Reported Decision : (2008) NSW Conv R 56-198 (2007) ANZ Conv R 615 New South Wales Supreme Court CITATION : Riz & 1 or v Perpetual Trustee Australia Ltd & 4 ors [2007] NSWSC 1153 HEARING DATE(S) : 24 July - 17 August 2006 JUDGMENT DATE : 18 October 2007 JURISDICTION : Common Law Division JUDGMENT OF : Brereton J DECISION : Borrowers' claim to avoid or vary mortgage and loan contract under Contracts Review Act and for unconscionability dismissed. Judgment that borrowers pay lender outstanding balance of loan and for possession. Judgment that solicitors pay borrowers damages for breach of professional duty. CATCHWORDS : CONTRACTS – Unjust contracts – Mortgage and loan contract – Relevant circumstances – Where money borrowed for improvident investment – Purpose of the loan – where lender aware that loan for purposes of investment but not of particular investment proposed nor of improvidence – where false information provided to lender by borrowers' agent – where lender considered and was satisfied that loan was serviceable – where unfair tactics used against borrower by promoters of investment scheme but not by or on behalf of lender – whether lender engaged in "asset lending" – whether unjust that lender failed to detect false information supplied to it – NEGLIGENCE – professional liability – solicitors – independent advice – where solicitor retained to advise on mortgage and loan contract – where solicitor not retained to provide advice on proposed investment – where client about to enter into improvident transaction which ought to have been apparent to solicitor – whether solicitor had or ought to have had knowledge of extraordinary risk associated with investment – where investment subsequently failed – whether solicitor liable for failure to advise on investment – whether suggestion that solicitor should obtain independent legal and financial advice sufficient LEGISLATION CITED : (NSW) Contracts Review Act 1980, ss 7 & 9 Antonovic v Volker (1986) 7 NSWLR 151 Astley v Austrust Ltd (1999) 197 CLR 1 Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256 Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30 Brusewitz v Brown [1923] NZLR 1106 Chandran v Narayan [2006] NSWSC 104 Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398 Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144 Curnuck v Nitschke [2001] NSWCA 176 David v David [2007] NSWSC 855 Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413 Hawkins v Clayton (1988) 164 CLR 539 Heydon v NRMA Ltd (2000) 51 NSWLR 1 Hogan v Howard Finance Ltd (1987) ASC §55-594 CASES CITED : Ibrahim v Pham [2007] NSWCA 215 Neuschul v Mellish & Harkavy (1967) 111 SJ 399 Nguyen v Taylor (1992) 27 NSWLR 48 Perpetual Trustee Co of New South Wales Ltd v Bridgewater [1936] 3 All ER 501 Perpetual Trustee Company Ltd v Khoshaba [2006] NSWCA 41 Powell v Powell [1900] 1 Ch 243 Royal Bank of Scotland v Etridge (No 2) [2001] 4 All ER 449 St Clair v Petricevic (1988) ASC 55-688 St George Bank Ltd v Trimarchi [2004] NSWCA 120 Stivactas v Michaletos (No 2) (NSWCA, 31 August 1993, unreported, BC9301874) Teachers Health Investments Pty Ltd v Wynne (1996) NSW Conv R 55-785 Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642 West v AGC (Advances) Ltd (1986) 5 NSWLR 610 Text: Meagher, Gummow & Lehane, Equity – Doctrines and Remedies, 4th edn Omar Riz (first plaintiff/first cross defendant) Amal Riz (second plaintiff/second cross defendant) Perpetual Trustee Australia Limited (first defendant/cross claimant) PARTIES : Direct Mortgage Solutions Pty Limited (second defendant) Manuelpillia Paul Dominic (third defendant) Suzy David (fourth defendant) Fred David (fifth defendant) FILE NUMBER(S) : SC 20591/02 C J Leggat SC w B J Saunders (plaintiffs/cross defendants) COUNSEL : J B Simpkins SC (first defendant/cross claimant & second defendant) R J H Darke SC w M C L Dicker (third - fifth defendants) Legal Aid Commission of NSW (plaintiffs) SOLICITORS : Gadens Lawyers (first defendant/cross claimant & second defendant) Middletons Lawyers (third - fifth defendants) IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION BRERETON J Thursday, 18 October 2007 20591/02 Omar Riz & Anor v Perpetual Trustee Australia Ltd & Ors JUDGMENT 1 HIS HONOUR: The plaintiffs Omar and Amal Riz borrowed, on the security of their home, $275,000 from the first defendant Perpetual Trustee Australia Ltd (Perpetual), for whom the second defendant Direct Mortgage Solutions (DMS) acted as mortgage manager and introducer. They applied $111,000 to discharge an existing home loan with Citibank, and $150,000 to an investment in Karl Suleman Enterprises (KSE), which has since notoriously failed. The third, fourth and fifth defendants are partners in Dominic David Stafford (DDS), a firm of solicitors whose employed solicitor Ms Sabrina Jajoo acted for Mr and Mrs Riz in connection with the loan. Mr and Mrs Riz claim relief under the (NSW) Contracts Review Act 1980 avoiding the loan and mortgage to the extent that it exceeds the amount applied to refinance the Citibank loan, contending that the loan contract and mortgage between them and Perpetual is an unjust contract within the meaning of the Contracts Review Act. They also claim damages against DDS, for breach of fiduciary duty and/or negligence. Mr and Mrs Riz ultimately did not press claims for relief against DMS. Perpetual cross-claims for possession of the home and judgment for the amount outstanding. Early in the trial Perpetual sought leave to file a second cross-claim against DDS; that leave was granted but an order made for the separate determination after all other issues in the proceedings. Background 2 Mr Riz came to Australia from Lebanon in early 1977, having married his wife in 1976; she followed in 1981. They have six children, now aged between 6 and 24. Their first language is Arabic, which they speak, but in which they are illiterate. On any view their English is poor, Mrs Riz's moreso than Mr Riz's, although she understands some words and phrases, and he can speak basic English. 3 It is very difficult to ascertain with precision the events which culminated in Mr and Mrs Riz borrowing from Perpetual and investing in KSE. The evidence of Mr and Mrs Riz was imprecise, to the point of often being very uncertain, and sometimes contradictory, as to the sequence and detail of events. Their evidence manifested confusion and poor recollection of events, and demonstrable errors. While I accept that due allowance must be made for their linguistic difficulties and lack of commercial sophistication, I do not accept that all the deficiencies in their evidence can be so benignly explained. They appeared very guarded, particularly in respect of their financial resources and the status of their relationship (including whether or not they were separated). Given the rate at which they reduced the Citibank mortgage, the circumstance that they had six children to support, the funds available to them from time to time for a deposit on their home and other expenditures, including overseas travel, I am confident that they must have had sources of income that they have not disclosed, and which would have disqualified them from unemployment benefits and required lodgement of tax returns. In my view their evidence is strongly coloured by their perception that they have been let down by many on whom they relied – including those who solicited their investment on behalf of KSE, and Ms Jajoo. They were determined to attribute as much responsibility for their predicament as they could to Ms Jajoo, and this affected the evidence of their son Mohammed also; yet in some respects at least they were demonstrably incorrect in this endeavour. Mohammed was determined to implicate the solicitors in everything that his father had done, including in matters which it is highly improbable if not impossible that DDS had any involvement; in this respect his evidence probably reflects what Mohammed was told in 2004 and subsequently, in connection with the preparation of his affidavit, as distinct from what he recalls of the events of 2001. 4 Moreover, Mr and Mrs Riz often gave evidence inconsistent with their earlier affidavit and oral evidence on material issues, advancing first one and then another version of an event, the second version typically being more favourable to their case than the first; and not infrequently, one or other of Mr Riz, Mrs Riz and Mohammed was contradicted by another of them. Their evidence must be treated with great caution. What follows summarises what I am prepared to accept, having regard to their evidence, the documentary record, and the evidence of Ms Jajoo and Ms Hanna – which, as I will explain below, was ultimately implicitly accepted on behalf of Mr and Mrs Riz, whose submissions proceeded on that basis. 5 Neither Mr nor Mrs Riz has ever lodged a tax return in Australia. From 1989 to 1995, Mr and Mrs Riz operated a business at Newtown, called the Beirut Pizza Shop, which they owned. During that period, they applied for and obtained Centrelink Family Assistance benefits, and they continued to receive Centrelink benefits at least until the events in 2001 which give rise to these proceedings. From 1996 to 2002, Mr Riz was also employed part-time – 4 to 5 hours per day, 2 days per week – at the Kebab House. 6 In December 1999, Mr and Mrs Riz completed the purchase of their home at Condell Park for a price of $243,000, of which Mrs Riz's mother advanced about $90,000, and they borrowed $145,000 from the St George Bank, secured on their home. The St George loan required repayments of $965 per month. At the time, Mr and Mrs Riz were in receipt of Centrelink benefits, and Mr Riz was earning about $4,000 per annum from his part-time employment. In order to obtain the loan, Mr Riz procured a letter from his employer at the Kebab House, to the effect that he was in full-time employment. Although Mr Riz, in answer to one question, apparently admitted that he knew the letter to be untrue, he subsequently asserted that he did not know what was in it, and reading his evidence as a whole and making due allowances for his language difficulties I am not persuaded that he intended any such admission. However, he plainly did accept that he had understood that he would not be able to obtain a loan unless he appeared to be in fulltime employment, and requested his employer to provide confirmation of availability of full-time employment for that purpose. 7 The St George loan was serviced in accordance with its terms, but on 3 October 2000, Mr and Mrs Riz completed a refinance with Citibank, discharging the St George loan. The amount of the Citibank facility was $160,000. Mr Riz says that he refinanced because the Citibank loan would be reduced at a quicker rate, apparently thinking that the loan would be paid off in five years, but the documentation in evidence, though not conclusive, suggests that it was a five year interest-only loan, under which the capital was repayable at the end of the five year term. At the time of this refinance, Mr and Mrs Riz remained on Centrelink benefits, and Mr Riz's income from his part-time employment remained about $4,000 per annum. Mr Riz says that no questions were asked by the mortgage broker about his employment or income, and claims that he did not know that Citibank was unlikely to lend him money without knowing those things. A falsified letter from a purported employer for whom he had never worked and with whom he had had no contact was used in connection with the application; Mr Riz denied any knowledge of it, but his attitude to this is illustrated by the following excerpt from his evidence: Q. And you knew from that experience [with St George] that you would need to say something about your employment? A. When you tell someone that you are on Centrelink benefits and you are not working and your money is limited and you have children and it is not possible to get a loan, he tells you, he answers "You don't worry about anything, I will take charge", what would you say to him? Q. Did you know that he was going to tell a lie about your employment? A. No, I don't know. I don't know how he brings the money, how he deals with the banks or what sort of connections he has got, I don't know. 8 The Citibank loan, on which the regular repayments commenced at in excess of $1000 per month, was serviced in accordance with its terms, and in addition significant additional reductions were made – according to Mr Riz, largely from moneys provided by relatives from overseas – so that by September 2001 the balance had been reduced to about $111,000, and the monthly repayments to the high $600s. 9 In about October 2000, a fellow employee at the Kebab House, Lilly, told Mr Riz that he should talk to Karl Suleman, that investments with Mr Suleman generated a lot of money, that many people were doing so and making a lot of money through such investments and receiving interest every fortnight. Lilly suggested that it would be to his benefit to invest with Mr Suleman; she gave at least some indication of the potential returns, and said that he could invest as much money as he wanted. When Mr Riz told her that he did not have any money to invest, Lilly told him that he could get a loan and repay it quickly. Mr Riz says that while it sounded like a good investment if he had the money, he was at first reluctant to invest and did not want to borrow to do so, and told Lilly as much. Lilly said she would bring some friends to talk to Mr Riz. Lilly also said that she wanted to meet his wife and children. 10 At some stage Mr Riz mentioned to his wife what Lilly had said, and she replied that she did not want Lilly to visit them at home. He asked Mrs Riz whether she thought that borrowing some money and investing with KSE would be a good idea (chiefly, to raise funds for renovating and extending their home); but she was categorically against the idea and did not want to discuss the proposed investment at all. 11 Lilly persisted, pursuing Mr Riz many times over the ensuing year, and saying that such an investment would provide an opportunity to buy a bigger house and have a better life. Lilly continued to tell him that all those who had invested with KSE had received a lot of interest, and some who had had only one house now had two or three houses. Mr Riz was told that Mr Suleman was very wealthy and successful. On a couple of occasions Mr Suleman himself purchased a kebab from Mr Riz at the Kebab House, and gave Mr Riz generous tips. 12 An acquaintance of Lilly, Mary Daniel, (although Mr Riz did not know her surname) attended at the Kebab House on a number of occasions, and Lilly mentioned that she had invested with KSE and was making a lot of money. Mary Daniel asked whether he wanted to invest with KSE; Mr Riz was equivocal, but ultimately replied that he would make further inquiries. Mr Riz's evidence was that he was not convinced by Lilly directly, because Lilly did not herself invest, and wanted to enquire from people that had already invested with KSE directly. 13 Lilly took Mr Riz to see Mary Daniel at her home at Canley Vale. He did not tell Mrs Riz that he was going to see Mary Daniel; as far as he was aware she was still opposed to any investment. Mr Riz says that at this stage he was simply making enquiries and gathering information. Mary Daniel told Mr Riz that KSE was a very good investment that would enable him to improve his life and his house. She said that for each $50,000 invested there would be a return of $5,000 every fortnight. She said that Mr Suleman was good, and was paying the interest on her investment on time. It occurred to Mr Riz that the return being offered seemed too good to be true. 14 On the same day of the visit to Mary Daniel, Lilly took him to see Esher, apparently an employee of KSE, at Smithfield; Esher told him that Mr Suleman was paying him $1,200 per week for doing nothing, and that Mr Suleman was a good person and that it was good to invest with him. Mr Riz did not ask any questions about Mr Suleman's business and his operations. Mr Riz remained unresolved. Then, in Mr Riz's presence, Lilly asked a number of people sitting in a coffee shop, who said that they had invested with Mr Suleman and were making lots of money. 15 Mr Riz says that after seeing Mary Daniel, Esher and the others he told Lilly that he may be prepared to proceed. The uniform outcome of his enquiries had been that investors were being paid interest on time and encountering no problems. I am satisfied that after visiting Mary Daniel and Esher and speaking to the people in the coffee shop, Mr Riz was inclined to invest with Mr Suleman if he could persuade his wife to agree and if he could raise the funds to make an investment. 16 Mr Riz knew that he would have to borrow to invest, and had only about $50,000 available under his existing Citibank mortgage. He had told Lilly that he wanted to make an investment, but was unsure whether he could borrow the money. Lilly said that Mary Daniel could help, and took him to visit Mary Daniel a second time, to explore borrowing. Mr Riz says that at this stage he did not intend to borrow money, but to investigate the possibility of borrowing. 17 Mary Daniel took Lilly and Mr Riz to the office of Mary Haider and Zia George, who operated Quick Loan Services (QLS), in Harris Street, Fairfield. Mr Riz told them that he might be able to get $50,000 from Citibank, but he thought that this would involve formalities, including a requirement to provide details of his employment income, and he knew that if he told Citibank the truth about his employment and income he would not get a loan from them. He told Mary Haider that he had a casual part-time job. Mary Haider commenced to complete a form by asking questions about Mr Riz's assets, and he was given a list of documents to provide (telephone bills, electricity bills, council rates and documents relating to his then mortgage payments). He denied that there was discussion about raising $150,000 for investment in KSE, but having regard to evidence later given by his son Mohammed I am satisfied that a loan in that amount was discussed. 18 Mr Riz returned to QLS with the documents requested by Mary Haider. On this, if not the previous, occasion, he told Mary Haider that his family was living on Centrelink benefits, and asked whether they would be affected; she said that he should open an account in the name of their son Mohammed to receive the payments from KSE (and I infer, though he did not concede it, that he understood that this was to avoid Mr and Mrs Riz's Centrelink benefits being affected by income from the investment). Elsewhere Mr Riz sought to attribute the advice to open an account in Mohammed's name to Ms Jajoo, but the chronology makes this impossible. 19 Up to this point, Mr Riz had been rather coy with his wife as to where he had been and what he had been doing. He had told her he had been enquiring how Mr Suleman was offering such high interest. He told her that KSE was a good investment and would enable them to make the house bigger and that in seven months the loan would be paid off. At this point, when he was taking the documents to QLS, he told her that he was going to invest, and she acquiesced in the proposal to borrow moneys and invest them with Mr Suleman. 20 Mr Riz received a telephone call from Mary Haider, who told him that the loan application papers were complete and asked him to bring his wife in to sign them. He returned to QLS a third time – this time with Mrs Riz, who remained in the car with their baby child and did not enter QLS's office –the loan documentation was brought out to her and she signed it in the car. The documents which Mr and Mrs Riz signed on this occasion comprised a loan application form of DMS, and a "declaration form". The dates on the loan application enable this occasion to be fixed as 8 August 2001. The loan application form was a six page document, which Mr Riz signed at the foot of the third page, and Mr and Mrs Riz signed on the fourth page (twice), the fifth page and the sixth page (twice). It stated that Mr and Mrs Riz were (and had been for four years) self-employed in the business of "blinds installation", from which they each derived income of $38,000; Mr and Mrs Riz say they were unaware of that statement in the form and never gave anyone instructions to that effect. The application stated that the purpose of the loan was "refinance and further investment", showing that $115,000 was to be applied to refinance, $10,000 to costs, and $150,000 for "others", implicitly the proposed further investment. The declaration was in the following form (italics represent handwriting on the form): DECLARATION FORM I, We OMAR RIZ & AMAL RIZ Of 148 EDGAR ST. BANKSTOWN in the state of NSW Declare and affirm that the information (personal particulars, I/D, assets & liabilities and annual tax returns) that I (we) provided to the brokers and financiers are true and correct. OMAR RIZ AMAL RIZ applicant signature applicant signature 21 QLS submitted the loan application to a mortgage originator, KBL. On 13 August 2001, Mr Peter Zhao of KBL forwarded the loan application to DMS, accompanied by a body of supporting documentation, some of which (such as copy driving licences and certificates of citizenship) were plainly authentic; there were also rate notices, a statement of the mortgage account from Citibank, and a valuation of the Condell Park property apparently obtained by KBL. However, it was also accompanied by a bundle of income tax returns and financial statements for a purported partnership of Mr and Mrs Riz, and for each of them individually, for the financial years ending 1999 and 2000. The copy tax returns were unsigned by either Mr or Mrs Riz but apparently signed by a tax agent, Mark A Thompson, for whom a contact phone number was provided. The partnership returns described the main business activity as "Venetian blinds installation", and that for the year 2000 referred in the statement of distribution to the partners' names as being Saddi, Elia and Saddi, Nawal. 22 From the facts (1) that the occupation "blinds installation" and the income of each of Mr and Mrs Riz of $38,000 – corresponding with what appears on the tax returns – is stated in the loan application signed by Mr and Mrs Riz at QLS, in the same handwriting as the balance of the loan application, and (2) that when received by DMS from KBL, the returns (but not most other documents in the bundle faxed) bore not only the imprint of transmission from KBL (the so-called Sanctuary Windows imprint) but also another, earlier (but undesignated) imprint, I infer that the false tax returns were procured, and included in the loan application, by QLS. 23 Assessment of the loan by DMS, reflected in a loan worksheet in the DMS file, showed that – based on the combined apparent income of Mr and Mrs Riz according to the purported tax returns – while the debt service ratio was 34.7% (slightly outside the parameters for a dual income family, the standard parameters being not less than 30% for multiple income earners, or 35% for a single income earner), the serviceability test (which required a minimum of 1.25) was comfortably satisfied with a result of 1.58. On 17 August DMS issued a loan approval and sent it to KBL. KBL forwarded the approval on the same day to QLS, and QLS sent a facsimile to DDS, covering a copy of the formal loan approval and purporting to convey the instructions of Mr and Mrs Riz "to proceed with their formalities, our client has been advised to contact your esteemed office". 24 On Sunday 19 August, Ms Jajoo telephoned Mr and Mrs Riz' home, and spoke to their son Mohammed, identifying a number of documents which would be required and which Mr Riz said he would bring in the next two days; these included council and water rate notices and receipts evidencing payment. The documents requested were duly provided; the evidence does not reveal precisely when, but Mr and Mrs Riz paid their Council Rates in full on 20 August, and on 29 August they attended DDS where they saw Ms Hanna and executed a discharge authority addressed to Citibank in her presence. 25 On 30 August 2001, before Mr Riz had met Sabrina Jajoo, an account was opened with the St George Bank in the name of Mohammed in readiness for the investment. This refutes the persistent assertion of Mohammed and Mr Riz that it was the recommendation of Ms Jajoo that this account be opened, to avoid potential loss of Centrelink benefits for Mr and Mrs Riz if the investment were in their names; it is far more probable that (as Mr Riz first asserted) the suggestion was that of Mary Haider at QLS. 26 On 3 September 2001, Mr and Mrs Riz apparently signed requests to Citibank to provide a payout figure, but the circumstances in which they did so are not otherwise apparent. 27 On 13 September, First Title Express, who were acting for Perpetual, forwarded the loan and transaction documents to Mr Riz at his home address. On 17 September, Mohammed and then Mr Riz spoke to Ms Jajoo on the telephone, informing her of receipt of the documentation and arranging an appointment for their explanation and execution the following Friday, 21 September. 28 Mr Riz saw Ms Jajoo at DDS' office on 21 September. Mrs Riz did not accompany him. Ms Hanna was present to interpret, but Ms Jajoo and Mr Riz conversed in English. Ms Jajoo explained that it would be necessary for Mrs Riz to attend, but at Mr Riz's request explained the documentation to him. According to Ms Jajoo, in the course of the discussion, Mr Riz said: We're thinking of investing with Karl Suleman in a trolley business with Karl Suleman Enterprises, so we'll be making repayments of $10,000 every two weeks. 29 She answered: I'm not advising you in relation to Karl Suleman Enterprises. I'm only advising you on your obligations to the bank under the loan contract. We don't advise on any Karl Suleman matters. We don't approve of Karl Suleman contracts in the way that they were structured. Other lawyers set up his business structure and contracts. Suzy David from our office was trying for a while together with a large firm of lawyers in the city to change everything but before Mr Suleman brought all the information and documents they needed he went back to his own lawyer and said it was all being fixed by his lawyers. But this was a few months ago. We don't know where it got up to or what happened. 30 Mr Riz replied: I know many people in it with Karl. I wanted to see what to do with the loan first. 31 Ms Jajoo responded: You should see an independent lawyer and a financial adviser when you decide to invest in whatever you want to invest in. You need to take your paperwork and the contract to a lawyer and a financial adviser so they can properly advise you. 32 Ms Jajoo produced and provided to Mr Riz a form of cost agreement. Mr Riz wanted to take the documents with him to be signed by his wife if they decided to proceed, but Ms Jajoo would not allow this and insisted that she attend to have the documents explained, and retained the documents for that purpose. 33 Mr and Mrs Riz conferred with Ms Jajoo on 25 September. Again, Ms Hanna was present, although Mrs Riz said that interpretation would be unnecessary, and often when Ms Hanna commenced to translate a sentence Mrs Riz responded to the effect: "It's alright, I understand". 34 In the course of the consultation with Mr and Mrs Riz on 25 September 2001, Ms Jajoo explained that the first repayment was due 28 days after settlement, and the minimum monthly repayment was $1,796.61. Mr Riz interjected: "$10,000 every fortnight". Mrs Riz said: "No, we want to pay $10,000 every fortnight from the beginning". Ms Jajoo altered her file note accordingly. 35 Mr and Mrs Riz executed the loan contract, the mortgage, and various associated authorities. They also signed a certificate that they had obtained legal advice and understood the documents and did not require them to be translated. 36 Ms Jajoo explained that the lender required references from an acceptable referee; Mrs Riz said that the family doctor would complete them, and Ms Jajoo gave her the two reference forms for that purpose. Ms Jajoo completed the direct debit authority, except for the details of the account from which repayments were to be made, which had not yet been decided. She wrote on the form, as requested, "*Please direct debit the minimum monthly repayment for the first monthly repayment and thereafter $10,000 every fortnight". Mr and Mrs Riz signed and dated the authority, which was left with Mr Riz for completion and return when it had been decided from what account the repayments would be made. 37 Later in the course of the consultation, Mrs Riz again instructed Ms Jajoo: But you tell the bank we want to pay $10,000 every fortnight like we talked about before. 38 Mrs Riz continued: We want a cheque to Karl Suleman. Omar's told me what you've told him. This is a big risk. 39 Ms Jajoo answered: I did have a conversation with Omar and I told him that we don't advise on anything to do with Karl Suleman. We don't approve of it. Karl previously had a solicitor who set up his whole business structure. Then Suzy David from our office had referred him to a firm of lawyers and trying for a few months to change the whole structure. However, Karl Suleman did not provide all the requirements, and Susie doesn't know details of the structure. Karl Suleman went back to his own lawyer some time in May this year and said it was all being fixed up by his own lawyer. But we don't know where it is up to. So if you are taking the risk of investing in whatever it is you are wishing to invest in, then you must see an independent solicitor and also a financial adviser in relation to any Karl Suleman contracts. 40 Mrs Riz replied: "You recommend someone", and Ms Jajoo responded: "No I can't recommend, but you should go to your own accountant and also see another lawyer". Mr Riz concluded: "Okay, we continue with the loan for now". 41 When it came to discussing how the proceeds of the loan were to be drawn down, Ms Jajoo said: After paying out Citibank you will be left with approximately $159,800. How do you want that drawn? 42 Mr Riz said: We want a cheque to Karl Suleman Enterprises for $150,000 we will get about $24,000 per month and that means $12,000 per fortnight. So that's why if we go ahead we can put $10,000 per fortnight towards payment of the loan. But if we don't want to go ahead can we cancel that cheque? 43 Although Mr and Mrs Riz maintained that Ms Jajoo spoke glowingly of Mr Suleman in response to inquiries they claimed to have made of her about the prudence of their proposed investment in KSE, no submission to that effect was pressed and I do not accept that any such conversation took place. 44 The reference forms were completed by Dr Nabil Assaad on 26 and 28 September. They and the direct debit request (completed with reference to Mohammed's St George account) were returned to DDS by 4 October. The mortgage was stamped on 4 October, on which date DDS returned the executed documentation to First Title, who advised on the same day that they were ready to settle. 45 As I have foreshadowed, and although at first it seemed that much might depend upon competing versions of events of the consultations of 21 and 25 September 2001, ultimately the submissions on behalf of Mr and Mrs Riz proceeded on the basis of substantial acceptance of the version given by Ms Jajoo and Ms Hannah. This largely relieves me of the need to analyse the competing submissions as to credit. It suffices to say that I am not persuaded that the version propounded by Mr and Mrs Riz, who bear the onus, is more probable than the competing version given by Ms Jajoo and Ms Hannah, particularly having regard to the general difficulties with the evidence of Mr and Mrs Riz to which I have already referred, and to the following matters: + that Ms Jajoo's version is corroborated by Ms Hannah, whose evidence I found convincing, notwithstanding her affiliation with DDS; + that Ms Jajoo's evidence (and also that of Ms Hannah) was consistent with her quite comprehensive contemporaneous file notes, the authenticity of which was not disputed; + the inherent improbability, in that context, of the version advanced by Mr and Mrs Riz that Ms Jajoo merely placed documents in front of them for signature without offering any explanation of them at all; + that despite their denials of being given documents to take away for completion and of understanding what was said, in fact Mr and Mrs Riz must have received and taken away a direct debit request and referee forms and subsequently had them completed and returned, which not only undermines the reliability of Mr and Mrs Riz's recollection, but also demonstrates understanding and compliance with requests made and instructions given in the course of the consultation; + that although Mr Riz asserted that Ms Jajoo told him at the meeting on 25 September 2001 to arrange for an account to be opened in Mohammed's name, such account was in fact opened on 30 August 2001 three weeks before he first met Ms Jajoo, and that while Mr Riz denied having become aware on or about 19 August of a request to bring in a rates notice and receipt, saying that Mary Haider had asked him to do so, the rates were paid on 20 August, the day after Ms Jajoo says she asked for the latest rates notice and proof of payment; + that at one stage Mr Riz asserted that his signature on the discharge authority was forged, a contention which he later abandoned; + that the affidavit and oral evidence of Mr and Mrs Riz included many internal inconsistencies, including frank contradictions of earlier evidence given by them (a far from complete catalogue of instances of this is to be found in paragraphs 26, 27 and 28 of the written submissions of Mr Darke SC, for DDS); + that the recollection of Mr and Mrs Riz was patently not good (instances of which are catalogued in paragraph 31 of Mr Darke's written submissions). 46 On 8 October, Mr Zia George of QLS spoke to Ms Jajoo, advising that he had been endeavouring to contact Mr Riz to explain that the brokerage fee was $5,000, whereas Marie had mistakenly told him it was $3,000. Ms Jajoo then telephoned Mr Riz and explained the difficulty, and he replied that he would sort it out with Mr George. On 10 October, Ms Jajoo had a telephone conversation with Mr Riz, who was at QLS with Mr George, and Mr Riz gave instructions to pay $150,000 to KSE, and $5,000 to QLS. 47 First Title certified title to Perpetual on 10 October. The transaction was settled on 15 October, when DDS received on behalf of Mr and Mrs Riz a cheque payable to Mr and Mrs Riz for $3,353.68, a cheque payable to KSE for $150,000, and a cheque payable to Zia George for $5,000. On 16 October, Ms Hanna handed the first two cheques to Mr Riz, in the presence of Mary Haider who collected the cheque in favour of Zia George. 48 On or about 17 October, Mohammed and Mr Riz attended at KSE's office at Liverpool. Mr Riz handed over the cheque for $150,000, and Mohammed executed a "Preliminary Loan Agreement" with KSE for a principal sum of $150,000, with fortnightly repayments of $9,555 for a term of three years. Mr Riz and Mohammed returned on 23 October to execute a more comprehensive loan agreement. Although Mohammed is literate in English, Mr Riz sought no translation or explanation of the loan agreement or its provisions, and Mohammed did not read it. 49 A fortnight later, Mohammed received, into the St George account in his name, the initial payment of $9,555, but that was the only payment received. Mr and Mrs Riz continued to service the Perpetual loan for about a year, they say from funds that they borrowed for that purpose from acquaintances. The case against Perpetual 50 Ultimately, the case for Mr and Mrs Riz against Perpetual was put on the basis of the Contracts Review Act, and unconscionability at general law. 51 Proceedings for relief under Contracts Review Act, s 7, involve two steps. The first is whether the contract was unjust in the circumstances in which it was made, having regard to the factors referred to in s 9. This is a conclusion of fact, albeit one of ultimate fact involving a broadly based value judgment [Antonovic v Volker (1986) 7 NSWLR 151, 154-155 (Samuels JA, Kirby P agreeing); Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256, 270E (Samuels JA); Perpetual Trustee Company Ltd v Khoshaba [2006] NSWCA 41, [34]-[40] (Spigelman CJ), [106]-[111] (Basten JA)]. The second, which arises only if the first is resolved in the affirmative, is whether any and if so what relief should be granted; this involves the exercise of a judicial discretion [Khoshaba, [34]-[36] (Spigelman CJ), [109] (Basten JA)]. 52 In West v AGC (Advances) Ltd (1986) 5 NSWLR 610, McHugh JA (as he then was) explained that circumstances productive of "unjustness" in a contract may be substantive or procedural: substantive unfairness pertaining to the harshness of the terms imposed, and procedural unfairness pertaining to the manner in which the contract was negotiated and formed. His Honour explained (at 620-622): Under s 7(1) a contract may be unjust in the circumstances existing when it was made because of the way it operates in relation to the claimant or because of the way in which it was made or both. Thus a contractual provision may be unjust simply because it imposes an unreasonable burden on the claimant when it was not reasonably necessary for the protection of the legitimate interests of the party seeking to enforce the provision: cf s 9(2)(d). In other cases the contract may not be unjust per se but may be unjust because in the circumstances the claimant did not have the capacity or opportunity to make an informed or real choice as to whether he should enter into the contract: cf s 9(2)(a), 9(2)(e), 9(2)(f), 9(2)(g), 9(2)(i), 9(2)(j). More often, it will be a combination of the operation of the contract and the manner in which it was made that renders the contract or one of its provisions unjust in the circumstances. Thus a contract may be unjust under the Act because its terms, consequences or effects are unjust. This is substantive injustice. Or a contract may be unjust because of the unfairness of the methods used to make it. This is procedural injustice. Most unjust contracts will be the product of both procedural and substantive injustice. … If a contract or one of its relevant provisions is neither unfair nor unreasonable so far as the applicant is concerned, it is difficult to see how the existence of inequality in bargaining power or lack of independent advice, for example, can render the contract or a provision of the contract unjust. … If a defendant has not been engaged in conduct depriving the claimant of a real or informed choice to enter into a contract and the terms of the contract are reasonable as between the parties, I do not see how that contract can be considered unjust simply because it was not in the interest of the claimant to make the contract or because she had no independent advice. 53 Accordingly, an unjust contract is usually a product of the combination of substantive and procedural unfairness. However, as Spigelman CJ observed in Perpetual Trustee Company Ltd v Khoshaba (at [64]-[92]), each case must depend on its facts; West is now 20 years old and community standards may have changed from those applied in 1986 in West. In a factual context not dissimilar to the present, his Honour rejected (at [66]) the submission that the investment agreement was not part of the "circumstances relating to the contract" within s 7(1), and affirmed that the purpose for which a loan is advanced is a relevant circumstance, and is a concern of a lender because it is usually a material consideration in determining whether the particular borrower is able to service and repay the loan, although the fact that a lender has no involvement in the investment is entitled to significant weight in its favour. His Honour said (at [76]): 76 … Plainly, the conduct, whether by act or omission, of the party resisting a finding of unjustness under the Act is highly relevant, and will often be determinative. However, the scope of relevant circumstances is not confined to what the person resisting an order under s 7(1) did or did not do and knew or ought to have known. The critical phrase in s 7(1) – "the circumstances relating to the contract at the time it was made" – cannot be so limited. Section 9(1) provides that when determining unjustness "the court shall have regard to the public interest and to all the circumstances of the case". Furthermore, s 9(2)(l) includes, as I have noted, amongst the relevant circumstances "the commercial or other setting, purpose and effect of the contract". 77 In the present case, the appellant submitted, correctly in my opinion, that the fact that the appellant had no involvement of any kind in the investment was entitled to significant weight in its favour. 54 His Honour accepted that while Perpetual's lending guidelines were designed for the purpose of protecting the lender and not the borrower, to enable it to assess and minimise its own risk, that did not lead to the conclusion that failure to adhere to its own guidelines was entitled to minimal weight when determining what was just in all the circumstances: The benefit to the borrower from a proper risk assessment may be indirect, because unintended, but that does not mean that it cannot, in appropriate circumstances, be entitled to significant weight in the determination of unjustness. It is clear from the list of factors contained in s 9(2) and (3) of the Act, that a substantial purpose of the legislative scheme is to protect persons who are not able to look after themselves. 55 Spigelman CJ attached decisive weight to the circumstance that the section of the standard form loan application that was intended to state the purpose of the loan was left blank, indicating that Perpetual "was content to lend on the value of the security", a matter entitled to significant weight in the determination of unjustness (at [82]). Perpetual's concomitant failure to verify other details in the loan application reinforced the conclusion that it was prepared to act on the basis of adequate security alone, and although Perpetual was not to be fixed with the knowledge that it might have acquired had its guidelines been observed, "Where the security is the family home of a low income earner and a pensioner, this posture on the part of a lender is entitled to significant weight against the lender in the determination of unjustness". His Honour said: 90 In a tripartite situation such as this, I do not believe that a failure to recommend that a person obtain advice is entitled to significant weight when the advice is relevant to that part of the transaction which does not involve the rights and obligations or interests of the person who is said to have failed to make the recommendation. Even pensioners must take responsibility for their own actions. 91 On the facts of the present case, it appears clear that the overwhelming enthusiasm of their compatriots in the Assyrian community was the primary motivating factor in the respondent's wish to obtain the loan. I doubt that any recommendation by the prospective lender would have had any effect. 92 The conflicting considerations are finely balanced. Had the appellant or its representatives made any inquiries about the purpose of the loan I would have allowed the appeal. I do not mean to suggest that the appellant had to determine that the proposed investment was reasonable and capable of servicing the loan. It is the indifference, suggesting that the appellant was content to proceed on the basis of enforcing the security, which I find determinative. 56 In considering whether or not the relevant contracts were unjust, it is of course necessary to keep in mind that the contracts in question are the loan and mortgage, and not the investment contract with KSE, although I accept that the purpose of the loan, and thus the investment contract, is a relevant circumstance, as Khoshaba makes clear. In the present case, Mr Leggat SC, for Mr and Mrs Riz, submits that the relevant contracts – the loan agreement and mortgage – were unjust in the circumstances in which they were made having regard to fourteen matters, on each of which I shall comment before endeavouring to synthesise the issues: + Mr and Mrs Riz were "very simple folk"; + They had no financial ability to comply with the provisions of the contracts that required them to make 360 monthly payments each of $1796.61; + They could only repay the loan by selling the family home; + They understood the fundamentals of a mortgage in the sense that if they defaulted they would lose their home; + Perpetual knew that they had no savings and therefore their ability to repay was critical; + Perpetual had information available to it in the latest "partnership tax return" that was relevant to their capacity to repay, in particular that it included partnership income of Mr and Mrs Saddi; + Perpetual chose not to call evidence as to whether it used the Saddi income figure or failed to appreciate its significance; + Perpetual failed to inquire and resolve how it could rely on the direct debit form authorising loan repayments of $10,000 per fortnight when the available financial details demonstrated no capacity to make such payments; + Perpetual failed to comply with provisions of its lending manual in relation to income verification and evidence of income receipt; + Mr Paterson (a lending expert called by Perpetual) gave evidence that compliance with prudent lending practice in relation to tax returns, serviceability ratio and the direct debit request would have resulted in the loan being rejected; + Perpetual knew the loan failed the serviceability test in its lending manual even on the income figures provided; + Perpetual knew it held no certificate indicating that that the borrowers had obtained financial advice; + If financial advice had been obtained, it would have been to the effect that the proposed investment was "too good to be true"; + If such advice had been given, Mr and Mrs Riz would not have proceeded. 57 Mr and Mrs Riz were "very simple folk". Although I accept that Mr and Mrs Riz were commercially unsophisticated, I do not accept that Mr Riz – who was the moving party and had the conduct of the transactions on behalf of them – was naïve. He had previously borrowed funds from financial institutions on three occasions – from the National Bank to finance the purchase of the Beirut Pizza Shop, from St George to finance the purchase of the home, and from Citibank to refinance. The last two involved giving mortgage security over the home. Ultimately it was conceded that Mr and Mrs Riz understood the fundamentals of a mortgage, in that if they defaulted they would lose their home. In my assessment, Mr Riz also knew that he ought not have been able to obtain the loans from St George and Citibank if he was living on Centrelink benefits, and he was at best indifferent to what his agents might say or do on his behalf to obtain loan approvals. It took him some considerable time – perhaps a year – to be persuaded to invest in KSE and to borrow funds for that purpose, and he undertook considerable investigations before deciding to do so. When the investment was made, it was made in the name of their son Mohammed, plainly so that the income received would not affect Mr Riz's social security entitlements; I am unable to accept Mr Riz's professed ignorance as to that being the reason for the arrangement (which, according to his son, he told Mohammed at the time). Nor, in the light of Mohammed's evidence, can I accept that when Mr Riz went to QLS and completed the loan application, he had contemplated investing not $150,000, but only some lesser amount. 58 They had no financial ability to comply with the provisions of the contracts that required them to make 360 monthly payments each of $1796.61. I do not accept that Mr and Mrs Riz could not have serviced the loan. I accept, as was submitted on their behalf, that the family income of Mr and Mrs Riz was about $35,000 per annum: Mrs Riz received a parenting payment of $8196, Mr Riz received a Newstart benefit of $4997, the family received additional benefits of $15,058, Mr Riz earned from his part-time job $150 per week, amounting to $7800 annually; the total family income was thus $36,051. On that income they had serviced the home loan from St George and then from Citibank, achieving very substantial reductions, well in excess of the minimum repayments required by the Citibank loan contract (albeit that other sources of funds may have assisted in those reductions). The Citibank loan had initially required repayments of more than $1000 per month, although this reduced with the capital reductions. Had they invested the surplus loan proceeds from Perpetual, after refinancing Citibank, in an orthodox investment with a much lower rate of return than they expected to obtain from KSE, that income would have been available to service the loan and would have been adequate, with their other income, to do so: investment of the $150,000 surplus at 10 percent would have generated a further $15,000 per year, bringing their total income to in excess of $50,000, and their monthly income to an excess of $4166. Monthly repayments of $1790 appear far from unachievable on that basis, especially having regard to their track record with St George and Citibank. 59 They could only repay the loan by selling their home. It follows, for the reasons just explained, that I do not accept this proposition; it is not apparent that Mr and Mrs Riz could not have serviced the loan. If it is intended to mean that they had no other assets than their home, then the same can be said of most home loans, which in the vast majority of cases can only be repaid, if not serviced, from sale of the home, and that is not of itself a circumstance of injustice. In any event, the investment would itself have created an additional asset from which repayment could have been made. 60 They understood the fundamentals of a mortgage in the sense that if they defaulted they would lose their home. I agree, but this is not a circumstance of any injustice. 61 Perpetual knew that they had no savings and therefore their ability to repay was critical. Again, I agree; but again, this is not of itself a circumstance of injustice: in most home loans, the borrower will have few other assets from which repayment might be made, so that serviceability depends upon income. 62 Perpetual had information available to it in the latest "partnership tax return" that was relevant to their capacity to repay, in particular that it included partnership income of Mr and Mrs Saddi. Close inspection of the purported tax return for 1999/2000 for the partnership of Mr and Mrs Riz – not their individual returns – would have revealed, in the distribution statement, a reference to Mr and Mrs Saddi as the partners to whom income was distributed, and if detected, this might well have been an indication of fraud. However, a lender prudently requires income tax returns for the purpose of income verification, because loan applicants are unlikely to have overstated their income in an income tax return, the tax context being one in which there is an incentive to minimise income. Income of the partnership is, of course, distributed between the partners and brought to account in their separate individual returns. A lender could adequately verify income by examination of the individual returns, without recourse to the partnership return. In this case, there was no particular reason why the partnership return, as opposed to the individual returns, would be scrutinised by the lender. A lender is not an auditor, and is not to be expected to scrutinise every entry in an income tax return to ascertain whether the borrower or borrower's agent who is engaged in some fraud. It is telling that the reference to the Saddi income was not detected by Mr McCully, who was instructed to examine the transaction on behalf of Mr and Mrs Riz for forensic purposes, nor by Mr Paterson, who was instructed on behalf of Perpetual. 63 Perpetual chose not to call evidence as to whether it used the Saddi income figure or failed to appreciate its significance. DMS's documents demonstrate how the loan was assessed. It is quite apparent from the calculation sheet that the loan was assessed on the basis of the purported income of Mr and Mrs Riz which was derived from the supposed partnership and which was shown in the purported partnership return to have been distributed to Mr and Mrs Saddi. However, in the light of Mr McCully's concession that on his examination of the documentation, conducted under the microscopic focus of litigation, he did not detect the reference to the Saddi income; Mr Paterson's similar failure to detect it; and the circumstance that the issue was not raised in the pleadings or affidavits or otherwise until the trial had commenced (Mr Leggat explained that it was reserved as a "sleeper" for forensic advantage, but it remains unknown when anyone in the plaintiffs' camp first detected it), I am quite unprepared to infer that Perpetual's assessor adverted to the circumstance that the partnership return contained reference to persons other than Mr and Mrs Riz, or ought to have done so. 64 Perpetual failed to inquire and resolve how it could rely on the direct debit form authorising loan repayments of $10,000 per fortnight when the available financial details demonstrated no capacity to make such payments. It is true that the amount of the direct debit authority was inconsistent with the disclosed financial capacity of Mr and Mrs Riz. However, as Mr Paterson explained, a direct debit request is not part of the loan approval process, and is obtained subsequently, after the loan has been approved, in preparation for settlement, when it would be seen by an administrative assistant, rather than by the assessor who approved the loan, and usually contains no reference to any specific amount. It would therefore not have affected a prudent lender's assessment and approval of the loan. And it would be irregular, and even a potential source of legal liability, for a lender, having approved a loan, to refuse to proceed on the basis of doubts as to the viability of a proposed level of voluntary repayment higher than required by the contract. Mr Paterson, in more than thirty years of lending experience, had never encountered a loan being declined after approval because of concern at the amount voluntarily inserted by a borrower in a direct debit authority. 65 Perpetual failed to comply with provisions of its lending manual in relation to income verification and evidence of income receipt. In this respect, it was submitted that the undated and unsigned tax returns containing a reference (suggestive of fraud) to different persons, the Saddis, meant that there was no reliable income verification, and that the declaration form ought also to have been a matter of concern, because it was undated, involved no specific adoption of any documents, was not witnessed, contained no reference to which brokers or financiers information had been supplied, disclosed a fax imprint of Sanctuary Windows (an entity which the lender knew had no connection with Mr and Mrs Riz), did not in terms show any connection to any particular loan application, did not relate in terms to any specific documents, was transmitted as page 27 of facsimile transmission of about 90 pages, and contained no indication that its nature or effect was explained to the non-English reading Mr and Mrs Riz. However, I do not accept that there is any significance in the circumstance that the copy income tax returns obtained by Perpetual were unsigned; copy tax returns are usually unsigned (and in these days of electronic lodgement so often are the originals too). There is no significance in the circumstance that the declaration does not refer to a specific broker or financier; the form [see [20]] is a generic one and does not require completion of references to specific brokers or financiers; the circumstance that it does not refer to a specific lender is similarly beside the point. That it is unwitnessed is also of no significance; it contained no provision for attestation, and no-one suggests that the signatures on it are other than those of Mr and Mrs Riz. That it contained a fax imprint of Sanctuary Windows and was transmitted as page 27 of 93 is not suspicious: pages 26 to 93 comprised a fax coversheet from KBL to DMS, the declaration, the loan application and all the supporting documents, including the purported income tax returns; each page bore the imprint "Sanctuary Windows" and the facsimile number 97565707, which KBL's letterhead showed to be KBL's facsimile number. Nor is the circumstance that it bore no indication that it was interpreted or explained to Mr and Mrs Riz: given that it was accompanied by the loan application completed in English and signed by Mr and Mrs Riz there was no reason for DMS to suspect that they did not understand English; there is no evidence that it is ordinary lending practice to require certification that a declaration accompanying a loan application has been explained; and in any event, certification of understanding of the loan contract and mortgage documentation would be required at a later stage. Mr Leggat having abandoned reliance on Mr McCully (whose evidence was substantially discredited), the only expert lending evidence was that of Mr Paterson, who said that having regard to the apparent authenticity of the personal details provided, the history of repayments to Citibank, satisfactory credit references, the absence of other debts, satisfactory valuation, and an acceptable though marginally high debt service ratio, the loan approval accorded with prudent lending practice. He observed nothing in the tax returns as suggesting a need to make further inquiry, given that they were accompanied by a declaration that would result in them being accepted at face value and not scrutinised closely for indicia of fraud. 66 Mr Paterson (an expert called by Perpetual) gave evidence that compliance with prudent lending practice in relation to tax returns, serviceability ratio and the direct debit request would have resulted in the loan being rejected. Mr Paterson's concession to this effect was based primarily on the inclusion in the partnership tax returns of the reference to the Saddi income, which neither he nor Mr McCully had detected, although they were scrutinising the transaction with a far sharper eye than would be expected of a lender's assessor. Neither gave evidence that a lender acting reasonably would have detected that reference, and for reasons explained above (at [65]) I am quite unsatisfied that such a lender would have done so. Insofar as his concession relied on the direct debit request, that was in the context that he maintained that ordinarily a lender would not give close attention to the detail of a direct debit request, but accepted that in the unlikely event that the approving officer (as distinct from an administrative assistant) became aware of a direct debit request so disproportionate to the borrower's apparent circumstances, further inquiries would be indicated. Nonetheless, in upwards of 30 years of lending experience, Mr Paterson had never encountered the situation of a loan not proceeding after approval because of a direct debit authority that might be regarded as too high. I accept that had a lender adverted to the reference to the Saddi income and the direct debit authority, further inquiries would have been indicated. But I do not accept that a lender's failure to detect indicia of a fraud being practiced on behalf of a borrower against the lender, is a circumstance of injustice to the borrower. And I also do not accept that a lender, having approved a loan after taking into account security and serviceability, must in the borrower's interest query an apparently excessive direct debit authority. 67 Perpetual knew the loan failed the serviceability test in its lending manual even on the income figures provided. Serviceability was calculated on two bases – a debt service ratio (which measures commitments as a proportion of income), and a serviceability ratio (which measures net available income after allowing for living expenses and loan repayments, against total outgoings). For a dual income family (which is the picture presented to Perpetual), the indicative minimum debt service ratio was 30%; if it exceeded that, referral for approval was required. The material presented to Perpetual indicated a ratio of 34.7%. Mr Paterson described it as "modestly high but acceptable". He explained that the 30% parameter was a first reference point, to guide but not determine the lender's decision. On the information available to Perpetual, Mr and Mrs Riz had total income of $74,142, and outgoings of $25,726. To achieve 30%, the outgoings would have had to be reduced only to $22,243, so the discrepancy was slight. On the other hand, the indicative minimum serviceability ratio was 1.25; on the material available to Perpetual, Mr and Mrs Riz passed this comfortably with a serviceability ratio of 1.58, with an annual surplus of $14,914 after allowing for living expenses and loan repayments, and without including any investment income. The lender, having regard to the good serviceability ratio as well as the marginally high but acceptable debt service ratio, would conclude that the loan was serviceable. Moreover, these results were achieved without reference to any anticipated investment income – because the loan was prima facie serviceable without reference to it. Inclusion of the investment income would have increased its serviceability. I do not accept that Perpetual ought to have known or suspected that the loan was not serviceable. 68 Perpetual knew it held no certificate indicating that that the borrowers had obtained financial advice. If financial advice had been obtained, it would have been to the effect that the proposed investment was "too good to be true". If such advice had been given, Mr and Mrs Riz would not have proceeded. Perpetual's loan contract required a certificate by the borrowers that they had obtained independent legal advice (which was completed), or alternatively that being aware of the opportunity of doing so they had chosen not to (which was not, since legal advice was obtained, from Ms Jajoo). The loan contract also contained a prominent recommendation that the borrower obtain independent financial advice. Any relevant financial advice would have been about the investment contract with KSE, rather than the loan contract with Perpetual. I accept that the appropriate advice would have been that the rate of return was too good to be true and the investment was likely to be very high risk. I accept that Mr and Mrs Riz would not have applied for the Perpetual loan except for the belief that they would be able to service it from the KSE investment, which they expected to generate a return of $10,000 a fortnight for three years, and I accept that Mr and Mrs Riz would not have proceeded with the loan had they received the appropriate advice, namely that the return promised by KSE was "too good to be true". These conclusions are supported by the protracted investigation that Mr Riz had undertaken to satisfy himself that the investment was prudent. However, the financial advice that they needed was about the investment transaction, to which Perpetual was not a party, not the loan or mortgage. As Spigelman CJ said in Khoshaba, failure to insist on advice in respect of a transaction to which the lender is not a party is not entitled to significant weight. 69 The essence of Mr and Mrs Riz' case that the loan contract and mortgage were unjust in the circumstances in which they were made is that they assumed the obligations of the loan contract and mortgage: + when in reality they could only repay by sale of their home, making the case one of "asset lending", which was unjust having regard to the interests of the borrowers and the public; + because of the erroneous belief that they would easily be able to service them with income from the KSE investment; + when the loan would have been declined had their true circumstances been known to Perpetual, but was approved because of false information provided without their knowledge to Perpetual, and Perpetual was in a superior position to protect its interests and could have discovered the fraud. 70 The substantive unfairness is said to be found in the "asset lending" element. Although asset lending is not necessarily unjust, such contracts have the potential for injustice. The perceived injustice in "asset lending" is sourced in what is described in Khoshaba by Basten JA (at [128]) as the futility of the exercise: if the loan is not serviceable, then it is not in substance a loan but an asset sale, in which the lender risks nothing but the borrower risks the asset. Such a transaction involves no risk to the lender, but considerable risk to the borrower, given the likely inability of the borrower to perform and the probability if not certainty of resort to the security, with the lender being in a better position to protect itself against loss. The substantive unfairness lies in the imbalance of risk. Where that is voluntarily accepted, such a transaction may not be unjust. But where in the circumstances in which the transaction is made – particularly where the family home is involved – the borrower has a less than full appreciation of the risks or consequences, or is under some misapprehension or pressure, so as to provide an element of procedural unfairness, such a loan may be unjust. And even apparent comprehension of the transaction and its legal and practical effect and voluntariness is not entirely prophylactic: the purposes of the Contracts Review Act include protection of those who are not able to protect themselves, and while the Act is not a panacea for the greedy, it may come to the aid of the gullible. 71 In the present case, however, Perpetual did not engage in asset lending. As already explained, on the information presented to Perpetual, the loan appeared serviceable. The loan was not assessed without reference to its serviceability, and prima facie on the material supplied to Perpetual it was serviceable, even without taking into account any investment income. The capacity of Mr and Mrs Riz to service loans was amply demonstrated by their records with St George and Citibank. Although the loan was induced by Mr and Mrs Riz's unrealistic expectation of a high return from their proposed investment, the viability of the loan agreement did not depend on that expectation. Perpetual reasonably assessed the loan, on the material submitted to it, as serviceable. Moreover, even on the true financial position of Mr and Mrs Riz, though it was not known to Perpetual, the loan was not unserviceable if the $150,000 were invested in a conventional investment. It is true that the loan contract was one which Mr and Mrs Riz in fact had little prospect of servicing if the particular investment they had in mind failed, but they ought to have been able to service it if the surplus were invested in an ordinarily prudent investment. Having regard to what Mr and Mrs Riz say were their sources of income, and the performance of their loans with St George and Citibank, and assuming an investment with a 10 percent return approximately, viewed objectively the loan was serviceable. Alternatively, even if the $150,000 were to be invested in a non-income producing asset, it would be represented by a corresponding additional asset. There is no basis for concluding that Perpetual was engaging in "asset lending". The loan contract (as distinct from the KSE investment) was not, viewed objectively (by an observer who, like Perpetual, was aware generally that $150,000 of it was to be invested, but not specifically of the particular proposed KSE investment), an imprudent let alone an improvident transaction. 72 Procedural unfairness is said to be found in the circumstances that Mr and Mrs Riz assumed the obligations of the loan contract and mortgage only (1) because of the erroneous belief that they would easily be able to service them with income from the KSE investment, and (2) because false information was provided, without their knowledge, to Perpetual, when the loan would have been declined had their true circumstances been disclosed, which Perpetual was in a superior position to ascertain and protect its own interests. 73 As Khoshaba establishes, the purpose of a loan is one of the circumstances in which the loan contract is made. A borrower's purpose in obtaining a loan is usually the motive or incentive for a loan transaction. Here, the borrowers obtained a loan for the purpose of an investment in KSE, which they were given to believe would enable them easily to service the loan, a belief that was falsified when KSE subsequently failed. The transaction was induced by the erroneous expectation that the surplus from the loan of about $150,000 could be invested to earn $10,000 a fortnight, but for which Mr and Mrs Riz would not have borrowed from Perpetual at all. Moreover, the loan was obtained only upon a misrepresentation of their financial circumstances, through the falsified income tax returns produced by QLS, without which Perpetual would not have approved the loan. Viewed from the perspective of Mr and Mrs Riz, these are circumstances of unfairness: they have assumed burdensome obligations which they would not have assumed had they not been misled as to the KSE investment, or had false information not been supplied to perpetual by QLS. But there are serious obstacles to concluding that, in those circumstances, the loan contract and mortgage are unjust. 74 I am prepared to accept that procedural unfairness may be sufficient to make a contract unjust, even though its terms are objectively reasonable, if the party claiming relief would not have entered into the contract if properly advised or informed of its legal and practical effect, consequences and risks. However, characterisation of a contract as unjust requires adoption of a more objective view than the subjective perspective of one party to the contract. As McHugh JA said in West (at 622): … a contract will not be unjust against a party unless the contract or one of its provisions is the product of unfair conduct on his part either in the terms which he has imposed or in the means which he has employed to make the contract. 75 That is not to say a contract cannot be unjust even though the vitiating circumstance is not known to the other party; there are plainly cases in which a contract will be unjust even though the other party is unaware of the relevant circumstance [St Clair v Petricevic (1988) ASC ¶55-688, 58,207 (Hope JA); Beneficial Finance v Karavas, 277 (Meagher JA); St George Bank Ltd v Trimarchi [2004] NSWCA 120, [36]; Khoshaba, [117]-[119]. Nonetheless, evaluation of injustice requires that the court have regard to the position of all the contracting parties. 76 Moreover, it is clear that parties to a contract are to be treated as responsible for the conduct of those who act on their behalf: thus s 9(2) lists amongst the relevant considerations: (j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act: (i) by any other party to the contract, (ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or (iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract, … 77 The erroneous belief of Mr and Mrs Riz that they would easily be able to service their obligations to Perpetual with income from the KSE investment was not known to, let alone induced by, Perpetual; it was generated by the promoters of KSE. It is true that in this respect unfair tactics were used against Mr and Mrs Riz, but not by or on behalf of another party to the contract; the unfair tactics were used by those promoting KSE, not by persons for whom Perpetual was responsible. Similarly, that their true financial circumstances were not known to Perpetual was due to the conduct of persons acting not on behalf of Perpetual, but on behalf of Mr and Mrs Riz in the transaction, namely QLS. Perpetual indeed submitted that Mr and Mrs Riz were aware of, or at least recklessly indifferent to, the use of false information to support their loan application to Perpetual. Given the use of false employment information to support the applications for finance from St George and Citibank, given Mr Riz's knowledge that in his circumstances he should not have been able to obtain a loan, and given his evidence, referred to in [7] above, about leaving others to obtain finance for him not knowing what they would say, there is considerable force in the submission that he must have appreciated that some irregularity was likely, but I do not found my decision on that basis. Assuming that he did not advert to that possibility, the false information was nonetheless supplied on behalf of both Mr and Mrs Riz, in aid of a loan application that they wished to prosecute. 78 The evidence does not demonstrate any indifference or recklessness on the part of Perpetual, and I do not accept that, although Perpetual did not know the true circumstances of Mr and Mrs Riz, it ought to have ascertained them, or should be regarded as having been wilfully blind as to the income of its borrowers. As already remarked, there is nothing remarkable, or sinister, about copy income tax returns being unsigned; nor in a tax file number being masked – so much appears no more than a reasonable security precaution; a reasonable lender assessing the loan for serviceability would not necessarily have resorted to the distribution statement in the partnership return so as to discover the reference to the Saddi income; the form of declaration was generic, and unremarkable; that the borrowers had no accumulated savings is unsurprising – many who refinance their home loans have no savings of significance; and the direct debit request was provided at a point in the process where a reasonable lender would not have been influenced by it to decline a loan that had already been approved. The submission that Perpetual ought to have discovered the true position of Mr and Mrs Riz bespeaks an assumption that a lender ought to have a high index of suspicion that its borrower (or agent) is endeavouring to defraud it, and is bound in the borrower's interest to be very alert for such fraud. A prospective borrower is not entitled to expect the lender to be alert for fraud by or on behalf of the borrower; and a lender is not required, in the interests of the borrower, to have a high index of suspicion for fraud by the borrower or the borrower's agent. A lender's failure to detect fraud by or on behalf of a borrower does not weigh significantly in favour of a finding that the consequent loan contract is unjust. To hold that the undetected provision of false information by or on behalf of a borrower to a lender in an attempt to obtain a loan resulted in the loan contract being unjust against the lender would be to invert commonsense, logic and justice, by protecting the wrongdoer against the victim. To grant remedies under the Contracts Review Act on such grounds would be to convert an Act, intended to achieve just results, into an instrument of injustice. 79 This case has two important features that distinguish it from Khoshaba. First, in Khoshaba, the circumstances that the statement of the purpose of the loan was left blank, and that Perpetual made no inquiry about its purpose, were decisive: Spigelman CJ said that had Perpetual made any inquiries about the purpose of the loan (not extending to determining that the proposed investment was reasonable and capable of servicing the loan) his Honour would have allowed the appeal; and Basten JA observed (at [125]) that had the loan been expressed to be intended for investment purposes, rather than expenditure on consumables, it was at least arguable that it would be self-funding. In the present case, the purpose of the loan – refinance and further investment – was stated, and it was not as if Perpetual was prepared to proceed on the basis that for all it knew the funds would be paid away immediately; Perpetual's state of mind was that Mr and Mrs Riz proposed to refinance and invest the surplus proceeds, which imports the generation of a return and/or the acquisition of corresponding additional assets. Secondly, for reasons already explained, there is no basis for concluding that Perpetual was in this case engaging in "asset lending". 80 In my opinion, therefore, the loan contract and the mortgage were not unjust in the circumstances in which they were made. Mr and Mrs Riz were represented and advised by their own lawyer. Perpetual did not demonstrate the indifference referred to in Khoshaba, and did not engage in asset lending, but assessed the loan having regard to serviceability. On the information available to Perpetual, the loan was prima facie serviceable, even without reference to investment income; bringing ordinary investment income to account would have enhanced its serviceability. Even on their actual financial position, it was serviceable if the surplus was invested in a conventional investment. Although Mr and Mrs Riz were the subject of unfair tactics, those were perpetrated not by or on behalf of Perpetual, but by the promoters of KSE, or by their own agents QLS. The false financial information, without which the loan agreement would not have been approved, was provided to Perpetual by QLS on behalf of Mr and Mrs Riz (although I assume, without finding, that they were unaware of it). For borrowers to obtain a loan by a misrepresentation made on their behalf, even if not known to them, where the lender would not otherwise have approved the loan, does not make the loan contract objectively unjust to the borrowers against the lender. Perpetual was not required to have a high index of suspicion that it was being deceived by QLS acting for Mr and Mrs Riz, and its failure to discover the deception does not make a case of injustice. 81 However, lest I be wrong in the conclusion that the contract was not an unjust one, I will consider the second step, namely the exercise of discretion to grant relief. On the question whether as a matter of discretion relief should be granted, the knowledge of the relevant defendant is highly relevant, although absence of knowledge of the circumstances of injustice is not necessarily decisive against a claim for relief [Khoshaba, [77], [119]; Beneficial Finance v Karavas, 277 (Meagher JA); Nguyen v Taylor (1992) 27 NSWLR 48 (Sheller JA)]. 82 The circumstance that Perpetual was not involved in any way in the KSE investment, let alone implicated in the deception of Mr and Mrs Riz about KSE, is entitled to significant weight [cf Khoshaba, [77]]. Similarly, so too is the circumstance that the misinformation about their financial circumstances was provided to Perpetual by their own agents QLS. These are powerful considerations. Perpetual did not know and was not required to know the major factor which might have affected the justice of the contract, namely the borrowers' erroneous expectation that, through investment with KSE, they could generate a return of $10,000 a fortnight. Nor was Perpetual in any way responsible for the provision of false information in connection with the loan application; and as explained above (at [78]) the circumstances were not such that Perpetual's failure to detect fraud by or on behalf of a borrower tells against it. 83 In Khoshaba, in the course of rejecting Perpetual's submission that the court should as a matter of discretion decline to grant relief, Spigelman CJ, after referring to Beneficial Finance v Karavas and Nguyen v Taylor, said (at [96]): I do not doubt the existence of the discretion. It falls to be exercised afresh in this court. In my opinion the appellant cannot be regarded as an innocent party of the kind referred to in the authorities. Again I place particular reliance on the indifference of the appellant and its representatives to the purpose of the loan, indicating that it was content to proceed on the basis of enforcing the security. This is not a case for the exercise of the discretion to refuse relief. 84 Perpetual's assessment of the loan application in the present case does not manifest the "indifference" that was crucial in Khoshaba. Perpetual knew that the purpose of the loan – absence of which was decisive in Khoshaba – was in part to refinance and in part for further investment, and was not content to proceed on the basis of the security alone, but assessed the loan for serviceability – which appeared to be satisfactory. In this case, Perpetual can indeed be regarded as an innocent party. 85 Accordingly, had I concluded that the contract was unjust because Mr and Mrs Riz had assumed burdensome obligations which they would not have assumed had they not been misled as to the KSE investment, or had false information not been supplied to Perpetual by QLS, I would nonetheless have declined as a matter of discretion to grant relief against Perpetual. The Contracts Review Act claim fails. 86 Mr and Mrs Riz also made submissions that they were entitled to relief in equity for unconscionable dealing, on the basis that they were under special disability (by reason of illiteracy, poor English, poor numerical ability and commercial naivety) that was sufficiently evident to Perpetual, which as the significantly stronger party unconscionably took advantage of Mr and Mrs Riz. 87 My reasons for concluding that the loan was not unjust equally inform a conclusion that it was not unconscionable. As Beazley JA said in Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413 (at [51]) (see also Teachers Health Investments Pty Ltd v Wynne (1996) NSW Conv R 55-785, at 56,029): ... two matters need to be established to invoke the court's jurisdiction to set aside an unconscientious transaction. The first is that the party seeking to impugn the transaction was under a relevant disability. In describing this disability, Deane J at 476 referred to the statement of McTiernan J in Blomley v Ryan (1956) 99 CLR at 392 that: '... as taking surreptitious advantage of the weakness, ignorance or necessity of another. The essence of such weakness is that the party is unable to judge for himself.' ... The second element [required to establish an entitlement to relief under Amadio is that this disability], as Deane J said at 477: 'sufficiently evident to the [other party to the transaction] to make it prima facie unfair or 'unconscientious' of the [other party to the transaction] to procure [the] execution of the [contract] in the circumstances in which the execution was procured.' 88 Even if the circumstances of Mr and Mrs Riz amounted relevantly to circumstances of "special disadvantage", there is no evidence that Perpetual or its agents had knowledge of those matters; and Perpetual and its agents dealt with Mr and Mrs Riz through their own solicitors DDS. For reasons already advanced, I do not accept that the loan transaction was, view from Perpetual's perspective, an imprudent, let alone an improvident, one. I can see no basis for concluding that Perpetual unconscientiously took advantage of Mr and Mrs Riz. 89 Accordingly, all claims of Mr and Mrs Riz against Perpetual fail, and will be dismissed. There being no other defence to Perpetual's first cross-claim, Perpetual is, subject to compliance with the relevant formalities, entitled to judgment for the amount of its debt, quantification of which was by agreement deferred until judgment, and to judgment for possession of the property. The case against DDS 90 Although Mr and Mrs Riz originally complained that Ms Jajoo had made misleading and deceptive representations to them as to the financial prudence of the proposed investment with KSE, ultimately this claim was not pressed. Nor was it ultimately contended on their behalf – although the evidence of Mr and Mrs Riz sometimes suggested otherwise – that the explanations given by Ms Jajoo as to the legal and practical effect of the loan documentation were deficient. Mr and Mrs Riz claimed that they could not understand what Ms Jajoo said, nor the interpretation of Ms Hannah, at the 25 September consultation. I am content to accept that at least Mrs Riz would in fact not have comprehended the substance of what Ms Jajoo said in English, although she may have understood some of the words. But Mrs Riz contends that, to the extent that Ms Hannah interpreted Ms Jajoo's advice, she did so in a dialect, or at least with an accent, that she did not understand. The affidavit evidence of neither Mr nor Mrs Riz refers to any contemporaneous complaint that they could not understand what Ms Jajoo or Ms Hannah said. Ms Jajoo's affidavit and Ms Hannah's evidence (including Ms Jajoo's contemporaneous file notes) – which for reasons already explained I am unpersuaded to disbelieve – contains examples of interaction between Ms Jajoo and Mr and Mrs Riz which would indicate comprehension by Mr and Mrs Riz, including that Mrs Riz said on a number of occasions "It's alright. I understand", and herself asked questions which were indicative of comprehension. Similarly, the completion and return of the reference forms and the direct debit request is indicative of comprehension of what was said in the consultation. In my view, Ms Jajoo was reasonably entitled to think that Mr and Mrs Riz could understand what she said to them. 91 The remaining complaints against DDS are twofold: + Breach of fiduciary duty, by failing to cease to act for Mr and Mrs Riz, in circumstances that the firm had "multiple allegiances" arising from a complicated web of business and professional associations between them and Mr Suleman. This is put on the dual bases of conflict of duty and duty, and conflict of interest and duty. As to conflict of duty (to Mr Suleman) and duty (to Mr and Mrs Riz), it is said that DDS had an overriding duty of undivided loyalty to Mr and Mrs Riz, which required DDS to cease acting for Mr and Mrs Riz when the firm became aware that the proceeds of the loan were likely to paid to KSE, in circumstances where it was known that the KSE investment was risky, and that Mr and Mrs Riz had not obtained financial or legal advice in relation to it. It is said that DDS had conflicting duties to Mr and Mrs Riz (to warn them against imprudent transactions) and to Mr Suleman (to secure further investment funds). As to conflict of interest (of DDS) and duty (to Mr and Mrs Riz), it is said that, DDS having advanced $170,000 to a Suleman entity, the firm had an interest in Mr and Mrs Riz obtaining the loan, in order to enable them to make a payment to KSE, which would indirectly facilitate repayment of the advance (although there is no suggestion that it was contemplated that it would be repaid from the Riz investment), retain favour with Mr Suleman, and secure his ongoing business; which conflicted with their duty to Mr and Mrs Riz to deter them from imprudent investments. + Breach of their professional duty of care (in tort and/or contract), by failing to cease to act for Mr and Mrs Riz unless and until they had obtained financial advice, or – as refined in the course of submissions – failing at least to warn Mr and Mrs Riz that their proposed investment was imprudent. 92 As ultimately pressed, the submissions for Mr and Mrs Riz implicitly accepted Ms Jajoo's version of events. They focussed on her knowledge that Mr and Mrs Riz intended to invest $150,000 from the proceeds of the loan (after refinancing the Citibank mortgage) with KSE and expected to receive a return of $10,000 a fortnight from that investment. 93 Mr and Ms David, and Ms Jajoo, are of Assyrian decent. A good portion of their clientele, though not the majority, are Assyrians. Ms Jajoo agreed that in 2000 and 2001, everyone in the Assyrian community was talking about Mr Suleman, and she had heard that some of his ventures included investment opportunities which produced high returns. Ms Jajoo explained that although during 2000 and 2001 she handled about 95 matters in which clients invested in KSE, in most cases the intention to invest in KSE did not come to her attention until the time of cheque direction. She explained: I know at the moment it is obvious that all those people invested in some kind of a scheme, but at the time it wasn't like that. It was some people were investing in some kind of an investment. Some people were buying trolley runs, and I would see them in the shopping centres around the area pushing trolleys and managing those. Some people were saying they are in some limousine business with him. Some people were saying they were in, they were in the internet business with him. Some – I really had no idea at the time what people were investing in or what business venture they were entering. 94 DDS had undertaken a considerable amount of work for Mr Suleman before September 2001. In early 2001, questions had arisen concerning the legality of his investment scheme, and that was thereafter to be addressed by Mallesons. The partners in DDS, Mr Fred David and Ms Suzy David, had invested in an enterprise with Mr Suleman. Ms Jajoo was Mr David's wife and Ms David's sister-in-law. On 25 September 2001, Ms Jajoo believed that in a couple of weeks' time she would be sitting at a table with Mr Suleman and President Clinton of the United States of America. 95 Ms Jajoo accepted that at the 25 September consultation she knew that Mr and Mrs Riz probably had not obtained advice from a lawyer or financial adviser on the investment, and received no information between then and settlement on 15 October 2001 to suggest that they had obtained any such advice. 96 Ms Jajoo knew that Mr and Mrs Riz were contemplating mortgaging their family home in order to raise the money for that purpose; she appreciated that they were risking their home for a business venture. When asked whether – from Mrs Riz's statement to the effect "this is a big risk" it was apparent that Mrs Riz was concerned about the risk of an investment in KSE, Ms Jajoo said "I wouldn't put it that way. … she appreciated that she was entering a business venture and there's risks involved and that is the reason I told her to go and obtain advice from somebody who would advise her in relation to those risks, if any risks". 97 One does not need expert evidence to conclude that the return which Mr and Mrs Riz told Ms Jajoo they were expecting was so extraordinarily high as to strain credulity. Ms Jajoo understood that they were telling her "they are contemplating some kind of a business venture and they will be making enough money out of it to be making repayments of $10,000 every two weeks towards the loan". She thought, "That's a very high return and he should go and obtain some advice in relation to that business venture". Tested, she said that she considered it a "high return" but not absurd, she then conceded that it was a "very high return", but would not adopt "an absurdly, a patently absurdly high return". Then she was asked: Q. In your thirty-one years of life had you ever heard of an investment in New South Wales, Australia, returning something like $260,000 in one year on a $275,000 investment? A. I hadn't looked at investments but I considered this investment as a very high return, a very high risky return. 98 In fact, the investment was $150,000, not $275,000, so the return was even more extraordinary. Subsequently Ms Jajoo gave this evidence: Q. Did it or did it not occur to you that the return being spoken of sounded too good to be true? A. It was a high return. I did not make that assessment, but that was definitely the reason that they should have gone to somebody who should have advised them on that aspect of their transaction, but that didn't affect the transaction that I was advising them on. Your Honour, I need, I wanted to make sure that they could make, or they understood that they had to make the minimum repayments, which were $1,780 I think a fortnight, and if they didn't make those repayments that would be an act of default and they would lose the house. 99 She said that she did not have any understanding as to what the employment of Mr and Mrs Riz was, and did not ask, but "comfortably assumed that there would be some employment for them to be able to obtain a loan". She had no understanding and formed no impression as to their education. She said she formed a view that they both knew that whatever they were getting themselves into had risks, some kind of risks associated with it, like any other business. She said: "On that basis I told them, 'you should go and obtain the advice of somebody who could tell you if there is any risks or not'. Now I was satisfied that they understood that, and they would follow that up at some stage whenever time came for them to enter that business transaction". 100 While generally I accept Ms Jajoo's evidence, and I accept that she told Mr and Mrs Riz that they should obtain separate legal and financial advice in respect of the proposed KSE investment, I do not accept that she was reasonably entitled to be satisfied that they would follow up that advice, or that they understood its importance. The context was that not only did Mr and Mrs Riz (without having any prior opportunity of first seeking such advice) go ahead and there and then execute the loan contract and mortgage; they also gave instructions for the inclusion of $10,000 per fortnight on the direct debit authority, and for the settlement cheques to include one for $150,000 in favour of KSE. In those circumstances, it ought to have been apparent to Ms Jajoo that she had not done enough to bring home the importance to Mr and Mrs Riz obtaining independent advice. 101 The plaintiffs called expert evidence from a solicitor, John Howard Fisher, who has been in practice for nearly 40 years. Mr Fisher has since 1994 been a member of the Law Society's Specialist Accreditation Board. He has also served on the Conveyancing Practice Committee. Mr Fisher referred to Ms Jajoo's evidence of her consultations with Mr and Mrs Riz, from which it appeared that the return was important to them and relevant to the mortgage transaction. He said: It would be extraordinary if a solicitor following standard practice would not be greatly concerned about a client expecting a return of $312,000 per annum on an investment of $150,000. 102 It was his opinion that it would not accord with standard practice for a solicitor, having been advised of the nature of an intended investment and the very high returns expected by the client, and having indicated that the firm does not approve of the structure of the investments, to simply make it known to the client that there was a distinct element of risk and that the client should not proceed without obtaining independent advice from an accountant or investment adviser. He opined that in such circumstances it would be standard practice for the solicitor to take additional steps to ensure that the client was independently advised, or to obtain written instructions that the client did not wish to be independently advised despite the solicitor's warning, or to refuse to act. He said that a competent and prudent solicitor following standard practice would be greatly concerned at a client expecting a return of about $312,000 per annum on an investment of $150,000, because such a return was so much higher than prevailing interest rates and prevailing investment returns in 2001. 103 In cross-examination, Mr Fisher accepted that where a solicitor was not retained to advise in respect of a particular transaction and does not assume an obligation to advise on it, the solicitor is not obliged to give advice on that transaction; but he did not accept that a solicitor retained in respect of a loan and mortgage transaction was not obliged to give "financial advice" about it in any circumstances: Well, no. If there was, let's say, an extraordinary interest rate or some other condition of the loan which was out of the ordinary, I would feel it is the responsibility of the solicitor to bring that clearly to his client's attention. 104 However, he accepted that unless the solicitor assumes the responsibility of giving financial advice, the solicitor was under no duty to do so. But while he generally accepted that the scope of the solicitor's responsibility was defined by the retainer, he insisted that this was not always so: But I keep saying there are other factors. If it becomes apparent that what a client is doing is imprudent or unreasonable at some point that solicitor, I believe, has a duty to that client. So that would extend the assumed, the assumed retainer. 105 Elsewhere he said: Q. You would say that in the ordinary mortgage lending situation, where a solicitor acts for the mortgagor and borrower, do you say that the solicitor would be under a duty to advise the client about transactions other than the loan transaction itself? A. No, not to advise the client but to take care for the client. And if it is made known to the solicitor that the client was, say, to engage in an illegal transaction or if the solicitor became, in his judgment, aware that the client was, had diminished responsibility, say, or was doing something extreme it is incumbent on the solicitor to look into that further. 106 In the course of cross-examination about the information which Ms Jajoo had as to the proposed investment and anticipated return, he was asked what he had assumed about the scope of her retainer and answered: I don't know that I had assumed the retainer was extended. But the use of those words to any ordinary reasonable competent solicitor would have the effect of ringing some alarm bells. 107 This was a reference to the anticipated return of $10,000 per fortnight. However, Mr Fisher had some difficulty in formulating what was standard practice for a solicitor confronted by a relatively unsophisticated client in a borrowing transaction when it was intended to apply the proceeds to an investment in respect of which the client harboured what appeared to be totally unrealistic expectations. He said that it would be standard practice "to send that client off for financial advice". When it was suggested that the client might be told "that sounds an impossibly high return, too good to be true, and I would not recommend you go into any such investment", he said "that may be appropriate, but if the client is unsophisticated they may not hear that statement". When asked why they would hear it any better form a financial planner than from a solicitor, he suggested that the different qualifications may be significant, but then added that in this case, a solicitor would be confident that a 200% return was ridiculous and would advise the client not to proceed. 108 I accept that the solicitors' retainer was to advise and act on the loan and mortgage transaction, and that the solicitors were not retained to advise on the proposed investment in KSE. In Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398, 418E-F, Sheller JA, with whom Meagher JA and Abadee AJA agreed, said: In my opinion the difficulties faced by the O'Briens which his Honour considered were so great and, to professional persons, so obvious that a solicitor could not reasonably leave them unstated, did not impose the duty his Honour held Mr Eliades to be under. Stated bluntly, such a duty would require solicitors, retained to act on a purchase or mortgage for their skill in the law, to inform every client for whom they so acted of their views about the financial prospects of the purchase or mortgage where they felt or ought reasonably to have felt that there was risk of loss. One consequence of this would be to require solicitors to give opinions, which they were not qualified to give, with the obvious consequence that if they were wrong and the client had acted on the basis of those views, they would be liable in negligence. For good reason such a proposition is contrary to authority. The solicitor's duty is found in the terms of the retainer and the ambit of any additional assumed responsibility relied upon. 109 I accept that the scope of a retainer is of considerable significance in identifying the extent of a solicitor's duty of care. However, the scope of a solicitor's duty of care to a client is not confined to the contract of retainer but may extend in the circumstances of a particular case to require the taking of positive steps, beyond the specifically agreed task or function, where such steps are necessary to avoid a real and foreseeable risk of economic loss being sustained by the client [Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642]. In that case, a solicitor received and acted on instructions, from another client, to mortgage land in which his client Waimond had an interest, for purposes unconnected with and having no benefit for Waimond, where that was a matter of which a clerk in the solicitor's employ had knowledge derived from previous transactions. The Court of Appeal held that when the solicitor had knowledge of a transaction proposed by one client which necessarily carried the risk of loss to the other, there was a breach of duty when he failed to check with the other client or to advise him to seek independent advice before taking a step potentially damaging to those interests. This was so notwithstanding that the solicitor (who acted for the other client) was personally unaware of Waimond's interest, its affairs having been attended to by his clerk. Kirby P said (at 652): Although the contract of retainer will be an important indicium of the nature of the relationship which gives rise to the common law duty of care (as the minority held in Hawkins ) it will not chart exclusively the perimeters of that duty. Deane J pointed out (at 579) that, depending upon the circumstances of the particular case, the duty may require the taking of positive steps "beyond the specifically agreed professional task or function", where these are necessary "to avoid a real and foreseeable risk of economic loss being sustained by the client". 110 Later (at 657) his Honour concluded: When a client retains a solicitor it is entitled to expect that the solicitor will provide attentive advice and be vigilant for the client's interests. There is always a risk where the solicitor acts for a number of clients that failings will occur, and assumptions be made, as happened in this case. Usually, there will be no conflict between the interests of the clients. The several clients will act honourably and decently in relation to the others. Where one does not, and this could have been exposed by greater vigilance and diligence it is better that the solicitor should bear the burden of the loss which follows than that the client should do so. This is so because clients go to solicitors and rely upon them for advice expecting that solicitors will act with reasonable care to protect them from foreseeable losses. In the present case, the loss was foreseeable because the solicitor had knowledge of the respective interests of his several clients and the dealing which he arranged on the instruction of two of them had no apparent interest or benefit for the third. The burden which the "positive step" required (namely, of securing instructions) was trivial. The burden of the loss which has accrued to the client from the solicitor's failure to take that step, is substantial. Because I believe the loss would not have occurred had the solicitor taken specific instructions, as reasonable care required, I consider that the want of care caused the loss sued for. 111 Hope AJA concurred with Kirby P, although Mahoney JA dissented. Waimond was referred to in Citicorp v O'Brien, and not expressly overruled or disapproved, but the scope of a solicitor's duty of care as stated by Sheller JA in Citicorp – which limits it to "the terms of the retainer and the ambit of any additional assumed responsibility relied upon" is narrower than that recognised in Waimond. In Waimond, the duty enforced was not one that the solicitor had assumed nor one that the client relied upon. 112 Since Citicorp v O'Brien, different views have been expressed as to the authority of Waimond. In Heydon v NRMA Ltd (2000) 51 NSWLR 1, [145], Malcolm AJA expressed the view that it could not survive Astley v Austrust Ltd (1999) 197 CLR 1, in which the High Court had (at 23) rejected certain of the views of Deane J in Hawkins on which Waimond was founded. However in Curnuck v Nitschke [2001] NSWCA 176, Davies AJA (with whom Meagher JA concurred) held that notwithstanding Astley v Austrust, Waimond v Byrne remained good law: [8] It is one thing to say, where a solicitor has a contractual relationship with a client and where the matter in issue arises within the scope of the retainer, that there will be no difference between the duty of care imposed by the contract and that imposed by the law of negligence. It is another thing to say that, in respect of a matter which is beyond the scope of the contract, a tortious duty of care may not arise from the relationship between the parties. [9] In Australia, there have been several cases where a duty of care has been imposed upon solicitors notwithstanding that the solicitor's retainer did not impose that duty. (See Hawkins v Clayton ; Hill v Van Erp (1997) 188 CLR 159; and Waimond Pty Ltd v Byrne .) 113 Accordingly, the prevailing position is that the scope of a solicitor's duty of care is not limited to the terms of the retainer but, depending upon the circumstances of the particular case, may require the taking of positive steps beyond the specifically agreed professional task or function, where these are necessary to avoid a real and foreseeable risk of economic loss being sustained by the client. 114 In particular, I do not accept that a retainer to advise and act on a loan and mortgage transaction excuses the solicitor from all responsibility in connection with the subsequent transaction to which it is proposed to apply the proceeds. As Khoshaba shows, the purpose of a loan is a relevant circumstance in the loan transaction, and a matter to which the lender must give some consideration, as it may influence security and serviceability. As I have mentioned above, it is usually the motive for the transaction. The relationship between a borrower and the borrower's solicitor is a much more proximate one – and one which unquestionably involves a duty of care – than the relationship between the borrower and the lender, which does not involve any such duty. If it is relevant for the lender to have regard to the purpose to which the loan is to be applied, it is much more relevant for the borrower's solicitor to do so. Khoshaba puts an end to the artificial fine line between the loan transaction and the proposed investment of its proceeds, by recognising that the purpose of the loan is necessarily part of the circumstances relevant to the borrowing transaction. 115 However, Citicorp v O'Brien is also potentially important for a second reason: the Court of Appeal has at least twice held that it is not the function of a solicitor to advise a client as to the financial merits or wisdom of a proposed transaction, at least unless the solicitor is either specifically retained to do so, or assumed responsibility for doing so [Hogan v Howard Finance Ltd (1987) ASC §55-594; Citicorp v O'Brien, 418E-F]. Although Hogan was implicitly disapproved, by Kirby P, in Waimond (at 652), as inconsistent with Hawkins v Clayton (1988) 164 CLR 539, Citicorp v O'Brien might be read as holding that solicitors retained to act on a purchase or mortgage are not required to advise their clients of their views about the financial prospects of the purchase or mortgage where they feel (or ought reasonably to feel) that there is risk of loss, since to do so would require solicitors to give opinions which they are not qualified to give. However, properly understood in the context of authority both before and since, solicitors providing "independent advice" are expected to warn clients against improvident transactions, and while they are not required to provide the type of financial analysis that might be expected of accountants or stockbrokers or financial planners, they are expected to form a view as to the fairness of a transaction and whether it is reasonable for the client to enter into it, and if it is beyond their capacity to do so, to obtain appropriate specialist assistance. 116 The historical role of "independent legal advice" – a concept which long predates financial planners and financial advice, and the Contracts Review Act – is instructive. The notion of independent advice, referred to in the Contracts Review Act, had its origin in connection with the equitable doctrines of undue influence and unconscionable dealing, as an antidote to the invalidating presumptions which otherwise arose in those contexts. It is well-established that it is insufficient for a solicitor giving such advice to ensure that the client comprehends the contents, nature and effect of the relevant documentation; the solicitor must also give advice as to the propriety of the transaction [Meagher, Gummow & Lehane, Equity – Doctrines and Remedies, 4th edn, [15-145]; Powell v Powell [1900] 1 Ch 243, 247; Brusewitz v Brown [1923] NZLR 1106, 1116]. 117 Thus, in Perpetual Trustee Co of New South Wales Ltd v Bridgewater [1936] 3 All ER 501, on appeal from New South Wales, the Privy Council, upholding the judgment of Harvey CJ in Eq, made clear that independent advice given by a solicitor (Mr Taylor) had to be real advice based upon a proper inquiry into the value of the interest and some inquiry as to the price that would be available elsewhere (at 507-8): From these facts it appears to their Lordships that Mr Taylor made no attempt to advise his youthful client, or to assist him in resisting the temptation to exchange his future prospects for immediate cash, or to counteract the pressure which must almost necessarily exist where a debtor is negotiating with one who is his creditor concerning the sale of property which already stands as security for a large indebtedness between them. He never even suggested making inquiries from insurance companies to see whether better terms were not obtainable. He simply accepted as irrevocable the young man's expressed determination to sell at the price which he had already agreed with a creditor, and contented himself with explaining the contents of the draft document which the creditor had prepared for that purpose. The Chief Judge in Equity, exercising the equitable jurisdiction of the Supreme Court of New South Wales, has set the sale aside as an unfair dealing with an expectant heir. He has held that the sale was at an undervalue, that Mr Taylor did not do his duty to Bridgewater, who being in need of money overbore Mr Taylor, and that in the circumstances the transaction was not a fair deal between Murray and Bridgewater. 118 In Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30, Street J (as he then was) held that reading the proposed deed word for word to the client, without giving advice as to whether she should enter the transaction at all or discussing alternative means of arranging her affairs, was inadequate (at 35): Another of the indicia to which reference may legitimately be made in determining the critical issue of whether the plaintiff thoroughly comprehended the transaction, and entered into it deliberately and of her own free will, is the presence or absence of independent advice having been tendered to her. Mr Emanuel was brought into the present transaction with the intention no doubt of his meeting this requirement. I am of the view, however, that such part as he played in connexion with this settlement could not fairly be described as meeting that degree of independent advice that the plaintiff, as a person subject to a relationship of influence, was entitled to receive. Mr. Emanuel was, I accept, most careful to read the document through, and to invite questions of the plaintiff. But it was not textual advice upon the engrossment which was of prime importance in this regard: rather, it was advice upon the more general topic of whether a settlement should be entered into at all, an, if so, the general nature of the settlement, which in my view ought to have been provided for the plaintiff. … 119 In Stivactas v Michaletos (No 2) (NSWCA, 31 August 1993, unreported, BC9301874), Kirby P said that independent advice had to bring home to the client the comparative advantages of the available alternatives: The provision of independent advice is certainly an important ingredient in rebutting a presumption of undue influence although it is not essential. See eg Inche Noriah v Shaik Allie Bin Omar [1929] AC 127 (PC); Union Fidelity Trustee Co of Australia Ltd v Gibson [1971] VR 573 (SC) 577. However, where advice is given, it must be both independent and effective for the purpose of enlivening the client's appreciation of the transaction, its legal effects and the alternatives (if any) which are open to the client. See Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30 (SC), 36. The fatal flaw in the procedures put in place by the appellant, to guard against just the kind of challenge which later eventuated, was the inability of the independent solicitor to establish that he sufficiently drew to the respondent's attention, so that she understood, precisely what she was doing, the alternatives which were available to her in law to effect her wishes, the comparative advantages of those alternatives and that she nonetheless preferred to transfer her properties to the appellant. 120 Mahoney JA indicated that independent advice had to address the impact of the proposed transaction in the context of the means and needs of the client. His Honour said: I infer that his Honour concluded that the assistance which Mr Stomo gave or was able to give to the plaintiff on this occasion was not such that what she did was, in the sense here relevant, a proper exercise of her own will. In my opinion it was not. His Honour appears to have accepted, for example, that the advice was, or was apt to be, insufficient to bring home to her the significance of the transaction in the context of her present and future needs. 121 Sheller JA also showed that the impact of the transaction in the context of the client's financial circumstances was an important element of such advice: his Honour, agreeing that the appellant had failed to establish that the respondent was, inter alia, properly advised, cited, with apparent approval, the following passage from the judgment of Waddell J at first instance [Mr Stomo was the solicitor]: He continued: "… There is no evidence that the plaintiff was satisfactorily advised by Mr Stomo in relation to the gift of the two properties to the defendant. His evidence is that he has no recollection of having got her to sign the transfers or of witnessing her signatures, although he agrees that his signature does appear on both documents. A person in the plaintiff's position at that time should have been asked what was the extent of her property and the question of her future care and maintenance should have been discussed and the adviser should have pointed out to her the possible disadvantages of divesting herself of her major assets and relying completely on the defendant and her attention should have been drawn to the possibility that he might die before her, either by accident or from natural causes. She should have been advised that her interests might best be served by dealing with her property by will. …. At the very least, it seems to me that the defendant has not satisfied the Court that the gifts were made as the result of the free exercise of the plaintiff's will. Accordingly, the claim based on undue influence should succeed". 122 A similar view prevails in England. In Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144, Millett LJ explained that the solicitor must not be content to satisfy himself that his client understands the transaction and wishes to carry it out, but must satisfy himself that the transaction is one which his client could sensibly enter into if free from improper influence, and if not so satisfied to advise her not to enter into it: Accordingly, the presumption cannot be rebutted by evidence that the complainant understood what she was doing and intended to do it. The alleged wrongdoer can rebut the presumption only by showing that the complainant was either free from any undue influence on his part or had been placed, by the receipt of independent advice, in an equivalent position. That involves showing that she was advised as to the propriety of the transaction by an adviser fully informed of all the material facts (see Powell v Powell , Brusewitz v Brown , Permanent Trustee Co of New South Wales Ltd v Bridgewater [1936] 3 All ER 501 at 507 and Bester v Perpetual Trustee Co Ltd [1970] 3 NSWLR 30 at 35–36). Some of those cases were concerned with the equity to set aside a harsh and unconscionable bargain rather than one obtained by the exercise of undue influence, but the role of the independent adviser, while not identical, is not dissimilar. The solicitor may not be concerned to protect the complainant against herself, but he is concerned to protect her from the influence of the wrongdoer. The cases show that it is not sufficient that she should have received independent advice unless she has acted on that advice. If this were not so, the same influence that produced her desire to enter into the transaction would cause her to disregard any advice not to do so. They also show that the solicitor must not be content to satisfy himself that his client understands the transaction and wishes to carry it out. His duty is to satisfy himself that the transaction is one which his client could sensibly enter into if free from improper influence; and if he is not so satisfied to advise her not to enter into it, and to refuse to act further for her if she persists. He must advise his client that she is under no obligation to enter into the transaction at all and, if she still wishes to do so, that she is not necessarily bound to accept the terms of any document which has been put before her but (where this is appropriate) that he should ascertain on her behalf whether less onerous terms might be obtained. 123 Although the statement that the solicitor should decline to continue to act must be treated with caution after Royal Bank of Scotland v Etridge (No 2) [2001] 4 All ER 449, the judgment of the Court of Appeal in Credit Lyonnais was cited with evident approval by the House of Lords in Royal Bank, in which Lord Nicholls, in whose speech all members of the House concurred, explained the obligations of a solicitor giving "independent advice" as including "as a core minimum", not only the nature of the documents and the practical consequences they will have, but the seriousness of the risks involved, which requires the solicitor should discuss the client's financial means, understanding of the value of the property being charged, and whether there are other assets out of which repayment could be made if the husband's business fails, and some discussion of the present financial position (at 469-470): [64] I turn to consider the scope of the responsibilities of a solicitor who is advising the wife. In identifying what are the solicitor's responsibilities the starting point must always be the solicitor's retainer. What has he been retained to do? As a general proposition, the scope of a solicitor's duties is dictated by the terms, whether express or implied, of his retainer. In the type of case now under consideration the relevant retainer stems from the bank's concern to receive confirmation from the solicitor that, in short, the solicitor has brought home to the wife the risks involved in the proposed transaction. As a first step the solicitor will need to explain to the wife the purpose for which he has become involved at all. He should explain that, should it ever become necessary, the bank will rely upon his involvement to counter any suggestion that the wife was overborne by her husband or that she did not properly understand the implications of the transaction. The solicitor will need to obtain confirmation from the wife that she wishes him to act for her in the matter and to advise her on the legal and practical implications of the proposed transaction. [65] When an instruction to this effect is forthcoming, the content of the advice required from a solicitor before giving the confirmation sought by the bank will, inevitably, depend upon the circumstances of the case. Typically, the advice a solicitor can be expected to give should cover the following matters as the core minimum. (1) He will need to explain the nature of the documents and the practical consequences these will have for the wife if she signs them. She could lose her home if her husband's business does not prosper. Her home may be her only substantial asset, as well as the family's home. She could be made bankrupt. (2) He will need to point out the seriousness of the risks involved. The wife should be told the purpose of the proposed new facility, the amount and principal terms of the new facility, and that the bank might increase the amount of the facility, or change its terms, or grant a new facility, without reference to her. She should be told the amount of her liability under her guarantee. The solicitor should discuss the wife's financial means, including her understanding of the value of the property being charged. The solicitor should discuss whether the wife or her husband has any other assets out of which repayment could be made if the husband's business should fail. These matters are relevant to the seriousness of the risks involved. (3) The solicitor will need to state clearly that the wife has a choice. The decision is hers and hers alone. Explanation of the choice facing the wife will call for some discussion of the present financial position, including the amount of the husband's present indebtedness, and the amount of his current overdraft facility. (4) The solicitor should check whether the wife wishes to proceed. She should be asked whether she is content that the solicitor should write to the bank confirming he has explained to her the nature of the documents and the practical implications they may have for her, or whether, for instance, she would prefer him to negotiate with the bank on the terms of the transaction. Matters for negotiation could include the sequence in which the various securities will be called upon or a specific or lower limit to her liabilities. The solicitor should not give any confirmation to the bank without the wife's authority. 124 The role of "independent advice" in this context includes guarding against improvidence. Such advice is intended, amongst other purposes, to act as a "reality check" in respect of transactions which might be disadvantageous. Although these cases are concerned with what is required in equity to rebut a presumption of undue influence, rather than what the common law stipulates as the measure of reasonable care, the context of the retainer informs the solicitor's duty of care. The nature of a solicitor's obligation to the client in this context is informed by the circumstance that it is usually a third party – typically a financier – that insists that such advice be obtained, and it serves to protect the interests of the third party as well as those of the client: as Lord Nicholls explained in Royal Bank v Etridge (at [64]), while the starting point was the solicitor's retainer, the relevant retainer stemmed from the financier's concern to receive confirmation that the solicitor had brought home to the client the risks involved in the proposed transaction. Courts have repeatedly and stridently emphasised that lawyers who believe that they discharge their duty in that context by merely explaining the legal effect of a transaction are ill informed. Thus in Bester, Street J said (at 36): The need to provide meaningful advice in order to enable an independent choice to be made by a person in the position of the plaintiff is of great importance. The purpose of obtaining advice is to enable the making of an independent choice. It may be that to an informed and intelligent listener advice confined to explaining will enable an intelligent choice to be made to the effect that the document being explained is acceptable to the party being asked to execute it. But the mere fact that a document is explained, and that no questions are asked or criticism made by the party to whom it is being explained, does not tend strongly in favour of the conclusion that this party made a deliberate and intelligent choice to adopt each and every one of the provisions contained in the document. 125 In Credit Lyonnais, Millett LJ said (at [1997] 1 All ER 144, 155-6) (emphasis added): … I should not be taken to accept that it would necessarily have made any difference even if Miss Burch had entered into the transaction after taking independent legal advice. Such advice is neither always necessary nor always sufficient. It is not a panacea. The result does not depend mechanically on the presence or absence of legal advice. I think that there has been some misunderstanding of the role which the obtaining of independent legal advice plays in these cases . 126 In Royal Bank v Etridge, Lord Nicholls – after setting out his "core minimum" requirements – continued (emphasis added): [68] As already noted, the advice which a solicitor can be expected to give must depend on the particular facts of the case. But I have set out this 'core minimum' in some detail, because the quality of the legal advice is the most disturbing feature of some of the present appeals. The perfunctory nature of the advice may well be largely due to a failure by some solicitors to understand what is required in these cases . 127 None of the foregoing authorities was cited in Citicorp v O'Brien. The Court of Appeal should not be taken to have overruled them sub silentio. The continued operation of the principle for which they stand has been recently recognised by Young CJ in Eq in Chandran v Narayan [2006] NSWSC 104: [49] Mr DeBuse truly says that an independent solicitor would have had the obligation not only of explaining what the deed meant, but also of pointing out that Mrs Narayan was not obliged to sign the deed at all and would have put the options in such a way that Mrs Narayan could have assessed them. She could have been told of the options in such a way that she could have worked out that her husband may well have been bankrupt in three months anyhow, so what was the sense of making herself personally liable for the whole debt merely to gain a slight advantage? [50] There is no doubt at all that that sort of advice would be the advice that needs to be given by an independent solicitor. As L W Street J pointed out in Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30, the obligation of a solicitor is not fulfilled merely to explain the document unless he explains to a person giving away her property that she has no actual obligation to do so. 128 In my respectful view, the position was correctly stated by Danckwerts LJ (with whom Sachs LJ concurred) in the Court of Appeal in Neuschul v Mellish & Harkavy (1967) 111 SJ 399, that although the duty normally owed by a solicitor to a client only extends to legal advice, it is often difficult in a given situation to disentangle legal and business or practical advice, and a solicitor who is carrying out a transaction for a client is not justified in expressing no opinion when it is plain that the client is rushing into an unwise, not to say disastrous, adventure. The cases that state that it is not the function of a lawyer to give financial advice mean that a lawyer is not expected to bring to his or her task the knowledge and expertise of a stockbroker, an accountant or a financial planner. But a lawyer giving independent advice is required to address the fairness or reasonableness of a proposed transaction, so that the client can appreciate its disadvantages; if this involves matters beyond the lawyer's expertise, then the lawyer should seek specialist assistance. That is not to say that the solicitor is to be expected to give financial advice – of the type that a stockbroker might – about the proposed investment. But where it is evident that the borrower is relying on the investment to generate the income to service the loan which is secured over the family home, and where at first sight the expectation appears utterly unrealistic, a solicitor acting reasonably would, as Mr Fisher explained, take steps for the protection of the client's interest. 129 In this case, it was or ought to have been plain to Ms Jajoo that Mr and Mrs Riz were putting their home at risk for the purpose of raising funds for an investment in respect of which they had expectations that objectively were absurd, such that (as Ms Jajoo conceded) it appeared to involve a very high risk. In my view, it was insufficient to tell Mr and Mrs Riz that she was not advising on the proposed investment (or anything else to do with Mr Suleman) and that they should seek and obtain legal and financial advice elsewhere, yet continue to act on and facilitate the loan transaction, all the moreso where, as I have concluded, it ought to have been evident that they did not appreciate the importance of obtaining such advice and did not intend to do so. What was required was advice that firmly brought home the apparent improvidence of the proposed investment. I would not go so far as to hold that Ms Jajoo was on that account alone bound to cease to act, but in my view reasonable care required that she bring home to her clients forcefully the improvidence of their proposed course. That might have been achieved by forceful oral advice, or preferably by insisting on written instructions to proceed notwithstanding. If because of a conflicting duty to Mr Suleman Ms Jajoo could not give that advice, then she ought to have declined to act further; I do not accept that a solicitor acting as she was on a loan transaction can avoid the consequences of what would otherwise involve a conflict of duties by disavowing responsibility to give advice which she was otherwise bound to give, on the topic which would otherwise give rise to the conflict – here, the apparent improvidence of the proposed investment. In any event, more than mere advice to obtain independent advice was required. In my opinion the minimum requirement was forceful advice to bring home the improvidence of the transaction, and that did not occur. It follows that Ms Jajoo was in breach of her duty of care. 130 I have not reached this conclusion without anxious consideration of two recent cases in this Court concerning facts very similar to the present – each involving loans from Perpetual to the relevant plaintiff for the purpose of an investment in KSE, in which Ms Jajoo acted for the borrower – in each of which DDS (and Ms Jajoo) was exonerated. These cases, decided while my judgment was reserved, have caused me carefully to review my reasoning. 131 In Ibrahim v Pham [2007] NSWCA 215, Mr and Mrs Ibrahim were members of the Assyrian community and became interested in investing in KSE. After making enquiries they were told that they would receive a fortnightly return of $1,350 for ten years on a $50,000 investment in a trolley collection business. Such a return, although very high (70%), falls far short of the return that Mr and Mrs Riz told Ms Jajoo they expected ($12,000 per fortnight on $150,000, in excess of 200%). In rejecting the argument that if Ms Jajoo had been the only solicitor who owed a duty of care to Mr and Mrs Ibrahim she would not have breached it, Campbell JA (with whom Hodgson and Santow JJA agreed) said (at [205])(emphasis added): By contrast, in the present case Ms Jajoo was in no specially privileged position for being able to provide advice about the investment contract. She specifically made clear that she was not undertaking the task of advising on the investment contract, and recommended that the Appellants seek advice from others on that topic. The task that she undertook, of advising only on the loan contract and mortgage, was a comparatively routine type of legal work, and was accomplished in a single conference. She had no reason to believe there was any unusual financial risk concerning the investment. The purpose of entering the loan and mortgage would not be frustrated if Ms Jajoo did not advise on the investment contract. … 132 The evidence before me is not the same as the evidence in Ibrahim. There does not appear to have been any suggestion in Ibrahim's case that Ms Jajoo should have appreciated that the Ibrahims had unrealistic expectations as to the return they would gain and thus their ability to service the loan. It does not appear that the Ibrahims informed Ms Jajoo of the return they expected, but if they had, though apparently very high, it would not have been nearly so alarming as that expected by Mr and Mrs Riz. Campbell JA expressly recorded that Ms Jajoo had no reason to believe there was any unusual financial risk concerning the investment. And, the Ibrahims disclosed not only that they knew the investment was a "big risk", but said "even if we're gambling we don't care". 133 In David v David [2007] NSWSC 855, Patten AJ accepted (at [138]) that nobody in DDS could properly act for a client in relation to any transaction with Mr Suleman or his companies, as a conflict of interest would immediately arise. However, his Honour held that three particulars of negligence that asserted, in effect, that Ms Jajoo should have given advice to the plaintiffs against the proposed investment in KSE (including that the scheme was unsustainable), needed only to be stated to be rejected, as giving such advice would be in breach of the fundamental duty of confidence owed to Mr Suleman; and that the fourth particular, that DDS ought to have declined to act upon finding out that the client proposed to invest in the scheme, should also be rejected as no conflict of interest was involved in the solicitor acting only in the refinancing of the plaintiffs' mortgage. In David v David, it does not appear that Ms Jajoo had any information that provided reason to think that unusual financial risk was associated with the proposed investment, whereas in the case of Mr and Mrs Riz, the facts are different: the knowledge of the high risk implicit in the extraordinary interest rate was derived from Mr and Mrs Riz, independently from any information that Ms Jajoo might have had access to in confidence. To my mind, the disclosure to Ms Jajoo by Mr and Mrs Riz that they were expecting a return in the order of 200% per annum, and intended to use that return to service the loan, is a striking factual distinction of the present case from Ibrahim v Pham and from David v David. 134 If I were unable to distinguish David v David on the facts, I would with the greatest respect differ from his Honour's conclusion, that the circumstance that giving the relevant advice would involve breach of a duty of confidence to Mr Suleman, meant that negligence could not be established. Obligations of confidence or loyalty to one client do not extinguish or reduce duties of care owed to another, and in particular do not entitle a solicitor to refrain from using all his or her knowledge for the benefit of the other; it is precisely because a conflict (of duty to one client and duty to the other) can arise in such circumstances that the solicitors' only resort may be to cease to act, and to "send the client away". Thus in Waimond, Kirby P said: The proposition can be tested this way. Had there been no other clients connected with the Oatley property who retained the respondent, but only the appellants, can it seriously be suggested that Mr Flanagan, being informed of a proposed mortgage would not have considered it to be his duty immediately to secure the instructions of the appellants? Of course he would have done so to protect the interests of the appellants. It was no less his duty to do so because the solicitor concurrently had retainers to act for Grady Paris and, later, CAGA. The acceptance of those retainers did not authorise a neglect of his duty, owed independently, to his clients Waimond and Mr Wong. 135 And Hope AJA said (at 663-4): Assuming, as Campbell J did for the purposes of dealing with the submissions made for Waimond, that Byrne should be deemed to have had notice of Waimond's interest in the land through its interests in the Syndicate, the question arises as to what the duty of a solicitor is in such a case. To take a hypothetical example, what is the duty of a solicitor who acts for both trustee and beneficiary and is told by the trustee that he proposes to do something which is in breach of the trust. In my opinion he clearly has a duty to warn the trustee that his proposed action would be a breach of the trust, but what further action he must take may depend upon the nature of the proposed action and on the terms of his retainer. In a case where the breach is the borrowing of money on trust property for the purposes of the trustee and not for the purposes of the trust, what are his duties to his beneficiary/client? Where he has no retainer to supervise the carrying out of the trust, can he breach the confidentiality of the information he has received from his trustee/client and tell the beneficiary what the trustee proposes to do? As it seems to me, even if, as is arguable, he is not able to breach confidentiality by telling the beneficiary/client what the trustee has communicated to him, he should at least advise the beneficiary to seek independent advice in relation to the trust and the actions of the trustee before the prejudicial actions are carried out. 136 Indeed, the able submissions of Mr Darke SC [T905-910] recognised as much: There can be cases where the retainer requires the solicitor to advise on a particular matter, and if the solicitor has information which he is required to give in order to give that advice, the mere fact that that information is confidential doesn't mean that the solicitor in effect can give a lower standard of care. That is, if the information is required to be given in order to discharge the duty of care either the solicitor makes available the information or he doesn't, and in that postulated situation if the solicitor didn't make available that information the duty of care would be breached. It comes down to an analysis of what are the tasks required of the solicitor in carrying out the retainer and then an assessment needs to be made as to whether the carrying out of those tasks requires the providing of the information. HIS HONOUR: But doesn't Waimond say that regardless of the confines of the retainer that where there is a relationship of proximity such as there is between solicitor and client and foreseeable economic loss then independently of retainer there is a tortious duty of care? DARKE: Waimond stands for the proposition that there may be circumstances which require the taking of steps beyond the steps required by the specific retainer. That's correct. However, that is a slightly different point to the one that I apprehend your Honour is putting to me which is a more specific proposition about the providing of information, knowledge which the solicitor possesses. In this case, for example, Mr Fisher accepted that, first of all, if a solicitor has obligations of confidence, that's an overriding duty. The solicitor must discharge that duty. HIS HONOUR: But a duty of confidence to client A does not cut down the content of the duty to client B. DARKE: Exactly. … 137 Accordingly, DDS's obligations to serve Mr Suleman's interests did not excuse it from warning other clients against entering into transactions if to their knowledge, howsoever derived, the proposed transactions appeared improvident. Because, as I have endeavoured to explain, it is my view that a solicitor's duty can extend beyond the bounds of the retainer, and in the context of a borrowing transaction the solicitor is necessarily required (consistent with Khoshaba) to give consideration to the purpose of the loan and the providence of the transaction – it was necessary for Ms Jajoo to give some consideration to the purpose and proposed application of the loan. But as soon as that is recognised, the conflict – which Patten AJ accepted would arise if DDS acted on any transaction involving Mr Suleman – could not be avoided. 138 Mr Leggat SC did not rely only on negligence, but also submitted that by reason of DDS's professional and personal and financial relationship with Mr Suleman, and their knowledge (through at least Ms Suzy David) that there were issues as to the legality of this investment scheme and that he had been advised not to take any more investments until they were resolved, DDS could not consistent with its fiduciary obligations to Mr and Mrs Riz continue to act for them and ought to have refused to do so, because they had information which they were bound to put at the disposal of Mr and Mrs Riz but were prevented by their obligations of confidence to Mr Suleman from doing so. As I have concluded that Mr and Mrs Riz are entitled to succeed and negligence, it is unnecessary to explore this question. Nor is it necessary to my decision on negligence that there was any conflict of interest (of DDS) and duty (to Mr and Mrs Riz), or duty (to Mr Suleman) and duty (to Mr and Mrs Riz) – although once it is accepted, as I do, that the duty of DDS extended to require them to consider the purpose for which their client was borrowing, it is difficult to escape the conclusion that a conflict of duty and duty was then inevitable. And although my conclusion that a warning bringing home the prima facie unreality of Mr and Mrs Riz's expectation as to the anticipated return on their proposed investment does not depend on the possession by Ms Jajoo, or DDS, of any special knowledge concerning Mr Suleman, one cannot but wonder whether solicitors independent of Mr Suleman might not have been more inclined to give the appropriate advice. Damages 139 While I accept that by the time of the consultations with Ms Jajoo, Mr Riz was strongly inclined to invest with KSE, and had persuaded Mrs Riz to the same effect, I do not accept that they had made an irrevocable decision to do so, and in particular I reject the proposition that there is no reason to think that anything that Ms Jajoo said would have made a difference. Mr Riz had taken quite some time to be persuaded that he should borrow and invest, and Mrs Riz at least initially was not an enthusiastic participant. The period of time over which Mr Riz was persuaded to make such an investment, and the enquiries that he made before doing so, suggests that he was cautious and would not have risked his home had he not believed that the promised return was likely to be attained. Even on Ms Jajoo's version, while Mr and Mrs Riz were minded to invest with KSE, what they said to her did not suggest that it was inevitable that they would do so. On Ms Jajoo's version, what Mr Riz said at least at the 21 September consultation suggested that he was not necessarily committed to proceed to invest with KSE. In my view, strong advice of the type appropriate to bring home to him the unreality of his expectations would probably have deterred him from proceeding with the investment, and with the loan. In my view it is very probable that, properly advised by Ms Jajoo, Mr and Mrs Riz would not have proceeded with the loan or the subsequent investment. 140 The total amount of the loan was $275,000, as at 15 October 2001. Of the proceeds of the loan, $111,335.91 was paid to Citibank to refinance the existing home loan; in that respect Mr and Mrs Riz suffered no loss. Mr Riz received a further $3,353.68 from the proceeds of the loan. A further $5,000 from the proceeds was paid to Zia George as a brokerage fee, the liability to pay which was incurred upon approval by Perpetual of the loan, before any involvement on the part of DDS, and which would not have been averted had proper advice been given by DDS. That leaves $155,310.41 from the principal of the Perpetual loan which Mr and Mrs Riz incurred as a liability which, properly advised, they would not have incurred. That represents 56.5% of the total loan of $275,000. 141 Since then, the loan balance has been increased by interest and the costs of default, including presumably interest at the "higher rate" applicable on default. As quantification of the amount outstanding was deferred until judgment, similarly quantification of these matters was necessarily deferred. Mr and Mrs Riz would have had to pay interest on the Citibank loan in any event, and only 56.5% of the total interest charges at the lower rate should be included in their damages, against which must be set off the sum of $9,555 paid to Mohammed Riz on behalf of KSE on 31 October 2001, pursuant to the KSE investment. However, that the Riz went into default was a foreseeable result of the failure to give appropriate advice in respect of the proposed KSE investment, and to the extent that their debt has been increased by interest at the "higher rate", the whole of such additional interest and costs of default should be included in their damages. 142 Mohammed's claim has been admitted in the liquidation of KSE for $140,445. The evidence suggests that there is likely to be a dividend of between 15-19 cents in the dollar, once all recovery actions are completed; this equates to $21,066 to $26,684. Obviously there is risk that the recovery might be less and a chance that it might be more, but the best that can be done is to conclude that there will probably be a recovery of 17 cents in the dollar in three years time. $23,875.65 discounted at 3% deferred for three years (0.915) is $21,846.22, for which credit should be given. 143 Accordingly, the damages to which Mr and Mrs Riz are entitled against DDS are $155,310.41; plus 56.5% of all interest charges on the Perpetual loan other than any additional "higher rate" interest, less $9,555; plus 100% of the additional "higher rate" interest and other costs of default; less $21,846.22 (being the value of the anticipated dividend in the liquidation). Conclusion 144 The loan contract and the mortgage were not unjust in the circumstances in which they were made. Mr and Mrs Riz were represented and advised by their own lawyer. Perpetual did not demonstrate the indifference referred to in Khoshaba, and did not engage in asset lending, but assessed the loan having regard to serviceability. On the information available to Perpetual, the loan was prima facie serviceable, even without reference to investment income; bringing ordinary investment income to account would have enhanced its serviceability. Even on the actual financial position of Mr and Mrs Riz, the loan was serviceable on the reasonable assumption that the surplus was invested in a conventional investment. Although Mr and Mrs Riz were the subject of unfair tactics, those were perpetrated not by or on behalf of Perpetual, but by the promoters of KSE, or by their own agents QLS. For borrowers to obtain a loan by a misrepresentation made on their behalf, even if not known to them, where the lender would not otherwise have approved the loan, does not make the loan contract objectively unjust to the borrowers against the lender. 145 Had I concluded that the contract was unjust because Mr and Mrs Riz had assumed burdensome obligations which they would not have assumed had they not been misled as to the KSE investment, or had false information not been supplied to Perpetual by QLS, I would nonetheless have declined as a matter of discretion to grant relief against Perpetual. Perpetual knew that the purpose of the loan – absence of which was decisive in Khoshaba – was in part to refinance and in part for further investment, and was not content to proceed on the basis of the security alone, but assessed the loan for serviceability – which appeared to be satisfactory. In this case, Perpetual's assessment of the loan application does not manifest the "indifference" that was crucial in Khoshaba, and Perpetual can indeed be regarded as an innocent party. 146 There is no basis for concluding that Perpetual unconscientiously took advantage of Mr and Mrs Riz. Even if the circumstances of Mr and Mrs Riz amounted relevantly to circumstances of "special disadvantage", there is no evidence that Perpetual or its agents had knowledge of those matters; and Perpetual and its agents dealt with Mr and Mrs Riz through their own solicitors DDS. The loan transaction, viewed from Perpetual's perspective, was not apparently an imprudent, let alone an improvident, one. 147 Accordingly, all claims of Mr and Mrs Riz against Perpetual fail, and will be dismissed. There being no other defence to Perpetual's first cross-claim, Perpetual is, subject to compliance with the relevant formalities, entitled to judgment for the amount of its debt, and to judgment for possession of the property. 148 Although the duty normally owed by a solicitor to a client extends only to legal advice, it is often difficult to disentangle legal and practical advice, and a solicitor who is carrying out a transaction for a client is not justified in expressing no opinion when it is plain that the client is rushing into an improvident adventure. The cases that state that it is not the function of a lawyer to give financial advice mean that a lawyer is not expected to bring to his or her task the knowledge and expertise of a stockbroker, an accountant or a financial planner. But a lawyer giving independent advice is required to address the fairness or reasonableness of a proposed transaction, so that the client can appreciate its disadvantages. The circumstances relevant to a loan transaction that a solicitor advising on it must consider and address include the purpose of the loan. Where it is evident that the borrower is relying on a proposed investment of the proceeds to generate the income to service a loan which is to be secured over the family home, and where at first sight the expectation appears utterly unrealistic, a solicitor acting reasonably would take steps for the protection of the client's interest. 149 In this case, it was or ought to have been plain to Ms Jajoo that Mr and Mrs Riz were putting their home at risk for the purpose of raising funds for an investment in respect of which they had expectations that objectively were absurd, such that (as Ms Jajoo conceded) it appeared to involve a very high risk. It was insufficient for Ms Jajoo to tell Mr and Mrs Riz that she was not advising on the proposed investment and that they should seek and obtain legal and financial advice elsewhere, yet continue to act on and facilitate the loan transaction, all the moreso when it ought to have been evident that they did not appreciate the importance of obtaining such advice and did not intend to do so. What was required was advice that firmly brought home the apparent improvidence of the proposed investment. If, for reasons of conflicting duty to Mr Suleman, that advice could not be given, Ms Jajoo should have declined to act further on the loan transaction; I cannot accept that a solicitor acting as she was on a loan transaction can avoid the consequences of what would otherwise involve a conflict of duties by disavowing responsibility to give advice which she was otherwise bound to give, on the topic which would otherwise give rise to the conflict – here, the apparent improvidence of the proposed investment. It follows that Ms Jajoo was in breach of her duty of care, by not giving advice that firmly brought home the apparent improvidence of the proposed investment. 150 The damages to which Mr and Mrs Riz are entitled against DDS are $155,310.41 (which is 56.5% of the principal) of the Perpetual loan; plus 56.5% of all interest charges on the Perpetual loan other than any additional "higher rate" interest, less $9,555; plus 100% of any additional "higher rate" interest and other costs of default; less $21,846.22 (being the value of the anticipated dividend in the liquidation). 151 Accordingly, while I will afford the parties an opportunity to bring in short minutes to give effect to this judgment, the appropriate orders would be to the following effect: (1) Order that the plaintiffs' claims against the first and second defendants be dismissed. (2) Give judgment that the third, fourth and fifth defendants pay the plaintiffs the sum calculated in the manner I have indicated. (3) On the first cross-claim, give judgment that the plaintiffs/cross-defendants pay the first defendant/cross-claimant the outstanding balance of the Perpetual loan, and give judgment that the plaintiffs/cross-defendants give the first defendant/cross-claimant possession of the property. 152 In view of this outcome, it would seem that the second cross-claim, determination of which was deferred, should be dismissed. I will hear the parties as to costs if they so wish, but prima facie the plaintiffs should pay the first and second defendants costs, and the third, fourth and fifth defendants should pay the plaintiffs' costs. 153 At this stage, the only formal order is that the parties bring in short minutes to give effect to this judgment on a date to be fixed. On that occasion, I will if required consider any question of costs and any application for a stay. ********** 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.