BOSNJAK v FARROW MORTGAGE SERVICES PTY LTD (IN LIQUIDATION) SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL Kirpy P, PRIESTLEY and Cripps JJA 23 and 24 February 1993, 29 June 1993 [1993] NSWCA 304 CONTRACTS — unjust contracts — guarantee — business venture for erection of home units for profit — financier provides funds for charges including a large establishment fee — belated approval of development by local authority — project delayed — financier demands repayment of moneys advanced — upon default, action against individual borrower based on guarantee — relief sought claiming contract is illegal under Building Societies Act 1986 and unjust pursuant to Contracts Review Act 1980 — held: (affirming decision of Giles J on this point): The contract of guarantee was not unjust in the circumstances in which it was made having regard, inter alia to (a) the business experience of the guarantor; (b) the availability to him of legal advice; (c) the commercial nature of the transaction; (d) the nature of the guarantee as securing his own commercial venture. Antonovic v Volker and Anor (1986) 7 NSWLR 151 (CA); Beneficial Finance Corporation Ltd v Karavas and Ors (1991) 23 NSWLR 256 (CA) distinguished. CONTRACTS - unjust contracts - refusal of relief - appeal - nature of appeal - whether categorised as appeal against discretionary decision - held: Unnecessary to determine. SH Lock (Australia) Ltd v Kennedy (1988) 12 NSWLR 482.(CA) considered. ILLEGALITY - contract - loan by agent of building company - whether forbidden by Building Societies Act 1986 (Vic) - effect of such Act - whether it renders contracts in breach of Act illegal and unenforceable - whether such a result which penalises investors and depositors and provides unexpected gains to borrowers is a true result of the Act - held: Upon the assumption of the identity of the financier and a society governed by the Act, the provision of the Act did not prohibit the making of loans by a society and any such loan was not illegal or unenforceable in the circumstances. Yango Pastoral Co Pty Ltd and Ors v First Chicago Australia Ltd and Ors (1978) 139 CLR 410 applied; Edgar v Farrow Mortgage Services Pty Ltd (In Liq) (unreported, Federal Court of Australia, 26 August 1992) not followed. Contracts Review Act 1980, s6, s9(2)(i). Building Societies Act 1986 (Vic), s52, s57. Kirby P I agree that the appeal by Mr Bosnjak against the decisions and ordersof Rogers CJ Comm D and Giles J should be dismissed with costs. I agree generally in the reasons of Cripps JA. However, I should prefer to reserve my opinion on whether "there is no duty on a financier to provide either a borrower or a third party guarantor with any commercial advice", as stated by Meagher JA in Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256 (CCA) at 277 and referred to by Cripps JA in his reasons. The obligations imposed by the Contracts Review Act 1980 may make such an absolute statement doubtful, having regard to the variety of circumstances upon which that Act may operate. Certainly, in the present circumstances, I agree with Cripps J A that no error has been shown on the part of Giles J in refusing the 2 UNREPORTED JUDGMENTS declaration sought by Mr Bosnjak that the guarantee was not enforceable against him pursuant to the provisions of the Contracts Review Act. Considerations relevant to this conclusion are Mr Bosnjak's experience as a businessman, his access to legal and other independent advice, his purposes in entering the commercial transaction and the way in which he went about it. The Court must not confine its attention to the conduct of the parties. It must consider whether the resulting contract was unjust. In my view, in its circumstances, it was not. Cf Karavas, above, 264B. I also consider that Rogers CJ Comm D was correct in his decision that the defence of illegality failed. I concur in what Cripps JA has written on this point and therefore in the order which follows. Priestley JA Like Kirby P, I think the appeal in this case should be dismissed, generally for the reasons given by Cripps JA. Again like Kirby P, I reserve my opinion on the question whether there may be circumstances in which a financier becomes subject to a duty to provide either a borrower or a third party guarantor with commercial advice, notwithstanding what was said about this by Meagher JA in Beneficial Finance Corporation Ltd v Karavas (1991) 22 NSWLR 256 at 277. The reason I wish to reserve the question is that although the view proposed by Meagher JA will undoubtedly be right in many situations, it seems to me at least possible that the circumstances of particular relationships between "financiers" and those they deal with may give rise to obligations encompassing either the giving of advice or a duty to warn. In the present case it was argued for the appellant that a matter that could turn the scale in favour of holding that the contract between Farrow and the appellant was unjust was the way in which Farrow's requirement that certain explanations be given to the guarantors when they signed the guarantees was implemented. It was pointed out that Farrow had made this request to the solicitors of Zamojowl, that is, the principal debtor, and that the debtor had a conflict of interest with the various guarantors. The submission was to the effect that Farrow having taken the step of seeking to ensure the guarantors understood what they were doing in giving the guarantees, had put the process in train by asking precisely the wrong person to advise the guarantors, with the unsatisfactory result set out by Cripps JA in his account of the facts. It seems to me that any merit in the foregoing submission goes to matters of form only. The substance of the factual position was that the solicitors for Zamojowl were acting for the various individuals interested in the home units venture. I do not see that Farrow caused any unfairness to the appellant either in a general sense or specifically in relation to the guarantee by the request it made to Zamojowl's solicitors. The appellant's misfortune in regard to this aspect of the case was caused by Zamojowl's solicitors and can not in any realistic way be attributed to Farrow. Similarly, in regard to the transaction as a whole? the appellant's misfortune has come substantially from the actions of Mr Daly, and upon the whole of the factual material it does not seem to me that any unfairness relating to or arising from the contract of guarantee so far as the appellant is concerned is in any way related to any conduct by Farrow. Farrow was in the business of lending money on the best terms it could get; in dealing with the venturers, including the appellant, there was a true arm's length situation in which both sides were acting for their own commercial ends and were, in law and in substance, competent to do so. There was over reaching involved in what happened among the venturers and the appellant has suffered because of it. There is nothing in the evidence to URRBNJAK v FARROW MORTGAGE SERVICES PTY LTD (IN LIQUIDATION) (Cripps JAB support any notion that Farrow was either aware of or party to such over reaching and its existence among the venturers can not in the circumstances make the contract of guarantee between Farrow and the appellant unjust. The appellant entered into that contract because he wanted Farrow to advance moneys to Zamojowl, and he got what he wanted. Any remedies he may have must be against those who deceived him not against Farrow, which did not deceive him and which carried out its contract. On the illegality point I agree with both Rogers CJ Comm D and Cripps JA that, assuming without deciding that the lending of money by Farrow was in law the lending of that money by Pyramid in contravention of the Building Societies Act 1986 (Vic), the better construction of that Act pursuant to what was said by the High Court in Yango Pastoral Co Pty Lld v First Chicago Australia Ltd (1978) 139 CLR 410, is that the contract, on this hypothesis made between Pyramid and Zamojowl, was not unenforceable. I agree with the orders proposed by Cripps JA. Cripps JA In 1989 a number of businessmen (including the appellant, Mr Bosnjak) agreed, on the suggestion of one of them, Mr Daly, that land in Etna Street, Gosford be purchased for the erection of home units for sale at a profit. Originally, there were five venturers, Mr Daly, Mr Bosnjak, Mr Roughley, Mr Andrewartha and Mr Clamp. Later Mr Andrewartha dropped out. The land was purchased by Zamojowl Pty Ltd (Zamojowl) a shelf company of which Mr Daly, and his accountant, Mr Roughley, were directors and shareholders. Zamojowl was a trustee of the Etna Property Unit Trust. The unit holders in the Trust were companies of the five named businessmen referred to above. Mr Bosnjak's company was Cicivoice Pty Ltd formed, as he understood, as a vehicle for the family trust to "put profits from the Gosford deal into". The land was purchased in May 1989. The purchase was financed by a loan of $450,000 from the State Bank repayable on 30 September 1989. Mr Bosnjak had already advanced $30,000. The State Bank loan was secured by, inter alia, guarantees by the joint venturers. Mr Bosnjak remembered signing certain documents which, he said, "may have included the guarantee". As the expiry date of the State Bank loan drew near, it became apparent to Mr Daly that the development application would not be consented to by the Council at that time. The State Bank was unwilling to provide further funds. Mr Daly caused Zamojowl to apply to Farrow Mortgages Services Pty Ltd (Farrow). By mid August 1989 Zamojowl was told that Farrow had approved in principle its application for a loan but required a registered first mortgage over the land and joint and several guarantees and indemnities (which for convenience I will refer to as the guarantees) from Daly, Roughley, Bosnjak and Soguri Pty Ltd. Soguri was a company controlled by Mr Clamp. The joint venturers intended that Mr Clamp would build the units. Farrow lent Zamojowl $2,050,576 up to 15 June 1990. The loan arrangement provided for an additional advance of $699,705 to pay out the State Bank and to discharge what was described as Farrow's establishment or application fee of $219,705 as well as brokerage fees. The mortgage was executed by Zamojowl and Messrs Daly, Roughley, Bosnjak and Soguri Pty Ltd executed joint and several guarantees in favour of Farrow. All documents were dated 25 September 1989. The mortgage secured the principal sum of $2,050,576 together with interest at 25% reducible to 17% and provided for the promise to repay the principal sum on 15 June 1990. The guarantees, as might be expected, were joint and several and guaranteed the performance by Zamojowl of its obligations. 4 UNREPORTED JUDGMENTS Shortly after 25 September 1989 Farrow paid out the State Bank ($450,000) the brokers ($20,500) and debited Zamojowl's account in an amount of $219,705 for the establishment fee. No further moneys were advanced by Farrow. No work was undertaken on the land. As at 15 June 1990 development consent had not been obtained from the Council. Some time in July 1990 a conditional consent was issued by the Council but, it seems, the consent was not acted upon. Farrow sought repayment of moneys advanced. Farrow commenced proceedings against Zamojowl! for repayment of the sum of $699,705 together with interest thereon and an order for possession of the land to which it claimed to be entitled because of a default under the mortgage. It also sought judgment for $699,705 together with interest against Mr Daly, Mr Roughley and Mr Bosnjak. The defendants alleged Farrow was precluded by its illegal conduct from recovery of moneys under the loan arrangement. The illegality relied upon was the failure by Farrow to comply with the requirements of the Building Societies Act 1986 (Vic). It was also alleged that there was no liability to repay the establishment fee of $219,705 because, it was submitted, Farrow was in breach of s51A of the Trade Practices Act 1974. Mr Bosnjak alleged that he was entitled to a declaration that the guarantee was not enforceable pursuant to the provisions of the Contracts Review Act 1980. Pursuant to Pt31 R2 of the Supreme Court Rules the proceedings became fragmented. Rogers CJ Comm D determined the separate issue of illegality. He held the defence failed. Giles J heard the remainder of the case. He rejected the defence based upon alleged breach of s51A of the Trade Practices Act 1974 and rejected Mr Bosnjak's claim that the contract of guarantee was unenforceable by reason of the operation of the Contracts Review Act 1980. Giles J gave judgment for possession of the subject land. He also gave judgment against Mr Daly, Mr Bosnjak, Mr Roughley and Zamojowl in the sum of $1,233,784.15 being $699,705 together with interest thereon. Mr Bosnjak appealed against the determination of Rogers CJ Comm D that the defence of illegality failed, and the findings of Giles J that there had been no established breach of the Trade Practices Act 1974 and that Mr Bosnjak's claim under the Contracts Review Act should be rejected. He later abandoned his appeal against the finding that Farrow was not proved to be in breach of the trade practices legislation. Contracts Review Act 1980. S7 (1) of the Contracts Review Act relevantly provides: "Where the Court 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, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following... " S9 provides that: "(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 the provisions of the contract; or (b) non compliance with, or contravention of, any or all of the provisions of the contract." URRBNJAK v FARROW MORTGAGE SERVICES PTY LTD (IN LIQUIDATION) (Cripps JAB S9(2) lists a number of matters to which the court can have regard to the extent that they are relevant in all the circumstances. "Unjust" is defined to include "unconscionable, harsh or oppressive". S6 of the Act provides: "(1) The Crown, a public or local authority or a corporation may not be granted relief under this Act. (2) A person may not be granted relief under this Act in relation to a contract so far as the contract was entered into in the course of or for the purpose of a trade, business or profession carried on by him or proposed to be carried on by him, other than a farming undertaking.... ". Before Giles J, Mr Bosnjak said Mr Daly had misled him in two important respects. First, that Mr Daly said that his land, which was to be security, was valued at $500,000 whereas in fact its value was nothing like that. Second, by not telling him that the Council had indicated about August 1989 that it would not be likely to grant development consent to the development as proposed. He also claimed that Mr Daly misled him concerning what the solicitor for the venturers required him to do. Farrow's solicitors had written to Zamojowl's solicitors asking that when documents were executed, certain explanations be given to the guarantors respecting the nature, effect and contents of the guarantee documents. Mr Bosnjak signed the guarantee without any explanation from Mr Mercuri, the solicitor acting for Zamojowl, and, as I think, the joint venturers. Mr Mercuri certified he had given the advice requested by Farrow. So far as Mr Bosnjak was concerned the statement was untrue. Giles J was favourably impressed with Mr Bosnjak and, generally, accepted his evidence as being, to the best of Mr Bosnjak's recollection, a truthful account of what had happened, particularly in his dealings with Mr Daly. He did not, however, accept as correct everything Mr Bosnjak said. In the course of argument, there was some discussion concerning the function of a court on appeal with respect to findings by a primary judge that the contract was or was not unjust within the meaning of the Contracts Review Act 1980. The debate centred upon whether the Court of Appeal, when asked to review such a decision should treat, on the one hand, the primary decision as immune unless satisfied that it proceeded upon some erroneous principle or was plainly and obviously wrong or whether, on the other, it should be in the same category as ordinary non-discretionary decisions. In Antonovic v Volker (1986) 7 NSWLR 151 Mahoney JA treated it as an appeal from an exercise of discretion. In Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256, Kirby P and Samuels JA favoured the view that a conclusion, on facts as found, that a contract is unjust is not relevantly a discretionary decision. If that question were necessary to determine in these proceedings, I would, with respect, adopt the view of Samuels JA. As he pointed out in Antonovic, if the Court maintained consistency of approach it would follow that all determinations of questions of negligence on appeal would fall into the discretionary category. In SH Lock (Australia) Ltd v Kennedy (1988) 12 NSWLR 482, McHugh JA said he thought that the true nature of an appeal as to whether a contract was just or unjust was not easy to determine. However, in that case he was of the opinion that on either approach the result was the same. In the present case I am of the opinion that the same observation can be made viz that on either approach the appeal must be dismissed. 6 UNREPORTED JUDGMENTS In determining whether a contract or a provision of it is unjust, the Court looks to the relevant circumstances referred to in s9 as they were at the time the contract was made. The Court is concerned with reasonable conduct. But a contract is not unjust merely because it was not in the parties' interests to enter into it (see West v AGC (Advances) Ltd 1986 5 NSWLR 610) or because a person is unable to pay the contractual debt when called upon. As will be seen,in the present case there was no intrinsic inequality of bargaining power between Mr Bosnjak and Farrow. Mr Bosnjak's choice that he would leave things to his coventurer, Mr Daly, did not proceed from any diminished capacity on his part. He simply trusted somebody who was not trustworthy. At all events, Farrow exerted no unfair pressure or used improper tactics. In Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256, Meagher JA at 276 to 277 referred to the principles of law with respect to applications under the Contracts Review Act 1980. Of relevance to the particular appeal under consideration is the principle that the Contracts Review Act 1980 is remedial and should be interpreted liberally; that the Act is directed to contracts and not to transactions; that there is jurisdiction under the Act to make orders in favour of a party to a contract who proves that at the date of the contract he suffers from a relevant disability even though the other party to the contract is unaware of that disability. With respect to the last mentioned principle, His Honour observed at 277 (and I respectfully agree with him): "[A]lthough in general it would be unsound to exercise the jurisdiction in those circumstances. That is a view which I expressed in Collier v Moreland Finance Corporation (Vic) Pty Ltd (1989) ASC 55-716 at 58 and 433 and I adhere to it. The reason for the view is that it is hardly just to deprive an innocent person of valuable property, of which contractual rights are a species. Nevertheless such a jurisdiction undoubtedly exists..." In the present case, it is clear that Mr Bosnjak was prepared to leave all aspects of the project, as far as they could be left, to Mr Daly. His Honour found that, when signing the guarantee, Mr Bosnjak was under some pressure by reason of his $30,000 investment and was affected by a belief, promoted by Mr Daly, of the worth of Mr Daly's land. He trusted Mr Daly and, as events turned out, his trust was misplaced. His Honour was prepared to accept that had Mr Bosnjak received advice of the kind referred to in the evidence of Mr Casson, he probably would have withdrawn from the venture despite his confidence in Mr Daly's expertise. His Honour also said (and with respect I agree with him): "But that does not mean that Mr Bosnjak entered into the venture without any understanding of what he was doing or any appreciation that he was exposing himself to risk. He participated in the venture in order to make money. He judged that it was in his interests to leave it to Mr Daly to arrange the finance for the project, and no doubt also the obtaining of development consent. He was not ignorant of the availability of the services of accountants and solicitors, and could have taken their advice. He knew that a guarantee exposed him to liability,and knew that by a guarantee he was promising to pay the money back if he was asked for it (with the qualification that he thought that all those involved were equally involved and 'the commitment was equal', by which I think he acknowledged a liability to the lender for the full amount rather than just a proportionate share, even though he thought that sharing would mean a partial burden in the end)." URRBNJAK v FARROW MORTGAGE SERVICES PTY LTD (IN LIQUIDATION) (Cripps JAY Mr Bosnjak had dealt in property before. On his behalf, Mr Curtis QC submits his Honour was not entitled to find, as he did, that Mr Bosnjak "was certainly not unversed in property dealings". Accepting, as I do, that that statement means that his Honour was of the view that Mr Bosnjak had experience in dealing with property, his conclusion was correct. Mr Bosnjak was an experienced and successful businessman. On occasions he had consulted solicitors with respect to property dealings. He knew, generally speaking, that a guarantee exposed him to liability. The circumstance that, like most guarantors, it was his hope and expectation that he would not be called upon to honour his promise, does not gainsay he knew he was at risk. With respect to the dealings the subject of this litigation he thought the prospects of profits were so high and the risk of being called upon under the guarantee so low that he was justified in entering into the venture on those terms. With respect to the careful argument advanced by Mr Curtis QC, it is, in my opinion, unreal to liken Mr Bosnjak's conduct in the present case to that of a subservient wife guaranteeing the debts of a dominant husband or of an elderly parent guaranteeing the liability of an ambitious or unscrupulous child. In the present case, and after one strips away or bypasses the artificial entities created for taxation and other purposes, it is not inappropriate to view the guarantees by the venturers as being, in effect, a promise by each of them to repay the money lent to all of them for their purposes. The case was conducted upon the basis that judicial review was not excluded by s6.That is, the case was conducted upon the basis that the contract was not entered into for the purpose of a business carried on by Mr Bosnjak. In Australian Bank Ltd v Stokes (1985) 3 NSWLR 174 Rogers CJ Comm D, adopting what was said to be a purposive approach, held that a guarantor of the liability of a two dollar company owned and controlled by the guarantor and carrying on a business is not a person excluded from protection by s6. He said: "Tt seems illogical in the extreme that Parliament should have excluded, from the purview of the Act, relief to a two dollar company which is carried on by the corner grocer and to the grocer carrying on business in his own name, yet if that grocer carries on business in the name of a two dollar company and then gives a guarantee in respect of the business of the company, on the face of it he is not carrying on business for the purposes of s6(2) and the Act operates in relation to a guarantee." Rogers CJ Comm D referred to the distinction the law draws between an individual and a legal entity for the purpose of carrying on a business (Salomon v Salomon and Co [1897] AC 220). Uninstructed, I would have thought that a purposive approach to s6 might have yielded a contrary result. If the plaintiff owns or controls the shares in a shelf company established for the purpose of carrying on a business as directed by the plaintiff, and that company borrows money for its activities and the repayment is secured by a guarantee given by the plaintiff,it does not seem to be straining the language of s6 to conclude that the deed of guarantee was relevantly entered into for the purpose of a business carried on by the plaintiff. A contract of guarantee would not, of course, be excluded where the facts established that the contract of guarantee was not entered into by the guarantor for the purpose of any business carried on by him or her. However, the result is less obvious as the financial connection between the guarantor and the company or person whose liability is guaranteed increases. As Ihave said, exclusion under s6 was not an issue in the proceedings. Mr Bosnjak's claim for relief was not challenged on the basis that the Contracts Review Act did not apply to the contract of guarantee. It is accordingly not appropriate for me to 8 UNREPORTED JUDGMENTS say any more about s6. It is, however, not inappropriate to observe that s9(2)(1) identifies as relevant to the issue of unjustness: "[T]he commercial or other setting, purpose and effect of the contract". It is clearly relevant to the Court's discretion that the guarantee given by Mr Bosnjak was given to secure a loan for a business purpose and that Mr Bosnjak had a financial interest in the success of the venture for which the loan was raised. As his Honour noted in the judgment, it was expressly conceded by Mr Bosnjak that Mr Daly was not regarded by him as the agent for Farrow. Farrow's ignorance of or innocence about circumstances operating on Mr Bosnjak at the time he signed the contract are not decisive against his claim that the contract was relevantly unjust. However, it is, I think, relevant to the question of unjustness that Farrow behaved properly and had no reason to suppose that the transaction had not proceeded as it requested. By way of illustration, it did not know that Mr Mercuri had not certified as required. Mr Curtis QC relied upon Barclays Bank PLC v O'Brien [1992] 3 WLR 593. In that case Scott LJ reviewed the cases in which it was held that the relationship between a debtor and a third party obliges the third party to take some active steps or steps to determine that the debtor guarantor fully understood the nature of the transaction entered into. Scott LJ referred to the many cases involving wives who are asked to guarantee their husbands' indebtedness or elderly parents their child. Even accepting the continuing correctness of assumptions made in earlier times with respect to the capacity of wives to think for themselves, the cases have, I think, little to offer when one is deciding what advice a lender should give to a businessman concerning the businessman's liability under a guarantee where that guarantee is security for the performance of the obligations of a shelf company in which that guarantor has an interest through companies he controls. In the instant case, Mr Bosnjak's position vis a vis Farrow is hardly that of subservient wife or doting parent. Viewed realistically, Mr Bosnjak was guaranteeing repayment of a debt incurred by himself and other venturers. I cannot imagine why, on the evidence, Farrow should have thought that there was some motive beyond the expectation of profit that operated on Mr Bosnjak's mind when he signed the guarantee. It is true there was some pressure on Mr Bosnjak. It came from the fact that he trusted and relied upon Mr Daly's optimism and because he did not want to lose the $30,000 already advanced. Mr Curtis QC has submitted that it is relevant to the question of unjustness that the amount claimed as an establishment fee was inordinately high. Mr Hely QC, on behalf of Farrow, has protested that this matter was not raised in the court below and so much is evidenced by the circumstance that Giles J in his careful judgment of 22 pages makes no reference to it. That, it would seem to me, would preclude the matter being raised on appeal. In any event, there is no evidence that the establishment fee was, in fact, inordinately high. There was reference in the evidence to what was alleged to be a high establishment fee but that was for the purpose of endeavouring to show that Farrow should have known that in all probability the venture would not be a success and that, therefore, it ought to have known that the guarantors would probably be called upon in due course. That, it was said, imposed a further obligation on Farrow but that obligation does not appear to have been spelt out. I do not think it was suggested that Farrow should not have lent the money. Giles J concluded, and I agree with him, that, on the evidence, Farrow had no reason to think otherwise than that each of the venturers believed that the venture would be profitable. The document which Farrow received was, on its face, a URRBNJAK v FARROW MORTGAGE SERVICES PTY LTD (IN LIQUIDATION) (Cripps JAD certification of the nature, effect and content of the mortgage and guarantees. In my opinion, and on my understanding of the evidence, Giles J was correct in rejecting the submission that the only reasonable view open to Farrow was that default in repayment on 15 June 1990 would be almost inevitable and that Mr Bosnjak would be called upon to meet his obligations under the guarantee. It maybe that, like Mr Bosnjak and his co-venturers, Farrow's expectations concerning the success and profitability of the business were higher than they should have been.That, I think, was probably its opinion - not that it thought that the venture would fail. As Giles J pointed out, this is not a case of a lender taking a guarantee from a person having no comprehension of what was involved. As he said: "A joint venturer who unwisely relies upon, but is misled by, a coventurer, whose acts by concession are not attributable to the financier, can not require the financier to bear the consequences. Whether the contract constituted by Mr Bosnjak's guarantee was unjust must be determined upon an examination of the position of both sides of the contract, and in the circumstances I have outlined I do not think that the contract was unjust." T agree with his Honour's conclusions. It was submitted by Mr Curtis QC that this Court ought to declare the contract was relevantly unjust by reason of the unconscionable or unfair conduct of Mr Daly. It would seem to me that, even if Mr Bosnjak succeeded in persuading the Court that, viewed entirely from his perspective, the contract was unjust, it would not follow that there should be a declaration of unenforceability. On this approach, the Court would be required to consider the competing interests, on the one hand, of Mr Bosnjak who voluntarily and in expectation of profit, allowed himself to be jointly and severally liable for moneys advanced by Farrow and, on the other, to the fact that the money Farrow was lending was money of investors in Pyramid who, if the contract was unenforceable, would necessarily suffer loss. As I have said, I do not think the contract has been established to be unjust even if one looks at the matter in a perspective most favourable to Mr Bosnjak. It was also submitted that the contract was unjust because it was established that Mr Bosnjak selected a less than honest co-venturer in whom to repose his trust. I do not think, in the circumstances of the case, it was. But even if the Court accepted the proposition that unjustness was established by that circumstance alone, there would still remain the discretionary decision as to whether in all the circumstances Farrow, through no fault of its own, should suffer the loss. I reject the submission that Farrow had an obligation to tell Mr Bosnjak that he should be independently represented. It was suggested on appeal that Farrow should have advised Mr Bosnjak to the effect that he should get advice from a solicitor independent of the other co-venturers and, I assume, of Zamojowl, their shelf company. In my opinion, the commercial unreality of that suggestion is self evident. It appeared to be suggested that because Farrow attempted to protect itself against claims of unjustness by asking the solicitor for the venturers to explain to all of them the nature and effect of their obligations and relied on that solicitor to be honest that, in some way, was evidence that Farrow should have gone even further and required them all to get independent advice. In Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256 at 276, Meagher JA, when dealing with his understanding of the principles of law, said: "There is no duty on a financier to provide either a borrower or a third-party guarantor with any commercial advice although if any such advice is tendered the financier may assume a duty of care." 10 UNREPORTED JUDGMENTS As in Beneficial Finance Corporation, in the present case Farrow did not presume to offer any advice (if it had, it would, in all probability, have been sued in negligence). It said it wanted guarantees from the co-venturers and that each guarantee should be joint and several. That was hardly an unusual requirement from a lender who was lending money to a shelf company. I am of the opinion, therefore, that the ground of appeal fails. Illegality The separate issue of illegality was decided by Rogers CJ Comm D prior to the determination of the rest of the suit by Giles J. Rogers CJ Comm D assumed that Farrow was the agent of Pyramid Building Society ("Pyramid"), a building society incorporated in Victoria and subject to the provisions of the Building Societies Act 1986 (Vic). He assumed that the funds were advanced by Pyramid and that had Pyramid itself lent the money it would have been in contravention of s52(1)(k) and s57(1) of the Act. S52 provides: "(1) Subject to subs(3), a building society may invest its funds only in the following ways if authorised by its rules: (k) The acquisition of any other asset or the making of any other advance (whether under a continuing credit contract within the meaning of s48 of the Credit Act 1984 or otherwise) provided that the total of those assets or advances does not at any time exceed 6% or any lesser percentage determined by the Minister and notified in the Government Gazette of the value of the total assets of the building society as at the end of the last preceding financial year. (2)... (3) The Minister may after consultation with the Council by notice published in the Government Gazette declare that as from the date specified in the notice a building society cannot invest in the manner specified in the notice. S57 relevantly provides: "(1) A building society must not lend on the security of a mortgage over land if the total value of the advance and any amount secured by any prior mortgages exceeds (a) 75% of the value of the land if there is erected or proposed to be erected a house to be occupied by the borrower; or (b) 66 2/3% of the value of the land in any other case. (2) Subs(1) does not apply if the building society obtains an indemnity from a mortgage insurer for at least the value of the amount by which the advance exceeds the relevant percentage specified in subs(1). (3) In this section "mortgage insurer" means (a) any corporation declared to be an authorised insurer under s8A(2) of the Trustee Act 1958; or (b) any corporation in respect of which there is in force an approval in writing given by the Registrar on the advice of the Council. (4) A building society cannot purchase a mortgage under s52(1)(b) unless the building society could have made an advance under this Act to the mortgagor of an amount equal to the purchase price of the mortgage." The moneys lent by Farrow came from Pyramid. Rogers CJ Comm D posed the question:""'What is in issue is primarily the consequences of the contravention of the two sections assuming they can be laid at the door of the plaintiff." Because he assumed an identity between Pyramid and Farrow, it was necessary only for him to determine whether, had Pyramid lent the money (as Farrow had done and in the same circumstances), could Pyramid have recovered the loan? He determined that Farrow was not precluded by illegality from recovering the loan. URDBNJAK v FARROW MORTGAGE SERVICES PTY LTD (IN LIQUIDATION) (Cripps JA)I I am of the opinion that Rogers CJ Comm D was correct. I note, however, that the respondent submits that the Building Societies Act 1986 (Vic) has no application to the transaction between Farrow and the borrowers notwithstanding that Farrow was acting as agent for Pyramid, its undisclosed principal. Further, it is submitted that even if the loan is not recoverable from Zamojowl by reason of illegality under the Victorian legislation, CL4 of the Deed of Guarantee and Indemnity preserves the liability of Mr Bosnjak as indemnifier (see The Bank of Adelaide v Lorden (1970) 127 CLR 185). Like Rogers CJ Comm D, I have determined this case upon the assumption of an identity between Pyramid and Farrow. Like Rogers CJ Comm D, I am of the opinion that the defence of illegality fails. In Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 425, Mason J, after reviewing a number of authorities said: "These cases do no more than demonstrate that the question whether a statute prohibits contracts is always a question of construction turning on the particular provisions, the scope and purpose of the statute. They also indicate some of the considerations which will influence the court's decision on the question of construction." The provisions of the Act do not prohibit the making of contracts of loan by building societies. There is a difference between, on the one hand, a provision in a statute forbidding the making of a contract and, on the other, a provision or provisions designed to ensure that when a contract is made its implementation will not be contrary to the purposes of the legislation. In the first case the contract is unenforceable and void unless, of course, the statute expressly or by necessary implication otherwise provides. In the second, the contract may not been forced at all, not because the contract is prohibited by law, but because it is associated with the furtherance of a proscribed activity. The question then becomes whether public policy requires that a contract of that type is enforceable (see Yango Pastoral at 432 to 433 per Jacobs J). The purpose of the Building Societies Act 1986 (Vic) is, in terms, (a) to provide conditions under which building societies can compete efficiently with other financial institutions and meet the needs of their members and of members of the public and (b) to provide a system of prudential regulation to ensure that deposits made with building societies by members of the public are safe and (c) to ensure that building societies provide a stable supply of reasonably priced housing finance to members of the public. Pt4 of the Act is concerned with the "Capital and Fiscal Powers and Obligations" of building societies. Division 1 is concerned with the raising of capital by the issue of shares. Division 2 is concerned with raising funds and the manner of their investment. $52 and s57 are in Division 2. It is relevant to note that s58 provides that a building society must not guarantee the due and proper performance by a subsidiary of any of the subsidiary's contractual obligations or give an indemnity in respect of any loss, damage or injury occasioned by or through any contractual default by any act or omission of a subsidiary. It is expressly provided by s58(2) that any guarantee or indemnity given in contravention of subs(1) is void. S58 also provides a penalty of 200 penalty units. S71 is in the same Division and it provides that a management contract not authorised by the Act may not be entered into and, if it is, may not be assigned. It is provided in terms that the contract or its assignment is void (s71(3) and (5)). The section also imposes a penalty of 1000 penalty units for contravention of the section. In concluding that the loan transaction was not "struck down by 12 UNREPORTED JUDGMENTS illegality", Rogers CJ Comm D had regard to two circumstances. The first was that the Victorian Parliament had indicated with some care what transactions it wished to be declared void. Secondly, that the purpose of the legislation was to protect depositors and ensure the stability of building societies. Rogers CJ Comm D referred to the comments of Mason J in Yango and I repeat them: "Tn the present case the effect of relieving the defendants from their contractual obligation to repay money to the plaintiff would not be confined to the substantial detriment resulting to the plaintiff. The ability of the plaintiff to meet its obligations to its investors and other creditors depends, in part if not entirely, on its ability to enforce the terms of repayment of its contracts of loan with persons such as the defendants. To hold the contract unenforceable at the suit of the plaintiff would be to provide a windfall gain to the defendants and other borrowers in a similar position, and, although indirectly, to impose substantial hardship on those who originally made funds available to the plaintiff." (at 428) To declare a contract such as the one before the Court unenforceable would, self-evidently, disadvantage members of the public who were shareholders in building societies or who had invested sums in building societies and provides windfall gains to certain borrowers. The circumstance that the legislation provides fidelity insurance indemnity and/or that it imposes civil liability on directors for breach of duties is really beside the point. The Court has been referred to a number of decisions in which the question of illegality was determined. In all but one the courts reached the same conclusion as Rogers CJ Comm D (see Point of Purchase Media Pty Ltd v Pyramid Building Society (In Liquidation) 13 February 1992, Supreme Court of Victoria, Vincent J, unreported, Geelong Building Society v Love 3 September 1992, Supreme Court of Victoria, Byrne J, unreported, Farrow Mortgage Services Pty Ltd v Ragata Developments Pty Ltd New South Wales Supreme Court, 15 October 1992, Rogers CJ Comm D. Similarly Farrow Mortgage Services Pty Ltd (In Liq) v El Khoury, 29 October 1992, Supreme Court of NSW, Rolfe J, unreported, LJ E1 Khoury and BP Torpey v Farrow Mortgage Services Pty Ltd In Liq) (Federal Court of Australia, Ryan J, 11 December unreported). The only case in which the contrary has been decided is Edgar v Farrow Mortgage Services Pty Ltd (In Liq) (Federal Court of Australia, Einfeld J, 26 August 1992. We were told that this case is on appeal. Einfeld J took the view that the remedy of the lender in an action for unjust enrichment was a relevant circumstance to take into account in determining whether a contract was enforceable. He departed from Rogers CJ Comm D because he believed it was not appropriate to consider building societies legislation as if the one purpose was to protect one group of people. Einfeld J said: "T think that the Act is primarily concerned with borrowers when it fixes the limits of the societies' permission to lend within certain specifications and strict conditions." (at 106) It is true that the Act is concerned that borrowers should not borrow more than a percentage proportion of the value of the property and to that extent the Act is concerned with borrowers. However, the reason why it is concerned to ensure that borrowers do not exceed the limits of the security is not, in my opinion, primarily to protect borrowers. It is to safeguard the funds of the society and to keep the society stable. URDBNJAK v FARROW MORTGAGE SERVICES PTY LTD (IN LIQUIDATION) (Cripps JAB Einfeld J was further of the opinion that, had Farrow been prevented earlier in point of time from recovering loans exceeding the prescribed ratio, the collapse of building societies such as Pyramid, Geelong and Country Wide might not have occurred. That opinion may be correct but, if it is, it does not furnish a reason why the legislation should be interpreted to penalise investors and depositors of building societies and provide unexpected gains to borrowers. Since preparing these reasons, I have had the advantage of reading the decision of the Federal Court of Australia on appeal from Einfeld J (Farrow Mortgage Services v Edgar 3.6.93). I agree with the reasons of the Court for its conclusion that the contract the subject of the appeal was not void or unenforceable. Accordingly, I reject the second ground of appeal. In my opinion, the appeal should be dismissed and the respondent to pay the appellant's costs of the appeal. Appeal dismissed with costs. Counsel for the Appellant: FD Curtis / RN Gye Instructed by: Smith Monti and Costa Counsel for the Respondent: PG Hely QC / DL Ronzani Instructed by: Abbott Tout Russell Kennedy