New South Wales Supreme Court CITATION : Mighell & Anor v Gargoura & Ors [2009] NSWSC 248 HEARING DATE(S) : 13 to 17 October 2008 JUDGMENT DATE : 3 April 2009 JURISDICTION : Equity Division JUDGMENT OF : Palmer J DECISION : Judgment for Plaintiff under Contracts Review Act for compensation equal to loss of Plaintiffs' equity in property. CATCHWORDS : CONTRACTS REVIEW ACT – UNCONSCIONABLE CONDUCT – Plaintiffs in financial need – First Defendant enters into series of contracts whereby he purchases Plaintiffs' property at substantially less than market value – whether unconscionable conduct – whether relief may be given under Contracts Review Act. Contracts Review Act 1980 (NSW) – s 7(1), s 8, s 9, Schedule 1 Conveyancing Act 1919 (NSW) – s 66ZG LEGISLATION CITED : Employees Liability Act 1991 (NSW) – s 3 Fair Trading Act 1987 (NSW) – s 68, s 72 Residential Tenancies Act 1987 (NSW) Trade Practices Act 1974 (Cth) – s 82 CATEGORY : Principal judgment - Andrews v Racken Pty Ltd [2007] NSWSC 1010 - Bakarich v Commonwealth Bank of Australia [2007] NSWCA 169 - Beneficial Finance Corp Ltd v Karavas (1991) 23 NSWLR 256 - Blomley v Ryan (1956) 99 CLR 362 - Holloway v Witham (1990) 21 NSWLR 70 CASES CITED : - Jarvis v Swans Tours Ltd [1973] QB 233 - Permanent Trustee Co of New South Wales Ltd v Bridgewater [1936] 3 All ER 501 - Perpetual Trustee Company Ltd v Khoshaba [2006] NSWCA 41 - Riz v Perpetual Trustee Australia Ltd [2007] NSWSC 1153 - St George Bank Ltd v Trimarchi [2004] NSWCA 120 - West v AGC (Advances) Ltd (1986) 5 NSWLR 610 Allan Henry Mighell (dec'd) (First Plaintiff/1st Cross Defendant on 1st Cross Claim) Jacqueline Mighell (Second Plaintiff/2nd Cross Defendant on 1st Cross Claim) Alain Gargoura (First Defendant/Cross Claimant on 1st, 2nd & 5th Cross Claim) PARTIES : Vadim Sergienko (Second Defendant) Sydney Investment Solutions (Third Defendant) Sunny Auyeung (Cross Defendant on 2nd & 4th Cross Claims, Cross Claimant on 3rd Cross Claim) Nationwide Mortgage Corp (Cross Defendant on 3rd & 5th Cross Claims, Cross Claimant on 4th Cross Claim) FILE NUMBER(S) : SC 2987/05 Ms A.J. Tibbey (Plaintiffs) COUNSEL : R.J. Brender (First Defendant) M. Lee (3rd Cross Claimant) A.C. Norrie (4th Cross Claimant) Peter Baker (Plaintiffs) SOLICITORS : Brown Wright Stein (First Defendant) Kemp Strang (3rd Cross Claimant) M. Churchill (4th Cross Claimant) 2987/05 Mighell & Anor v Gargoura & Ors JUDGMENT 3 April, 2009 Introduction and issues 1 Mr and Mrs Mighell, an elderly couple, were the registered proprietors of a property in Zetland. They had borrowed heavily on the security of the property and by late 2002 they were in default of their mortgage. The mortgagee was seeking vacant possession in order to exercise a power of sale. Mr and Mrs Mighell tried to obtain refinance but their credit history was so poor that no lender would lend to them. 2 In about October 2002 Mr and Mrs Mighell approached Mr Vadim Sergienko, who carries on business as a mortgage broker through his company, Sydney Investment Solutions Pty Ltd ("SIS"). Mr Sergienko lodged a finance application on their behalf for a loan of $450,000 with a financier, Nationwide Mortgage Pty Ltd ("Nationwide"). It was a "low document" application, a euphemism meaning that the application contained such scant financial information and unsatisfactory verification that it would not be considered by a financier applying the usual prudential lending criteria. Nationwide was in the business of accepting such applications. 3 Nationwide nevertheless declined the loan application on the ground that Mr and Mrs Mighell had too many credit defaults and arrears with their existing mortgagee. 4 The general manager of Nationwide was Mr Alain Gargoura. The rejection of Mr and Mrs Mighell's loan application came to his attention. Mr and Mrs Mighell came to see him accompanied by Mr Sergienko in late November and in December 2002 and again in January and February 2003, seeking his assistance to obtain a loan. 5 At that stage, the market value of the Zetland property was around $650,000. If Mr and Mrs Mighell had sold the property, after deducting mortgage liabilities and expenses and arrears of Council and water rates, amounting in all to about $375,900, they would have realised between $220,000 and $274,000. However, Mr and Mrs Mighell strongly desired to keep the property. 6 Ultimately, Mr Gargoura put a proposal to Mr and Mrs Mighell – as he says "primarily to help them out" . In broad terms, the proposal was that he would buy their property, rent it to them and they could buy it back from him within a year when their financial situation had improved. He would be able to obtain finance for the purchase sufficient to discharge their existing liabilities because his credit record was much better than theirs. 7 Mr and Mrs Mighell were a little hesitant about the transaction. On 24 February, they were advised that they were about to be evicted that day by their mortgagee. They then entered into contracts which gave effect to the transaction proposed by Mr Gargoura. Settlement was effected on 26 March 2003. The transaction was structured in the following way. 8 Pursuant to a contract for sale dated 24 February 2003, the Zetland property was sold to Mr Gargoura for $575,000. The deposit was shown as $115,000. Simultaneously the parties entered into an Option Deed (dated 21 February 2003) whereby Mr Gargoura granted to Mr and Mrs Mighell an option, exercisable within twelve months, to repurchase the property for $603,000 or market value, whichever was the greater. The "option fee" payable by Mr and Mrs Mighell for the grant of the option was $115,000. The deposit of $115,000 payable by Mr Gargoura under the contract of sale was offset against the option fee payable by Mr and Mrs Mighell under the Option Deed. The Option Deed, in addition, provided that all expenses incurred by Mr Gargoura in the purchase of the property from Mr and Mrs Mighell would be paid by them in addition to the "option fee", and they would enter into a Residential Tenancy Agreement with Mr Gargoura for a period of twelve months, the rental being $37,000 payable in advance. 9 The amount necessary to discharge the mortgages and other liabilities relating to the property, $375,850.64, was borrowed by Mr Gargoura on the security of the property and was paid on settlement to third parties to discharge those liabilities. The balance of the purchase price, $199,149.36, which would otherwise been payable to Mr and Mrs Mighell, was credited to Mr Gargoura pursuant to the Option Deed for the payment of all his expenses relating to the purchase (including stamp duty on the contract for sale) and for rental in advance under the Residential Tenancy Agreement. 10 Because of their very poor credit history, Mr and Mrs Mighell were unable to obtain finance in order to buy the property back from Mr Gargoura by the expiry of the option period under the Option Deed. Mr Gargoura forfeited the option fee and in March 2005 commenced eviction proceedings against Mr and Mrs Mighell in the Consumer Trader & Tenancy Tribunal. 11 Mr Gargoura had borrowed on the security of the property the whole of the balance of the purchase price, after deducting the "deposit" of $115,000, i.e. $460,000. After settlement of the purchase, he increased the borrowing by a total of $52,000, which he used for his own purposes. He subsequently defaulted under the mortgage and the mortgagee evicted Mrs Mighell and entered into the possession of the property in September 2008. 12 The effect of the transaction between Mr and Mrs Mighell and Mr Gargoura is that: – of a nominal purchase price for the property of $575,000 Mr Gargoura has actually paid $375,850.64, the entire balance of the purchase price being credited to him under the Option Deed; – a third party mortgagee has now acquired an indefeasible interest in the property; – Mr and Mrs Mighell have lost whatever equity they had in the property at the time they entered into the transaction. 13 A spate of litigation has ensued. Mr and Mrs Mighell commenced proceedings against Mr Gargoura by Summons filed on 16 May 2005. By a Statement of Claim filed on 6 September 2005, they joined as defendants Mr Sergienko and his company, SIS. Mr Mighell has since died and Mrs Mighell is now sole plaintiff. 14 As against Mr Gargoura, Mrs Mighell seeks (so far as is now relevant): – a declaration that the Option Deed is void under s 66ZG Conveyancing Act 1919 (NSW) and that the Residential Tenancy Agreement is void under the Residential Tenancies Act 1987 (NSW); – an order setting aside the Option Deed and the Residential Tenancy Agreement as having been procured by unconscionable conduct; – a declaration under s 7(1) Contracts Review Act 1980 (NSW) that the contract for sale, the Option Deed and the Residential Tenancy Agreement are void and an order pursuant to s 8 and Schedule 1 that Mr Gargoura pay compensation for the loss of her equity in the property ($199,149.36), damages for mental distress caused by the transaction, and interest at Supreme Court rates; – damages pursuant to s 68 Fair Trading Act 1987 (NSW). 15 By his Defence and Cross Claim Mr Gargoura: – denies that he engaged in any unconscionable conduct in that the transaction was fair and reasonable in the circumstances; – says that Mr and Mrs Mighell had the benefit of independent legal advice before they entered into the transaction; – says that if the terms of the transaction were improvident, Mr and Mrs Mighell entered into the transaction recklessly and were the cause of their own loss; – says that Mr and Mrs Mighell are estopped by conduct from asserting the invalidity of the Option Deed; – says that the Option Deed should be varied under s 72 Fair Trading Act so that it is compliant with s 66ZG Conveyancing Act ; – says that Mr and Mrs Mighell remained in occupation of the property after termination of the Residential Tenancy Agreement without paying any rent so that, if he is liable to make any payment to them, they must allow an offset for an occupation fee. 16 As against Mr Sergienko and SIS, Mrs Mighell claims damages under s 68 Fair Trading Act and s 82 Trade Practices Act respectively for misleading and deceptive conduct. By their Defence, Mr Sergienko and SIS deny all allegations of fact made against them. Mr Sergienko and SIS are not legally represented and did not take part in the trial, except to the extent that Mr Sergienko made some oral submissions after the close of evidence. 17 By a Second Cross Claim, Mr Gargoura sued Mr Sunny Auyeung, an in-house solicitor employed by Nationwide at the time of Mr Gargoura's transaction with Mr and Mrs Mighell. Mr Auyeung prepared the contract for sale, Option Deed and Residential Tenancy Agreement. Mr Gargoura alleged that Mr Auyeung was retained as his solicitor for the transaction and acted negligently in drawing up the Option Deed in terms which did not comply with s 66ZG of the Conveyancing Act and in drawing up a Residential Tenancy Agreement which did not comply with the Residential Tenancies Act 1987 (NSW). 18 By a Third Cross Claim against Nationwide, Mr Auyeung alleged that if he incurred any liability to Mr Gargoura, he did so in the course of his employment by Nationwide and he claimed indemnity from Nationwide pursuant to s 3 of the Employees Liability Act 1991 (NSW). 19 By a Fourth Cross Claim, Nationwide claimed damages against Mr Auyeung for breach of his duty to Nationwide in acting for Mr Gargoura. 20 By a Fifth Cross Claim, Mr Gargoura sued Nationwide for vicarious liability for the negligence of Mr Auyeung. 21 During the course of the trial, the parties reached a compromise on the Second, Third and Fourth Cross Claims and I made consent orders accordingly. Unconscionable conduct 22 Ms Tibbey of Counsel, who appears for Mrs Mighell, relies upon the statement of equitable principle stated thus in Blomley v Ryan (1956) 99 CLR 362, at 415 per Kitto J: "[the principle] applies whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands." 23 Ms Tibbey says that at the time of the transaction with Mr Gargoura Mr and Mrs Mighell were at a special disadvantage in dealing with him because: – they were in desperate financial need: the sheriff was literally about to evict them because of default in their existing mortgage and they had failed in their endeavours to obtain refinancing because of their poor credit record; – both were elderly and Mr Mighell was ill and may not have been able to understand fully the consequences of the transaction proposed by Mr Gargoura; – Mr Gargoura was highly experienced in arranging mortgages and his financial position was far superior to that of Mr and Mrs Mighell. 24 Ms Tibbey submits that Mr Gargoura took unconscientious advantage of the opportunity placed in his hands in that: – he knew that he was the only hope which Mr and Mrs Mighell had of retaining the property; – he knew that the transaction proposed by him would result in his obtaining their property, worth around $600,000, for an effective price of about $375,000 if Mr and Mrs Mighell could not obtain finance to repurchase the property from him within twelve months; – he knew that the prospects of Mr and Mrs Mighell obtaining such finance were virtually hopeless; – he knew that, from the viewpoint of Mr and Mrs Mighell, the terms of the transaction were grossly improvident. 25 Mr Brender of Counsel, who appears for Mr Gargoura, submits that the terms of the transaction were not grossly improvident but were, in all of the circumstances, fair and reasonable. He lays most emphasis, however, on the submission that Mr Gargoura did not unconscientiously take advantage of Mr and Mrs Mighell because they had the advice of an independent solicitor, Mr Wei, who counselled against entering into the transaction – yet, with the benefit of that advice, they decided to proceed. 26 Ms Tibbey responds that, while Mr and Mrs Mighell received advice from Mr Wei, that advice was neither adequate, sufficiently independent nor fully informed. She says that Mr Wei did not advise Mr and Mrs Mighell properly as to the options open to them. In the circumstances, Ms Tibbey submits, Mr Gargoura's conduct in entering into the transaction remains unconscionable. The facts 27 While the parties are in dispute about a great many minor issues, the major factual circumstances are clear enough. 28 At the time of the transaction, Mr Mighell was seventy years old and Mrs Mighell was sixty-five years old. Both had migrated to Australia in the 1960s. They married in 1973. Mr Mighell worked as a truck driver until his retirement in 1989. Mrs Mighell worked as a process worker and then started a small business purchasing and reselling cosmetics at various markets. They purchased the Zetland property in about 1984. It is zoned "Business/Commercial" and has a shop front. Mrs Mighell kept the stock for her business in the shop premises and they lived in the residential part. 29 Mr and Mrs Mighell had borrowed to purchase the property. They seemed to have increasing difficulty in meeting mortgage repayments. By 2001, they had refinanced about eight times, getting deeper into debt in the process. While neither of them was well educated or experienced in real estate affairs, I accept that by 2002 they had considerable experience in mortgaging their property and were well aware of the consequences of default under a mortgage. 30 By mid-July 2002, Mr and Mrs Mighell were in substantial default under their existing mortgage and the mortgagee was threatening to evict them in order to exercise its power of sale. They made several endeavours to refinance once again, without success. They saw an advertisement placed by Mr Sergienko and went to see him. He made a loan application to Nationwide, which was declined. 31 There is no doubt that by February 2003, Mr and Mrs Mighell were very anxious that they would lose their home and they were willing to do almost anything to save it. Whether it was Mr Sergienko who first proposed that Mr Gargoura buy the property, as Mrs Mighell asserts, or Mr Gargoura who first proposed it, does not matter. Mr Gargoura's evidence is that he explained the transaction which he proposed at a meeting with them in January or February 2003. 32 I am satisfied that it was Mrs Mighell who took the lead in discussions between Mr and Mrs Mighell and Mr Sergienko and Mr Gargoura. Mr Mighell was frail and in ill health. Mrs Mighell, as appeared from her demeanour in the witness box, is a strong and assertive personality. Mr Wei says, and I accept, that in discussions in which he participated it was mostly Mrs Mighell who spoke on behalf of herself and her husband. 33 In her evidence, Mrs Mighell focussed on the role played by Mr Sergienko rather than on any discussions she had with Mr Gargoura and with Mr Wei. According, to her, it was Mr Sergienko who persuaded her to enter into the transaction of sale to Mr Gargoura by representing to her that he would be able to obtain a loan for her and Mr Mighell so that they could buy the property back from Mr Gargoura in a short time. 34 Mrs Mighell's evidence was unsatisfactory in many respects. She gave a version of events which was starkly black and white, omitting any detail or particularity. She asserted that it was her husband who took the initiative in arranging the transaction with Mr Gargoura and that she signed the documentation only because he told her to do so. As I have noted, the other witnesses, particularly Mr Wei, asserted to the contrary. Mrs Mighell's personality and the inherent probabilities also indicate that this evidence is not accurate. I do not accept that Mrs Mighell paid little attention to the details of the proposed transaction at the time and simply acted in compliance with her husband's wishes. 35 Mrs Mighell minimised the significance of the advice which she had been given by Mr Wei prior to entering into the transaction. She said that she hardly paid attention to it and that she was out of the room for some of the time. However, there were many meetings between Mr Wei and Mr and Mrs Mighell. 36 Mr Sergienko had introduced Mr and Mrs Mighell to Mr Wei in late 2002 when they needed a solicitor to act on the refinancing which Mr Sergienko was trying to arrange for them. At that time Mr Wei had been admitted as a solicitor for a little over a year. He was working in conjunction with a solicitor who conducted a sole practice under the name "AAT Legal". Mr Wei was not employed but had an arrangement with the solicitor whereby he was paid according to the work which he actually did for AAT's clients. The arrangement was a loose one in the sense that Mr Wei was not paid a fixed percentage of the fees which he charged; rather, his share of the fees was negotiated on a case-by-case basis. If no fees were earned for work done by Mr Wei, he was not paid anything. 37 Mr Sergienko conducted his business from a desk in the office of a migration agent which adjoined the offices of AAT. There had been some referral of work from Mr Sergienko to AAT but, I gather, rather little. Mr Wei says that on about half of the occasions he saw Mr and Mrs Mighell – and he says there were more than ten – Mr Sergienko was also present. Mr Wei had never met Mr Gargoura. 38 The documents embodying the transaction proposed by Mr Gargoura were prepared by Mr Auyeung, an in-house solicitor employed by Nationwide. 39 The contract for sale is dated 24 February 2003. It states the purchase price at $575,000 and that the deposit of $115,000 has been paid. The Option Deed is dated 21 February 2003 but was executed, apparently, at the same time as the contract for sale. The parties to the Option Deed are Mr and Mrs Mighell and Mr Gargoura. In so far as is now relevant, the Option Deed provides that: – Mr Gargoura grants to Mr and Mrs Mighell an option to purchase the property for an option fee of $115,000; – the option exercise period is one year; – upon exercise of the option, the purchase price will be $603,000 or market value, whichever is greater; – the option fee will be forfeited to Mr Gargoura if the Option Deed is rescinded by him or if the option is not exercised but it will be credited towards the purchase price if the option is exercised; – clause 4.1 provides: "The option can be exercised on or before the date specified in Item 4 and not after that date by Mighells giving notice to Alain [Mr Gargoura]. Mighells expressly acknowledge that any and all costs associated with the exercise, drafting, executing and/or otherwise dealing with this option or the execution of the contract pursuant to the exercise of this option in any and every way shall be paid in full by the Mighells, and that any government taxes, duties, levies, fees or any other charges that apply to the property, this option, the execution of this option or to Alain as a direct result of the execution of this option or the purchase by Mighells of the property at … shall be borne in full by Mighells." – clause 5.1 provides: "Alain can rescind this deed if Mighells have not informed Alain 1 calendar month prior to date specified in Item 4 of their intention to exercise this option; if contracts are not exchanged in accordance with item 6.1 or if any unrepaired or unsatisfactorily repaired damage, any alterations not authorized in writing by Alain, unreasonable levels of cleanliness or unreasonable wear and tear is incurred by the property. – clause 10 provides: "The Vendors agreed to pay the following costs and expenses which associated with this sale: (a) Stamp duty for the purchase of the property – $21,369.00 (b) Purchaser's legal fees and disbursements – $1,200.00 approximately; (c) Any land tax that could possibly incur (d) Any costs associated with Building Certificate (e) Insurance Costs associated with the property (f) Rent in a sum of $37,000.00 must be payable to the Purchaser in advance on settlement (g) Any GST that is payable (h) Council Rates and Water Rates and any other rates associated with the property." – clause 11 provides: "(a) The Vendors acknowledge that the Option Agreement and Tenancy Agreement ("the Agreements") between Alain Gargoura ("The Purchaser") and Alan & Jacqueline Mighell ("The Vendors") forms an essential terms to the Contract for the Sale of Land. (b) The Vendors must seek legal advice with respect to Special Condition 11(a), the entirety of this Contract and further must understand the terms and conditions to the Option Agreement and Tenancy Agreement. A certificate must be provided by the solicitors acting for the vendors that such advice has [sic] given to the Vendors with respect to this Agreements." – clause 13 provides: "The Vendors must ensure that the property insured with the approved insurance company for the period of twelve (12) months from the date of exchange of contract. Insurance Policy must be provided to the Purchaser that such property is insured with the approved insurance company." – clause 14 provides : "14.1 The Vendors agreed to rent the property at …… until 1 February 2003 and also the Vendors agreed to pay a sum of $37,000.00 being the residential lease for fixed term of the lease. 14.2 The Vendors during the occupation of the property must keep the state of the property in good condition and any repairs must be conducted by the Vendors." – clause 15 provides: "The Vendor must pay all Council Rates and Water Rates in advance to Alain Gargoura for the period of 12 months." – Item 5 of the Schedule provides: "It is a term and requirement of this deed that both Mighells obtain a certificate from an independent solicitor confirming receipt of advice and counsel with respect to ALL terms and conditions included in this option." 40 The highly unusual features of the Option Deed are: – Mr and Mrs Mighell, as vendors of the property to Mr Gargoura, are to pay the stamp duty on the contract of sale as well as Mr Gargoura's legal fees; – Mr and Mrs Mighell are to pay rent in advance for a year as well as Council and water rates in advance; – they are to pay for the insurance on the property during the term of the option; – the option fee may be forfeited if, inter alia, the property is not kept in a state of cleanliness satisfactory to Mr Gargoura. 41 The Residential Tenancy Agreement provides that rent for the term of one year in the sum of $37,000 is to be paid in advance, and in addition to the rent, a bond of $5,000 is to be paid to Mr Gargoura. Mr Bird, a valuer called by Mrs Mighell, says that the market rental for the property at the time of the transaction was very substantially less than $37,000 per annum. There is no persuasive evidence to the contrary. 42 Mr Wei says that he explained the terms of these contracts to Mr and Mrs Mighell prior to their execution. He gave this evidence: "A. Well, I I basically believe that was that was a real, oh, well, a real bad deal according to the terms of terms of the option and … HIS HONOUR Q. I am sorry, it was a real? A. A real bad deal. Q. A bad deal? A. Yeah, to accept that. And I remember I went well, I went through it with them in quite detail, quite detailed, I think. Maybe for quite a bit of time as well because just to go through all what might be involved in according to the terms of that option, yeah, both of I I remember I must have explained to them not only once maybe yeah, few times I think. At least couple of times. Q. Can you remember the substance of what you said? A. Mainly I thought, well, that was real bad deal and it was not a it was not something, you know, they really should do if they could find some options, other ways of doing it." 43 Much later in his evidence, Mr Wei says that he advised Mr and Mrs Mighell to sell the property themselves, pay off the mortgage and keep the balance for themselves: T136.11-.27 44 Mr Wei concedes that he really did not know enough about the Mighells' circumstances to advise that, without any doubt, the only prudent course was to sell the property and pay off their liabilities. If they had done so, they would have about $200,000 remaining with which they could obtain other accommodation; if they went into the proposed transaction with Mr Gargoura it was virtually certain that they would lose everything. 45 Mr Wei did not make any searches or enquiries to ascertain what the then market value of the property was, what was the precise amount of Mr and Mrs Mighell's outstanding liabilities, and what they were likely to be left with if they did not proceed with the transaction: see T116.10-117.22. He did not make such searches and enquiries for two reasons. First, Mrs Mighell was keen to proceed with the transaction, saying that she would get money soon from overseas from some business, never identified with any precision, in which she was supposedly engaged. Second, Mr and Mrs Mighell did not have the money to pay for searches and enquiries. Indeed, they did not have the money to pay for Mr Wei's services in the transaction with Mr Gargoura, as Mr Wei discovered. 46 Prior to exchange of contracts, Mr Wei believed that, even after all deductions from the balance of the purchase price had been made in favour of Mr Gargoura pursuant to the Option Deed and the Residential Tenancy Agreement, Mr and Mrs Mighell would still receive some money – the amount he did not know, but he believed that, at the very least, it would be enough to pay his fees of about $2,000. 47 After exchange of contracts and shortly before settlement, Mr Wei received from Mr Gargoura's solicitor, Mr Auyueng, a settlement sheet showing how the balance of monies available on settlement would be distributed after discharge of the existing mortgages. In addition to payment out of all outstanding Council and water rates for the ensuing twelve months, insurance premiums, stamp duty on the contract for sale and Mr Gargoura's legal expenses, Mr Gargoura was to receive: – rent in advance $37,000.00 – rental bond $3,839.75 – an "application fee" $9,000.00 48 Nationwide was to receive a fee of $1,488.20 as Mr Gargoura was arranging finance for the purchase through Nationwide. Mr Sergienko was to receive a fee for his services of $7,000. 49 The settlement sheet did not show why Mr Gargoura was entitled to an "application fee" of $9,000 when Nationwide was entitled to an additional fee for arranging the mortgage to Mr Gargoura. Mr Wei, apparently, did not protest to Mr Auyeung that this "fee" was not justified. 50 The settlement sheet made it plain to Mr Wei that Mr and Mrs Mighell would not receive a cent from the proceeds of sale and that they would not be able to pay his fees. He rang Mr Auyeung and told him that he would not attend settlement unless his fees were paid. His fees were paid out of moneys which would otherwise have gone to Mr Gargoura and settlement proceeded. 51 What happened demonstrates how little Mr Wei appreciated of the consequences of the proposed transaction before exchange of contracts. He certainly appreciated that the whole transaction was a "real bad deal" for Mr and Mrs Mighell, but just how bad a deal was unknown to him until just before the settlement of the contract for sale. 52 Mr Wei provided to Mr Auyeung, at the latter's request, a "Certificate of Independent Legal Advice", signed by Mr and Mrs Mighell and dated 23 February 2003. The first three paragraphs of the document had been drafted by Mr Auyeung. A fourth paragraph was added by Mr Wei on his own initiative. The Certificate stated: "Re: Alan & Jacqueline Mighell sale to Alain Gargoura Property: … (With option to repurchase and fixed tenancy agreement) We, Alan Henry Mighell & Jacqueline Mighell, of …, acknowledge that Anderew Wei of …, solicitor retained by us in the above matter, in relation to an agreement in writing proposed to be entered into between Alain Gargoura and us, has advised us before the time at which we signed the agreement, as to the following matters: 1. Whether or not, at that time, it was to our advantage, financially or otherwise, to enter into the agreement; 2. Whether or not, at that time, it was prudent for us to enter into the agreement; 3. Whether or not, at that time, and in the light of such circumstances as were, at that time, reasonably foreseeable, the provisions of the agreement were fair and reasonable. 4. Despite that Mr Wei has advised us that it is in his opinion that this agreement may not be to our financial advantage and it is not desirable to enter such agreement if we have other alternative or option [sic], we agree to enter this agreement of our own free will after our careful consideration of our current financial circumstances." 53 On 26 March 2003, Mr Wei prepared a letter to Mr and Mrs Mighell to which he procured their signatures by way of acknowledgement. The letter stated: "We refer to the above matter and wish to confirm that we have given you our legal advice as follows: 1. It is in our opinion that this contract for sale of land is probably not to your advantage financially. 2. It is probably not prudent to complete such transaction normally. 3. It is in our opinion that at the time and in the light of such circumstances as were reasonably foreseeable, the provisions of the agreement did not seem fair and reasonable 4. It was our advice that the Deed of Release submitted by your current mortgagee/mortgagee's solicitor R L Kremnizer & Co was not fair and reasonable to be executed. 5. Despite of our advice leaning towards the contrary, you instruct and authorise us to complete the sale and to issue such direction to pay as submitted by the purchaser/purchaser's solicitor." 54 It is to be noted that in both the "Certificate of Independent Advice" and the 26 March letter Mr Wei does not state unequivocally that the transaction is undoubtedly improvident and that he has advised that Mr and Mrs Mighell should not proceed but should sell the property and retain their equity for themselves. Both documents use words such as "may not be to our financial advantage" , "probably not to your advantage financially" , "probably not prudent", "advice leaning towards the contrary" . 55 My impression of Mr Wei in the witness box is that he is not the sort of person who would, in a clear and firm manner, give advice to a client which that client would find unpalatable. He was visibly uncomfortable with the part that he had played in the transaction. His recollection was, understandably, vague in some respects. 56 At the time of this transaction, Mr Wei was a recently admitted solicitor, endeavouring to secure some sort of legal practice for himself. He had some loose connection with Mr Sergienko – after the transaction, he even discussed sharing office accommodation with him. He knew that if the transaction did not proceed neither he nor Mr Sergienko would be paid anything for their efforts. He appreciated that the transaction was improvident, but he did not investigate the financial implications sufficiently to be able to advise Mr and Mrs Mighell, clearly and firmly, just how grossly improvident it was. The fact that a client is seemingly determined to pursue a foolish course of action does not relieve the solicitor from advising firmly and strongly against that course. If the client does not receive advice of that kind, the vitiating factor of an unconscientious transaction has not been removed: see e.g. Permanent Trustee Co of New South Wales Ltd v Bridgewater [1936] 3 All ER 501, at 506-8, and the useful review of the authorities by Brereton J in Riz v Perpetual Trustee Australia Ltd [2007] NSWSC 1153, at [116]. 57 I conclude that Mr and Mrs Mighell did not have that degree of clear and informed advice which would have revealed to them the extent of their foolishness in endeavouring to pursue the transaction with Mr Gargoura. 58 While Mr Gargoura was fully aware of Mr and Mrs Mighell's financial circumstances and of the elements of the transaction which made it a grossly improvident one, he was not aware of the extent and nature of the advice which Mr Wei had given them. He, through Mr Auyeung, had the benefit of Mr Wei's "Certificate of Independent Advice" which stated that Mr and Mrs Mighell had decided to enter into the transaction "after our careful consideration of our financial circumstances" . Mr Gargoura had not met Mr Wei. There is no basis upon which I could find that Mr Gargoura should have suspected that Mr Wei's advice to Mr and Mrs Mighell was not as firm and explicit as it should have been. 59 From Mr Gargoura's viewpoint, although he had put forward an improvident transaction, Mr and Mrs Mighell had had independent legal advice about it and they had decided to proceed. I am unable to find that Mr Gargoura knew that Mr and Mrs Mighell had not received advice from Mr Wei which was adequate to inform them fully of their position. I must bear in mind that there was no pre-existing relationship between Mr Gargoura and Mr and Mrs Mighell such as to put Mr Gargoura in a position of power over them. Mr and Mrs Mighell were legally free to decline the proposition which he put to them, if they wished. 60 In those circumstances, I am unable to find that Mr Gargoura unconscientiously took advantage of Mr and Mrs Mighell's financial need so that Mrs Mighell's claim founded on unconscientious conduct fails. Contracts Review Act 1980 (NSW) 61 It will be clear from the above that I find the transaction, as embodied in the contract for sale, the Option Deed and the Residential Tenancy Agreement, harsh, unjust and improvident in its terms and in the way it operated upon Mr and Mrs Mighell. If Mr Gargoura had known of the nature and extent of the advice which Mr Wei had given Mr and Mrs Mighell, he would have been guilty of unconscionable conduct in proceeding with the transaction. Absent such knowledge, he succeeds in his defence to the claim founded on general equitable principle. 62 Under the Contracts Review Act , however, the threshold for relief is lower than for a claim of unconscionability under the general law: see Bakarich v Commonwealth Bank of Australia [2007] NSWCA 169, at [89]; Andrews v Racken Pty Ltd [2007] NSWSC 1010, at [209]. If one of the contracting parties does not know of a vitiating factor, that does not mean that the contract cannot be unjust and cannot be undone under the Act: see e.g. St George Bank Ltd v Trimarchi [2004] NSWCA 120, at [36]; Beneficial Finance Corp Ltd v Karavas (1991) 23 NSWLR 256, at 277; Perpetual Trustee Company Ltd v Khoshaba [2006] NSWCA 41, at [117]-[119]. Knowledge of a vitiating factor is only one of the circumstances to which the Court must have regard in determining whether a contract is unjust for the purposes of s 7 of the Act. 63 In the present case, I have had regard to the following circumstances, amongst those to which the Court is directed under s 9 of the Act. 64 There was a material inequality in bargaining power between the parties: Mr Gargoura was Mr and Mrs Mighell's only hope of retaining their property. They were not in a position to negotiate and there was, in fact, no negotiation with Mr Gargoura even though Mr and Mrs Mighell had their own solicitor. Mr Wei did not even protest when Mr Gargoura sought a fee of $9,000 to which he was not entitled under the contracts. Mr Gargoura's proposal was, in effect, 'take it or leave it'. 65 In order to ascertain whether the terms of the transaction were reasonably necessary to protect Mr Gargoura's interests, one first has to ascertain what those interests legitimately could be. I do not accept that Mr Gargoura was primarily motivated to assist Mr and Mrs Mighell to retain their property by providing a temporary respite for them so that they could refinance at some time within the following twelve months. Mr Gargoura had never previously met Mr and Mrs Mighell and had no reason to feel charitably disposed towards them. I have no doubt whatsoever that Mr Gargoura realised that he was presented with an opportunity of acquiring Mr and Mrs Mighell's property for himself at very considerably less than its market price. He sought to take advantage of this opportunity by securing the following terms in the transaction: – the property was to be sold to him at, or for slightly less than, the current market price, but it could be repurchased by Mr and Mrs Mighell only at current market value at the time that the option was exercised; – Mr and Mrs Mighell were to pay an option fee of $115,000, which was grossly disproportionate to the value of the option granted; – the transaction was structured so as to ensure that Mr Gargoura received the benefit of the whole of the difference between the purchase price and the amount necessary to discharge the liabilities attaching to the property: if the option was not exercised – as was virtually certain – he would have received the benefit of the property at a price which was around half its market value. 66 Mr and Mrs Mighell were not reasonably able to protect their position, either in refusing the proposal outright or in negotiating significantly better terms because of: – their desperate financial circumstances and their high anxiety about losing the property; – their age and Mr Mighell's infirmity; – their comparative lack of financial sophistication; – their foolishness in believing that their financial situation was likely to improve within a year. 67 Mr and Mrs Mighell received legal advice from Mr Wei but it was not sufficiently informed nor was it sufficiently firm and unequivocal to make clear to them the gross improvidence of the transaction and their foolishness in wishing to proceed with it rather than simply realising their existing equity in the property. 68 Mr Gargoura did not know of the nature and extent of the advice given by Mr Wei but absence of such knowledge does not outweigh all of the other circumstances to which I have referred. 69 I conclude that the transaction as embodied in the contract for sale, the Option Deed and the Residential Tenancy Agreement produced both substantive unfairness – being the harsh terms of the transaction operating upon Mr and Mrs Mighell's circumstances – and procedural unfairness in that Mr and Mrs Mighell had no opportunity to negotiate for better terms: see e.g. West v AGC (Advances) Ltd (1986) 5 NSWLR 610, at 620-622 per McHugh JA. Remedy 70 The Option Deed and the Residential Tenancy Agreement should be declared void under s 7(1)(b) Contracts Review Act . However, a third party has acquired an interest in the property. Indeed, Mr Gargoura's mortgagee is about to exercise a power of sale. There is no suggestion that that mortgagee was aware of the circumstances which made the transaction unjust as between Mr and Mrs Mighell and Mr Gargoura. Accordingly, as Mrs Mighell recognises, the contract of sale to Mr Gargoura should not be declared void. The appropriate remedy is, rather, an order under Schedule 1, Clause 1(b) of the Act for payment to Mrs Mighell of compensation. 71 Mrs Mighell says, and I accept, that the measure of compensation is the value of the equity in the property which she has lost by the transaction with Mr Gargoura. She accepts that the contract price, $575,000, is near enough to the then current market price, although it was evidently at the lower end of the range. She says that, but for the unjust terms of the Option Deed and the Residential Tenancy Agreement, she would have received the difference between the contract purchase price and the amount necessary to discharge the liabilities attaching to the property. That is, she would have received $199,149.36, together with interest from the date of settlement of the sale to Mr Gargoura. 72 Mr Gargoura says that there should be offset against any amount which he is ordered to pay to Mrs Mighell an amount representing an occupation fee for the time during which Mr and Mrs Mighell continued to occupy the property after expiry of the Residential Tenancy Agreement. 73 I do not think that any allowance for an occupation fee should be made. But for the unjust contracts of which Mr Gargoura took the benefit, he would not have been in a position to charge rent to Mr and Mrs Mighell. What, in justice, ought to have happened is that Mr and Mrs Mighell would have had about $200,000 from the sale of their property with which to provide for their accommodation. Instead, they had no money for accommodation and had little choice but to remain in the property while they conducted these proceedings against Mr Gargoura. In those circumstances, Mr Gargoura cannot have the benefit of the transaction in the form of an occupation fee. 74 Mr Gargoura also submits that Mrs Mighell should pay to him the loss of the capital value of the property between the date of expiry of the Residential Tenancy Agreement and the time the mortgagee came to exercise its power of sale. I can see no basis in justice for such a claim. As I have said, Mr Gargoura should not have entered the transaction at all: the risk of loss flowing from it, if it should be successfully attacked, is for his account. 75 Mrs Mighell claims additional damages for mental distress and anguish suffered as a result of the transaction with Mr Gargoura. Ms Tibbey says that the award of additional damages for mental distress is within the power of the Court to order under the Contracts Review Act . She relies upon the line of authority beginning with Jarvis v Swans Tours Ltd [1973] QB 233, and says that a case under s 7 Contracts Review Act is analogous with cases under other legislation concerned with consumer protection in which damages for mental distress have been given: see e.g. Holloway v Witham (1990) 21 NSWLR 70 (a claim under the Fair Trading Act 1987 (NSW)). 76 Mr Brender says that the facts of the cases relied upon by Ms Tibbey are distinguishable. I have not been referred by Counsel to any case which is direct authority for the proposition that the power of the Court, given in Schedule 1, Clause 1(b) of the Contracts Review Act to order "payment of money (whether or not by way of compensation) to a party to the contract" includes the power to make an award for pure mental distress, i.e. where the contract was not to provide, directly or indirectly, the plaintiff with a state of affairs free of mental distress (e.g. a holiday or quiet enjoyment of a lease). 77 I resist the temptation to explore this question of law because, even if I were to conclude that the Court had power under the Contracts Review Act to award this kind of compensation, there is no evidence in this case upon which I could assess those damages. The only evidence of Mrs Mighell which could bear even indirectly upon the question is in a few brief paragraphs of her affidavits in which she says that living conditions in the Zetland property (before she and Mr Mighell moved out) were spartan: no cooking facilities, no hot water, no laundry and no electricity in the bedroom and the bathroom. After they moved out, Mrs Mighell says, they had difficulty finding suitable accommodation, but she does not say why. Mr Mighell died. He had long-standing and serious health problems. Mrs Mighell has also been in hospital for a time. She also has had health problems. None of these circumstances, while no doubt distressing, are attributable to Mr Gargoura. 78 While I accept that Mrs Mighell has suffered stress and anxiety because of what has happened, the financial difficulties which led her to contemplate the transaction with Mr Gargoura were not of his making. Those difficulties must have caused her stress and anxiety even before she met Mr Gargoura. 79 In short, there is insufficient evidence upon which I could conclude that Mrs Mighell's stress and anxiety have been materially increased by the circumstances of the transaction with Mr Gargoura and cannot be appropriately ameliorated by the award of compensation for the loss of her equity in the property. Mrs Mighell's claim against Mr Sergienko and SIS 80 I have already mentioned some aspects of Mrs Mighell's evidence which I regard as unsatisfactory. The evidence which she gives as to the alleged representations made by Mr Sergienko are vague and mostly consist of broad assertions and conclusions. Her recollection generally is unreliable. I cannot be satisfied on the balance of probabilities that Mr Sergienko made express, unequivocal and unqualified representations that he would be able to procure refinancing for Mr and Mrs Mighell in a short time so that she and Mr Mighell would be able to repurchase the Zetland property from Mr Gargoura. In view of the very poor credit history of Mr and Mrs Mighell, I find it inherently improbable that Mr Sergienko would have made such representations. 81 In these circumstances, Mrs Mighell's claim against Mr Sergienko and SIS fails. Mr Gargoura's Cross Claim against Nationwide 82 Mr Gargoura's claim is founded upon the alleged negligence of Nationwide's employee, Mr Auyeung, in drafting the Option Deed in terms which did not comply with s 66ZG Conveyancing Act and in drafting the Residential Tenancy Agreement in terms which did not comply with the Residential Tenancies Act . 83 Even if those contracts are void by reason of non-compliance with the Acts, and even if Mr Auyeung was negligent in drafting them in that way, Mr Gargoura has suffered no damage. The contracts have been declared void under s 7(1)(b) Contracts Review Act and could never have been relied upon by Mr Gargoura even if they had otherwise been enforceable. 84 Mr Gargoura's Cross Claim against Nationwide must, therefore, be dismissed. Orders 85 I make an order under s 7(1)(b) Contracts Review Act declaring void ab initio the Option Deed and the Residential Tenancy Agreement between Mr and Mrs Mighell and Mr Gargoura. 86 I order that Mr Gargoura pay compensation to Mrs Mighell in the sum of $199,149.36 together with interest at Supreme Court rates as from the date of settlement of the sale to Mr Gargoura. 87 There will be judgment for Mr Sergienko and SIS on Mrs Mighell's claims against them. 88 Mr Gargoura's Cross Claim against Nationwide is dismissed. 89 It will be necessary for Mrs Mighell to bring in Short Minutes of Order calculating the amount for which judgment is to be entered. I will then hear argument as to costs. – oOo – DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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