FARROW MORTGAGE SERVICES PTY LTD (IN LIQUIDATION) v TORPEY SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL COMMERCIAL DIVISION MASON P, PRIESTLEY and SHELLER JJA 19-20 March 1998, 22 April 1998 [1998] NSWCA 78 CONTRACTS REVIEW ACT — LIABILITY OF A GUARANTOR CONTRACTS REVIEW ACT — LIABILITY OF A GUARANTOR — the first respondent, as secretary of a company, Donmint, whose business was entirely conducted by her husband was "required to sign some papers" regarding three mortgages, one of which contained a personal guarantee by her — her husband on her behalf had agreed with the lender (Farrow) that she was only guaranteeing one mortgage — but the documentation as signed exposed the first respondent, as a guarantor, to an unqualified liability for any default under all the mortgages — solicitor certificate issued confirming that the guarantors were aware of their obligations — first respondent received independent legal advice from a solicitor, the second respondent — Hunter J found there was no satisfactory explanation of the unlimited guarantee by the second respondent — the second respondent did not have the complete documentation when advising the first respondent — the documents should be rectified to reflect the actual contract — contract unjust at time when made — relief granted pursuant to s7(1) of the Contracts Review Act — second respondent held not liable to first respondent. A. On appeal by Farrow, the appellant confined the appeal to the assertion that the first respondent should have been held to her guarantee as rectified and submitted: 1. Hunter J erred in finding that the contract was unjust; 2. or, if unjust, no relief should have been granted under the Contracts Review Act as the contract, once rectified, was much less onerous; 3. Hunter J erred when he described the first respondent as being in a "vulnerable position" and that her husband had subjected her to relevant unreasonable "pressure"; 4. his Honour erred when finding that the appellant failed to act with expedition in gaining possession of the securities, the result being that the guarantor was effectively denied the opportunity to exercise her rights of subrogation. B. The first respondent appealed against the dismissal of her cross claim against the second respondent. Held: 1. The contract that the first respondent entered into was unjust as it imposed obligations she had not agreed to and were far more burdensome than she had agreed to; 2. the submission by the appellant that relief should not be granted because the position Hunter J established left the first respondent in a less onerous situation was not argued at first instance, therefore should not be considered in the appellate court; 3. however, assuming in Farrow's favour that the court should consider this lesser and more reasonable case in the appeal the argument must fail. The first respondent had, as a practical matter, been denied, by the conduct of Farrow, in maintaining at all times that she was liable for the whole of the indebtedness, the right, as guarantor, directly or indirectly to bring about the sale of the securities at a time when their sale would have discharged her obligation.; 2 UNREPORTED JUDGMENTS 4. the relief granted to the first respondent by Hunter J was appropriate in that it avoided, as far as practicable, any "unjust consequence or result" of the contract she entered. 5. First respondent's appeal against dismissal of her cross claim against second respondent failed. Cases: Abalos v Australian Postal Commission (1990) 171 CLR 167. Contracts Review Act, 1980 (NSW) s7(1), s9(5). Mason P I agree with Priestley JA. Priestley JA Introduction. This is an appeal by Farrow Mortgage Services Pty Ltd (In Liquidation) (Farrow) against a judgment by Hunter J dismissing a claim by Farrow against Mrs Torpey for money claimed to be due by her under a guarantee of moneys owing to Farrow by Donmint Pty Ltd (Donmint) and Vamugi Pty Ltd (Vamugi). Before Hunter J a good many facts were not in dispute, but about some there was conflicting evidence. The nature of the case appears from facts either undisputed, or not seriously in contest, and I will outline them first. Facts undisputed or not seriously in contest. Up to execution of the guarantee. Mrs Torpey was qualified as a nurse. She married, had four children and devoted herself to looking after her family and home. Her husband was an architect. In 1988, she and her husband separated, but in 1988 were both living together in their house at Denistone. This was because Mr Torpey's architectural practice was short of work and he and his family thus short of money. In March 1989, Mr Torpey and a builder with whom he had previously worked, Mr Elkhoury caused a property at Leichhardt to be bought, with a view to its refurbishment. The purchasers of the property were Donmint, a company controlled by Mr Torpey, and Vamugi, which was a subsidiary of Oakbury Pty Ltd, (Oakbury) a company controlled by Mr Elkhoury. Mrs Torpey was a director and secretary of Donmint. When the Leichhardt property was bought, Donmint and Vamugi gave a first mortgage over it to the Commonwealth Bank. At about the same time, Mr Torpey and Mr Elkhoury were considering the purchase of a property at Parramatta by Donmint and Vamugi for development into an eight storey building containing twenty residential units. Eventually Donmint and Vamugi obtained finance for this project from Farrow. The finance was to cover the entire development cost. Farrow agreed to make the money available but in addition to security over the Parramatta property itself required collateral security by way of both first and second mortgage over the Leichhardt property. When this was arranged, Mr Torpey stipulated and Farrow agreed that Mrs Torpey was not to be involved in the Parramatta project personally. In making the borrowing agreements Mr Torpey was (inter alia) acting on behalf of his wife. By letter dated 7 July 1989 Farrow wrote to the directors of Donmint and Vamugi in connection with the first mortgage over the Leichhardt property. Farrow's proposal was that it would lend $295,000 to Donmint and Vamugi on the security of a first mortgage over the property. One condition was that the loan be jointly and severally guaranteed by Mr and Mrs Torpey and Mr and Mrs Elkhoury. WRRROW MORTGAGE SERVICES PTY LTD (IN LIQUIDATION) v TORPEY (Priestley JAB When this money was subsequently lent the existing first mortgage to the Commonwealth Bank was discharged. By letter dated 17 July 1989 Farrow wrote to Citron Developments, the trade name of Doomint and Vamugi offering to lend $3,876,000 to purchase the Parramatta land and fund the building of the units. The security for this loan was to be a registered first mortgage over the Parramatta land and a registered second mortgage over the Leichhardt property. Conditions 11, 12 and 14 of the offer were as follows: "11. The mortgage is to be collateral to and with the mortgage by Donmint Pty Ltd and Vamugi Pty Ltd secured over 346-366 Catherine Street, Leichhardt The mortgage is to provide that the principal sum also secures any monies which may at any time be owing or become owing under the said collateral mortgage and that default under either mortgage shall constitute default under the other mortgage. 12. The proposed loan is to be jointly and severally guaranteed by Brendan Phillip Torpey of 26 Gallard Street Denistone East and Louis Joseph Elkhoury of 31 Panarama Parade, Blacktown. 14. The proposed loan is to be jointly and severally guaranteed by Oakbury Pty Ltd." Both loan offers were accepted, subject to some irrelevant changes. Farrow instructed its solicitor (Mr Oates) to prepare the necessary documents. He was unaware of the different arrangements for the two sets of guarantors. Mr Torpey told his wife that she would be "required to sign some papers as secretary of the company". He did not tell her that included in the papers there would be a personal guarantee by her. Nor, prior to the execution of the various documents necessary to allow the loan to go forward, did Mrs Torpey have any reason to understand that included in them would be a personal guarantee by her. On either 3 or 6 November 1989 Mrs Torpey went with her husband to the office of her husband's solicitor, Mr Butler. There she took part, in the presence of Mr Butler, in the execution of three mortgages. In each case the mortgagor comprised Donmint and Vamugi and the mortgagee was Farrow. These mortgages were (a) a first mortgage of the Parramatta land, (b) a second mortgage of the Leichhardt land and (c) a first mortgage of the Leichhardt land. The common seals of Donmint and Vamugi were affixed to each mortgage. Each affixation of Donmint's seal was in the presence of Mr Torpey as a director and Mrs Torpey as a secretary of Donmint, as attested by their signatures. They both signed or put their initials on every sheet of each mortgage. The Parramatta mortgage (4/817-825) acknowledged receipt by the mortgagor of $3,876,000. (This was misleading as this amount was never advanced in full but nothing turns on this.) The first covenant in this mortgage was that the mortgagor was to observe the provisions in Memorandum Number X780516 (the Memorandum) (4/828-853) filed in the Registrar-General's office, the provisions of which were deemed to be set out at length in the mortgage. The sixth covenant made the mortgage collateral with both the first and second mortgages over the Leichhardt property. The tenth covenant was headed "Deed of Guarantee and Indemnity". It was signed by Mr Torpey and Mr Elkhoury and executed under seal by Oakbury. The guarantors guaranteed payment by the mortgagor of all moneys payable under or secured by the mortgage and the observance of all the covenants, agreements and obligations on the part of the mortgagor contained in it. 4 UNREPORTED JUDGMENTS The second mortgage of the Leichhardt property (4/808-815) was in similar terms. It also acknowledged (misleadingly) receipt by the mortgagor of $3,876,000. Its first covenant incorporated the provisions in the Memorandum. Its seventh covenant declared that the mortgage was collateral with both the mortgage over the Parramatta property and the first mortgage over the Leichhardt property. Its tenth covenant consisted of a deed of guarantee and indemnity in the same terms as in the Parramatta mortgage. The guarantors were the same persons as in that mortgage. The seals of Donmint and Vamugi were affixed to it with the same signatories. Again Mrs Torpey as a secretary of Donmint signed every page. The first mortgage of the Leichhardt land (4/798-806) also showed Donmint and Vamugi as the mortgagor and their seals were affixed and attested by the same persons. In this mortgage Donmint and Vamuga acknowledged receipt of $295,000. Mrs Torpey signed every page. The first covenant incorporated the provisions of the Memorandum. The sixth covenant made the mortgage collateral with the first mortgage over the Parramatta property and the second mortgage over the Leichhardt property. The ninth covenant of this mortgage was a deed of guarantee and indemnity. The guarantors were expressed to be Mr Torpey, Mrs Torpey, Mr Elkhoury, Mrs Elkhoury and Oakbury Pty Ltd. Mrs Torpey's signature appeared on the pages comprising the ninth covenant in the same way as it had on the guarantee pages of the previous two mortgages. C121 of the Memorandum was an "all moneys" clause, extending the security of the mortgage to any moneys owing at any time and on any account by the mortgagor to Farrow. It provided for the capitalisation of, and payment of interest on, interest. Mr Butler later (8 November 1989) gave a certificate that, acting as the solicitor for the borrowers and the guarantors in relation to mortgages over the Parramatta and Leichhardt properties and before the borrowers and guarantors executed the mortgage and guarantee documents, he explained to them the nature, effect and contents of the documents and their respective obligations and liabilities. The certificate said that this included the Memorandum. A footnote to the certificate said that it did not apply to Mrs ELkhoury or Mrs Torpey "both of whom sought and obtained independent legal advice". One thing that happened in relation to the seeking and obtaining of independent legal advice by the two wives was that Mr Butler sent Mr and Mrs Torpey to the office of another solicitor, Mr Halbert. They were seen by him on 6 November 1989. No-one else was present. Mr Halbert supplied a certificate to Farrow as a solicitor certifying that he had interviewed Mrs Torpey and Mrs Elkhoury, guarantors of "the above mortgage", had examined them concerning their knowledge of it and their obligations under it and that they had confirmed they were fully aware of their obligations and the rights of the mortgagee should there be default by the mortgagors. It later emerged that throughout the attendance of Mr and Mrs Torpey upon Mr Halbert, he had understood he was required to advise both Mr and Mrs Torpey. This meant that he thought he had to advise Mr Torpey about (inter alia) the three guarantees he was giving. Default: commencement of proceedings. After part of the agreed sum had been lent, and disputes had arisen between Farrow and the mortgagor, the mortgagor defaulted upon the loan obligations. After some time, Farrow, in 1993, commenced proceedings against Mrs Torpey and Mrs Elkhoury on their guarantees and against the firm of solicitors in which Mr Halbert was a partner. WRRROW MORTGAGE SERVICES PTY LTD (IN LIQUIDATION) v TORPEY (Priestley JAB In its claim against Mrs Torpey Farrow relied on all three mortgages, saying that they were expressed to be collateral with each other and the guarantor's liability was consequently in respect of all amounts outstanding pursuant to all three mortgages. Farrow claimed that $1,750,475 had been lent to the mortgagor pursuant to the loan agreement and claimed that by 8 October 1993 the amount of principal and interest payable by the mortgagor and therefore by Mrs Torpey to it was $3,609,957. Interest on the balance outstanding was claimed at 25.75% per annum. Mrs Torpey's Defence and Cross-claim. In her defence Mrs Torpey denied that the guarantee was enforceable against her. The critical issues raised by her came from her cross-claim against Farrow in which she relied on a number of grounds for saying that the guarantee, although executed by her, should not be enforced against her. Amongst these were claims: that her execution of the guarantee had been procured by unfair pressure; she should have relief under the Contracts Review Act; and that there had never been any agreement that she should be liable under her guarantee for any amount other then the $295,000 secured by the Leichhardt first mortgage, and interest on that sum, and accordingly she claimed rec6fication of the guarantee to embody the agreement actually made. Hunter J's findings on contested facts. Hunter J made the following findings on contested factual issues. 1. Mrs Torpey "had no involvement in Donmint other than the formal role of signing such documents as required her signature as an officer of that corporation". (J 8, Q-R; J 9 F) 2. Mrs Torpey was ignorant in every material respect of the details of the business activities of Mr Torpey (J 9E). 3. Mrs Torpey "had no business sense nor experience and... was a dedicated housewife and mother" (J 9G). 4. Mrs Torpey had a sketchy understanding of the nature of guarantees (J 9J). 5. Mrs Torpey regarded herself as having no role other than a formal one in her husband's business affairs (J 11J). 6. When required by her husband to execute the documents relevant in the present case Mrs Torpey regarded herself as a "rubber stamp" with no real choice but to execute the documents (J 11L-N). 7. In the agreement for loan reached between Farrow's agent and the borrowers prior to the preparation of the documents later executed, the agreement so far as it concerned Mrs Torpey was that her only liability "was limited to the sum to be secured under the first Leichhardt mortgage as an independent security with no collateral provision importing commitments from the Parramatta mortgage or the second Leichhardt mortgage." (J 16S-U) 8. In Farrow's letter of instructions to its solicitor concerning the drafting of the mortgages it required conditions to be inserted contrary to the agreement previously reached between the parties (J 19A-H). Additionally, the drafting solicitor "not only misunderstood his instructions but acted without instructions in providing the collateral provision in the first Leichhardt mortgage" (J 20M-O). 9. When Mr and Mrs Torpey met with Mr Butler on 3 or 6 November to execute the security documents 6 UNREPORTED JUDGMENTS "There was very little offered by way of description of the nature and effect of the documents which the guarantor was required to execute. The meeting... was limited to the mechanical requirements of executing the various security documents and took place over a short period of time." (J 27R v) Mrs Torpey left Mr Butler's office without any real understanding of what she had executed; ".. She understood herself to be executing mortgage documents as an officer of Donmint without any information being given to her of the existence of a guarantee or of any obligations undertaken by her..." (J 28F-J) 10. When Mr and Mrs Torpey attended upon Mr Halbert he did not have the Memorandum (5/1004 B-Q; 5/1008 H; J 26T-W). 11. Notwithstanding the execution by Mrs Torpey of her personal guarantee, she was not "on notice that her involvement in the transaction may have been more than that of an officer of Donmint" (J 28Q-R) because of her "rubber stamp" mentality (J 28S). 12. Mr Halbert stated to Mrs Torpey that she and her husband were undertaking a personal liability in the form of a guarantee in executing the security documents in respect, at least, of the indebtedness secured by the Leichhardt first mortgage (J 47S v). 13. In cross-examination, Mr Halbert agreed that in the absence of the Memorandum at the time of the interview with Mr and Mrs Torpey, he had been of the view that the Leichhardt first mortgage security document did not impose any obligation on Mrs Torpey beyond a $295,000 limit plus interest and other add-one (J 37Q-s) and that he had not brought home to her during the interview the possibility of her being liable for a large loan (J 37Y-Z). Hunter J said that he was "far from satisfied that at any time was the guarantor adequately advised, if she was advised at all, as to her exposure under the guarantee in the light of the provisions of the memorandum" (J 38X-Z). 14. Mr Halbert testified that there had been a telephone conversation between himself and Mrs Torpey on 13 November which, had it occurred as he said, would have meant that Mrs Torpey had a greater understanding of the transaction than she admitted at the trial. Mrs Torpey denied she had any such conversation with Mr Halbert. Hunter J accepted her denial. (J 40B). 15. In light of his factual findings about the meeting of 6 November, Hunter J came to the conclusion "that the guarantor was not given anything like sufficient advice as proper practice required of her liability under her guarantee" (J 40I-J). 16. The meeting of 6 November took significantly longer than recalled by the guarantor (J 40P-R). 17. At the meeting Mr Halbert told the guarantor the security documents included the guarantee and were not limited to mortgages (J 40S-U). 18. Any explanation of a guarantee by Mr Halbert at the meeting was "either lost on the guarantor or did not register with her, given her role as a 'rubber stamp'".(J 40V-W) 19. Hunter J: "The general conclusion I have reached is that Halbert stated to Torpey and the guarantor that amongst the security documents to be executed were guarantees. However, there is equally no doubt in my mind that there was not conveyed to her in any satisfactory way, and possibly not conveyed to her at all, the exposure under her guarantee to pay the total liability to the lenders under the three mortgages which, without recourse to provisions such as cl35 of the WRRROW MORTGAGE SERVICES PTY LTD (IN LIQUIDATION) v TORPEY (Priestley JAY memorandum, represented a sum in excess of $4 million and, by reference to the full terms of the security documents, was an unlimited exposure." (J 41A-I) 20. Had Mrs Torpey been advised she was signing a document exposing her to personal liability she would have refused to sign the security documents (J 43A-D). 21. Mr Halbert at the very least stated in Mrs Torpey's presence that the security documents included guarantees by Mr Torpey and by her. That did not get through to her due to the unquestioning role she was playing as a "rubber stamp" (J 43G-I; 40 U-W) Hunter J's legal conclusions. Rectification. Hunter J was of the view that the facts provided convincing proof that the security documents did not embody the final intention of the parties, and that Mrs Torpey was entitled to the rectification she asked for (J 44J-M)); that is, rectification to exclude any liability of any indebtedness secured by the Parramatta or Leichhardt second mortgage (J 45K-M). Contracts Review Act: was the contract unjust? Hunter J began his reasons on this issue by saying: "T have approached this claim for relief on the basis that the guarantor is entitled to rectification. Even so, having regard to the circumstances in which the guarantee was entered into by the guarantor, I have no hesitation in finding that it was unjust." (J 51B-E) Hunter J then listed a number of factors in support of his conclusion: 1. the vulnerable position of Mrs Torpey brought about by her financial dependence upon her husband, his use of her and her acceptance of her position as "a rubber stamp" and his having kept from her that he had agreed on her behalf that she would be a guarantor in regard to the Leichhardt first mortgage (J 51E-J); 2. Mrs Torpey's unawareness of the fact that in signing the security documents she was becoming a guarantor (J 51K-N); 3. the pressure Mrs Torpey had been subjected to over the months prior to the execution of the documents by her husband (J 51 N-R); 4. the complicated nature of the legal documents (J 51U); 5. the fact that the Leichhardt first mortgage was being substituted for the previous mortgage to the Commonwealth Bank in regard to which there had been no evidence suggesting personal liability by the guarantor and had been an independent mortgage without the cross collateral arrangements which occurred in the later mortgage (J 51 Y-52F). Contracts Review Act: should relief be granted? Having found, pursuant to s7 and s9 of the Contracts Review Act, that the guarantee was unjust, Hunter J then considered whether it was just to grant relief. He mentioned a number of matters relating to the subsequent dealings between Farrow and the mortgagor, in regard to which he was critical of Farrow. He thought Farrow had deliberately manoeuvred to avoid making further advances to the mortgagors beyond the initial advance of $1,255,273 (from which Farrow had deducted an "establishment fee" of $335,000) and the one further advance of $200,002 on 22 December 1989 (J 54A-F). He also referred to the fact that a winding up order was made against Farrow on 17 April 1991 and that default under the Leichhardt first mortgage had been almost immediate. He also found that in the months following the default under the Leichhardt first mortgage the value of the mortgaged property was sufficient to have enabled repayment of the principal and either the whole or the bulk of the interest. He then concluded: 8 UNREPORTED JUDGMENTS "Given the immediacy of the default under the first Leichhardt mortgage, the inordinate delay in the exercise of mortgagee powers of sale, to the enormity of the financial consequences attendant upon that delay and having regard to the likelihood of the Leichhardt property being able to provide sufficient funds by sale to meet the greater part, y not the whole, of the principal sum of indebtedness with accrued interest under the first Leichhardt mortgage had timely sale been effected by the lender and given my finding that the guarantee was unjust in the circumstances in which it was made, I am of the view that this Court should refuse to enforce any of the provisions of the guarantee. That the lender did not act with expedition in relation to the Leichhardt property was undoubtedly due to the erroneous treatment by it of that security as being bound up with the Parramatta mortgage and with the legal wrangling attendant on the latter. I consider that the guarantor should not be visited with the consequences of that delay nor with the consequences of the lender's erroneous treatment of the first Leichhardt mortgage as being bound up with the loan arrangements affecting the Parramatta property." (J 56S-57H) This passage seems to me to be of critical importance to the decision of Farrow's appeal. Other legal issues. Hunter J also decided a number of other legal issues raised on behalf of Mrs Torpey. It is not necessary to record them here because they were not raised again in the appeal. Hunter J's decision in favour of Mrs Torpey was based on his views concerning the rectification and Contracts Review Act issues and it was to these that the argument in the appeal was directed. The appeal. Late change of approach by Farrow in the appeal. In the hearing before Hunter J Farrow maintained at all times that Mrs Torpey was liable for the full amount advanced to the mortgagor, together with interest, a sum claimed, at the time of the hearing, to be of the order of $7,000,000. The rectification issue was fully contested before Hunter J Farrow thus maintained throughout that Mrs Torpey was bound by the provisions which locked the three mortgages together. It was the written conduct in the guarantee covenant of the Leichhardt first mortgage, with its connections to the full amount owing by the mortgagor under all three mortgages, that Farrow was seeking to enforce. One obvious reason for this being an unjust contract within the meaning of s7(1) of the Contracts Review Act was that it imposed obligations on Mrs Torpey vastly greater than anything her husband had agreed to on her behalf in the actual agreement between the parties. Notwithstanding this, Farrow, in a notice of appeal containing fifty-two grounds, maintained that Mrs Torpey's guarantee as written, and unrectified, must be enforced against her. In view of Hunter J's factual findings in the case, many of which were, in the circumstances, and in practice because of the Abalos line of authority, virtually unchallengeable, the prospects of success in an appeal based on the grounds in Fanow's notice of appeal, and claiming an amount presumably now considerably in excess of $7,000,000, were slender indeed. Nevertheless, this was the continued stance of Farrow until the very eve of the date fixed for the hearing of oral argument in the appeal. Some element of sanity belatedly caused Farrow to modify its position. When the appeal opened in this court counsel said that the appeal would be confined to asserting that Mrs Torpey should have been held to her guarantee as rectified; Farrow would now submit that, Hunter J having decided what was the actual agreement between the parties, should have gone on to decide that that actual WRRROW MORTGAGE SERVICES PTY LTD (IN LIQUIDATION) v TORPEY (Priestley JAD agreement was not unjust, or, if unjust, nevertheless one in respect of which no relief should be granted under the Contracts Review Act, because any unjustness of the agreement was not connected to the substantial obligation of Mrs Torpey to meet the obligations of a guarantee which she had entered into, reluctantly, but nevertheless in her own best interest, in that she saw no reasonable alternative to giving the limited assistance of her guarantee to her husband's efforts to make some money. Counsel for Farrow acknowledged that because of the Abalos line of authority, it was pointless for him to attack Hunter J's primary findings of fact. However, he submitted it was open to him to challenge inferences drawn from the primary findings. He began by criticising the five factors I have listed immediately under the sub-heading "Contracts Review Act" above, which were elements in Hunter J's finding that the contract entered into by Mrs Torpey was unjust within the meaning of s7(1) of the Contracts Review Act. He submitted, for example, that it was not right to describe Mrs Torpey as being in a "vulnerable position" (factor 1) or to describe her discussions with her husband as having subjected her to "pressure" (factor 3) in any relevant sense. Further, he submitted that factors 1 to 3 had nothing to do with Farrow, particularly in light of Hunter J's finding that Mr Halbert had told Mrs Torpey that the security documents included the guarantee by her (finding 21 on contested facts). It was also said that Hunter J wrongly took into account in deciding that the contract was unjust matters which were relevant only to the question of what relief should be granted once he had decided as a prior and separate matter that the contract was unjust. The distinction relied upon by counsel for the first step in this submission is sound. S7(1) of the Contracts Review Act requires a court to consider the granting of relief under that subsection in two separate stages. The first step requires the court to find whether or not a contract was "unjust in the circumstances relating to the contract at the time it was made". If a court finds the contract was unjust then the second step is, if the court "considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, to do any one or more" of the things permitted by para(a) to para(d) of s7(1), these being paragraphs enabling the court to grant a variety of relief and remedy. In relation to the second step, s9(5) provides that "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". The foregoing criticisms seem to me to miss the main point of unjustness in this case. Mrs Torpey signed contractual documents making her potentially liable to be a debtor to Farrow for millions of dollars when the actual agreement made for her by her husband limited her potential liability to $295,000 and interest. The solicitor who explained the documents to her gave her no indication of the potential indebtedness the documentation she signed made her liable for. No contract can be more nakedly unjust than one imposing obligations on a party which the party not only has not agreed to, but are of the order of ten times in monetary burden greater than what the party had agreed to. Farrow's principal point in the appeal went not to the point whether the contract was unjust, but to the following question, should relief be granted, and if so, what? It was submitted that, notwithstanding the unjustness of the contract as actually entered into by Mrs Torpey, once the position was established, as it was by Hunter J's judgment, that a much less onerous contract had in fact been 10 UNREPORTED JUDGMENTS made by Mrs Torpey, then, she should be relieved against enforcement of the mistakenly more burdensome contract, but there was no reason why any relief should be granted to her in respect of the actual contract that had been made on her behalf by Mr Torpey. I do not understand any argument along these lines to have been put to Hunter J. Before him Farrow claimed $7 million-odd or nothing. No intermediate case having been put at the trial and Farrow having lost (rightly both in my view and as now accepted by Farrow), I do not see why Farrow should be allowed to bring an alternative, though lesser, case on appeal. However, assuming in Farrow's favour that this court should consider its alternative and more reasonable case in the appeal, it seems to me that it must fail. For Farrow reliance was placed on the fact that Hunter J had, in considering what relief should be granted, taken into account the way in which Farrow dealt with the mortgagor in the carrying out of the loan agreement. The principal submission was that the material reloading to this topic relied upon by Hunter J was contained in correspondence the admissibility of which was objected to at the trial and which it was not open to his Honour to take into account. I do not think it necessary to go into the question whether Hunter J was correct in the way in which he handled the evidence in relation to which the criticisms were made. My feeling is that he was probably right in doing so, but it is unnecessary to embark on a full consideration of this area of his reasons, because none of Farrow's criticisms seem to me to reduce the force of what Hunter J said in the passage which I earlier said seemed to me to be of critical importance to his decision (J 56S-57H; set out at p14-p15 above). The point made by Hunter J in that passage seems to me to be fully justified. It can be put in two ways. One is the way in which the trial judge put it. It was submitted, in criticism of the trial judge's approach, that there was no obligation on Farrow to act with expedition in relation to selling the Leichhardt property. It was, I think correctly, pointed out that it is established that a mortgagee may exercise a power of sale whenever it suits the mortgagee's commercial convenience, at least so long as it is the bona fide commercial convenience of the mortgagee that is determining the choice of timing of the exercise of the power of sale and not some ulterior motive. I agree however with the inference drawn by Hunter J that in the circumstances of the present case the reason for delay in selling the Leichhardt property was not the commercial convenience to the mortgagee of its sale of that property looked at in isolation, but the legal wrangling that followed from the breakdown of the loan arrangement between Farrow and the mortgagor and the treatment by Farrow of Mrs Torpey's obligation as being bound up with the overall dispute. Had Farrow not taken that stand it seems to me that there is a strong likelihood of the Leichhardt property having been sold when the principal sum guaranteed by Mrs Torpey would have been exceeded by the proceeds of the sale and also some, if not ale of the interest. I think the consequences of Farrow not having sold at a time much more suitable to Mrs Torpey's interest should fall upon Farrow and not Mrs Torpey The second way of putting what is essentially the same point is that at the time of default Mrs Torpey as guarantor had a right, if she could arrange funds to pay out the amount owing under the first mortgage, to do that and put herself in the shoes of the first mortgagee, then exercise power of sale promptly and then, as the evidence indicates, recoup herself for substantially the whole of the funds she would have expended in taking over the mortgage. The position adopted by WRRROW MORTGAGE SERVICES PTY LTD (IN LIQUIDATION) v TORPEY (Sheller JA) Farrow, in maintaining at all tunes (until the hearing of the appeal began) that she was liable for the whole of the mortgagor's indebtedness, prevented her from exercising those rights. When this way of looking at the matter was raised with counsel for Farrow, he answered, logically enough, that if Mrs Torpey had, when default first occurred, asserted her rights under the true agreement made for her by her husband with Farrow, she would have been able to exercise her right to put herself in the shoes of Farrow; if Farrow had refused, then, as Hunter J's judgment subsequently showed, she would have succeeded Thus, it was her fault, not Farrow's, that she lost the opportunity of having her obligation discharged by sale of the Leichhardt property at a time appropriate for her. However, notwithstanding the logic of this answer, I do not think it meets the facts of the case. At the relevant times, Mrs Torpey was faced with the insistence of Farrow, whose strength, even in liquidation, was overwhelmingly greater than hers, that she was liable for the full debt of the mortgagor. It seems to me realistic to ascribe to the conduct of Farrow the fact that Mrs Torpey did not assert rights at the time when it would have been best for her to do so and did not have those rights established until the conclusion of the litigation before Hunter J. I think it appropriate to take that consideration into account in determining what relief should be granted to Mrs Torpey to avoid as far as practicable any "unjust consequence or result" of the contract she entered into in the first place having been an unjust one. It seems to me that the relief ordered by Hunter J is appropriate in the circumstances. Other aspects of the case. At the first instance hearing both Farrow and Mrs Torpey made claims against Mr Halbert which were dismissed. Included in the grounds of appeal maintained by Farrow until the eve of the hearing of the appeal, were grounds maintaining the assertion that Mr Halbert was liable to Farrow. This claim was dropped at the last moment. Mrs Torpey had put on a cross appeal against the dismissal of her claim against Mr Halbert, to guard against the possibility that Farrow might succeed against her. For Mr Halbert a notice of contention had been filed supporting the decision in favour of Mrs Torpey on other grounds. It is unnecessary to consider these other matters in the light of the conclusion I have arrived at that Farrow's appeal against Mrs Torpey must be dismissed. However, Farrow's late abandonment of its appeal regarding Mr Halbert meant that he had to incur the cost of representation at the appeal. He also had to meet the cross appeal of Mrs Torpey, although as matters fell out, little time was taken up on this aspect of the case in the oral argument. His counsel was also prepared to argue the matters raised in the notice of contention, although again as things fell out, little time was spent on this. Conclusion. In my opinion Farrow's appeal should be dismissed with costs, those costs including the costs of both Mrs Torpey and Mr Halbert Mrs Torpey's appeal against the judgment in favour of Mr Halbert on her cross claim should be dismissed; she should be responsible for Mr Halbert's costs of that cross claim, but the costs of Mrs Torpey to be borne by Farrow should include her costs of her cross appeal against Mr Halbert. Sheller JA I agree with Priestley JA. 12 UNREPORTED JUDGMENTS 1. The appeal by Farrow be dismissed with costs, including the costs of both the first and second respondents. 2. The first respondent's appeal against the judgment in favour of the second respondent on the first respondent's cross claim be dismissed; 5 3. The first respondent to bear the second respondent's costs of the first respondent's appeal against the dismissal of her cross claim, but the costs to be borne by the appellant, Farrow should be inclusive of these costs. 19 Counsel for the appellant: B A Coles QC / D Ronzani Solicitors for the appllant: Abott Tout Counsel for the respondent (1): J Armfield 15 Solicitors for the respondent (1): Margiotta Solicitors Counsel for the respondent (2): P R Garling SC Solicitors for the respondent (2): Phillips Fox