New South Wales Supreme Court CITATION : Permanent Trustee Company Limited v Gillian O'Donnell Permanent Trustee Company Limited v Di Benedetto Tonto Home Loans Australia Pty Ltd v Tavares [2009] NSWSC 902 HEARING DATE(S) : 23 March 2009 ; 24 March 2009; 26 March 2009; 27 March 2009; 30 March 2009; 31 March 2009; 1April; 6 April 2009; 7 April 2009; 8 April 2009; 21 April 2009 JUDGMENT DATE : 4 September 2009 JUDGMENT OF : Price J at 1 DECISION : See paragraphs 446 447 and 448 CATCHWORDS : CONTRACTS - loan contracts and mortgages - Lo Doc loans - fraud of finance broker and property developer - borrowers persuaded to sign blank or partially completed loan application forms - borrowers persuaded not to obtain independent legal advice - carelessness of borrowers - loans approved on fraudulent financial information inserted by finance broker without knowledge of borrowers - purported use of loan funds for joint ventures - ASIC intervention - public interest - lending guidelines - panel lawyer's guidelines - mortgage insurance - special condition as to cash out - prudent lending practice - PRINCIPAL and AGENT - conflict of interest - whether broker acting for borrowers or lender - Introduction Deed - terms of agreement - true nature of relationship - attribution of knowledge of broker to mortgage manager and lender - asset lending - conduct of business by mortgage manager - risk of serious fraud to borrowers - UNJUST CONTRACTS - Contracts Review Act - consideration of relevant circumstances - lenders guidelines not followed - whether unjust asset lending - consideration of public interest - exercise of discretion. Australian Securities and Investments Commission Act 2001 (Cth) Contracts Review Act 1980 s 7(1)(d) LEGISLATION CITED : Fair Trading Act 1987 Trade Practices Act 1974 Real Property Act 1900 s 57(2)(b) CATEGORY : Principal judgment Baltic Shipping Co v Dillon (1991) 22 NSWLR 1 Beach Petroleum NL & Claremont Petroleum NL v Johnson (1993) 115 ALR 411 Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1 Beach Petroleum NL v Johnson (1993) 43 FCR 1 Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch 250 Beneficial Finance Corp Ltd v Karavas (1991) 23 NSWLR 256 Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552 CIT Credit Pty Ltd v Keable [2006] NSWCA 130 Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 Custom Credit Corporation v Lynch [1993] 2 VR 469 JC Houghton & Co Pty Ltd v Nothard Lowe & Wills Ltd [1928] AC 1 Kowalczuk v Accom Finance Pty Ltd (2008) 252 ALR 55 Lloyd v Grace Smith & Co [1912] AC 716 CASES CITED : Micarone v Perpetual Trustees Austalia Ltd (1999) 75 SASR 1 Morlend Finance Corporation (Vic) Pty Ltd v Westendorp [1993] 2 VR 284 Nathan v Dollars & Sense Finance Ltd [2007] 2 NZLR 747 Nguyen v Taylor (1992) 27 NSWLR 48 NMFM Property v Citibank (2000) 107 FCR 270 Octapon Pty Ltd v Esanda Finance Corporation Ltd (Supreme Court of New South Wales 3 February 1989 unreported) Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41 Re Hampshire Land Co [1896] 2 Ch 373 Riz v Perpetual Trustee Australia Ltd [2007] NSWSC 1153 Rosenberg v Percival (2001) 205 CLR 434 Short v Crawley (No 30) [2004] NSWSC 1322 Spina v Permanent Custodians Limited [2009] NSWCA 206 Suncorp-Metway Ltd v Bellairs [2009] NSWSC 135 West v AGC (Advances) Ltd (1986) 5 NSWLR 610 Dal Pont TEXTS CITED : Law of Agency 2nd ed (2008) LexisNexis Butterworths Permanent Trustee Company Limited (Plaintiff) Australian Securities and Investments Commission (as Intervener) PARTIES : John & Gillian O'Donnell (Defendant/cross-claimants) Lawrence & Maria Di Benedetto (Defendant/cross-claimants) Tonto Home Loans Australia Pty Ltd (Plaintiff) Jose De Carvalho E Rego Tavares & Kim Rowe (Defendant/cross-claimants) FILE NUMBER(S) : SC 12148/06; 12147/06; 15644/05 A Bell SC, A Abadee + J Muir (Plaintiffs) COUNSEL : P Menzies QC + A Fernon (Defendant/cross-claimants) R Wright SC + J Arnott (ASIC as Intervener) IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION PRICE J 4 September 2009 12148/06 - PERMANENT TRUSTEE COMPANY LIMITED v GILLIAN O'DONNELL AND ANOR 12147/06 - PERMANENT TRUSTEE COMPANY LIMITED v LAWRENCE DI BENEDETTO AND ANOR 15644/05 - TONTO HOME LOANS AUSTRALIA PTY LTD v JOSE DE CARVALHO E REGO TAVARES AND ANOR JUDGMENT 1 HIS HONOUR: These proceedings have been heard together as similar issues are raised. Each of the defendants entered into joint venture agreements with a property developer Streetwise Property and Projects Pty Ltd (Streetwise Property). In order to enter into the joint ventures the defendants in 2003 borrowed money from the plaintiffs. Applications for low documentary (Lo Doc) loans had been submitted in each case by a finance broker, Streetwise Home and Investment Loans Pty Ltd (Streetwise Loans), to Tonto Home Loans Australia Pty Ltd (Tonto), a mortgage manager and loan provider. Some of the details concerning the assets and income of the defendants in the loan applications had been falsely completed by an undisclosed person or persons at Streetwise Loans. Streetwise Property and Streetwise Loans were part of the Streetwise Group of companies (Streetwise). The moneys advanced by the plaintiffs were secured by first mortgages over the defendants' family homes. Following the financial collapse of Streetwise in 2005, the defendants defaulted under the terms of the mortgages. The plaintiffs seek orders for possession of the defendants' homes and monetary judgments. The defendants seek declaratory relief and orders that the loan agreements and mortgages be set aside. 2 The Australian Securities and Investments Commission (ASIC) has intervened in the proceedings in its role in upholding the public interest in the proper functioning of the Australian financial system. 3 The plaintiffs' cases in chief are not controversial. The issues for consideration arise from the cross-claims. The defendants concede that unless they can establish their cross-claims the plaintiff in each case is, subject to proving the amount claimed, entitled to the orders sought. 4 In this judgment the entities within the Streetwise Group of companies will be referred to as Streetwise unless it is necessary to identify the particular company within the Group. What are Lo Doc loans? 5 It is important to understand that these proceedings do not involve a general attack by the defendants or ASIC on Lo Doc lending which has been part of the Australian mortgage lending industry for many years. John Brewster in his report dated 2 May 2008 (ex M (TR)) at [35] defines Lo Doc loans as being: "loans where the savings history and/or income of the borrower is not fully verified by the lender when [assessing] the borrower's capacity to pay." 6 Derek Robertson in his report dated 22 October 2007 explained at p2: "The [Lo Doc] market began and has developed as lenders have seen a need and opportunity to make loans available to borrowers (predominantly self-employed) who: a. cannot show their income due to tardiness in preparing historical financial statements and tax returns; b. do not reflect their true incomes in tax returns etc; c. suffer from inconsistent cash flows. It is not normal practice for lenders to verify any of the above noted." The Plaintiffs' Cases in Chief (i) Permanent Trustee Company Limited v Gillian O'Donnell and John Robert O'Donnell (the O'Donnell proceedings). 7 John Robert O'Donnell and Gillian O'Donnell (the O'Donnells) are the registered proprietors as joint tenants of their home at 103 Soldiers Avenue Harbord NSW being the whole of the land in Certificate of Title folio identifier 62/7912 (the O'Donnell property). 8 The O'Donnells entered into a loan agreement with Permanent Trustee Company Limited (Permanent) on about 10 January 2003. The loan agreement identifies Permanent as the "Lender" and the O'Donnells as the "Borrowers". Tonto is identified as the "Originator/Manager". The amount of the loan was $500,000 and the interest rate was specified as being a "Lo Doc Variable rate" of 6.95 per cent per annum. The total term of the loan was 30 years. The security for the moneys due under the loan agreement was a first registered mortgage over the O'Donnell property. The purpose of the loan was expressed to be as follows: " The loan must be used to refinance an existing mortgage with CBA over property situated at 103 Soldiers Avenue, Harbord NSW 2096 and to establish facility to purchase investment property in near future. Facility required $500,000.00 (66.67% LVR)" 9 The terms and conditions provided that the loan agreement "must be read together with the FirstMac General Terms and Conditons Booklet Version 1 dated June 2002 which forms part of this loan agreement." 10 The O'Donnells entered into a mortgage with Permanent which is dated 7 February 2003. The mortgage incorporates standard terms document No 2602619T. 11 The loan was settled on 7 February 2003 and a cheque for $489,651.82 was deposited into the Streetwise Property account in accordance with a written authorisation which the O'Donnells had signed. 12 The O'Donnells failed to pay an instalment due under the loan agreement and the mortgage on 7 August 2005. A default notice under s 57(2)(b) of the Real Property Act 1900 was issued on 16 November 2005 claiming the arrears then due which the O'Donnells did not comply with. 13 By a further amended statement of claim filed on 9 April 2009 Permanent seeks an order for possession of the O'Donnell property, an order for judgment in the sum of $566,050.95 and interest and indemnity costs. According to a certificate dated 20 March 2009 the total amount payable to Permanent is $690,467.61. (ii) Permanent Trustee Company Limited v Lawrence Di Benedetto and Maria Di Benedetto (the Di Benedetto proceedings). 14 Lawrence Di Benedetto and Maria Di Benedetto (the Di Benedettos) are the registered proprietors as joint tenants of their home at 165 Alfred Street, Narraweena NSW being the whole of the land in folio identifier 5/23820 (the Di Benedetto property). 15 The Di Benedettos entered into a loan agreement with Permanent Trustee Company Limited (Permanent) on about 19 February 2003. The loan agreement identifies Permanent as the "Lender" and the Di Benedettos as the "Borrower". Tonto is identified as the "Originator/Manager". The amount of the loan was $500,000 and the interest rate was specified as being a "Lo Doc Variable rate" of 6.95 per cent per annum. The total term of the loan was 30 years. The security for the moneys due under the loan agreement was a first registered mortgage over the Di Benedetto property. The purpose of the loan was expressed to be as follows: " The loan must be used to refinance an existing mortgage with ANZ over property situated at 165 Alfred Street, Narraweena NSW 2099. To provide funds to free up equity for investment purposes." 16 The terms and conditions provided that the loan agreement "must be read together with the FirstMac General Terms Booklet Version 1 dated June 2002 which forms part of this loan agreement." 17 The Di Benedettos entered into a mortgage with Permanent which is dated 26 February 2003. As in the O'Donnell mortgage, the mortgage incorporates standard terms document No 2602619T. The loan was settled on 26 February 2003 and the sum of $487,660.41 was deposited to the account of Streetwise Property in accordance with an authority which the Di Benedettos had signed. 18 The Di Bendettos failed to pay an instalment due under the loan agreement and the mortgage on 26 July 2005. A default notice under s 57(2)(b) of the Real Property Act was issued on 16 November 2005 claiming the arrears then due which the Di Benedettos did not comply with. 19 By a further amended statement of claim filed on 9 April 2009, Permanent seeks an order for possession of the Di Benedetto property, an order for judgment in the sum of $568,750.80 and interest and indemnity costs. According to a certificate dated 20 March 2009, the total amount payable to Permanent is $692,094.16. (iii) Tonto Home Loans Australia Pty Ltd v Jose De Carvalho E Rego Tavares and Kim Lee-Anne Rowe 20 Jose De Carvalho E Rego Tavares as to a 2/3 share and Kim Lee-Anne Rowe as to a 1/3 share are the registered proprietors as tenants in common of their home at 2 Combara Avenue, Castle Hill being the whole of the land in folio identifier 60/240036 (the Tavares and Rowe Property). 21 Mr Tavares and Ms Rowe entered into a loan agreement with Tonto on about 22 May 2003. The loan agreement identifies Tonto as the "Lender" and as the "Originator/Manager". Mr Tavares and Ms Rowe are identified as the "Borrower". The amount of the loan was $416,000 and the interest rate was specified as being a "Lo Doc Variable rate" of 6.95 per cent per annum. The total term of the loan was 30 years. The security for the moneys due under the loan agreement was a first registered mortgage over the Tavares and Rowe property. The purpose of the loan was expressed to be as follows: "The loan must be used to refinance an existing mortgage with ANZ over property situated at 2 Combara Avenue, Castle Hill NSW 2154 and surplus funds for investment purposes." 22 The terms and conditions provided that the loan agreement "must be read together with the FirstMac General Terms and Conditions Booklet Version 3 dated April 2003." 23 Mr Tavares and Ms Rowe entered into a mortgage with Tonto which is dated 30 May 2003. The mortgage incorporates standard terms document No 9534581. The loan was settled on 30 May 2003 and the sum of $352,824.53 was paid to Streetwise Property in accordance with an authority which Mr Tavares and Ms Rowe had signed. 24 Mr Tavares and Ms Rowe failed to pay an instalment due under the loan agreement and mortgage on 31 July 2005. A default notice under s 57(2)(b) of the Real Property Act was issued on 7 September 2005 claiming the arrears then due which Mr Tavares and Ms Rowe did not comply with. 25 By a further amended statement of claim filed on 9 April 2009, Tonto seeks an order for possession of the Tavares and Rowe property, an order for judgment in the sum of $532,508.27 and interest and indemnity costs. According to a certificate dated 20 March 2009, the total amount payable is $562,987.46. The nature of the Cross-Claims 26 For the sake of convenience, I will from now on refer to the defendants in this judgment as the cross-claimants. By further amended statements of cross-claim the cross-claimants seek declaratory relief and orders that the loans and mortgages be set aside. As the pleadings are of some length, the principal assertions will be summarised in accordance with the cross-claimants' written submissions. Agency Each of the cross-claims asserts that Streetwise was the agent of Tonto (which was in turn the agent of Permanent in the O'Donnell and Di Benedetto proceedings) to promote and advance the Lo Doc loans the subject of each of the proceedings. Alternatively, the cross-claims assert that Tonto held Streetwise out as its agent such that it had the ostensible authority to negotiate and act in respect of the loans. In preparing the loan applications as agent for Tonto (and Permanent in the O'Donnell and Di Benedetto proceedings) Streetwise inserted false information in the loan applications and knew that the cross-claimants could not afford the loans which were sought. The cross-claimants assert that Tonto and Permanent are fixed with the knowledge and conduct of Streetwise in approving and settling the loan funds advanced. The cross-claimants claim that the plaintiffs therefore knew: (a) the true financial position of the cross-claimants, (b) that they could not afford the loans approved, (c) that the only basis on which the loans could be repaid was through the sale of the family home; and (d) that such loans amounted to asset lending. The cross-claimants assert that the loans should be set aside in accordance with the principles established by Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41. Unjust contracts/unconscionability The cross-claimants assert by reason of several factors that the loan agreements and mortgages: (a) Are unjust contracts within the meaning of the Contracts Review Act 1980; (b) Were entered into in circumstances that were unconscionable within the meaning of the unwritten law, the Trade Practices Act 1974, the Fair Trading Act 1987 and the Australian Securities and Investments Commission Act 2001 (Cth). One of factors relied upon by the cross-claimants is that the loans were approved in breach of the relevant lending guidelines. 27 The cross-claimants must prove their cases on the balance of probabilities. Matters of Evidence 28 Although the three proceedings give rise to similar issues, it is necessary to visit in some detail the separate journeys undertaken by each of the cross-claimants in their dealings with Streetwise. The O'Donnell proceedings Background 29 In September 2002, John O'Donnell was 54 years old and Gillian O'Donnell was 47 years old. Mr O'Donnell had been unemployed for a period of about 18 months. His taxable income for the financial years ending 30 June 2000, 2001 and 2002 was $0, $12,944, and $0 respectively. Mr O'Donnell had completed income tax returns for these financial years which were available for inspection as at November 2002. Mrs O'Donnell was employed as a customer service officer at the St George Bank. Her taxable income for the financial years ending 30 June 2002 and 2003 was $24,348 and $22,853 respectively. 30 Their home at Harbord was subject to a mortgage to the Commonwealth Bank on which approximately $6,000 was owing. The Harbord property had an estimated value of $750,000. They had savings of approximately $40,000 in the St George Bank and superannuation in the family superannuation fund worth between $164,180 and $179,710. Mr O'Donnell had shares worth approximately $50,000. He had some experience in the share market trading in futures and put and call options. Mr O'Donnell had managed the family superannuation fund since 1999. 31 The Harbord property had been purchased in around July 1984 with the assistance of a loan from the State Bank of NSW. In around 1993, Mr and Mrs O'Donnell took out a loan for approximately $100,000 to purchase their local store known as the Polar Bar. They both worked in the Polar Bar until it was sold in 2001. 32 Mr and Mrs O'Donnell were neither sophisticated nor naïve in financial matters. Before they commenced their dealings with Streetwise they understood what it meant to provide a mortgage and that a possible consequence of default in the loan repayments was the sale of the secured property. Dealings with Streetwise 33 Mr O'Donnell was approached at the Warringah Mall Shopping Centre by a Streetwise representative who asked him if he would be interested in using the equity in his home for a property investment. He provided his contact details and a meeting at his home with Trevor Downs from Streetwise was subsequently arranged. Before the meeting Mr O'Donnell rang ASIC, the Department of Fair Trading and the Australian Competition and Consumer Commission (ACCC) to make enquiries about Streetwise and Kovelan Bangaru. Mr Bangaru was the managing director of Streetwise. 34 At paras 48-50 of his affidavit, Mr O'Donnell gives an account of what occurred at the meeting: "Mr Downs said: You can use the equity in your home to invest. You can partner us in a joint venture building project. When the building is sold, we will then split the profits. You can also build a second investment property. It will cost about $500,000." During the meeting, Jill said words to the effect of: "We can't afford that" Mr Downs said words to the following effect: "It's okay because Streetwise will pay for the majority of the loan for the course of the joint venture. It will take about 12 to 18 months. The joint venture will be finished before you need to pay the home and land package. The house and land package will be partly paid by the profits of the joint venture." At this stage, the location of the projects had not been decided as they had several on their books. A conversation then took place with words to the following effect. Mr Downs said: "What are your assets and liabilities?" Jill said: "Our house is worth around $750,000. I think we have about $40,000 in our savings account. We have a couple of hundred thousand in superannuation. We don't have any credit cards. The car is worth $8,000. We do have two cars but my son owns one of them." Mr Downs also asked about our salary. Jill said words to the effect of: "I earn about $23,000." Either I or Jill said words to the effect of: "Johnno hasn't been working for 18 months since we got out of the business". Mr Downs made a note of all the information we gave him." 35 Mr Downs enquired about the level of equity the O'Donnells had in the Harbord property and told them that 75 per cent to 80 per cent of the equity could be used. 36 Mrs O'Donnell in her affidavit recalled saying to Mr Downs: "No. We couldn't afford that. I don't want to lose our house" To which he replied: "It's okay. Streetwise will pay the majority of the loan. You can borrow about $500,000. We'll use about $52,000 of this as a deposit for the house and land package. The rest will be used to enter the joint venture with Streetwise. We will get a good house and land package for you." 37 Mr Downs further said: " Your portion of the payments should be about $300 to $400 per month." 38 During the meeting, Mrs O'Donnell said: "I don't know how you'll get a loan on my income." 39 Mr Downs responded by saying: " That's not a problem. We'll get the loan." 40 On around 17 October 2002, Mr and Mrs O'Donnell met Mr Downs and Luke Hajje at the Streetwise office in Milsons Point. At the meeting Mr Hajje gave a presentation as to how the O'Donnells could invest $500,000 of which $50,000 was to be used as a deposit on a house and land package in either Narre Warren or Shell Cove. The rest of the money would be used to enter a joint venture agreement to develop a block of land in Botany with six townhouses on it. During the meeting, Mrs O'Donnell said on several occasions: "We can't afford the loan, as Johnno's not working. We don't want to lose our house." 41 Mrs O'Donnell recalled Mr Hajje replied by saying: "It's okay because Streetwise pays the majority of the loan." 42 The O'Donnells were given a document called an "Irrevocable authority to act as co-ordinator and Project Manager": ex 1 vol 2 p 400-401 (OD). The document provided inter alia that the agreement was expressed to be "binding and irrevocable" and that Streetwise Property was irrevocably appointed as co-ordinator and project manager on the O'Donnells' behalf to locate and develop a "suitable" site. The document further stated that: "Streetwise will, whether through Streetwise Home & Investment Loans Pty Ltd or through an external financier, obtain necessary finance for the original purchase and construction of the proposed development. All external costs, including government statutory charges, legal, finance, construction costs as well as the financing of the borrowed funds, will be the responsibility of John and Gillian O'Donnell." This was the joint venture agreement which Mr and Mrs O'Donnell entered into with Streetwise. It is dated 23 October 2002. 43 Sometime after the meeting, Mrs O'Donnell showed the document to Ms Liddle, a solicitor, who was a friend. Ms Liddle told her there was no escape clause once she had signed on the dotted line, but "otherwise it seems okay". Mrs O'Donnell did not otherwise seek advice from Mrs Liddle in relation to Streetwise or the investment generally. 44 On around 18 October 2002, the O'Donnells attended the office of their accountant Mr Burchall principally for the completion of their taxation returns. The accountant was handed a booklet entitled 'Streetwise Financial Strategy' which had been given to them by Mr Hajje. Mr Burchall did a company search of Streetwise and circled the directors' names and said: " There's been a few. Just be careful." 45 When asked by the O'Donnells if he would come to their next meeting with Streetwise, the accountant advised it would cost them about $300 per hour and that he did not think it was worthwhile for him to come. 46 On 23 October 2002, the O'Donnells met with Mr Hajje, Mr Downs and Robert Bassili at the Streetwise office in Clarence Street, Sydney. 47 Mr Hajje explained to them that Streetwise was having difficulties with the Botany project and the Narre Warren house and land package was discussed. Mr O'Donnell recalled that Mr Hajje told them they had to sign some papers. When they hesitated signing, Mr Downs left the room and returned with Kovelan Bangaru. Mr Bangaru said: "I will personally guarantee your money" and "We provide the loan and do everything in-house. You can use our solicitors.' " 48 It seems that the joint venture agreement was signed at this meeting. 49 Mr O'Donnell in his affidavit gives an account of being provided with a loan application form by Mr Bassili. 50 Paras 70-73 are as follows: "Jill and I were handed documents by Mr Bassili which appeared to be a loan application form. I did not read the document, however, I did observe that some information had already been handwritten on this form, including my name and address. The section concerning my income was left blank, as I had already informed them that I was unemployed. I also noticed that there were figures concerning our assets, however, I did not get the chance to look at the document in detail as everyone in the room kept talking about the projects. There were various conversations going on at the same time. They seemed keen to progress quickly and were rushing us. I recall Jill saying words to the effect of: " It's a bit high" I was talking to someone else at the time however, and did not hear the rest of the conversation. I signed the document while everyone was still talking. A copy of the loan application is at pages 117-120 of exhibit JR01. It is not in my handwriting." 51 Mrs O'Donnell recounts in para 66 of her affidavit that she looked down at the paperwork and saw the heading 'Streetwise Home and Investment Loans'. She asked Mr Bangaru: "…are we getting the loan from you?" To which he replied: "Yes. We like to keep everything in house." 52 Mr Bassili told Mrs O'Donnell that [Streetwise] preferred to use its own solicitors and there was no need for other solicitors. Mrs O'Donnell understood that they would be using Streetwise solicitors as it all needed to be done quickly and that there was no time for other lawyers. Mr Bangaru said, Mrs O'Donnell recounts: "I will personally guarantee your mortgage. Streetwise will pay the bulk of the repayments." 53 Mrs O'Donnell told him that she did not want to lose their house and was assured by Mr Bangaru that they would not. 54 Mrs O'Donnell recalls at para 70 of her affidavit of 5 October 2007: "After Mr Bangaru left the room, I briefly looked down at the paper work regarding the application again. Mr Downs and Mr Bassilli kept talking to Johnno and I while I looked at the application. It was already filled out with my name, income and my assets. I noticed that Johnno's income was blank however this made sense as he was unemployed. I also noticed that some of the figures regarding our assets were larger than John and I had estimated at our earlier meeting, particularly our furniture and superannuation. I said words to the effect of: 'It's a bit too much' Either Mr Downs or Mr Hajje said words to the effect of: 'Most people underestimate their assets' Johnno and I had never independently checked the estimates that we had earlier given them regarding our assets or referred to any paper work, so we accepted what they said. We thought they knew what they were doing. I did not have time to read the document in detail as Mr Downs and Mr Bassili continued to talk to Johnno and I while we signed." 55 The loan application which the O'Donnells signed is found, at ex 1 vol 1 pp 53-55 (OD). It is headed "Tell us your story Streetwise Home and Investment Loans". 56 In an affidavit sworn 22 November 2007, Mr Bassili stated that the loan application contained his signature but he did not recall signing it. The balance of the application did not contain his writing but he believed that the handwriting belonged to either Mr Downs or Mr Di Sano. 57 Mr Bassili recounted that Mr Bangaru during the second meeting with "joint venture investors" often produced blank or partially completed loan application and income declaration forms and told investors to sign so they could get started. At the meetings he attended there was no explanation provided to the investors as to the loan being a Lo Doc loan or what the income declaration forms meant. After the investors had left, the rest of the details were completed using the information from the investor's file. 58 At para 146 of his affidavit, Mr Bassili states: "Where the investors did not have the level of income to repay the loan, Ko made up his own figures. Ko did not fill out the applications himself, however, he often directed other employees such as Frank Di Sano to complete the income sections of the applications with incorrect figures." 59 It is evident that the loan application form after it had been signed by the O'Donnells was altered by an undisclosed person or persons at Streetwise inserting in the box headed "Current Occupation & Employer" that John O'Donnell was a "Self-Employed – Sole Trader Coffee Shop" for "5 years" and in the box provided for "Salary" a fortnightly income of $3,500. The form also disclosed superannuation to the value of $241,000, cash to the value of $60,000 and furniture to the value of $60,000. All of this material was untrue and was inserted without the knowledge of Mr and Mrs O'Donnell. 60 The loan product applied for was a "1st Run Lo Doc" loan of $500,000 with an interest rate of 6.95 per cent and a loan term of 30 years. The loan purpose was recorded as being "Purchase Investment Property". The O'Donnells were not given a copy of the loan application. The loan application was forwarded by Streetwise to Tonto. 61 In cross-examination, Mr O'Donnell was taken by Mr Bell SC for the plaintiff to paragraphs 117 and 118 of a statement he made to ASIC on 7 June 2006: ex L (OD). Mr O'Donnell agreed that when Mr Bassili had given him the loan application that he had asked: "What about the other information required?" 62 He had observed that the document had some handwritten details written on it such as "Gillian and my name and address and licence details" but the balance of the application was blank. 63 Further cross-examination on that was as follows (T 189 L 4-50): "Q. So you signed a partially blank application form for a loan for half a million dollars? A. Yes. Q. And you knew it was a document that the lender would look at in assessing the loan? A. Yes. Q. Do you agree that it was careless of you to have signed a loan application form that was partially blank, with the benefit of hindsight? A. It probably was at the time, sir. Q. Sorry, are you agreeing with me? A. The information I left out was blank, or what was left out was blank and that mainly was confirming my income. Now, the reason it was left blank was because there was nothing to write. Q. You say in paragraph 118 that Mr Downs said to you, "Don't worry, we'll fill it out later. I already have that information from you. Just sign where the Xs are." Is that true? A. Yes, that's right. The information was blank. Q. So you knew you were signing a loan application form but you were leaving it to Streetwise to fill in some of the information later? A. Yes. Q. Looking back on it now, would you agree that that was careless? A. It certainly was. Q. Could you look at volume 1 of exhibit 1 at page 95, please. Is that also a document which you signed on 23 October 2002? A. It has my signature on it, yes, sir. Q. Do you recall signing that document on that occasion? A. I can't recall that definitely. Q. Do you say that you signed this document with a total income figure of $91,000 a year or do you say that that figure was blank when you signed it? A. That figure was blank. Q. You appreciated this was a document in connection with the loan? A. Yes. Q. And you have signed a document with a total income figure left blank; is that right? A. That's right. " And further at T 190 L 1-27: "Q. And looking back on it now, you would agree that that was careless? A. Most certainly. 64 Mrs O'Donnell was also cross-examined in relation to the signing of the loan application. Part of the cross-examination was as follows (T 154 L 45-50, T 155 L1 –31): "Q. And you noticed when you signed this document that some of the figures for your assets were a bit too high, didn't you? A. Yes, I did. Q. And you appreciated at the time that it was a loan application form, didn't you? A. Yes, I did. Q. You accept, don't you, that having signed this declaration, you can hardly complain that it is inaccurate in relation to your assets, correct? A. Sorry, can you repeat that? Q. You signed this declaration showing these figures which appear on page 54 as to your assets and liabilities, correct? A. Yes, I did. Q. Do you accept that having signed the declaration containing those figures, you can hardly complain that it is inaccurate? A. No. I don't know. I - I mentioned that it was - they were incorrect and I was told that it doesn't matter because people overestimate their assets and I had already given all the figures that I could remember to Trevor Downs at a previous meeting. I had been truthful in what I told him and - and - but I hadn't checked how much money we had had, how much shares we had, how much we had in superannuation. I hadn't checked - I hadn't looked at any paperwork or anything. It was all just off the top of my head. Q. Yes, but Ms O'Donnell, it was you who signed this declaration, wasn't it? A. Yes, it was. Q. And my suggestion to you is that having signed the declaration with those figures, you can hardly complain if the lender relied on them, can you? A. Oh, no, not at all. Q. Would you agree that it was careless of you to have signed a declaration with incorrect information? A. Yes, it was." 65 Mr and Mrs O'Donnell each signed a document called "Borrower Income Declaration Form for the First Run & Flexi Range of LoDoc Loans." Neither had any recollection of signing the form. In the small print of the document is the following: "I acknowledge that Permanent and FirstMac have relied upon the information contained in the application for credit including the following information provided by me in or with the application in assessing whether to approve the application." 66 A total income of $91,000 was declared for Mr O'Donnell. The document further provided: "I acknowledge that neither Permanent nor FirstMac have independently verified the information relating to my personal income provided by me in or with the application. I declare that the information provided in or with the loan application is true and correct and that I can afford to make the loan repayments without any undue financial hardship." 67 It is plainly the case that when Mr O'Donnell signed the document the space provided for the insertion of income had been left blank. The false income figure of $91,000 was subsequently inserted by an undisclosed person at Streetwise without Mr O'Donnell's knowledge. 68 Mr and Mrs O'Donnell were not told by Streetwise that the loan application was for a Lo Doc loan or what a Lo Doc Loan was. They were not informed of the particular significance that the information provided as to their income had in Lo Doc Lending. They were rushed by Streetwise into signing the incomplete loan application and income declaration and at the time believed that Streetwise knew what it was doing. Mr and Mrs O'Donnell acknowledged what they did was careless. Regrettably, it exposed themselves, Tonto and Permanent to the risk of fraud by Streetwise. 69 On 30 October 2002, the O'Donnells with Mr Bassili flew to Melbourne where they inspected a vacant block of land at lot 160 Tralee Circuit, Narre Warren (the Narre Warren property). Upon their return to Sydney, the O'Donnells paid a deposit of $2,000 to Mr Bassili and signed an "Irrevocable letter of intent and Authority to Act" which acknowledged that Streetwise Property had proposed the Narre Warren property and that they were proceeding with the purchase of that property at a price of $261,000. The document authorised Streetwise Financial Strategies Pty Ltd to appoint a solicitor to act on their behalf to effect a transfer and settlement and further authorised the financial institution providing the mortgage finance to forward the mortgage documents direct to Streetwise. This document was witnessed by Mr Bassili and is found at ex 2 vol 1 p 103 (OD). 70 On about 7 November 2002, the O'Donnells received a letter from Streetwise confirming a preliminary approval of the loan. The letter stated, inter alia, that the loan product was "FirstRun LoDoc Variable" and the security required was a first registered mortgage over the Harbord property. This letter referred to a special condition of the loan that: "Any cash out component in excess of $100K is to be fully documented and the purpose considered acceptable by the Funder and Mortgage Insurer." 71 No reference was made in the letter to the identity of the lender but the letter inferred that it was Streetwise as the letter stated that if the proposed loan was approved, "we will instruct our solicitors who will prepare and forward documents to you or your solicitors." 72 For the purpose of the Polar Bar business, Mr and Mrs O'Donnell had three Australian Business numbers (ABN). Each of the individual ABNs had been de-registered on 1 July 2001 and their joint ABN was cancelled on 19 March 2001. A matter of some controversy in the proceedings was the registration of ABN 34 143 774 718 by the Australian Taxation Office (ATO) effective as of 21 November 2002. This was an ABN registered in Mrs O'Donnell's name which had been deregistered on 1 July 2001. An ATO letter dated 20 December 2002 was sent to Mrs O'Donnell notifying her of the registration of the ABN: ex G (OD). Mrs O'Donnell denied in cross-examination that she had applied for the ABN. The plaintiffs argued that the overwhelming inference, despite Mrs O'Donnell's denials, was that she procured the ABN to re-instate or re-register her personal ABN for the purpose of putting it before the lender and did so with the intention of deceiving the lender into believing that she and/or her husband were carrying on a business. 73 Mr O'Donnell recounted in his affidavit at paras 84-86 the conversations which he had with Streetwise employees concerning enquiries that were made about whether he had an ABN. He had been telephoned on 15 November 2002 by a Frank Di Sano and later that day by Tracey both of whom were from Streetwise. He had informed Mr Di Sano that the ABN was deregistered after the Polar Bar was sold. As to Tracey's enquiry as to whether he had located "your ABN numbers", he told her that his wife was looking for them. Mrs O'Donnell recalled that her husband had told her about the conversation with Mr Di Sano and that Streetwise needed an ABN number. In para 84 of her affidavit, Mrs O'Donnell stated that she gave her own individual ABN number over the telephone to someone in Streetwise's office and also later found a document containing her ABN in her records which she faxed to them. In his affidavit at para 87, Mr O'Donnell recalled that on or around 10 December 2002, he called the Tax Office to inquire as to whether his ABN could be reinstated and was told "it was not possible to reinstate it, this only occurs when it was done in error." 74 It seems to me that Mr O'Donnell would not have made such an enquiry if his wife had applied to reinstate her ABN prior to 21 November 2002. Furthermore, I do not accept that Mrs O'Donnell participated in what was a deception on the lender. It was her understanding prior to the receipt of a letter from Hunt and Hunt solicitors dated 7 January 2003 that the lender was Streetwise. To my mind, it is more probable than not that Streetwise applied to reactivate the ABN after Mrs O'Donnell provided the ABN number to Streetwise. There is no advantage, for present purposes, in speculating how that was done. 75 As a submission was made for the O'Donnells that the loan agreement and mortgage were sent by Hunt and Hunt to Streetwise, which then arranged for their execution and borrowers' copies of the documents went to Mr and Mrs O'Donnell, it is necessary to consider this issue. The submission was founded on emails passing between Streetwise, Tonto and Hunt and Hunt on 7 January 2003 which are found in ex 1 v 4 (OD) at pp 1257-1259. Hunt and Hunt were a firm of solicitors on the Origin program panel. Shortly stated, the emails from Tonto and Hunt and Hunt were responses to a request from Mr Di Sano of Streetwise to have the "docs" prepared by the solicitors express posted to Streetwise at their address in Grosvenor Place. The email from Susan Krummenacher, loans processing officer, suggests that the Streetwise request was to be met when she states "I can send the documents to that address of your request. Documents should be sent in today's post." 76 Donald Thorne in his oral testimony denied that had occurred. Mr Thorne was the partner in charge of the solicitors' banking and finance group. He based his evidence on the system which he said was embedded in the firm's practice of the letter enclosing the documents being addressed to where the parties live. That is the same address, Mr Thorne said, as appears on the loan agreement which is then checked off against the address on the express post envelope. Mr Thorne conceded, however, that the system could be overridden as had occurred in the case of Mr and Mrs Di Benedetto. He said that if the system was overridden and a letter was re-addressed it would be recorded on that letter. No such record appears on the letter dated 7 January 2003 which is addressed to Mr and Mrs O'Donnell at their home address. Mr Menzies QC for the cross-claimants, however, submitted that this would not explain a change being made only to the envelope. 77 Mr O'Donnell gave the following evidence in cross-examination (T 193 L 10-15): " Q. Could you open that, please, at page 405? On around 7 January 2003, you receive the letter from Hunt and Hunt which appears at pages 405 to 406? A. Yes. Q. And it was sent by express post to your home? A. That's right." 78 A diary entry for 7 January 2003 made by Mr O'Donnell recorded the receipt of the mortgage and FirstMac loan agreement from Hunt and Hunt: ex 1 v 2 p 657 (OD). 79 In her oral testimony Mrs O'Donnell agreed that on or about 7 January 2003, she had received an express post letter from Hunt and Hunt. Whilst she was initially uncertain whether the loan agreement and the mortgage were contained in that letter, Mrs O'Donnell agreed after being shown her husband's diary entry that she had received the letter from Hunt and Hunt together with the loan agreement, mortgage and memorandum of mortgage on or about 7 January 2003. 80 I find on the balance of probabilities that the letter from Hunt and Hunt dated 7 January 2003 enclosing the loan agreement, mortgage and memorandum of mortgage was forwarded to and received by Mr and Mrs O'Donnell at their home address on about 7 January 2003. The onus is on the cross-claimants to establish on the probabilities that another letter was sent by Hunt and Hunt to Streetwise enclosing original documents for execution. As will be seen in the Di Benedetto proceedings, Hunt and Hunt failed to comply with the Origin service requirements by forwarding the loan documentation direct to Streetwise. In that case, however, the letter was addressed to Mr and Mrs Di Benedetto care of Streetwise and provides some support for Mr Thorne's evidence that where the system was overridden, the letter enclosing the documentation would be re-addressed. Mr Menzies's argument is not supported by the reference to "your letter dated 7 January 2003" in the letter from Streetwise to Hunt and Hunt dated 11 January 2003 and by Mr Thorne's evidence that he was not aware of any letter dated 7 January 2003 from his firm other than the letter sent to Mr and Mrs O'Donnell. I am not satisfied on the balance probabilities that original versions of the loan agreement and mortgage were sent by Hunt and Hunt to Streetwise. 81 On about 7 January 2003, Mr and Mrs O'Donnell received a letter from Streetwise informing them of the final approval of the loan. The letter referred to the Mortgage Manager as being Tonto Home Loans Limited but did not name the lender. This letter included the same "cash out" condition quoted at [70] above. When cross-examined about the letter, Mrs O'Donnell said that it remained her understanding that Streetwise was providing the finance. Upon being taken to para 161 of the statement that she made to ASIC on 3 December 2005 which appeared to be inconsistent with this evidence, Mrs O'Donnell explained that until the ASIC investigator had pointed out to her [the reference to Tonto] she had understood that Streetwise was providing the loan. 82 In any event, Mrs O'Donnell accepted that following the receipt of a letter dated 7 January 2003 from Hunt and Hunt she was under no doubt that Streetwise was not the lender, that Permanent was and that Tonto was the manager. The letter enclosed the loan agreement and mortgage. In the loan agreement under the heading How to sign the documents the following, inter alia, appears: "Please read the documents carefully to ensure they agree with your understanding of the transaction. If you have any queries, please ask before you sign. The lender is keen to ensure that you understand the transaction. You may decide whether or not to obtain independent legal advice…" 83 Under the heading Independent Legal Advice appears the following: "Remember, you are free to contact your own solicitor for explanation of the documents at any stage. If you have any doubts or want more information, contact your government consumer agency or get legal advice." The letter had commenced "We act for the lender and the Manager". 84 Mrs O'Donnell agreed in cross-examination that she had the opportunity in her home to read the documents before she signed them but said she had not read them in their entirety. She agreed that she observed the lender was Permanent, the originator was Tonto, that she and her husband were the borrowers, that they were contracting to make payments monthly during the facility term and that a mortgage was being given over their property as security for the loan. Mrs O'Donnell further agreed that she understood what the interest rate was and knew that she was liable to the lender irrespective of what their arrangements with Streetwise were. She agreed that she understood that by giving a mortgage over their property it was at risk if the loan was not repaid. Mrs O'Donnell agreed that they had the right to obtain independent legal advice if they required it. 85 It was apparent after this testimony that the main reason Mrs O'Donnell entered the loan could not have been as she had stated in para 109 of her affidavit that "[she] thought that Streetwise was financing it and arranging everything" nor could she have been confident "the loan was coming from Streetwise":(para 110) 86 When cross-examined on this letter, Mr O'Donnell gave similar evidence as to his understanding of the lender and the mortgage manager as his wife. Whilst there was an initial hesitation about his understanding as to whether Hunt and Hunt were acting for him, he agreed that by the time that he had signed the mortgage documents at the meeting on 10 January 2003 which will be shortly detailed, it was his understanding that Hunt and Hunt were acting for the lender. 87 Mr O'Donnell was cross-examined on the loan agreement. He understood that he was only in part responsible to make the loan repayments as Streetwise would be making a portion of the repayments. Further cross-examination on that was as follows: (T 208 L 1-26) "Q. But you understood that your agreement with Streetwise was for them to pay into your bank account a proportion of the amount that you had to pay to the lender? A. Yes. Q. But you had to pay to the lender the whole amount, didn't you? A. That's correct. Q. And that was your understanding at the time, wasn't it? A. Yes. Q. If you look at page 650, you understood at the time that you reviewed this document with your wife at home that you were giving a mortgage over your property as security for the loan to the lender; correct? A. Yes. Q. And you understood by giving a mortgage over your property that your property was at risk if the loan was not repaid; correct? A. I didn't fully understand that. Q. You believed that Streetwise were making most of the repayments on the loan? A. Yes. Q. You took the risk of giving a mortgage to the lender because you believed Streetwise would make those repayments; is that fair? A. Yes, of course." And further: (T 211 L 1-15) "Q. You understood at the outset of this loan transaction, as you told us, that Streetwise were making payments into your account for some of the amount that you had to pay to Tonto? A. That's correct. Q. And you understood that all of the amount to be paid to Tonto came from your account? A. That's right. Q. Because you recognised at the outset that it was you and your wife who were responsible to Tonto to make the payments; correct? A. That's correct." 88 Mr and Mrs O'Donnell on or about 10 January 2003 met with Mr Bangaru and Mr Downs in the Streetwise boardroom where they were informed that the Botany project was not going ahead and the property for the joint venture would be at 7a Battle Boulevard Seaforth (the Battle Boulevard property). They were provided with a project analysis for the Battle Boulevard property and plans for the development were laid out on the table. Whilst everyone was talking, Susan Lau entered the room carrying a number of documents and was introduced as being from Streetwise's legal department. Both Mr and Mrs O'Donnell recall that she said: "You need to sign these mortgage documents." Mr O'Donnell at para 96 of his affidavit provides an account of what occurred: "Everyone in the room was standing except Jill and I. Ms Lau had a number of documents with her. Mr Bangaru continued to talk about the Battle Boulevard property and the plans, while Ms Lau put a document in front of me, saying "Sign here". It was then passed to Jill. There were several documents going back and forth in quick succession, so there was no time to read them. I felt quite rushed, as it was all happening so quickly. Mr Downs and Mr Bangaru also kept talking to me while I was handed the documents. I felt uncomfortable and pressured as it seemed to be happening quite fast." 89 Mrs O'Donnell at para 91 of her affidavit supports her husbands recollection. She states: "A number of documents were going back and forth. As soon as we signed one it was taken away and we were then handed another. It was all done very fast. I did not read the documents, because as soon as I signed it was either taken away or passed to Johnno." 90 Mr O'Donnell recalled his wife asking "Should we get legal advice?" and Mr Downs responding by saying: " It is a simple mortgage document. You can use our lawyers. It's quicker if you use our lawyers." From this conversation, Mr O'Donnell stated that he understood they would be using Streetwise's lawyers. Mrs O'Donnell recalled a similar conversation and stated that at that time she did not realise that they did not have lawyers. During the meeting, the O'Donnells signed an authority addressed to Hunt and Hunt lawyers authorising them on settlement to pay the balance of the loan advance to Streetwise Property. Neither of the O'Donnells recalled signing this document. 91 Mr Bangaru assured them during the meeting that their profit from the Battle Boulevard property joint venture should be about $60,000 and it would take 12 to 18 months to complete. 92 It became evident during the oral testimony of Mr and Mrs O'Donnell that the documents that they signed at this meeting included the loan agreement and mortgage which Hunt and Hunt had forwarded to them in the letter dated 7 January 2003. The terms of the loan agreement and mortgage have been identified at paras [8 - 10] above. Although the signing of this documentation was deliberately rushed by Mr Bangaru and the other Streetwise employees at the meeting, Mr and Mrs O'Donnell had had the opportunity of considering the loan agreement and mortgage prior to the meeting and understood, I am satisfied, the gist of what they were signing. They both appreciated that they could obtain independent legal advice but were persuaded not to do so. The impressive Streetwise offices, high pressured and convincing presentations undoubtedly impacted upon the prudence of their considerations and their common belief was that there was little risk that Streetwise would not meet its promise to pay most of the mortgage instalments. 93 Mr and Mrs O'Donnell, however, had been dishonestly mislead by Streetwise about their investment. Furthermore, Streetwise had fraudulently completed the loan application form and Income declaration as Streetwise knew that truthful disclosure of the O'Donnells' assets and income would not meet the lending guidelines either under the Origin Program or the FirstMac securitised lending program. But for the fraud of Streetwise, the loan would not have been approved. Mr and Mrs O'Donnell were unaware that the loan had been approved upon the fraudulent material inserted by Streetwise. If they had known that the lender did not take into account the promise by Streetwise to contribute to the loan repayments when considering the application and that their financial position truthfully stated did not meet the lending guidelines, I am satisfied on the balance of probabilities that the O'Donnells would not have proceeded with the loan application. 94 By a letter dated 30 January 2003 from Tonto which was signed by Kim Cannon, Loans Administrator Tonto Home Loans, Mr and Mrs O'Donnell received a FirstMac Variation Notice which amended some of the terms and conditions of the loan agreement. Some time after 7 February 2003, they received an invoice from Streetwise indicating a holding deposit for the Narre Warren property of $489,651.82. Confirmation that settlement of the loan occurred on 7 February 2003 and that a cheque for $489,651.82 was deposited into Streetwise Property bank account was made by a letter dated 6 February 2003 from Hunt and Hunt. Other correspondence received by Mr and Mrs O'Donnell included a letter dated 11 February 2003 on Streetwise letterhead informing of the loan settlement and thanking them for "choosing Streetwise Home & Investment Loans Pty Ltd to provide your recent funding". The letter purports to be signed by Kim Cannon Managing Director Streetwise Home & Investment Loans Pty Ltd. 95 Following the settlement of the loan, Streetwise paid $2,345.86 into Mrs O'Donnell's St George account whilst the O'Donnells paid $319.89. The total amount was withdrawn by Tonto. It appears that Streetwise with interest variations made deposits into the St George account until June 2005. During that time Mr and Mrs O'Donnell had received various assurances from Streetwise about the progress of the Battle Boulevard joint venture and the completion of the Narre Warren property all of which proved to be untrue. They were also assured at a meeting in April 2004 that Mr Bangaru would write a cheque for $6,000 to cover the repayments for the Narre Warren property until the joint venture was completed. The cheque was never received. 96 Property searches undertaken after Streetwise went into liquidation revealed that Mr and Mrs O'Donnell had neither received security over the Narre Warren property nor the property at Battle Boulevard. Mr and Mrs O'Donnell obtained no financial benefit whatsoever from their investment with Streetwise. The Di Benedetto proceedings Background 97 In November 2002, Lawrence and Maria Di Benedetto were each 37 years old. They operated a smallgoods business known as 'L B Foodservices'. Mr Di Benedetto's income tax returns for the financial years ending 30 June 2000, 2001 and 2002 disclosed taxable income of $28,073, $31,296 and $12,395 respectively. The income tax returns for Mrs Di Benedetto disclosed taxable income of $28,544, $30,826 and $7,739 for the financial years ending 30 June 2000, 2001 and 2002 respectively. Mr and Mrs Di Benedetto's income tax returns for these financial years were available for inspection in January 2003. 98 Mr Di Benedetto had purchased a home unit in the late 1980s for which he had obtained a loan from the United Permanent Building Society. Mrs Di Benedetto had taken out a loan with her parents from the Commonwealth Bank when they jointly purchased a home in around 1989. 99 After their marriage, the Di Benedettos had purchased the Narraweena property with the assistance of the ANZ bank. They had given mortgages to the bank on various occasions to enable them to purchase small businesses. The ANZ loan on the Narraweena property had been completely repaid by 2002. 100 Mr and Mrs Di Benedetto were neither sophisticated nor naïve in financial matters before they commenced their dealings with Streetwise. They understood what it meant to provide a mortgage and that a possible consequence of default in the loan repayments was the sale of the secured property. Dealings with Streetwise 101 Mrs Di Benedetto met a Streetwise representative in Warringah Mall Shopping Centre in approximately late October 2002 who asked if she needed financial advice. At the time Mr and Mrs Di Benedetto were interested in renovating their home so Mrs Di Benedetto left her contact details. She later received a telephone call from Steve Fassos of Streetwise who made an appointment to come to their home. At the meeting, Mr Fassos informed them that Streetwise did joint ventures and suggested they should consult a financial adviser at Streetwise for a financial analysis. Mr Fassos asked questions about their income and assets which Mrs Di Benedetto provided as follows: Income: $45,000 (combined average for the past two years) House: $600,000 Business: $25,000 (purchase price) Cash $25,000 (in name of business) Furniture $25,000 to $30,000 Grace Bros Card: $750 (limit) No Superannuation 102 Mr Fassos was also informed of the name and telephone number of their accountant and was told to contact him. 103 In early January 2003, Mr and Mrs Di Benedetto met Luke Hajje at the Streetwise office in Clarence Street. Mr Hajje explained how they could use the equity in their home as a deposit in a Streetwise development at Shell Cove. When asked questions by Mr Fassos about their business and income, Mrs Di Benedetto provided him with the same figures with which he had been previously provided. At the end of the meeting, the Di Benedettos met Kovelan Bangaru who told them: "Streetwise are a one-stop shop. We do everything. We get the loan and you can use our legals." 104 On the following Saturday, Mr and Mrs Di Benedettos met Mr Bangaru and Trevor Downs at the Streetwise Clarence Street office where they discussed a joint venture arrangement in connection with a property at Battle Boulevard Seaforth. This was the same Battle Boulevard property which was the subject of Mr and Mrs O'Donnell's joint venture with Streetwise. Mr Bangaru informed them that Streetwise paid the loan payments each month and that Streetwise was in the process of buying the property. After inspecting the property and returning to the Streetwise office, the Di Benedettos were informed that it would cost them $500,000 to participate in the joint venture. 105 Mrs Di Benedetto at paras 57 – 58 of her affidavit gives an account of the conversation which then followed: "… I said: We can't pay that. We can't even get a loan for $100,000." Mr Bangaru said: "No, this is how it works. Each month Streetwise makes repayments on the house. Each payment will be about $3,000 per month. We will pay it all. It's an interest only loan for five years." I said: "What bank will give us a loan?" Mr Bangaru turned to Mr Downs and said: "I think we'll go Tonto" I said: "Where's Tonto from?" Mr Bangaru said: "Queensland." I said: "I hope that they're not a bunch of cowboys." Mr Bangaru said: "No. Tonto knows all about this. The director of Tonto, Kim Cannon knows what we do. He knows we pay the loan. We do this all the time." Mr Bangaru said words to the effect of: "What's your decision?" I said words to the effect of: "I can't give that right now. I need to go and think about it." He said: "Mrs Di Benedetto, you're female. You're emotional. We had a client with a very similar property joint venture, and his wife said no. We had to ring him back last week and say no. I need to secure this as soon as possible. Are you on board or not?" I felt pressured as I wanted to go home and think about a decision." 106 Mr Bangaru told them that Streetwise was "a one-stop shop. You can use our solicitors, our loan people. We do everything." Mrs Di Benedetto said that she thought that it must be okay if the bank knew that Streetwise was making the repayments. If she had thought that Tonto did not know about Streetwise or the fact that they made the repayments she never would have entered into the loan. 107 Mr and Mrs Di Benedetto then signed a loan application form that was in blank although they did not know what it was. Mr Di Benedetto recounts at paras 58 - 60 of his affidavit what occurred: "Maria and I were then each handed a form by either Mr Downs or Mr Bangaru. They said words to the effect of: 'These are forms to get the loan underway' The form I was handed was blank. It did not even have my name. Mr Downs or Mr Bangaru said words to the effect of: 'Just sign it now and we'll fill it out later.' Mr Downs then wrote my name on the form, immediately before or just after I signed. I did not read the form. At the time I did not realise what the form was. I now believe it may have been a loan application. They did not say anything to me to indicate what the form would be used for. At the time, I was under the impression that more steps would be required before an application was made… At the time I signed the document it was blank. I would not have signed the application if I saw the figures that it now contains regarding my income and assets." 108 Mrs Di Benedetto said that the form was in blank and she did not know what it was. She said that there was no time to read it as Mr Downs placed the form in front of her and stood waiting behind her. 109 The loan application form which the Di Benedettos signed is found at ex 3 v 1 pp 56-58 (DB). It is headed "Tell us your story Streetwise Home and Investment Loans". It is evident that the application was subsequently falsely completed by an undisclosed person or persons at Streetwise. Mr and Mrs Di Benedetto's income was inserted as each having income of $55,000 per annum. The business was valued at $125,000 when the estimation provided was $25,000. Although the Di Benedettos had no superannuation an amount for superannuation was inserted as being $30,000. Furniture was valued at $75,000 notwithstanding Mrs Di Benedetto's estimation of $25,000-$30,000. The value of shares was inserted as being $10,000 when no value for shares was provided by Mrs Di Benedetto. All of this false information was inserted without the knowledge of Mr and Mrs Di Benedetto. 110 The loan product applied for was a "First Run Lo Doc" loan of $500,000 with an interest rate of 6.95 per cent per annum and a loan term of 30 years. The loan purpose was stated as being "Free up equity for investment purchase." The Di Benedettos were neither informed that they were applying for a 'Lo Doc' loan nor what a Lo Doc loan was. They were not given a copy of the loan application. 111 Mrs Di Benedetto was cross-examined in relation to the signing of the loan application as follows (T 78 L 24 –50; T 79 L 1-5): "Q. Did you read this document before you signed it? A. No, I didn't. Q. Did you look at it at all before you signed it? A. No. Q. Not at all? A. We just - no. Q. You just signed whatever was put in front of you, did you? A. Yes. Q. Was there any handwriting on the document when you signed it? A. No. Q. None at all? A. I don't - no. Q. Did you realise it was a document relating to your loan application? A. At the time I - yep, we did. Q. And did it occur to you that the lender might be interested in documents that you signed relating to the loan application? A. Yes. Q. Did it occur to you that the lender might rely on documents that you had signed relating to the loan application? A. Yes. Q. But you didn't look at it at all before you signed it? A. No. Q. Looking back on it now, you would agree that that was careless of you, wouldn't you? A. Well, we weren't really encouraged to read. It was just basically put in front of us and to sign." 112 Mr Di Benedetto was also cross-examined as follows (T 109 L 16-50; T 110 L 1-6): "Q. I see. Looking back on it now, would you agree it is careless to sign blank documents without understanding what they are? A. Now, yes. Q. And can you just look at, in the same volume, page 56? You need to look at pages 56 and 57 and 58 just to make sure you understand what it is. Let me know when you have done that. A. Yeah, yes. Q. And you have signed this document at page 57, correct? A. Yes. Q. And in two places on page 58? A. Yes. Q. Is that right? A. Yes. Q. And was this document blank when you signed it? A. Well, I never saw the top copy at all. That was never put in front of me in the meeting, that one. Q. You are quite sure you never saw the first page? A. Absolutely positive because I only had forms put in front of me that I had to sign. Q. So you did have a look at 57, did you? A. Yes. When it was put in front of me to sign, yeah. Q. Did you read it? A. No, it was just a blank form. Q. You knew it was for your loan application though, didn't you? A. Yeah, well, like I said before, it was all towards getting the ball rolling. That was my understanding. Q. So you understood this was a preliminary to get the loan approved, in effect? A. Yeah, to get the ball - yeah, preliminary, yeah. Q. And you understood that a lender might read it if you had signed it? A. Yes .Yes. Q. But you signed it when it was completely blank, is that your evidence? A. Yes. Q. And you didn't particularly care because you thought Streetwise were going to make the repayments? A. I thought it was just to get the ball rolling. That sort of thing wasn't, you know, going - them making the repayments wasn't - I thought it was just to get the ball rolling. Q. Looking back on it now, it was careless to have done that too, wasn't it? A. It was." 113 Mr and Mrs Di Benedetto were also cross-examined about documents entitled "Borrower income declaration for the First Run & Flexi Range of LoDoc Loans" which are dated 7 January 2003 and which they each signed. Each form stated an annual income of $55,000 per annum and contained the declaration and acknowledgment I have quoted at [65 - 66] above. Mrs Di Benedetto testified that she did not know that the form was a borrower income declaration nor did she read it before she signed it. She said she was told to sign it which she did. This was a document that Mr Downs had told her would get the "ball rolling". Mr Di Benedetto said the form was in blank when it was placed in front of him and he did not read it. He thought it was to get the ball rolling and was "preliminaries". He agreed that looking back now it was careless to sign blank documents. The income declaration forms are found at ex 3 v 1 pp 134-135 (DB). 114 It is plain that Mr and Mrs Di Benedetto were pressured by the salesmanship of Streetwise into signing the loan application and income declaration forms which were in blank and about which their understanding was limited. They did not know that the application was for a Lo Doc loan nor had they been informed of the particular significance that the information provided as to their income had in Lo Doc lending. Nevertheless with their experience in financial matters which included operating a small business and the borrowing and granting of mortgages on earlier occasions, the signing of these documents in blank, even without the benefit of hindsight, was careless. They exposed themselves, Tonto and Permanent to the risk of fraud by Streetwise. 115 Mr Bangaru told Mr and Mrs Di Benedetto that they would make between $50,000 to $70,000 on the Seaforth property and Streetwise would make the repayments which would be deducted from their share of the profit. 116 Mr and Mrs Di Benedetto recalled further meetings at the Streetwise office in Clarence Street. The first was with Mr Hajje when they were asked to sign forms to get the loan underway which they did quickly but did not know what they were. The second meeting was with Mr Bangaru and Mr Downs who gave them more forms to "get the ball rolling." They were told where to sign which they did but did not recall what the forms were. 117 On about 11 February 2003, Mr and Mrs Di Benedetto received a letter on Streetwise letterhead advising them of the loan approval. The letter informed them, inter alia, that the mortgage manager was Tonto Home Loans, the loan was for $500,000, was a First Run LoDoc product and a first registered mortgage over their Narraweena property was required. 118 Mrs Di Benedetto recalled that not long after the receipt of the letter Mr Fassos and Mr Bangaru came to their house with what she believed may have been "the loan agreement and mortgage". Paragraphs 84–86 of her affidavit are as follows: "I noticed that the front page contained the word 'contract' or 'agreement'. I said words to the effect of: 'What sort of contract is this?' Mr Bangaru said words to the effect of: 'It is just a standard mortgage document'. There was a part on the document which mentioned legal advice. I looked at Bangaru. He said words to the effect of: 'There's no need. You guys are using our legal department. So really you are just wasting your money taking it to another solicitor. You paid a fee so that you could use all our services, including legals. It's just a standard mortgage document.' From this, I understood that we were using their solicitors. I thought that this form was to stop us from using another solicitor. I did not read the document as the meeting was not very long. The meeting only lasted about 25 minutes. Nothing was explained to us. Afterwards Mr Bangaru got up and shook my husband's hand and said words to the effect of: 'This will be the start of a long and wonderful business relationship.'" 119 In cross-examination, Mrs Di Benedetto agreed that the documents she had signed included the FirstMac Residential Program Loan Agreement which is found at ex 3 v 1 pp 2-9 and is dated 19 February 2003. She said that she read the first page and noticed that she and her husband had been described as the borrower and who the other parties to the agreement were. She knew that they were being asked to borrow $500,000 and saw page 9 before she signed it. She noticed it said "legal advice" and asked Mr Bangaru about it. Mr Bangaru told them that they did not need to get legal advice. She agreed that she knew that she was entering a loan agreement for half a million dollars, that the interest rate was 6.95 per cent per annum interest only for 5 years. It was her understanding that Streetwise was going to pay the interest payments to them and they were going to pay Tonto. She agreed that she knew that she was giving a mortgage over her home as security for the loan. The terms of the loan agreement and mortgage have been identified at paras [15-17] above. 120 Mr Di Benedetto in his oral testimony initially said that he did not know what the pieces of paper were which were placed in front of him when Mr Bangaru and Mr Fassos came to his home. When taken to the loan agreement in cross-examination, he agreed that it was one of the documents brought to his home. Mr Di Benedetto realised that it was a loan agreement that he was signing, that he and his wife were borrowing $500,000. He did not realise that the lender was Permanent but thought at the time it was Tonto. He realised that the loan was interest only for 5 years but did not realise that the interest rate was 6.95 per cent variable. He agreed that he realised that the mortgage was over the Narraweena property and recalled signing the legal advice certificate at page 9 about which his wife had asked questions. In further cross-examination, Mr Di Benedetto gave the following evidence (T 112 L 5-14): " Q. Is this the position, you more or less left it to your wife to make the decisions about this investment and the documentation, is that fair? A. That would be fair. Q. And you didn't read the documentation closely because you were relying on the fact that Streetwise were paying the interest? A. That they were responsible for the loan was the terminology Mr Bangaru used. Q. But you understood that the repayments for the loan were coming out of your bank account, weren't they? A. After he and - yes, they were, yes." 121 The loan agreement, mortgage and direct debit authority had been forwarded by Hunt and Hunt addressed to the Di Benedettos care of Streetwise under cover of letter dated 13 February 2003: ex 3 v 1 pp 424-425 (DB). Mr Thorne in cross-examination agreed that the system that his firm had in place had been overridden. He said that it was overridden on instructions from Tonto, his firm's client. Notwithstanding Tonto's instructions, the sending of the documentation to Streetwise was a breach by Hunt and Hunt of the procedures stipulated in the Origin "Documents and Procedures Manual" for the service of documentation by panel lawyers which required that the service requirement must be carefully followed. Clause 9 of the Manual included the following: " ORIGIN prefers documents to be sent to the borrower at home. In exceptional circumstances, where an authority is held signed by all borrowers directing that the documents be sent to their lawyer, the loan agreement may be served on the borrower's lawyer…" 122 Mr Thorne said that the Manual stipulated the process for documenting the settling of loans for the Origin Program. 123 Hunt and Hunt had been appointed to the Origin program panel for documenting mortgage loan transactions in June 1997. The firm's failure to comply with Origin's service requirements placed the loan documentation in the hands of Streetwise thereby assisting Mr Bangaru and Mr Fassos to rush Mr and Mrs Di Benedetto into signing the loan agreement and mortgage without the Di Benedettos having the opportunity to consider the documents. 124 Mrs Di Benedetto states at para 88 of her affidavit that it was around the time that Mr Bangaru and Mr Fassos came to her home she received a letter from Hunt and Hunt dated 13 February 2003 that enclosed a copy of the loan agreement. The letter was not given to her at the meeting or mailed to her by Streetwise. The letter is identical to the letter forwarded by Hunt and Hunt care of Streetwise. In her oral testimony, Mrs Di Benedetto agreed that she had kept the borrower's copy of the loan areement from February 2003 until she had given it to Mr Foscholo of ASIC in November 2005. She said that she had not seen any reason to read the loan agreement during that time although she could have done so. 125 The first letter Mr and Mrs Di Benedetto received from Tonto was dated 21 February 2003 and advised of a variation in some of the loan terms and conditions. By a letter dated 27 February 2003, Streetwise informed the Di Benedettos that the loan settled on 26 February 2003. Ms Lau from Streetwise in a telephone conversation confirmed the settlement of the loan and that they were now part owners of the Seaforth property. On or after 7 March 2003, the Di Benedettos received a letter from Tonto advising of the settlement of the loan. 126 Mrs Di Benedetto realised about a month or two after the loan settled that she and her husband did not have any proof that they had invested with Streetwise. Mr Bangaru came to their home after Streetwise had been contacted bringing a document entitled "Deed of Investment": ex 1 v 1 p 133-134 (DB). The Deed recorded that Mr and Mrs Di Benedetto had entered into a joint venture with Streetwise Property to acquire and develop the Battle Boulevard property for the purpose of resale and purported to set out the Framework of the joint venture. The Framework includes the incorporation of a "property investment vehicle" and that Mr and Mrs Di Benedetto "are to raise capital via a mortgage (refinance/redraw) from the equity of their property(ies)" namely $487,660.41 as capital. The Deed, inter alia, authorised the "Trustee and/or the Directors" to borrow monies "for and on behalf of the Investment vehicle." Mr and Mrs Di Benedetto signed the agreement which is dated 5 March 2003. This was the joint venture agreement which Mr and Mrs Di Benedetto entered into with Streetwise. 127 In accordance with its commitment to make the loan repayments, Streetwise made payments into Mr Di Benedetto's bank account. The money was then direct debited to Tonto. It seems that the payments continued until about July 2005. A title search made by Mrs Di Benedetto after the collapse of Streetwise disclosed that Streetwise was not the registered proprietor of the Battle Boulevard property. Mr and Mrs Di Benedetto obtained no financial benefit whatsoever from their investment with Streetwise. They had been dishonestly misled by Streetwise about their investment. 128 Mrs Di Benedetto recounted that she rang Tonto in July 2005 and was told that she and her husband were responsible for the mortgage repayments. She stated at para 149 of her affidavit that this was the first time she was told that Tonto did not know about the arrangement with Streetwise and she realised from this conversation that she and her husband were responsible for the loan. 129 In her oral testimony Mrs Di Benedetto said that it was probably a little bit prior to this conversation when she came to that realisation. It was probably when she had spoken to Paul Barry from 60 Minutes in 2005. Mrs Di Benedetto rejected in cross-examination the suggestion that she understood right from the start that one of the risks that she was taking was that Streetwise might not pay the loan interest and that she and her husband had to pay the lender. Mrs Di Benedetto was taken by Mr Bell to para 93 of the statement that she had made to ASIC: (ex E (DB)) in which she had recounted a conversation in her home with Mr Bangaru in May 2004 during which he had assured her that everything was fine with the Battle Boulevard development and she had responded: "I hope everything is going fine as you say because there is no way we can afford to pay back the $500,000 loan if something ever happened to Streetwise." And further to a conversation at para 97 with Mr Bangaru in late August 2004 where she had requested: "a personal guarantee in writing from [Mr Bangaru] stating that you will pay the loan repayments for us and for you to draw up a document with Tonto stating you are responsible for the loan." 130 Earlier on in the conversation she had told Mr Bangaru that she did not want Streetwise to go bankrupt as "[she] could never afford to pay the loan". 131 These conversations recorded in the ASIC statement suggest that Mrs Di Benedetto was aware well prior to the conversation with Mr Barry that she and her husband were responsible for the loan if Streetwise was unable to maintain its payments. Further cross-examination focussed on her understanding of having given a mortgage. After some hesitation Mrs Di Benedetto agreed that she understood that their property was at risk under the mortgage if the loan was not repaid at the time that the mortgage was given. She said that "we knew Streetwise would pay it for us": T 98 L 45. 132 Mrs Di Benedetto's testimony of her understanding of the effect of the loan agreement and mortgage I found to be less than satisfactory. 133 An insight into the reasoning of Mr Di Benedetto when he entered into the joint venture is derived from the following evidence: (T 103 L 1- 11) "Q. You understood when you invested with Streetwise that Streetwise was going to pay into your bank account each month the amount that you would have to pay in interest to the lender; correct? A. Yes. Q. And because you believed Streetwise was a wealthy organisation with substantial assets, you didn't think there was much risk that they wouldn't put that money into your account, did you? A. That's right, yes. Q. And that was the basis on which you went into this investment? A. That's right." 134 Although at the time of signing Mr and Mrs Di Benedetto did not have the opportunity to closely consider the loan agreement and mortgage, I am satisfied on the balance of probabilities they knew at that time that they were responsible for the loan repayments and their property was at risk if the payments were not made. They understood the gist of what they were signing. They considered, however, that there was little risk of default as Streetwise had agreed to make the payments. For this reason, neither of them took the time to read the documentation after it had been left at their home. Unfortunately they, like Mr and Mrs O'Donnell, had been seduced by Kovelan Bangaru and by high pressured and clever salesmanship into believing that they could place their trust in Streetwise. 135 Mr and Mrs Di Benedetto had been dishonestly misled by Streetwise and persuaded not to seek independent legal advice. Streetwise had fraudulently altered the loan application form and income declaration as Streetwise knew that truthful disclosure of the assets and income of Mr and Mrs Di Benedetto would not meet the lending guidelines either under the Origin Program or the FirstMac securitised lending program. The loan would not have been approved without the fraud of Streetwise. 136 The Di Benedettos were unaware that the loan had been approved upon the fraudulent material inserted by Streetwise. If they had known that the lender did not take into account the promise by Streetwise to contribute to the loan repayments when considering the application and that their financial position truthfully stated did not meet the lending guidelines, I am satisfied on the balance of probabilities that Mr and Mrs Di Benedetto would not have proceeded with the loan application. The Tavares and Rowe proceedings Background 137 In December 2002, Mr Tavares was 53 years old and Ms Rowe was 39 years old. Mr Tavares was self-employed in the music industry mainly as a performer but also arranged, directed and published music. His income tax returns for the financial years ending 30 June 2000, 2001 and 2002 disclose taxable income of $46,613, $33,281 and $36,962 respectively. Mr Tavares had completed income tax returns for these years which were available for inspection in January 2003. Ms Rowe was employed as a toll booth operator and also had a casual position as a swimming instructor. Her taxable income for the financial year ending 30 June 2002 was $27,936 and for the next financial year $36,287. 138 Their home at Castle Hill was subject to a mortgage in favour of the ANZ Bank on which approximately $40,000 was owing. Mr Tavares had superannuation which he estimated to be less than $35,000. 139 In around 1976, Mr Tavares obtained a loan from a Building Society and had purchased a block of land in Beecroft for approximately $20,000. He sold the land in 1978. He had purchased a block of land in around 1984 at Berowra Heights with his second wife and built a house for which they had obtained a loan from the St George Bank. In around 1996, Mr Tavares and Ms Rowe borrowed approximately $110,000 from the ANZ Bank to purchase a home unit at Lane Cove which they sold in 1998 and then purchased the Castle Hill home. 140 Of all the cross-claimants in the three proceeding, Ms Rowe had the least financial experience. She had not been self-employed in a small business. Nevertheless, Ms Rowe had been party to the borrowing and the granting of a mortgage when the home unit at Lane Cove and the Castle Hill home were purchased. Mr Tavares and Ms Rowe were neither sophisticated nor naïve in financial matters. Before they commenced their dealings with Streetwise they understood what it meant to provide a mortgage and that a possible consequence of default in the loan repayments was the sale of the secured property. Dealing with Streetwise 141 Mr Tavares and Ms Rowe were first approached by a Streetwise representative in December 2002 whilst shopping at the Castle Towers Shopping Centre. The representative asked " Would you like to buy an investment property ?" 142 Mr Tavares recalled not being particularly interested, but was persuaded to provide his contact details, however, heard nothing further. A few weeks later they were approached by another sales representative of Streetwise at the Westfield Shopping Centre at Chatswood. Mr Tavares told the representative that he had already provided his number but had not been called. He thought he may have given his name again on this occasion. 143 Sometime in early January 2003, Bevan Lydement from Streetwise met with Mr Tavares and Ms Rowe at their home. During the meeting they had the following conversation: Mr Lydement: "Are you interested in investing in property?" Mr Tavares: "We can't afford it. We don't earn enough" Mr Lydement: "You can use the equity in your home. You can go into joint venture with Streetwise to build a house. The property will be finished in about 18 to 24 months. We get you the loan and Streetwise will make most of the payments for you. When it is sold we will split the profits. I myself, have property with Streetwise." 144 After the meeting, Mr Tavares rang ASIC and the ACCC and enquired as to whether there were any bad marks against Streetwise to which enquiries he received negative responses. 145 At a further meeting at their home, Mr Lydement was advised of the value of their assets and income. He was informed by Mr Tavares that his salary was about $36,000, that Ms Rowe's salary was about $28,000, their cars were worth $20,000 and their furniture was insured for $30,000. Mr Tavares also told Mr Lydement that they did not wish to pay more than their current mortgage to which Mr Lydement replied: "It should be about the same. We pay the majority of the monthly payments." 146 On about 6 February 2003 Mr Tavares and Ms Rowe went to the Streetwise office in Clarence Street, Sydney and met with Mr Lydement, Mr Bangaru and Luke Hajje. Mr Bangaru said during the meeting: "We have got the Lee brothers coming on board, and Mark Viduka. We will build a property and form a company making Kim and you directors." 147 They were handed a booklet entitled 'Streetwise Project Analysis' containing house plans. At this meeting (or possibly another) Mr Tavares recalled saying to Mr Banguru that he did not think they could get a loan on their income to which Mr Bangaru said: "We will get the loan for you" Mr Hajje asked Mr Bangaru: "We do a Tonto?" Mr Bangaru replied: "We deal with these people all the time." 148 At a further meeting with Mr Lydement, Mr Bangaru and Trevor Downs, a property being lot 211 Kellyville Ridge was discussed. Mr Bangaru told Mr Tavares and Ms Rowe that the valuations on their home had not been what they expected so they could not borrow as much. 149 At paras 61-63 of his affidavit Mr Tavares gives an account of what occurred when he and Ms Rowe were provided with a loan application form. Although he had no precise recollection, he believed that this may have occurred at the second meeting at the Streetwise office. Paras 61 and 63 are as follows: " I cannot recall precisely at which meeting, however I believe it may have been at the meeting above, that Kim and I were provided with a loan application form. The form was completed in parts, while other parts were left blank. The sections that were blank, included: The amount to be borrowed; The amount of our incomes; Our total assets; The value of our home; and The date I asked Mr Downs about the form and he said words to the effect of: ' We'll fill it in later, it will just save time if you sign it now.' I cannot recall precisely at which meeting, however I believe it was at the meeting above, I said to Mr Bangaru words to the effect of: 'Should we get legal advice about this?' He said words to the effect of: 'You can use your own lawyers, but it isn't necessary. We've got our own lawyers so it will save time. Our lawyers do this all the time.' At this point I still did not think that we would be able to get the loan so was not that concerned." 150 Ms Rowe recalled at para 43 of her affidavit: " I am not certain, but I believe it may have been at this meeting also that Joe and I were given a loan application form. I think our names were on it, but other parts of it were left blank. When we asked about this, someone that I believe to be either Mr Lydement or Mr Downs said words to the effect of:: 'That's O.K. We will fix that all up.'" 151 The loan application form which Mr Tavares and Ms Rowe signed is found at ex 3 v 1 pp 98-100 (TR). Mr Tavares agreed in cross-examination that he had signed the loan application at the bottom of pages 99 and 100. As he remembered it, the forms "were all blank" except the reference to the "credit card limit". 152 Mr Tavares's annual salary was subsequently inserted in the loan application form as being $120,000 and Ms Rowe's as $38,000. The value of other assets was overstated. Motor vehicles were valued at $50,000. At the time the combined value of their two vehicles was $20,000. Furniture was valued at $120,000 when its insured value was $30,000. Mr Tavares's annual income at the time was approximately $36,000 and Mrs Rowe's was approximately $28,000. As with the applications the subject of the other proceedings, it is evident that the false information was inserted in the loan application form by an undisclosed person or persons at Streetwise after it had been signed. This was done without the knowledge of Mr Tavares and Ms Rowe. 153 The loan application form is entitled "Tell us your story Streetwise Home and Investment Loans". The purpose of the loan was stated as being "Property Investment", the amount of the loan $500,000 at an interest rate of 6.9 per cent and the loan product "Lo Doc". An introducer's declaration which purports to have been signed by a person stated to be Ali Khan is dated 10 March 2003. Mr Tavares and Ms Rowe were not provided with a copy of the loan application or the Tonto Home Loans Personal Collection Statement. They were not told that the application was for a Lo Doc loan nor had they been told what a Lo Doc loan was. 154 Mr Tavares when asked by Mr Bell (T 125 L 23- 25) "Q. You did appreciate you when you were signing this document that you were signing an application for a loan to implement your part of the joint venture? Replied A. Yes, I would have been, yes". And further (T 125 L 30-32) : "Q. Did it occur to you at the time that a lender was likely to read a loan application signed by you? A. A completed one he would yes". And further (T126 L 15-25): "Q. You say in paragraph 63 that at this point in time you still didn't think you would get the loan so you weren't too concerned, do you see that? A. Yes Q. Is that why you were prepared to sign a partially blank loan application form? A. I would say so at the time, yes. Q. Looking back on it now, you would agree that it was careless to have signed a blank form like that, wouldn't you? A. Yes, absolutely." 155 Ms Rowe in cross-examination recalled that when she signed the loan application "it was all blank" (T 217 L 25-27). Ms Rowe gave the following evidence in further cross examination (T 217 L 33 – 39) "Q. Did it occur to you that a lender might want to read a loan application form signed by you? A. No, they said, Streetwise said leave it blank. Q. I understand that. But what I'm asking you is this: looking back at it now do you agree that it was careless to sign a blank application form? A. Yes, it was careless." 156 Mr Tavares and Ms Rowe had also signed forms entitled "Borrower Income Declaration for the First Run and Flexi Range of Lo Doc Loans". The forms state an annual income of $120,000 for Mr Tavares and Ms Rowe an annual income of $32,000 which were false. Each form contained the declaration and acknowledgment which has been quoted at [65-66] above. The forms which are undated appear to have been witnessed by Mr Lydement and are found in ex 3 v 1 pp 128-129 (TR). 157 In cross-examination, Mr Tavares said that he would not have signed the form if it had shown $120,000 as total income. He gave the following evidence in further cross-examination (T 132 L 10-36): "Q. Did you appreciate it, when you signed this form-- A. Yes. Q. --that it was a borrower income declaration? A. Borrower income declaration. Yes, though it was blank. Q. Yes. So you knew it was a document that the lender would be interested in seeing from you? A. Yes. Q. But you signed it in blank? A. That is if I had have seen that it was a borrower's income declaration. Q. I am sorry, did you understand it was a borrower income declaration when you signed it? A. I can't recall because it could have been part of the documents that were concealed. Q. I see. Did you know it was a document that was related to your loan application? A. I figured at that time all documents were related to the loan application. Q. And you knew when you signed it that the total income figure was blank? A. Yes. Q. And do you agree that that was careless, looking back on it now? A. Absolutely." 158 Mr Tavares and Ms Rowe, it is evident, were persuaded by Streetwise that it was in order for them to sign the loan application and income declaration forms although these forms were partially completed. They did not know that the application was for a Lo Doc loan nor had they been informed of the particular significance that the information provided as to their income had in Lo Doc lending. Nevertheless, they were not totally inexperienced in financial matters and the signing of these partially completed documents, even without the benefit of hindsight, was careless. 159 Mr Tavares stated that he and Ms Rowe had attended a third meeting at Streetwise's office around May 2003 where they met with Mr Bangaru, Mr Lydement, Mr Downs and Susanna Lau and were taken to the boardroom. He recalled Mr Downs saying words to the effect of: "You have to sign these papers to complete the loan." 160 Mr Downs and Ms Lau, he said, placed various documents in front of him and Ms Rowe saying "sign here" which they did. He was unable to see the pages of what he was signing as there were other documents placed over the top that concealed most of the page. He did not recall how many documents they signed or their nature. 161 Mr Tavares stated that he felt quite pressured. The people in the room other than himself and Ms Rowe were standing around as they signed. He described them as "rushing us to sign the documents" and explained that "[he] did not read the documents as [he] didn't feel as though there was time". He "felt like [he] was holding them up." (affidavit paragraph 66). 162 During the meeting, Mr Downs also mentioned the loan repayments. Ms Rowe said: "We were told the repayments would be less than our mortgage." Mr Downs said: "We will reduce the repayments and take this out of the profits at the end of the joint venture." Mr Tavares stated that in response to his question about legal advice either Mr Bangaru or Mr Downs said: " You can use our solicitors, as they do this all the time. It's also quicker and cheaper." 163 The circumstances of the meeting were recounted by Ms Rowe. She states (affidavit par 46-47): "Throughout this meeting Mr Downs made me feel as though there was a big rush to sign the documents. He said words to the effect of: 'You need to sign this to get the loan going'. At one point I recall Mr Downs sitting down with us. However, for most of the meeting everyone was standing or hovering around us. I recall My Lydement and Ms Lau standing with another two people. The room was quite busy. I think I may have signed about 3 or 4 documents in total. Mr Downs flicked through the pile and said word to the effect of: "Just sign here". Joe and I then signed the page. I was unable to see the pages I signed as there were still other documents in the pile covering the pages. I did not see any of the documents I signed, and I am not sure what they were". 164 And further (affidavit paragraph 50): "I recall that I did not want to sign the documents. I looked at Mr Downs and said words to the effect of: 'We can't lose our house, can we?' He said: "No". 165 Mr Tavares stated that some time after this meeting Mr Lydement came to his home and said words to the effect of: "We need you to sign some more documents for the loan. It needs to be done today." 166 He described Mr Lydement as being in a rush, placing the documents down in front of him and saying, "sign here". He was not given the opportunity, he said, to read the documents and was not sure what they were. He told Mr Lydement that Ms Rowe, who worked as a tollbooth operator for the M2 Motorway, was at work. As soon as Mr Tavares had signed the documents, Mr Lydement left. Ms Rowe recalled Mr Lydement driving to her toll booth that day and saying: "You need to sign this document to get the loan through." As there were cars waiting, she did not have time to read the documents, or ask what they were for. She believed that she signed about three documents in total. 167 Mr Tavares and Ms Rowe were not able to say what were the documents they had signed at either the third meeting or subsequently at Mr Lydement's request. Mr Tavares identified his signature on the FirstMac Residential Program Loan Agreement (the loan agreement): ex 3 v 1 pp 2-9 in cross-examination and said that he knew that they were signing papers for a loan. Although the loan agreement refers to the amount of credit as being $416,000, it was his understanding that the amount of the loan was $380,000. He understood that the lender was Tonto and that he and Ms Rowe were giving a mortgage over their property as security for the loan. He agreed that he had signed the mortgage but said that he did not understand that their property was at risk. On that issue Mr Tavares gave further evidence as follows (T 141 L 21-45): "Q. You understood when you gave that mortgage it meant that your property was at risk? A. We did not believe that we were at risk. Q. What you mean by that is that you understood that Streetwise were making most of the repayments on the loan; correct? A. Yes, that's correct. Q. So that you understood that as long as Streetwise kept on making those repayments your home was not at risk; is that fair? A. I never viewed it that way. I never viewed that the house was at risk. Q. You understood that you were giving a mortgage over your home? A. Now I do. Q. You understood it then. You told his Honour that just a little while ago? A. Yes. Q. You understand what a mortgage is, don't you? A. Yes, I do. Q. And you took that risk of giving a mortgage because you believed Streetwise would make the repayments as they told you; correct? A. Correct." 168 Streetwise had written a letter dated 13 May 2003 to Mr Tavares and Ms Rowe advising them of the final approval of their loan. The mortgage manager was identified as Streetwise, the total loan amount as being $416,000 and the purpose of the loan as being "to refinance ANZ Bank Loan $40,000…and surplus funds for investment purposes". The mortgage payments were specified as being $2,753.70 per month. 169 Ms Rowe was cross-examined about her understanding of the effect of the mortgage as follows (T 215 L 44-end T 216 L 1-21): " Q. …After you read this letter from Streetwise in May 2003 you understood that you and Mr Tavares were giving a mortgage over the property at Castle Hill as security for the loan, correct? A. Well, yes. Q. And you understood that if the loan was not repaid your property could be sold to repay the loan? A. No, not at that time. Q. But that is what a mortgage is, isn't it? A. We were in it with Streetwise, we didn't think of that at the time. Q. You understood in May 2003 that Streetwise was going to be paying into your account each month approximately $2,200? A. Yes. Q. And Tonto was taking out of your account each month approximately $2,700 each month? A. Yes. Q. And the balance of $500 you were paying directly? A. Yes. Q. So each month you understood that Streetwise had promised to you to pay you approximately $2,200 each month for the interest? A. Yes. Q. And you took the risk of giving a mortgage to the lender because you believed that Streetwise would make those payments, didn't you? A. Yes." 170 The loan agreement is dated 22 May 2003 and the signatures of Mr Tavares and Ms Rowe on the document are stated as being witnessed by Ms Lau. The mortgage is dated 30 May 2003 and the signatures of the cross-claimants are again stated as being witnessed by Ms Lau. The different dates which the documents bear may be explained by the settlement of the loan on 30 May 2003. I am satisfied on the probabilities that the loan agreement and mortgage were signed at the third meeting at the office of Streetwise which took place on 22 May 2003. The terms of the loan agreement and mortgage have been identified at paras [21-22] above. Other documents signed on that day included an authorisation to Hunt and Hunt to disburse the balance of the loan funds to Streetwise Administration. 171 Mr Tavares and Ms Rowe demonstrated in their testimony an initial reluctance to accept that they knew that by providing a mortgage their home was at risk if the loan repayments were not made. I am satisfied on the balance of probabilities that they knew that they were responsible for the loan repayments and as their property had been provided as security for the loan, it was at risk if they defaulted. They understood the gist of the loan agreement and mortgage. It was their belief, however, that there was little risk of default as Streetwise had agreed to pay $2,200 each month into their account. In a manner similar to the other cross-claimants, Mr Tavares and Ms Rowe had been seduced by Mr Bangaru and his impressive offices and by high pressured and clever salesmanship into believing that they could place their trust in Streetwise. 172 A question arose as to whether a letter dated 15 May 2003 enclosing the loan agreement and mortgage was sent by Hunt and Hunt to Streetwise and not to Mr Tavares and Ms Rowe. During cross-examination Mr Tavares said that he could not recall receiving the letter and Ms Rowe testified that she had not seen the letter before and did not receive it. The letter (ex 3 v 1 at p 331-332 (TR)) is addressed to Mr Tavares and Ms Rowe at their home address. 173 By an email sent on 9 May 2003 from Jackie Holt of Tonto to Karen Cartwright of Hunt and Hunt, the following appears: "Document delivery method: Deliver to Broker's Office." Tonto, I am satisfied, instructed the solicitors by this email to forward the documents to Streetwise. When cross-examined on the email, Mr Thorne said that instruction was not followed. He had earlier testified that the procedures of the firm were such that if the letter was re-addressed it would be recorded on the letter. No such recording appears on the letter dated 15 May 2003. 174 Mr Menzies argued that this would not explain a change being made to the envelope only and pointed to what the cross-claimants contended had occurred in the O'Donnell and Di Benedetto proceedings. This argument does not find support in the O'Donnell proceedings. Whilst in the Di Benedetto proceedings, the Hunt and Hunt system was overridden on instructions from Tonto, which provides some support for Mr Menzies' argument, the letter in that case was addressed to the Di Benedettos care of Streetwise. The letter being re-addressed in this way supports what was said by Mr Thorne. 175 Mr Bell submitted that, notwithstanding the evidence of Mr Tavares and Ms Rowe, borrower copies of the mortgage, memorandum of mortgage, loan agreement and general terms and conditions were produced in response to a notice to produce which required the production of (exhibit E (TR)): " All documents and correspondence received from Hunt and Hunt Lawyers between 9 May 2003 and 22 May 2003." 176 Mr Bell argued that Mr Tavares and Ms Rowe received the letter from Hunt and Hunt dated 15 May 2003 which enclosed those documents. In response, Mr Menzies contended that the documents produced did not include the Hunt and Hunt letter. Furthermore, the notice in its terms was not limited to documents received directly from the solicitors but would include letters indirectly received from Streetwise. Mr Menzies also pointed out that it was Mr Tavares's solicitors who answered the notice to produce. 177 During cross-examination Mr Tavares gave the following evidence T 136 L 25-36: "Q. So is this the position. You recall getting the documents which have just been exhibited to the court but sitting here now you don't recall the letter from Hunt & Hunt. Is that a fair summary of the position? A. Could you say that again, please? Q. Is it fair to say that you recall receiving the documents, such as the mortgage, the loan agreement, the general terms and conditions of mortgage, general terms and conditions of loan, and you recall receiving them at or about the middle of May 2003, but sitting here now in the witness box you don't recall this letter from Hunt & Hunt. Is that a fair summary of the position? A. That's fair, yes." 178 It follows that at the least Mr Tavares had the opportunity of considering the loan agreement and the mortgage shortly after the meeting on 22 May 2003. 179 The onus is on the cross-claimants to establish on the probabilities that the letter was sent to Streetwise and not to the address which the letter bears. My overall impression of the evidence given by Ms Rowe was that she was endeavouring to distance herself as much as possible from an understanding of the loan agreement and mortgage and her denial that the letter was received must be considered with a deal of circumspection. 180 A significant consideration is Mr Thorne's evidence that the system provided for the re-addressing of a letter to be recorded on that letter. As I have observed, the Di Benedetto letter was addressed care of Streetwise whereas the letter dated 15 May 2003 was not. It seems to me unlikely that an instruction which was received by email on 9 May 2003 would be attended to by the re-addressing of an envelope and not the letter itself some six days later. Whilst the documents produced do not by themselves establish that the letter was received by the cross-claimants they provide some support for this contention. I am not satisfied on the balance of probabilities that the letter was sent by Hunt and Hunt to Streetwise. 181 Although Mr Tavares and Ms Rowe had an opportunity to consider the loan agreement and the mortgage they were persuaded by Streetwise not to obtain independent legal advice. Streetwise had fraudulently altered the loan application form as Streetwise knew that truthful disclosure of the assets and income of Mr Tavares and Ms Rowe would not meet the lending guidelines either under the Origin Program or the FirstMac securitised lending program. The loan would not have been approved without the fraud of Streetwise. Mr Tavares and Ms Rowe were unaware that the loan had been approved upon the fraudulent material inserted by Streetwise. If they had known that the lender did not take into account the promise by Streetwise to contribute to the loan repayments when considering the loan application and that their financial position truthfully stated did not meet the lending guidelines, I am satisfied on the balance of probabilities that Mr Tavares and Ms Rowe would not have proceeded with the loan application. 182 By letter dated 28 May 2003, Mr Tavares and Ms Rowe were informed by Hunt and Hunt that the loan had settled on 30 May 2003. The total amount of the loan was expressed to be in the sum of $416,000. The particulars provided for the disbursement of the loan funds included $50,872.76 to the ANZ Banking Group and $352,824.53 to Streetwise Administration. The payment particularised as being made to the ANZ Bank was required to discharge the Bank's mortgage. Should Mr Tavares and Ms Rowe succeed in their cross-claim the amount of the ANZ payment is to be paid to Tonto. 183 A letter dated 2 June 2003 from Tonto addressed to Mr Tavares informed him of the loan details including the loan amount of $416,000 and that their ANZ joint account would be directly debited monthly in an amount of $2,758.16. I have difficulty understanding how Mr Tavares could have understood that the loan amount was $380,000 when he had been informed in writing by Streetwise, Tonto and Hunt and Hunt that the loan amount was $416,000. 184 Mr Tavares recounts at paragraph 76 of his affidavit that it was around this time, he was provided with a copy of a Deed of Investment: ex 3 v 2 pp 410.1 – 410.2 (TR). The document recorded that Mr Tavares and Ms Rowe wished to enter into a joint venture with Streetwise Property to acquire and develop residential property for the purpose of resale and purported to set out the Framework of the joint venture. The Framework included the incorporation of a "Property Investment vehicle" and that Mr Tavares and Ms Rowe "are to raise capital via a mortgage (refinance/redraw) from the equity of their property(ies)" namely $355,000 as capital and $2,500 for costs associated with the setting up of the company. The Deed, inter alia, authorised the "Trustee and/or the Directors" to borrow monies "for and on behalf of the Investment vehicle". There is no dispute that Mr Tavares and Ms Rowe signed the agreement which on the first page is dated 14 May 2003. Curiously the cover page bears the date of 22 May 2003. This was the joint venture agreement which Mr Tavares and Ms Rowe entered into with Streetwise. 185 Following settlement of the loan, Streetwise paid approximately $2,200 each month into the ANZ joint account until July 2005. During that month Streetwise went into liquidation. From the time of the second meeting at the office of Streetwise in 2003, Mr Tavares and Ms Rowe on occasions visited the property at Kellyville Ridge to monitor the progress of the building work. They had, however, been dishonestly misled by Streetwise about their investment. After the collapse of Streetwise, property searches revealed that they had not received security over the Kellyville Ridge property. Mr Tavares and Ms Rowe obtained no financial benefit whatsoever from their investment with Streetwise. Tonto and the Lending Guidelines 186 One of the assertions made by the cross-claimants is that the lenders failed to abide by lending guidelines when the loan applications were considered. The cross-claimants contend that the loans would never have been made if the lending guidelines had been followed. It is necessary to consider how the loan application in each proceeding was approved and what were the lending guidelines which applied to the loan application. 187 An understanding of the business of Tonto is derived from the evidence of Paul O'Donnell, Tonto's general manager between 2000 and 2004. Mr O'Donnell explained that Tonto was the mortgage manager for a number of different wholesale lending programs. One of the major lending programs that Tonto dealt with was the Origin Mortgage Management Program (the Origin Program). The Origin Program was a lending program owned by the ANZ bank through which funds were advanced by way of retail home mortgage loans to members of the public. The program manager was Origin Mortgage Management Services, a division of ANZ bank and the mortgage assets of the program were held by Permanent. The roles and responsibilities of a mortgage manager were governed under the terms of agreement with the program manager called a Mortgage Origination and Management Deed (MOMD). The MOMD in operation between Origin Mortgage Management Services (Origin) and Tonto is found behind Tab 1 of ex G (DB). 188 Paul O'Donnell explained that Queensland State Home Loans Pty Ltd (QSHL) was a mortgage manager for the mortgage management program which had been established by the Primary Industry Bank of Australia Ltd at the time Origin purchased the program in 1998. Tonto took over the business of QSHL which was a party to the MOMD. QSHL entered into a Sub-Introducer Deed with Tonto and Origin a copy of which is found at pp 495-503 of ex G (DB). The MOMD and Sub-Introducers Deed were the formal arrangements that governed the relationship between Tonto and Origin. 189 The obligations imposed upon Tonto by the MOMD include: (i) to introduce loans to Origin "which comply with the Terms in accordance with the provisions of this Deed and the procedures specified from time to time by [Origin]": cl 3.1; (ii) provide "in writing to [Origin] all information reasonably relevant to considering an Approval": cl 3.1; (iii) use "its best endeavours to ensure that the information is accurate": cl 3.1; (iv) to "introduce Loans and manage Settled Loans in an efficient and businesslike manner and in accordance with sound business practices": cl 4.1(a). (v) to ensure that all persons "connected with introduction and management of loans" comply with Tonto's obligations under the MOMD: cl 4.1(b). Clause 9.6 provided that such obligations were not assignable or otherwise transferable without the consent of Origin. Clause 9.11 was as follows: Relationship "The Manager is not the agent of the Trustee or PIBA but is an independent contractor". 190 The obligations imposed by Origin under the Sub-Introducers Deed included: (i) compliance with all obligations under the MOMD (cl 2.3); (ii) indemnifying Origin for all losses incurred by it arising "from any failure by the Sub-Manager [Tonto] or any Sub-Manager's Agent to comply with any provision of this deed…" (cl 3.1) Clause 5.3 mandated that any rights or liability under the Sub-Introducers Deed were not be transferred by Tonto without the prior consent of Origin. A definition of "Sub-Manager's Agents" is found in cl 6.1: " Sub-Manager's Agents means each agent and employee of the Sub-Manager and any other person who is any way directly or indirectly concerned with the introduction or management of loans introduced or by the Sub-Manager under the Program." 191 The Origin lending guidelines (ex G pp 218-347 DB) provided in cl 1.5: " Lending guidelines set out 'how' Mortgage Managers and Origin staff are to prepare loan applications and manage loans funded under the residential mortgage origination program. All loans submitted through ORIGIN's under the residential mortgage origination program must comply with the specific requirements of ORIGIN lending guidelines for Mortgage Managers." 192 Included in the responsibilities of the "Mortgage Manager/Sub Introducer/Broker" by cl 1.6 were the following: "What… How… Conducts a loan interview, discusses loan options and determines the most suitable loan product for the customer. Advises the customer about the approval process and provides them with appropriate information. Sales & Loan Interview Assists customer with the preparation of the loan application. Obtains all original documents supporting the loan application and checks their authenticity then signs and notes copies as to having "sighted the originals". Sends all copies of documents to the authorised officer with loan application. 193 Clause 1.8 of the lending guidelines concerned the "interaction between lending guidelines, product guides and LMI (Lenders Mortgage Insurance) policy." The guidelines provided: "All products carry a number of specific guidelines, which are separate to lending guidelines. Except where product guideline is more restrictive then lending guidelines, the latter holds overriding precedence. Where Lenders Mortgage Insurance (LMI) policy overrides lending or product guidelines then LMI policy holds precedence unless material adverse features are present…" 194 The Origin product guide for Lo Doc loans (called a Flexi Express Home Loan) is found in ex G (DB) at pp 406-412. The Overview to this type of product provided that it was: Fully featured variable or fixed rate home loan to assist with the purchase of owner-occupied or investment residential property. Available for self-employed applicants only, who are not in a position to provide full financial documentation at time of application. 195 Features of the Flexi Express Home Loan relevantly included: A maximum loan amount of $500,000 between 60 per cent and 80 per cent of formal valuations with Lenders Mortgage Insurance (LMI). Security of 1 st registered mortgage over standard residential property being purchased or refinanced. The purpose of the loan being for the purchase or refinance of owner occupied property or investment residential purposes. Special Conditions which provide, inter alia, " Must have a signed 'Borrower Income Declaration' and 'Express' does not waive the requirement to confirm employment as per Origin lending guidelines ." 196 Paul O'Donnell explained that Tonto did not seek to generate a retail profile in the lending market but recruited mortgage brokers who in turn referred loan applications from their clients to Tonto. The credit approval process, he said, involved the underwriting department initially obtaining all relevant information required for a credit decision which was then sent to a credit manager who had a delegated lending authority to make a credit decision. The Origin Delegated Lending Authority Guidelines (DLA) are found at CTB ex 1 v 1 pp 166-223. The DLA provided that the DLA guidelines be read in conjunction with the Origin lending guidelines. Under the heading Employment Confirmation (cl 7), the Origin DLA required: Certificate of Business registration or incorporation or financial statements for self-employed. For self-employed persons, self-employment for 2 years and satisfaction that the business will continue for the term of the loan, otherwise the loan term must be reduced to fit expectations or the application be rejected altogether. For a new self-employed customer, a certification of business registration for sole proprietor or partnership and certificate of incorporation for a company. 197 Paul O'Donnell stated that Tonto's business changed with the introduction in late 2000 and throughout 2001 of the FirstMac securitised lending program (FirstMac) which was essentially a lending program of its own. Tonto's operations which had been confined to being a mortgage manager were extended to funding its own loans. FirstMac lending guidelines and procedure manuals were developed. 198 The FirstMac Lending Manual is found in CTB ex 1 vol 1 at pp 271-296. This was the version in place in April 2003. As will be seen later on in this judgment, this was the lending manual which was primarily relied upon by Geoffrey Lougoon when he approved the Tavares and Rowe loan whereas the January version was used by him when the O'Donnell and Di Benedetto loans were approved. The principal difference between the January and April versions is that the latter version contained an Introduction (cl 1.0) which included: " Given that all FirstMac loans must be fully mortgage insured and recognizing that the mortgage insurers have developed their own individual acceptable loan criteria based on lending industry practice and performance, and their own claim paying experience, FirstMac has generally aligned its underwriting policy with that of the mortgage insurers." 199 It is convenient to set out some of the clauses in the FirstMac Lending Manual which were identified as being of relevance. 200 Clause 2.0 identified the manual's purpose as being: "…a guideline for residential owner occupied and investment lending nationwide. It is an easy reference to lending guidelines, acceptable credit standards, loan product features and processing procedures. The manual should not be interpreted as inflexible rules, but as a set of guidelines, to go hand in hand with prudent lending and common sense. Every application should be assessed individually on its own merit. Loans that do not comply with the guidelines may be considered if there are other inherent strengths to the transaction and Lender's Mortgage Insurance is available. Such loans must be referred to FirstMac Underwriting Managers for approval." 201 The responsibilities imposed (cl 3.0 at p 275) on "Originator/Manager/Originator Manager Agents" were similar to those imposed by Origin. Clause 7.0 (at p 278) under the heading Loan Purpose is as follows: " To assist in the determination of a loan's Code status (refer Consumer Credit Code section of the Program Overview), applicants must provide full details of the loan purpose." Acceptable loan purposes included the purchase of investment residential property. 202 Clause 18.0 provided for employment confirmation. In the Table (at p 284) which described "the types of employment and minimum term that is acceptable" appears the following: "Self employed / minimum 2 years trading in the current business." 203 Under the heading How to confirm employment and income is the following (at p 286): "Where the loan is Lo Doc the Originator/Manager must either contact the borrower's accountant to confirm the borrower is self-employed (income confirmation is not required) or alternatively conduct an ABN search to confirm the existence of the business operation. The ABN search can be additionally utilised to confirm the authenticity of the PAYG borrower's employer where there is doubt in this regard, eg no telephone listing of the employer." 204 Clause 31.0 referred to the requirements for "non-standard loan products". Under the heading Stated Income – Lo Doc Loans is the following: "Borrowers are not required to provide any substantiation of their income. Debt service is calculated on the income declared by the borrower and the borrower's statement of position. Borrowers are also required to provide an income declaration confirming their income and acknowledging that the lender has relied on the income declared in assessing the borrower's ability to repay the loan." 205 In the Tonto First Run Lo Doc product guideline the following appears: Loan Purposes: "You can use your FirstRun LoDoc variable loan to purchase or refinance your home or an investment property, or to access the equity in your property for any worthwhile personal or investment purpose. Maximum cash out restrictions may apply." 206 The O'Donnell and Di Benedetto loans were insured by PMI Mortgage Insurance Ltd (PMI). The PMI Lo Doc guidelines are found at ex 1 v 4 pp 1388-1389. They, relevantly, provided in relation to low doc loans: Eligible borrowers are self-employed and/or are unable to provide up to date financial information. PAYG borrowers are only allowed as co-borrowers (secondary borrowers). The maximum loan to value ratio (LVR) is 80 per cent. The loans can be used for an investment purpose. Verification of self-employment was required. For self-employed borrowers, verification of ABN, BAS and/or Business registration/status details was required together with evidence of self-employment for a minimum of two years in the same business or industry. 207 The Tavares loan was insured by GE Mortgage Insurance Services (GE). The GE Mortgage Insurance underwriting guidelines relevantly provided: For self-employed persons, at least two years trading in the current business. Confirmation of current employment must be obtained by the lender. For Lo Doc loans above 65 per cent of LVR, cash out is restricted to the borrower to $100,000. For loans to 65 per cent LVR, there is no restriction on funds released to the borrower. For self-employed applicants for all proposals the last two years business and personal tax returns and latest available tax assessment notice was required. How the loans were approved 208 Evidence of how the applications for the loans in each of the proceedings were approved was given by Geoffrey Lougoon, who was employed as a credit manager with FirstMac. As might be expected, Mr Lougoon had no actual recollection of the loan approvals but was reliant upon his examination of the documentation in the loan files and upon the usual practice he employed as a credit manager with FirstMac. He had worked in the banking industry since 1979 with ANZ and had held lending authorities enabling him to approve different amounts of credit in the various roles that he had been in. In 1999, he began working as a credit manager of Origin during which time he held a "Credit Approval Discretion", a limited discretion to approve loan applications not complying with Origin's credit policies. In 2002, he moved from Origin to FirstMac where his authority to approve loans was founded on a delegated lending authority (DLA). He had much experience in the lending industry. 209 In order to approve credit under his DLA, Mr Lougoon was given the DLA guidelines and a lending guidelines document. 210 Mr Lougoon in his affidavit sworn 22 April 2008 (ex N) at paras 28-29 stated that at the time the O'Donnell loan was processed, in or about January – February 2003, neither the DLA guidelines or the lending guidelines document specifically provided for "lo doc loans". Product guidelines for "Lo Doc loans" were, however, issued. Where there was inconsistency in the guidelines documentation, Mr Lougoon stated at para 31 that he would contact Origin whose position was to the effect that: "Where a product guideline permitted a practice that was inconsistent with the lending guidelines what was stated in the product guideline would apply." 211 This was, Mr Lougoon stated, particularly true in relation to Lo Doc Loans. 212 When cross-examined by Mr Menzies, Mr Lougoon's attention was directed to clause 1.8 of the Origin lending guidelines which is set out in [193] above and was referred to an apparent difference between what he had recounted was the advice given to him by Origin and the guideline. Mr Lougoon gave the following evidence in cross-examination (T 394 L 49-50 T 395 L 1-2): "Q. So when someone from Origin told you the complete opposite to what was said in paragraph 1.8 in the guidelines, that must have been a startling piece of information to you, wasn't it? A. I don't know about startling. Q. How did you then react to that piece of information, if at all? A. I just followed their instructions, I followed their advice." 213 Mr Lougoon explained that because of the general nature in which many of the guidelines were expressed, he exercised his judgment in making decisions about whether a loan application was one that fell within the guidelines or not. 214 All of the loans subject of the three proceedings were approved by Mr Lougoon under the FirstMac Lending Manual. It was the January version of the Manual that he used for the O'Donnell and Di Benedetto loans and the April version for the Tavares loan. 215 In his affidavits, Mr Lougoon extensively detailed what he did when he considered the loan applications. He acted on the assumption that the loan applications forms had been completed by the borrowers, for the most part, with the assistance of a broker and he relied on what was stated in the loan application and income declaration as being a true statement of the applicant's financial position. It was his intent to ensure that the applications met the minimum criteria under the lending guidelines. The income and liabilities which had been provided in the loan applications and income declarations as a consequence of the fraudulent entries made by Streetwise met FirstMac's loan serviceability requirements. 216 The criticism directed at Mr Lougoon by the cross-claimants was that in approving the loans he had failed to comply with the FirstMac lending guidelines in a number of respects. 217 During cross-examination Mr Lougoon agreed that he had not checked whether the cross-claimants qualified for Lo Doc loans as being owner-occupiers or investors who had limited income verification and had been self-employed for two years. He testified that he thought that would have been done by FirstMac's underwriting team. There is, however, no evidence of this having been done by the underwriting team. It might be that they were content to rely on the declarations by the loan applicants as to the accuracy of the information provided in the loan applications. As will be seen at a later stage in these reasons, the duties of conducting the loan interview and determining the suitable loan product for the customer were entrusted by Tonto in Streetwise. Nevertheless, in this respect the loans to the cross-claimants were approved in breach of the FirstMac guidelines for Lo Doc loans. 218 In his affidavits Mr Lougoon stated that it had been his practice where an ABN search was required to check to see if that had been done. The FirstMac lending guidelines in the case of a Lo Doc Loan required for confirmation of the borrower's self-employment by contact being made with the borrower's accountant or an ABN search to confirm the existence of the business operation. In none of the lending files were ABN searches located which Mr Lougoon acknowledged in his affidavits. He explained that the lending files were received from the underwriting department as a scanned file. The plaintiffs submitted that it had not been established that through its system, Tonto retained hard copies of every document collated and conceivably hard copies of the documents printed out by the underwriting loan team might have been misplaced. 219 Mr Lougoon in his oral testimony, however, said that he would expect to see ABN enquiries in the lending files. Should ABN enquiries have been made, it is, in my opinion, an egregious coincidence that in none of these files such searches were found. I am satisfied on the balance of probabilities that ABN searches were neither made by Mr Lougoon nor were the cross-claimants' accountants contacted to confirm their self-employment. 220 Furthermore, no enquiries had been made to confirm that the cross-claimants were self-employed persons who had for a minimum of 2 years been trading in their current business. In the plaintiffs' written submissions, it was contended that no part of the guidelines stipulated a requirement to investigate the period of self-employment. Mr Robertson, the cross-claimants' expert, was said to have accepted at T 266.4 that the guideline (as at 2003) did not stipulate a need to confirm the longevity of the business operation. I did not understand Mr Robertson's evidence in this way. Mr Robertson's evidence was on this point as follows: (T 266 L 1-4 31/3/09) "Q. My question is focusing on the policy. The policy requirement is to conduct an ABN search to confirm the business operation, not the length of time for which it existed; correct? A. No, that's not what it says." Clause 18.0 of the FirstMac Lending Manual which is quoted at [189] above provided that the minimum term that was acceptable for self-employed persons was " 2 year trading in the current business". I do not accept the plaintiffs' argument. 221 In these respects, when the loans to the cross-claimants were approved, the FirstMac lending guidelines for Lo Doc loans were not followed. 222 Mr Brewster, who gave expert evidence for the plaintiffs, expressed the opinion that the non-observance of the FirstMac requirement to obtain an ABN was an oversight on the part of the loan assessors. He did not regard it as materially or sufficiently adverse to the overall credit decisions and the oversight would not be of such adverse materiality to be grounds to have the respective loans set aside. This was particularly true where mortgage insurance approval had been given for the loan. Mr Brewster in his report at [58] stated that in addition to applying the Lo Doc lending policies applicable to a particular funder a loan assessor should also apply a "reasonableness test". That is, after gathering all the information relative to the lending decision, the assessor takes time to consider "does all that we are told add up from a credit standpoint." In cross-examination, he said that a lender could go outside its credit policy for the "right reasons" which included an assessment of the "overall strengths and positives of the deal". 223 In Mr Lougoon's supplementary affidavits (ex J (DB), ex J (TR)) the annexed ABN searches reveal that had those searches been undertaken, by Mr Lougoon they would have confirmed the self-employment of Mr and Mrs Di Benedetto and Mr Tavares. Mr Lougoon stated that, if he had seen the ABN searches at the time he approved these loans, he would have accepted them as satisfactory verification of employment and income in accordance with cl 18 of the FirstMac guidelines. In the case of the O'Donnells, it seems that PMI carried out an ABN search in Mrs O'Donnell's name which satisfied PMI as an insurer. Mr Lougoon said that he understood a practice was tolerated if the ABN was in partner's name but not the other. In cross-examination, he agreed that what he was saying was that it mattered little whether the ABN was in the name of Mr O'Donnell or Mrs O'Donnell. 224 The plaintiffs submitted that in each of the proceedings, had an ABN search been done, the loan would in any event have proceeded. Lending guidelines, it was contended, were intended to be used for protecting the interests of the lenders and do not amount to an assumption of responsibility by lenders towards protecting the interests of borrowers. The plaintiffs argued that the content of the lending guidelines did not equate with prudent lending practice and a departure from the guidelines did not establish a departure from prudent lending practice. 225 Mr Robertson stated that it was normal industry practice for Lo Doc lenders to seek to verify the terms of an applicant's self-employment by undertaking an ABN search and/or seeking that information for the applicant's accountant and "it was imprudent and neglectful of its own policy for Tonto to have processed, approved and settled loans without having undertaken such investigation…" Mr Robertson agreed in cross-examination that an experienced and prudent loan assessor would regard lending guidelines and manuals "as servants, not masters". On the issue of the ABN searches, he gave the following evidence (T 267 31/3/09 L 10-15): "Q. And in assessing the evidence a prudent loans assessor might proceed with an underwriting decision even if an ABN search had not been carried out. That must follow, must it not? A. No. It's so easy to do an ABN search, it's such a simple matter, and the absence of an ABN would start then to call into question some of the information provided in the application." 226 Whilst it is true that if ABN searches had been made in the cases of the Di Benedettos and Mr Tavares the contents of the ABN searches would have complied with the requirement of cl 18, the fact of the matter is that neither ABN searches were made nor were the borrowers' accountants contacted. If this failure to comply with the lending guidelines had occurred in one of the loan applications, I might have accepted Mr Brewster's opinion that it was an oversight but it occurred in all three. The failure to comply with cl 18.0 of the FirstMac Manual indicates that Mr Lougoon was not much concerned about the cross-claimants' employment status and was content to lend on the security provided and the mortgage insurance. 227 Mr Lougoon's evidence that it mattered little whether the ABN was in the name of Mr O'Donnell or Mrs O'Donnell is contrary not only to cl 18 but also to the PMI Lo Doc guidelines. Frankly stated, it offends commonsense. Mrs O'Donnell's ABN had been reactivated about two months previously and it could not provide any support for Mr O'Donnell's self-employment for two years. The absurdity of this evidence was further revealed in cross-examination when Mr Lougoon agreed that if he had been told that Mr O'Donnell's ABN had been cancelled, he would have enquired as to what the circumstances were which gave rise to the cancellation. If an ABN search in the name of Mr O'Donnell had been made by Tonto the deregistration of the ABN in July 2001 would have been revealed. An ABN search in Mrs O'Donnell's name, if it had been made by Tonto, would have disclosed its recent reactivation. To a reasonably prudent lender, these disclosures would have plainly indicated that the description of Mr O'Donnell's occupation as self-employed coffee shop sole trader for 5 years was at the very least unreliable and required further investigation. It is of concern that in such circumstances PMI provided mortgage insurance. 228 Whilst I accept that non-compliance with lending guidelines does not necessarily mean a departure from prudent lending practices, I accept Mr Robertson's opinion that a prudent lender would have made in the circumstances of each of the loan applications an ABN search. 229 In his affidavits in reply, Mr Robertson was of the opinion that a reasonableness test to loan approval could not be completed without having first obtained an ABN and GST registration search. Whilst I accept his opinion as to the ABN search, there was no requirement in the lending guidelines in 2003 about checking for GST registration which Mr Robertson conceded in cross-examination. I do not accept that a reasonableness test could not be completed without a GST registration search. 230 Although the O'Donnell loan and the Di Benedetto loan were approved by Mr Lougoon, these loan applications were transferred from FirstMac to Origin as there were insufficient funds in the FirstMac lending program at that time to finance the loans. Glen Wright, a credit manager, who held a delegated lending authority for Origin reviewed the loan files using the Origin lending guidelines and notified Origin that each loan application met Origin's requirements. Upon receiving confirmation from Origin, he then arranged for the mortgage insurance for each loan to be transferred to Origin. In his affidavits, Mr Wright sets out particularly at para 24 what he did when the loans were reviewed. Other than reliance upon his own experience, Mr Wright stated that he was influenced by the approval of the loans by Mr Lougoon under the FirstMac lending program and by the assessment and approval of the loans by the mortgage insurer. 231 Mr Wright had worked in the banking industry since 1978 and was FirstMac's credit manager in its Brisbane office from June 2001 to December 2003. He, like Mr Lougoon, had much experience in the lending industry. 232 Mr Wright was criticised by the cross-claimants for failing to comply with the lending guidelines in a number of respects. He agreed in cross-examination that he did not check to see whether the loan applicants were self-employed people "who were not in a position to provide full financial documentation at the time of the application" which was specified in the Overview to the Origin product guide for a Flexi Express Home Loan to which I have referred at [194] above. In this respect, when the loans to the O'Donnells and Di Benedettos were approved in breach of the Origin lending guidelines and the Origin DLA were not followed. As will be seen at a later stage in these reasons, the duties of conducting the loan interview and determining the suitable loan product for the customer were entrusted by Tonto in Streetwise. 233 Mr Menzies directed Mr Wright's attention to the Origin DLA that the action required to confirm self-employment included the obtaining of a "Certificate of Business Registration for sole proprietor or partnership and Certificate of Incorporation for a company". Mr Wright was unable to recall whether such confirmation was obtained or not and did not concede that had not been done although there were no documents in the two lending files to indicate that such enquiries were made. 234 When referred to the PMI Low Doc guidelines which required "verification of ABN, BAS and/or business registration" Mr Wright said that as PMI had approved the loans, he assumed that PMI had made their own enquiries. In further cross-examination on this issue, the following appears (T 449 L 25-31): " Q. The simple fact is, isn't it, you didn't exercise any judgment with respect to that matter, you merely accepted what you understood somebody else had done? A. Yes Q. Isn't that right? A. It sounds about right, yes." 235 It is evident that Mr Wright was significantly influenced by the fact that these loans had received the approval of the lender's mortgage insurers. 236 It seems from the plaintiffs' written submissions that there is a suggestion that cl 7 of the Origin DLA may not have applied to Lo Doc loans: see plaintiffs' written submissions at [276–278]. The Flexi Express Home Loan did not waive the requirement to confirm Mr O'Donnell's and the Di Benedettos' self-employment in accordance with the Origin lending guidelines and Mr Wright's DLA. Mr Wright was obliged to confirm that the applicants for the loans had been self-employed for two years and to be satisfied that their businesses "will continue for the term of the loan": see [196] above. Whilst what had been disclosed in the loan applications might have provided some indication of the length of self-employment, there was nothing that would provide satisfaction that the applicants' businesses in each case would continue for 30 years. I am satisfied from the absence of indication in the lending files of enquiries being made that no steps were taken to obtain a certificate of business registration or financial statements for Mr O'Donnell and Mr and Mrs Di Benedetto. I am also satisfied Mr Wright was content to rely on the prior loan approvals by Mr Lougoon and PMI and that he did not take any action to confirm the self-employment of the loan applicants. In these respects when the loans to the O'Donnells and Di Benedettos were approved, the Origin lending guidelines and the Origin DLA were not followed. 237 The plaintiffs argued that the cross-claimants had not established that Mr Wright acted imprudently. Particular reference was made to the lack of evidence from Mr Robertson on the issue of the certificate of business registration. Furthermore, it was argued that Mr Wright reasonably relied on the approval of the loans by Mr Lougoon and PMI and his approach was subsequently approved in a hindsight review by a Mr Gibson. A further contention was that it had not been established that the failure to obtain a certificate of business registration would have had any impact on the overall process. The plaintiffs pointed to the obtaining of ABN searches by PMI in connection with the Di Benedetto and O'Donnell loans. 238 It is true that Mr Robertson did not give evidence on the omission to obtain a certificate of business registration. Mr Robertson maintained throughout his testimony the opinion that a prudent lender would not have processed the loan applications without undertaking ABN searches. When he was asked by Mr Bell in cross-examination to make the assumption that a lender who was aware that a mortgage insurer conducted ABN searches might reasonably take that into account in deciding that the absence of an ABN search was not of itself sufficiently material to reverse an otherwise favourable underwriting decision, Mr Robertson agreed. Mr Robertson, however, at no time agreed that the assumption posed by Mr Bell was itself reasonable. 239 The Origin DLA required Mr Wright to obtain certificates of business registration or financial statements for self-employed persons, to confirm self-employment for 2 years and satisfaction that the business would continue for the term of the loan. He took no steps to confirm any of those matters. As Mr Robertson emphasised, the fact that a loan became insured "[did] not abrogate the prudent processing responsibilities of a lender". A reasonably prudent lender, in my opinion, would not rely on enquiries that might have been made by PMI or Mr Lougoon but would have undertaken those tasks in accordance with the DLA. The failure to comply with cl 7 of the Origin DLA indicates that Mr Wright was not much concerned about the cross-claimants' employment status and was content to lend on the security provided and the mortgage insurance. 240 Further cross-examination of Mr Wright followed on the purpose of the O'Donnell loan which was expressed to be "Purchase investment property". Mr Wright testified that he must have assumed that the purpose of investment for residential purposes was met by that description as most of the loan applications were for residential investment properties. When taken to the application for the Di Benedetto loan in which the loan purpose was described as "free up equity for investment purpose", Mr Wright agreed that loan purpose did not comply with a purpose described in the Flexi Express Home Loan. The purpose of a Flexi Express Home Loan was described in the Origin product guide as being for the purchase or refinance of owner occupied property or investment residential purposes. In this further respect when the loans to the O'Donnells and Di Benedettos were approved the Origin lending guidelines and the Origin DLA were not complied with. 241 The loan to Mr and Mrs O'Donnell contained the special condition as to "cash out" which is quoted at [70] above. The loans to the Di Benedettos and to Mr Tavares and Ms Rowe did not include a special condition restricting "cash out." 242 Mr Brewster explained a "cash out" to be a borrower's ability to "withdraw the funds without control or direction of the funder on the basis that the funder was not obtaining security over the investment to be purchased or acquired and that there was no requirement for any of the returns from the investment to be directed to the particular debt service obligations": Ex S (OD) at [77]. 243 Prior to settlement of the O'Donnell loan a facsimile dated 29 January 2003 was sent by Ms Lau for Streetwise to Bruce Chubert at Tonto which enclosed a letter from Bruce & Stewart solicitors addressed to Streetwise Pty Limited and to the attention of Kovelan Bangaru. The letter confirmed that the solicitors acted for Mr and Mrs O'Donnell in a purchase of a property from Michelle Downs and enclosed the front page of a contract for the purchase of 1 Yarribin Road, Kenthurst for $495,000. Mr and Mrs O'Donnell had neither sought to purchase this property nor had they instructed the solicitors. The front page was unsigned by the purported purchasers. The solicitor's letter appeared to be signed by "Gus Dib Senior Associate". The purpose of the facsimile was to satisfy the special condition which required any cash out component in excess of $100,000 "to be fully documented". 244 Mr Bassili recounted that it was the practice of Streetwise to forward a copy of one page of a contract to Tonto. He had discovered that in many cases the same contract was being forwarded to Tonto for a number of different investors. He described Gus Dib as Mr Bangaru's solicitor who often acted for Streetwise. 245 The documents forwarded to Tonto by Ms Lau plainly did not provide full documentation so as to satisfy the special condition of the loan. Mr Robertson opined that this incomplete document did not satisfy the loan condition. Mr Robertson agreed in cross-examination that in assessing the loan condition a lender in Tonto's position was entitled to give some weight to the representations made in the letter by a firm of solicitors that they acted for the O'Donnells who were purchasing real estate. His criticism was based upon his construction of the word "fully" in the special condition. He accepted that minds might reasonably differ about the matter. Mr Lougoon expressed the opinion that the front page of a contract for sale and a letter from a solicitor purporting to act for the purchaser did not represent full documentation. He said he would have requested a full signed copy of the contract for sale. 246 The plaintiffs argued that Mr Lougoon's opinion should be given little weight as he was asked to provide an opinion, in hindsight, about what he thought. Mr Lougoon was in fact asked to express an opinion based upon his background, knowledge and experience and I do not accede to this submission. 247 The special condition required that any "cash out" component in excess of $100,000 was to be "fully documented". Whilst someone in the under writing team may have regarded the documents provided as satisfying the condition, it seems to me, that the unsigned front page of a contract and the solicitors' letter could not reasonably be regarded as full documentation. A full, signed copy of the contract for sale was required. The cross-claimants have established that it was unreasonable for a prudent lender to consider that the special condition was satisfied on the documentation provided. The approach adopted by Tonto made it easier for the fraud by Streetwise to remain undetected. 248 In the case of Mr Tavares and Ms Rowe, a complaint was advanced for the cross-claimants founded on "cash out." Reference was made to the Tonto file notes of 16 April 2003 in the loan file that Streetwise was to be contacted concerning "cash out". Streetwise forwarded to Tonto on 6 May 2003 a copy of the front page of a contact for sale for a property known as 5 Tiffany Walk, Sanctuary Lakes. The vendors were described as Conrad and Penelope Helfrich with Mr Tavares and Ms Rowe as the purchasers of the property for $345,000. Mr Tavares and Ms Rowe had neither sought to purchase this property nor instructed solicitors to act on their behalf. The front page was unsigned by the purported purchasers. It was argued that this documentation did not satisfy a "cash out" restriction. Unlike the loan to Mr and Mrs O'Donnell, the loan did not include a special condition which required a "cash out" component to be fully documented and I reject this argument. 249 A further complaint by the cross-claimants was that Hunt and Hunt in the O'Donnell and Di Benedetto matters had failed to comply with the "Origin Documents and Procedures Manual". The first contention was that the Manual provided that where property was being purchased, the full contract of purchase must be examined to ensure that the sale is bona fide and no attempt was made by the solicitors to ensure that this guideline was complied with. The second contention was that the solicitors were required by the Manual to ensure that the purpose of the loan was satisfied which Hunt and Hunt had not done. 250 In the Tavares and Rowe proceedings, it was submitted that the FirstMac "Documents and Procedures Manual" for panel lawyers had an identical requirement which was ignored. 251 The Origin Manual required panel lawyers to "make reasonable enquiries to determine that loan proceeds are used for the purpose stated in Schedule 4":cl 15 at p 14; cl 3 at 16. When the loan was to assist the purchase of real estate panel lawyers were expected to check "the full contract for sale": cl 1 at p 15. Solicitors were expected to review the purchase contract to ensure the purchase price tallied with the "purpose" section of the instructions: p 19. The FirstMac Manual had an identical provision: p 12 "Searches and enquiries." 252 Mr Thorne explained that Hunt and Hunts' instructions from Origin and FirstMac were contained in a document called the "schedule 4". In relation to the O'Donnell loan the purpose stated on the Schedule 4 was: "Clients wish to re-finance existing CBA loan $6,000 (limit $20,000) and establish facility to purchase investment property in near future. Facility required $500,000 (66.67% LVR)." 253 In relation to the Di Benedetto loan, the purpose stated on the Schedule 4 was: "Free up equity for investment purposes." 254 The purpose on the Schedule 4 in the Tavares and Rowe loan was: "…to refinance ANZ bank loan $440,000…and surplus funds for investment purposes" 255 Mr Thorne stated that where the loan purpose was as general as the purposes stated in the Di Benedetto loan and the Tavares and Rowe loan, the purpose, use and application of funds tasks would be satisfied once the advance was paid out to or to the order of the borrowers, provided that such order was in writing and signed by them and the firm was in possession of the signed original of that document. Where, as in the O'Donnell proceedings, the loan purpose contemplated a payout for the purchase of an investment property in the near future without specifying the particular property to be acquired, Mr Thorne considered that purpose had been fulfilled when borrowers made a direct and purposeful authorisation of the use of the loan by nominating the amount for the purpose and an actual payee. 256 Given the instructions that Hunt and Hunt received in each case as the loan purpose, I am not persuaded that the solicitors were required to examine a full contract of purchase. 257 In the O'Donnell and Di Benedetto proceedings, Hunt and Hunt held written authorities which authorised the solicitors to disburse the balance of the loan advance to Streetwise Property and had been signed by the cross-claimants. In the case of Mr Tavares and Ms Rowe, Hunt and Hunt held a written authority signed by them, which authorised the disbursement of the balance of the loan funds to Streetwise Administration. In each case Hunt and Hunt disbursed the loan funds in accordance with the signed authorities. 258 Mr Robertson was critical of this practice. He opined that in all the years of his experience in mortgage broking and banking, he had not known a lender to allow the net proceeds of a loan to be paid to anyone but the borrower or to his nominated solicitor's/conveyor's trust account where borrower was using a property already owned by him as security for a loan. In cross-examination, he expressed the opinion that a prudent lender must disobey a mandate by the borrower in respect of the proceeds of the loan unless it involved payment to the borrower or to the borrower's solicitor. Mr Brewster did not agree with Mr Robertson. He was of the opinion that at the time of the settlement of loan, a funder would pay on the written direction of the borrower if that direction was not inconsistent with the loan purpose stated in the loan application. There was no evidence adduced by the cross-claimants of an expert nature which suggested that the practices adopted by Hunt and Hunt did not accord with practices of reasonably competent solicitors in 2003. Mr Robertson was not qualified to express an opinion of that nature. 259 It should not be overlooked that Hunt and Hunt were acting in accordance with the cross-claimants' directions. The cross-claimants were content at the time of the loan settlement in each case to have the money paid to Streetwise to enable the joint venture to proceed. It is apparent that if the settlement monies had been paid directly to them, they would have paid the money to Streetwise. Furthermore, if the solicitors had gone behind the written authority and sought confirmation from the cross-claimants of their directions, I have no doubt that at the time of settlement Hunt and Hunt would have been directed by the cross-claimants to pay the money to Streetwise. 260 I am not persuaded that Hunt and Hunt should have disobeyed the mandate provided by the borrowers. I am not satisfied that the solicitors breached the guidelines to solicitors by acting in accordance with the written instructions. 261 It is important to observe that there is no evidence which suggests that when approving the loan applications either Mr Lougoon or Mr Wright were contacted by Mr Bangaru or anybody else on behalf of Streetwise. Mr Lougoon and Mr Wright gave evidence that John Narramore had no influence on their decisions to approve the loans. Furthermore, I am not satisfied on the probabilities that either John Narramore or anybody else on behalf of Tonto pressured or influenced them to approve the loans in each of the proceedings. Mr Narramore's role will be dilated upon when the relationship between Tonto and Streetwise is considered. The relationship between Tonto and Streetwise 262 An important witness for the cross-claimants in seeking to prove the nature of the relationship between Tonto and Streetwise was Robert Bassili. Of particular importance was his account of conversations between Kovelan Bangaru and John Narramore. Mr Narramore worked with Tonto as a salesman whose role was to recruit mortgage brokers who were specifically involved in servicing the property investment market. 263 In his affidavit sworn 22 November 2007 Mr Bassili stated that Streetwise had operated as a mortgage originator for Macquarie Securitisation Limited which arrangement ceased in late 2001 to early 2002. Mr Bangaru told him that a new funder was needed. Mr Bassili recounted conversations between Mr Bangaru and Mr Narramore during which Mr Narramore said words to the effect of [para 31]: " We'll work together as a partnership. Tonto can finance all the clients. We can specialise, so you don't have to worry about loans being approved. We can have loans approved in two weeks, if we need to push something through. We have done it before." 264 Mr Bassili stated that Mr Narramore used the terms "partner" or "partnership" on several occasions in his discussions with him, in particular after the first one or two months of the commencement of the relationship with Tonto. He further recalled Mr Narramore telling him that the Origin lending program did not require mortgage insurance. 265 The account given by Mr Bassili of Mr Bangaru's first meeting with John Narramore includes at paras 51-52: " Ko said words to the effect of: 'We want to move forward, and give loans to Tonto. There are a few conditions however. The first condition is that Tonto must never speak to the customers' John said words to the effect of: 'We normally don't do that. We normally verify everything with the borrowers. I'll need to talk to Kim Cannon, but I think it will be okay.'" And at paras 57-58: "Ko said words to the effect of: 'The third condition is that I don't want any loan declined until you have spoken to us' John said words to the effect of: 'Okay'". 266 Mr Bassili recalled, at the next meeting, Mr Narramore saying that he had spoken to Kim Cannon and they were ready to move forward with the conditions that had been discussed. Mr Bangaru replied with words to the effect of: " I do not want you to speak to borrowers ." 267 He said Mr Bangaru repeated this at most meetings with John Narramore. 268 After the second meeting, Mr Bassili said that Mr Bangaru was sent the Tonto Introduction Deed (the Introduction Deed) and other documentation which Mr Bangaru signed. A schedule of commissions was read in conjunction with the Introduction Deed. Mr Bassili related that Streetwise received 1 per cent of the loan amount upfront as commission, then 2.5 per cent for the life of the loan. 269 What was referred to as "branding of the loans" was discussed at the first meeting and then about three to four months later. 270 An account of a conversation between Mr Narramore and Mr Bangaru on this topic appears at paras 89-93 of the affidavit: "…Ko and John discussed the issue of branding the loans. Ko said words to the effect of: "We want to brand our loans. The clients are being confused. They deal with us, but then they receive letters from Tonto. They don't know who Tonto is. I don't want Tonto contacting them until after settlement." John said words to the effect of: "We need to contact them after settlement about the accounts." Ko said words to the effect of: "That's fine. You can talk to them after settlement, but not beforehand." Ko also said words to the effect of: "Can the application forms, the correspondence and statements be branded Streetwise?" John said words to the effect of: "Yes we can organise that the application form and pre-settlement correspondence is okay, but the post-settlement correspondence will need to be branded Tonto. We need to deal with the borrowers after settlement. They become our client at that point." 271 According to Mr Bassili Streetwise was asked by Mr Narramore to send a jpeg file containing the Streetwise Group's logo. This was then placed on the loan application form by Tonto and loaded onto Tonto's web-based system. Mr Bassili stated that it took approximately six months from the time of the first loan until the loans were branded with the Streetwise logo. The loan applications were downloaded from Tonto's web-based system and printed at the Streetwise office. Prior to that time, the loan application and correspondence contained Tonto's logo. Mr Bassili stated that Streetwise faxed the loan applications to Tonto. The information was also entered electronically into the Tonto system by Streetwise. Streetwise employees logged in online to access the loan application and to track its progress. 272 Mr Narramore had been told by Mr Bangaru that Streetwise was funding loans around $20 million per month which business Mr Narramore said he would like to get. Mr Bassili recalled complaints by Mr Narramore that Tonto had been receiving at best $2 million a month to which Mr Bangaru responded with the promise that Streetwise would send more business. According to Mr Bassili, it was during this conversation that Mr Bangaru said to Mr Narramore words to the effect of [para 45]: " We want to now concentrate on being property developers. You guys do the finance. We will give you the business of the investors buying our developments. We will gradually give you more business." 273 Shortly after the Introduction Deed was signed, Mr Bangaru, according to Mr Bassili, told Mr Downs, Mr Di Sano and Mr O'Brien that Tonto has "assured us that they will approve all the loans" and he wanted all loans to go through Tonto. Mr Bassili estimated that approximately 95 per cent of all loans Streetwise processed went to Tonto. 274 Mr Bassili recalled, when there were loans that Tonto did not wish to approve, conversations which ensued between Mr Bangaru and Mr Narramore during which Mr Narramore was told to tell Kim Cannon that he wanted these loans approved or he would lose all of Streetwise's business. On one or two occasions, when Mr Narramore called back, Mr Bassili stated that he heard Mr Narramore say: " The loan's been approved. We're concerned about getting as many loans funded as possible. They are just interested in loans that fit the box. If it doesn't fit they'll decline it. If it happens again, just call me." 275 Mr Bassili's credibility was attacked by Mr Bell during cross-examination. He had been sentenced in the District Court to imprisonment for fraudulent misappropriation and dishonest conduct unrelated to the matters involved in these proceedings. Mr Bell put to him that he had given false evidence on oath favourable to the cross-claimants because he believed that by assisting the cross-claimants' solicitors he would be likely to reduce the length of his custodial sentence which he denied. He agreed that he had offered assistance to ASIC in respect of the prosecution of Mr Bangaru and a letter from the cross-claimants' solicitors had been tendered during the proceedings on sentence. 276 Much of the conversations between Mr Bangaru and John Narramore recalled by Mr Bassili were disputed by Mr Narramore. In an affidavit sworn 15 April 2008 (ex Q (OD)) he denied using the terms "partner" or "partnership" when dealing with Streetwise nor did he ever make the statement that "you don't have to worry about loans being approved" or that "Tonto can finance all the clients". He described Streetwise as being a client of Tonto. 277 In cross-examination by Mr Menzies, he agreed that it was likely that he might use in his sales pitch words to the effect that he and Streetwise would be "working together" or "part of a team". 278 In his affidavit Mr Narramore related that Mr Bangaru would often call him very aggressively demanding that he instruct Tonto staff to "approve loans and do it quickly" but denied ever attempting to instruct Tonto staff to approve Streetwise loans. He stated that there was effectively a "Chinese wall" between sales and credit manager staff whom he neither had access to nor contact with. 279 Mr Lougoon said that at no time had John Narramore spoken to him during the entire time of his employment by FirstMac. He was not aware of any 'partnership' between Streetwise and Tonto or FirsMac. He had never been told by any person to contact Streetwise before declining a loan application sourced from them nor was he aware of Streetwise being treated differently to other brokers. Noboby at Tonto had put pressure on him to approve a loan. 280 Mr Wright said that whilst it was possible that he may have spoken to Mr Narramore about a loan file on some occasions, it would have only been because Mr Narramore was impatient to know the progress of loans. He stated that at no stage did Mr Narramore influence any of his loan decisions. 281 In an affidavit in reply, sworn 8 July 2008, Mr Bassili recounted conversations between Mr Bangaru and Mr Narramore during which Mr Narramore said he would speak to Glenn Wright who worked at Tonto's credit department after which Mr Narramore would call back and say that the loan had been approved. Mr Narramore in response denied what was asserted by Mr Bassili and stated that he had no ability to influence Glenn Wright nor any decisions that he made. 282 Mr Narramore recounts at para 69 of his affidavit that he did not recall Mr Bangaru telling him that Tonto was not to speak to customers "under any circumstances". He states: "If it was said, I certainly would not have agreed to it." 283 In cross-examination by Mr Menzies, Mr Narramore agreed that Mr Bangaru had imposed as a condition of Streetwise "coming on board" that Tonto was not to speak to the broker's customers. Mr Narramore was taken by Mr Menzies to an email sent by him on 19 June 2002 to Mr Bangaru which included "We will not contact your client pre-settlement." In further cross-examination he gave the following evidence (T 477 L 20-44): "Q. Well, if that is so, then why did you say in your e-mail to Mr Bangaru which I have taken you to at page 647, "We will not contact your client pre-settlement"? Isn't that an assurance that pre-settlement you would not contact the client? A. That's an undertaking but it's not an assurance. Q. An undertaking? A. Yes. Q. I see. Help us with the difference between an undertaking and an assurance? A. Well, an undertaking is that generally we had agreed that we would not do that but there can - I - I was incapable of making assurances that that would always be the case. Q. Tell me where one finds "generally" in the sentence, "We will not contact your client pre-settlement"? A. I can't see that. Q. Not there, obviously. So, what, is your idea of an undertaking something that you can sometimes say you will do but other times you won't? Is it sort of flexible undertaking, is that what you are saying? A. Yes, I am." 284 Mr Narramore had earlier agreed that the email represented after the completion of negotiations what he was prepared to offer to Mr Bangaru to get his business. The email had been forwarded to Kim Cannon and to Paul O'Donnell. 285 Streetwise, Mr Narramore stated, was never given any say in the loan application process, nor was there an agreement that they would have a say. As to the "branding of loans", Mr Narramore recalled at paragraph 115 of his affidavit agreeing with Streetwise that the preliminary and final letters of approval and the loan application could bear the Streetwise brand and stating that all post-settlement correspondence was to be issued with Tonto's brand. This was, he stated, not unique to Streetwise. The branding of loans was contemplated on the broker application form on which the applicant could nominate how the loan products and documentation were to be branded. 286 It was Mr Narramore's recollection of the conversation recorded at paragraph 45 of Mr Bassili's affidavit that Mr Bangaru told him that the main business of Streetwise was to build and develop properties for sale to its clients. Mr Narramore denied that he was aware of any joint venture arrangements between Streetwise and its clients. 287 In his affidavit in reply Mr Bassili recalled at paras 110-115 attending a meeting with Mr Bangaru and John Narramore during which Mr Narramore was shown a copy of a written joint venture proposal contained in "Project Analysis" of the Battle Boulevard property. Mr Bassili also recalled Mr Bangaru explaining to Mr Narramore Streetwise's marketing strategies. Mr Narramore at paragraph 16 of his affidavit in reply sworn 2 April 2009 denied that he was ever shown any joint venture agreements by Mr Bangaru. He stated that he was not aware of any joint venture arrangements being the subject of loan applications submitted by Streetwise to Tonto. 288 During cross-examination, Mr Narramore was questioned about the following which appears in the email of 19 June 2002: " I think you have seen that we can deliver for you; with the bank product range we have together with the relationships we have with these lenders and can leave all the control that you want with you or carry out these procedures for you and give you a live "window" into our system. This way you will still have absolute control at your end. We will train your nominated people on this system and they will be able to monitor and report back to you at any time on any loan. YOU WILL STILL BE ABLE TO ENQUIRE ABOUT ANY LOAN IN YOUR OWN OFFICE AT ANY TIME WITHOUT HAVING TO CALL ANYBODY." 289 Mr Narramore in his oral testimony said that what was meant by "a live window into our system" was a live window into Tonto's processing system so that the broker could monitor the progress of the application. However, the broker could neither make comments nor generate documents. The reference to "absolute control at your end" was to administrative control of the loan application. When cross-examined about entries by Streetwise in a FirstMac customer history. Mr Narramore agreed it appeared that Streetwise had more than a window into Tonto's system but was able to make enquiries and communicate those enquiries to Tonto. 290 When asked by Mr Menzies what he meant by the words who do you want the client to call and if it is us do you want them to be answered by "Streetwise" which appear in an email he had sent to Mr Bassili on 15 April 2002 Mr Narramore said that he was referring to pre-settlement conversations. He did not consider that it was an extraordinary circumstance or a matter of concern that he was inviting Streetwise to set up an arrangement that when Streetwise's client rang that Tonto would pretend to be Streetwise. 291 On the issue of whose evidence was to be accepted the plaintiffs submitted that Mr Bassili had an incentive to give false evidence for the cross-claimants as he thought it might assist him in the District Court proceedings by helping to persuade the sentencing judge that he had good prospects of rehabilitation. It was contended that he was 'rewarded' for his assistance to the cross-claimants as their solicitors had furnished a letter in support at his sentencing hearing. Where there was conflict between Mr Bassili's evidence and the evidence of witnesses for the plaintiffs, the plaintiffs argued that its witnesses should be preferred and no weight should be placed on his evidence unless corroborated by contemporaneous and reliable documents. The letter from Champion Legal which was tendered during Mr Bassili's sentencing proceedings is dated 16 July 2006 (ex A). On the other hand, the cross-claimants submitted that Mr Bassili's evidence should be accepted. Mr Menzies in oral submissions contended that Mr Narramore was an "obdurate" witness who at times had refused to re-consider his oral evidence even when it was pointed out to him there were differences between what he had said and what was stated in his affidavit. 292 There is no evidence that Mr Bassili's sentence was discounted for past or future assistance in these proceedings. Mr Bassili did say in his oral testimony that to his knowledge the Judge gave him a 5 per cent discount for the offer of assisting ASIC. The Judge's sentencing remarks were not tendered. It seems that Mr Bassili was under no obligation to give evidence in these proceedings such that could give rise to a loss of a sentencing discount if he failed to honour an undertaking. 293 In any event, there were aspects of his oral testimony which I found to be unsatisfactory. His evidence of his knowledge of the ownership of the Narre Warren property, which he showed Mr and Mrs O'Donnell, was plainly disingenuous as was his testimony concerning the provision to the O'Donnells of a copy of the Tonto Home Loans Personal Information Collection Statement. Mr Bassili gave me the distinct impression that he intended to distance himself as far as possible from any wrongdoing. To my mind, it is necessary to approach his evidence with caution. My overall perception of his honesty and reliability as a witness is that his testimony could not be accepted without the support of independent evidence. Some of his evidence found support in the emails from Mr Narramore. 294 John Narramore dissembled at times in his account of the relationship between Streetwise and Tonto and was reluctant to accept there were differences in his oral testimony and the affidavit material. All of his evidence could not be accepted without question. I do not in particular accept Mr Narramore's evidence that not contacting Streetwise's clients was a "flexible undertaking". It is evident that the condition imposed by Mr Bangaru that Tonto would have no contact with borrowers introduced by Streetwise until after the loan had been settled was accepted by Tonto. 295 On 10 April 2002 Streetwise Loans entered into the Introduction Deed with Tonto. Streetwise had been required by Tonto prior to that time to submit a broker application form providing brief information in relation to its business and to confirm its professional indemnity cover. Paul O'Donnell explained in his affidavit sworn 1 May 2008 (ex M (OD)) that the Introduction Deed was a standard form of agreement between Tonto and mortgage brokers. The Introduction Deed defined Introducer's Agents to mean: "Any employee or contractor of the Introducer, or any other person who is in any way directly or indirectly concerned with the introduction of Loans by the Introducer to Tonto." 296 Clause 2.1 was as follows: " Introduction of loans The introducer will endeavour to introduce Loans to Tonto which comply with the Terms. The Introducer must provide in writing to Tonto all information required by Tonto from time to time to consider an application for a loan. The introducer must use its best endeavour to ensure that information is accurate." Approval of loans "Tonto will endeavour to obtain approval for Loans through one of the programs. No obligation to make a Loan must be created until a formal loan approval is obtained." 297 Clause 2.4(a) required Streetwise to introduce loans "in an efficient and businesslike manner and in accordance with sound business practices". The sub-clause further provides: " The introducer must take such steps and maintain such procedures as would be taken and maintained by a reasonably prudent mortgagee in connection with the introduction of each Loan. In particular, the Introducer must ensure that prospective borrowers and guarantors are not misled or misrepresented to in anyway." 298 By clause 2.5 Streetwise was obliged to comply with all reasonable directions of Tonto in performing its duty as an introducer of loans and was required to promptly provide Tonto with any information required by Tonto from time to time. Clause 2.6 mandated that Streetwise "must not without the prior written consent of Tonto create any legally binding obligation on Tonto in relation to an actual or proposed loan or otherwise." Clause 2.7 required Streetwise not to encourage borrowers to repay a loan early or to refinance a loan. 299 Clause 3 provided for the "Relationship of Parties". Clause 3.1 was as follows: " No Partnership Nothing in this deed creates the relationship of partnership or servant or agent". 300 Clause 3.2 required Streetwise and Tonto to "maintain confidential" the terms of the Introduction Deed which included the arrangement that Streetwise may receive commissions. 301 Clause 4 provided for the payment of fees by Tonto to Streetwise and clause 5.1 provided for Streetwise to indemnify Tonto for any loss suffered by Tonto as a result of any action by Streetwise in introducing loans to Tonto. 302 Paul O'Donnell disagreed with Mr Bassili's evidence of the amount of commission paid by Tonto. He stated that Streetwise was required to sign a "Recipient Created Tax Invoice" which enabled Tonto to prepare tax invoices on behalf of Streetwise in relation to commissions payable to Streetwise. His recollection of the commission offer at about the time Streetwise signed the Introduction Deed was 1.25 per cent of the loan amount as an up front payment and the broker was not paid a trail. He did, however, recall that trailing commissions were paid at some stage. 303 Paul O'Donnell stated that John Narramore was not capable in his dealings on behalf of Tonto of creating any sort of partnership relationship with any other entity. Furthermore, Tonto did not form a partnership or other relationship other than that of a traditional mortgagee and broker with any other entity whilst he was the general manager. He recounted that brokers commonly made ultimatums to have loans approved quickly but the broker had no impact on whether or not a loan was approved. Demands from brokers that Tonto refrain from contacting the broker's client were commonly made to him. In his experience the reason for that was the broker was very protective of their client relationship with which the broker did not wish the originator or lender to interfere. 304 Paul O'Donnell recounted that Streetwise was not consulted or permitted to have any say or influence in credit decisions that Tonto and FirstMac made. He explained that the reason that certain documents were permitted to be branded with the broker's logo was because it was the broker who had the relationship with the client. At the point of issuing preliminary and final approval letters, neither Tonto nor FirstMac had a relationship with that broker's client. He denied that Tonto had agreed it would approve all loans submitted by Streetwise and stated that the FirstMac Group did not agree to anything of that nature. He stated that the only agreement between the FirstMac Group and Streetwise was in the terms of the Introduction Deed. 305 Paul O'Donnell was less than frank when he confined in his affidavit the agreement between Streetwise and Tonto to the Introduction Deed. He acknowledged in his oral testimony that Tonto had agreed not to talk to a Streetwise client prior to settlement. On that issue, Mr O'Donnell gave evidence as follows (T 354 L 1-40): " Q. So in any event, regardless of the reason, you accepted the proposition that you wouldn't deal with the borrowers in the case of the Di Benedettos, the Tavares and the O'Donnells? A. We wouldn't deal with them until they have settled. Q. Until they have settled? A. Yes. Q. Of course the inevitable concomitant of that is that you are in the hands of the broker to carry out a number of the tasks to ensure that the guidelines are being complied with? A. Correct. Q. And you, as we understand it, accepted on trust that which the broker did and effectively said? A. Yes. Q. And one of the inevitable consequences of that was that you deprived yourselves of the opportunity of considering the borrower face-to-face? A. Yes. Q. So that when it came to any assessment of the borrower as an individual you were reliant entirely upon the documents? A. Yes, and also any other enquiries we wanted to make. Q. Of course. A. So any other enquiries around those documents. Q. But the other enquiries you made all related back to the documents, or some documents? A. Yes. Q. And you took yourself out of the arena, for the reasons that you have told us, of talking to the borrower? A. Yes. Q. But you accept, do I take it, that doing that involved a degree of risk because of the matters that we have been talking about? A. Yes." 306 Mr Menzies closely cross-examined Mr O'Donnell on the terms of the 19 June 2002 email from Mr Narramore to Mr Bangaru. When asked about the offer that Tonto would not contact a Streetwise client prior to settlement, he testified that "it was part of our value proposition offered to brokers". In further cross-examination, Mr O'Donnell gave the following evidence (T 365 L 48 to end T 366 L 1-10): "Q. Well, how was it a value proposition? A. I think it gave - well, from what we understand from brokers, it gave them a - an ability to be closer with their clients and as though they are looking after them further in the process. Q. Did you give any consideration to the proposition that the persons who were borrowing the money might well be misled or confused about the process they were involved in? A. I am sure there would have been some consideration put into that. Q. That consideration having been made, a decision was apparently made to continue, is that right? A. Yes." What then were the facts that founded the relationship between Streetwise and Tonto? 307 I am satisfied on the probabilities that: (a) Streetwise Loans entered into the Introduction Deed with Tonto on 10 April 2002. (b) In addition to the terms of the Introduction Deed, Tonto agreed: (i) not to contact borrowers introduced by Streetwise until after the loan had settled. (ii) to brand loan application forms and letters confirming preliminary and final approval of loans as Streetwise. For this purpose, a jpeg file containing the Streetwise Group's logo was placed on the loan application form by Tonto and loaded onto Tonto's web-based system. (iii) that Streetwise would have absolute administrative control of the loan applications. For this purpose, Streetwise was provided with a 'live' window into Tonto's processing system which enabled Streetwise staff to make enquiries about the progress of the loan applications made by Streetwise clients and to communicate those enquiries into the Tonto system. (iv) to pay commission to Streetwise on each approved loan introduced by Streetwise. For this purpose, Streetwise signed a "Recipient Created Tax Invoice" which enabled Tonto to pay tax invoices on behalf of Streetwise in relation to commissions payable to Streetwise. (v) that Streetwise could recommend valuers for the Tonto panel. (c) Tonto offered to answer telephone calls from Streetwise's clients in the name of Streetwise. Tonto also required Streetwise to have professional indemnity insurance. (d) I am satisfied that Tonto knew that Streetwise was a property developer whose main business was to build and develop properties for sale to its clients. 308 In each of the proceedings Tonto did not deal with the cross-claimants until the loan had settled. By agreeing not to contact borrowers until after the loan had settled, Tonto had entrusted in Streetwise the responsibility under the Origin lending guidelines and FirstMac Lending Manual of: (a) conducting the loan interview, discussing the loan options and determining the suitable loan product for the customer; (b) advising the customer about the loan approval process and providing the customer with the appropriate information; (c) assisting the customer with the preparation of the loan application; and (d) obtaining the supporting documentation. 309 Nobody at Streetwise explained to the cross-claimants that they were applying for a Lo Doc loan or what was meant by a Lo Doc loan. There was no discussion about other loan options or loan products. Streetwise did not make enquires of or make loan applications on behalf of the cross-claimants to lenders other than Tonto. No attempt was made by Streetwise as a finance broker to find the best deal for its clients. 310 It is apparent from the evidence of Mr Lougoon and Mr Wright that no effort was made by Tonto to determine if the cross-claimants were eligible for the Origin or FirstMac Lo Doc loans as being self-employed applicants who were not in a position to provide "full financial documentation" at the time of the loan application. I am satisfied that Tonto relied upon Streetwise to determine whether the cross-claimants were eligible for Lo Doc loans and assumed because the loan applications were made through Streetwise that the cross-claimants fell within the product guidelines of eligibility for Lo Doc loans. The true position was that the cross-claimants were able to provide copies of income tax returns and other financial documentation. A Lo Doc loan was not a suitable loan product for them. The applications for Lo Doc loans should not have been made on behalf of the cross-claimants to Tonto. 311 As is evident from the passage of cross-examination of Paul O'Donnell by Mr Menzies quoted at [305] above, Tonto was aware that its agreement with Streetwise created a risk in respect of compliance with the lending guidelines and the reliability of the information provided in Lo Doc loan applications. Tonto knew that Streetwise was a property developer whose main business was to build and develop properties for sale to its clients. Furthermore Tonto was aware that loan applicants might be misled but nevertheless proceeded with the arrangement. 312 Mr Robertson stated in his report dated 22 October 2007 at [p 9] "there are a variety of lenders and mortgage managers which establish forms of 'branded' loan programs with mortgage brokers – it is quite a common practice". The view supporting branding Mr Robertson related was that "it gives the broker better 'ownership' of the customer with the view to further business dealings over time." Paul O'Donnell's explanation for the agreement between Tonto and Streetwise as to the branding of loan application forms and preliminary and final letters was consistent with Mr Robertson's evidence. The problem with this practice is that it focuses on the commercial interests of the mortgage broker and the lender and has the potential to mislead the borrower. 313 At the time the loan application form was signed, Mrs O'Donnell enquired of Mr Bangaru whether the loan was coming from Streetwise. It is not to the point that Mrs O'Donnell subsequently became aware prior to settlement that Permanent was the lender. At an important stage of the O'Donnell's dealings with Streetwise, the branding of the loan application form as a Streetwise document assisted Mr Bangaru to dishonestly mislead Mr and Mrs O'Donnell. 314 It is more likely than not that the branding of the documentation as Streetwise supported the impression that all the cross-claimants had that Streetwise was a business of substance with whom they could enter into a joint venture and borrow on the security of their family homes for that purpose. 315 I am not satisfied on the balance of probabilities that: (1) Tonto had assured Mr Bangaru that Tonto would approve all applications from Streetwise. If that had been the case, there was no necessity for Streetwise to enter false information as to their clients' financial circumstances in the loan applications and income declarations. There was no other evidence which supported Mr Bassili's recollection of what was said by Kovelan Bangaru about Tonto's assurance. (2) Mr Narramore was shown a copy of the Project Analysis for the Battle Boulevard property. The copy of the document, which is annexure D to Mr Bassili's affidavit in reply, bears a date of 10 January 2003. It seems that this is a copy of the project analysis provided to Mr and Mrs O'Donnell. Whilst Mr Bassili stated that a generic copy of this document was shown to Mr Narramore, it is remarkable, in my opinion, that there is no reference in any of the emails and other documentation between Streetwise and Tonto to joint venture proposals. Mr Narramore left Tonto in about September 2002. For the same reason I am not satisfied that Tonto was aware of the joint venture agreements between Streetwise and the cross-claimants. (3) Mr Narramore nor anybody else on behalf of Tonto influenced Mr Lougoon or Mr Wright to approve loan applications from Streetwise. (4) Tonto knew that Streetwise was contributing to the loan payments. The evidence for the cross-claimants that Tonto actually knew that Streetwise was making payments on the loans amounts to no more than an assurance by Mr Bangaru to Mr Di Benedetto that Tonto and Kim Cannon knew that Streetwise was paying the loan and a belief formed by Mr Tavares after his conversation at Streetwise's office on 6 February 2003. 316 I accept Paul O'Donnell's evidence that the letter dated 11 February 2003 on Streetwise letterhead which was sent to Mr and Mrs O'Donnell but contained the electronic signature of Kim Cannon as the Managing Director of Streetwise Loans was printed in error. None of the other cross-claimants received such a letter. 317 It is not suggested that Tonto was aware that Streetwise was falsifying the loan applications. Did Tonto expose the cross-claimants to the risk of fraud? 318 The cross-claimants put to me that Tonto used a broker with a clear conflict of interest which thereby exposed them to a serious risk of fraud. ASIC submitted that the lenders had chosen to conduct business in a way (Tonto's own business model) that elevated the risk of fraud occurring. Tonto was criticised for failing to detect the fraudulent conduct of Streetwise. The plaintiffs' argument on this part of the case was that the cross-claimants' contentions depended upon: (a) the hindsight maxim that because fraud was, or may have been, perpetrated against the borrowers, there must have been a risk of fraud and (b) the lender owed the borrower a 'duty' to guard against the risk of fraud, however real or remote. Furthermore, because the cross-claimants had properly refrained from attacking Lo Doc Loans, they would need to establish that there were greater risks of fraud in these three proceedings than ordinarily arose in a lender's Lo Doc lending. 319 The plaintiffs further put to me the fact that Paul O'Donnell knew the Streetwise was a developer did not mean that it was apparent from the outset that Streetwise was in a position of conflict between its interests and its client's interests. It only meant that, in addition to the commission Streetwise would likely obtain from an approval of a loan, it had an additional interest (coinciding with the borrower's interests) in seeing the loan approved. It was, the plaintiffs argued, the recognition of the broker's conflict of interest to the lender that lead to formal arrangements of the kind found in the Introduction Deed. The additional conflict between Streetwise's interest and the lender's interest did not suggest, of itself, that Streetwise was likely to defraud the lender by inserting false information in the loan application form. 320 In assessing the conduct of the various employees of the plaintiffs who played a part in these proceedings and the conduct of the cross-claimants care must be taken to consider the context before or at the time that conduct occurred. The relevant conduct, I recognise, is not to be seen through the "prism of hindsight": Rosenberg v Percival [2001] 205 CLR 434 at 441-442 [16]. At the time each of the loan applications in these proceedings was made, Tonto knew that Streetwise was not only a broker, but was a property developer whose main business was to build and develop properties for sale to its clients. Tonto knew that the business of Streetwise was not confined to being a loan introducer. It seems to me that it would have been obvious to a reasonably prudent lender possessed of that knowledge that Streetwise as a broker had a clear conflict of interest. The agreement between Tonto and Streetwise, moreover, extended beyond the Introduction Deed. By not agreeing to contact Streetwise's clients until after settlement, Tonto removed itself from the face-to-face interview process and confined its ability to seek verification or clarification from prospective borrowers of the material in the loan applications. Mr O'Donnell as I have found at [311] above was aware of the risk that the agreement created with compliance with the lending guidelines and the reliability of the information provided. 321 During his oral testimony, Mr O'Donnell said that he appreciated "in general terms" that like other brokers there was a risk of fraud in relation to Streetwise acting as a broker for clients seeking loans from Tonto: T 385 L 48-50, T 386 L10. In the circumstances where Streetwise had a clear conflict of interest, it would have been evident, in my opinion, to a reasonably prudent lender in Tonto's position that in applications for Lo Doc loans the risk of fraud was significantly enhanced by the agreement not to contact Streetwise's clients. I accept the cross-claimants' submission that Tonto used a broker with a clear conflict of interest which thereby exposed the cross-claimants to a serious risk of fraud. 322 These circumstances did not give rise to a fiduciary duty between Tonto and the cross-claimants: Micarone v Perpetual Trustees Australia Ltd (1999) 75 SASR 1 at [625]. No authority was cited by the cross-claimants or ASIC which suggests, in these circumstances, Tonto owed the cross-claimants a duty of care not to expose them to the risk of fraud. These are circumstances relating to the loan agreement and mortgage at the time they were made that are relevant to considerations of unjustness under the Contracts Review Act and to unconscionability. Whilst it might be for the lender to determine what enquiries it should make to verify information given in support of a loan application: Micarone at [625], it seems to me that adherence by a lender to its own guidelines has added importance where prospective borrowers are exposed to a serious risk of fraud. 323 A countervailing consideration is that the cross-claimants signed the loan applications and income declarations when they were blank or partially completed. As I have found, the cross-claimants' conduct exposed both themselves and the plaintiffs to the risk of fraud by Streetwise. Agency Argument 324 The further amended statements of cross-claim plead in the O'Donnell and Di Benedetto proceedings that Permanent appointed Tonto to act as its agent to promote Permanent and to advance Permanent's funds to members of the public. Tonto in turn appointed Streetwise Loans and/or Streetwise Property to act as its agent to promote Tonto and Permanent and to advance Tonto's and Permanent's funds to members of the public. Alternatively, the pleadings claim that Tonto held out Streetwise Loans and /or Streetwise Property to act as its agent to promote Tonto's and Permanent's funds to members of the public and to negotiate and act in respect of the advance by Tonto and Permanent of funds to members of the public. Streetwise Loans and/or Streetwise property, it is pleaded, thereby had ostensible authority to negotiate and act in respect of the advances. 325 In the Tavares and Rowe proceedings, the pleadings of the relationship of agency and ostensible authority are confined to Tonto and Streetwise Loans and/or Streetwise Property as the monies were lent under the FirstMac lending program. 326 As the submissions by the parties both in writing and in oral argument were extensive it is convenient to summarise them as follows. 327 The cross-claimants submitted that all of the elements of an agency relationship between Streetwise and Tonto exist in their cases. There was clear consent, approval and authority for Streetwise to carry out the loan interview and collation of documentation and to determine the eligibility of the borrowers within the Lo Doc guidelines which Tonto was otherwise required to do. The cross-claimants contended that Tonto, as principal, was deemed to have the knowledge of Streetwise, its agent. That knowledge included the actual financial position of each of the cross-claimants and that they could not afford or satisfy the repayment obligations of the respective loan agreements and mortgages. Tonto, it was argued, knew that the only manner in which the loan in each proceedings could be repaid was by the sale of the cross-claimants' family homes that had been provided as security. Tonto, therefore, knew that the loans were asset loans secured by family homes, being the only substantial asset of the respective cross-claimants. The cross-claimants asserted that this was asset lending which was liable to be set aside under the Contracts Review Act in accordance with the principles of Khoshaba. 328 ASIC supported the contention that Streetwise was the agent of Tonto at the very least for the purpose of assessing the borrowers' suitability for a Lo Doc loan, obtaining the information that Tonto needed in order to have the loan assessed including information about their income and assets and the purpose of the loan and confirming their identity. The evidence, ASIC submitted, established that Streetwise was the agent of Tonto and thus Origin. Tonto recognised that that may give rise to liability and sought a contractual indemnity, backed up with professional indemnity insurance from Streetwise. 329 ASIC contended that, even if Streetwise was not appointed the agent of Tonto by agreement, the knowledge of Streetwise was to be imputed to Tonto, and therefore Origin, as Tonto allowed Streetwise to hold itself out as the lender or the lender's agent. Particular reference was made to the branding of the loan applications, preliminary approval and final approval letters as Streetwise. ASIC submitted that Streetwise was knowingly allowed to portray itself as the lender or as acting on behalf of the lender. Streetwise was aware of the true facts with respect to the financial position of each of the borrowers. ASIC contended that if an agent with ostensible authority had the relevant knowledge the principal was estopped from denying that it also had that knowledge. Accordingly, the plaintiffs were estopped from denying that they possessed the relevant knowledge. 330 The plaintiffs referred to the arrangements between Streetwise and the cross-claimants. In the case of Mr and Mrs O'Donnell, they had executed an "Irrevocable authority to act as co-ordinator and project manager" on 23 October 2002 and an "Irrevocable Letter of Intent and Authority to Act" on 30 October 2002 which plainly indicated that Streetwise's role was to procure, for the purpose of the joint venture, the necessary finance. The former document, it was stated, made it clear that it was the O'Donnells' responsibility to bear the external costs including the financing of borrowed funds. 331 As to Mr Tavares and Ms Rowe, reference was made to the Deed of Investment which is dated on the first page 14 May 2003. The plaintiffs pointed out that this document casts the responsibility upon the borrowers to raise the capital for the joint venture and Streetwise was clearly intended by the borrower to assist them to procure the loan capital. Mr Tavares and Ms Rowe entered into the loan agreement on 22 May 2003. 332 In the case of the Di Benedettos, the plaintiffs referred to the Deed of Investment which Mr and Mrs Di Benedetto entered into with Streetwise on 5 March 2003 after the settlement of the loan agreement on 26 February 2003. The plaintiffs submitted that the Di Benedettos acknowledged in the document that it was their responsibility to raise the finance required for the joint venture but Streetwise Property was authorised to procure the loan capital. 333 It was contended by the plaintiffs that in each of the proceedings the relationship between Streetwise Property and the borrowers went beyond any traditional arms length association between broker and borrower by which the broker is conveniently classified as the borrower's agent. These associations were that of a joint venture whereby Streetwise Property owed fiduciary duties to the borrowers. This was said to re-enforce the conclusion that Streetwise was the borrower's agent and there was no actual agency between Streetwise and Tonto. 334 The plaintiffs referred to a uniform body of authority for the proposition that ordinarily a finance or mortgage broker is the agent of the borrower. It was argued that even if it be true that Tonto relied upon Streetwise to introduce Tonto to a prospective borrower, the authorities suggest that this, without more, would scarcely be enough to establish an agency relationship. The plaintiffs submitted that the Court should find that Streetwise was an independent contractor to Tonto, not an agent. On the cross-claimants' argument of actual agency the plaintiffs referred to the express declaration in the Introduction Deed that no partnership or agency was created by the agreement. Whilst conceding that term was not conclusive of the legal effect of the relationship, it was the best evidence of the intentions of Tonto and Streetwise. The plaintiffs contended that the obligations and responsibilities described in the Introduction Deed (particularly in cl 2) are consistent with the notion of Streetwise being a mere introducer of business to Tonto. Emphasis was placed upon Streetwise's inability in the Introduction Deed to create obligations on Tonto (cl 2.6). 335 During oral argument, Mr Bell submitted that the evidence was that an agreement not to contact borrowers was commonplace in the industry at the time which was relevant to the objective determination of the intention of the parties. It was merely part of the process of getting the broker's business and did not convert the relationship into one of agency. The plaintiffs further contended that Streetwise did not hold out to the cross-claimants that Streetwise was its agent for any relevant purpose. Was Streetwise Tonto's agent? 336 It is necessary at this point to dwell upon the law of agency. The existence of an agency relationship depends on the facts of a particular case: Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552 at pp 573, 587: Custom Credit Corporation v Lynch [1993] 2 VR 469 at 486. There are at least two essential elements of an agency relationship: the consent of both principal and agent and the authority given to the agent by the principal to act on the principal's behalf: see Dal Pont Law of Agency, 2nd ed, 2008 LexisNexis Butterworths at [4.3]. As Professor Dal Pont explains at [4.13] a third element of the principal's control over the agent's actions "is arguably neither crucial to agency nor is it independent of the authority element". 337 The relationship of agency may arise pursuant to the express or implied consent of both principal and agent. An implied agency may arise through the instruction or request by one party to another to carry out a task and the consequential undertaking of that task. Professor Dal Pont provides a convenient summary of the principles of implied agency at [4.7]: "The focus on intention dictates that the parties need not have actually used the language of agency for the law to infer that they intended to create an agency relationship. The parties may not even appreciate the legal concept of agency but may nonetheless create an agency relationship if what they have done is best reflected by the legal concept of agency. This may be so even if they profess to disclaim such relationship, whether by the terms of the contract between them or otherwise. 'An intention to create an agency may be manifested…simply by placing another in a situation in which, according to the ordinary rules of law, or…according to the ordinary usages of mankind, that other is understood to represent and act for the person who has so placed him.' It need not involve a positive act by the principal, but may be created by the principal's acquiescence. " 338 As can be seen, whether the relationship of agency exists does not depend on how the parties may have described their relationship. The terminology used will nevertheless be relevant to the determination of the parties' intention. 339 A finance broker is, however, prima facie the agent of the borrower: Morlend Finance Corporation (Vic) Pty Ltd v Westendorp [1993] 2 VR 284 at 308. In Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 the High Court (Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ) said at p 234: "... under the general principles of the law of agency, a broker is the agent of the assured, not the insurer…There will be rare circumstances in which a broker may also be an agent of the insurer, but the courts will not readily infer such a relationship because a broker so placed faces a clear conflict of interest between his duty to the assured on the one hand and to the insurer on the other." 340 The reticence to characterise finance brokers as agents has been demonstrated, as the plaintiffs point out, in the following factual circumstances: That the broker introduces a client to a lender: NMFM Property v Citibank (2000) 107 FCR 270, and the lender pays the broker's commission or fee for doing so: Octapon Pty Ltd v Esanda Finance Corporation Ltd (Supreme Court of New South Wales, Cole J, 3 February 1989, unreported) and the broker completes the lender's forms: Custom Credit Corporation v Lynch. 341 The position, however, depends upon the individual circumstances of each case. It is necessary to determine whether Streetwise and Tonto had agreed to what in law amounts to the relationship of principal and agent. In ascertaining what the true nature of their agreement was, I see little significance in the difference in recollections of Mr Bassili and Mr Narramore as to whether Mr Narramore may have used the term "partnership" or may have said that he and Streetwise would be "working together" or as "part of a team". Whatever terminology might have been used by Mr Narramore, it could not characterise in law the relationship between Streetwise and Tonto. 342 The terms of the Introduction Deed required Streetwise to endeavour to introduce loans to Tonto in an efficient and businesslike manner (cl 2.1) and in accordance with sound business practice. Streetwise as the loan introducer was obliged to ensure that prospective borrowers were not misled or misrepresented in anyway (cl 2.4(a)). Furthermore, Streetwise could not without the prior written consent of Tonto create any legally binding relationship on Tonto (cl 2.6). In the present proceedings, it is not suggested that the prior written consent of Tonto was sought. None of these clauses suggests that Streetwise was the agent of the lender. Clause 3 declared that nothing in the deed created a relationship of partnership or agency. Statements of this kind, as I have previously indicated, are not conclusive: Micarone v Perpetual Trustees Australia Ltd at [631]. 343 There are, however, obligations imposed on Streetwise by the Introduction Deed which could not be said to be in the interests of a borrower. Streetwise was obliged not to encourage a borrower to repay a loan early or to refinance a loan (cl 2.7) and to maintain the confidentiality of the terms of its agreement with Tonto which included the payment of commissions (cl 3.2). The duties of confidentiality and the prevention of loan 'churning' were owed by Streetwise to Tonto and were plainly against the interests of the borrower. They indicate a degree of control by Tonto over the actions of Streetwise. 344 As I have found at [307] above, the agreement between Streetwise and Tonto extended beyond the terms of the Introduction Deed. 345 The plaintiffs submitted that an agreement not to contact borrowers was commonplace in the finance industry at the time. On that issue Mr Narramore gave the following evidence: (T 465 L 49-50, T 466 L 1 –7) Q. You do say that in other circumstances other brokers have made not dissimilar sorts of requests? A. Yes. Q. They were in the context, were they not, of the brokers saying basically they wanted to keep control over their customers? A. Yes. Q. But I don't think, and correct me if I am wrong, in your evidence of your recollection of general conversations you were ever confronted with the proposition that Tonto was not to speak to broker's customers as a condition of the broker coming on board? A. Not as a condition, no. Q. But that was what Mr Bangaru sought to impose, wasn't it? A. As a condition of coming on board? Q. That's what he sought to impose, wasn't it? A. Yes. 346 Paul O'Donnell agreed in cross-examination that he had not recounted in his affidavits brokers saying "you are not to talk to your client". His testimony proceeded as follows: (T 352 L 32-50, T 353 L 1-2) Q. I take it, given the care that you took to prepare this document, the reason why you haven't included it is because they didn't say it? A. I don't recall whether they did or did not say it. Q. But you are aware, aren't you, that Streetwise made it a condition of their engagement with you that Tonto was not to talk to their clients? A. I'm aware that they have asked that, yes. Q. So this is right, isn't it, that Streetwise went some distance further than their competitors and said in terms don't talk to our clients? A. They did state that in an email I've seen, yes. Q. And my question, they went further than their competitors in the sense that they said in terms do not talk to our clients? A. They did in that case, yes. Q. And as you've told us, you have no recollection of any other of your brokers expressing themselves in those terms, have you? A. I don't, but it was part of our strategy to say to brokers when we were marketing to them that we won't talk to your clients. 347 Mr Robertson in his report dated 22 October 2007 did not specifically consider the agreement not to contact borrowers but stated that forms of "branded" loan programs were "quite a common practice". 348 Mr Brewster in his reports and oral testimony did not express an opinion as to whether an agreement not to contact customers was commonplace in the finance industry. 349 It is unclear whether such an agreement was a common industry practice at the time. I do accept, however, that there was general industry support for allowing brokers better "ownership" of their customers. What is clear is that Mr Bangaru imposed as a condition of the agreement with Tonto that Tonto was not to contact borrowers introduced by Streetwise. Tonto agreed to this condition to obtain the loans which would be introduced by Streetwise. 350 The responsibilities which Tonto entrusted in Streetwise included the conducting of the loan interview, the determination of the eligibility of the prospective borrowers for Lo Doc loans and the assistance of the customer with the preparation of the loan application. Although Tonto may have considered that it was in the commercial interests of itself and Streetwise (Mr O'Donnell's value proposition) to agree not to contact a Streetwise client prior to settlement, the consequence was that Streetwise represented and acted for Tonto in the performance of these duties. These were duties of particular significance in Lo Doc lending as full financial documentation supporting the loan application was not required and reliance was placed by Tonto upon the information in the loan applications and upon the declarations in the borrower income declaration forms. Both Mr Lougoon and Mr Wright relied on what was stated in the loan applications and income declarations as being true statements of the loan applicants' financial positions. 351 Mr Brewster in his report stated at [35]: "Lenders rely on the representations made by the borrowers that the income disclosed in the application is correct and may obtain a statement from the borrower confirming that they can meet their repayment obligations under the loan." 352 In cross-examination Mr Brewster gave the following evidence: (T 510 L 29-39): " Q. Let it be assumed, for the sake of this exchange, that the funder creates a model where the funder gives to somebody else that task and that person is given the task of conducting that interview and making those enquiries. If you assume that, the failure to ensure that that has happened would indeed be imprudent by the lender, wouldn't it, or the funder? A. Certainly that's not a credit issue. There would be an agreement, some form of documentary agreement between the mortgage manager in this case and the broker about expectations in terms of the way that the customer interface is conducted, but the funder relies on the information that is presented to it." 353 Streetwise plainly owed a duty to Tonto to ensure that the borrowers it introduced were eligible for Lo Doc loans and that the information in the loan applications and income declarations was correct as Tonto had agreed not to contact borrowers whereby it could have sought verification or clarification of the material provided. 354 The lending guidelines which directed the attention of credit managers to confirmation of a loan applicant's self-employment and to the purpose of the loan gave Tonto a degree of control over the actions of Streetwise. 355 The agreement to badge the loan application form and preliminary and final approval letters as Streetwise supports the inference that Tonto intended that Streetwise represent and act for it. The branding of loans in this way was certainly not intended to benefit prospective borrowers. Mr Narramore had with eagerness pursued Streetwise. It was part of the package that was intended to further Tonto's commercial interests by securing the introduction of loans from Streetwise and to benefit Streetwise by giving Streetwise "ownership" over its clients. 356 The conduct of Streetwise was not that of an independent finance broker. The cross-claimants were not advised of any potential lender other than Tonto nor were any steps taken to ascertain alternative loan sources. Streetwise was more than a loan introducer. Streetwise played, as ASIC submitted, "an integral part on behalf of Tonto and Origin in their loan approval and credit assessment process". In my opinion the facts of all three proceedings go beyond the cases cited by the plaintiffs and they may be distinguished. 357 The plaintiffs' argument that the relationship between Streetwise Property and the borrowers re-enforced the conclusion that Streetwise was the borrowers' agent has little merit. A particular focus of this argument was the agreement in the joint ventures that Streetwise would obtain the necessary finance for the developments. The joint venture agreements with the cross-claimants were entered into after the agreement between Streetwise and Tonto had been reached and any arrangement to obtain finance for the cross-claimants was in reality subject to that agreement. At no stage did Streetwise disclose to the cross-claimants the terms of its agreement with Tonto. 358 It is unnecessary to resort to a consideration of the MOMD and the definition of "Sub-Manager's Agents" found in cl 6.1 of the Sub-Introducers Deed to answer the question of agency: see [177] above. The facts and circumstances of these proceedings displace, in my view, the prima facie characterisation of a finance broker as the agent for the borrower. I have considered the possibility that Streetwise was the agent for both the lender and the borrower but do not make such a finding. Because of its confidentiality agreement with Tonto, Streetwise could not make it clear to a prospective borrower that it had been engaged as agent for the lender and obtain the borrowers' consent to its acting on both sides of the loan transaction. Streetwise could not serve two principals. 359 I conclude that Streetwise was Tonto's agent for those duties which Tonto had entrusted in Streetwise. Having reached this conclusion, it is unnecessary to deal with the issue of ostensible authority. Was Streetwise Permanent's agent? 360 The plaintiffs submitted that a finding that Streetwise was Tonto's agent would not translate to a finding that Streetwise was Permanent's agent for the same purposes. Although Origin's lending guidelines contemplated the performance by a broker of certain responsibilities, the plaintiffs contended that did not make Streetwise an agent of Origin. There was no evidence, it was argued, that Origin actually or ostensibly conferred authority upon Streetwise. 361 As has been explained at [188] above, the formal arrangements which governed the Origin Program are found in the MOMD and Sub Introducers Deed. Permanent held the assets of the Origin Program. By the MOMD Permanent, it is clear, had authorised Tonto to introduce loans and to manage the Origin Program. Notwithstanding cl 9.11 which declared that Tonto was an independent contractor, in my opinion, the true nature of the relationship was that of principal and agent. 362 Clause 4.1(b) of the MOMD contemplated that persons other than Tonto would be connected with the introduction and management of loans by imposing upon Tonto the obligation to ensure that such persons comply with Tonto's obligations under the MOMD. Clause 9.6 provided that such obligations were not assignable or otherwise transferable without the consent of Origin. Clause 3.1 of the Sub-Introducers Deed also contemplated that persons other than Tonto would be connected with the introduction and management of loans by requiring that Tonto indemnify Origin not only for all losses arising from Tonto's failure to comply with the Deed but for losses arising from sub-agents. The relationship between Streetwise and Tonto fell within the definition of "Sub-Manager's Agents" in cl 6.1. The result was that Permanent had authorised Tonto in its management of the Origin Program to appoint agents. The appointment of Streetwise as its agent was within the scope of Tonto's authority. In my view, Streetwise was Permanent's agent. Was the knowledge of Streetwise to be imputed to the plaintiffs? 363 The plaintiffs submitted that even if Streetwise was Tonto's agent, the relevant knowledge of Streetwise was not to be imputed to Tonto and Permanent. Streetwise had contractual obligations to Tonto to engage in sound business practices. Streetwise went far beyond a mere breach of these promises by procuring the provision of information to Tonto concerning the borrowers which it knew to be false for the purpose of persuading Tonto to make loans which otherwise it would not have made. Streetwise acted fraudulently to Tonto. The plaintiffs contended that if an agent acts fraudulently towards his principal or in breach of duty of his principal in relation to a transaction then the agent's knowledge cannot be imputed to the principal. The plaintiffs cited Re Hampshire Land Co [1896] 2 Ch 373; JC Houghton & Co Pty Ltd v Nothard, Lowe & Wills Ltd [1928] AC 1; Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch 250; Short v Crawley (No 30) [2004] NSWSC 1322 at [975]. 364 The cross-claimants' argument on this part of the case was that a principal is deemed to have the knowledge of its agent. Tonto thereby clearly knew the actual financial position of each of the cross-claimants and that they could not afford or satisfy the repayment obligations of the respective loan agreements and mortgages. Tonto, it was submitted, thereby knew that the only manner in which the loan could be repaid was by the sale of the cross-claimants' family homes that had been provided as security. Tonto therefore knew that the loans were asset loans secured by family homes, being the only substantial asset of the respective cross-claimants. The cross-claimants contended that a principal is responsible for all the acts of his agent within that agent's actual or apparent authority. The principal is not exempt from liability for the actions of the agent by reason of the agent acting in fraud on the principal or not for the benefit of the principal. Amongst the authorities cited was Lloyd v Grace, Smith & Co [1912] AC 716 at 738. 365 ASIC argued that given that the plaintiffs should be taken to have known the true facts which were known to their agent, it was difficult to perceive how there can truly be a fraud on the plaintiffs upon which they could rely against innocent borrowers. This was especially so where the lenders had chosen to delegate the suitability assessment and information gathering tasks to Streetwise, aware of the risk of fraud by such "brokers", and had taken no significant steps to check the assessment or verify the information. 366 The authorities cited by the cross-claimants support the general rule that a principal is liable for the fraud of an agent acting within the scope of his authority, whether not the fraud is committed for the benefit of the principal: Lloyd v Grace, Smith & Co per Lord Shaw at 740. 367 In each of the present proceedings, Streetwise fraudulently inserted false financial information in the loan application and income declaration. Tonto had no knowledge of the fraud. 368 Tonto had nevertheless authorised Streetwise to conduct the loan interview and assist the prospective borrowers with the preparation of the loan application. Streetwise committed, it seems to me, the fraud within the scope of its authority. Tonto was aware of the risk of entrusting these duties in Streetwise and is answerable for the manner in which Streetwise conducted itself. 369 The present argument, however, is whether the knowledge of Streetwise can be imputed to Tonto and Permanent. The basic presumption is that the knowledge of an agent is imputed to the principal. The authorities cited by the plaintiffs establish that there is a 'fraud exception' to the basic presumption; a principal is not imputed with the knowledge of facts known to the agent where the agent was committing a fraud upon the principal and the information known to the agent was relevant to the fraud. By the insertion of the financial information which Streetwise knew to be false, Streetwise committed a fraud upon Tonto (and Permanent). The difficulties in reconciling the fraud exception with the principle in Lloyd v Grace, Smith & Co have been recognised. In Nathan v Dollars & Sense Finance Ltd [2007] 2 NZLR 747 the New Zealand Court of Appeal rejected the fraud exception: per Glazebrook and Robertson JJ at [99] – [108]. 370 The development of the fraud exception in Australia, it seems, confines its application to an agent's fraudulent conduct which is totally in fraud of the principal. In Beach Petroleum NL & Claremont Petroleum NL v Johnson (1993) 115 ALR 411 von Doussa J said at [574]: " Provided that the director is acting within the scope of his or her authority, in civil proceedings the state of mind of a director ordinarily will be attributed to the company where there is a duty on that director to communicate his or her knowledge to the company. The exception to this rule is where the director is acting totally in fraud of the company, that is, where all the director's activities are directed against the interests of the company, and not partly for the benefit of the company. If the director is guilty of fraudulent conduct which is not totally in fraud of the corporation, and by design or result the fraud partly benefits the company, the knowledge of the director in the transaction will be attributed to the company." See also Dal Pont Law of Agency at [22.57]. 371 During oral argument, Mr Bell submitted that each loan was a fraud on the lender and hardly to its benefit. The exception to the principle which arises from Beach Petroleum NL v Johnson, Mr Bell argued, did not apply to the present proceedings. Mr Bell cited Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1. In that case the Court of Appeal (Spigelman CJ, Sheller JA and Stein JA) made reference to the reliance by Beach upon decisions such as Re Hampshire Land Co and said at [474 – 475]: "Those cases stand for the propositions that in a claim by a company against directors, who have conspired to defraud it, the knowledge of the conspiring directors is not imputed to the company because it would be irrational to do so: Belmont Finance Corporation Ltd (at 261-262); and that, where a third party claims a company is estopped by conduct amounting to acquiescence, the knowledge of directors acting in fraud of the company and outside their authority will not be treated as knowledge of the company, for reasons of justice and commonsense: JC Houghton & Co (at 14-15 and 19); see Beach Petroleum NL v Johnson (1993) 43 FCR 1… In Bowstead and Reynolds (at 533) it is said: "In knowledge cases, however, the presumption that information will be passed on may also be nullified by proof that the agent was defrauding the principal in that transaction, whether or not the third party knew this: it can, in such a case, be said that there was a moral certainty that the information would not be communicated, or that communication would require disclosure of the very fraud being practised upon the agent by the principal, or that the agent was not acting for the principal when he received the information." 372 Mr Bell submitted that there was a moral certainty that Streetwise would not communicate the fraud and information to Tonto. To do so, Mr Bell said, would have required disclosure of the very fraud that was being practised by Streetwise upon Tonto and Streetwise was certainly not acting for Tonto in receiving the information. 373 I do not accept that Tonto did not benefit from the fraud of Streetwise. Loan moneys were advanced to the cross-claimants upon which interest was payable and the advances were secured by mortgages over their family homes. The reality is that the cross-claimants did not benefit from the fraudulent conduct of Streetwise. It is not irrational to impute the knowledge of Streetwise to Tonto. By the agreement which Tonto had reached with Streetwise in its own commercial interests, Tonto had placed Streetwise in the position where the fraud could readily be committed. The correct information from the cross-claimants of their financial circumstances was received by Streetwise when acting as agent for Tonto and there was no moral certainty that this information would not be communicated. It is the knowledge of Streetwise of the true financial position of the cross-claimants which is to be imputed to the plaintiffs. In the circumstances of the present proceedings, reasons of justice and commonsense, to my mind, require that the knowledge of Streetwise of the true financial position of the cross-claimants be imputed to the plaintiffs. 374 Without derogating from the significance of the information that Streetwise possessed of the assets of the cross-claimants, it is helpful at this point to summarise the cross-claimants' income: Mr and Mrs O'Donnell : Mr O'Donnell had not been working for 18 months since the business had been sold and had no income. Mrs O'Donnell was employed by St George Bank with an annual income of about $23,000. The application was for a Lo Doc loan of $500,000 with an interest rate of 6.95 per cent per annum and a loan term of 30 years. Mr and Mrs Di Benedetto: Their combined average annual income for the past two years was $45,000 from the smallgoods business known as 'LB Foodservices'. The application was for a Lo Doc loan of $500,000 with an interest rate of 6.95 per cent per annum and a loan term of 30 years. Mr Tavares and Ms Rowe: Mr Tavares's annual income from JT Business was about $36,000. Ms Rowe's salary was about $28,000 The application was for a Lo Doc loan of $500,000 with an interest rate of 6.9 per cent per annum and a loan term of 30 years. The amount of the loan that Mr Tavares and Ms Rowe entered into with Tonto was $416,000 with an interest rate of 6.95 per cent per annum. 375 Mr Robertson stated that he did not know of a lender who would have approved any of the loans under the lender's normal affordability assessment criteria on the basis of the cross-claimants' income. As I have found, Streetwise knew that truthful disclosure of the cross-claimants' assets and income would not meet the lending guidelines. Streetwise, in particular, knew that the income of the cross-claimants, would not meet the loan serviceability requirements of the Origin and FirstMac lending programs. Tonto (in all three proceedings) and Permanent (in the O'Donnell and Di Benedetto proceedings) possessed this knowledge. Did the loans amount to asset lending? 376 Before advancing to the claims for relief, it is convenient to consider whether the loans to the cross-claimants amounted to asset lending. Stephen Keen in his report of 22 August 2007 explained at [10.1]: " Asset-based loans in general are those where the loan has been extended primarily or solely on the basis of the valuation of the asset over which the loan is secured, irrespective of the borrowers' capacity to meet the loan commitments." 377 During his oral testimony, Mr Brewster told me that Lo Doc lending is not asset lending. He said: (T523 L 6-15 8/4/09) " Q. Why is it in your opinion the case that low doc lending is not asset lending? A. This is in terms of the low doc application, other aspects of, as I've endeavoured to portray, evidence of strength to determine the first way out, i.e. the serviceability side, albeit based on a written assertion by the borrower as to their income and financial position. That's fundamentally why they look at it. There is something on the first way out that you are building a case around as opposed to merely taking an asset and saying what's that worth, I will lend 60 or 65 per cent of that value, no further questions." 378 The plaintiffs contended that the loans in each of the proceedings did not amount to asset lending. I accept that the Flexi Express Home Loans and the FirstMac Lo Doc loans were not intended to be asset-based loans. The income declared by intending borrowers was required to meet the debt serviceability requirements of the lenders. To overcome this hurdle Streetwise falsified the incomes of the cross-claimants. The failures by Mr Lougoon and Mr Wright to follow the lending guidelines indicated that they were not much concerned about the cross-claimants' employment status and were content to lend on the security provided and mortgage insurance. Moreover, the plaintiffs possessed the knowledge of Streetwise as to the true financial position of the cross-claimants. The cross-claimants did not have the capacity to meet the loans commitments, however, their equity in their family homes met the LVR requirements of the loans. I conclude that the loans to the cross-claimants were asset-based loans and amounted to asset lending. 379 As Professor Keen noted at [10.2] asset-based lending is not necessarily a problem. For example, a 'Reverse mortgage' which provides capital for older members of the community with limited incomes on the security of the family home fulfils a legitimate role in mortgage lending practices. Whether an asset-based loan is considered unjust or unconscionable depends on the circumstances of the case. 380 In Kowalczuk v Accom Finance Pty Ltd (2008) 252 ALR 55, Campbell JA (with whom Hodgson and McColl JJA agreed) noted at [96]: " It can be accepted the pure asset lending described by Basten JA in Khoshaba at [128] as being "to lend money without regard to the ability of the borrower to repay by instalments under the contract, in the knowledge that adequate security is available in the event of default" – is in at least some circumstances unjust within the meaning of the Contracts Review Act, or unconscionable … However whether lending on the basis that the loan can adequately be repaid from the security, is in the circumstances of any particular case unconscionable or unjust, depends on other matters as well. Thus, in Elkofairi [v Perpetual Trustee Co Ltd (2003) 11 BPR 20, 841] the facts that neither the applicant nor her husband had any income, the loan in question was for 5 years, and the security was over the applicant's only asset (involving the proposition that the applicant had no other resources from which to service the loan) and that the secured property was the applicant's home, were all relevant matters in reaching the conclusion that the transaction was both unconscionable and unjust. In Khoshaba, other factors relevant to the conclusion of injustice were that the applicants were a husband and wife, one of whom earned $43,000 pa and the other of whom was a pensioner, the lender had no information at all about the purpose for which the loan was being sought, and the security was over their home." 381 The vice in asset lending was explained by Brereton J in Riz v Perpetual Trustee Australia Ltd [2007] NSWSC 1153 at [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." 382 Whether the asset lending in the circumstances of each of the proceedings was unjust or unconscionable will be further considered when dealing with the claims for relief. The claims for relief under the Contracts Review Act 1980 Argument 383 I propose to deal with the Contracts Review Act (the CRA) before turning to unconscionability: Spina v Permanent Custodians Limited [2009] NSWCA 206 per Young JA at [74-75]. As the parties' submissions on the claim for relief under the CRA were extensive, I will summarise them. 384 The cross-claimants submitted that each of the loan and mortgage contracts are unjust within the CRA because: (a) of the circumstances in which Streetwise tricked and cajoled the borrowers to enter into the loan and mortgage; (b) Streetwise was the relevant agent of Tonto and Tonto is thereby responsible for Streetwise's actions in carrying out its task as agent; (c) of Tonto's own involvement in the transactions, including its involvement in using Streetwise to introduce borrowers to it with a clear conflict of interest; (d) of Tonto's own breach of its guidelines in connection with a Lo Doc loan, particularly its failure to ensure that the borrowers were eligible applicants; (e) Tonto used a broker with a clear conflict of interest which thereby exposed the borrowers to a serious risk of fraud; (f) the loan was truly an asset lend, secured over the borrowers' family home. 385 In a letter dated 23 October 2006, the cross-claimants notified the plaintiffs of their reliance upon ss 9(2)(a)(b)(f)(g)(h)(i)(j)(k) and (l) of the CRA. 386 Amended particulars were filed on 20 April 2009 which provided in addition to the particulars previously supplied that reliance was placed upon ss 9(2)(c)(d) and (e) of the CRA. 387 ASIC supported the claim for relief under the CRA. Particular emphasis was placed upon the consideration of "public interest" under s 9(1) of the CRA. The aspects of public interest engaged in these proceedings included promoting certainty in commercial transactions, promoting efficiency, and in particular the efficient allocation of credit in the Australian financial system, promoting market integrity and consumer protection. ASIC put to me that in the present cases, the public interest considerations that militate in favour of the conclusion that the loan agreements and mortgages were unjust include: (a) The lenders were content to, and did, engage effectively in asset lending, taking security over the borrowers' homes and sole substantial asset when the borrowers lacked the capacity to repay and were incapable reasonably of looking after their own interests because of the nature of the 'low doc' loan being given to them, the relationship between Streetwise and the lenders and the lenders' reliance upon Streetwise to carry out important tasks on their behalf. (b) The losses were brought about by Streetwise's fraudulently obtaining the loans and the lenders choosing to conduct business in a way, and offering products that elevated the risk of that fraud occurring. The lenders were in a better position both to appreciate and to eliminate or manage that risk than the borrowers. (c) The lenders lent to borrowers who could not afford to repay, without independent verification of income or examination of the purpose of the loan to ensure that repayments could be made. The borrowers were at worst commercially naïve and disadvantaged by the lenders' processes. The lenders were prepared nonetheless to lend provided they had sufficient security and mortgage insurance. This is likely to involve the inefficient allocation of credit and is harmful to the Australian financial system. It also permitted the fraud which came to pass, to the detriment of the individual borrowers if the transactions are permitted to stand. 388 The plaintiffs contended that none of the loan agreements should be set aside under the CRA. None of the loans agreements was unjust. West v AGC (Advances) Ltd (1986) 5 NSWLR 610 was cited where McHugh JA at 621 made the important distinction between unjust contracts and unjust transactions; and emphasised that the CRA regulates contracts, not investments. It was pointed out that the plaintiffs were not involved in the cross-claimants' decisions to enter into the joint ventures. The plaintiffs argued that the proceedings concern the attempt by the cross-claimants to use the CRA to save them from the consequences of their investment decisions to enter into joint ventures upon the terms agreed with Streetwise. The cross-claimants' claims should be characterised only as procedural injustice. 389 It was put to me that in the letter dated 23 October 2006 the cross-claimants had indicated that the matters they relied upon to allege that the subject loans and mortgage were contrary to the public interest were the same as the matters relied upon to allege that the loans were advanced in circumstances where prudent lending practices were not followed. It was not open to the cross-claimants or ASIC to enlarge that case. The plaintiffs argued that the submissions by ASIC as to the considerations of public interest went beyond the pleaded case and should not be considered. The plaintiffs submitted that the cross-claimants had not established that prudent lending practices were not followed. There should be no doubt that the cross-claimants were able to look after themselves in entering into the loan transactions and mortgages and understood the nature and effect of the transactions. They all appreciated the lender's reliance upon the information contained in the loan application and supporting documents. They should be taken also to have understood the importance of providing relevant information to support their loan applications honestly and with care. They should be found to have accepted the risk that Streetwise would not continue to make payments into their accounts so as to facilitate the making of the loan repayments. The plaintiffs submitted that even allowing for the beneficial objects (for consumers) of the CRA, the cross-claimants should not be allowed to deploy the CRA as a means of erasing the consequences of their investment decisions. 390 The plaintiffs submitted that as to asset lending the vice of the conduct as explained by Brereton J in Riz – the imbalance of risk between lender and borrower – may not apply where it is voluntarily accepted by the borrower, even where the family home is involved. The plaintiffs contended that in all three proceedings the borrowers knew that the lender was advancing a substantial amount of money in reliance upon their representations that the proceeds would be advanced for investment purposes without the lender taking any security in the asset acquired through the investment. On that basis alone, the plaintiffs argued the imbalance of risk was not present, such that there is no real asset lending. Were the contracts unjust? 391 The cross-claimants seek declarations that the loan agreements and mortgages are unjust contracts within the meaning of s 7 of the CRA. They ask for an order pursuant to s 7(1)(b) declaring the loan agreements and mortgages to be void or pursuant to s 7(1)(a) for an order refusing to enforce all of the provisions of the loan agreement and mortgages. Section 7(1) the CRA is as follows: "7 Principal relief (1) Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following: (a) it may decide to refuse to enforce any or all of the provisions of the contract, (b) it may make an order declaring the contract void, in whole or in part, (c) it may make an order varying, in whole or in part, any provision of the contract, (d) it may, in relation to a land instrument, make an order for or with respect to requiring the execution of an instrument that: (i) varies, or has the effect of varying, the provisions of the land instrument, or (ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the land instrument." 392 In determining whether a contract is unjust in the circumstances relating to the contract at the time it was made, the court must, in accordance with s 9(1) of the CRA, have regard to the public interest and to all the circumstances of the case. Section 9(2) without in any way affecting the generality of subsection (1) directs the court to have regard to certain specific matters to the extent that they are relevant to the circumstances. The specific matters described in s 9(2) are not exhaustive and each case must be determined on its own facts: Spina at [104]. 393 Section 9(2) provides: " Without in any way affecting the generality of subsection (1), the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following: (a) whether or not there was any material inequality in bargaining power between the parties to the contract, (b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation, (c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract, (d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract, (e) whether or not: (i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or (ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented, because of his or her age or the state of his or her physical or mental capacity, (f) the relative economic circumstances, educational background and literacy of: (i) the parties to the contract (other than a corporation), and (ii) any person who represented any of the parties to the contract, (g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed, (h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act, (i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect, (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, (k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and (l) the commercial or other setting, purpose and effect of the contract." 394 Section 4 of the CRA defines the term "unjust" to include "unconscionable, harsh or oppressive". 395 The consideration for relief under s 7 of the CRA involves a three stage process. As was said by Handley JA in Khoshaba at [2006] NSWCA 41 [99]: "I agree that a case under the Contracts Review Act involves a three stage process – the making of findings of primary fact where these are disputed, the formation of an evaluative judgment as to whether or not the contract is unjust, and why, and then, if necessary, the exercise of the Court's discretionary power to grant relief and determine its extent." 396 The primary facts have been found throughout this judgment. Before proceeding to deal with the second stage in the process, I will refer to some general principles which are relevant to the assessment of unjustness under the CRA and are uncontroversial. 397 The relevant time for assessing that the contract was unjust is at the time the contract was made: s 7(1) of the CRA. Section 9(1) permits the court to have regard to the consequences or result arising from compliance or non-compliance with the contract: CIT Credit Pty Ltd v Keable [2006] NSWCA 130 per Spigelman CJ at [65]. Further, under 9(4) of the CRA, the court shall not have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time that the contract was made. An evaluation of injustice requires that regard be had to the position of all the contracting parties: West at 626; Riz at [75]. 398 The plaintiffs referred to the observations of McHugh JA in West where his Honour referred to a distinction between a contract which was "unfair" and one that was "unjust". His Honour said 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." 399 Spigelman CJ pointed out in Khoshaba at [73] that McHugh JA's observations are to be understood as identifying relevant considerations entitled to significant weight but not as if they are rules. 400 In the present proceedings, the cross-claimants do not complain about the terms and conditions of the loan agreement and the mortgage. The cross-claimants' complaint is one of procedural injustice: West per McHugh JA at 620. The injustice is said to arise because of fraudulent conduct of Streetwise, who was the agent of Tonto and Tonto's own involvement in the transactions, including its use of Streetwise and its failure to follow the lending guidelines. 401 Campbell JA in Kowalczuk at 78 [102] summarised what Spigelman CJ had said in Khoshaba as to the significance of the lender's departure from its lending guidelines in that case: " In Khoshaba Spigelman CJ at [80]-[82] regarded a lender's failure to observe its own lending guidelines as entitled, in the circumstances of that particular case, to significant weight. The way in which it was relevant was twofold. First, while the guidelines were designed to enable the lender to assess and minimise its own risk, and thus were for the purpose of protecting the lender rather than the borrower, following the guidelines conferred an indirect benefit on the borrower through risky loans not being made, and one of the legislative purposes of the Contracts Review Act was to protect people not able to look after themselves. The second way in which it was relevant was, in the circumstances where the lender had no idea for what purpose the loan was being borrowed, the failure to observe the lending guidelines assisted the inference that the lender was lending on the value of the security." 402 A further matter must be mentioned. It is not the injustice of the joint venture agreements which is to be determined but the injustice of the loan agreement and the mortgage in each case. The O'Donnell proceedings 403 I will now consider in the O'Donnell proceedings the circumstances relating to the loan agreement and mortgage when they were made. Mr and Mrs O'Donnell were neither sophisticated nor naïve in financial matters. Before their dealings with Streetwise commenced they understood what it meant to provide a mortgage and that a possible consequence of default in repaying a loan was the sale of the property secured by the mortgage. Before the first meeting with Streetwise Mr O'Donnell rang ASIC, the Department of Fair Trading and the ACCC to enquire about Streetwise and Mr Bangaru. Mrs O'Donnell showed the joint venture agreement to a solicitor who was a friend. Their accountant did a company search of Streetwise, circled the directors' names and told them to be careful. 404 Mr O'Donnell was 54 years old and Mrs O'Donnell was 47 years old. Section 9(2)(e) of the CRA directs the court to consider whether a party was reasonably able to protect his or her interests because of his or her age or the state of his or her physical or mental capacity. There is nothing to suggest that the O'Donnells were incapable of protecting their interests because of these factors. 405 Although they were rushed and not provided with the opportunity to consider the loan applications in any detail by Streetwise, Mr and Mrs O'Donnell were careless when they signed the partially completed loan application. Mr O'Donnell was also careless in signing the income declaration form in blank. By doing so, the O'Donnells exposed themselves, Tonto and Permanent to the risk of fraud by Streetwise. Section 9(4) of the CRA requires the court not to have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the contract was made. Whilst the O'Donnells were careless, they could not have reasonably foreseen that Streetwise would insert in the loan application and income declaration false details of their assets and income. It was not suggested by the plaintiffs nor does the evidence establish that the risk of fraud by Streetwise could reasonably have been foreseen by Mr and Mrs O'Donnell. 406 Streetwise did not inform the O'Donnells that they were applying for a Lo Doc loan or what the income declaration forms meant. They were not told of the particular reliance that the lender placed upon the information provided in the loan application and the income declaration when assessing an application for a Lo Doc loan. Mr Bangaru misled the O'Donnells when he informed them that the loan was being provided by Streetwise. He persuaded them there was no need to obtain their own lawyers. 407 Mr and Mrs O'Donnell did not have sufficient income to service a loan of $500,000 with an interest rate of 6.95 per cent per annum and a loan term of 30 years. An undisclosed person or persons at Streetwise inserted false information in the loan application form and Mr O'Donnell's income declaration as Streetwise knew that truthful disclosure of the O'Donnells' assets and income would not meet the lending guidelines either under the Origin or FirstMac lending programs. In particular Mr and Mrs O'Donnell's income did not meet the loan serviceability requirements of the lending programs. But for the fraud of Streetwise the loan would not have been approved. Had the O'Donnells known that the lender did not take into account the promise of Streetwise to contribute to the loan repayments when considering the loan application and that their financial position truthfully stated did not meet the lending guidelines, they would not have proceeded. All of these matters are relevant to the consideration of the circumstances identified in s 9(2)(d), s 9(2)(h) and s (9)(2)(j) of the CRA and I take them into account. The direction in s 9(2)(h) is to have regard to whether or not and when independent legal or expert advice was obtained. Not only were the O'Donnells persuaded not to obtain legal advice about the loan application but were convinced by Streetwise at the time of the signing of the loan agreement and mortgage that they did not need their own lawyers. I am mindful that when considering s 9(2)(h), the persuasion by Streetwise for Mr and Mrs O'Donnell not to obtain independent legal advice is to be balanced against the discussions which the O'Donnells had with a solicitor and an accountant before they commenced their dealings with Streetwise. 408 The letter from Hunt and Hunt enclosing the loan agreement, mortgage and memorandum of mortgage was received by Mr and Mrs O'Donnell on or about 7 January 2003. When they signed the loan agreement and mortgage at the office of Streetwise on 10 January 2003, no-one explained to them the provisions of the documents and their legal and practical effect. This is a circumstance to be considered under s 9(2)(i) of the CRA. Although the signing of the documentation was deliberately rushed by Mr Bangaru and the other Streetwise employees, Mr and Mrs O'Donnell had had the opportunity of considering the loan agreement and mortgage prior to the meeting and knew they were giving a mortgage over the Harbord property to Permanent and that they were liable to Permanent irrespective of their arrangements with Streetwise. They understood that their property was at risk if the loan was not repaid. Their understanding of the gist of what they were signing detracts from the consideration of the injustice which arises under s 9(2)(i). Because of the high-pressured and convincing presentations by Streetwise and its impressive offices, the O'Donnells' belief was that there was little risk that Streetwise would not meet its promise to pay most of the mortgage instalments. 409 Neither Tonto nor Permanent was a party to the joint venture agreement and no direct advantage was received by them from the loan agreement and mortgage other than that specified in the loan agreement. Tonto, however, had chosen to conduct its business with Streetwise in the way that it did for its own commercial advantage. 410 An important consideration is that by signing the documents, Mr and Mrs O'Donnell had expressed that they were willing to be bound by their contracts. As was observed by Gleeson CJ in Baltic Shipping Co v Dillon (1991) 22 NSWLR 1 at 9: "…The general policy of the law is that people should honour their contracts. That policy forms part of our idea of what is just." 411 Another consideration is the public interest in ensuring certainty in commercial relations: Suncorp-Metway Ltd v Bellairs [2009] NSWSC 135 per Rothman J at [75]. I give these considerations of public interest significant weight. 412 I take into account (as I do in all of the proceedings) a possible consequence to the plaintiff arising from a finding of injustice will be the loss of the monies that were lent with accrued interest. 413 These considerations and the considerations which arise from the carelessness of the O'Donnells when signing the loan application form and of Mr O'Donnell when he signed the income declaration are to be weighed against the circumstances pointing to injustice to which I have referred and the following further circumstances: (i) The contracts arose from the unfair pressure, deception and fraudulent conduct of Streetwise which was acting on behalf of Tonto and Permanent and was their agent: s 9(2)(j) of the CRA. (ii) Section 9(2)(a) directs attention to the existence of any material inequality in the bargaining power between the parties to the contract. By the way in which Tonto conducted its business with Streetwise, Tonto exposed Mr and Mrs O'Donnell to a serious risk of fraud which was reasonably foreseeable at the time the contracts were made: s 9(4) of the CRA. Whilst not financially naïve, they were susceptible to the charms and inducements of Mr Bangaru and the Streetwise salespersons. Furthermore, the branding of the loan application form as a Streetwise document assisted Mr Bangaru to mislead Mr and Mrs O'Donnell. The branding of that document and the letters as Streetwise supported the impression that Streetwise was a business of substance with whom they could enter a joint venture and borrow on the security of the family home for that purpose. The O'Donnells were in a position of disadvantage compared to Tonto and Permanent when they came to negotiate the terms of the contracts. Tonto was in a much better position both to appreciate and to manage the risk of fraud by Streetwise than Mr and Mrs O'Donnell. (iii) The Origin lending guidelines were not followed in the following respects: (a) No ABN searches were made. (b) A certificate of business registration or financial statements for Mr O'Donnell were not obtained. (c) Mr and Mrs O'Donnell were not self-employed persons who were not in a position to provide full financial documentation at the time of the loan application. The application for the Lo Doc loan should not have been made. (d) What was expressed to be the loan purpose, that is, " Purchase Investment Property ", did not comply with a purpose described in the Flexi Express Home Loan . (iv) The special condition requiring that any "cash out" component in excess of $100,000 was to be "fully documented" was not complied with. (v) Tonto and Permanent possessed the knowledge of Streetwise as to Mr and Mrs O'Donnell's true financial position. The O'Donnells did not have the income to service the loan and the obligation imposed upon them by the contracts to make the mortgage payments of $2,895.83 per month was unreasonably difficult to comply with: s 9(2)(d) of the CRA. Their equity in their home met the LVR requirements of the lender and this was asset lending. As to the plaintiff's argument that an imbalance of risk was not present, the O'Donnells were not aware that the money was being advanced upon the fraudulent information supplied by Streetwise. If they had known that the fraud had been committed they would not have proceeded with the loan. They did not know that the contribution to the loan repayments by Streetwise was not taken into account when the loan was approved. Because of the fraud and deception of Streetwise, Mr and Mrs O'Donnell were unaware of the reality of the risk involved when they mortgaged their home, which was their primary asset, to Permanent. The transaction involved no risk to Permanent as its loan was protected by the security and mortgage insurance. There was an imbalance of risk and I reject the plaintiff's argument. 414 I have remarked at [322] above upon the added importance of adherence by a lender to its own guidelines where prospective borrowers are exposed to a serious risk of fraud. The loose attitude that was adopted to the lending guidelines indicates that the lender was not much concerned about the purpose of the loan and the self-employment of the borrowers and was content to lend on the security of the Harbord property and mortgage insurance. In Khoshaba Spigelman CJ remarked upon the relevance of the purpose of a loan. The Chief Justice said at [68-69]: " In my opinion, the purpose for which a loan is advanced is a relevant circumstance. This is confirmed by s 9(2)(l) which includes, amongst the matters to which a court shall have regard in determining whether a contract is unjust: 'The commercial or other setting, purpose and effect of the contract.' The purpose of a loan 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 ." 415 The failure by the lender to follow its own lending guidelines and special "cash out" condition made it easier for the fraud by Streetwise to remain undetected. In all the circumstances of this case, the asset lending was unjust. 416 An argument advanced by the plaintiffs was that Khoshaba could be distinguished as one of the legislative purposes of the CRA was to protect people not able to look after themselves. It was said that all of the cross-claimants were able to look after themselves in entering into the loan agreements and mortgages. Where the asset lending has arisen because of the fraud and deception of the lender's agent and the borrowers are unaware that the reality of the lending is on the value of their home, in my opinion, it makes little difference to considerations of injustice under the CRA that the borrowers are persons who normally are able to look after themselves. After all, a purpose of the CRA is to protect persons from unfair pressure or unfair tactics when they enter into contracts. 417 Another argument was that once it was accepted that Tonto had no knowledge of or involvement in the fraudulent conduct this would be a factor of significant weight in its favour in resisting a finding of injustice: Khoshaba at [77]; Riz at [81]-[82]. So too, it was argued, was the fact that misinformation was provided to Tonto by the borrowers and the borrowers' joint venturer and mortgage broker: Riz at [82]. The plaintiffs further submitted that any fraudulent conduct directed against the borrowers occurred when the borrowers were deprived of a legal or secured interest in the property to which the loan proceeds were intended to be applied of which the lender had no knowledge. 418 This last submission is not factually correct. The fraudulent conduct of Streetwise commenced at the time the borrowers were persuaded to sign the loan applications and income declarations. As to the second contention, it was not the borrowers who supplied false information to Tonto but its agent, Streetwise. As to the first submission, Tonto possessed the knowledge of Streetwise and by the way it conducted its business with Streetwise exposed itself and the borrowers to a serious risk of fraud. 419 There is, as the cross-claimants submit, a public interest in ensuring that prudent lending practices are followed. Prudent lending practice, to my mind, includes the conduct of the relationship between loan provider/mortgage manager and finance broker. This must be the case in Lo Doc lending where reliance is placed by the lender on the accuracy of the information provided in the loan application documentation. Prudent lending practice requires adherence by the lender to Lo Doc lending guidelines when the finance broker has been entrusted with the first stage of the loan application process. An agreement for commercial self-interest not to contact a broker's client until after the settlement of the loan does nothing to ensure the integrity of the material supplied. The public interest against unjust asset lending was referred to in Khoshaba and Kowalczuk. I consider that it is unnecessary to consider ASIC's submissions on public interest. 420 I have concluded that the loan agreement and mortgage were unjust in the circumstances relating to the contracts at the time that they were made. The Di Benedetto proceedings 421 I propose now to consider in the Di Benedetto proceedings the circumstances relating to the loan agreement and mortgage when they were made. Like Mr and Mrs O'Donnell, the Di Benedettos were neither sophisticated nor naïve in financial matters. Their lack of sophistication in matters financial is demonstrated by the failure to ensure that a joint venture agreement was entered into with Streetwise before the settlement of the loan. Nevertheless, they understood before Mr Fassos came to their home in 2002 what it meant to provide a mortgage and that a possible consequence of default in repaying a loan was the sale of the secured property. Unlike the O'Donnells, they made no enquiries about Streetwise before their dealings commenced. There is nothing, however, which suggests that Mr and Mrs Di Benedetto were incapable of protecting their interests either because of their age or the state of their physical or mental capacity: s 9(2)(e) of the CRA. They were each 37 years old. 422 Mr and Mrs Di Benedetto were pressured by the salesmanship of Streetwise into signing the loan application and income declaration forms which were in blank and about which their understanding was limited. They had neither been informed that the application was for a Lo Doc loan nor been made aware of what the income declaration forms meant. They had not been told of the particular significance that the information provided as to their income had in Lo Doc lending. Nevertheless, they were careless when signing these documents in blank. They exposed themselves, Tonto and Permanent to the risk of fraud by Streetwise. As in the case of the O'Donnells, the evidence does not establish that the risk of fraud by Streetwise was reasonably foreseeable by them at the time the loan agreement and mortgage were made: s 9(4) of the CRA. 423 They did not have sufficient income to service a loan of $500,000 with an interest rate of 6.95 per cent per annum and a loan term of 30 years. An undisclosed person or persons at Streetwise inserted false information in the loan application form and income declarations as Streetwise knew that truthful disclosure of Mr and Mrs Di Benedetto's assets and income would not meet the lending guidelines either under the Origin or FirstMac lending program. In particular, their income did not meet the loan serviceability requirements of the lending programs. The loan would not have been approved without the fraud of Streetwise. The Di Benedettos were unaware that the loan had been approved upon the fraudulent material inserted by Streetwise. Mrs Di Benedetto had been assured by Mr Bangaru that Kim Cannon knew that Streetwise was paying the loan and that Streetwise did this all the time. If they had known that the lender did not take into account the promise by Streetwise to contribute to the loan repayments when considering the application and that their financial position truthfully stated did not meet the lending guidelines, Mr and Mrs Di Benedetto would not have proceeded with the loan. These matters are relevant to the consideration of the circumstances identified in s 9(2)(d) and s 9 (2)(j) of the CRA and I take them into account. 424 The loan agreement, mortgage and direct debit authority were forwarded by Hunt and Hunt under cover of letter dated 13 February 2003 direct to Streetwise. Hunt and Hunt were Tonto's solicitors and were panel lawyers for the Origin program. By sending the documentation to Streetwise, the solicitors breached the procedures stipulated in the Origin "Document and Procedures Manual". The failure to comply with Origin's service requirements placed the loan documentation in the hands of Streetwise thereby assisting Mr Bangaru and Mr Fassos to rush Mr and Mrs Di Benedetto into signing the loan agreement and mortgage without the Di Benedettos having the opportunity to consider the documents. 425 When Mr Bangaru and Mr Fassos came to the Di Benedetto home with these documents, Mr and Mrs Di Benedetto were in a position of disadvantage. They were persuaded not to obtain their own legal advice: s 9(2)(h) of the CRA. No one explained to them the provisions of the documents and their legal and practical effect: s 9(2)(i) of the CRA. They understood, however, that they were responsible for the loan repayments, that they were giving a mortgage over their home as security for the loan and their property was at risk if the payments were not made. Their understanding of the gist of what they were signing detracts from the consideration of the injustice which arises under s 9(2)(i). They, like Mr and Mrs O'Donnell, had been seduced by Mr Bangaru and by high-pressured and clever salesmanship into believing that they could place their trust in Streetwise and that there was little risk of default in repaying the loan as Streetwise had agreed to make the payments into Mr Di Benedetto's bank account. 426 Neither Tonto nor Permanent was a party to the joint venture agreement and no direct advantage was received by them from the loan agreement and mortgage other than that specified in the loan agreement. Tonto, however, had chosen to conduct its business with Streetwise in the way that it did for its own commercial advantage. 427 By signing the documents, Mr and Mrs Di Benedetto had expressed that they were willing to be bound by their contracts. As in the O'Donnell proceedings, I give significant weight to the considerations of public interest that people should honour their contract and in ensuring certainty in commercial relations. These considerations and the considerations which arise from the carelessness of Mr and Mrs Di Benedetto when they signed the loan application form and income declarations are to be weighed against the circumstances pointing to injustice to which I have referred and the following further circumstances: (i) The contracts arose from the unfair pressure, deception and fraudulent conduct of Streetwise which was acting on behalf of Tonto and Permanent and was their agent: s 9(2)(j) of the CRA. (ii) By the way in which Tonto conducted its business with Streetwise, Tonto exposed Mr and Mrs Di Benedetto to a serious risk of fraud which was reasonably foreseeable at the time the contracts were made: s 9(4) of the CRA. The Di Benedettos were susceptible to the charms and inducements of Mr Bangaru and the Streetwise salespersons. Furthermore, the branding of the loan application form and letters as Streetwise supported the impression that Streetwise was a business of substance with whom they could enter a joint venture and borrow on the security of the family home for that purpose. In comparison to Tonto and Permanent, they were in a position of disadvantage when they came to negotiate the terms of the contracts. Tonto was in a much better position than Mr and Mrs Di Benedetto to appreciate and to manage the risk of fraud by Streetwise. There was a material inequality in the bargaining power between the parties to the contract: s 9(2)(a) of the CRA. (iii) The Origin lending guidelines were not followed in the following respects: (a) No ABN search was made. (b) A certificate of business registration or financial statements were not obtained. (c) Mr and Mrs Di Benedetto were not self-employed persons who were not in a position to provide full financial documentation at the time of the loan application. The application for a Lo Doc loan should not have been made. (d) What was expressed to be the loan purpose, that is, " free up equity for investment purposes ", did not comply with a purpose described in the Flexi Express Home Loan. (iv) Tonto and Permanent possessed the knowledge of Streetwise as to Mr and Mrs Di Benedetto's true financial position. Mr and Mrs Di Benedetto did not have the income to service the loan and the obligation imposed upon them by the contracts to make the mortgage payments of $2,895.83 per month was unreasonably difficult to comply with: s 9(2)(d) of the CRA. Their equity in their home met the LVR requirements of the lender and this was asset lending. The Di Benedettos were not aware that the money was being advanced upon the fraudulent information supplied by Streetwise. If they had known that the fraud was committed they would not have proceeded with the loan. They did not know that the contribution to the loan repayments by Streetwise was not taken into account when the loan was approved. Because of the fraud and deception of Streetwise, Mr and Mrs Di Benedetto were unaware of the reality of the risks involved when they mortgaged their home, which was their primary asset, to Permanent. The transaction involved no risk to Permanent and there was an imbalance of risk. 428 The loose attitude that was adopted to the lending guidelines indicated that the lender was not much concerned about the purpose of the loan and the self-employment of the borrowers and was content to lend on the security of the Narraweena property and mortgage insurance. The failure by the lender to follow its own guideline as to loan purpose made it easier for the fraud by Streetwise to remain undetected. I have referred to further arguments advanced for the plaintiffs and considerations of public interest at [418] – [419] above. The asset lending in this case was unjust. 429 I find that the loan agreement and mortgage were unjust in the circumstances relating to the contracts at the time that they were made. The Tavares and Rowe Proceedings 430 I turn to consider the circumstances relating to the loan agreement and mortgage when they were made in the Tavares and Rowe proceedings. Ms Rowe was employed as a tollbooth operator and also had a casual position as a swimming instructor. She was not much experienced in financial matters. Nevertheless, Ms Rowe had been party to the borrowing and the granting of a mortgage when the home unit at Lane Cove and the Castle Hill home were purchased. Mr Tavares had been self-employed in the music industry and was more experienced in matters financial than Ms Rowe. Neither of them, however, was sophisticated in such matters nor were they naïve. Before they commenced their dealings with Streetwise they understood what it meant to provide a mortgage and that a possible consequence of default in the loan repayments was the sale of the secured property. After Bevan Lydement met with Mr Tavares and Ms Rowe at their home in early January 2003, Mr Tavares rang ASIC and the ACCC to enquire whether there were any bad marks against Streetwise to which enquiries he received negative responses. 431 Mr Tavares was 53 years old and Ms Rowe was 39 years old. There is nothing which suggests that either Mr Tavares or Ms Rowe was incapable of protecting their interests either because of their age or the state of their physical or mental capacity: s 9(2)(e) of the CRA. 432 Mr Tavares and Ms Rowe were persuaded by Streetwise that it was in order for them to sign the loan application and income declaration forms although these forms were only partially completed. They did not know that the application was for a Lo Doc loan nor had they been informed of what the income declaration forms meant nor of the particular significance that the information provided as to their income had in Lo Doc lending. They were assured by Mr Bangaru that it was not necessary to obtain legal advice. These matters are relevant to the consideration of the circumstances identified in s 9(2)(d), s 9(2)(h) and s 9(2)(j) of the CRA and I take them into account. Notwithstanding these matters, the signing of the partially completed documents was careless. They exposed themselves and Tonto to the risk of fraud by Streetwise. As in the cases of the other cross-claimants, the evidence does not establish that the risk of fraud by Streetwise was reasonably foreseeable by them at the time the loan agreement and mortgage were made: s 9(4) of the CRA. 433 They did not have sufficient income to service a loan of $500,000 with an interest rate of 6.95 per cent per annum and a loan term of 30 years. An undisclosed person or persons at Streetwise inserted false information in the loan application form and Mr Tavares's income declaration as Streetwise knew that truthful disclosure of the assets and income of Mr Tavares and Ms Rowe would not meet the lending guidelines under either the Origin or Firstmac lending programs. In particular, their combined income did not meet the loan serviceability requirements of the lending programs. The loan would not have been approved without the fraud of Streetwise. Mr Tavares and Ms Rowe were unaware that the loan had been approved upon the fraudulent material inserted by Streetwise. If they had known that the lender did not take into account the promise by Streetwise to contribute to the loan repayments when considering the loan application and that their financial position truthfully stated did not meet the lending guidelines, they would not have proceeded. These matters are relevant to the consideration of the circumstances identified in s 9(2)(d) and s 9(2)(j) of the CRA and I take them into account. 434 The letter from Hunt and Hunt enclosing the loan agreement, mortgage and memorandum of mortgage was received by Mr Tavares and Ms Rowe on or about 15 May 2003. When they attended the office of Streetwise on 22 May 2003, they were pressured and rushed into signing the loan agreement and mortgage and no-one explained to them the provisions of the documents and their legal and practical effect: s 9(2)(i) of the CRA. They were persuaded not to obtain their own legal advice: s 9(2)(h) of the CRA. They understood, however, that they were giving a mortgage over their home as security for the loan and their property was at risk if the payments were not made. As in the cases of the other cross-claimants, their understanding of the gist of what they were signing detracts from the consideration of the injustice which arises under s 9(2)(i). In a manner similar to the other cross-claimants they had been seduced by Mr Bangaru and by high-pressured and clever salesmanship into believing that they could put their trust in Streetwise and that there was little risk of default in repaying the loan as Streetwise had agreed to pay $2,200 each month into their bank account. 435 Tonto was not a party to the joint venture agreement and no direct advantage was received by Tonto from the loan agreement and mortgage other than that specified in the loan agreement. Tonto, however, had chosen to conduct its business with Streetwise in the way that it did for its own commercial advantage. 436 By signing the contracts, Mr Tavares and Ms Rowe had expressed that they were willing to be bound by their contracts. I give significant weight to the considerations of public interest that people should honour their contract and in ensuring certainty in commercial relations. These considerations and the considerations which arise from the carelessness of Mr Tavares and Ms Rowe when signing the loan application and Mr Tavares when signing the income declaration are to be weighed against the circumstances pointing to injustice to which I have referred and the following further circumstances: (i) The contracts arose from the unfair pressure, deception and fraudulent conduct of Streetwise which was acting on behalf of Tonto and was Tonto's agent: s 9(2)(j) of the CRA. (ii) By the way in which Tonto conducted its business with Streetwise, Tonto exposed Mr Tavares and Ms Rowe to a serious risk of fraud which was reasonably foreseeable at the time the contracts were made: s 9(4) of the CRA. Like the other cross-claimants, Mr Tavares and Ms Rowe were susceptible to the charms and inducements of Mr Bangaru and the Streetwise salespersons. Furthermore, the branding of the loan application form and letters as Streetwise supported the impression that Streetwise was a business of substance with whom they could enter a joint venture and borrow on the security of their home for that purpose. When compared to Tonto, they were in a position of disadvantage when they came to negotiate the terms of the contracts. Tonto was in a much better position than Mr Tavares and Ms Rowe to appreciate and to manage the risk of fraud by Streetwise. There was a material inequality in the bargaining power between the parties to the contract: s 9(2)(a) of the CRA. (iii) The FirstMac lending guidelines were not followed in the following respects: (a) No ABN search was made. (b) No enquiries were made to confirm that Mr Tavares was a self-employed person who had for a minimum of two years been trading in his current business. (c) Mr Tavares and Ms Rowe were not self-employed persons who were not in a position to provide full documentation at the time of the loan application. The application for a Lo Doc Loan should not have been made. (iv) Tonto possessed the knowledge of Streetwise as to the true financial position of Mr Tavares and Ms Rowe. They did not have the income to service the loan and the obligation imposed upon them to make the mortgage payments of $2,753.70 per month was unreasonably difficult to comply with: s 9(2)(d) of the CRA. Their equity in their home met the LVR requirements of the lender and this was asset lending. Mr Tavares and Ms Rowe were not aware that the money was being advanced upon the fraudulent information supplied by Streetwise. If they had known that the fraud was committed they would not have proceeded with the loan. They did not know that the contribution to the loan repayments by Streetwise was not taken into account when the loan was approved. Because of the fraud and deception of Streetwise, Mr Tavares and Ms Rowe were unaware of the reality of the risks involved when they mortgaged their home, which was their primary asset, to Tonto. The transaction involved no risk to Tonto and there was an imbalance of risk. 437 The loose attitude that was adopted to the lending guidelines indicates that the lender was not much concerned about the self-employment of the borrowers and was content to lend on the security of the Castle Hill property and mortgage insurance. I have referred to further arguments advanced for the plaintiffs and considerations of public interest at [418] – [419] above. The asset lending in this case was unjust. 438 I find that the loan agreement and mortgage were unjust in the circumstances relating to the contracts at the time that they were made. Relief under the CRA 439 I now turn to the third stage of the process which is the question whether relief should be granted and, if so, the extent of the relief. Section 7(1) of the CRA requires the court to consider whether it is "just" to grant relief "for the purpose of avoiding as far as practicable an unjust consequence or result". 440 The plaintiffs submitted that the court should not exercise its discretion to set the loan agreements aside as to do so would relieve the borrowers from their own admitted carelessness. It was recognised that a significant factor in the exercise of the discretion was whether Streetwise was found to be Tonto's and Permanent's agent as knowledge of the circumstances of injustice is highly relevant to the exercise of the discretion: Khoshaba at [77], [122]; Beneficial Finance Corp Ltd v Karavas (1991) 23 NSWLR 256 per Meagher JA at 278; Nguyen v Taylor (1992) 27 NSWLR 48 per Sheller JA at 71F. 441 Tonto and Permanent possessed the knowledge of Streetwise their agent. The lending guidelines were not followed and Tonto conducted its business with Streetwise in such a way as to expose the cross-claimants to a serious risk of fraud. Neither of the plaintiffs could be regarded as an innocent party to the transactions. 442 The unjust consequence or result that is be avoided in the O'Donnell proceedings is that Mr and Mrs O'Donnell must repay a loan of $500,000 with an interest rate of 6.95 per cent per annum or they will lose their home. As at 20 March 2009 the total amount payable to Permanent was $690,471.61. 443 The unjust consequence or result that is to be avoided in the Di Benedetto proceedings is that Mr and Mrs Di Benedetto must repay a loan of $500,000 with an interest rate of 6.95 per cent per annum or they will lose their home. As at 20 March 2009 the total amount payable to Permanent was $692,094.16. 444 The unjust consequence or result that is to be avoided in the Tavares and Rowe proceedings is that Mr Tavares and Ms Rowe must repay a loan of $416,000 with an interest rate of 6.95 per cent per annum or they will lose their home. As at 20 March 2009, the total amount payable to Tonto was $532,508.27. 445 The plaintiffs put to me that as an alternative to setting aside the loan agreements in their entirety, it would be open for the court to set them aside in part. It seems to me that if I was to accede to this submission an unjust consequence or result would not be avoided as the contracts arose from the fraudulent conduct of Streetwise and the cross-claimants received no benefit from the loan monies save for the sum of $50,872.76 which was used by Mr Tavares and Ms Rowe to discharge their mortgage with the ANZ bank. 446 I make the following orders in the matter of Permanent Trustee Company Limited v Gillian O'Donnell and John Robert O'Donnell (the O'Donnell proceedings): 1. The plaintiff's claim be dismissed. 2. Pursuant to s 7(1)(b) of the Contracts Review Act declare that each of: (a) The loan agreement dated 10 January 2003 and made between Permanent Trustee Company Limited as lender and Gillian O'Donnell and John Robert O'Donnell as borrowers, and (b) Mortgage registered No 9386484P between Gillian O'Donnell and John Robert O'Donnell as mortgagors and Permanent Trustee Company Limited as mortgagee affecting the land in certificate of title Folio Identifier 62/7912 is void in whole. 3. Pursuant to s 7(1)(d) of the Contracts Review Act , order that Permanent Trustee Company Limited execute and deliver to Gillian O'Donnell and John Robert O'Donnell any instrument relating to the mortgage registered No 9386484P which they shall reasonably require to enable them to cause the notation or memorial of registration of that mortgage to be removed from certificate of title Folio Identifier 62/7912. 4. Grant liberty to apply on seven days notice in relation to any question arising in relation to order 3. 5. Order that the plaintiff pays the defendants'/cross-claimants' costs of the proceedings. 447 I make the following order in the matter of Permanent Trustee Company Limited v Lawrence Di Benedetto and Maria Di Benedetto (the Di Benedettto proceedings): 1. The plaintiff's claim be dismissed. 2. Pursuant to s 7(1)(b) of the Contracts Review Act declare that each of: (a) The loan agreement dated 19 February 2003 and made between Permanent Trustee Company Limited as lender and Lawrence John Di Benedetto and Maria Di Benedetto as borrowers, and (b) Mortgage registered No 9457518F between Lawrence Di Benedetto and Maria Di Benedetto as mortgagors and Permanent Trustee Company Limited as mortgagee affecting the land in certificate of title Folio Identifier 5/23820 is void in whole. 3. Pursuant to s 7(1)(d) of the Contracts Review Act , order that Permanent Trustee Company Limited execute and deliver to Lawrence Di Benedetto and Maria Di Benedetto any instrument relating to the mortgage registered No 9457518F which they shall reasonably require to enable them to cause the notation or memorial of registration of that mortgage to be removed from certificate of title Folio Identifier 5/23820. 4. Grant liberty to apply on seven days notice in relation to any question arising in relation to order 3. 5. Order that the plaintiff pays the defendants'/cross-claimants' costs of the proceedings. 448 I make the following orders in the matter of Tonto Home Loans Australia Pty Ltd v Jose De Carvalho E Rego Tavares and Kim Lee-Anne Rowe (the Tavares and Rowe proceedings): 1. The plaintiff's claim be dismissed. 2. Pursuant to s 7(1)(b) of the Contracts Review Act declare that each of: (a) The loan agreement dated 22 May 2003 and made between Tonto Home Loans Australia Pty Ltd as lender and Jose Tavares and Kim Lee-Anne Rowe as borrowers, and (b) Mortgage registered No A9709341 between Jose De Carvalho E Rego Tavares and Kim Lee-Anne as mortgagors and Tonto Home Loans Australia Pty Ltd as mortgagee affecting the land in certificate of title Folio Identifier 60/240036 is void in whole. 3. Pursuant to s 7(1)(d) of the Contracts Review Act order that Tonto Home Loans Australia Pty Ltd execute and deliver to Jose De Carvalho E Rego Tavares and Kim Lee-Anne Rowe any instrument relating to the mortgage registered No A9709341 which they shall reasonably require to enable them to cause the notation or memorial of that mortgage to be removed from certificate of title Folio Identifier 60/240036. 4. In exchange for the instrument or instruments which are referred to in order 3, Jose De Carvalho E Rego Tavares and Kim Lee-Anne Rowe are to pay to Tonto Home Loans Australia Pty Ltd the sum of $50,872.6 with interest at the rate of 6.95 per cent per annum calculated on that sum from 31 July 2005 until the date of payment. 5. Grant liberty to apply on seven days notice in relation to any question arising in relation to orders 3 and 4. 6. Order that the plaintiff pays the defendants'/cross-claimants' costs of the proceedings. 449 Having made these orders under the Contracts Review Act, it is unnecessary to consider the further claims for relief. ********** 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. 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