New South Wales Supreme Court CITATION : Perpetual Trustee Victoria v Yap [2010] NSWSC 761 HEARING DATE(S) : 24-28 May 2010, 1 June 2010 JUDGMENT DATE : 16 July 2010 JUDGMENT OF : James J DECISION : Findings that loan agreements were unjust and that it would be just to grant relief CATCHWORDS : EJECTMENT — Consumer Credit Code ss 6(1), 6(5), 11(3), 11(4), 43(2), 80(3) — Contracts Review Act ss 7 and 9 LEGISLATION CITED : Contracts Review Act Beckley v Consumer Trade and Tenancy Tribunal [2009] NSWSC 703 Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 257 Benjamin v Ashikian [2007] NSWSC 735 Commercial Bank of Australia Limited v Amadio (1982-1983) 151 CLR 447 Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413, (2002) 11 BPR 20841 Esanda Finance Corporation Ltd v Tong (1997) 41 NSWLR 482 CASES CITED : Garcia v National Australia Bank (1998) 194 CLR 395 Jonsson v Arkway Pty Ltd [2003] NSWSC 815, 58 NSWLR 451 Kowalczuk v Accom Finance Pty Ltd (2008) 252 ALR 55 Nguyen v Taylor (1992) 27 NSWLR 48 Permanent Mortgages Pty Ltd v Cook [2006] NSWSC 1104 Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41, 14 BPR 26639 Spina v Permanent Custodians Ltd [2009] NSWCA 206 Yerkey v Jones (1939) 63 CLR 649 Perpetual Trustees Victoria Limited - Plaintiff PARTIES : Swee Lan Yap - First Defendant Edmond Dinkha Esho - Second Defendant FILE NUMBER(S) : SC 2009/292006 COUNSEL : P Newton - Plaintiff G Donnellan - First Defendant Kemp Strang - Plaintiff SOLICITORS : Watson Stafford Zipkis - First Defendant In person - Second Defendant IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION JAMES J FRIDAY 16 JULY 2010 2009/292006 PERPETUAL TRUSTEES VICTORIA LIMITED v SWEE LAN YAP and EDMOND DINKHA ESHO JUDGMENT 1 HIS HONOUR: In these proceedings the plaintiff Perpetual Trustees Victoria Limited sued the two defendants Swee Lan Yap (who I will refer to as "the first defendant" or simply as "the defendant") and Edmond Dinkha Esho ("the second defendant"). The first defendant and the second defendant are married to each other but estranged and separated. The second defendant is an undischarged bankrupt. At the hearing the first defendant was represented by counsel. The second defendant was not legally represented and appeared for himself. 2 In the proceedings the plaintiff claims possession of a property owned by the first defendant known as 17 Gunbalanya Avenue Beecroft ("the Beecroft property"), which the first defendant mortgaged to the plaintiff by a mortgage dated 6 October 2004 ("the mortgage") and also claims judgment against both defendants for an amount alleged to be due under a loan agreement dated 28 July 2006 between the plaintiff and the defendants. 3 The mortgage had originally been granted to secure the obligations of the defendants under an earlier loan agreement between the plaintiff and the defendants dated 6 October 2004. It is convenient to refer to the loan agreement of 6 October 2004 as "the first loan agreement" and to the loan agreement of 28 July 2006 as "the second loan agreement". 4 In 2005 the loan under the first loan agreement had been converted, at the request of the defendants, from being what was described as a "lo(w) doc(ument) loan" to a "full doc(ument) loan". I will refer to evidence about these two kinds of loans later in this judgment. By the second loan agreement the amount lent by the plaintiff to the defendants was increased. 5 The first defendant in her defence admitted that she had entered into the mortgage and the second loan agreement and that default had been made but asserted that the mortgage and the second loan agreement were subject to the Consumer Credit Code ("the Code"), that a default notice complying with s 80 of the Code had not been given and that, by reason of s 43(2) of the Code, the mortgage was unenforceable insofar as it purported to secure the first defendant's obligations under the second loan agreement. 6 In a cross-claim against the plaintiff the first defendant sought orders pursuant to s 71 of the Code (on the basis that the Code was applicable) or s 7 of the Contracts Review Act in respect of the mortgage and both loan agreements and also sought relief under the principles of unconscionability stated in Commercial Bank of Australia Limited v Amadio (1982-1983) 151 CLR 447. The plaintiff filed a defence to this cross-claim opposing all the relief sought. 7 The second defendant filed a defence drawn by himself, denying most of the allegations in the statement of claim and alleging that the plaintiff had failed to discharge a duty of care alleged to have been owed by the plaintiff to the second defendant. I consider it clear that the defence of the second defendant does not disclose any arguable matter of defence. 8 Counsel for the plaintiff prepared a helpful statement of issues, which was not the subject of any criticism by counsel for the first defendant. Broadly stated, the issues in the proceedings are:- 1. Did the Code apply to the loan agreements (and, particularly, the second loan agreement) and the mortgage 2. If the Code applied to the mortgage and the second loan agreement, did a document purporting to be a default notice given by the plaintiff to the first defendant comply with s 80(3) of the Code 3. If the Code applied to the second loan agreement and the mortgage, was the mortgage unenforceable by reason of s 43(2) of the Code, insofar as it purported to secure the first defendant's obligations under the second loan agreement 4. Were the mortgage and the loan agreements (and, particularly, the second loan agreement) unjust in the circumstances relating to them at the time they were made 5. Would it be unconscionable for the plaintiff to be allowed to rely on the second loan agreement and the mortgage The Evidence 9 The principal witnesses (and the only oral witnesses) at the hearing were Mr Graham Wort, who had been an employee of a company associated with the plaintiff, and the first defendant. I will now summarise the evidence of these witnesses. Mr Wort's evidence Mr Wort's affidavit 10 Mr Wort was an employee of Challenger Mortgage Management Pty Ltd, formerly known as Interstar Wholesale Finance Pty Ltd, to which I will refer as "Challenger" or "Interstar". Mr Wort had retrieved the records kept by Challenger relating to loans to the defendants. 11 Mr Wort explained the relationship between Challenger, the plaintiff and another company Royal Guardian Mortgage Corporation ("Royal Guardian") as follows:- "6. Challenger is a wholesale finance company which offers first registered mortgage loans over real property located in Australia and New Zealand. 7. Challenger offers a range of different mortgage loans to borrowers, all of which are financed through trusts administered by the plaintiff as trustee. Each trust has its own individual trust deed as well as a financial institution which funds the operation of the trust. 8. Funds paid to borrowers pursuant to mortgage loans (offered by Challenger) are sourced from trusts administered by the plaintiff as trustee. The plaintiff holds the legal title to the mortgages, but has no involvement in reviewing and considering applications for mortgage loan. The plaintiff's practice is to administer the trusts and permit the loan funds to be advanced as and when requested by Challenger. 9. From time to time Challenger receives loan applications on behalf of brokers or originators. When a customer applies for a loan from Challenger, Challenger receives (from the originator) an application form signed by the proposed borrower(s) along with other documents. Challenger considers the application and decides whether or not to approve the loan. The documents and information required (before Challenger will consider and approve a loan application) depend on the specific type of loan applied for. 10. The loans to the defendants were introduced to Challenger by loan applications received from Royal Guardian: Challenger managed the loans the subject of these proceedings." 12 On 26 August 2004 Challenger received from Royal Guardian a loan application signed by the defendants and numerous other documents. The loan application was a printed form on which words and figures had been written. 13 On the first page of the application particulars of each of the defendants were set out. For the second defendant a dash was placed alongside the printed words "no. of dependents", a box marked "self-employed" was ticked and the second defendant was described as "shop/business owner". For the first defendant a dash was placed alongside the words "no. of dependents", a box marked "self-employed" was ticked and the words "business/shop owner" had been written but had then been ruled through. 14 On the first page of the application the amount of the loan sought was shown as $750,000. Alongside the printed words "refinance/existing limit" the figure "$427,000" was written and (in the column for the second defendant) the words and figures "investment purchase $323,000" were written, together with a total of "$750,000". 15 On the second page of the application near the printed heading "breakdown of loan amount purpose of loan" the words and figures "refinance and use funds for investment purposes (purchase investment property)" were written and alongside the printed words "amount of loan" the figure of $750,000" was written. 16 On the second page of the application the assets of the defendants were shown as being the Beecroft property having a market value of $1,100,000 but subject to a loan from HSBC, the current loan amount being $427,000; a unit property in Queensland having a market value of $375,000 but subject to a loan from Royal Guardian, the current loan amount being $280,000; savings of $30,000, motor vehicles worth $80,000, marketable personal effects $100,000 and stock $250,000; producing total assets of $1,935,000. Liabilities in addition to the current loan amounts from HSBC and Royal Guardian were shown as totalling $60,000, producing total liabilities of $740,000. 17 In the application the gross income of the second defendant per annum was shown as $295,000 together with rental income shown as $8,280 and the income of the first defendant was shown as rental income of $8,280. 18 On a further page of the application the sum of $427,000 was written alongside the printed words "to refinance a property for investment purposes" and the words and figures "purchase investment property (contract attached) $323,000" were written alongside the printed words "to finance for future investment purposes". 19 On a further page of the application there was a printed declaration that the loan was wholly or predominantly for business or investment purposes. Both defendants had signed this declaration but two parallel transverse lines had been drawn in which "N/A" was written. 20 Other documents received on 26 August 2004 included reports of credit inquiries about the defendants, a mortgage valuation of the Beecroft property at $1,100,000, a copy of an unsigned front page of a contract for the sale to the second defendant of a property at 10 Calaria Close Edensor Park at a price of $360,000 and copies of statements of account for a home equity loan from HSBC from February to July 2004. 21 On 27 August 2004 Interstar received from Royal Guardian a declaration of financial position signed by both defendants. Alongside the printed words on the form "Gross Income (PAYG) p.a." was written the figure $295,000 for the second defendant and alongside the printed words "current rent received" the figure of $8,280 was written for each of the defendants. No other income was shown for the first defendant. 22 On 31 August 2004 a further declaration of financial position signed by both defendants was received. In this declaration the figure of $295,000 alongside "Gross Income (PAYG) pa" was crossed out and the same figure $295,000 was written alongside the printed words "Self-Employed – Net Income (Pre-Tax) (Annual Income left after expenses)". 23 On 31 August 2004 preliminary loan approvals were sent by Interstar to Royal Guardian, which were subject to certain conditions including provision of an original valuation report. Interstar received a title search showing that the first defendant was the sole registered proprietor of the Beecroft property. 24 On 2 September 2004 Interstar instructed an entity called First Title Secure ("FTS") to prepare loan documents and to act as a settlement agent. FTS carried on a business of providing mortgage processing services for lenders. 25 On 2 September 2004 FTS sent to the defendants at the Beecroft property a large number of documents. The documents included a borrowers check list listing all of the documents enclosed, with instructions about how they should be signed and other instructions to be complied with by the borrowers. The documents sent also included a form of loan agreement to be signed by the defendants and a form of mortgage to be signed by the first defendant. 26 On 22 September 2004 FTS received back the borrowers checklist and the other documents which the defendants had signed, including the loan agreement and the mortgage. FTS stamped on the borrowers check list the date "22 Sep 2004" as being the date on which the documents were received. 27 On the title page of the loan agreement the words "Loan Agreement (Non Consumer Credit Code Regulated)" appeared in bold type. In the loan agreement the plaintiff was referred to as "we" and the borrowers were referred to as "you". Clause 5 of the loan agreement provided in part:- "ACKNOWLEDGEMENT You acknowledge that: (i) the loan is to be applied by you wholly or predominantly for business or investment purposes (or for both purposes), (ii) We have recommended that you obtain independent legal and financial advice about the loan and that you have had the opportunity to obtain such advice, (iii) You have been provided with a copy of the terms and conditions ….." 28 In the Schedule to the loan agreement the security for the loan was shown as a registered first mortgage by the first defendant over the Beecroft property. 29 The signatures of the defendants to the loan agreement were witnessed by David Richard Todd solicitor of Lane Cove, who also witnessed the signature of the first defendant to the mortgage. 30 Also returned to FTS was a copy of the loan terms and conditions booklet marked "(Non-Consumer Credit Code Regulated)" and "Warning: the lender recommends that you seek legal and financial advice before accepting your loan offer". 31 Another document signed and returned by the defendants was a borrower's acknowledgment, which was in the following terms:- "BORROWER'S ACKNOWLEDGEMENT Perpetual Trustees Victoria Ltd STRONGLY RECOMMENDS that you obtain legal and financial advice regarding your loan contract and any securities granted by you BEFORE you sign them. If vou choose NOT to obtain legal advice you must complete and sign the acknowledgment below. If you DO obtain legal advice , you should have your solicitor help you complete the attached Statutory Declaration. If the documents have been translated for you, the interpreter must complete the certificate that is also attached ACKNOWLEDGMENT THIS SECTION MUST BE COMPLETED IF YOU HAVE CHOSEN NOT TO OBTAIN LEGAL ADVICE. IF YOU HAVE ANY DOUBTS OR WANT MORE INFORMATION, YOU SHOULD CONTACT YOUR GOVERNMENT CONSUMER AGENCY OR GET LEGAL ADVICE WE ACKNOWLEDGE THAT: · We have been handed a copy of the loan agreement and all security documents to be granted by us to Perpetual Trustees Victoria Ltd ('Documents'). We have read the Documents and this Acknowledgment, · We have been given the opportunity to obtain legal advice on the nature and effect of the Documents but have chosen not to do so of our own accord. · We understand the nature and effect of the Documents, and do not require them to be translated into another language. · We understand the obligations and risks involved in signing the Documents. · We sign the Documents freely, voluntarily and without pressure from any person." 32 Another document signed and returned by the defendants was a declaration of purpose, which was in the following terms:- "DECLARATION OF PURPOSE (Section 11, Consumer Credit Code. Regulation 10, Consumer Credit Regulation) to: Perpetual Trustees Victoria Ltd (Credit Provider) RE: LOAN of $750.000-00 expiring 15 October 2032 Edmon Dinkha Esho Full Borrower Name (1) Swee Lan Yap Full Borrower Name (2) We declare that the credit to be provided to us by the credit provider is to be applied wholly or predominantly for business or investment purposes (or for both purposes). IMPORTANT You should not sign this declaration unless this loan is wholly or predominantly for business or investment purposes. By signing this declaration you may lose your protection under the Consumer Credit Code. We agree to provide declarations of purpose of the credit whenever required by the Credit Provider. (signed) Signature of person making Declaration Full Name of person making Declaration (signed) Signature of person making Declaration Full name of person making Declaration" 33 A further document signed and returned was a direction and authority from the defendants to the plaintiff about how the loan to be made should be paid. The direction provided for payment of amounts for expenses and for a payment to HSBC. The direction further provided that, if no direction was given as to surplus loan funds, they would be automatically credited to a borrowers loan account. 34 Also signed and returned was an applicant's financial summary, showing "salary (gross pre-tax)" of $295,000 and "rental income" of $16,560, with a surplus of income over expenses (including payments to be made under the proposed loan) of $60,548 and a surplus of assets over liabilities of $1,195,000. 35 On 6 October 2004 the mortgage loan transaction was settled. The total funding amount was $763,875 of which $457,675.08 was paid to HSBC Bank Australia Limited, amounts were paid or deducted as fees and a surplus of $288,452.92 remained, which was credited to an account in the names of the defendants which had been debited with a settlement amount of $750,000. 36 The mortgage given by the first defendant over the Beecroft property was registered. The provisions of a memorandum filed in the Lands Titles Office were incorporated in the mortgage. 37 Later in October 2004 the second defendant requested in a document signed by both defendants that the loan be converted to an interest only loan for five years and this request was apparently granted. 38 On 20 July 2005 Interstar received from Royal Guardian an application by the defendants to change the loan from being a "lo doc" (low document) loan to being a "full doc" (full document) loan, together with supporting documents. The difference between a low doc loan and a full doc loan was explained by Mr Wort in his oral evidence. Broadly speaking, a low doc loan is a loan made to an applicant who is self-employed and does not have recent income tax returns. The advantage to the defendants of converting their loan into a full document loan would be that the interest rate payable by them would be somewhat lower. 39 The printed application form was signed by both defendants. For the second defendant the self-employed box on the form was marked, his current employer was stated to be "self" and alongside the printed words "no of dependents" there was a dash. For the first defendant there were dashes indicating that she had no employer and was not self-employed and a dash alongside the printed words "no of dependents". Alongside the printed words "refinance/existing limit" the figure $477,400 was written. 40 On a subsequent page of the application alongside the printed words "facility required" the words and figures "change of product from low to full doc Interest rate decrease of 6.84%" were written. 41 In a statement of assets and liabilities the Beecroft property was shown with a market value of $1,100,000 and a current loan amount of $477,400. Also shown as an asset was "Edensor Park" with a market value of $445,000, the lender being "Royal Guardian", with a current loan amount of $250,000. Written in the assets column were the words and figures "redraw $272,000". It was stated that the property at Kangaroo Pt (Queensland) had been sold. Some other assets were shown. The second defendant was shown as having "Gross Income PA" of $175,901 and a rental income of $13,000. The first defendant was not shown as having any income. 42 On another page of the application under the heading "The purpose of the proposed loan" the figure $477,400 was written alongside the printed words "to refinance an owner-occupied residence". 43 Further documents received were copies of what purported to be draft unsigned income tax returns for the second defendant for the tax years ended 30 June 2004 and 30 June 2005. The copy draft return for 2004 showed a taxable income of $175,901 and incorporated a profit and loss statement for the second defendant's business showing gross receipts of $428,062 and a net profit of $175,901. The copy draft return for 2005 showed a taxable income of $189,533 and incorporated a statement of financial performance for the second defendant's business showing gross receipts of $451,227 and a net profit of $189,533. 44 Another document received was a residential tenancy agreement between the second defendant and a tenant of the premises 10 Calaria Close Edensor Park. Statements of the account of the defendants with Royal Guardian from 6 October 2004 onwards showed that there had been a number of small withdrawals and that there had not been any withdrawal which could have been for the purpose of purchasing the property at Edensor Park. 45 The application by the defendants to convert the existing loan into a full document loan was granted. 46 On 26 June 2006 Interstar received from Royal Guardian a loan application signed by both defendants, together with other documents. 47 On the first page of the application particulars of each of the defendants were set out. The particulars for the second defendant included that he was self-employed "electrical retail". The particulars for the first defendant indicated that she was neither employed nor self-employed. 48 The amount of the loan sought was $860,000. Alongside the printed words "refinance/existing limit" the figure of $750,000 was written and alongside the printed words "increase for" the figure of $110,000 was written, producing a total of $860,000. 49 On the second page of the application, after a line reading "total loan amount $110,000", near a heading "breakdown of loan amount purpose of loan" the words "raise funds for home improvements and investment purposes" were written. 50 In the application the assets of the defendants were shown as being the Beecroft property having a market value of $1,050,000 and subject to a loan from the plaintiff of $730,000 and the property at Edensor Park having a market value of $450,000 and subject to a loan from Perpetual Limited (not the plaintiff), the current loan amount being $250,000, together with some smaller assets. The total assets of the defendants were stated to be $1,853,000 and their total liabilities were stated to be $980,000. The space in the application form for the insertion of information about the income of the borrowers was left blank. 51 On a further page of the application the sum of $750,000 was written alongside the printed words on the form "to refinance an owner-occupied residence", the sum of $50,000 was written alongside the printed words on the form "to finance expenditure of a personal domestic or household nature" and the sum of $60,000 was written alongside the printed words on the form "to finance for future investment purposes". 52 On a further page of the application both defendants signed the printed declaration that the loan was wholly or predominantly for investment or business purposes. 53 Other documents received by Interstar included consumer and commercial reports about each of the defendants and copies of the same draft unsigned income tax returns of the second defendant for the years 2004 and 2005 as had been received in connection with the application to convert the low doc loan to a full document loan. 54 An income calculation for serviceability was made by Interstar on the basis of the income disclosed in the second defendant's draft 2005 income tax return and showed an ability to service the increased loan. Interstar took steps to obtain an up-to-date valuation of the Beecroft property. 55 Preliminary loan approvals were granted by Interstar. On 28 June 2006 Interstar instructed FTS to prepare loan documents and to act as settlement agent. On 29 June 2006 FTS sent to the borrowers a large number of documents. 56 In July 2006 FTS received back the borrowers checklist and other documents which had been signed by the defendants. The borrowers checklist is no longer on the file of FTS and was, accordingly, not in evidence at the hearing. 57 On the title page of the loan agreement the words "Loan Agreement (Non Consumer Credit Code Regulated) appeared in bold type. Clause 4 of the loan agreement contained the same acknowledgement as the provisions of clause 5 of the first loan agreement which I set out earlier in this judgment. 58 Clause 5 of the loan agreement included the following provision:- "This is an increase of $110,000 to an existing loan taking the total loan to $860,000. Principal redraw applies taking the existing loan to the former limit of $750,000. Funds available at settlement will be the increase of $110,000 plus principal redraws on their existing loan, the current outstanding balance being approx $736,400." 59 In the schedule to the loan agreement the security shown is a registered first mortgage by the first defendant over the Beecroft property. 60 The signatures of the defendants to the loan agreement were witnessed by a person whose name appears to be Brian Wak. 61 Also returned to Interstar was a copy of the Loan Terms and Conditions booklet marked "Non-Consumer Credit Code Regulated" and "Warning – the lender recommends that you seek legal and financial advice before accepting your loan offer". 62 It would appear that both a form of acknowledgement appropriate to be completed when borrowers have not received independent legal advice and forms of declaration appropriate to be completed when borrowers have received independent legal advice were sent to the defendants. The defendants signed and returned both the declarations that independent legal advice had been received and the acknowledgment that they had chosen not to obtain independent legal advice. The acknowledgment was in the same terms as the acknowledgement they had made in 2004. 63 Both defendants signed and returned a declaration of purpose which was in the following terms:- " DECLARATION OF PURPOSE ( Section 11, Consumer Credit Code. Regulation 10, Consumer Credit & Regulation) TO: Perpetual Trustees Victoria Ltd (Credit Provider) MN320006000073012201 RE: Loan of $860,000.00 expiring 15 October 2032 Edmond Dinkha Esho Full Borrower Name (1) Swee Lan Yap Full Borrower Name (2) We declare that the credit to be provided to us by the credit provider is to be applied wholly or predominantly for business or investment purposes (or for both, purposes). IMPORTANT You should not sign this declaration unless this loan is wholly or predominantly for business or investment purposes. By signing this declaration you may lose your protection under the Consumer Credit Code. We agree to provide declarations of purpose of the credit whenever required by the Credit Provider. (signed) Signature of person making Declaration Full name of person making Declaration (signed) Signature of person making Declaration Full name of person making Declaration" 64 A further document signed and returned was a direction and authority that the net amount of $108,256.50 should be paid as directed in writing by the defendants. 65 On 28 July 2006 the second mortgage loan transaction was settled. At some time after 29 July 2006 the mortgage was up stamped. 66 The defendants defaulted in making payments due on 15 July 2008, 15 August 2008 and 15 September 2008. Default notices which were sent to the two defendants were in similar terms. The default notice sent to the first defendant was in the following terms:- "Mrs Swee Lan Yap 17 Gunbalanya Avenue BEECROFT NSW 2119 This is a Default Notice issued by Perpetual Trustees Victoria Limited (Lender) pursuant to section 57(2)(b) of the Real Properly Act (NSW) 1900, by its solicitor, Kemp Strang, so authorised by the Lender to do so. If the Uniform Consumer Credit Code applies to your credit contracts and/or mortgage, this Default Notice is also a default notice within the meaning of section 80 of the Uniform Consumer Credit Code. Credit Contract status as at 27 OCTOBER 2008 Credit Contract(s) MN320006000073012201 Mortgage(s) AB28791 Property 17 Gunbalanya Ave Beecroft NSW 2119 Arrears $19,888.19 Total Amount Outstanding $881,209.30 increasing at a rate of 12.28%pa 1. As set out in the above table: 1.1 Pursuant to the Credit Contract(s), the Lender provided financial accommodation to you. To secure the amounts owing to the Lender under the Credit Contract(s), you gave the Mortgage(s) over the Property in favour of the Lender. 1.2 Default(s) occurred under the Credit Contract(s) and the Mortgage(s) as the Arrears were not paid when due (default(s)). 2. To remedy the Default(s), you are required to pay the Arrears due under the Credit Contract(s) to he Lender within 31 days of receipt of this notice*(Grace Period). 3. If you do not remedy all the Default(s) within the Grace Period, or if a default of the same type as specified in this notice occurs during the Grace Period, then: 3.1 The total amount outstanding plus lender's costs and charges will automatically be due and payable and the lender may commence proceedings for the total amount outstanding, and 3.2 In respect of the property securing that credit contract, the lender proposes to: · Commence proceedings for or otherwise take possession of the Property · Exercise power of sale in respect to the Property 3.3 The Lender may take such other action under the Credit Contract(s) and the Mortgage(s) as it sees fit. 4. The Lender also requires you to pay the sum of $411.13 within the Grace Period being the costs of issuing this notice (Enforcement Expenses). How to Pay You can pay the Arrears and the Enforcement Expenses by sending payment to the Lender at Level 10, 101 Collins Street, Melbourne, VIC 3000 to the attention of Melina Todorovski, who can be contacted on 03 8616 1141, alternatively payment can be made by Bpay, Biller Code 31336, customer ref no. 2135465 (for account no. MN320006000073012201). (signed) Dated 28 October 2008" Mr Wort's oral evidence 67 Mr Wort explained that a low document loan requires only "self-certification" from the borrower in regard to their income. A low document loan is designed for applicants who are self-employed and who do not have prepared income tax returns for the last two financial years. A low document loan involves a greater risk to the lender and therefore has a higher interest rate. However, Mr Wort said that "historically" default rates are not very different between low document loans and standard loans. 68 Mr Wort was cross-examined about the difference between the income for the second defendant of $295,000 which was stated in the first application and the lower income which was stated in the conversion application and in the second loan application. He said that there could be any one of a number of reasons for the difference. 69 Mr Wort conceded that it was apparent that no part of the first loan had been applied for the purpose stated in the loan application of purchasing an investment property. The property at Edensor Park had been purchased by the second defendant but with funds provided by another lender. The funds which were surplus to paying out HSBC had been drawn down incrementally. 70 The income tax returns for the second defendant sent with the conversion application and the second loan application had been unsigned drafts. Mr Wort agreed that the Interstar guidelines manual provided that income tax returns of prospective borrowers should be signed but denied that it was mandatory that income tax returns should be signed. 71 In the applications no dependents of the defendants were disclosed, whereas they had two dependent children. In making its loan servicing calculations Interstar had proceeded on the basis that the defendants had no dependents. 72 Mr Wort offered an explanation of the conflicting acknowledgement and declarations on the second loan application about whether legal advice had been received, that "they may have just signed the first one (the declarations that they had received legal advice) for the simple fact it was in the documents with the security packet sent to the defendants". 73 Mr Wort said that security for a lender was paramount but also said that Interstar in considering the defendants' applications would have been looking at whether the loans could be serviced. 74 Mr Wort agreed that there were "discrepancies" in the purposes of the loans which had been stated, in the income of the second defendant and in the documents about whether legal advice had been received in connection with the second loan application. The first defendant's evidence The first defendant's affidavit of 28 April 2009 75 The first defendant was born in 1962 in Malaysia in a small rural village. Her family were Chinese and spoke Mandarin. 76 The first defendant left school in about 1976. After she left school she had a variety of odd jobs. Between 1977 and 1987 she worked as a hairdresser and beautician. She completed hairdressing and beautician courses. She worked hard to save money. 77 In 1987 the first defendant migrated to Australia. When she came to Australia she spoke very little English. She now speaks fairly fluent English and gave most of her evidence at the hearing in English, without needing an interpreter. 78 After arriving in Australia the first defendant worked mainly as a hairdresser. In about 1991 she opened her own hairdressing salon in Fairfield. Most of her customers were of Asian background and she did not speak English with them. 79 In 1988 the first defendant met the second defendant. They were married in 1994 and they have two children, born in about 1994 and 1996. At the time of their marriage the second defendant was conducting a Retravision franchise with his brothers. 80 The first defendant continued working as a hairdresser until her first child was born. Since then the first defendant has been mainly a housewife, sometimes helping the second defendant in his businesses or doing hairdressing. 81 At about the end of 2002 the second defendant left the Retravision franchise. In early 2003 the second defendant started his own electronics business. Since about 2005 the second defendant has also worked as a real estate agent. The first defendant has never had anything to do with the second defendant's businesses, apart from occasionally helping out as a shop assistant. 82 In para 20 of her affidavit the first defendant said:- "Throughout our marriage, Eddie has looked after all the household finances. Eddie is from an Assyrian background and is quite traditional. He sees it as the man's role to look after those things. Also, Eddie has lived in Australia for most of his life, his English is very good and he is a very experienced businessman Whenever I ask Eddie about our finances he says to me words like "don't worry about it, I will handle it". Sometimes I would argue with Eddie because I thought that he was not telling me enough about what was going on. However, I felt like Eddie always won those arguments because his English is so much better than mine." 83 In about 1992 the first defendant bought in her own name a townhouse at Canley Vale for about $97,000. The first defendant obtained the money to purchase the townhouse from a loan from the National Australia Bank to which she gave a mortgage, a loan from her sister and brother-in-law and her own savings. The loan from the National Australia Bank was the first time she had borrowed money from an institution. She has repaid the loan from her sister and brother-in-law. 84 In about 1998 the first defendant purchased the Beecroft property in her own name for $390,000. The house was bought in her name because it was she who had wanted to move from Fairfield. 85 To enable her to purchase the Beecroft property the first defendant borrowed $300,000 from HSBC. The rest of the purchase money was provided by the sale of the first defendant's motor vehicle, from the first defendant's savings and as to about $30,000 from the sale of a property at Bossley Park which had been owned by the first defendant, the second defendant and a brother of the second defendant. 86 Shortly after buying the Beecroft property the first defendant sold the townhouse at Canley Vale for $110,000. She said in her affidavit that out of the proceeds of the sale of the townhouse at Canley Vale she repaid part of the loan from HSBC. The first defendant also said in her affidavit that the second defendant had looked after the legal and business side of the purchase of the Beecroft property and the sale of the townhouse at Canley Vale. 87 In about 2001 a house property at 10 Austral Avenue Beecroft was purchased in the second defendant's name. At about the time of the purchase the second defendant said to the first defendant:- "We will buy the house by borrowing more money on the security of the house in Gunbalanya Avenue. We can also borrow some money to build a better house at Gunbalanya Avenue and we can live at Austral Avenue while we build a new house. We can sell Austral Avenue later to repay part of the loan." 88 This plan was put into effect. In about 2002 the property at 10 Austral Avenue Beecroft was sold and the defendants moved back into the newly built house on the Beecroft property. 89 In 2002 the defendants drove to Brisbane and inspected a home unit, which was later purchased in the first defendant's name. The first defendant signed some papers which the second defendant asked her to sign. The home unit was later sold. The second defendant said to the first defendant words to the effect "I've used the profit we made on the sale of Austral Avenue to repay some of our debt to HSBC". 90 Up until 2002 the second defendant gave to the first defendant $500 per week to meet household expenses. In about 2002 the second defendant stopped paying the first defendant $500 per week and paid to the first defendant only $200 or $300 per week or, in some weeks, nothing. The second defendant started doing some grocery shopping himself, which was something he had never done before. 91 About four months after this change in the second defendant's behaviour the second defendant told the first defendant that he had stopped working in his family's Retravision business and had not worked at all for four months. Shortly before this conversation the second defendant incurred a number of heavy financial commitments. He told the first defendant not to worry about these commitments, saying that he would handle them. Loan agreement and mortgage in 2004 92 In her affidavit the first defendant said:- "44. In about mid to late 2004 I remember Eddie saying to me words to the following effect: "I want to change banks] so that we can borrow more money at a better rate." 45. I cannot recall whether Eddie told me why he wanted to borrow more money. However, I would not have agreed to sign the documents unless Eddie had told me that he was going to use the money for his business, or to invest in something. I have been brought up to be very careful with money and I do not like borrowing money unless I know it is for something that will make us more money in the future. 46. At about that time, I remember driving to an office in Burwood where Eddie told me he was going to speak (to) some people about the loan. When we arrived at the office building in Burwood, Eddie told me to stay in the car and went inside the building without me. 47. Shortly after we went to Burwood, I remember Eddie bringing some papers for me to sign at our home. I recall that at this time Eddie said to me words to the following effect: "You need to sign these papers so that we can change banks"." 93 In para 50 of her affidavit the first defendant said that she had been shown (for the purposes of making the affidavit) some documents with her signature on them. She assumed that these documents were some or all of the documents she had signed at her home in 2004. These documents included the loan application, a declaration of financial position, an applicant's financial summary and a business purpose declaration. I have already referred to some of the contents of these documents in summarising the evidence of Mr Wort. 94 In para 51 of her affidavit the first defendant said that shortly afterwards she went with the second defendant to a solicitor's office in Lane Cove, where she met a solicitor named David and signed some more documents. She did not read any of the documents and the solicitor did not explain any of the documents. The first defendant said in her affidavit that she had been told that at this meeting she had signed the mortgage of the Beecroft property (and it would seem also the loan agreement) but she did not realise this at the time. She did not read the loan agreement or the mortgage and no one explained them. 95 In para 54 of her affidavit the first defendant said:- "I understand that a mortgage is a document that you sign when you borrow money. At the time I signed the mortgage, I did not know that the mortgage was a document which give Perpetual Trustee the right to sell the Gunbalanya Avenue property if the loan was not repaid. I would not have signed that document had I known what it meant." Loan agreement in 2006 96 In para 56 of her affidavit the first defendant said:- "One day in about mid 2006 I was minding Eddie's electronics shop in Epping. Eddie came into the shop and we had a conversation in words to the following effect: Eddie: I think we should increase a loan so we can borrow another $110,000" Me: "No Eddie, I don't want to borrow any more money" Eddie: "I just want to put it aside in case we need it. I will let you know if I'm going to use it". Me: "Do you promise?" Eddie: "Yes"." 97 The defendants made another visit to Burwood and the first defendant again remained outside the building in the car. 98 The first defendant signed some more documents at her home, which the second defendant asked her to sign and which she signed without reading. She said in her affidavit that she assumed that the documents she signed on this occasion included the application for a loan of June 2006 and the declaration of purpose. 99 In about July 2006 the second defendant took the first defendant to a chemist shop where she signed a further document in front of a justice of the peace. She said in her affidavit that she assumed that that document was the loan agreement dated 28 July 2006. 100 Between November 2004 and early 2006 the first defendant co-signed a number of handwritten letters from the second defendant to Royal Guardian, requesting that money be transferred from the loan account to the second defendant's business account in the name of Lane Cove Electronics. On these occasions the second defendant would say to the first defendant "I just need to transfer some money". The first defendant assumed that the money was being used for the second defendant's business. 101 In June 2005 the first defendant signed a request for a transfer of $125,000 from the loan account to the second defendant's business account. In para 63 of her affidavit the first defendant said that the second defendant told her "that he was going to use some money to purchase a new office space in North Sydney. This was the only time Eddie told me how he was spending the money from Perpetual Trustee, I did not mind him spending that money as I thought it would help his business". 102 The first defendant could not recall signing any request for a transfer of funds after the loan agreement of 28 July 2006 was entered into. She never herself accessed any of the borrowed funds. 103 While the defendants were living together at Beecroft, the first defendant never received or saw any mail from Royal Guardian or the plaintiff. The second defendant had a post office box where all of his mail was delivered. 104 In late 2008 the first defendant received some telephone calls from some person at Royal Guardian, asking for the second defendant. The first defendant asked the second defendant what was happening and the second defendant told her not to worry. The first defendant asked Royal Guardian to send her a statement of account but she did not receive any statement. 105 The first defendant did not recall receiving any letter from the plaintiff's solicitors or being served with the statement of claim in these proceedings. Her first knowledge of the proceedings was when she was personally served with a notice to occupier. First defendant's affidavit of 20 January 2010 106 In a further affidavit by the first defendant of 20 January 2010, which was an affidavit in reply to Mr Wort's affidavit, the first defendant said that she had not received independent legal advice at any time and that she had not received or seen any statements of the loan account in the names of the defendants. 107 In 2004 the first defendant had thought that the second defendant was operating a profitable business. Had she known that the second defendant was operating at a loss, she would not have applied to borrow any more money. At the time she signed the documents in 2004 she had no idea how much money was being borrowed, over and above the amount being used to refinance the HSBC loan, or what the second defendant was going to use the money for, "although I assumed he was going to use it in his business". 108 In 2006 the first defendant had not expected that the loan then being applied for would be approved, "as we already appeared to owe a large amount of money". At that time she knew that the second defendant was not making a lot of money, because every time she asked him for money for household expenses the second defendant became upset. The first defendant — oral evidence 109 The first defendant separated from the second defendant in April 2009, because she had not been told that the second defendant had not been making payments on the loans and "the people come and kick me out from my house". Her husband had not told her that she was going to lose her house. By April 2009 she understood what a "mortgage" is. She said "why don't I understand after someone kick me out and say to me you did not pay your mortgage". 110 In 2009, at the suggestion of her solicitor, the first defendant took from the second defendant a mortgage, which the second defendant was prepared to give, over the office unit which had been acquired in North Sydney in 2005. In connection with this transaction her solicitor had explained to her in simple language what a mortgage is. By its terms this mortgage acknowledged the receipt of a sum of $125,000 but no money was actually paid over in 2009. 111 When the first defendant had operated the hairdressing salon at Fairfield, she had conducted a bank account for the business. She had paid rent for the premises she used for the business but did not have any written lease. 112 When the first defendant bought the townhouse at Canley Vale she had signed the mortgage to the National Australia Bank. She had never given any thought to what might happen if she did not make the payments due under the mortgage. 113 The property at Bossley Park had been purchased by the second defendant, the second defendant's brother and the first defendant. The co-purchasers including the first defendant had signed a mortgage at a solicitor's office to secure a loan from the State Bank. 114 The first defendant was cross-examined about what had been her understanding of what a mortgage is. She said "until only recently I found out what "mortgage" meaning is. I never know what's "mortgage" mean. I always believe mortgage is only borrowing money". 115 In 1996 she had been able to read only very simple English and her English was not good enough for her to be able to understand the word "mortgage". 116 She had not acquired any understanding of the concept of a mortgage while she was in Malaysia, because in Malaysia persons of Chinese background have to rely on "family help" and not a bank, when buying property. 117 The first defendant gave evidence in cross-examination about her relationship with her husband, the second defendant. She would sign any document her husband asked her to sign. She trusted her husband, especially because her English was poor and her husband had a business background. She said of her husband "he's the one who control and he's the one who arrange everything…what his background is, Assyrian, he feel proud to look after me". 118 After the first defendant had closed her hairdressing business she helped out in the second defendant's "shop", "maybe once a week or maybe sometimes three days a week". 119 The move from Fairfield to Beecroft had been the first defendant's idea. She wished to raise her children in what she considered to be a better area than Fairfield. 120 In February 2003 the first defendant had signed a mortgage to HSBC in connection with the purchase of the home unit in Brisbane. Her signature was witnessed by the solicitor who was the solicitor for the first defendant in these proceedings. She had been asked by the second defendant to sign the mortgage. 121 I consider that I should accept the affidavit and oral evidence of the first defendant which I have summarised. Loan agreements of the defendants with HSBC 122 There was evidence of four loan agreements between HSBC and the defendants, namely:- 1. A loan agreement dated 22 December 1998 for $200,000, which was expressed to be a loan for personal, domestic or household purposes 2. A loan agreement dated 22 December 1998 for $100,000, also expressed to be a loan for personal, domestic or household purposes These two amounts totalling $300,000 were applied towards paying the purchase price of the Beecroft property 3. A loan agreement with a credit limit of $109,000 dated 7 September 2001. In this agreement it was stated that "you intend to use more than half of your loan for business or investment (or both purposes). The Bank is treating this offer as not regulated by the Consumer Credit Code". The security for the credit provided included, but was not limited to, a registered first mortgage over the Beecroft property. 4. A loan agreement for a "home equity investment loan" with a credit limit of $232,000. The security for the credit provided included a mortgage over the home unit which had been acquired in Queensland with the borrowed funds and all existing security for the defendants' obligations to HSBC, which would have included the mortgage over the Beecroft property. Determination of issues Did the Code apply to the loan agreements and the mortgage 123 A number of parts of the Code are relevant to the determination of this issue. 124 Section 6(1) of the Code provides:- "(1) This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of pre-contractual obligations) is proposed to be entered into— (a) the debtor is a natural person ordinarily resident in this jurisdiction or a strata corporation formed in this jurisdiction; and (b) the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes; and (c) a charge is or may be made for providing the credit; and (d) the credit provider provides the credit in the course of a business of providing credit or as part of or incidentally to any other business of the credit provider." 125 Section 6(5) of the Code provides in part:- "For the purposes of this section, the predominant purpose for which credit is provided is— (a) the purpose for which more than half of the credit is intended to be used" 126 It was common ground at the hearing that in the case of each loan agreement the conditions in para (a), (c) and (d) of s 6(1) were satisfied. It was disputed whether the condition in para (b) as elaborated in s 6(5) was satisfied. 127 Under s 8 of the Code the Code applies to a mortgage if it secures obligations under a credit contract to which the Code applies. 128 Section 11 of the Code provides:- "(1) [ Where application is claimed ] In any proceedings (whether brought under this Code or not) in which a party claims that a credit contract, mortgage or guarantee is one to which this Code applies, it is presumed to be such unless the contrary is established. (2) [ Whole or predominant purpose ] Credit is presumed conclusively for the purposes of this Code not to be provided wholly or predominantly for personal, domestic or household purposes if the debtor declares, before entering into the credit contract, that the credit is to be applied wholly or predominantly for business or investment purposes (or for both purposes). (3) [ Personal, domestic or household purposes ] However, such a declaration is ineffective for the purposes of this section if the credit provider (or any other relevant person who obtained the declaration from the debtor) knew, or had reason to believe, at the time the declaration was made that the credit was in fact to be applied wholly or predominantly for personal, domestic or household purposes. For the purposes of this subsection, a relevant person is a person associated with the credit provider or a finance broker (or a person acting for a finance broker) through whom the credit was obtained. (4) [ Form of declaration ] A declaration under this section is to be substantially in the form (if any) required by the regulations and is ineffective for the purposes of this section if it is not." 129 It is necessary to refer to s 10 of the Consumer Credit Regulation, which provides:- "10(1) For the purposes of section 11 of the Code, the form of the declaration is as follows— 'I/We declare that the credit to be provided to me/us by the credit provider is to be applied wholly or predominantly for business or investment purposes (or for both purposes).'. 10(2) The declaration is to contain (immediately below the above words or, if the declaration is to be made by electronic communication, prominently displayed when (but not after) the person signs a warning in the following form— IMPORTANT You should not sign this declaration unless this loan is wholly or predominantly for business or investment purposes. By signing this declaration you may lose your protection under the Consumer Credit Code. 10(3) The declaration is to contain— (a) the signature of each person making the declaration; and (b) either the date on which the declaration is signed or the date on which it is received by the credit provider." 130 In the present case, as indicated earlier in this judgment, a declaration was made by both the defendants before each loan agreement was entered into that the credit to be provided was to be applied wholly or predominantly for business or investment purposes (or for both purposes). 131 Counsel for the plaintiff submitted that each declaration of purpose was an effective declaration within s 11 of the Code, thus giving rise to a conclusive presumption that the credit to be provided was not to be provided wholly or predominantly for personal, domestic or household purposes and therefore, on this basis, the Code did not apply to either loan agreement or the mortgage. Counsel also submitted that, even if there was no effective declaration under s 11 of the Code, the credit to be provided under each loan agreement was not credit to be provided wholly or predominantly for personal, domestic or household purposes. 132 Counsel for the first defendant submitted, in the case of each loan agreement, that the credit to be provided was provided wholly or predominantly for personal, domestic or household purposes, and that neither declaration of purpose was an effective declaration within s 11 of the Code, because at the time each declaration was made the credit provider knew or had reason to believe that the credit was in fact to be applied wholly or predominantly for personal, domestic or household purposes (s 11(3)) and, further or alternatively, that each declaration was ineffective because it was not in the form required by the Consumer Credit Regulation (s 11(4)). 133 There was some discussion at the hearing about what test should be applied in determining whether credit was provided or intended to be provided wholly or predominantly for personal, domestic or household purposes. 134 In Beckley v Consumer Trade and Tenancy Tribunal [2009] NSWSC 703 Davies J held, after a survey of a number of cases, that the weight of authority supported an approach taken by Shaw J in Jonsson v Arkway Pty Ltd [2003] NSWSC 815, 58 NSWLR 451 that what is to be determined is what the credit provided was actually used for, ("the substance of the transaction") rather than what a reasonable person in the position of the credit provider would have understood was the purpose for which the credit was being provided. 135 I am content to adopt this test for determining whether credit was provided wholly or predominantly for personal, domestic or household purposes within s 6(1)(b) and s 6(5) of the Code. However, by reason of the introductory words in s 6(1), ("if when the credit contract is entered into") the extent to which it would be permissible, applying this test, to take into account events occurring after the credit contract was entered into would be limited. Furthermore, by virtue of its express words, s 11(3) of the Code focuses on the credit provider, and poses the issue of whether, at the time a declaration of purpose was made, the credit provider knew or had reason to believe that the credit was to be applied wholly or predominantly for personal, domestic or household purposes. I note that Jonsson v Arkway Pty Ltd and Beckley v Consumer Trade and Tenancy Tribunal were cases dealing with s 6, and not s 11, of the Code. 136 The various submissions of the parties on whether the Code applied to the loan agreements tended to overlap. It is convenient first to consider the submissions of the parties relating to s 11(3). 137 In the case of each loan agreement there was evidence in the agreement itself and in associated documents, which would have provided the plaintiff with some grounds for believing that the credit was to be applied, not predominantly for personal, domestic or household purposes, but predominately for business and investment purposes. 138 As to the first loan agreement, the purposes of the loan were stated in the application to be "refinance and use funds for investment purposes (purchase investment property)" and "to refinance a property for investment purposes" and "to finance for future investment purposes" "purchase investment property". 139 On the title page of the loan agreement the words "Non-Consumer Credit Code Regulated" appeared in bold type and had not been queried by the defendants and the agreement contained an acknowledgment by the borrowers that the loan was to be applied wholly or predominantly for business or investment purposes. These words also appeared in bold type on the title page of the loan terms and conditions booklet. 140 As to the second loan agreement, the purposes of the loan were stated in the application to be "to refinance" an "owner occupied residence" $750,000, to finance expenditure of a personal, domestic or household nature $50,000 and to finance for future investment purposes $60,000. 141 The words "Non-Consumer Credit Code Regulated" appeared on the title page of both the second loan agreement and the loan terms and conditions booklet and had not been queried by the defendants. The agreement contained an acknowledgment that the loan was to be applied wholly or predominantly for business or investment purposes. 142 Counsel for the first defendant made two principal submissions in support of a contention that at the time each declaration was made the plaintiff knew or had reason to believe that the credit was in fact to be applied wholly or predominantly for personal, domestic or household purposes. 1. It was submitted that in the case of each loan agreement it was apparent from the application for the loan that more than half of the credit to be provided was to be applied in discharging a mortgage over the first defendant's home. In the case of the first loan agreement it was apparent from the application for the loan that $427,000, being more than half of the total credit of $750,000 being sought, was to be applied in refinancing a mortgage over the first defendant's home. Likewise, it was apparent from the application for the second loan that $750,000, being more than half of the total credit sought of $860,000, was to be applied in refinancing a mortgage over the first defendant's home. In the case of the second loan a further part of the total credit sought amounting to $50,000 was expressly stated in the application to be for personal, domestic or household purposes. It was contended by counsel for the first defendant that credit which is to be applied in refinancing a mortgage over a borrower's home is necessarily credit to be applied for a personal, domestic or household purpose. As expressed by counsel for the first defendant in oral submissions in relation to the first loan agreement, "this is predominantly a loan to refinance a debt owing over a domestic residence and therefore predominantly for personal, domestic or household purposes". 2. Having regard to the second defendant's lack of income after the middle of 2004, the flow of funds from the account in the names of the defendants with Interstar to the accounts in the name of the second defendant and the use by the second defendant of those transferred funds, it should be inferred in the case of each loan agreement that the credit provided was in fact applied for living expenses and payment of interest on the loan, which, it was submitted, would be personal, domestic or household purposes. 143 Counsel for the plaintiff contested these submissions by counsel for the first defendant. As to the first loan agreement, counsel accepted that the plaintiff knew that $300,000 of the amount of the loan, which had been the amount borrowed from HSBC to finance the acquisition of the Beecroft property but which was less than half of the total credit to be provided by the plaintiff, was credit which, to the plaintiff's knowledge, was to be applied for personal, domestic or household purposes but counsel disputed that the plaintiff knew or had reason to believe that any further part of the total credit was to be applied for those purposes. 144 As to the second loan agreement, counsel for the plaintiff again accepted that the plaintiff knew that of the total credit of $860,000 to be provided by the plaintiff, an amount of $300,000 was credit to be applied for personal, domestic or household purposes and also accepted that a further amount of $50,000 disclosed in the application as being for personal, domestic or household purposes was to be applied for those purposes. However, counsel disputed that the plaintiff knew or had reason to believe that any further part of the total credit was to be applied for those purposes. 145 I do not consider that either of the principal submissions made by counsel for the first defendant should be accepted. As to first principal submission 146 I do not accept that, if there is a first loan to a borrower from a first credit provider on the security of a mortgage over the borrower's home and the first loan is refinanced by a second loan to the borrower from a second credit provider and in the refinancing the mortgage to the first credit provider is discharged and a mortgage over the borrower's home is given to the second credit provider, the second loan is necessarily to be regarded as credit provided for personal, domestic or household purposes. 147 It is quite common for a person owning a home to use the equity in his or her home to borrow money for business or investment purposes, taking a loan on the security of a mortgage over the home. This was what was done by the first defendant (and the second defendant) when they entered into the third and fourth loan agreements with HSBC. The Code would not apply to the providing of credit by a first credit provider, because the credit would have been provided for business or investment purposes. It would be anomalous if the Code was to apply to the providing of credit on a refinancing of credit originally provided for business or investment purposes. Of course, further facts might indicate that credit provided on a refinancing of a loan secured by a mortgage over the borrower's home was provided for personal, domestic or household purposes. 148 I consider that the views I have just expressed derive some support from some of the cases to which I was referred at the hearing. 149 In Permanent Mortgages Pty Ltd v Cook [2006] NSWSC 1104, a case in which the plaintiff was seeking to enforce a mortgage over the defendants' home which had been entered into as a result of credit being provided by the plaintiff on a refinancing of earlier credit which had been secured by a mortgage over the defendants' home, Patten AJ held that the Code applied to the credit provided by the plaintiff to the defendants. In reaching this conclusion his Honour found that the plaintiff knew or had reason to believe that the credit it was providing was to be applied for personal, domestic or household purposes. However, it is important to observe how his Honour came to make this finding. 150 In par [48] of his judgment his Honour said:- "…the actual purpose of the defendants, at all times, was to obtain credit for the purpose of refinancing the mortgage over their home, which was seriously in default. Their intention contained no business or investment element…" 151 At par [53] of his judgment his Honour said:- "The plaintiff knew that the credit was required to refinance a mortgage in default over the defendants' home, circumstance which, prima facie, at least to my mind, indicated a personal, domestic or household purpose." 152 It was, accordingly, an important part of his Honour's reasoning that the plaintiff knew that the credit it was providing was required to refinance a mortgage over the borrowers' home, which was seriously in default. His Honour did not simply hold that credit provided to refinance a mortgage over a home is necessarily credit provided for a personal, domestic or household purpose. 153 In Benjamin v Ashikian [2007] NSWSC 735 Smart AJ held that the bulk of the credit provided in that case had been used to pay out an existing mortgage and that the Code applied. However, as had happened in Permanent Mortgages v Cook, the borrowers were in default under the existing mortgage and Smart AJ said at par [77] of his judgment:- "Having regard to the circumstances of the defendants it is plain that the credit provided was not used for business or investment purposes but to enable the defendants to stay in their home." 154 Like Patten AJ in Permanent Mortgages v Cook, Smart AJ did not simply hold that credit provided to refinance a mortgage over a home is necessarily credit provided for personal, domestic or household purposes. 155 In the present case the plaintiff knew from the application for the first loan that the amount required to refinance the indebtedness to HSBC secured on the Beecroft property was $427,000. However, the plaintiff did not know or have reason to believe that the indebtedness over and above the amount of $300,000 borrowed to acquire the property had not been incurred by borrowing for business or investment purposes but had been incurred by borrowing for personal, domestic or household purposes. Similarly, in the case of the second loan the plaintiff did not know or have reason to believe that the indebtedness over and above $300,000 which was secured by the mortgage on the first defendant's home had not been incurred by borrowing for business or investment purposes but had been incurred by borrowing for personal, domestic or household purposes. It was not the fact and the plaintiff did not have reason to believe that the first defendant was in default under the mortgage to HSBC and that refinancing was necessary in order to enable the first defendant to save her home. As to the second principal submission 156 As to the first loan, even if the money lent was in fact applied for living expenses and in payment of interest on the loan, none of the facts on which the inference was submitted to be based were in existence at the time the declaration of purpose was made and I find that at the time the declaration was made the plaintiff did not know or have reason to believe that any of them would come into existence. 157 As to the second loan, I consider that I should find that the plaintiff did not know and did not have reason to believe at the time the declaration of purpose was made that the second defendant lacked income or that the funds which had been transferred from the joint account to the second defendant's accounts, which were business accounts, were not being used by him for business purposes. I note that the first defendant herself believed that the funds being transferred were to be used for business purposes. 158 I hold that in the case of each loan agreement the plaintiff, at the time the declaration of purpose was made, did not know and did not have reason to believe that the credit was in fact to be applied wholly or predominantly for personal, domestic or household purposes and consequently neither declaration of purpose was rendered ineffective by s 11(3) of the Code. 159 As I indicated earlier, counsel for the first defendant submitted with respect to each loan agreement that, even if the declaration of purpose was not ineffective by reason of s 11(3) of the Code, nevertheless each declaration was ineffective by reason of s 11(4), because it was not substantially in the form required by s 10 of the Regulation. 160 Earlier in this judgment I set out in full the terms of the two declarations of purpose. It was accepted by counsel for the first defendant that each declaration fully complied with s 10 of the Regulation, with the exception, it was submitted, that it did not contain the date on which the declaration was signed or the date on which it was received by the credit provider. It is correct that neither declaration contained either of those dates or indeed, any date. In fact, the printed form of the declaration did not indicate any space for the insertion of a date. It was submitted by counsel for the first defendant that it is important that a declaration should be dated so as to establish on its face that it was made before the borrower entered into the credit contract. 161 However, in the case of the first loan agreement, on 2 September 2004 the declaration form had been sent to the borrowers with numerous other documents including a document described as the borrower's checklist, which listed all of the enclosed documents, including the declaration of purpose, and gave instructions to the borrowers about how the enclosed documents should be signed or otherwise dealt with. In the checklist the borrowers were instructed that the checklist and all the documents requiring execution were to be returned to FTS. On 22 September 2004 FTS received from the borrowers the checklist and the signed documents. On the checklist the date "22 Sep 2004" was stamped by FTS. 162 I have already noted that the borrower's checklist for the 2006 loan agreement is no longer on FTS's file and is no longer available. However, it is clear from the documents in evidence and an affidavit by an employee of FST that there was a borrower's checklist and I infer that the same procedure was followed as occurred in 2004. I infer on the balance of probabilities that the returned checklist was stamped by FTS with the date on which it was received. 163 Section 11(4) of the Code provides that a declaration is to be substantially in the form required by the regulations. 164 Section 10(1) of the Regulation commences by providing that for the purposes of s 11 of the Code the "form" of the declaration should be as set out in s 10(1). The other parts of s 10 of the Regulation do not contain this provision and it is unclear whether they impose requirements as to the "form" of a declaration of purpose. It could be the case that Regulation 10(2), requiring the declaration to contain a warning in the terms set out, should be regarded as a requirement as to the "form" of the declaration. However, it does not seem to me that Regulation 10(3) imposes a requirement as to the "form" of the declaration. If this is correct, then a non-compliance with s 10(3) of the Regulation does not necessarily render a declaration ineffective under s 11(4) of the Code. 165 Alternatively, I would hold that each declaration was substantially in the form required by s 10 of the Regulation. Each declaration fully complied with s 10(1), s 10(2) and s 10(3)(a). Under s 10(3)(b) the date can be the date on which the declaration was received by the credit provider. In the case of each loan agreement I am satisfied that an agent of the credit provider dated the borrower's checklist, which referred to the declaration of purpose and which was received from the borrowers at the same time as the signed declaration of purpose. 166 I conclude that each declaration of purpose was not prevented from being effective by s 11(3) or s 11(4) of the Code and that by virtue of s 11(2) of the Code the credit provided under each loan agreement is to be presumed conclusively not to have been provided for personal, domestic or household purposes; hence, the Code did not apply to either loan agreement or the mortgage. 167 The conclusion I have just stated is sufficient to dispose of all of the issues relating to the Code. However, in case this conclusion may be found to be wrong, I will deal, fairly succinctly, with the other issues. Section 6 168 As I have already noted, counsel for the first defendant submitted, in the case of each loan agreement, that, leaving aside any effective declaration within s 11(2) of the Code, the credit to be provided was provided wholly or predominantly for personal, domestic or household purposes within s 6(1)(b) and consequently (disregarding any effective declaration) the Code applied to each loan agreement. In the absence of any effective declaration within s 11(2) of the Code, the first defendant would have the benefit of the presumption under s 11(1) of the Code that the Code did apply to each loan agreement. In addition to relying on the presumption under s 11(1), counsel for the first defendant relied on the same two principal submissions as he relied on in relation to s 11(3) of the Code. In dealing with s 11(3) of the Code, I have already rejected the first of these principal submissions. 169 The second principal submission was that, having regard to the second defendant's lack of income after the middle of 2004, the flow of funds from the account in the name of the defendants with Interstar to the accounts in the name of the second defendant and the use of those transferred funds, it should be inferred that, in the case of each loan agreement, the credit provided was in fact applied for living expenses and payment of interest on the loan, which, it was submitted, would be for personal, domestic or household purposes. 170 In the case of the first loan agreement none of the facts from which it is submitted the inference should be drawn were in existence at the time the first loan agreement was entered into and these facts only occurred, if they occurred at all, over an extended period after the first loan agreement was entered into. In my opinion, the facts sought to be relied on form an insufficient basis for the drawing of an inference that at the time the first loan agreement was entered into the credit being provided was actually to be used for personal, domestic or household purposes. 171 I consider that the evidence in the application for the first loan, in the first loan agreement itself, in the terms and conditions booklet and in the declaration of purpose (accepting, in this context, that it did not give rise to a conclusive presumption) is sufficient to rebut the presumption under s 11(1) of the Code and to warrant a finding that the credit provided under the first loan agreement was not provided wholly or predominantly for personal, domestic or household purposes. It follows that the mortgage, to the extent to which it secured obligations under the first loan agreement, was not a mortgage to which the Code applied. 172 In the case of the second loan agreement the facts from which it was submitted the inference should be drawn, if they existed, were in existence at the time the second loan agreement was entered into. On the evidence I am satisfied that the second defendant did have a lack of income before and at the time the second loan agreement was entered into and that at least some of the amounts transferred to the second defendant's accounts before the second loan agreement was entered into had been used by him in meeting personal, domestic or household expenses. In these circumstances, I consider that I should hold that the inference contended for by counsel for the first defendant should be drawn and that I should hold that, notwithstanding the evidence to the contrary in the application, the loan agreement, the terms and conditions booklet and the declaration of purpose, the presumption that the Code applied to the second loan agreement, if there was not an effective declaration of purpose, would not have been rebutted. Section 80 173 If the Code applied to either loan agreement, then s 80 of the Code would apply. 174 Section 80 of the Code provides in part as follows:- "(1) Enforcement of credit contract. A credit provider must not begin enforcement proceedings against a debtor in relation to a credit contract unless the debtor is in default under the credit contract and— (a) the credit provider has given the debtor, and any guarantor, a default notice, complying with this section, allowing the debtor a period of at least 30 days from the date of the notice to remedy the default; and (b) the default has not been remedied within that period. Maximum penalty—50 penalty units. (2) Enforcement of mortgage. A credit provider must not begin enforcement proceedings against a mortgagor to recover payment of money due or take possession of, sell, appoint a receiver for or foreclose in relation to property subject to a mortgage, unless the mortgagor is in default under the mortgage and— (a) the credit provider has given the mortgagor a default notice, complying with this section, allowing the mortgagor a period of at least 30 days from the date of the notice to remedy the default; and (b) the default has not been remedied within that period. Maximum penalty—50 penalty units. (3) Default notice requirements. A default notice must specify the default and the action necessary to remedy it and that a subsequent default of the same kind that occurs during the period specified in the default notice for remedying the original default may be the subject of enforcement proceedings without further notice if it is not remedied within the period. (3A) Combined notices . Default notices that may be given under subsections (1) and (2) may be combined in one document if given to a person who is both a debtor and a mortgagor." 175 It was accepted by counsel for the first defendant that the first defendant had been in default under the second loan agreement and that a notice purporting to be a default notice under s 80 had been given to the first defendant. Earlier in this judgment I set out the full terms of the default notice sent to the first defendant. 176 It was submitted by counsel for the first defendant that the notice which had been given did not comply with s 80, in that it did not specify the default and that it failed to specify that a subsequent default of the same kind occurring during the period specified in the default notice for remedying the original default might be the subject of enforcement proceedings without further notice, if not remedied within that period. It was submitted that the notice should have specified that the first defendant had defaulted in making monthly payments which had become due on specified dates under the second loan agreement and the mortgage and that a default of the same kind would be a default in making a further monthly payment. Counsel submitted that the Code was remedial legislation and should be interpreted beneficially in favour of the party receiving credit. If a default notice complying with s 80 had not been given, then the proceedings should be dismissed. 177 In my opinion, the degree of particularity in the specification of the default contended for by counsel for the first defendant is not required. Indeed, if a default was specified with the degree of particularity argued for by counsel for the first defendant, there could not be a subsequent default "of the same kind". 178 The default which was specified in the notice was that "arrears were not paid when due", which is equivalent to saying that amounts which had become due under the second loan agreement had not been paid. The precise amount of the arrears was stated in the notice. In my opinion, the notice sufficiently specified the default, the action necessary to remedy the default, that is the payment of the arrears, and otherwise complied with s 80(3). A default of the same type or kind would be a failure to pay an amount becoming due under the mortgage within the grace period. Section 43(2) 179 If the Code applied to the second loan agreement and the mortgage, then the mortgage would be unenforceable, insofar as it purported to secure the first defendant's obligations under the mortgage, unless s 43(2) of the Code was complied with. 180 Section 43 of the code provides in part as follows:- "(1) In addition to securing credit provided by the credit contract or proposed credit contract, or securing obligations under a related guarantee or proposed related guarantee, to which a mortgage initially applies, the mortgage may contain a provision that secures credit provided under another future credit contract or future related guarantee. (2) Any such mortgage is unenforceable in relation to such a future credit contract or future related guarantee unless the credit provider has— (a) given the mortgagor a copy of the contract document of the credit contract or proposed credit contract or a copy of the guarantee or proposed guarantee to which the mortgage is to relate; and (b) subsequently obtained from the mortgagor a written acceptance of the extension of the mortgage or obtained acceptance in some other form provided for by the regulations." 181 It was not disputed that the mortgage contained provisions which would secure credit provided under a future credit contract. Under clause 2.2 of the mortgage there was an obligation to pay the "secured money" and in clause 1.1 of the mortgage "secured money" meant all amounts payable at any time under a "secured agreement" and "secured agreement" included any future agreement between the plaintiff and the defendants. 182 I consider that s 43(2)(a) was complied with. The plaintiff by its agent FTS gave the defendants a copy of the second loan agreement. I consider that the first defendant should be taken as having conferred on the second defendant full authority to act on her behalf in the proposed loan transaction, including authority to receive documents on her behalf. In any event, the first defendant signed the loan agreement so that she clearly was "given" the loan agreement. 183 I also consider that s 43(2)(b) was complied with. The second loan agreement, which the first defendant had received and then signed, included clause 1 whereby the plaintiff agreed to lend money to the defendants on the terms set forth in the agreement including the schedule and the schedule showed that the security for the loan was the mortgage by the first defendant over the Beecroft property. The signed loan agreement was subsequently obtained by the plaintiff. 4. Were the mortgage and the second loan agreement unjust in the circumstances relating to them at the time they were made 5. Would it be unconscionable for the plaintiff to be allowed to rely on the second loan agreement and the mortgage 184 Although these issues, as framed, are limited to the mortgage and the second loan agreement, it will be necessary also to consider the first loan agreement, which was entered into at the same time as the mortgage, the mortgage being intended to secure the obligations of the defendants under that loan agreement. 185 The first of these issues relates to the Contracts Review Act and the second relates to the principles of unconscionability stated in Commercial Bank of Australia Limited v Amadio (1982-83) 151 CLR 447. Reference was also made to the Code but it was common ground that there was no difference of any substance between ss 70 and 71 of the Code and the corresponding provisions of the Contracts Review Act. In Spina v Permanent Custodians Ltd [2009] NSWCA 206 Young JA, with whose judgment the other members of the Court agreed, said that, where a transaction is challenged under both the Contracts Review Act and the principles of unconscionability in Amadio, it is preferable, subject to certain exceptions none of which apply in the present case, to deal first with the Contracts Review Act, because the jurisdiction of the court under the Contracts Review Act is wider. 186 Before dealing with the Contracts Review Act, it is convenient to refer briefly to submissions made by counsel for the first defendant which were based on the decisions of the High Court in Yerkey v Jones (1939) 63 CLR 649 and Garcia v National Australia Bank (1998) 194 CLR 395. In Garcia v National Australia Bank the High Court held, reversing the New South Wales Court of Appeal, that the equitable principles stated in Yerkey v Jones continue to apply. 187 As was pointed out by members of the Court of Appeal in Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413, (2002) 11 BPR 20841, Yerkey v Jones and Garcia v National Australia Bank were cases where the transaction which had been entered into was a contract of guarantee by a married woman of her husband's obligations and the wife was a complete volunteer in that she derived no financial benefit herself from the transaction. In the present case, the agreements the first defendant entered into were not contracts of guarantee and the first defendant clearly herself derived some financial benefit, even if only by the discharge of the existing mortgage on the Beecroft property owned by her. 188 In Elkofairi the Court of Appeal declined to determine whether the principles in Yerkey v Jones and Garcia v National Australia Bank should be extended so as to apply to transactions which are not guarantees and to married women who are not complete volunteers (see Beazley JA at [49] and Santow JA at [89]-[96]). At par [96] Santow JA said that it was not for an intermediate appellate court to decide whether the principles should be extended to cases "outside the conventional guarantee by a wholly volunteer wife". 189 It not being appropriate for the Court of Appeal to decide whether the principles should be so extended, it would a fortiori not be appropriate for me as a single judge to do so. Counsel for the first defendant accepted that this was the case and said that his submissions were made formally so as to preserve the power to pursue them, if necessary, in a higher court. The Contracts Review Act 190 Key provisions of the Contracts Review Act are ss 7 and 9. 191 Section 7(1) provides as follows:- "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." 192 Section 9 of the Act provides as follows:- "(1) In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of: (a) compliance with any or all of the provisions of the contract, or (b) non-compliance with, or contravention of, any or all of the provisions of the contract. (2) 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." 193 I was referred to a number of authorities on the Contracts Review Act and in particular three decisions of the Court of Appeal, Elkofairi v Permanent Trustee Co Ltd in which the principal judgment was given by Beazley JA with whom the other members of the Court agreed; Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 14 BPR 26639, in which the principal judgment was given by Spigelman CJ, with whom the other members of the Court generally agreed; and Spina v Permanent Custodians Limited, in which the principal judgment was given by Young JA with whom the other members of the Court agreed. 194 "Unjust" is defined in s 4 of the Contracts Review Act as including "unconscionable, harsh or oppressive". In Khoshaba Spigelman CJ said at [73] that, where a court has to apply a standard as general as what is "unjust", the court cannot be confined by reasons given for decisions in previous cases as if they were rules. In Spina Young JA pointed out at [80] that, in determining whether a contract is unjust, the court is required by s 9(1) to have regard to the public interest and all the circumstances of the case and that s 9(2) is merely a list of major factors to be considered. 195 A court hearing an application under the Contracts Review Act is required to engage in a two-step process, firstly determining whether the contract or a provision of the contract was unjust in the circumstances relating to the contract at the time it was made and secondly, if the court determines that the contract or a provision of the contract was unjust, determining in its discretion, whether relief should be granted and, if so, what relief. 196 In Khoshaba Basten JA, with whose judgment in this respect Handley JA agreed, distinguished three steps in the process to be undertaken by a court, the first step being the making of findings of primary fact. It is, of course, necessary for a court of first instance to make findings of primary fact. I have earlier in this judgment summarised the oral and documentary evidence and I have stated that I accept the evidence of the first defendant which I summarised. I will now undertake the remaining two steps in the process. (1) Were the two loan agreements and the mortgage unjust 197 In Khoshaba Spigelman CJ referred with approval at [95] to part of the judgment of Sheller JA in Nguyen v Taylor (1992) 27 NSWLR 48, where Sheller JA said in part that "the question of the injustice of the contract is to be determined in the circumstances relating to the contract at the time it was made and, in this case, without regard to the ignorance or innocence of the appellant (lender)". At [119] in his judgment Basten JA, somewhat less positively, said:- "The true position may be that a claimant can establish the unjustness of a contract by reliance on factors of which the other party was ignorant, but that such ignorance may be relevant in determining whether to grant relief". 198 I will proceed on the basis that in determining whether an agreement was unjust, I should take factors into account, whether or not they were within the knowledge of the plaintiff at the time the agreement was made. 199 On the findings of primary fact I have made, factors tending to favour a conclusion that each loan agreement was unjust in the circumstances relating to it at the time it was made include the following:- The first defendant is not a native English speaker. She migrated to Australia as an adult, then speaking very little English. At the time of each loan agreement she had only a limited command of English. The first defendant had previously entered into mortgages and had some understanding of the concept of a mortgage. She understood that a mortgage was a document which a borrower signed when borrowing money and that money which was borrowed had to be repaid. However, she did not understand that, if she defaulted under a mortgage which she had given over her home, her home could be sold. The first defendant had been married to the second defendant since 1994. She habitually entrusted all financial matters to her husband, because of his superior command of English and his business experience. She entered into each agreement at the instigation of her husband. The first defendant was the sole owner of the Beecroft property. It was her only asset of any substance and it was her home. The first defendant had no income, apart from a small rental income at the time of the first loan agreement, and she would be unable herself to discharge the obligations of the borrowers under each loan agreement. The first defendant did not receive any legal advice before entering into either agreement. 200 As regards the second defendant's income, it is necessary to consider the two loan agreements separately. 201 As to the first loan agreement, I am satisfied that the second defendant did not in fact have the net income before tax of $295,000 per annum which he claimed that he had. As the loan being applied for was a low document loan, the second defendant did not provide any verification of the income he claimed to have and he was not required by the plaintiff to provide any verification. At the time of the first loan agreement the first defendant believed that the second defendant was operating a profitable business. The second defendant did not inform the first defendant of his true financial position. 202 As to the second loan agreement, the space on the application form for inserting the incomes of the applicants was left blank. Draft income tax returns of the second defendant for the tax years 2004 and 2005 were submitted to Interstar but neither document was signed by the second defendant. Each draft income tax return disclosed a substantial income but nevertheless an income much less than the income which had been claimed on the making of the application in 2004. The two draft income tax returns were the same draft income tax returns as had been submitted about a year previously on the application made in 2005 to change the low document loan into a full document loan. I am satisfied that the second defendant did not in the tax year 2004 or in the tax year 2005 receive as much income as was claimed in the relevant draft return. At the time of the second loan agreement the first defendant was aware that the second defendant was not making much money but did not have any more precise information. 203 With regard to the matters listed in s 9(2) of the Contract Review Act I find that the following matters were present in the case of each loan agreement. (a) inequality of bargaining power (b) the provisions of the contract were not the subject of negotiation (c) it was not reasonably practicable to negotiate for alteration or rejection of provisions (f) limited educational background and literacy (h) no independent legal advice (i) the provisions of the loan agreement and the mortgage were not explained or not fully explained to the first defendant (j) some influence was exerted on the first defendant by the second defendant 204 I do not find that the other matters listed in s 9(2) were present. I accept that the presence of a number of the factors listed in s 9(2) of the Act does not mandate a conclusion that the contract was unjust. 205 A submission was made by counsel for the first defendant that each loan agreement was an example of "asset lending". 206 In Khoshaba Basten JA said at [128]:- "To engage in pure asset lending, namely 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 to engage in a potentially fruitless enterprise, simply because there is no risk of loss. At least where the security is the sole residence of the borrower, there is a public interest in treating such contracts as unjust, at least in circumstances where the borrowers can be said to have demonstrated an inability reasonably to protect their own interests, for the purposes of, for example, s 9(2)(e) or (f). That does not mean that the Act will permit intervention merely where the borrower has been foolish, gullible or greedy…" 207 In Kowalczuk v Accom Finance Pty Ltd (2008) 252 ALR 55 at 76 (96), in a passage quoted with approval in Spina at [69], Campbell JA said that it could be accepted that pure asset lending, as defined by Basten JA in Khoshaba, is at least in some circumstances unjust within the meaning of the Contracts Review Act. 208 Whether the making of a loan can be characterised as "asset lending" is relevant both to whether the contract of loan should be held to be unjust and whether it would be just to grant relief. 209 I do not consider that either the lending in 2004 or the lending in 2006 should be characterised as "pure asset lending". 210 In the case of the first loan agreement an income for the second defendant was disclosed in the application and in the declaration of financial position. The plaintiff received consumer and commercial reports for each of the defendants and for a company and a business name with which the second defendant was associated, showing that for each person or entity a number of credit inquiries had been made and there had been no instance of any default. The plaintiff received statements for the home equity loan of the defendants with HSBC from January 2004 to July 2004 which showed that the debit balance had in fact been reduced over that period. The plaintiff also received a financial summary from the defendants purporting to detail their expenses and showing a surplus of income over expenses of $60,458, after taking into account what would be the commitment under the proposed loan. 211 In the case of the second loan an income for the second defendant was disclosed in the draft income tax returns. The plaintiff received consumer and commercial reports for each of the defendants and a company associated with the second defendant, showing that for each of them a number of credit enquiries had been made and there had been no instance of any default. The plaintiff received a letter from an estate agent certifying that the rent for the property at 10 Calaria Crescent Edensor Park was $250 per week. The plaintiff made a calculation showing an ability on the part of the defendants to service the proposed loan. 212 On the other hand, there were elements of asset lending, on both loans. In the case of the first loan the second defendant's assertion that he had an annual income of $295,000 was unsupported by any documentation and the plaintiff did not attempt to obtain any verification of the second defendant's income. It was apparent that the first defendant had no income (apart from a small amount of rental income). In Spina Young JA said at [110] that, even if a lender reasonably assumes that one of two co-borrowers could service a loan, "when one is looking to see whether there was injustice to the (second) co-borrower, one must take into account the possibility that something might happen to that (first) co-borrower to affect his or her ability to make payments". 213 In the case of the second loan, the second defendant's claims to have an income had the unsatisfactory features I have already referred to and the plaintiff did not attempt to obtain any verification of the second defendant's income. It was apparent that the first defendant had no income and no ability herself to service the loan, in the event of the second defendant not doing so. 214 As was submitted by counsel for the plaintiff, there are a number of factors tending to favour a conclusion that neither loan agreement was unjust. As regards the background of the first defendant, she had had at least some business experience in conducting her own hairdressing salon, she had purchased or joined in purchasing three properties and she had given or joined in giving a mortgage on each purchase. She had some, even if not a complete, understanding of the nature of the mortgage. The first defendant was not subjected to any undue influence, unfair pressure or unfair tactics by the plaintiff or any of its agents. The plaintiff had given the defendants the opportunity of obtaining legal advice and had, indeed, strongly recommended that they obtain legal advice. None of the provisions of either loan agreement were unjust. Part of the monies lent under the first loan agreement had been applied in discharging an existing mortgage over the first defendant's property and the surplus had been credited to an account in the joint names of the two defendants. 215 In Khoshaba Basten JA at [112] and Handley JA at [111] deprecated the use of the expression "the unjustness calculus". I accept that the determination of whether a contract was unjust is impressionistic and evaluative and requires an assessment applying a broad concept of unjustness. It is nevertheless necessary, in a case whether there are factors pointing in opposite directions, to determine whether "the factors favouring declaring this contract unjust outweigh those that do not" (Spina at [113]). 216 In my opinion I should find that both the loan agreements and consequently the mortgage were unjust. Relief 217 Having determined that the two loan agreements, and consequently the mortgage, were unjust, I have to determine what relief, if any, should be granted. 218 In Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 257 Meagher JA said at 277, in a passage in his judgment which has subsequently often been referred to:- "There is jurisdiction under the Act (the Contracts Review Act ) to make orders in favour of a party to a contract who proves that at the date of the contract he suffers from a relevant disability even though the other party to the contract is unaware of that disability, although in general it would be unsound to exercise the jurisdiction in those circumstances." 219 However, in Spina Young JA, after referring at [114] to this passage in the judgment of Meagher JA in Beneficial Finance Corporation Ltd v Karavas said at [119] that "the approach would be that the discretion should be exercised in favour of setting aside an unjust contract or varying it unless there are sufficient reasons to the contrary". In response to a submission made on behalf of the lender in Spina, that the lender was "innocent" of fault or had had no actual or constructive notice of the factors "disabling" the relevant borrower, Young JA said that "innocent" in this context refers to whether a failure by a lender to engage in good commercial practice was "a material factor in bringing about the problem" and that constructive notice in this context is wider and more flexible than the concept of constructive notice in conveyancing. 220 In the present case I do not consider that the plaintiff had notice at the time of either loan agreement of the "disabling" factors that the first defendant was not a native English speaker and had only limited English language skills, did not have a full understanding of the nature of a mortgage and entrusted all financial matters to her husband. It is true that the first defendant had an Asian name but in modern Australia that does not of itself indicate a lack of English language skills. 221 On the other hand, I find that the plaintiff did have notice at the time of each loan agreement that the first defendant was a married woman and hence there was a possibility of emotional subservience to her husband, that she was the sole owner of the property being offered as a security, that that property was her only substantial asset and that it was her home and that she had no income of her own with which to service the borrowers' obligations, if, for any reason, her husband was unable to do so. 222 As to the first loan agreement, the plaintiff was on notice that the second defendant had not provided any evidence to support his assertion as to his income and the plaintiff made no attempt to obtain any verification of the asserted income. 223 As to the second loan agreement, the plaintiff was on notice that the space in the application for the insertion of the borrowers' income had been left blank, that the two income tax returns for the second defendant which had been submitted were unsigned and not recent and, even if accepted, disclosed a substantial decline in the second defendant's income. It was a breach of the plaintiff's agent's own lending guidelines to have regard to income tax returns of a prospective borrower which had not been signed. 224 At the time of the second loan agreement the plaintiff was on notice that some of the monies advanced under the first loan agreement had not been applied for the purpose stated in the application for the loan of purchasing a particular investment property. 225 As previously discussed, each loan agreement, while not an example of pure asset lending, had some of the features of asset lending. 226 The plaintiff was on notice that the first defendant had not received any independent legal advice. Although the facts in Spina were in some respects more extreme than the facts in the present case, I consider that Young JA's remark at [54] of his judgment in Spina is applicable — "the situation cried out for someone to actually talk to (the first defendant) face to face". 227 If the first defendant had received independent legal advice, then the nature of a mortgage and the risk she would be undertaking by entering into a mortgage over her home would have been explained to her. At least in the case of the second loan agreement, I find that, if the first defendant had received independent legal advice she would not have entered into the second loan agreement. By the time of the second loan agreement the first defendant had come to believe, correctly, that the second defendant was in financial difficulties. 228 Having determined that it would be just to grant relief, I have to determine the nature and extent of the relief which should be granted. 229 Section 7 of the Act provides that a court may grant one or more of the forms of relief listed in s 7 but only "for the purpose of avoiding as far as practicable an unjust consequence or result". 230 In Esanda Finance Corporation Ltd v Tong (1997) 41 NSWLR 482 at 489 Handley JA said, in relation to s 7 of the Act:- "Once injustice to the weaker party has been remedied, the court should not further interfere with the rights of the parties. Interference beyond that point will cause injustice to the other party and is not authorised by the section." 231 It is clearly established that in determining what relief should be granted, after a contract of loan has been found to be unjust, account should be taken of any benefit the borrower derived from the impugned contract, such a benefit being described as an "unwarranted benefit". See Elkofairi at [80] to [86] per Beazley JA and at [98] to [110] per Santow JA. To set aside the impugned contract unconditionally, while permitting the borrower to retain an unwarranted benefit, would be to go beyond what is authorised by s 7, that is remedying the injustice to the borrower. 232 In the present case counsel for the first defendant conceded that any relief granted would have to be subject to a condition which brought into account any benefit the first defendant had obtained from the loan agreements. It was further conceded that the first defendant had obtained at least the benefit of having the existing mortgage over her property to HSBC discharged, although it was submitted that the first defendant should have to account for only half of the amount required to discharge the mortgage. 233 The terms of the orders which should be made in the event of the first defendant succeeding on her application under the Contracts Review Act were not the subject of any written submissions and were touched on only fairly briefly in oral submissions. 234 At one stage in the oral argument at the hearing I observed that a possible course for me to adopt, if I held that the first defendant had established a claim under the Contracts Review Act, would be to give the parties an opportunity to make submissions about the form of the relief which should be granted, in the light of the findings I had made. Counsel for the first defendant said that he though that course appropriate, adding "I think it's something that needs a good deal of thought". 235 I consider that I should follow the course of not attempting at this stage to draft orders myself but of giving the parties an opportunity to make further submissions about the form of the relief which should be granted, given the findings I have made. 236 I note that the form of the relief which should be granted in Elkofairi was the subject of a number of closely reasoned paragraphs in the judgments of Beazley JA and Santow JA and that in Spina the parties were directed to file separate written submissions as to the form of the orders to be made. 237 Without seeking to be exhaustive, factors relevant to what orders should be made could include the following. The first defendant was the sole mortgagor but the first defendant and the second defendant were co-borrowers under the two loan agreements. Some of the money advanced under the first loan agreement was applied in paying the indebtedness to HSBC and thereby discharging the mortgage to HSBC. The second defendant is a bankrupt and presumably incapable of satisfying any claim in debt or for contribution, whereas in both Elkofairi and Spina there was at least a prospect of the co-borrower being able to satisfy claims. At the hearing it was asserted by and on behalf of the first defendant that some of the monies advanced by the plaintiff had been applied in meeting household expenses of the first defendant and the second defendant and the question arises whether these moneys should be brought into accounts. 238 The second defendant has granted the first defendant a mortgage securing payment of the sum of $125,000, over the unit at North Sydney. The question arises whether the amount payable under the mortgage should be brought into account as a benefit obtained by the first defendant, even though indirectly, from some of the money lent by the plaintiff. There may be a risk that the amount due under the mortgage will not be recoverable, for example because of any mortgages or charges on the unit which have priority or because the mortgage is liable to be avoided by the second defendant's trustee in bankruptcy. A question of what interest should be allowed in favour of the plaintiff also rises. 239 After I have received further submissions from the parties I will determine what orders should be made. The principles of unconscionability in Commercial Bank of Australia v Amadio 240 Having decided that the first defendant is entitled to relief under the Contracts Review Act, it is unnecessary for me to decide whether she is also entitled to relief under the principles of unconscionability in Commercial Bank of Australia v Amadio. If I am not correct in holding that the first defendant is entitled to relief under the Contracts Review Act, then, in my opinion, she would not be entitled to relief under the principles of unconscionability in Commercial Bank of Australia v Amadio. Conclusion I have held that the first defendant is entitled to relief under the Contracts Review Act in respect of both loan agreements and the mortgage. I will defer making orders to give effect to this conclusion until after I have received further submissions from the parties. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.