New South Wales Supreme Court CITATION : Mizzi v Reliance Financial Services Pty Ltd & Ors [2007] NSWSC 37 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S) : 14, 15, 18 December 2006 JUDGMENT DATE : 15 February 2007 JURISDICTION : Equity Division JUDGMENT OF : Brereton J DECISION : Declare that upon proper construction of agreement and in events which have happened, the plaintiff was released from any obligation which she owed to the first defendant in respect of moneys advanced by first defendant to her, and in particular all obligations which she had under Loan Agreement and Mortgage. Order that first defendant execute and deliver to plaintiff discharge of mortgage and certificate of title. CATCHWORDS : CONTRACTS – Unjust contracts – where mortgage of pensioner's sole asset to secure refinance of earlier mortgage in default was an unjust contract - whether as a matter of discretion relief should be granted – EQUITY – Unconscionable dealings – whether mortgage was unconscionable dealing - CONTRACT – Termination – accrued rights where mortgagee had agreed with mortgagor's son to release mortgagee upon provision by son of alternative security – where alternative security provided but other obligations of son not performed - whether mortgagee obliged to release mortgagor – accrued contractual right before termination - Privity – whether release enforceable at the suit of mortgagee - whether trust of benefit of contractual promise in favour of a third party – where son obliged in contract and in equity to procure release. - COSTS – where plaintiff ultimately succeeds by reason of success on one issue but fails on issue occupying much of trial. LEGISLATION CITED : (NSW) Contracts Review Act 1980, ss 7, 9 Anderson v Martindale (1801) 1 East 487, 102 ER 191 Antonovic v Volker (1986) 7 NSWLR 151 Beneficial Finance Corporation Limited v Karavas (1991) 23 NSWLR 256 Bennett v ES&A Chartered Bank (1888) 9 LR (NSW) 554 Birmingham v Renfrew (1937) 57 CLR 666 Cabell v Vaughan (1669) 1 Wms Saund 290a Chappuis v Filo (1990) 19 NSWLR 490 Coulls v Bagots Executor and Trustee Co Limited (1967) 119 CLR 460 Dunlop Pneumatic Tyre Co Limited v Selfridge & Co Limited [1915] AC 847 Ettridge v Vermin Board of the District of Murat Bay [1928] SASR 124 Finance Corp of Australia Ltd v Bentley (1991) 5 BPR 11,833 Howden v Yorkshire Miners' Association [1903] 1 KB 308 Hyundai Heavy Industries Co Limited v Papadopoulos [1980] 1 WLR 1129 Jennings v Credit Corp Australia Pty Ltd (2000) 48 NSWLR 709 Johnson v Agnew [1980] AC 367 Kendall v Hamilton (1879) 4 App Cas 502 Les Affreteurs Reunis SA v Leopold Walford (London) Ltd [1919] AC 801 Matthews v Doctrieve Corp Pty Ltd [2003] FCA 459 McDonald v Dennys Lascelles Limited (1933) 48 CLR 457 CASES CITED : Meldrum v Scorer (1887) 56 LT 471 Moody v Condor Insurance Limited [2006] 1 WLR 1847 Nguyen v Taylor (1992) 27 NSWLR 48 Norbury, Natzio & Co Limited v Griffiths [1918] 2 KB 369 Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41 Robinson v Geisel [1894] 2 QB 685 Ryder v Taylor (1935) 36 SR (NSW) 31 Scott v Tuff-Kote (Aust) Pty Ltd [1975] 1 NSWLR 537 Sharpe v San Paulo Railway Co (1873) 8 Ch App 597 Taylor v Taylor (1978) 143 CLR 1 Trident General Insurance Co Limited v McNiece Bros Pty Ltd (1988) 165 CLR 107 Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70 West v AGC (Advances) Ltd (1986) 5 NSWLR 610 White v Tyndall (1888) 13 App Cas 263 Williams v Papworth [1900] AC 563 Wilson v Darling Island Stevedoring and Lighterage Co Limited (1956) 95 CLR 43 Wilson, Sons & Co v Balcarres Brook SS Co [1893] 1 QB 422 Winterton Constructions Pty Ltd v Hambros Australia Limited (1991) 101 ALR 363 Yorkshire Miners' Association v Howden [1905] AC 256 Young v Lalic [2006] NSWSC 18 Josephine Mizzi (plaintiff) PARTIES : Reliance Financial Services Pty Ltd (first defendant) Stefan Martin Allan (second defendant) Dennise Gloria Allan (third defendant) FILE NUMBER(S) : SC 2818/05 COUNSEL : Mr B C Kasep (plaintiff) Mr D A Allen (first defendant) SOLICITORS : Frontier Law Group (plaintiff) Hancocks Solicitors (first defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRERETON J Thursday 15 February 2007 2818/05 Josephine Mizzi v Reliance Financial Services Pty Limited & Ors JUDGMENT 1 HIS HONOUR: The plaintiff Josephine Mizzi, a 77 year old widow of Maltese origin with limited education and English, mortgaged her home at 36 South Liverpool Road, Heckenberg to the first defendant Reliance Financial Services Pty Limited in order to raise $125,000 to refinance an earlier mortgage which was in default, the purpose of which had been to provide funds for a business, conducted by her grandson the second defendant Stefan Martin Allan and his wife the third defendant Dennise Gloria Allan, through a corporate vehicle Lords Securities Pty Limited. Mrs Mizzi seeks to have the Reliance mortgage avoided on the ground that it was unjust or unconscionable. Alternatively, she contends that as a result of a subsequent transaction between Reliance, Stefan, Dennise and Lords, Reliance has released her from the mortgage and the debt that it secures. Reliance cross-claims for the moneys secured, which with interest now exceed $200,000, and for possession of the Heckenberg property. 2 The main issues are: · Were the mortgage and associated loan agreement between Mrs Mizzi and Reliance "unjust contracts" within the (NSW) Contracts Review Act 1980, and/or unconscionable in equity; · If so, should relief be granted as a matter of discretion; · Has Mrs Mizzi been released from any liability under the loan agreement and mortgage. Mrs Mizzi 3 Mrs Mizzi was born in Malta on 26 July 1929 and is now a 77 year old aged pensioner who lives by herself in the Heckenberg property. She has four children - Josephine (aged 55), Olympia (aged 54), Carmen (aged 51) and Martin (aged 48) - fourteen grandchildren (including Stefan), and nine great grandchildren. 4 Although she commenced primary school in Malta in about 1934, she stopped attending school when the war began in about 1939. She is mainly self-taught. She can write a little, but describes herself as not very good at writing, and unable to do sums. Her native language is Maltese. She says that she does not speak English very well, but can manage to "get by" if people talk slowly and carefully. She learnt some English in Malta during the war, and more when she came to Australia. 5 Mrs Mizzi married her husband Joseph Mizzi in Malta in 1948, following which she stayed at home to look after the home and their four children. They migrated from Malta to Australia in about 1963, and initially lived with Mrs Mizzi's sister and brother-in-law at Waterloo for about six months. 6 Joseph died on 15 December 1990. While he was alive he made all the decisions about their housing and financial matters. They had a joint bank account, which he operated. Following his retirement, he deposited the pension into his savings account and withdrew money for their living expenses; although sometimes Mrs Mizzi attended to this if her husband was ill, when she did so bank staff assisted her. After Joseph's death, the bank staff showed her how to operate the bank account on her own. She has never had any cheque account, bankcard or credit card, and has operated only one bank savings account for her Australian pension and another for the Maltese pension, both at the Commonwealth Bank. 7 Mrs Mizzi was assessed for literacy by Dr Robert Pryor, psychologist. He concluded from tests that her general reasoning score was in the extremely low range (second percentile), and that her general familiarity with English was in the "well below average" range: she was capable of identifying most traffic signs, signs on office doors, some general amenities signs and some signs on boxes and packages, but was not very good at identifying instructional signs found in factories. She exhibited some reading skills in using a railway station indicator and a basic standardised office message; she was able to identify correctly details from job advertisements on two out of three occasions, but struggled to comprehend when a significant amount of text was presented. Her verbal reasoning score was in the "extremely low" range, and her reading English development score was no better than someone in the third grade of primary school. Thus her practical reading skills are largely restricted to signs and simple office-oriented documentation. Dr Pryor concluded: Therefore on the basis of these data it appears that Ms Mizzi's reading and literacy skills were very unlikely to be sufficient for the comprehension of legal documentation and for an informed appreciation of the obligations and likely consequences of signing such documentation. Moreover, Ms Mizzi would be likely to struggle to comprehend a legal explanation of such documentation without extreme effort being undertaken on the part of the solicitor or legal representative involved to ensure adequate comprehension and informed consent. From Ms Mizzi's self report it appears that such attention to detail and assiduity were lacking at the time she was advised to enter into the guarantor arrangement. 8 In cross-examination, Dr Pryor accepted that Mrs Mizzi would probably understand the concept of borrowing money, including that if she borrowed it she may have to pay it back. He agreed that what the tests focussed on was the subject's ability to deal with English in its oral and written forms, although to some extent they also address ability to deal with concepts. 9 Mrs Mizzi gave evidence without the assistance of an interpreter. My impression was that her coherence and fluency in spoken English fluctuated. She provided simple answers in basic English to most of the questions she was asked. However, it took some effort to ensure that she understood even relatively simple concepts: for example, when she was asked to acknowledge on day two of the hearing that she remained bound by the oath taken on the first day [T33] - the "yeah"s recorded in the transcript as her initial responses do not fully convey the apparent uncertainty that accompanied them. The History of Property Transactions 10 Mrs Mizzi and her husband purchased the Heckenberg property as joint tenants in late 1986 for $56,000. Mr Mizzi made all the arrangements. As I have recorded, Mr Mizzi died on 15 December 1990. No notice of death was registered at that stage. 11 In about June or July 1998, Stefan called her on the telephone, and asked if she knew where the deeds were for the house. He said "Nana, I need your help for a little while, I need to use your deeds to sort out a little problem with my business. Nana, I really need you to help me. I need to borrow some money for my business – not much – but I have to use deeds for the house. I need your help Nana. Can you let me have the deeds for a while so that I can use them to guarantor a loan". Stefan denied that he was in trouble, and said that it was only a little problem and that he only needed to use the deeds for a little while, "only for a few months". Mrs Mizzi said: "What are the deeds? I'll help you Stefan, you know that. What are the deeds love?". Stefan explained that they were the papers for the house, and Mrs Mizzi replied that she knew where those papers were, in the bedroom, and that he could use them if he wanted. Stefan said that he would come over and get them that day. 12 Later that day Stefan came to Heckenberg property. Mrs Mizzi found the papers relating to the house in a drawer in the bedroom and showed them to Stefan, who identified those he required, which he took away with him. Mrs Mizzi remembers hugging and kissing him just before he left, because she was so happy to help him. 13 Some time afterwards, Stefan telephoned Mrs Mizzi again and said "Did you know that Nanoo [Mr Mizzi] is still on title?". Mrs Mizzi asked what that meant and Stefan explained that her husband still appeared as one of the owners, and that new papers showing her as the surviving owner were required. Mrs Mizzi said "Stefan, you know I don't do those things – you come over and show me – I don't know about these things". Stefan said that he would show her the forms, explain it and sort it out. 14 On 14 August 1998, Stefan drove Mrs Mizzi in his car to a solicitor's office in Parramatta. According to Mrs Mizzi, they both went into the office, and Stefan spoke to the solicitor in English; she says that they spoke quickly in English and she could not understand much of what was said, although she understood a few words. She says the solicitor brought a large pile of papers to the desk where she was sitting and handed her a pen, placed his finger on the papers and said: "Put your signature here please" many times, and she complied. She says that she did not look at all of the papers, but only at the places where she was told to sign. She says that the solicitor did not tell her anything about the papers and did not give her any copies of them, and that she did not ask any questions but trusted the solicitor and Stefan to be careful with her deeds and not to lose them. In any event, Mrs Mizzi executed - in the presence of Pierre Saab, a solicitor in Macquarie Street Parramatta - a notice of death, and a mortgage to Across Australia Finance Pty Limited securing advances of $50,000, in which she was described as the mortgagor and Stefan as guarantor. Stefan then drove her home and thanked her for helping him. 15 The mortgage to Across Australia was discharged on 29 October 1998, and the discharge was registered on 15 January 1999. Mrs Mizzi recalls that about three months after signing the papers at the solicitor's office, Stefan drove her to Sydney and they collected the deeds, which she placed in a tin box and hid in her bathroom, "because I was afraid of robbers in the area". Stefan thanked her for letting him use her deeds and they hugged and kissed; she received no money or presents from Stefan or anyone else for doing so, as "I was just happy to help Stefan". 16 In late June 1999, Stefan telephoned Mrs Mizzi and asked whether she still had the deeds, or whether her son Martin had them to attend to the late Mr Mizzi's will. Mrs Mizzi replied that she still had them, having put them away in a safe place. Stefan said: "Nana, I just need to use them again to help my business for a little while. It is just like last time: it shouldn't be for too long". Mrs Mizzi replied that that was okay, and that he could come and get the deeds. He added that his accountant was arranging for her to see a lawyer to sign papers "like before, it is just to show that it's okay for me to use your deeds". About three days later, Stefan telephoned again and said that he would send his wife Dennise around, to take her to see a solicitor. Mrs Mizzi said: "Yes, that's alright Stefan, will Dennise be bringing the little one?". Stefan replied: "Yes, I think so Nana". 17 The next day, 6 July 1999, Dennise came to the Heckenberg property with her baby Jordan, collected Mrs Mizzi and drove her to a solicitor's office. Dennise spoke to the solicitor and then introduced Mrs Mizzi. Mrs Mizzi says that she did not understand what they were talking about. She was given "lots of papers to sign" and was embarrassed because she did not know where to sign them and felt that she was taking a lot of the solicitor's time. She says she signed where the solicitor indicated by placing a finger on the paper or pointing at a place on the paper. She recalls a conversation in which the solicitor said that she needed to sign the documents so that Stefan could get his money. The solicitor explained that the papers said that Stefan would pay back the money he was borrowing, and indicated the interest rate, and where she was required to sign. Dennise said: "You know, Nana, it's like a guarantor that Stefan will keep his promises to pay back the money he borrowed". Mrs Mizzi says that she concluded: "Okay then. I don't know what all this is for. Thank you for helping Stefan". 18 Mrs Mizzi signed - in the presence of Yvonne Andres, of 15 George Street Burwood - a mortgage (to Reginald Joseph Ford, Denise Ruth Ford and Fasana Pty Limited as trustee for the Kevin Ford Family Trust) securing advances said to be to her of $115,000, which she covenanted to repay by 5 July 2000. The mortgagees were clients of the law firm R L Kremnizer & Co. According to Mrs Mizzi, when she had finished signing the papers, the solicitor gathered them into a pile and did not give her any of them; she says that she did not read any of them, and that to this day she does not understand what they were all about, "but I do know that I was making Stefan happy by signing the papers and also allowing him to use my deeds". She received no payment or other reward for doing so. The Reliance mortgage and the circumstances in which it was made 19 On 5 July 2000 – the day on which repayment of the Kremnizer mortgage was due, McPhee Kelshaw Solicitors, acting for Stefan, wrote to Kremnizers, asserting that Stefan had been advanced moneys by Kremnizers' clients on security of the Heckenberg property owned by his grandmother Mrs Mizzi, and advising that Stefan had obtained a verbal loan approval to refinance the existing loan but required a payout figure. Kremnizers' clients had apparently previously threatened to serve a s 57(2)(b) notice if all moneys due were not repaid by 6 July 2000. On 7 July, McPhee Kelshaw wrote to Bouzanis & Kekatos Solicitors, advising that they acted for Stefan who was attempting to refinance on behalf of his grandmother and enclosing a copy of their 5 July facsimile to Kremnizers, and that Kremnizers had advised that they would provide a payout figure provided an authority was received from Bouzanis & Kekatos to make available any information that might be required in relation to the Kremnizer mortgage. 20 In August 2000, Kremnizers issued a statement of claim against Mrs Mizzi claiming possession of the Heckenberg property, judgment for $50,000, interest and costs. On 18 September, McPhee Kelshaw filed an appearance on behalf of Mrs Mizzi, and a defence verified by Mrs Mizzi's affidavit sworn 19 September was filed shortly thereafter. The defence admitted that certain moneys (but not $50,000) were loaned to and secured by Mrs Mizzi and were repayable on 5 July 2000. Significantly, by cross claim Mrs Mizzi claimed an order declaring the Kremnizer mortgage void, alleging that it was unjust in the circumstances relating to it at the time it was made within Contracts Review Act, s 7, particulars of which included Mrs Mizzi's lack of education, commercial and business experience, inadequate English, the absence of benefit to her from the transaction, that she did not have the capacity to service or repay the loan, that the property was her home and principal asset, that there was a substantial risk that the true borrower Stefan would be unable to repay interest and principal as and when it fell due, and the absence of independent advice. 21 Stefan was a client of an accounting firm Cassaniti & Associates. Mr Sam Cassaniti was also the principal of Reliance, which was a money-lending firm. In November 2000, Stefan had a conversation with Mr Cassaniti in which Stefan said that his grandmother was going to lose her house, and that it was his fault as she had lent Stefan the money, which he had borrowed for his business, using her house for security. Stefan asked if Mr Cassaniti could help, and Mr Cassaniti responded "Look I really want to help you but I could be putting myself in peril lending to an old woman as when it is time to pay back the money every excuse under the sun emerges. Even before I consider it she would have to get independent legal advice". Stefan said: "I am begging you, I can't have my Nan lose the house, my family will kill me, nobody knows I borrowed the money. Nan and I did it behind everyone's back. My uncle Martin will kill me. He already thinks I am a scumbag". Stefan said that he needed $120,000 and that it would be repaid in three months; Mr Cassaniti said he would think about it. 22 In about November 2000, a man came to Mrs Mizzi's front door. Martin was visiting from Tasmania and answered the door. The man said "Is Mrs Mizzi here?". Martin called Mrs Mizzi to the front door and the man handed some papers to her, which she did not read, but put straight into a drawer in the lounge room. Martin asked her what it was about, and Mrs Mizzi replied that the papers were not for her but for her younger grandson Jeremy. Martin, apparently disbelieving of the answer, asked to look at them; on reading them he asked, "What have you done for this to happen? Have you gone and borrowed money against the house? These are legal demands. This is really serious". Mrs Mizzi denied having borrowed money: "I just gave Stefan the deeds for his business, to do a guarantor for him you know". Later she added: "Stefan will get the deeds back to me soon – like he did last time. It's okay". 23 Stefan returned to Mr Cassaniti's office with a number of s 57(2)(b) notices, saying: "You know what bastards Kremnizers are, they are going to rip me off senseless, please, my family will kill me if they find out my Nan lost the house because of me. I won't let you down I promise. I promise the debt will be repaid in three months". Mr Cassaniti instructed Corrs Chambers Westgarth to act for Reliance, as he was concerned that Mrs Mizzi's age might be a problem, although he wanted to help Stefan. After speaking to a solicitor at Corrs, he decided that a loan could only be made if Mrs Mizzi obtained independent legal advice from a lawyer of her choice. 24 Stefan told Mrs Mizzi that he was having some problems in getting the deeds back and that it would take a little longer than he thought. He said that he had made some arrangements to get hem back soon, and that Dennise and he were going to give their accountant the deeds for their house so that they could get Mrs Mizzi's deeds back. He added: "Our accountant, Sam, and my company is going to make some arrangements to make sure you get your deeds back. Sam's got a company that will provide money for my business and we can get back your deeds. Sam will need to keep your deeds for a little while and you will need to sign some more papers with his solicitors". Mrs Mizzi expressed agreement to these arrangements. 25 On 9 November 2000, Corrs wrote to McPhee Kelshaw that they acted for Reliance and understood McPhee Kelshaw to act on behalf of Mrs Mizzi, and confirmed their instructions that Reliance was considering an advance to Mrs Mizzi in her own right in the sum of $125,000 for three months on the security of the Heckenberg property for the purpose of discharging an existing mortgage on that property. They enclosed a loan agreement, mortgage, property inquiry statutory declaration, authority to complete, business purpose declaration and requisitions on title. They listed numerous usual requirements to be satisfied prior to settlement. 26 On 13 November, Reliance instructed valuers to carry out a valuation on the Heckenberg property. 27 On 13 November, Stefan took Mrs Mizzi to the office of Bouzanis & Kekatos, solicitors at Parramatta. She understood that the purpose of their attendance was to sign papers. According to Mrs Mizzi's affidavit evidence, Stefan spoke with the solicitor for a little while, introduced her to the solicitor and sat down in the solicitor's office with her. In her oral evidence, she suggested that Dennise accompanied her; although it is quite likely that she was confused between the occasions, ultimately nothing turns on this and it does not require resolution. The solicitor gave her papers to sign, which took her "a lot of time". She says she just signed where the solicitor indicated by putting a finger on the paper or pointing at a place on the paper. She says that the solicitor did not explain anything about the papers that she was signing, but it took her about half an hour to sign them all. She says she did not ask the solicitor or Stefan any questions and trusted them to tell her if there was anything wrong with them, and that she did not know what the papers she signed were, did not read them, but believed that they would help Stefan get her deeds back. 28 Mr Kekatos did not have access to his file, and his recollection of the events was as faint as Mrs Mizzi's was confused. He spoke to her in English. He says that in accordance with his usual practice, he advised her alone in the absence of Stefan and Dennise, and I am not persuaded that I should reject this. He did not go through every clause in the contract, but referred to particular clauses of relevance - the interest rate, the term of the loan, and the default clauses. He mentioned that the interest rate was much higher than a standard mortgage. He claims that he would have asked her whether she was able to repay it, and that she responded that it was no problem, but I do not accept that his claimed recollection of this in the light of his general lack of recollection and the improbability of such a response. He says that Mrs Mizzi explained that the existing mortgage was for money she had lent to Stefan for his business, and the present transaction was a refinance of an existing investment; as a "business purpose declaration" was executed, I am inclined to accept that she at least said something to the effect that the underlying transaction was for the purpose of Stefan's business. Mr Kekatos says that he would have explained that if the money secured was not repaid, she would be sued and that Reliance then had the right "to kick her out of the house" and have the property sold, and when their loan was repaid, if there was a shortfall on the sale of the property, then she could be sued for the balance; I accept that he gave advice to that general effect. 29 The documents Mrs Mizzi signed in the presence of Mr Kekatos on 13 November included a deed of loan, a mortgage to Reliance, a statutory declaration to the effect that she had received independent legal advice regarding the loan and security documents in respect of the proposed loan from Reliance, and after receiving that advice had freely and voluntarily signed the deed of loan and mortgage, together with a declaration that the credit to be provided was to be provided wholly or predominantly for business or investment purposes. Particularly given the standard of her English and comprehension, I doubt that Mr Kekatos' advice conveyed to Mrs Mizzi in any detail the obligations which she was assuming, and I accept that she did not have a detailed understanding of the transaction and her obligations under the mortgage. But she at least understood – not only from the advice given by Mr Kekatos, but also from what she had been told by Martin and from her experience with the Kremnizer mortgage - that in return for an additional three months time, she was leaving her house at risk, and was dependent on Stefan to procure the return of her deeds at the end of that period. 30 On 15 November, the valuers instructed by Reliance valued the Heckenberg property at $180,000. 31 On 20 November, Stefan sent a facsimile to Mr Cassaniti, advising that he had been placed on notice that they needed to settle "my grandmother's home" by no later than Wednesday 22 November, that the mortgage documents had been picked up from Mr McPhee's office and were with their new lawyers Bouzanis & Kekatos, and that Mr Kekatos would be arranging the settlement for Wednesday. 32 On 22 November, Corrs wrote to Mr Cassaniti that they were presently waiting on his instructions in relation to the proposed advance, and had been contacted by Dennise, who had advised that there was a dispute in relation to costs between Mrs Mizzi and McPhee Kelshaw, and had requested that the documents be reissued to Bouzanis & Kekatos. On 23 November, Corrs wrote to Mr Cassaniti that the loan agreement, mortgage, property inquiry statutory declaration, authority to complete, business purpose declaration, requisitions on title and declaration as to independent legal advice had been executed and returned under cover of a letter from Bouzanis & Kekatos who advised that they now acted for the borrower Mrs Mizzi. The requisitions on title were said to be deficient in some respects, and the declaration as to independent legal advice to have been incorrectly completed. 33 On 28 November, Mr Kekatos wrote to Kremnizers, requesting a copy of the original mortgage document. On 29 November, Stefan sent a facsimile to Mr Kekatos, that Sam Cassaniti had called and said he was ready to settle provided (1) that independent legal advice had been given to Mrs Mizzi (and asking whether that had been done) and (2) that an undertaking was provided that the moneys were being borrowed for Mrs Mizzi's own purposes and not Stefan's. "Please get back to me to let me know if I have to organise my grandmother to sign further document. It would be great if we could settle by the end of the week". 34 On 30 November, Corrs submitted their account to Mr Cassaniti for acting in relation to the matter, as if it did not proceed to completion. On 1 December, Mr Kekatos signed a solicitor's certificate that he had attended Mrs Mizzi in conference on 13 November from 10:00 am to 11:00 am, that he advised Mrs Mizzi before the loan agreement and mortgage were signed, and that she produced a passport as evidence of her identity, and he witnessed execution of the documents. On 4 December, Mr Kekatos informed Corrs that various certificates and inquiries had now been waived, enclosed a copy of the folio identifier, and awaited urgent advice with respect to settlement. Corrs replied on 8 December that they were awaiting instructions about the waiver of certain of the inquiries. 35 Mr Cassaniti knew that Mrs Mizzi was advised by Mr Kekatos. He did not know what advice was given, but says he had no reason to believe that it was other than competent and independent. To that point he had had no professional dealings with Mr Kekatos, although he retained him in May 2001. Mr Cassaniti saw a certificate attached to the loan documentation to the effect that Mrs Mizzi had received independent legal advice. After seeing it, he agreed that Reliance would make the loan. 36 On 21 December, Corrs sent a facsimile to Mr Cassaniti, recording that he wished to proceed with the advance notwithstanding their grave concerns about his ability to enforce the mortgage, and despite their advice. They added, "If you proceed to settle this matter without obtaining such material you expose yourself to a real risk that your security may be severally impaired". They submitted draft written instructions to complete, notwithstanding advice to the contrary. On the same day, Kremnizers advised Mr Kekatos that they had no instructions to compromise, and were preparing a Notice of Motion to approach the vacation judge for possession and expected to obtain an eviction date in the first week of January. Mr Kekatos wrote to Corrs directing payment of the settlement moneys (totalling $125,000), of which $115,742 would be paid to Kremnizers' clients, and the balance to Corrs, the office of State Revenue, Mr Kekatos, and Reliance. Settlement was appointed for Friday 22 December at 11:30 am. Mr Kekatos forwarded a facsimile to Dennise attaching a list of cheques to be drawn for settlement. 37 At 9:15am on 22 December, Mr Cassaniti sent a request to the National Australia Bank for a number of bank cheques described as "very urgent", and advising that they would be collected at 10:00 am. The settlement proceeded that day. A discharge of mortgage was received from Kremnizers (it was registered on 6 January 2001), and the Reliance mortgage, which Mrs Mizzi had signed on 13 November in the presence of Mr Kekatos, was dated 22 December and also registered 6 January 2001. 38 Mrs Mizzi did not tell her family about this transaction, despite the circumstance that Martin was aware of the demands made by Kremnizers. She says that she believed that Stefan would make sure that everything was fixed up within the three months. She says that it was not explained to her by anyone before she signed the loan agreement that she was promising to pay money and authorising the sale of her property if the promise was broken; that she believed that Stefan would show the deeds to his business people so that they knew she trusted him with her papers, and that they would then trust Stefan; and that she did not believe that Stefan would give her deeds to other people so that they could keep them or take her house away. However, Mrs Mizzi conceded that Martin had explained to her, when the Kremnizer demands were served on her, that one of the consequences of "going guarantor" was that if Stefan did not pay, she could lose her house. Mrs Mizzi knew that Martin and other members of her family would not approve, and she had and continued to endeavour to keep from them that she was "helping" Stefan. She knew that it was because she entered such a transaction in respect of the Kremnizer mortgage that the mortgagees were seeking possession of her home. All this indicates a sufficient if basic understanding that the transaction put, or left, her house at risk, and a greater understanding than Mrs Mizzi professed of the nature of the transaction. Was the mortgage an unjust contract? 39 In proceedings for relief under (NSW) Contracts Review Act 1980, s 7, there are two stages. 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 of 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 Limited v Karavas (1991) 23 NSWLR 256, 270E Samuels JA); Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41, [34]-[40] (Spigelman CJ), [106]-[111] (Basten JA)]. The second stage, which only arises if the first is resolved in the affirmative, is what if any orders should be made; this involves the exercise of a judicial discretion [Khoshaba, [34]-[36] (Spigelman CJ), [109] (Basten JA)]. 40 In West v AGC (Advances) Ltd (1986) 5 NSWLR 610, McHugh JA (as he then was) explained that circumstances of unfairness 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. 41 Accordingly, an unjust contract is usually the product of the combination of substantive and procedural unfairness. 42 In this case, the significant circumstances are as follows: · Mrs Mizzi was desirous of helping her grandson Stefan. She had been involved in one previous successful similar transaction, the Across Australia mortgage, and another in respect of which enforcement proceedings were underway against her, the Kremnizer mortgage. · The Reliance mortgage involved her home and only asset of significance. However, it did not place it in jeopardy, because the home was already in jeopardy as a result of the Kremnizer mortgage, which was in default, and unless she could somehow otherwise escape liability, a refinance was imperative to have any chance of saving her house. · When the mortgagees sought to enforce the Kremnizer mortgage, Mrs Mizzi raised a Contracts Review Act defence, but ultimately refinanced with Reliance rather than pursuing it. It is conceivable that, had the Reliance mortgage been entered into in circumstances where Mrs Mizzi was not advised and did not have the benefit of consideration of a Contracts Review Act objection to the previous mortgage, some argument that the Reliance mortgage was affected by injustice in the Kremnizer mortgage might have remained. But in circumstances where such an argument had been considered, pleaded but ultimately abandoned in favour of refinancing, I do not perceive any relevant unfairness in the Reliance mortgage. · While Mrs Mizzi's financial position was such that she would not be able herself to service the interest let alone repay the principal in accordance with the terms of the Reliance mortgage, in circumstances where the Kremnizer loan was in default, a refinance at least gave her some time, and the prospect that Stefan would be able to arrange repayment, without materially worsening her position. Even though it was unlikely that Mrs Mizzi would herself be able to service and repay the Reliance loan, and there may have been doubt (objectively viewed) as to Stefan's ability to do so, the alternative was for her to suffer a judgement for possession under the Kremnizer mortgage, in respect of which consideration had already been given on her behalf to a Contracts Review Act defence. · Although the interest rate charged by Reliance was high relative to bank rates, it was not when compared to the rates which the court often sees charged by lenders of last resort; no contention that the interest rate was unreasonably high was pleaded or particularised; and no evidence which would have permitted such a conclusion was adduced. · While Mrs Mizzi has little education and limited English, and while the advice given by Mr Kekatos probably did not convey to her in any detail an understanding of the obligations she was assuming, from the accumulation of what Mr Kekatos told her, and her son Martin's explanation of the consequences of "going guarantor", and her experience with the Kremnizer mortgage and the default under it, by the time she entered into the Reliance mortgage she must have known the general nature of and risks associated with such a transaction, and in particular she had a basic but sufficient understanding of those aspects which are relevant in the context of this case: that in return for an additional three months time, she was leaving her house at risk, reliant on Stefan to perform his obligations and procure the return of her deeds at the end of that period. 43 I therefore accept that Mrs Mizzi did not appreciate all the terms and conditions of the mortgage, but I am satisfied that she knew that her house would remain at risk as security for moneys of which Stefan had enjoyed the ultimate benefit, while thinking that the Reliance refinance provided a real opportunity for him to procure the recovery of her deeds. I do not overlook that while each of the mortgages appears to have been documented as a loan to Mrs Mizzi, sometimes guaranteed by Stefan, at least as between Mrs Mizzi and Stefan the substance of their understanding was that the primary obligation to repay was Stefan's, with Mrs Mizzi in effect a guarantor. But, by the time of the Reliance mortgage, when Mrs Mizzi's home was in very serious jeopardy from the Kremnizer mortgage, this was beside the point. In whatever form the previous loan was, Mrs Mizzi had given the security for it, and if she did not refinance, she would lose her home. 44 Accordingly, in my judgment, the Reliance loan and mortgage were not unjust contracts in the circumstances in which they were made, within s 7. The only respect in which it worsened her position was the higher interest rate, on which no attack was made or sustained; the alternative was loss of her home under the Kremnizer mortgage, on which a Contracts Review Act attack was abandoned; and Mrs Mizzi had a sufficient if basic understanding of the consequences. Should relief be granted? 45 Lest I be wrong in that conclusion, however, I consider whether as a matter of discretion relief would be granted. On this question, the knowledge of the relevant defendant – here, Reliance - is highly relevant, although absence of knowledge of the circumstances of injustice is not necessarily decisive against a claim for relief [Khoshaba, [77]; Beneficial Finance v Karavas, 277 (Meagher JA); Nguyen v Taylor (1992) 27 NSWLR 48, (Sheller JA)]. As McHugh JA said in West (at 622): A contract will not be unjust as 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. 46 In the present case, relevantly: · Reliance took steps to require that Mrs Mizzi obtain independent advice. Even if that advice when given were inadequate, Reliance could not be expected to know that. The certificate given (which was in the form approved by the Law Society) does not descend to the content of the advice given. Reliance was entitled to assume that Mr Kekatos had appropriately and properly advised Mrs Mizzi. · Although Reliance had been advised by its own solicitors that there may be concerns as to the enforceability of its security, the questions that Corrs raised included matters of which Corrs were unaware but Reliance was aware - namely that a valuation had been obtained, and the correct security property identified. If Reliance made a calculated decision to proceed notwithstanding Corrs' advice in those circumstances, that did not amount to accepting any risk so far as Mrs Mizzi's appreciation of the transaction was concerned. · The transaction had obvious aspects of improvidence on the part of Mrs Mizzi. Reliance knew that the underlying benefit of the previous transaction had been for Stefan not Mrs Mizzi; that she was effectively a guarantor; and that she was aged and probably did not have the capacity to service the loan without Stefan's assistance (although Mr Cassaniti appears to have been under the impression that rather than Mrs Mizzi being a guarantor, she had borrowed money which she had on-lent by way of investment in Stefan's business, the return on which would service her loan). But even if there were grounds to doubt her ability to service the loan, Reliance was also aware that refinancing was an imperative for Mrs Mizzi. The observations in Khoshaba in respect of lenders who engage in mere asset lending do not carry weight in these circumstances, because this is not a case in which Reliance lent moneys in circumstances which visited unnecessary or avoidable risk on Mrs Mizzi's home and only significant asset; if Reliance did not lend, she stood to lose the house in any event, to Kremnizers' clients. 47 I cannot see any unfair conduct on the part of Reliance so as to make the mortgage or loan agreement unfair as against Reliance or to justify the exercise of the discretion adversely to Reliance, and even had I concluded that in the circumstances to which I have referred the contract was unjust, I would have declined as a matter of discretion to make an order under s 7 adverse to Reliance. 48 Insofar as the claim of unconscionability stands apart from the Contract Review Act, although I would accept that Mrs Mizzi was in some respects in a position of disadvantage, for the reasons already explained I do not accept that Reliance unconscionably took advantage of that circumstance. The release agreement 49 On 18 July 2001, Lena Latouf transferred to Lords Securities a half interest in a property at North Parramatta, which she had acquired on 13 November 1997. Contemporaneously with the transfer, Lords and Ms Latouf mortgaged the North Parramatta property to Reliance, to secure advances of $388,000. 50 On 13 August 2001, Stefan instructed Stoikovich Banfield Macri Solicitors, apparently on behalf of Reliance, to prepare loan documentation, for settlement on or before 15 August 2001, for a loan to Dennise and Lords Securities, on the security of an unregistered second mortgage over 115 Kings Road, Castle Hill and a first mortgage over an apartment in Cairns. The special conditions were to include: This transaction is exchanged for no funds. The security being used is to replace the Mizzi loan with Re Alliance Financial Services. On execution of this loan Mr Sam Cassaniti has agreed to pass to our representative the title deeds and discharge of mortgage for 36 South Liverpool Road, Heckenberg. 51 A copy of these instructions was forwarded to Mr Cassaniti. On 13 September 2001, D'Agostino Solicitors wrote to Stoikovich Banfield Macri that they were instructed by Lords and Dennise that Stoikovich Banfield Macri had received a fax from Australian Discount Mortgages (a business operated by Stefan and Dennise) on 13 August 2001 outlining the terms of the refinance and enclosing a further copy, and inquiring when receipt of the loan and mortgage documentation might be expected as a matter of urgency. On the same date, Stefan wrote to Martin Mizzi by express post, enclosing a copy of the correspondence of 13 August to Reliance, and continuing: I do not know what to do any more, dad went in to see Sam yesterday and Sam guaranteed to finish this matter asap. Could you call Sam and speed him up somehow. I only request one thing from you, stop placing pressure on Nan, it's not her fault, she knows I've done everything in my control to finish this. As can be seen I have even employed a solicitor to chase it up (D'Agostino). 52 From about December 2001 – perhaps earlier - Mrs Mizzi had several conversations with Stefan and Dennise about them making arrangements to recover her deeds from Mr Cassaniti. 53 Mr Cassaniti on behalf of Reliance, Stefan on behalf of Lords and also in his own right, and Dennise executed an agreement in writing dated 16 January 2002 which recited inter alia, that Lords was or was entitled to be the registered proprietor of the North Parramatta land; that Ms Latouf was currently recorded as the registered proprietor of a one half share in it; that Lords was undertaking the development of the North Parramatta land; that Reliance had advanced the North Parramatta loan (the amount of which would be $433,000 as at 17 January 2002) to Lords and Ms Latouf at the request of Stefan and Dennise; that Lords, Stefan and Dennise had requested Reliance to release Ms Latouf from the North Parramatta loan; that Lords would not be able to repay the North Parramatta loan on the due date for repayment being 17 January 2002; that Reliance at the request of Lords, Stefan and Dennise had made the loan to Mrs Mizzi the amount of which was $219,856 as at 22 December 2001 and that that loan was in default; and that Lords, Stefan and Dennise had requested Reliance to extend the dates for repayment of all of the advances to 17 January 2003. The agreement also referred to various other properties and loans in which Lords, Stefan and/or Dennise were involved. 54 By the deed, Lords, Stefan and Dennise acknowledged that Reliance had made all of the advances (including that to Mrs Mizzi) at their request, and that they were jointly and severally responsible for their repayment. Reliance agreed to extend the date for repayment of all advances to 17 January 2003. Lords, Stefan and Dennise agreed to charge any interest they may have in inter alia the North Parramatta land and the North Parramatta development with the payment of any moneys payable under the deed, which charge was to be in addition to the charge over the North Parramatta land created by the earlier mortgage. Lords agreed to sign a variation of that earlier mortgage, and to assign any interest it had or might in the future have in the North Parramatta development to Reliance as security for its obligations in respect of the advances and the North Parramatta mortgage. Other provision was made in respect of the land at Castle Hill and Cairns and a motor vehicle. A concession was made in respect of default interest on the part of Reliance. 55 Clause 11 of the deed provided as follows: 11. Release 11.1 Reliance agrees to release Latouf from the obligations of the North Parramatta loan. 11.2 Lords, Allan and DG Allan acknowledge that the release of Latouf as set out in clause 11.1 will in no way release them from their obligations under this deed and will not prejudice Reliance's rights against them in any way. 11.3 Reliance agrees that on the later of the following event: a. the effective transfer of the North Parramatta land to Lords. Reliance will release Mizzi from any obligation due to Reliance after the effective transfer. 56 A transfer, by Lena Latouf to Lords, apparently executed and dated 21 December 2001, of her half share as tenant-in-common in the North Parramatta land, was registered on 19 February 2002. 57 Mr Cassaniti – who had previously been shown an earlier purported transfer of the North Parramatta land by Lords and Ms Latouf to Lords, in which the signatures for the transferor and transferee were apparently witnessed by one Peter Boutros, and another by Ms Latouf to Lords in which both signatures were witnessed by Peter Gosh - claims that when he saw this further transfer, he said to Stefan that he could not accept it and terminated the agreement, as all the transfers looked like forgeries. According to Mr Cassaniti, Stefan said "they are not forgeries", but Mr Cassaniti replied "the deal is off". He says that before the transfer of the North Parramatta property to Lords he treated the deed as no longer binding, and that putting to one side the transfer of the North Parramatta property, nothing required to be performed under the deed is being performed. 58 In about June 2002 according to Mrs Mizzi, Stefan told her that her daughter Carmen would pick her up the next day and take her to Sam Cassaniti's office, and that he had the deeds and would hand them back. The following day, Mrs Mizzi travelled with her daughter Carmen to Mr Cassaniti's office, but Mr Cassaniti told her that the deeds were not there but in his solicitors' office in Sydney, and that he would go there and pick them up and deliver them to her house personally. In June or July 2002, Martin Mizzi and his wife Pam took Mrs Mizzi to Mr Cassaniti's office and asked for the deeds. He said he was arranging for her to have them back right away and that Stefan had done everything that he needed to in order to release the deeds. 59 Mr Cassaniti denies those conversations, but confirms that Mrs Mizzi did attend his office during 2002. He claims she said: "I would like to look at the title deeds, if I could borrow them and bring them back", "just to see if it is safe", which he declined until she paid back the money. I prefer Mrs Mizzi's version of these conversations with Mr Cassaniti during 2002; there is no other indication that Mr Cassaniti was seeking repayment from Mrs Mizzi during 2002, and the 16 January 2002 deed, and the letter of 23 August and the further deed of 16 November 2002 referred to below, suggest the contrary. 60 On 23 August 2002, Mr Cassaniti on behalf of Reliance wrote to Stefan and Dennise, relevantly as follows: I refer to your letter of 21 August 2002 and your comment that you require a further seven days to sufficiently respond to my concerns. I have been more than patient having waited seven months for you to honour your various commitments to Reliance Financial Services Pty Limited, despite the concession given to you by my forbearance and entering into the deed of 16 January 2002 and despite your continuing defaults and seemingly endless excuses to avoid your obligations. Your request for further time is outrageous and simply another delaying tactic. As detailed in the deed you have two business days to reply to all requests. I reserve all my rights. 61 Mr Cassaniti on behalf of Reliance, Stefan on behalf of Lords and on his own behalf, and Dennise executed a deed dated 16 November 2002 which referred to the deed of 16 January 2002 and recited that Lords, Stefan and Dennise had defaulted in the performance of certain of their obligations under that deed. It recited certain further advances made by Reliance at their request on 11 and 30 October 2002. Reliance agreed that, provided that Lords, Stefan and Dennise made no further defaults in the performance of their obligations under the January 2002 deed, it would not take action to enforce it before 1 March 2003. By clause 2.4 the parties in all other respects confirmed the terms and conditions of the January deed. There was no express reference to the Mizzi loan, or the North Parramatta property. 62 In his affidavit, Mr Cassaniti said that subsequent to the January 2002 deed, he had Stefan sign a further deed, which he no longer had, and which stated that Stefan was in default of the January 2002 deed. The deed of 16 November 2002 was that further deed. In his oral evidence, Mr Cassaniti said that he did not regard the November deed as binding on Reliance. 63 It is to be borne in mind that the transfer by Ms Latouf to Lords was dated 21 December 2001 (and was presumably available at the time of the January deed), was stamped on 14 February and registered on 19 February 2002. The requests for return of Mrs Mizzi's deed were made in mid-2002, before the letter of 23 August or the 16 November deed. Neither the August letter nor the November deed is consistent with the January deed having been rescinded. 64 By a transfer under power of sale stamped on 26 February and registered on 3 March 2004, Reliance exercising its power of sale as mortgagee from Lords of the North Parramatta land transferred the North Parramatta land to Cosygayz Pty Limited for $900,000. The transfer was signed by Kim Thorn as director and secretary of Reliance, and by Mr Cassaniti as director and secretary of Cosygayz. By mortgage dated 5 March 2004, stamped on 8 March and registered on 11 March, Cosygayz mortgaged the North Parramatta land to the Uniting Church (NSW) Trust Association to secure (along with other security) advances of $3,860,000. As at August 2006, Cosygayz remained the registered proprietor of the North Parramatta land, subject to the mortgage to the Uniting Church. Cosygayz is a related company of Mr Cassaniti. 65 On 16 March 2005, Leonard Deane Lawyers, for Reliance, served a s 57(2)(b) Notice on Mrs Mizzi demanding a total of $702,948, together with a notice to occupier requiring vacant possession within fourteen days. These proceedings were commenced on 6 May 2005. 66 Mr Damien Allen, who appears for Reliance, submits that in the events that have happened, Reliance is not bound to release Mrs Mizzi under clause 11.3 of the January 2002 deed, and that even if Reliance were so bound the obligation would not be enforceable at the suit of Mrs Mizzi, who was not a party to the January deed. Is Reliance obliged to release Mrs Mizzi? 67 The plain intent of the parties to the January 2002 deed, as captured by clause 11.3, was that once the North Parramatta property was fully in Lords' ownership, it would replace the Heckenberg property as security for the Mizzi advance, and Mrs Mizzi would thereupon be released. The first question is whether there has been an "effective transfer of the North Parramatta land to Lords". 68 There is no evidence before me to the effect that any of the purported signatures of Ms Latouf was a forgery. Lords became registered as proprietor of the whole of the land on 19 February 2002, whereupon there had been an "effective transfer" of the land to Lords. There is no evidence to support a conclusion that Reliance was entitled to rescind on the basis Mr Cassaniti asserts. There is a bare assertion on his part that he suspected forgery, but no evidence to establish forgery. 69 I accept, as the November 2002 deed evidences, that Lords, Stefan and Dennise defaulted in respect of their obligations under the January 2002 deed. I accept that, save for the transfer of the North Parramatta land, their obligations remain unperformed. However, that does not of itself affect the obligation to release Mrs Mizzi under clause 11.3. First, I do not accept Mr Cassaniti's assertion that he treated the deed as no longer binding before the transfer of the North Parramatta property to Lords, because the letter of 23 August 2002 and the November 2002 deed treat the January deed as still binding and effective. Secondly, there is no evidence of any other act of termination; the November 2002 deed confirms rather than rescinds the January 2002 deed. Thirdly, Reliance has in effect adopted the validity of the transfer by its subsequent exercise of its power of sale as mortgagee to Cozygayz: whatever might have been Mr Cassaniti's reservations about the validity of the transfer by Ms Latouf to Lords, they have not prevented him from exercising Reliance's power of sale on the footing that Lords was solely entitled; and subsequently (through Cosygayz) mortgaging it to the Uniting Church for valuable consideration. 70 Fourthly, in any event, termination for breach after rights had accrued under clause 11.3 would not affect those accrued rights [McDonald v Dennys Lascelles Limited (1933) 48 CLR 457, 476-7 (Dixon J); Johnson v Agnew [1980] AC 367, 396]. While for a right to survive as an "accrued right" under this doctrine it must have been acquired "unconditionally" by the partial execution of the contract [McDonald v Dennys Lascelles, 476-7], where an accrued right exists it is not divested by termination even if it exists for the benefit of the party whose breach or repudiation lead to termination [Ettridge v Vermin Board of the District of Murat Bay [1928] SASR 124, 128; Hyundai Heavy Industries Co Limited v Papadopoulos [1980] 1 WLR 1129, 1136]. In my view, clause 11 makes clear that the obligation to release Mrs Mizzi was a separate and independent obligation which arose upon and was subject only to transfer to Lords of the North Parramatta property, and was not dependent on performance of other parts of the contract. The circumstance that the release of Mrs Mizzi depended only on the transfer of the North Parramatta land and not on performance of Lords' other obligations reinforces the view that it was an independent obligation, which served a separate special purpose. In my view, the effective transfer of the North Parramatta land to Lords resulted in an accrued right to have Mrs Mizzi released from any obligation owed to Reliance, which would survive any termination of the deed for breach. Is the obligation enforceable at the suit of Mrs Mizzi? 71 But Mrs Mizzi was not a party to the January 2002 agreement, and in those circumstances the question arises whether, not being privy to the contract, she can enforce the obligation. The doctrine of privity of contract would suggest that she could not: generally, only parties to a contract can enforce it [Dunlop Pneumatic Tyre Co Limited v Selfridge & Co Limited [1915] AC 847, 853 (Viscount Haldane LC); Coulls v Bagots Executor and Trustee Co Limited (1966) 119 CLR 460, 478 (Barwick CJ)]. The application of the doctrine of privity in its full extent has been questioned, and in Trident General Insurance Co Limited v McNiece Bros Pty Ltd (1988) 165 CLR 107, five of seven members of the High Court allowed a stranger to sue on an insurance contract. However, only three did so on the footing that the rules as to privity should be relaxed, at least in the context of an insurance contract. The prevailing view is that the rules as to privity remain the law [Winterton Constructions Pty Ltd v Hambros Australia Limited (1991) 101 ALR 363 (Gummow J)]. 72 However, there are some recognised exceptions or qualifications, in particular that a party to a contract may be the trustee for a third party of the benefit of a contractual promise to confer a benefit on the third party [Les Affreteurs Reunis SA v Leopold Walford (London) Ltd [1919] AC 801; Wilson v Darling Island Stevedoring and Lighterage Co Limited (1956) 95 CLR 43; Trident v McNiece]. Such a trust may attach to the benefit of the whole contract, or only to the whole or part of some particular contractual obligation [Trident v McNiece, 147 (Deane J)]. Whether there is a trust of the benefit of a contractual promise in favour of a third party depends primarily on the intention of the promisee – here, Stefan, Dennise and Lords; although there may be cases in which the intention of the promisor is also relevant, generally it is the settlor of a trust whose intention is critical, and in this context the settlor is the promisee. There are statements of high authority in this country that courts should not be reluctant to infer a trust in cases where parties make a contract for the benefit of the third party [Wilson v Darling Island Stevedoring, 67 (Fullagar J); Trident v McNiece, 146-147 (Deane J)]. 73 In the present case, it is significant that the substance of the relevant dealings, as between Mrs Mizzi and Stefan, was that Stefan was the true borrower and the person primarily obliged as between them to procure the return of Mrs Mizzi's deeds. Regardless of the form in which the transactions were documented, as between Stefan and Mrs Mizzi he was the principal obligor and she was the surety. Stefan many times promised that he would have the deeds returned to her in a short time. She entered into each of the mortgages, including the Reliance mortgage, on that basis. In equity, Mrs Mizzi was entitled to be exonerated by Stefan; in addition, she had the benefit of promises made by him to procure the return of her title deeds. In other words, he owed her legal and equitable obligations to procure her release from the Reliance mortgage and the return of her title deed. 74 Although the contention that the benefit of clause 11.3 was held upon trust for Mrs Mizzi is not assisted by the absence of evidence from Stefan (or Dennise), the surrounding circumstances are such that despite their absence, I conclude that Lords and Stefan and Dennise intended that the benefit of the clause be held by them for Mrs Mizzi. The circumstance that Stefan was under considerable pressure from other members of his family, including Martin, to recover the deeds, and his letter to Martin of 13 September 2001 in which he claimed to have done everything in his control to bring about that result, is evidence that he was doing so not for his own but for Mrs Mizzi's benefit. But the most important factor leading to that conclusion is the circumstance that Stefan had a legal and equitable obligation to procure such a release for Mrs Mizzi. In bargaining for clause 11.3, Stefan was performing a legal and equitable obligation owed to Mrs Mizzi, and having procured the release he was not at liberty to abandon it, or otherwise deal with it as if it were for his own benefit. The proper inference is that in respect of clause 11.3, Stefan was contracting on behalf of Mrs Mizzi, and intended that Mrs Mizzi have an interest in the benefit of clause 11, thus discharging his pre-existing legal and equitable obligation to her, to procure her release from the mortgage. 75 Mr Kasep, for Mrs Mizzi, additionally submitted that the doctrine of privity did not apply, as the deed was not strictly one inter partes but one which contained unilateral promises to Mrs Mizzi and should be regarded as a deed poll, for which he invoked Moody v Condor Insurance Limited [2006] 1 WLR 1847, 1853 [16], 1854 [18]]. I prefer to rest my decision on the basis of a trust of the contractual promise. 76 Mr Kasep further contended that Reliance was estopped from denying the plaintiff a release, having represented to her that all that was necessary for the return of her deed had occurred, in reliance upon which Mrs Mizzi was said to have acted to her detriment in not making any repayments. However, Mrs Mizzi made no repayments before any such representation was made, and gave no evidence that she relied on any such representation, and I would not accept that relevant reliance was established. 77 Mr Allen, for Reliance, submitted that if I concluded that the benefit of clause 11.3 was held upon trust for Mrs Mizzi, nonetheless relief should not be granted for a number of reasons. The first was that there was a lack of mutuality, in that Stefan, Dennise and Lords had not and would not perform their obligations under the deed, and it would be iniquitous to enforce one clause only against Reliance when the obligations to the benefit of which it was entitled were not being performed. However, as what is in question here is an independent accrued right under clause 11.3, this is not an objection. Moreover, Reliance has gained the benefit of the transfer of the North Parramatta land through its subsequent realisation by the mortgagee sale to Cozygayz. Even if specific performance of the entire deed would be inappropriate, that does not preclude the enforcement of an accrued obligation under it by way of declaration and/or injunction. 78 Mr Allen further submitted that, Lords not having been joined as a party, relief was not available. Lords has not been joined, because it has been deregistered. The other "trustees", Stefan and Dennise, have been joined. 79 At law, the beneficiary of a trust could not sue an obligor to the trust, the proper plaintiff being the trustee [Sharpe v San Paulo Railway Co (1873) 8 Ch App 597]. However, in equity, the beneficiary may sue in its own name, joining the trustee and other beneficiaries as defendants [Howden v Yorkshire Miners' Association [1903] 1 KB 308, 328-9; affirmed [1905] AC 256; Meldrum v Scorer (1887) 56 LT 471; Williams v Papworth [1900] AC 563; Bennett v ES&A Chartered Bank (1888) 9 LR (NSW) 554]. In the case of a trust of a contractual promise, the beneficiary can sue the promisor if the trustee refuses [Ryder v Taylor (1935) 36 SR (NSW) 31, 47], joining the trustee as a defendant [Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70, 79; Birmingham v Renfrew (1937) 57 CLR 666, 686; Wilson v Darling Island Stevedoring, 67 (Fullagar J); Trident v McNiece, 146 (Deane J)]. The necessity for joining the trustee arising from the circumstance that the beneficiary is not a party to the contract, and so that the trustee/promisee is bound. In substance, the action involves the beneficiary compelling the reluctant trustee to sue by joining it as a defendant. 80 In Matthews v Doctrieve Corp Pty Ltd [2003] FCA 459, Finkelstein J allowed an amendment to bring in a new cause of action to recover moneys had and received by the defendant on the basis of the payment of book debts purchased by the plaintiff. The amendment was permitted although the evidence suggested that the plaintiff was merely the equitable assignee of the book debts and although neither the assignor (which had been struck off the register of companies) or ASIC had been joined. Without expressing a concluded opinion, his Honour explained (at [32]) that while the general rule was that where a plaintiff had only an equitable right in a debt, the person having the legal right to payment must in due course be joined, so as to prevent multiple proceedings, nonetheless if an action were brought by the equitable assignee of a debt, any deficiency in parties could be remedied and in the meantime the absence of the legal owner did not render the action void, there being authority for the view that it was not always necessary for an equitable assignee to join his assignor in bringing proceedings [for example, Jennings v Credit Corp Australia Pty Ltd (2000) 48 NSWLR 709, 719-722]. 81 In this state, UCPR r 6.23 provides that proceedings are not defeated merely because of the misjoinder or non-joinder of any person as a party to the proceedings. This rule authorises the determination of issues in proceedings despite the non-joinder of a party [Finance Corp of Australia Ltd v Bentley (1991) 5 BPR 11,833; BC9102015 (Mahoney JA, Handley JA agreeing)]. Thus if a person who would have been an appropriate party has not been joined, the court may proceed to determine the rights of the parties actually before the court, but a person who has not been joined and is affected by orders made in the proceedings, will be entitled to apply to have them set aside [Taylor v Taylor (1978) 143 CLR 1, 4; Finance Corp of Australia Ltd v Bentley; Chappuis v Filo (1990) 19 NSWLR 490, 512]. 82 Under the contract, Lords, Stefan and Dennise were entitled to enforce the benefit of clause 11.3. In the case of joint obligors (as distinct from obligees, but the analogy is instructive), there is only one obligation and generally all living promisors must be joined [Cabell v Vaughan (1669) 1 Wms Saund 290a; Kendall v Hamilton (1879) 4 App Cas 502, 542-544]. However, this requirement is relaxed if one of the joint obligors is an undischarged bankrupt or is outside the jurisdiction [Wilson, Sons & Co v Balcarres Brook SS Co [1893] 1 QB 422]. Moreover, since the Judicature Acts [cf UCPR r 6.23], while applications were generally approached on that same basis, the court has a discretion and may refuse to require joinder of one of the joint obligors if the plaintiff had done everything in its power to serve the absent defendant without success [Robinson v Geisel [1894] 2 QB 685; Norbury, Natzio & Co Limited v Griffiths [1918] 2 KB 369; UCPR r 6.21]. 83 In the case of joint obligees (but not joint and several obligees), all living joint promisees must be joined, those who refuse to join as a plaintiff being joined as a defendant – that is, unless the Court otherwise orders [UCPR r 6.20]. On the death of a joint (but not joint and several) obligee or obligor, the benefit or burden of the obligation passes to the survivors, the interest or obligation of the deceased being extinguished [White v Tyndall (1888) 13 App Cas 263]. It is not necessary to join concurrent (as distinct from joint) holders of a right as parties [Scott v Tuff-Kote (Aust) Pty Ltd [1975] 1 NSWLR 537]. 84 Whether co-promisees are joint or several depends on the contractual intent deduced from the langue of the contract and the circumstances. Generally, a promise by A to B and C to pay X $1,000, where the co-promisees have no interest in the subject matter or performance of the contract, is taken to be joint [Anderson v Martindale (1801) 102 ER 191]. But this must yield to the contractual intent. Here, the structure of the contract, in which each of Lords, Stefan and Dennise contract separately, suggests that they contracted jointly and severally. The fact that there are some independent obligations of each of them confirms that view. A number of provisions of the deed (clauses 2.1 and 4.1 for example) refer to them "jointly and severally". 85 The better view is, therefore, that Reliance's promise in clause 11.3 was made to them jointly and severally. In those circumstances, any one of them without the others could sue Reliance to enforce Reliance's promise, and it is sufficient that one of them be joined. If, however, they were joint obligees, then in circumstances where Lords has been deregistered, as a matter of discretion, by analogy with the position which obtains in respect of undischarged bankrupts and persons out of the jurisdiction, I would not insist upon joinder. 86 It follows that in my opinion the non-joinder of Lords is not an obstacle to allowing Mrs Mizzi to enforce, for her benefit, clause 11.3 of the January 2002 deed. Conclusion 87 My conclusions may be summarised as follows: 88 The Reliance loan and mortgage were not unjust contracts in the circumstances in which they were made, within s 7. The only respect in which they worsened Mrs Mizzi's position was the higher interest rate, on which no attack was made or sustained; her only practical alternative was loss of her home under the Kremnizer mortgage, on which a Contracts Review Act attack was abandoned; and Mrs Mizzi had a sufficient if basic understanding of their effect and consequences. Even if they were unjust contracts, relief under Contracts Review Act, s 7, should be declined as a matter of discretion, as Reliance's role was not such as to justify relief being granted against it. 89 For substantially the same reasons, they are not liable to be avoided as unconscionable dealings. 90 There was an effective transfer of the North Parramatta land to Lords by 18 February 2002. The January 2002 deed had not been terminated by that date, and has not since been terminated. Even if it has been or may be terminated, the right to a release under clause 11.3 accrued unconditionally upon transfer of the North Parramatta land to Lords. 91 The benefit of Reliance's promise to grant a release to Mrs Mizzi was held by Stefan upon trust for Mrs Mizzi, who is entitled to enforce it. The non-joinder of Lords is not an obstacle to Mrs Mizzi enforcing, for her own benefit, clause 11.3 of the January 2002 agreement: in the circumstances it was sufficient that one of the parties severally entitled to enforce the contract was joined. Mrs Mizzi is therefore released from all obligations which she had to Reliance. 92 Although the plaintiff Mrs Mizzi succeeds, she does so on only one of the two main issues argued, having failed on the Contracts Review Act issue. The issues are severable, each depending on different evidence, and the issue on which Mrs Mizzi failed occupied the greater part of the hearing. Prima facie, I am inclined to the view that Mrs Mizzi should not recover her costs of the Contracts Review Act issue, and that the appropriate costs order is that Reliance pay one-third of her costs. However, I have not heard the parties on costs, and if either party wishes I will afford them an opportunity to address that issue. 93 My orders are: 1. Declare that upon the proper construction of clause 11 of the agreement dated 16 January 2002 between the first defendant, Lords Securities Pty Limited, the second defendant and the third defendant, and in the events which have happened, the plaintiff was on 19 February 2002 released from any obligation which she owed to the first defendant in respect of moneys advanced by the first defendant to her, and in particular all obligations which she had under: a. Loan Agreement (Secured) between the plaintiff and the first defendant dated 22 December 2000; b. Mortgage by the plaintiff to the first defendant dated 22 December 2000 of the land comprised in folio identifier 61/223084 registered number 7310125X. 2. Order that the first defendant execute and deliver to the plaintiff a discharge in registrable form of mortgage 7310125X together with the original and executed copies of the said mortgage, and the certificate of title in respect of the said land. 3. Order that the cross-claim be dismissed. 4. Order that the first defendant pay one-third of the plaintiff's costs. 5. Grant liberty to either party to apply, at its own risk as to costs, by notice to my associate by 19 February 2007, to set aside order 4 and for some other costs order in its place. 6. Direct that these orders not be entered before 20 February 2007. ********** Costs 94 Mr Allan has raised two main matters upon which the defendant relies for contending that a costs order should be made other than that which I have tentatively indicated, and that the preferable course is to make no order as to costs, to the intent that each party bear its own costs. 95 The first is that it is said that the order I have indicated does not sufficiently reflect the success of the defendant on the Contracts Review Act issue. The order I have indicated assumes a rough apportionment of the proceedings on the basis that one-third was concerned with the release issue on which the plaintiff succeeded, and two-thirds with the Contracts Review issue on which the plaintiff failed. Because the issues were severable, I was of the view that the plaintiff should not have her costs of the issues on which she failed. By "severable", I mean that the evidence on each issue was discrete and the adducing and challenging of evidence on the Contracts Review issue added a substantial amount to the length and complexity of the case which would have been avoided had the plaintiff only pursued the issue on which she succeeded. 96 However, the fact that the plaintiff is, in my view, not entitled to the costs of the issue on which she failed does not necessary mean that she should be ordered to pay the defendant's costs on that issue, or that some pragmatic costs order should proceed on the basis that, prima facie, the plaintiff should bear the defendant's costs on that issue. It is more common for a plaintiff to be deprived of costs of an issue on which it fails than to be ordered to pay the defendant's costs of that issue, where the plaintiff, ultimately succeeds by reason of success on another issue. This is because the incurring of costs on the issue on which the plaintiff fails is not solely attributable to the plaintiff's decision to prosecute that issue, but can also be attributed, in part, to the defendant's decision to contest the issue on which the defendant failed. In other words, applied to this case, if the defendant had conceded the release issue, it would not have been required to litigate the Contracts Review Act issue. Essentially for those reasons, I remain of the view that the plaintiff should be deprived of her costs of the Contracts Review issue, but should not be liable for the defendant's costs of that issue. 97 The other matter which Mr Allen raises is that the issue on which the plaintiff succeeded, on one view, was raised very late in the case and at least was only put into a form in which the plaintiff could succeed on it on the eve, or even on the first day of the hearing. 98 In the summons filed on 6 May 2005, the plaintiff claimed, by paragraph 5, a declaration that she was released from liability under the mortgage as at 19 February 2002. This clearly enough relied on the release agreement. The statement of claim filed on 1 June 2005 pleaded the release agreement in paragraphs 13 to 18. However, the defence filed on 15 July 2005 pleaded by paragraph 14 that there was no privity between the plaintiff and the defendant. As the proceedings were then constituted, the defendant would have been entitled to succeed on that pleading. An amended statement of claim filed on 10 January 2006 introduced paragraph 19, alleging "Further and in the alternative, the provision of the release agreement constituted the defendant a trustee and the plaintiff a cestui que trust of the benefit of the release covenanted by the defendant under clause 11.3 of the release agreement". As I explained in the principal judgment delivered this morning, although in the context of a subsequent iteration of the pleading, that paragraph put the defendant on notice that a trust of the covenant was to be relied on, effectively in reply to the pleading of lack of privity, but it also has to be said that it did not accurately describe the trust which the plaintiff had to establish if she were to succeed. 99 The defence to that pleading maintained that paragraph 19 was vexatious, oppressive and liable to be struck out. The further amended statement of claim was relevantly substantially to the same effect as the amended statement of claim. The defence to the further amended statement of claim, by paragraph 6, continued to assert the plaintiff was not privy, but added a denial of the existence of any trust. 100 The third further amended statement of claim, which was filed at the outset of the hearing on 14 December 2006 and notified shortly before then, put the allegation of trust into a more appropriate form. Also at the outset of the hearing submitting appearances were filed on behalf of Stefan Allen and Denise Allen, at least one of whom was a necessary party. Until those things happened, the defendant was entitled to think that it was entitled to succeed on the pleadings as they then stood with the case constituted as it then was. On the other hand, it has been clear from the outset that the plaintiff relied, in part, on the release agreement; and it was on that basis that she ultimately succeeded, though the case was not articulated fully and precisely until a very late stage. 101 I do not see why the plaintiff should be entitled to the costs of putting into order the case on which she ultimately succeeded. On the other hand, I think there was sufficient indication of the case on which she ultimately succeeded, even from the time of the originating summons, that it is inappropriate to limit, until the commencement of the hearing, her entitlement to costs on that issue. 102 My orders are: 1. Set aside order 4 pronounced earlier this morning. Order that the plaintiff pay the defendant's costs of, incidental to and thrown away by the amendment of the statement of claim on 10 January 2006, the further amendment of the statement of claim on 11 August 2006 and the further amendment of the statement of claim on 14 December 2006. 2. Order that the defendant pay one-third of the plaintiff's costs of the proceedings in so far as any special costs order does not otherwise provide. 3. Order that the costs to which the defendant is entitled under order 1 and those to which the plaintiff is entitled under order 2 be set off and that execution on each costs order be stayed until the net amount payable is ascertained or further order. 4. There being no reason now why the orders should not be entered, I also set aside order 6 made earlier this morning. ********** 19/03/2007 - Amendment of date - Paragraph(s) Date 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.