New South Wales Supreme Court CITATION : Manso & anor v David & ors [2003] NSWSC 905 HEARING DATE(S) : 20/2/02, 21/2/02, 11/4/03, 14/4/03 JUDGMENT DATE : 3 October 2003 JUDGMENT OF : O'Keefe J DECISION : 1. I strike out paragraphs 23, 24, 25 and 26 of the plaintiffs' Amended Statement of Claim; 2. I dismiss the actions by the plaintiffs based on such paragraphs, ie, on the provisions of ss 51AC of the Trade Practices Act 1974 and ss 12CA, 12CB and 12ED of the Australian Securities and Investment Commission Act 2001 or the equivalent provisions of the former such legislation, and negligence; 3. I give leave to the second plaintiff, if so advised, to replead within 28 days in respect of any claim asserted by him under the Contracts Review Act 1980; 4. The plaintiffs are to pay the costs of the seventh and eighth defendants of the motion. CATCHWORDS : Practice and procedure - Pleading - Strikeout - Summary judgment - Agreement for loan - Mortgage - Claims against lender, mortgage broker and mortgagee - Provision of financial services - Financial service - Financial product - Making of a loan not a financial service - Mortgage not a financial product - Loan for refinancing mortgage and for personal and investment purposes not a supply of goods or services within Trade Practices Act - Negligence - Pure economic loss - No advice given by, or sought from, lender or broker - No duty of care - Unjust contract - Unconscionability Australian Securities and Investment Commission Act 2001 Contracts Review Act 1980 Corporations Law - ss 601ED, 995, 999 Fair Trading Act 1980 - ss 7, 42, 62 LEGISLATION CITED : Life Insurance Act 1995 Retirement Savings Accounts Act 1997 Superannuation Industry (Supervision) Act 1993 Trade Practices Act 1974 - ss 51AC, 52, 61, 79, 80, 82, 87 Supreme Court Rules - Part 13, rule 5; Part 15, rule 26 Federal Court Rules - Order 20, rule 2 Agar v Hyde; Agar v Worsley (1999-2000) 201 CLR 552 Batchelor and Co Pty Ltd v Websdale (1962) NSWR 1441 Beneficial Finance Corporation v Karavas (1991) 23 NSWLR 256 Blomley v Ryan (1956) 99 CLR 362 Burt v Australia and New Zealand Banking Group Limited (1994) 16 ATPR 46-123 Caltex Oil (Australia) Pty Limited v The Dredge "Willemstad" (1976) 136 CLR 529 Castles v Freidman (1910) 11 CLR 580 Cole v Challenge Bank Limited (2001) FCA 1425 Commercial Banking Co of Sydney Ltd v Pollard (1983) 1 NSWLR 74 Commercial Bank of Australia v Amadio (1983) 151 CLR 447 Cortis Exhaust Systems v Kitten Software Pty Limited (2001) ATPR 41-837 Dey v Victorian Railway Commissioners (1949) 78 CLR 62 CASES CITED : General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964) AC 465 Lawrance v Norreys (15 App. Cas 210) Louth v Diprose (1992) 175 CLR 621 Munroe Topple and Associates Pty Limited v Institute of Chartered Accountants in Australia ([2001] FCA 1056 Permanent Trustee Australia Limited v Saitannis [2002] NSWSC 1209 Perre v Apand Pty Limited (1999) 198 CLR 180 Spellson v George (1992) 26 NSWLR 666 Vitkovice Horni a Hutni Tezirstvo v Korner (1951) AC 869 at 883 Vinson v Prior Fibres Consolidated [1906] W.N. (Eng) Wells v Allott (1904) 2 KB 842 Wentworth v Rogers No.5 (1986) 6 NSWLR 534 Willis v Earl Howe (1893) 2 Ch. 545 Fudor Manso - First Plaintiff Joseph Benjamin - Second Plaintiff Fred David - First Defendant Suzie David - Second Defendant PARTIES : Paula Manuelpilla Dominic - Third Defendant Linda John Gloria Romano - Fourth Defendant Phillip Pham - Fifth defendant Alexander ATIC - Sixth defendant Perpetual Trustees Australia Limited - Seventh Defendant Royal Guardian Mortgage Corporation Pty Limited - Eight Defendant FILE NUMBER(S) : SC 20487/02 COUNSEL : Plaintiff - Mr S J Burchett Defendant - Mr A Bell SOLICITORS : Plaintiff - Mr Henrick Isaac Defendant - Mr Justin Bates - Gadens Lawyers - 17 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION O'Keefe J 3 October 2003 20487/02 Manso & anor v David & ors JUDGMENT Introduction 1 Before the Court are two Notices of Motion: one is by Perpetual Trustees Australia Limited as seventh defendant (Perpetual); the other by Royal Guardian Mortgage Corporation Pty Ltd as eighth defendant (Royal Guardian). Both seek orders: 1. That, pursuant to Part 13, rule 5 of the Supreme Court Rules, the plaintiffs' claim as against each of them be dismissed. 2. That, pursuant to Part 15, rule 26 of the Supreme Court Rules, the Amended Ordinary Statement of Claim filed on 20 June 2002 be struck out insofar as it contains claims against each of such defendants. 2 The plaintiffs have sued eight defendants claiming orders setting aside, and relieving them of their obligations under a loan agreement and mortgage, either in whole or to the extent necessary to avoid, compensate or indemnify them for the loss or damage suffered by reason of the conduct of the defendants. As against various of the defendants they have made claims pursuant to: (i) Sections 51AC, 52, 61, 79, 80, 82 and 87 of the Trade Practices Act 1974; (ii) Sections 601ED, 995 and 999 of the Corporations Law; (iii) Sections 7, 42 and 62 of the Fair Trading Act 1980; and (iv) Sections 12CA, 12CB, 12ED, 12GD, 12GF and 12GM of the Australian Securities and Investment Commission Act 2001 or the equivalent provisions of the former ASIC legislation. In addition they have sought damages for fraud as against the fourth defendant and for negligence as against all defendants, together with interest on any amount awarded. 3 The six persons (defendants one to six) who have been sued in addition to Perpetual and Royal Guardian are all alleged to be solicitors. The first to fourth defendants are alleged to have been practicing as a partnership under the name of Dominic David Stamfords. The fifth and sixth defendants are alleged to have been practicing as a partnership under the name of Pham and Associates. Background (a) The plaintiffs 4 The first plaintiff, Fudor Manso (Manso), was born in Iran and came to Australia in 1971 at the age of 11. Although he went to school in Australia, he has deposed that he did not attend any English courses and cannot read or write in English or any other language. However, he conducts a business as a licensed painter and has done so for many years. His affidavit reveals that the first defendant (Fred David) and the second defendant (Susie David, also known as Sabrina David and Sabrina Jajoo) are distant relatives, and have acted as his solicitors in all his dealings in legal matters in Australia. There were a number of such matters between 1987 and 1993. 5 The second plaintiff, Joseph Benjamin (Benjamin) was also born in Iran. He migrated to Australia in 1984. He too went to school in Australia, however he then proceeded to university where he obtained a bachelor's degree in science in 1993. During his course of study, he worked for a time as a painter for the first plaintiff, who is his brother-in-law. He says in his affidavit that he also worked for ten years as an information technology consultant, and in 1995 set up his own company, Benjamin Computer Solutions Pty Ltd, in which he has worked ever since. (b) The seventh and eighth defendants 6 Perpetual lent $436,500 to the plaintiffs in October 2001. The loan was secured by a mortgage over a property owned by the plaintiffs and situated at 14 Isabel Street, Cecil Hills, New South Wales. At no time was there any meeting between Perpetual and the borrowers or their solicitors. At no time did Perpetual give any advice to the plaintiffs concerning the loan or the purpose for which the monies lent by it should be used, except to the negative extent that the material included in the documents referred to below falls within such a category. 7 Royal Guardian is not a lender of money. It is, in effect, a loan or mortgage broker or, as it is described in the documentation, a mortgage manager. It receives requests for loans from individuals or, where the contact is made by a solicitor, from the clients of such solicitor. In the present case, it received an application for loan from Dominic David Stamfords, the solicitors for the plaintiffs. Having obtained details of the assets, liabilities and amount of loan sought, it arranged for Perpetual to make a loan to the plaintiffs secured by a mortgage over the property at 14 Isabel Street, Cecil Hills, New South Wales, that is jointly owned by the plaintiffs. (c) The plaintiffs and the first, second, third and fourth defendants 8 The first plaintiff deposes to discussing Karl Suleman with the second defendant, Susie David, towards the end of 2000 whilst he was painting her house. He himself raised the matter and asked her how someone could invest with Mr Suleman. It was she who advised him that he could raise funds by refinancing his home. Although the first plaintiff's wife was initially reluctant to make any investments, because they had lost a property on a previous occasion due to bad investments, she modified her view after she had spoken to the second plaintiff, who advised her that "the investment with Karl is too good to be true." 9 The first plaintiff later had dealings with the first defendant, Fred David, when they met for the purpose of the first plaintiff carrying out some painting work at his office. The conversation between the first plaintiff and the first defendant dealt, inter alia, with the profits that the first defendant had made as a result of money invested with Karl Suleman. In the course of this conversation and in response to an inquiry by the first plaintiff, the first defendant advised the first plaintiff that he, and it would seem his wife, were involved with Mr Suleman "in various areas" and that the first defendant had never heard of any complaint from any investors, indicating that "everyone is happy". 10 Following discussions between the plaintiff and his wife concerning the conversation that had taken place between the first plaintiff and the first defendant, the plaintiff and his wife went to the office of Dominic David Stamfords, where they saw the second defendant. A conversation ensued about a possible investment with Karl Suleman. The second defendant advised them to invest $100,000 "for now". At a subsequent meeting on the same day, the plaintiff and his wife advised the second defendant that they wished to invest $100,000 with Karl Suleman, having first confirmed with her that Karl Suleman investments were "good". In the course of this conversation it emerged that their residence was worth $450,000, but that it was subject to an existing mortgage for $300,000. (d) The loan documentation 11 On 29 March 2001, the first plaintiff completed a form for Royal Guardian in which he sought a loan of $407,000 to be secured on the house at 14 Isabel Street, Cecil Hills, whose estimated value was revealed in the relevant forms as $450,000. In a section of the documentation concerned with the purpose of the proposed loan, the following was stated: "6. To have available credit to make personal purchases … $107,000.00. 7. To re-finance an owner-occupied residence $300,000." These forms were forwarded to Royal Guardian by the solicitors for the plaintiffs under cover of a letter of 2 April 2001. 12 A valuation of the house was obtained. The valuer was of the opinion that it was worth $440,000, however this was not enough to support a loan for $407,000. The maximum amount that could be approved on that valuation was $396,000. Another valuation was arranged. It is dated 11 July 2001 and shows the value of the premises, together with improvements, as $485,000. When it was subsequently ascertained that the second plaintiff was a co-owner with the first plaintiff of the premises that were to be used as security, the response by Royal Guardian was that a loan for the amount sought could not be approved to the first plaintiff alone. Thereafter, the first plaintiff informed his solicitors, Dominic David Stamfords, that he wanted to raise the loan of $435,000 to $440,000, and that the second plaintiff would be a party to the loan, as that had been sorted out between them. This was conveyed to Royal Guardian, who informed the plaintiffs' solicitors that a loan amount of $436,500, being 90% of valuation, would be likely to be approved, but that a fresh application would be required. 13 In late July 2001, the second plaintiff received documents concerning the discharge of the existing mortgage on the property at Cecil Hills from Dominic David Stamfords. He signed them and sent them to the first plaintiff's wife. 14 The second plaintiff says that a document dated 31 August 2001 addressed to Royal Guardian and setting out details relating to the borrowers was not signed by him. It includes personal information concerning that plaintiff that he says he did not provide and which is wrong in certain respects. According to Mr Daniel Pondelak, a mortgage manager employed by Royal Guardian, the form which is said not to bear the signature of the second plaintiff was filled out by him using the exact wording of information supplied by facsimile from the plaintiff's solicitors, but which had been initially included on a form that was outdated and had been superseded by a new form. The handwriting on the new (replacement) form, other than the signature, was that of Mr Pondelak, but it would appear that he faxed it back to the plaintiff's solicitors to have it signed. This was done and, as required, was sent back to Royal Guardian by the plaintiffs' solicitors. Thus, Mr Pondelak is not able to say who signed the relevant documents – only that he did not. Furthermore, he says that the information contained in the document was as provided by or through the solicitors for the plaintiffs. 15 In his affidavit, the second plaintiff also claims that the tax returns and financial statements which form part of the records of Royal Guardian are not genuine. The tax returns are for the years ending 30 June 1999 and 30 June 2000. There are two categories of such returns: the first category relates to the second plaintiff personally; the second to Benjamin Computer Solutions Pty Ltd. Each purports to have been prepared by a tax agent. Each bears a client's and tax agent's reference number. Each includes the phone number of the tax agent and a contact name – namely Francesco La Delfa. Whilst the second plaintiff states that his tax returns for those years had not been prepared as at August 2001 "due to the delay by my tax agent George Warda" he does not deny in express terms the correctness of the material included in the tax returns. He merely says that he does not know Mr La Delfa and "have never given instructions to him or authorised the release of any information to him." He points to only two inaccuracies in the returns: namely, his home address and phone number. The factual dispute that he raises as to the existence and genuineness of the returns that, according to Mr Pondelak, had been provided to Royal Guardian by the plaintiff's solicitors or accountants does not go to the essence of any claim raised by the second defendant. Nor does he dispute that the returns were forwarded on his behalf by either his solicitors or accountants. In addition there is no evidence to suggest, and no pleading of, knowledge of such facts (if they be facts) on the part of Perpetual or Royal Guardian. 16 In his affidavit the second plaintiff also says that he was not given any legal or financial advice, nor were any of the documents explained to him in any way. His evidence is that at no time did he have any contact with any of the defendants concerning the loan or the investment, and that he was not told "that there was any risk of loss from either the investment or the mortgage," and believed that the obligations under the mortgage "were effectively guaranteed to be met by Karl Suleman and there was no prospect of him failing to meet them." He concludes his affidavit by stating: "I believe that the seventh and eighth defendant should never have lent money to my brother in law and me when we did not understand the risks we were taking in taking out a mortgage over our property to raise funds for investment with Karl Suleman. I would never have signed any documents if I had understood that there were risks involved with the investments with Karl Suleman, or that the viability of the loan to my brother in law had not been properly considered by the lenders." 17 However, it is part of the plaintiffs' case that the second plaintiff had advised the first plaintiff and his wife "to be careful with any investment, and to make sure it is guaranteed." Furthermore, when the question of mortgaging his interest in the house at Cecil Hills was raised with him, he questioned the first plaintiff's wife as to whether she was sure that they (ie the first plaintiff and his wife) wanted to go ahead with the proposed investment in Karl Suleman Investments Pty Limited. She replied that both she and her husband wanted to do so. The second plaintiff then pressed her further, asking: "Are you positive?" To which she replied in the affirmative. 18 The solicitors who acted for Royal Guardian and Perpetual wrote to Dominic David Stamfords on 17 September 2001 enclosing ten documents. These included a home loan contract, a mortgage, a borrower's legal advice certificate and a document described as "Borrower's Solicitors Checklist". The letter, which is clearly a standard form, adverts to the obtaining of legal advice before signing the documents, and to the possibility that the borrowers may decide not to get such advice. In the event that the borrowers chose not to seek legal advice they were required to sign a particular section of the loan contract in which it was stated that they had decided not to obtain legal advice. 19 An application for loan dated 26 September 2001 was forwarded to Royal Guardian, by the plaintiffs' solicitors, Dominic David Stamfords, under cover of a letter dated 4 October 2001. In it the plaintiffs sought a loan for $436,500, which was to be used to "refinance" an existing mortgage of $300,000 over the premises at Cecil Hills (the mortgagee being Sydney Home Loans) and $136,500 which was said in the relevant documentation to be "funds for investment purposes". The application contained a clause as follows: "4. Purpose of loan The purpose of the loan is to assist you in financing miscellaneous investment purposes." It also included a provision that: "By accepting this offer, you: · enter into a loan contract, on the terms set out in the schedule and the general conditions; · acknowledge that before signing this document you have received, read and understood the schedule, the general conditions, each security granted by you and the document entitled "Information Statement – Things You Should Know About Your Credit Contract"; · declare that you fully understand that any mortgage property will be placed at significant risk if there is default under your loan contract or any security; · acknowledge that Perpetual and your mortgage manager STRONGLY RECOMMEND that you obtain independent legal and financial advice regarding the contents and effect of your loan contract and any securities granted by you, and that you have had an opportunity to seek that advice." 20 The application included a boxed section that immediately preceded the place at which the signatures of the borrowers were appended. It was headed: "IMPORTANT", and had two sub-headings, one of which was "BEFORE YOU SIGN". Under this sub-heading, the borrowers were told to read the contract document so that they would know exactly what they were entering into, to read the information statement, namely: "THINGS YOU SHOULD KNOW ABOUT YOUR PROPOSED CREDIT CONTRACT" and finally, they were told: " Do not sign this contract document if there is anything you do not understand." The second sub-heading in the box was: " THINGS YOU MUST KNOW ". Under this sub-heading, the borrowers were informed that they "may end the contract before you obtain credit … by telling the credit provider in writing." 21 The certificate included in the documentation to be completed and signed by the plaintiffs as borrowers contained two parts: one that was appropriate in the event that the borrowers chose to obtain legal advice; the other appropriate in the event that they chose not to. The page on which these were set out was headed, inter alia: " PERPETUAL AND YOUR MORTGAGE MANAGER STRONGLY RECOMMEND THAT YOU OBTAIN INDEPENDENT LEGAL AND FINANCIAL ADVICE REGARDING YOUR LOAN CONTRACT AND ANY SECURITIES GRANTED BY YOU BEFORE YOU SIGN YOUR LOAN CONTRACT." 22 This certificate (which was completed by the plaintiffs) included statements that: "we have been given the opportunity to obtain legal advice on the nature and effect of the Documents, but have chosen not to do so of our own accord", "We understand the nature and effect of the documents and do not require them to be translated into another language", "We understand the obligations and risks involved in signing the Documents" and "We sign the Documents freely, voluntarily and without pressure from any person." 23 Notwithstanding their completion of this certificate, each of the borrowers also completed a statutory declaration relating to the transaction. Each was dated 26 September 2001, and each stated: "2. I have received independent legal advice regarding the loan and security documents…" and "3. After receiving that advice, I have freely and voluntarily signed the following documents: (a) loan contract; (b) mortgage; (c) other ancillary documents." 24 Despite the fact that the plaintiffs had completed the certificate referred to in paragraphs 21 and 22 above, the solicitors for Perpetual and Royal Guardian proceeded with the transaction on the basis that the plaintiffs had received legal advice. This would seem to be because the executed documents, including the statutory declarations completed by the plaintiffs, were returned under cover of a letter from the solicitors for the plaintiffs and because they had been legally represented throughout the transaction. 25 After receipt of the Borrower's Solicitors Checklist referred to in paragraph 18 above, it was required to be completed and initialled by a settlements officer and a settlements compliance officer prior to any funds being advanced. Such checklist included a paragraph that "all conditions to be satisfied by the solicitor are satisfied & noted on the Certification". This was initialled by the relevant loan officer, Mr Brett Whittingham, who deposed that he would not have initialled the checklist and the monies would not have been advanced, until he had received and reviewed such checklist. That he did so is clear from his course of practice, the form of the checklist and the details included in it. (e) The loan, mortgage and aftermath 26 Settlement of the loan transaction was originally scheduled for 15 October 2001. On 12 October 2001, details of the settlement cheques that were required were sent by facsimile to Macquarie Securities Limited, which was providing administrative support services for loans made by Perpetual. The cheques requested, which totalled $436,500, were for various amounts for the costs payable to the solicitors for the lenders, to Royal Guardian, to the solicitors for the plaintiffs as borrowers, for amounts to Perpetual ($297,297.76) (for payment out of the existing mortgage), to Karl Suleman Enterprises Pty Ltd ($100,000) and to the first plaintiff, Manso ($26,690.43). The various amounts, including those for Perpetual, Karl Suleman Enterprises Pty Ltd and Manso, were as advised by the solicitors for the plaintiffs on 12 October 2001. Such amounts had already been advised to such solicitors by the first plaintiff. Settlement of the loan did not take place on the date originally scheduled, but was ultimately effected on 23 October 2001. The cheques handed over to the solicitors for the plaintiffs at settlement were in accordance with the request that had been made by them and relevantly included a cheque for $100,000 drawn in favour of Karl Suleman Enterprises Pty Ltd. However at no time did Perpetual give any advice to the plaintiffs or either of them to deal with or pay money to Karl Suleman Enterprises Pty Ltd, nor was any such advice sought. 27 After settlement of the loan had taken place and the first plaintiff had collected the cheques from the office of his solicitors, the first plaintiff had a conversation with the second defendant concerning the possibility of investing with Karl Suleman Enterprises Pty Limited in such a way as to obtain an additional benefit, namely a 10% commission, from that company. His solicitors introduced him to a representative of Karl Suleman, Mr David Warda, and a discussion took place between the first plaintiff and Mr Warda about the return that the plaintiffs could expect if they were to invest $100,000 with Karl Suleman Enterprises Pty Limited. He was told "you will receive $13,500 per month." The first plaintiff then said that he had heard "other people receive $16,000 for 100,000 investment." Apparently not satisfied with a return of $13,500 per month, the first plaintiff retained the cheque for Karl Suleman Enterprise Pty Ltd which he had in his possession and went home. Subsequently, he visited his solicitors concerning a workers' compensation claim which he had on foot. He recounted the conversation that he had had with the representative of Karl Suleman Enterprises Pty Limited, and said that he wanted "$16,000 per month". The second defendant asked for the cheque, and offered to give it to Mr Suleman. However the first plaintiff declined, saying: "No, I want the 10% commission. I don't want to lose my commission." And despite the offer by his solicitors to give the cheque to Mr Suleman, he insisted that he wanted to do so himself. 28 The first plaintiff then telephoned another agent of Karl Suleman Enterprises Pty Ltd, who came to see the first plaintiff. He informed the first plaintiff that he could get a return of $16,000 per month for an investment of $100,000, and that would get a 10% discount as well. On that occasion, namely 28 October 2001, the first plaintiff completed a form for a loan of $100,000 to Karl Suleman Enterprises Pty Ltd for a period of three years, with repayments of $8,000 bi-monthly. This would have given to the plaintiff a return of $576,000 over a period of three years for an investment of $100,000. Shortly thereafter, the agent for Karl Suleman Enterprises Pty Ltd, came to the first plaintiff's house, and gave him $10,000 in cash, saying "here's your commission". At about the same time, the first plaintiff received his copy of the formal loan agreement in which the parties were Fudor Manso and Karl Suleman Enterprises Pty Ltd. It recorded the loan of $100,000 with a total repayment over three years of $576,000 to be made by bi-monthly payments of $8,000. 29 The first plaintiff learnt in early November that the Australian Investment and Security Commission had stopped the investments run by Karl Suleman, and that Karl Suleman Enterprises Pty Ltd had gone into liquidation. 30 In an affidavit sworn on 5 February 2003, the first plaintiff says in relation to the various loan and associated documents that: "I was not given any legal or financial advice, nor were any of the documents read or explained to me in any way. I looked at them, but I did not understand them. I just understood that I was borrowing money to pay Karl Suleman and invest in his business … I am illiterate, and trusted what Susie and Fred David told me about Karl Suleman. I was not told to obtain independent legal advice or financial advice. Susie David and Fred David have been my solicitors at all times. They also did not tell me that they had a conflict of interest in advising me about Karl Suleman." "I would never have become involved in the scheme if I had understood that there were risks involved and that I might not keep getting money each fortnight, and I would never have mortgaged my home as security." 31 There is nothing to suggest that any of the material referred to in the preceding paragraph was conveyed to Perpetual or to Royal Guardian. The Pleadings (i) First to the fourth defendants 32 It is against the background detailed above that the plaintiffs have brought their action. As against the first to fourth defendants, the plaintiffs allege that they retained them as solicitors to act in respect a proposed investment by the first plaintiff in an investment scheme of Karl Suleman Enterprises Pty Ltd (KSE) and a loan to be secured by a mortgage by the plaintiffs to fund that investment. They then plead that the second defendant advised the first plaintiff that the scheme was a secure and profitable investment, that its earnings were the legitimate product of businesses conducted by Mr Suleman and that it would be prudent to invest in it. The pleading asserts that "in reliance upon the advice received by the first plaintiff from the first to fourth defendants" the first plaintiff executed a form of application for refinance proffered by the first to fourth defendants (his solicitors) and "executed a loan contract with the seventh and eighth defendants and mortgage of his home to the eighth defendant", "procured the execution of the mortgage by the second plaintiff" and "paid the sum of $100,000 to KSE for investment in the scheme." Thus the effective cause of the involvement of the first plaintiff in the loan agreement, the mortgage and in the investment in KSE is pleaded to be advice from the first to the fourth defendants. 33 Insofar as the second plaintiff is concerned, it is alleged that it was "in reliance upon the advice received by the first plaintiff from the first to fourth defendants (that) the second plaintiff executed the mortgage." Thus the effective cause of the involvement of the second plaintiff in the mortgage over the property of which he is a part owner is pleaded as being the advice of the first to the fourth defendants to the first plaintiff. 34 The claims against the first to fourth defendants are then characterised as breach of retainer, breach of fiduciary duty and breach of duty of care. (ii) Fifth and sixth defendants. 35 The claim against the fifth and sixth defendants alleges that the fifth defendant, on his own behalf and on behalf of the sixth defendant, acted as solicitor for KSE in 2001, that he was responsible for the drafting of the investment agreement with KSE that was later signed by the first plaintiff and by KSE, that he allowed his office to be used by KSE to promote the investment scheme and have investment agreements executed in such premises. The claim against the fifth and sixth defendants asserts that they represented, or participated in representations by KSE, to the first plaintiff, that in effect the business of KSE was legitimate, that it was generating, or was reasonably expected to generate, funds to meet the obligations under the investment agreement, that entry into the investment agreement was lawful and that the scheme conducted by KSE was lawful. 36 Alternative claims are made against the first to sixth defendants based on the s 52 of Trade Practices Act 1974 and the Fair Trading Act 1980 (misleading or deceptive conduct) and on aiding and abetting or being knowingly concerned in or party to a breach of s 79 of the Trade Practices Act 1974 and s 62 of the Fair Trading Act 1980. In addition, claims are made against such defendants that the conduct in which they engaged was in breach of the Corporations Law, ss 995 and 999. (iii) Seventh and eighth defendants 37 The claim against Perpetual and Royal Guardian alleges that they were corporations, and that Perpetual acted as the agent of Royal Guardian to procure and manage the mortgage business of Royal Guardian. Although this is the reverse of the situation as revealed in the affidavits and as appears to be common ground, the foregoing is the way in which the relationship is pleaded. The pleading then proceeds: "21. The seventh defendant, on behalf of the eighth defendant: (a) entered into a loan agreement with the plaintiffs on 26 September 2001; and (b) took a mortgage from the plaintiffs of the plaintiff's house known as 14 Isabel Street, Cecil Hills … as security for the loan agreement on or about 4 October 2001. 22. The loan agreement and mortgage were entered for the purpose of funding the first plaintiff's entry into the scheme by way of refinancing his home. 23. The loan agreement and mortgage constitute an unconscionable dealing and/or the conduct of the seventh and eighth defendants in procuring their execution by the plaintiffs was unconscionable in breach of s 51AC Trade Practices Act 1974 or s 12CA or 12CB Australian Securities and Investment Commission Act 2001, or the equivalent provisions of the old ASIC legislation as defined and carried over by virtue of s 276 of that Act (the ASIC Act)." 38 The particulars of unconscionability are that the first plaintiff was at a special disadvantage in judging the effect of the investment agreement or the prudence of making the investment in that he: (i) could not read English; (ii) had negligible education; (iii) had no relevant business investment or legal training or experience; (iv) had received no legal or financial advice independent of the defendants or the interests of KSE. This allegation as framed must relate to defendants other than Perpetual and Royal Guardian, since no allegation is made that either of them tendered any advice to either of the plaintiffs. If the purport of the pleading is intended to be otherwise then, in the light of the other allegations in the Amended Statement of Claim, the framing of the allegation would be such as to infringe Part 15 Rule 26 (as to which see below); (v) acted under the undue influence of the defendants. Again this allegation must, in the light of the rest of the pleading, relate to defendants other than Perpetual and Royal Guardian. If it is intended to be otherwise then it to is so framed as to infringe Part 15 Rule 26. (vi) could not understand the agreement that he entered into with KSE. 39 The special disability of the second plaintiff is pleaded as being that he was reliant on the first plaintiff for advice, had no relevant business investment or legal training or experience, had received no legal or financial advice and had no opportunity to do so. This is, at least in part, inconsistent with his experience as recorded in his affidavit. 40 The particulars of unconscionability then assert that Perpetual and Royal Guardian were aware, or ought reasonably to have been aware, that the purpose of the loan was to invest in the KSE scheme, and of the special disadvantage of each of the plaintiffs. It is further pleaded that they "unreasonably failed to take steps to ensure the plaintiffs understood and freely accepted the risks being run by them in entering the scheme or loan agreement" and that they "adopted the actions and advice of the first to fourth defendants (ie the solicitors for the plaintiffs) by authorising them to procure the execution of the loan agreement on their behalf." 41 Claims under ss 12CA, 12CB and 12ED of the ASIC Act and in negligence are also pleaded. In reliance on ss 12CA and 12CB the plaintiffs assert that the loan agreement and mortgage constitute an unconscionable dealing. In reliance on s 12ED the plaintiffs claim that Perpetual and Royal Guardian owed the plaintiffs a duty of care, either at law or by reason of an implied warranty that their financial services would be rendered with due care and skill pursuant to such section and that they were negligent in assessing the application of the plaintiffs for the loan, granting the loan, and procuring the execution of the loan agreement and mortgage. The particulars of the loss and damage claimed against Perpetual and Royal Guardian are the sum of $90,000 invested with KSE, the expenses incurred in entering into the loan agreement and mortgage, and the existence of the encumbrance on the property at Cecil Hills. 42 The plaintiffs also seek orders setting aside and relieving them of their obligations under the loan agreement and mortgage, either in whole or in part. Procedural Provisions 43 Part 13 Rule 5 (1) of the Rules of the Supreme Court (the Rules) empowers the Court to stay or dismiss generally any proceedings in which, inter alia, no reasonable cause of action is disclosed, or where the proceedings are frivolous or vexatious or are an abuse of the process of the Court. The Court may receive evidence on the hearing of an application for an order under this rule (r 5 (2)). If there is no genuine and relevant dispute of fact, such evidence may be used for the purpose of demonstrating that there is no cause of action, or that the proceedings are frivolous, vexatious or an abuse of process. There is a similar power under the inherent jurisdiction of the Court, and an application may be made both under the rule and under the inherent jurisdiction of the Court. In Vinson v Prior Fibres Consolidated [1906] W.N. (Eng) it was held that it is not necessary to put the words "under the inherent jurisdiction of the Court" into a notice of motion since an application to strike out under the rule invokes the inherent jurisdiction as well. Furthermore in the present case the general prayer in the Notices of Motion seeking further or other relief would be apt to invoke the inherent jurisdiction. 44 The power conferred by the rule, and that exists as part of the inherent jurisdiction, is discretionary and since the exercise of such power may operate to terminate the proceedings without a hearing, the power should be exercised with caution and only where the defect is clear. However, the fact that the defect becomes clear only after extensive argument does not prevent the power being exercised. In Lawrance v Norreys (15 App. Cas 210) Lord Herschell said that the jurisdiction to dismiss an action: "…ought to be very sparingly exercised, and only in very exceptional cases. I do not think its exercise would be justified merely because the story told in the pleadings was highly improbable and one which it was difficult to believe could be proved" (supra at 219). 45 However, if the action is utterly hopeless and without foundation it is appropriate to exercise the power (Willis v Earl Howe (1893) 2 Ch. 545 at 551 per Lindley LJ with whom Bowen LJ concurred). 46 In General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Barwick CJ said that: "… (the) cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action – if that be the ground on which the Court is invited … to exercise its powers of summary dismissal – is clearly demonstrated. The test to be applied has been variously expressed; 'so obviously untenable that it cannot possibly succeed'; 'manifestly groundless'; 'so manifestly faulty that it does not admit of argument'; 'discloses a case which the Court is satisfied cannot succeed'; 'under no possibility can there be a good cause of action'; 'be manifest that to allow them' (the pleadings) 'to stand would involve useless expense'" (supra at 129); and: "… some of these expressions occur in cases in which the inherent jurisdiction was invoked and others in cases founded on statutory rules of court but although the material available to the Court in either type of case may be different the need for exceptional caution in exercising the power whether it be inherent or under the statutory rules is the same." (id); and: "… great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal" (supra at 130) 47 In determining that the action should be struck out, Barwick CJ said: "I have been mindful throughout my consideration of this matter of the principles to which I have called attention and which govern the exercise of the power summarily to terminate an action. I have reached the firm conclusion that consistently with those principles, I ought to intervene by order under this rule" [Order 26, rule 18] "to prevent further proceedings in the action, as, in my opinion, to use one of the expressions which I have quoted, the plaintiff's claim is 'manifestly groundless' and that to allow it to proceed 'would involve useless expense'. In my opinion, the proper course is to dismiss the plaintiff's action…" (supra at 137-138) 48 The approach adopted by Barwick CJ endorses and mirrors that adopted by Dixon J in Dey v Victorian Railway Commissioners (1949) 78 CLR 62 in which he said: "A case must be very clear indeed to justify the summary intervention of the Court to prevent a plaintiff submitting his case for determination in the appointed manner by the Court with or without a jury. The fact that a transaction is intricate does not disentitle the Court to examine a cause of action alleged to grow out if it for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious. But once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent of the Court to dismiss the action as frivolous and vexatious and a abuse of process." (supra at 91) 49 It should be noted that the argument in the present matter was long and detailed. Counsel for the plaintiffs referred to some 50 cases. A number of cases, but fewer than those referred to on behalf of the plaintiffs, were relied on by counsel for Perpetual Trustees and Royal Guardian. Notwithstanding that the argument was detailed, the court still has the power to examine the causes of action alleged in order to determine whether they fall within the concepts dealt with by Barwick CJ (supra) and by Dixon J in the preceding paragraph. 50 In Spellson v George (1992) 26 NSWLR 666 it was held that it is inherently unsuitable to deal with a case by summary judgment under Part 13 Rule 5 where the result must depend on all the facts and circumstances (at 675, 681). In considering an application under the rule, an order should not be made merely because the pleading is not well expressed. It is the substance to which regard must be had. This is stressed in Wentworth v Rogers No.5 (1986) 6 NSWLR 534 by Kirby P, with whom Hope and Samuel JJA agreed, when he said: "Courts should approach the peremptory termination of the litigation with special care to ensure that, within the possibly ill-expressed and unstructured statement of the legal claim sought to be ventilated, there is no viable cause of action which with appropriate amendment of the pleading and a little assistance from the Court, could be put into proper form" (at 536 - 537). 51 The High Court again adverted to the test to be applied on an application for summary dismissal in Agar v Hyde; Agar v Worsley (1999-2000) 201 CLR 552. Gaudron, McHugh, Gummow and Hayne JJ determined that the same test should be applied in deciding whether originating process served outside Australia that makes claims which have such poor prospects of success that the proceedings should not go to trial as is applied in an application for summary judgment by a defendant served locally. Referring to Dey v Victorian Railways Commissioners (supra) and General Steel Industries Inc v Commissioner for Railways (NSW) (supra), they said: "The test to be applied has been expressed in various ways, but all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were to go to trial in the ordinary way." (supra at 576) In Agar v Hyde; Agar v Worsley (supra), Callinan J contrasted the test propounded by Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW) (supra) with a test which he would prefer (supra at p 590, para 108, and p 601, para 128), namely that there is a "strong argument for the opinion", as had been propounded by Lord Radcliffe in Vitkovice Horni a Hutni Tezirstvo v Korner (1951) AC 869 at 883. However, not only did the majority in Agar v Hyde; Agar v Worsley (supra) refer with approval to the decision of Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW) (supra), but that decision has also been regarded as the law to be applied in Australia since that case was decided in 1964. It has been applied in numerous decisions of this court both by single judges and by the Court of Appeal, by whose decisions I, as a judge at first instance, am bound. 52 From the foregoing it is apparent that the hurdle over which a party who seeks summary dismissal must pass is high indeed; the burden heavy. I will be conscious of this when considering the matter. 53 Whilst Part 15 Rule 26 of the rules is similar in some respects to Part 13 Rule 5, the power conferred by it is different. It is concerned with a pleading which discloses no reasonable cause of action or other case appropriate to the nature of the pleading, as well as with a pleading the form of which has a tendency to cause prejudice, embarrassment or delay in the proceedings. The result of a pleading falling within the ambit of the rule is that it is struck out to the extent that it infringes the rule and, subject to questions of limitations, prejudice to the opposing party and the like, leave to re-plead is normally given. The exercise of the power is thus not hedged by the same considerations as apply in the case of the exercise of the power to dismiss an action summarily. 54 As with Order 13 Rule 5 the Court may exercise its power even though doing so involves the determination of a difficult question of law (General Steel Industries Inc v Commissioner for Railways (NSW) (supra at 130) and may, where appropriate, receive evidence on the hearing of an application under the rule (r 26 (2)). 55 I have applied the principles enunciated above and by Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW) (supra), by the majority in Agar v Hyde (supra) and by the Court of Appeal in Spellson v George (supra) and Wentworth v Rogers (No. 5) (supra) in relation to the application to dismiss the claims made by the plaintiffs against Perpetual Trustees and Royal Guardian. I have done so in relation to the pleadings as framed, in respect of which no application for amendment has been made. The Arguments 1. Claims under Australian Securities and Investment Commission Act 2001 56 Counsel for Perpetual and Royal Guardian submitted that the claims pleaded against them in paragraphs 23 and 24 of the Statement of Claim, to the extent that they are based on s 12CA, 12CB and s 12ED of the Australian Securities and Investment Commission Act 2001 (the ASIC Act), or the equivalent provisions of the old ASIC legislation carried over by virtue of s 276 of that Act, should be struck out. This, so the argument ran, was because it was only the provision of financial services that fell within the ambit of the relevant provisions of such Act, and that on proper analysis, the making of a loan did not constitute the provision of financial services. 57 The ASIC Act provides: "12CA (1) A corporation must not, in trade or commerce, engage in conduct in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories. (2) This section does not apply to conduct that is prohibited by s 12 CB 12CB (1) A corporation must not, in trade or commerce, or in connection with the supply or possible supply of financial services to a person, engage in conduct that is, in all the circumstances, unconscionable. … (5) A reference in this section to financial services is a reference to financial services of a kind ordinarily acquired for personal, domestic or household use ... 12ED (1) In every contract for the supply of financial services by a corporation to a consumer in the course of a business, there is an implied warranty that: (a) The services will be rendered with due care and skill; and (b) any materials supplied in connection with those services will be reasonably fit for the purpose for which they are supplied. …" 58 A financial service is defined in s 12 BA of the ASIC Act as: "a service that: (a) consists of providing a financial product; or (b) is otherwise supplied in relation to a financial product." Financial product is in turn defined in s 12 BA to mean: "(1) a facility for taking money on deposit (otherwise than as part-payment for identified services) made available in the course of conducting a banking business within the meaning of the Banking Act 1959; or (2) a security; or (3) a futures contract; or (4) a contract of insurance (including a life policy or a sinking fund policy within the meaning of the Life Insurance Act 1995); or (5) a retirement savings account within the meaning of the Retirement Savings Accounts Act 1997; or (6) a superannuation interest within the meaning of the Superannuation Industry (Supervision) Act 1993; but does not include a foreign exchange contract." 59 As can be seen from the foregoing, each of the sections of the ASIC Act on which the plaintiffs rely to found their cause of action depends on there being a relationship or connection with financial services. The relevant connective phrase in s 12 CA is "in relation to". The relevant connective phrase in s 12CB is "in connection with". In s 12 ED the connection is more direct. The relevant contract must be "for the supply of " financial services. Unassisted by authority, the making of a loan would not seem to be a financial service since it is not the provision of a financial product and would not fall within the description in the residual category in sub-paragraph (b) of the definition of a "financial service" in s 12 BA. However, it was argued on behalf of the plaintiffs that a loan or a loan secured by mortgage may be seen as a service supplied "in relation to a security", the security being the mortgage. 60 Under the ASIC Act as it stood at the material time, "security" was not defined. It should therefore bear its ordinary English meaning given the context and purpose of the Act in which it appeared. 61 The word "security" has different meanings according to the context in which it is used. For example, it may have the meaning of a right or interest in a property which renders the repayment of a debt more secure (Batchelor and Co Pty Ltd v Websdale (1962) NSWR 1441). It may also bear the meaning of a document issued by, for example, a company or statutory body or the like to acknowledge the investment of funds with such body. Thus bonds, debentures, shares, bills of exchange, registered and unregistered notes etc are securities in this sense. 62 The definition of "financial product" in s 12BA of the ASIC Act refers to "a security", not to the giving of security. The inclusion of the indefinite article in each of the clauses (a) to (f) of such definition is, in my opinion, not to be ignored. When regard is had to the nature and purpose of the Act and to the other provisions of the definition of "financial product" I am of the opinion that making of a loan does not fall within the concept of the provision of a financial product, nor does a mortgage executed to secure the repayment of such loan. Furthermore, even if a mortgage were to constitute a security within the definition of "financial product", the making of the loan in the instant case was not an act done in relation to a mortgage, rather, execution of the mortgage was an act done in relation to the loan. On such alternative analysis, a loan would not constitute a security and would not fall within the ambit of ss 12CA or 12CB. 63 The question, however, is not devoid of expressions of judicial opinion. In Cole v Challenge Bank Limited (2001) FCA 1425 Carr J considered the definition of "financial service" in s 12 BA of the ASIC Act in the context of an application to dismiss proceedings under the provisions of Order 20 Rule 2 of the Federal Court Rules, which are to an effect similar to the provisions of Part 13 Rule 5 of the Supreme Court Rules. The conduct complained of by the plaintiffs in that case included the refusal of a loan for the purposes of enabling the plaintiff's company to continue to trade and meet its obligations. Carr J said: "… it is arguable that the conduct about which the applicants complain was not engaged in in relation to "financial services" as so defined. I doubt whether the making of a loan amounts to the provision of a financial product as that term is defined in s 12 BA of the ASIC Act, but I should not be taken as deciding the point." (at para 32; italics added). 64 The question was further considered in Permanent Trustee Australia Limited v Saitannis [2002] NSWSC 1209. In that case Matthews AJ was dealing with an application for judgment pursuant to Part 13 Rule 2 of the Supreme Court Rules. The proceedings arose out of a deed of loan between Permanent Trustee Australia Limited and Mr and Mrs Saitannis under which $613,000 was to be made available to Mr and Mrs Saitannis for investment by them in a scheme promoted by Karl Suleman Enterprises. The loan was secured by mortgage in favour of Permanent Trustee Australia Limited. There was default and proceedings were commenced in respect of the loan. The defendant, Mr Saitannis, raised issues very similar to those raised by the plaintiffs in the present action. This is not surprising, since his solicitors in that matter were the same as the solicitors for the plaintiffs in the present matter, as was one of their counsel. One of the defences was that the purported investment scheme was illegal, constituted a pyramid scheme under the Trade Practices Act and was in breach of s 12 DK of the ASIC Act. In addition a defence by way of cross claim was raised alleging breach of s 12ED of the ASIC Act. It was pleaded that such breach constituted negligence, the negligence being in granting the loan and procuring the execution of the loan agreement and mortgage. Having considered the matters raised under the ASIC Act, Matthews AJ, struck out the relevant paragraphs in the defence. In the course of the judgment she said: "There are a number of problems with this defence as pleaded. It is doubtful that the plaintiffs were supplying a "financial product" within the meaning of the ASIC Act. In any event , even if negligence were established, it would sound only in damages. It would not, as the defendant asserts, render the loan agreement or the mortgage voidable." 65 Although this passage may not form part of the ratio decidendi of the case it is confirmatory of the doubts expressed by Carr J. Thus the views expressed by both Carr J and Matthews AJ, support the conclusion that I have reached in paragraph 61 above. 66 The claim based on s 12ED of the ASIC Act that is made in paragraph 24 of the Statement of Claim was also challenged on the basis that the plaintiffs were not consumers within the meaning of that Act because of the provisions of s 12BC(1), namely that: "…a person is taken to have acquired particular financial services as a consumer if, and only if: … (c) if the services were acquired by a person within the meaning of subsection (2) and the price of the services exceeded the prescribed amount – the services were of a kind ordinarily acquired for business use." The prescribed amount referred to in the section is less than the amount of the loan, and also less than the amount invested by the plaintiffs in the KSE scheme of investment. 67 The issues raised by this submission include whether a loan can be split into various segments, or whether the loan should be regarded as one transaction and some characterisation made in respect of it where the borrowing is in fact made for domestic purposes such as, for example, refinancing an existing home mortgage, and in part for personal expenditure, and in part for investment. It also raises the question as to whether the use to which borrowed money is intended to be put by an individual determines whether the loan was made for business use. These matters were not argued in detail. As I have already come to a firm conclusion on other bases in relation to the claims founded on the ASIC Act, it is unnecessary for me to make a determination in relation to these issues. 68 For the foregoing reasons I am of the opinion that in the circumstances of the case paragraph 24 does not assert a duty owed by Perpetual or Royal Guardian to the plaintiffs, since the transaction referred to was not the provision of a financial service within the meaning of the ASIC Act. Paragraph 24 of the Statement of Claim should therefore be struck out and the claim based on it dismissed. For the same reason I am of opinion that those parts of paragraph 23 of the Statement of Claim that rely on ss 12 CA and 12 CB of the ASIC Act, should also be struck out and the claim based on such sections dismissed. 2. Claim Under Trade Practices Act 69 In paragraph 23 of the Amended Statement of Claim the plaintiffs allege, inter alia, that the loan agreement and mortgage constitute an unconscionable dealing and/or that the conduct of Perpetual and Royal Guardian in procuring their execution was unconscionable in breach of s 51AC of the Trade Practices Act 1974 (The Trade Practices Act). Since Perpetual and Royal Guardian are corporations the claim by the plaintiffs against them under the Trade Practices Act must be based on s 51AC(1). It provides as follows: (1) A corporation must not, in trade or commerce, in connection with: (a) the supply or possible supply of goods or services to a person (other than a listed public company); or (b) the acquisition or possible acquisition of goods or services from a person (other than a listed public company); engage in conduct that is, in all the circumstances, unconscionable." 70 The definition of "services" in s 4 of the Trade Practices Act is very broad. It provides that: "services" includes any rights (including rights in relation to, and interests in, real or personal property), benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce, and without limiting the generality of the foregoing, includes the rights, benefits, privileges or facilities that are, or are to be, provided, granted or conferred under: … (d) any contract for or in relation to the lending of moneys; but does not include rights or benefits being the supply of goods or the performance of work under a contract of service." It is clear that the lending of money may constitute the supply of services to a person under the Trade Practices Act. However, the ambit of s 51AC(1) is confined by s 51AC(7) which provides as follows: "(7) A reference in this section to the supply or possible supply of goods or services is a reference to the supply or possible supply of goods or services to a person whose acquisition or possible acquisition of the goods or services is or would be for the purpose of trade or commerce." 71 The original application for loan that was completed by the first plaintiff in March 2001 stated the purposes of the loan to be "to re-finance an owner-occupied residence $300,000" and "to have available credit to make personal purchases". The application for the loan that was ultimately taken out stated that it was for two purposes. The first was "to refinance an owner occupied residence". Three hundred thousand of the $436,500 that was borrowed was in fact to be used to pay out the existing mortgage on the subject property. The second purpose for the loan was stated to be "raising funds for investment purposes". Neither the first plaintiff nor the second plaintiff was carrying on business as an investor. The stated purposes of the loan are not for the purpose of trade or commerce. The purposes were essentially domestic. No obligation was cast on the plaintiffs to use any part of the monies borrowed for an investment in Karl Suleman Enterprises Pty Limited. Indeed the amount of $90,000 that was ultimately invested with Karl Suleman Enterprises Pty Limited was so invested only after some delay on the part of the first plaintiff during which he negotiated with the representative of Karl Suleman Enterprises Pty Limited for a better deal than which he had first been offered. This meant, in effect, an investment of less than the amount originally contemplated. In the circumstances I am of opinion that it cannot properly be said that the loan by Perpetual was made to or taken out by the plaintiffs for the purpose of trade or commerce. Such a conclusion is consonant with the analysis in Munroe Topple and Associates Pty Limited v Institute of Chartered Accountants in Australia ([2001] FCA 1056 for example at paras 258, 259 per Lindgren J). 72 As a consequence the claim in paragraph 23 of the Amended Statement of Claim that relies on s 51 AC of the Trade Practices Act must fail. The relevant part of the pleading should be struck out and the claim based on s 51AC of the Trade Practices Act dismissed. 3. Negligence 73 In paragraph 25 of the Amended Statement of Claim the plaintiffs allege that Perpetual and Royal Guardian were negligent in assessing the application of the plaintiffs for the loan, in granting the loan and in procuring the execution of the loan agreement and mortgage. In essence the claim is that Perpetual should not have lent the money to the plaintiffs and that Royal Guardian should not have brought the plaintiffs forward to be considered for the loan. Even if such a claim could give rise to a cause of action, it would not render the loan agreement or the mortgage voidable. It would at most sound in damages. The damages the plaintiffs assert consist of the loss of the $90,000 that was invested with Karl Suleman Enterprises Pty Limited (ie, $100,000 less $10,000 commission), together with some consequential costs. This is a pure economic loss alleged to have occurred in circumstances in which, in effect, the plaintiffs are asserting that Perpetual and Royal Guardian should have advised them in relation to the risks involved in relation to the investment of the monies. Although it is clear from Caltex Oil (Australia) Pty Limited v The Dredge "Willemstad" (1976) 136 CLR 529 that there is no general rule that one person owes a duty to another to take care not to cause reasonably foreseeable financial harm, the same case also makes it clear that there are circumstances in which the law will recognise a duty of care of such a kind as will permit recovery of pure economic loss (Perre v Apand Pty Limited (1999) 198 CLR 180 at 192 per Gleeson CJ; Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964) AC 465). In determining whether of not a duty of care exists it is important to bear in mind the restraining considerations referred to by Gleeson CJ in Perre v Apand Pty Ltd (supra) including the need for "some intelligible limits to keep the law of negligence within the bounds of commonsense and practicality" (at 192). 74 Cases in which a person may become liable for foreseeable financial harm were considered in Beneficial Finance Corporation v Karavas (1991) 23 NSWLR 256, in which Meagher JA said: "There is no duty on a financier to provide either a borrower or a third party guarantor with any financial advice but if any such advice is tendered the financier may assume a duty of care." (at 276) 75 Both Manso and Benjamin, in effect, seek to recover from Perpetual and Royal Guardian the losses sustained by the first plaintiff as a result of a bad investment, that is, the investment of $90,000 in Karl Suleman Enterprises Pty Limited. The pleading does not assert that either Perpetual or Royal Guardian provided advice to them or that the plaintiffs relied on any advice from them. Indeed, as Mr Manso's affidavit (para 10) reveals the decision to invest in Karl Suleman Enterprises Pty Limited was first made by him prior to any approach being made to Royal Guardian or through Royal Guardian to Perpetual. The advice referred to in paragraphs 7 and 8 of the Amended Statement of Claim is advice from the first to fourth defendants; not advice from Royal Guardian or Perpetual. The second plaintiff pleads that is was in reliance on the advice received by the first plaintiff from the first to fourth defendants that he executed the mortgage (Amended Statement of Claim para 8). 76 Thus in the present case, Perpetual did not tender and is not alleged to have tendered any commercial advice to the plaintiffs or either or them, nor did Royal Guardian. In my opinion the circumstances of the present case do not give rise to a duty of the kind asserted by the plaintiffs in paragraph 25 of the Amended Statement of Claim. Neither Perpetual nor Royal Guardian owed a duty of care to the plaintiffs or either of them to advise in relation to the commercial prudence of their investment of the monies or the financial strength or otherwise of Karl Suleman Enterprises Pty Limited. No circumstances have been pleaded that would substantiate the claim set out in paragraph 25 of the Amended Statement of Claim and as a consequence it should in my opinion be struck out and the claim based on it dismissed. 4. Contracts Review Act 1980 77 In paragraph 26 of the Amended Statement of Claim the second plaintiff, Benjamin, alleges that the loan agreement and mortgage were unjust within the meaning of the Contracts Review Act 1980 (the Contracts Review Act). No particulars of this allegation are included in the Amended Statement of Claim. Absent any particulars specifying facts on which such a claim is based, paragraph 26 infringes Part 15 Rule 26. 78 The case made by Benjamin (as revealed in his affidavit) is, in essence, that Royal Guardian and Perpetual "should never have lent money to my brother-in-law and me when we did not understand the risks we were taking" and that he would "never have signed any documents if (he) had understood that there were risks involved with the investment with Karl Suleman or that the viability of the loan to my brother-in-law had not been properly considered by the lenders." 79 The Contracts Review Act is broad in its ambit. Sections 7 gives the court powers to grant a wide range of relief where it finds that a contract or a provision of a contract is unjust. Those powers include refusing to enforce any or all of the provisions of the contract and to declare it void in whole or in part. The criteria for determining whether or not a contract or a provision of a contract is unjust are dealt with in s 9. It provides that regard is to be had to the public interest and to all the circumstances of the case. It also sets out 12 matters to which the court is required to have regard (s 9(2)(a)-(f)). None of these is referred to in the further Amended Statement of Claim. 80 As indicated above Benjamin is a well educated man with a good command of English. He is a university graduate. He worked as an information technology consultant for some years and, at the time of the execution of the loan agreement and mortgage had been conducting his own business for some six years. Furthermore, he was clearly aware of the need for care with investment. In fact he advised Manso and his wife "to be careful with any investment". At no time did Benjamin have any contact with either Royal Guardian or Perpetual concerning the loan or the mortgage and no advice from either of such defendants is asserted to have been given or relied on by Benjamin. All of these matters would be relevant to the assessment of the claim for relief under the Contracts Review Act. They involve questions of fact and must be assessed in the light of all the circumstances relating to the relevant contract at the time it was made. These matters would normally be dealt with at trial. As a consequence the court will not summarily dismiss a claim or defence under the Contracts Review Act except in cases where there is no basis whatsoever for the relief claimed (Castles v Freidman (1910) 11 CLR 580; Commercial Banking Co of Sydney Ltd v Pollard (1983) 1 NSWLR 74; Wells v Allott (1904) 2 KB 842). 81 However, nothing is said in paragraph 26 of the pleading as to any of the matters referred to in s 9(2). Furthermore, as was pointed out in Commercial Bank of Australia v Amadio (1983) 151 CLR 447 at 489 the essence of the concept of unconscionability is the exploitation by one party of another's position of disadvantage in such a manner that the former should not be permitted in good conscience to retain the benefit of the bargain. (See also Blomley v Ryan (1956) 99 CLR 362 at 415 per Kitto J; Louth v Diprose (1992) 175 CLR 621 at 630 per Brennan J). The exploitation engaged in by one party to the disadvantage of the other must be "in relation to the transaction or dealing in question" (Cortis Exhaust Systems v Kitten Software Pty Limited (2001) ATPR 41-837 at 43, 337-43, 338 per Tamberlin J). 82 As was correctly submitted on behalf of Royal Guardian and Perpetual the focus of unconscionability must be on entry into the transaction that is sought to be impugned by reason of or by reference to the conduct that is alleged to be unconscionable. The only transactions or contracts to which Perpetual was a party were the agreement for loan and the mortgage. These were in standard form. Neither Perpetual nor Royal Guardian was a party to the investment in Karl Suleman Enterprises Pty Limited. That was, in any event, effected by Manso not by Benjamin. 83 It is not pleaded on behalf of Benjamin that he did not understand the agreement for loan or its effect or that he did not understand the mortgage or its effect. It is not asserted in the pleading, nor is it the fact as revealed by Benjamin's affidavit, that he did not understand that in entering into the mortgage the property of which he was a joint owner was being proffered as security for repayment of the loan. In these circumstances, and in the absence of any particulars as to why it should be so, it is not apparent why or in what way it would be unconscionable for Perpetual to seek repayment of the monies lent or any of them. In this regard it should be noted that the relief sought includes the setting aside and relieving of the plaintiffs of their obligation, primarily in whole or, alternatively, to the extent necessary to avoid, compensate or indemnify them for the loss or damage suffered. This damage, however, is the loss of the $90,000 invested, the loss of expenses incurred in entering into the loan agreement and mortgage and the fact that there was an encumbrance on their property at 14 Isabel Street, Cecil Hills. 84 As was pointed out by Bryson J in Burt v Australia and New Zealand Banking Group Limited (1994) 16 ATPR 46-123 at 53,598: "Unconscionability is not a slight matter, and behaviour is only unconscionable where there is some real and substantial ground based in conscience for preventing a person from relying on what are, in terms of the general law, that person's legal rights." 85 The present case is very different from the usual run of cases in which questions of unconscionability arise. The claim is really about the investment made by Manso in Karl Suleman Enterprises Pty Limited. That is the transaction that gave rise to the loss. That is the transaction that is at the heart of the complaint made by the plaintiffs. The loan by Perpetual and the mortgage to secure such loan were effected before the investment with Karl Suleman Enterprises Pty Limited was made, although the decision to make such investment had been made well prior to the decision to refinance the existing mortgage on the property owned by the plaintiffs. Furthermore, after the agreement for loan had been entered into and after the mortgage had been executed and the monies secured by the mortgage had been advanced, Manso proceeded to negotiate with Karl Suleman Enterprises Pty Limited for a better deal; first to increase the rate of return from $13,500 per month to $16,000 per month; second to obtain a rebate of $10,000 on the initial $100,000 that was to be invested, so that the actual amount invested was reduced to $90,000. 86 As paragraph 26 of the Amended Statement of Claim is, in the absence of particulars, so framed as to be likely to prejudice the fair trial of the action, I am of opinion that it should be struck out and I order accordingly. However, I give leave to the second plaintiff, if so advised, to replead in respect of the claim by him based on the Contracts Review Act. 87 One further matter was raised in relation to Benjamin, namely, whether the claim by him is an abuse of process. In this regard it was argued that his evidence, and that of his solicitor, as to his knowledge and understanding of the effect of the loan agreement and mortgage, the fact that he never made an investment in Karl Suleman Enterprises Pty Limited, and indeed sought to dissuade Manso from doing so, support the conclusion that Benjamin could not possibly succeed in any claim for damages or equitable relief. This conclusion, it was submitted, falls within the category of abuse of process that applies to cases that are not bona fide. As this matter arose late in the proceedings and was not fully argued, nor was cross-examination really directed to this issue I think it would be inappropriate for me to express a final view on it. Costs 88 Perpetual and Royal Guardian have been successful in their motion in that claims by the first and second plaintiff against them have been struck out and/or dismissed, although in one instance a right to replead has been given. In these circumstances I see no reason for departing from the usual rule that costs should follow the event. 89 For the foregoing reasons I make the following orders: 1. I strike out paragraphs 23, 24, 25 and 26 of the plaintiffs' Amended Statement of Claim. 2. I dismiss the actions by the plaintiffs based on such paragraphs, ie, on the provisions of ss 51AC of the Trade Practices Act 1974 and ss 12CA, 12CB and 12ED of the Australian Securities and Investment Commission Act 2001 or the equivalent provisions of the former such legislation, and negligence; 3. I give leave to the second plaintiff, if so advised, to replead within 28 days in respect of any claim asserted by him under the Contracts Review Act 1980; 4. The plaintiffs are to pay the costs of the seventh and eighth defendants of the motion. ********** Last Modified: 10/09/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.