpac. While this was not a situation of asset lending, the risk which they were taking if he failed to make the necessary repayments, was considerable. All of these matters favour the case which Mr and Mrs Velingos advanced, as does the evidence that unbeknownst to Westpac, their son was not translating to them what Ms Malpas was explaining about the transaction and the documents they were executing.
69It must have also been apparent to those present at the meeting when the loan documents were signed, including Ms Malpas, given Mr and Mrs Velingos' command of English, that they were reliant on their son for information about the proposed Westpac borrowings and what they were signing. That in the circumstances, they could have been at a disadvantage, was thus a possibility, which Westpac had to consider.
70The property was owned by Mr and Mrs Velingos and their son. While a substantial part of the loan was to be used to repay the NAB borrowings, some $140,000, was to be used for Ikey Velingos' purposes. While Ikey Velingos had substantial assets, and it appeared, income sufficient to meet the repayments on the borrowings, he also had substantial liabilities and was known to have been seeking to borrow other funds. That in those circumstances, there was a risk that Mr and Mrs Velingos might have been the subject of his undue influence, was a possibility which also had to be considered by Westpac. On the evidence, that was a situation it was concerned to deal with. Officers such as Ms Malpas were thus directed as to the approach to be adopted in a situation such as this.
71The written loan documentation contained advice that Mr and Mrs Velingos should obtain independent advice. Westpac also required Mr and Mrs Velingos to sign a document, confirming that they had been given that advice and another document confirming that this advice and other documents had been translated for them. Given the circumstances in which the documents came to be signed, it must have been obvious that the state of Mr and Mrs Velingos' knowledge and understanding of what they were signing, depended on Ikey Velingos translating accurately what was being said by Ms Malpas about what was written in the documents.
72On what was known of Ikey Velingos' circumstances, that he would be seeking to disadvantage his parents was not obvious, nor was it obvious that he might have been misleading his parents as to what he was translating. It was a possibility which Westpac could have addressed, by having someone independent translate to Mr and Mrs Velingos, what Ms Malpas was advising them of at the meeting. That did not occur, with the result, on Mr and Mrs Velingos' evidence, that they did not understand Westpac's advice that they should obtain independent advice about the transaction and did not know that they were singing an acknowledgment that they had received such advice.
73Whether that part of the acknowledgement document was explained by Ms Malpas and translated by Ikey Velingos, was also in issue. Westpac led no evidence from Ms Malpas that this was a matter which she dealt with at the meeting. Mr Ghezelbash thought that she had, in accordance with her usual practice, but accepted that Ikey Velingos might not have translated what she said accurately. Mr and Mrs Velingos' evidence was that he did not tell them about this advice.
74Perhaps this explains Westpac's concession in these proceedings in relation to the $140,000, which it does not seek to recover from Mr and Mrs Velingos. The basis for the concession was not explained. Nevertheless, the question of whether the contract was unjust in the circumstances must still be determined.
75I am satisfied, given the very many concessions which both Mr and Mrs Velingos made in cross-examination, contrary to their interests, that this aspect of their evidence must be accepted. Neither Mr nor Mrs Velingos can read English. That they did not know the precise nature of each document which they signed, must be accepted. I am inclined to accept Mr Ghezelbash's evidence as to the explanation which Ms Malpas gave, in accordance with his experience of her usual practice, as honestly given. Mr and Mrs Velingos could not contradict that evidence, given their command of English.
76The explanation for Ms Malpas' absence was said for Westpac to have been the many concessions made by Mr and Mrs Velingos in their cross-examination, as to the state of their knowledge about the Westpac transaction. What still remained, however, was the question of whether or not she drew attention to and explained Westpac's advice, that they should obtain independent advice about the transaction.
77Whatever evidence Ms Malpas might have given if she was called, Mr and Mrs Velingos' recollection that they were not told by their son of Westpac's advice that they should obtain independent advice, would also remain to be considered.
78Ikey Velingos, the obvious witness who could have corroborated their evidence, was also not called. That he was not called because he was the person who had 'ripped off' Mr and Mrs Velingos, is not an adequate explanation for his absence, given their evidence as to his whereabouts and their ongoing relationship. Any difficulties with his evidence could have been dealt with by way of an application under s 38 of the Evidence Act 1995. His evidence was relevant to their case against both Westpac and Mr Ghezelbash; Ms Malpas' evidence was relevant to their case against Mr Ghezelbash.
79The real conundrum posed by the failure to call both Ms Malpas and Ikey Velingos is the Jones v Dunkel inferences, that their evidence would not have assisted Westpac or Mr and Mrs Velingos' cases, respectively and in the case brought against Mr Ghezelbash, that Ms Malpas' evidence would not have assisted Mr and Mrs Velingos' case.
80The evidence which Mr and Mrs Velingos each gave was consistent as to their son's failure to translate Ms Malpas' explanations and warning. Mr Ghezelbash conceded the obvious possibility that Ikey Velingos was not faithfully translating what Ms Malpas said. Given this concession and the very many concessions which Mr and Mrs Velingos each made, adverse to their case, my conclusion is that their evidence in cross-examination as to this matter must be accepted as having been truthfully given. As I have said, I accept Mr Ghezelbash's evidence as to what he heard Ms Malpas explain at the meeting.
81What must also be considered, however, is the evidence which they gave in cross-examination as to their knowledge, understanding and consent to the Westpac borrowings. That throws a considerably different light on the case which they advanced.
82On that evidence, at the time, that they could not understand documents they were executing was not of concern to them. They were clearly not then concerned to have the loan and mortgage documents translated or explained to them, before they signed them. They were content to enter the new transaction without precisely understanding what the loan documents provided. Nor were they concerned to obtain independent legal advice. It had been their understanding since 1993, when they did obtain independent advice, from a Greek speaking solicitor, that they were taking a significant risk when they agreed to obtain borrowings secured over the house which they owned together with their son, for his business purposes. Over the intervening years they had repeatedly taken further such risks, including when they transferred a one third share in their home to their son and later, when they repeatedly agreed to increase the borrowings secured over the house. They were content in 2005 to do so again.
83While their son did not translate to them what Ms Malpas said at the meeting about the documents, nor could they themselves read what the documents they signed provided, on their own evidence they did understand that the documents they were signing were the loan and mortgage documents which would bind them to repay the loan, if their son failed to do so, the loan being secured over their home. They also knew that the major part of the borrowings was to be used to refinance the NAB loan and the rest, for their son to invest.
84The usual rule is that people are bound by the contracts which they sign. As the High Court explained in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [47]:
"The importance which, for a very long time, (See Whelpdale's Case (1604) 5 Co Rep 119a [77 ER 239]; Holdsworth, A History of English Law (2nd ed, 1937), vol 8 at pp 50-51) the common law has assigned to the act of signing is not limited to contractual documents. Wilton v Farnworth was not a contract case. The passage from the judgment of Latham CJ quoted above is preceded by a general statement that, where a man signs a document knowing that it is a legal document relating to an interest in property, he is in general bound by the act of signature ( Wilton (1948) 76 CLR 646 at 649.) Legal instruments of various kinds take their efficacy from signature or execution. Such instruments are often signed by people who have not read and understood all their terms, but who are nevertheless committed to those terms by the act of signature or execution. It is that commitment which enables third parties to assume the legal efficacy of the instrument. To undermine that assumption would cause serious mischief."
85There are many circumstances in which the common law will permit a departure from that rule. In Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447 Mason J, for example observed, at 461:
"Historically, courts have exercised jurisdiction to set aside contracts and other dealings on a variety of equitable grounds. They include fraud, misrepresentation, breach of fiduciary duty, undue influence and unconscionable conduct. In one sense they all constitute species of unconscionable conduct on the part of a party who stands to receive a benefit under a transaction which, in the eye of equity, cannot be enforced because to do so would be inconsistent with equity and good conscience. But relief on the ground of 'unconscionable conduct' is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage ... Although unconscionable conduct in this narrow sense bears some resemblance to the doctrine of undue influence, there is a difference between the two. In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position."
86At 462 his Honour said that:
"It is not to be thought that relief will be granted only in the particular situations mentioned by their Honours. It is made plain enough, especially by Fullagar J., that the situations mentioned are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition of circumstance is placed at a special disadvantage vis-a-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word "disadvantage" by the adjective "special" in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party."
87Departures from the usual rule are also permitted by the Contracts Review Act . By their cross-claim, Mr and Mrs Velingos asserted that they were labouring under many disadvantages which provided a proper basis for departure from the usual rule in their case. The vast majority of those assertions were not established on their evidence. In particular, they did not establish that the circumstances in which they entered into the transaction were such that they were unable to judge for themselves, whether or not they should do so.
88Here there was no complaint about any particular term of the loan or the precontractual negotiations. The complaints advanced included that Mr and Mrs Velingos did not understand the meaning and significance of the documents; that they did not know they were borrowing money; did not understand what obligations they would have; did not know how their house was involved; did not know that they might be responsible or their house might be at risk; did not properly know the significance and meaning of the documents they were signing; were unable to judge for themselves whether the transaction with Westpac was in their best interests; were deprived by Ikey Velingos of the ability to look after their own interests; had no specific knowledge of the use to which Ikey Velingos was putting that part of the Westpac loan money in excess of the NAB refinance amount (i.e. in excess of $533,000); had little understanding of business affairs; were induced by their son to sign the loan and mortgage documents under his guidance; and did not know and it was never effectively explained to them (and certainly not in a language they adequately understood), that they might have an obligation to repay the loan.
89None of these complaints were established.
90They were certainly elderly, with limited command of English and no ability themselves to repay the loans. They had not received independent advice about the transaction and so far as Westpac was concerned, were clearly volunteers, prepared to assist their son, in pursuit of his business interests.
91Nevertheless, their own evidence revealed that they were experienced borrowers who had in the past received independent legal advice from Mr Angelos, counselling them that it was not in their interests to take a risk in giving their home as security for borrowings for their son; they had rejected his advice and took the risk they were counselled against; over the years, further moneys were repeatedly borrowed; they transferred a share of their house to their son; they were content to refinance their existing borrowings and borrow further sums from Westpac, without obtaining independent advice, knowing what their son intended to do with the increased borrowings. They were well aware of the risks they were thereby taking.
92In coming to a conclusion about whether the contract was unjust, consideration must not only be given to the matters I have mentioned, but also the evidence that on what was disclosed as to Ikey Velingos' financial position, there is no suggestion that Westpac was making an imprudent loan. Nor is it suggested that this was a case of asset lending. To the contrary, it is accepted that it appeared that Ikey Velingos had the capacity to make the loan repayments and he had no history of default in respect of any past borrowings. Also to be considered is the question of what Mr and Mrs Velingos would have done, if their son had translated what Ms Malpas said to them and they had taken independent advice. I do not accept that this involves impermissible speculation, given the evidence which Mr and Mrs Velingos gave about their attitude at the time. There was no evidence as to what advice they might have received in 2005, had it been sought by Mr and Mrs Velingos. Logically, no doubt like Mr Angelos advised in 1993, given the risks being run in the event that the loan fell into default, Mr and Mrs Velingos would have been advised against increasing the NAB borrowings. It was certainly not established, however, that independent legal advice would have uncovered Ikey Velingos' deception as to his income.
93In all of these circumstances, given that Mr and Mrs Velingos were not independently advised and that what Ms Malpas said at the meeting as to obtaining independent advice was not translated to them by their son, can it be concluded that the contract was unjust?
94Clearly independent advice would not have furthered their understanding of the nature of the transaction which they were entering, or the risks which they were thereby taking. They already had an understanding of those matters. Since the advice they had received in 1993, they had been aware that if their son did not repay the loan, they would lose their house. That risk remained as the borrowings were increased over the years, including in 2005, when the Westpac loan was obtained. Their own financial circumstances had never improved after 1993.
95Despite this, they repeatedly increased the amount of the borrowings secured over their house. They did so, being content to help their son and confident that they had good reason to trust him. They were content to take the risk involved.
96The assessment of whether the contract was unjust must be made in the light of the evidence which Mr and Mrs Velingos gave as to their true position at the time that they entered into the contract, even though it appears that it was not then known to Westpac. Indeed, it was not revealed until they were cross-examined.
97That evidence clearly established that both Mr and Mr Velingos well understood what they were doing when they executed the Westpac documents, notwithstanding how their son misled them as to what Ms Malpas said at the meeting and the fact that they had not received independent legal advice. That he was not translating accurately cannot have been known to either Ms Malpas to Mr Ghezelbash. Clearly, however, they were not conniving with Ikey Velingos to mislead his parents.
98Given their own evidence, further legal advice would not have added to Mr and Mrs Velingos' understanding of the risks they were taking, in borrowing funds from Westpac, secured over the home of which they owned two thirds, in order both to repay the NAB loan and so that the additional funds could go to their son Ikey Velingos to invest.
99They had rejected Mr Angelos' advice against taking such a risk in 1993. They had never thought it necessary to take further legal advice about repeatedly taking that risk. The explanation for their approach lay in the fact that their son had never had any difficulty making loan repayments, even as the borrowings increased. In 2005, they were again not concerned about what they were doing, being confident that their son would have no problem in making the necessary increased repayments, given their repeated experiences since 1993. Even so, their evidence was that they each understood that having given a mortgage over their property, if the loan was not repaid, they were at risk of losing their home.
100In 2005, Ikey Velingos was plainly prepared to mislead those with whom he was dealing, including his parents, as to his financial circumstances. It is apparent that they now wish that in 2005 they had been told of their son's true financial position. That was information concealed from them by their son, not Westpac.
101In my assessment, what they would have done, if their son had told them of his true circumstances is questionable. They both gave evidence not only as to the help which they had been repeatedly prepared to give him, at significant risk to themselves, but also as to their preparedness to help him further, even if they had then been warned against that course. That evidence suggested that they would have proceeded with the Westpac loan, in any event, even had they then been given independent advice, counselling them against taking out the increased loan.
102In Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413 it was observed by Beazley JA:
"77 However, as Handley JA observed in Esanda Finance Corp Ltd v Tong (1997) 41 NSWLR 482 at 491:
"... as this Court held in West v AGC (Advances) Ltd (1986) 5 NSWLR 610, a contract is not unjust merely because it was not in someone's interest to enter into it, or because a person is unable to pay the debt when called upon to do so, or because its enforcement will lead to the loss of a home."
78 It would appear that the trend of authority since West is that the Contracts Review Act permits a court not only to look at the terms of the contract per se , to see its terms are unjust, but to look at the circumstances in which the contract was made and its effect, having regard to those circumstances. It is not sufficient, however, for a claimant for relief under the Act merely to point to a loss or inopportune transaction. This approach, in my view, is not inconsistent with what McHugh JA said in West . Rather, as Mahoney P pointed out in Elders v Smith , it gives full effect to what McHugh JA said."
103In Khoshaba , Basten JA observed, albeit in the context of an asset lending case, at [128]:
"To engage in pure asset lending, namely to lend money without regard to the ability of the borrower to repay by instalments under the contract, in the knowledge that adequate security is available in the event of default, is to engage in a potentially fruitless enterprise, simply because there is no risk of loss. At least where the security is the sole residence of the borrower, there is a public interest in treating such contracts as unjust, at least in circumstances where the borrowers can be said to have demonstrated an inability reasonably to protect their own interests, for the purposes of, for example, s 9(2)(e) or (f). That does not mean that the Act will permit intervention merely where the borrower has been foolish, gullible or greedy. Something more is required: see Esanda Finance Corp Ltd v Tong (1997) 41 NSWLR 482 at 491 (Handley JA) cited with approval in Elkofairi (supra) at [77] by Beazley JA."
104In this case, I am not able to be satisfied that this 'something more ' was established. At the time of the Westpac transaction, it is not apparent on what was known of Ikey Velingos' financial circumstances, that Mr and Mrs Velingos were being foolish or even gullible, in the support which they were giving him. As it turned out, notwithstanding their experiences to that point, in the long run it proved to have been not in their interests to continue giving him their support, given his own financial circumstances. That has led to the loss of their home. On what was established of the claim which Mr and Mrs Velingos advanced in these proceedings, however, I am unable to come to the conclusion that it has been shown that the Westpac loan, or the contracts by which it was put in place, were unjust, notwithstanding the absence of independent legal advice about that loan being obtained by Mr and Mrs Velingos and the circumstances in which they executed the loan documents.
Could a discretion have been exercised in Mr and Mrs Velingos' favour, if the contract was found unjust?
105Whether, in the circumstances, any discretion would have been exercised in Mr and Mrs Velingos' favour, had the contract been found unjust, should also be dealt with. Westpac pursues Mr and Mrs Velingos only in respect of the balance of the sum borrowed in order to repay the NAB loan plus its costs.
106Contrary to the case advanced in the cross-claim, the evidence which both Mr and Mrs Velingos gave revealed that when they met with Ms Malpas, even though they had not received independent advice, they were aware of the amount that they were borrowing from Westpac; that with the increased borrowing, it was intended to repay the NAB loan; and that the balance was to be used by their son, Ikey Velingos, for investment. They also knew they were liable to repay that sum, if their son was unable to do so.
107Mr and Mrs Velingos were also aware that the increased borrowings would be secured by way of mortgage over their home and that they were at risk of losing their home, if the loan was not repaid. They knew that they were at the meeting to sign the necessary documents. They were not concerned about agreeing to the increased borrowings. They trusted their son and had no reason to believe that he would encounter any problems in making repayments on the increased borrowings, given their experience since 1993.
108The claim advanced was that the contracts should be varied, so that the amount secured over their home under the loan would be reduced, not only by the $140,000 but by part of the amount used to repay the NAB. There is no question that the Court has power to make orders varying the loan agreement under s 7(1)(c) of the Contracts Review Act, to reduce the amount of the borrowings which Mr and Mrs Velingos must repay, in the terms which they finally pressed. Those orders were formulated after I had expressed concern about the grant of any relief which could have the result of benefiting Ikey Velingos.
109The form of the orders proposed to address that concern seem unnecessarily complex. It was submitted for Mr and Mrs Velingos that their situation was like that which had arisen for consideration in Spina . I am unable to accept that submission, but nevertheless, it must be observed that the orders made in that case, declared the agreement in question void and varied it, but only in so far as the plaintiff was concerned. The position of the other borrower was not disturbed. It seems that was a result which Mr and Mrs Velingos sought to avoid in this case.
110The circumstances in Spina did have some similarities to this case, namely that the property there in question was the only asset of an elderly person, who had received no advice in relation to borrowings obtained for the benefit of a relative, in circumstances where lending guidelines were to the effect that in such circumstances, the plaintiff should have been advised to obtain independent legal advice.
111Unlike Spina , however, the transaction here in question did not involve asset lending (see Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343 where the unjustness of asset lending was discussed). Nor did it involve a guarantor who had received no benefit from the borrowing. Mr and Mrs Velingos obtained a very clear benefit from these borrowings, namely repayment of the NAB loans, a part of which now lies at the heart of what remains in issue between the parties. The other very significant difference was that it could not be established in Spina, that there was any understanding on the part of the elderly guarantor of the burden and risks which she took on. She had died in the meantime. The circumstances here are significantly different, Mr and Mrs Velingos having on their own evidence a very real understanding of those matters, as well as being prepared to take those risks.
112The need to explain the extent of the liability being taken on and the risk being incurred, if the transaction is to survive attack under the Contracts Review Act, was discussed in Spina (see at [51] - [54]). At [60] it was observed:
"As three justices said in Bridgewater v Leahy (1998) 194 CLR 457, 486 [100] following Longmate v Ledger (1860) 2 Giff 157, 163; 66 ER 67, 69, the crucial matter is whether the person seeking to set aside the transaction was denied the opportunity to have the assistance of a disinterested legal adviser."
113It was also noted in Spina that the situation would be different, if the transaction were clearly for the borrower's benefit, or a purely commercial one, with no flavour of possible influence or benefit of a relative (at [64]).
114In this case, there is no suggestion of asset lending, or even that this was an imprudent loan, notwithstanding the false information provided by Ikey Velingos in relation to income. While there was a possibility of his influence on Mr and Mrs Velingos, which Westpac ought to have guarded against, that the borrowings which are now in question were to their real benefit, in so far as the repayment of the NAB borrowings were concerned, was apparent. Westpac does not now seek to recover from Mr and Mrs Velingos more than what was used to repay the NAB borrowings, and its costs and expenses in the pursuit of those funds.
115There was never any earlier difficulty or default in repayment of the NAB borrowings. They were repaid in full in 2005 from the Westpac loan. Had that not occurred, it would seem that Mr and Mrs Velingos would have been in a position where the risk they always knew they were taking, when agreeing to the NAB borrowings, would have materialised in 2007, when Ikey Velingos came to be in a position where he could no longer make loan repayments.
116At that point, they would have been liable to repay the entire amount of the NAB borrowings. On the evidence, unlike the situation in Spina (discussed at [117] - [118]), they would not have recovered any contribution from their son.
117It follows that even if it could be accepted that the absence of independent legal advice warranted a finding that the contracts were unjust, no basis was established on which it could be justly concluded that a discretion could be exercised in Mr and Mrs Velingos' favour, to make the orders pressed in relation to part of the amount used to repay the NAB borrowings, which is now in issue. To make the orders sought would shelter them from the risks which on their own evidence they willingly took on in relation to the NAB borrowings when they were obtained, knowing the risks they were taking, if their son was unable to continue making repayments.
118On their evidence, in 2005 Mr and Mrs Velingos well understood that what was being done was to replace one mortgagor with another, in relation to the NAB borrowings, as well as borrowing an additional $140,000. The result of the variation sought is not only to take the benefit of the $140,000 which Westpac does not pursue, but also to vary the contract to reduce what was secured by the mortgage by that sum, plus another one third of the NAB borrowings, plus interest. That is clearly a result which is not reflective of Mr and Mrs Velingos' pre-existing obligations in relation to the NAB borrowings, or their understanding and consent to their position in respect of those borrowings.
119Reliance was also placed on the approach taken by Patten AJ in Permanent Mortgages Pty Ltd v Cook [2006] NSWSC 1104. There, however, his Honour concluded that the defendants should be returned to the position they were in, prior to the impugned borrowings, so far as costs and expenses of the credit provided by the plaintiff were concerned and that the principal should be reduced to the sum applied to their benefit, the discharge of their existing debts. The relief here pursued is quite different. If Patten AJ's approach were followed, the orders sought would be refused and Mr and Mrs Velingos would then remain in the position they were in, in respect of the NAB borrowings.
120Given the history of these proceedings and what was revealed in the oral evidence, entirely contrary to the case advanced in their cross-claim, it would also clearly not be just to relieve Ikey Velingos of any of his obligations under the loans, or to relieve Mr and Mrs Velingos of the cost of Westpac's pursuit of its rights under the mortgage. That conclusion is reinforced when consideration is given to the concession made in relation to the additional $140,000.
121In all the circumstances here in question, to effectively relieve Mr and Mrs Velingos of the consequences of one third of their NAB borrowings, would in my view go beyond the relief which the statute envisages. Given the case advanced in the cross-claim and how it largely fell away when Mr and Mrs Velingos gave their oral evidence, to relieve them of that liability and the obligation to meet Westpac's costs of the enforcement of that part of its rights under the mortgage, could in my view not be a just exercise of the statutory discretion.