Supreme Court New South Wales Medium Neutral Citation: Permanent Mortgages Pty Limited v Spartacus Enterprises Pty Limited [2013] NSWSC 911 Hearing dates: 04/07/2013 Decision date: 11 July 2013 Jurisdiction: Common Law Before: Harrison AsJ Decision: (1) The defendants are to pay the plaintiff the sum of $696,796.41. (2) The plaintiffs are granted possession of the land comprised in certificate of title folio identifier XXX/XXXX being the land situated at and known as xxx XXXX XXXX, Empire Bay. (3) The defendants are to pay the plaintiff's costs of the proceedings as agreed or assessed. Catchwords: CONTRACTS - loan agreement - guarantee and indemnity for loan - default under loan and guarantee - claim for relief of obligations on basis of unjust contract - allegations that statement of assets on loan application false - whether defence of unconscionable transaction - defence not made out - plaintiff granted possession of land Legislation Cited: Australian Securities and Investment Commission Act 2001 Contracts Review Act 1980 Cases Cited: ACCC v Simply No-Knead (Franchising) Pty Ltd [2000] FCA 1365 Canon Australia Pty Ltd v Patton [2007] NSWCA 246 CG Berbatis Holdings Pty Ltd v ACCC [2001] FCA 757; (2001) 185 ALR 555 Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447 Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413 Hurley v McDonalds Australia Ltd [1999] FCA 1728, (2000) ATPR 41-741 Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343 Perpetual Trustee Company Ltd v Khoshaba [2006] NSWCA 41 Category: Principal judgment Parties: Permanent Mortgages Pty Limited (Plaintiff) Spartacus Enterprises Pty Limited (First Defendant) Craig Barton Nelson (Second Defendant) Representation: Counsel: N Bearup (Plaintiff) Solicitors: Kells (Plaintiff) No Appearance (First and Second Defendants) File Number(s): 2012/56783 Judgment 1HER HONOUR: Permanent Mortgages Pty Limited, seeks firstly, judgment for the possession of the land comprised in certificate of title folio identifier XXX/XXXX being the land situated at and known as xxx XXXX XXXX, Empire Bay ("the property"); secondly, judgment against the defendants, Spartacus Enterprises Pty Limited and Craig Barton Nelson for $696,746.41, being the balance owing on the loan as at 3 July 2013, with continuing interest, fees and charges in accordance with the terms of the loan; and thirdly, that the defendants pay the plaintiff's costs on an indemnity basis. 2The plaintiff is Permanent Mortgages Pty Limited ("Permanent Mortgages"). The first defendant is Spartacus Enterprises Pty Limited ("Spartacus Enterprises"). The second defendant is Craig Barton Nelson ("Mr Nelson") who is the sole director of Spartacus Enterprises. 3The plaintiff relies on three affidavits sworn by Helen Troughton, an accounts manager of La Trobe Financial Services dated 18 May 2012, 8 October 2012 and 12 April 2013. 4The defendants did not appear at the hearing. Mr Nelson has filed an amended defence on behalf of Spartacus Enterprises and himself. The defendants were called three times outside Court at 10.08am. Mr Nelson is aware of the date of the hearing. The plaintiff's solicitor has notified him that the plaintiff would seek to proceed if he did not attend (Ex A). After his non-appearance, the plaintiff's solicitor phoned Mr Nelson. The call was diverted to voicemail and a message was left. Mr Nelson was again called outside Court at 12.05pm. There was no appearance. Background 5These factual matters are not in dispute, except where I say otherwise. 6The first defendant, Spartacus Enterprises applied to La Trobe Financial Services Pty Ltd ("La Trobe") for a loan to refinance an existing loan secured by a mortgage over an investment property it owned. The second defendant, Mr Nelson, the sole director and secretary of Spartacus, gave a Guarantee and Indemnity as security for the loan. La Trobe acts as the mortgage manager for a number of companies within a group known as the "La Trobe Group". The plaintiff, Permanent Mortgages Pty Ltd ("Permanent Mortgages"), is a company within the La Trobe Group. 7La Trobe entered into an Appointment of Correspondent Agreement with Howard Pacific Finance Limited ("Howard Pacific"), pursuant to which Howard Pacific was appointed a "correspondent" giving it the right to negotiate, or act as intermediary, to obtain loans for borrowers from La Trobe. Gene Farrelly was a mortgage broker for Howard Pacific. 8On 30 July 2007, the loan application was submitted to La Trobe by Gene Farrelly and attached to it was a statement of assets and liabilities signed by Mr Nelson. The statement of assets disclosed the ownership of eight properties, rental income of $252,000 and salary of $410,000 for Mr Nelson. La Trobe assessed the loan application and issued an indicative offer on 1 August 2007. This statement of assets is the subject of contention and raised in Mr Nelson's defence. Howard Pacific advised that Mr Nelson wished to proceed with the loan as proposed. 9On 14 August 2007, the loan agreement between Permanent Mortgages and Spartacus Enterprises was signed by Mr Nelson as sole director and secretary of the company and by Mr Nelson separately as guarantor. It was a condition of the loan agreement that Mr Nelson obtain separate legal advice and a signed LiteDoc Repayment Certificate be provided. 10On 24 August 2007, $490,950 was advanced by the plaintiff to Spartacus and the loan funds were paid as follows: (1)$445,864 to Adelaide Bank Limited to discharge an existing mortgage over the property; (2)$41,004.74 to the Commonwealth Bank of Australia Limited; (3)the remainder to pay various costs relating to settlement of the loan. 11Spartacus Enterprises mortgaged the property as security by mortgage registered number AD375731 ("the mortgage"). It was a term of the mortgage that if Spartacus Enterprises defaulted under the loan offer, Permanent Mortgages could take possession of the property and obtain a judgment against Spartacus Enterprises for the amount that it owed to Permanent Mortgages. 12By deed of guarantee and indemnity dated 13 August 2007 ("the guarantee") Mr Nelson guaranteed and indemnified Permanent Mortgages against loss or damages arising out of the loan offer and the advance of the principal sum. Default by Spartacus Enterprises of the loan and mortgage 13On about 20 September 2011, Spartacus Enterprises defaulted under the terms of the loan offer and mortgage by failing to make the scheduled loan repayment due of $3964. 14On about 13 December 2012, Permanent Mortgages served notice on Spartacus demanding payment of the arrears due under the loan and mortgage. Spartacus failed to make the payment. 15On about 18 January 2012, Permanent Mortgages issued notices on Spartacus Enterprises requiring repayment of the principal sum together with interest and costs. Spartacus Enterprises failed to make the payment and remains in default of the loan offer and mortgage. 16As at 3 July 2013, the certificate of the debt owed under the mortgage by Spartacus Enterprises stated (Ex B): "Permanent Mortgages Pty Limited (ACN 097 176 362) hereby certifies under clause 6.1 of registered mortgage number AD375371 dated 13 August 2007 granted by Spartacus Enterprises Pty Limited (ACN 098 211 842) to Permanent Mortgages Pty Limited (Mortgage) that the amount owing to it by Spartacus Enterprises Pty Ltd under the Mortgage as at 3 July 2013 is $696,796.41." Default by Mr Nelson of the guarantee 17On about 13 December 2011, Permanent Mortgages served notice on Mr Nelson demanding payment of the arrears due under the loan and mortgage in his capacity as guarantor under the guarantee. Mr Nelson has failed to make the payment. 18On about 18 January 2012, Permanent Mortgages issued notices on Mr Nelson requirement repayment of the principal sum together with interest and costs in his capacity as guarantor under the guarantee. Mr Nelson has failed to make the payment and remains in default of the guarantee. 19Notices were also served on Mr Nelson as guarantor requiring payment of arrears due under the loan and mortgage, and for repayment of the principal sum together with interest and costs, in his capacity as guarantor of the guarantee. 20The relevant obligations of Mr Nelson as guarantor are set out in the Deed of Guarantee. They are as follows: "The Guarantor unconditionally and irrevocably guarantees to the Lender the due and punctual repayment of the Secured Moneys as defined in this document) as and when the Secured Moneys shall become due and the performance and observance by the Borrower of all covenants, obligations, terms and conditions contained or implied in the Mortgage ("the Mortgage") being the Mortgage described in Item 4 of the Schedule taken by the Lender to better secure the Secured Monies (if there is such Mortgage) AND the Guarantor covenants with the Lender that if and when the Borrower or any other party shall be in default in respect of the Secured Moneys or any part or in default under any covenant, obligation, term or condition contained or implied in the Mortgage (if any), the Guarantor will, on demand by the Lender, make good such default and pay all sums which may be payable in respect of the Secured Moneys as if the Guarantor were expressed to be the primary obligor. ... In addition to the Guarantor's liabilities under this guarantee, the Guarantor agrees to pay to the Lender on demand:- 3.1.1 all Bank charges and other charges, costs and expenses of the type included in the Secured Moneys incurred during the period between the date when demand for payment is made on the Guarantor and the date of payment; 3.1.2 interest on each amount referred to in Clause 3.1.1 from the date when it is incurred to the date of payment; and 3.1.3 interest on the total amount for which the Guarantor is liable under this guarantee. ... 4.2 Notwithstanding anything expressed or implied, to the extent that, if for any reason whatsoever the covenants or provisions contained in any deed, agreement, instrument or other document in relation to all or any part of the Secured Moneys including the Mortgage (if any) may be or become void, voidable or unenforceable, or the Secured Moneys may for any reason whatsoever not be recoverable from the Borrower- or the Guarantor as surety, as a separate and continuing obligation, the Guarantor indemnifies and holds the Lender harmless against and from non-payment of any moneys which would otherwise have been payable by the Borrower and non-performance or non-observance of any covenants and provisions by the Borrower as if each and every of the covenants and provisions contained in any such deed, agreement, instrument or document relating to all or any part of the Secured Moneys including the Mortgage (if any) had been wholly valid and enforceable and the Guarantor further indemnifies the Lender against all losses and costs (including legal costs on a solicitor and. client basis) incurred by the Lender in attempting to recover such moneys or enforce such covenants and provisions against the Borrower. ... 8. A certificate signed by an authorised officer of the Lender as to the amount at any time owing by either the Borrower or the Guarantor TO the Lender shall be conclusive evidence as against the Guarantor, his executors, administrators and legal representatives of the amount so owing by the Borrower and the Guarantor as the case may be. ... 'Secured Moneys' means all amounts now or at any time in the future falling within any of the following categories: 20.1 all moneys: 20.1.1 which are owing and payable by the Borrower to the Lender including those owing and payable under the Mortgage (if any) or otherwise; 20.1.2 which are owing by the Borrower to the Lender but not presently payable including those owing under the Mortgage (if any) or otherwise, ... SCHEDULE, ITEM 1: Guarantor(s): Craig Barton Nelson of XXXXXX ITEM 2: Lender: Permanent Mortgages Pty Limited ACN 097 176 362 Level 1,11 Seymour Street TARARALGON VIC 3844 Australia ITEM 3: Borrowers: Spartacus Enterprises Pty Ltd ACN 098 211 842 of XXXXX ITEM 4: Mortgage: (if any) From: Spartacus Enterprises Pty Ltd ACN 098 211 842 of XXXXX To: the Lender over the land described in XXXXX to secure an advance of $496,000.00." 21As at 3 July 2013, a similar certificate of the debt owed under the Deed of Guarantee by Spartacus Enterprises stated (Ex B): "Permanent Mortgages Pty Limited (ACN 097 176 362) hereby certifies under clause 8 of the Deed of Guarantee and Indemnity dated 13 August 2007 given by Craig Barton Nelson to Permanent Mortgages Pty Limited in respect of advances made to Spartacus Enterprises Pty Ltd (ACN 098 211 842) (Guarantee) that the amount owing to it by Craig Barton Nelson under the Guarantee as at 3 July 2013 is $696,796.41." 22The plaintiff has taken me through the formal proof of its case pleaded against Spartacus Enterprises and Mr Nelson, the guarantor and it is not necessary to repeat it here. I am satisfied that they have proved their allegations set out in the statement of claim. Defendants' amended defence 23The amended defence pleads that the defendants seek to be relieved of the costs and expenses incurred in respect of the credit provided by Permanent Mortgages and that the principal should be reduced to the sum which was actually applied for the defendants' benefit (D [11]). The defendants admit that they are in default of the terms of the loan and the mortgage, and the guarantee, but say that they should be relieved of those obligations because the loan application contained false information as to the defendants' financial circumstances (D [2.i], [7]-[8]). 24Mr Nelson admits that on about 14 August 2007 he signed a loan offer (D [2.a]). Mr Nelson says that the loan offer was based on a loan application prepared by Permanent Mortgages' agent, Gene Farrelly of Howard Pacific (D [2.b]). He says that Gene instructed him to simply sign the loan application and attached a statement of assets and liabilities which Gene had prepared (D [2.c]). Permanent Mortgages disputes that Gene or Howard Pacific was its agent. 25Mr Nelson says that at the time he signed the loan application Gene said to him words to the effect, "I have prepared this application to meet the lender's guidelines. Don't worry about the contents of the application. It will be OK. Just sign here" (D [2.d]). Mr Nelson further says that a copy of the loan application was not provided to the defendant at the time it was signed and that a copy of the loan application was not provided to him until it was provided in the course of disclosure of documents in these proceedings (D [2.e, 2.f]). He was unaware of the contents of the loan application until it was provided to him on 17 July 2012 (D [2.g]). 26The defendants say that with respect to Permanent Mortgages' claim as a whole, the contract relied upon by Permanent Mortgages is unjust and the mortgage should be re-opened (D [10]). 27Although Mr Nelson claims that the contract is unjust, the defence does not plead a claim under the Contracts Review Act 1980 or unconscionability under the Australian Securities and Investments Commission Act 2001 (Cth) ("ASIC Act"). 28The main issue he raises in the defence is whether the loan application signed by Mr Nelson on 9 July 2007 contained false information as to the defendants' financial circumstances. 29Mr Nelson states the following (D [2.i]): "i. The salary of the Second Defendant was not $410,000 but was in fact approximately $58,000; ii. The value of the first Woy Woy property was approximately $300,000 not $495,000; iii. The value of the Empire Bay property was approximately $550,000 not $680,000; iv. The value of the Beresfield property was approximately $240,000 not $260,000; v. The value of the Beresfield property was approximately $420,000 not $510,000; vi. The value of the first Bellbird Park property was approximately $300,000 not $360,000; vii. The value of the second Bellbird Park property was approximately $220,000 not $240,000; viii. The value of the second Woy Woy property was approximately $460,000 not $550,000; ix. The value of the Burwood property was approximately $410,000 not $520,000; x. The Defendants did not own 2 cars valued at $90,000 but owned only 1 car valued at approximately $40,000 which was encumbered to the extent of approximately $40,000; xi. The Defendants did not own any shares." 30While Mr Nelson did not appear and hence could not be cross examined, his affidavit was not read. However, the contents of the affidavit essentially repeat the above issue raised in the defence. 31Permanent Mortgages submitted that it is only if Mr Nelson's claim that he had no knowledge of the contents of the assets statement prepared by Gene Farrelly, that the claim that Gene Farrelly acted as agent of Permanent Mortgages falls to be decided by this Court, although Permanent Mortgages denies Mr Gene Farrelly was its agent. Mr Gene Farrelly was present in Court at the hearing but was not called to give evidence. 32It is necessary to briefly consider whether the Mr Nelson, as guarantor, has a defence of unconscionable conduct by the plaintiff under either section 12CB and 12CC of the ASIC Act or the Contracts Review Act. Unconscionability generally and under the ASIC Act 33The High Court enunciated the principles of what constitutes an unconscionable transaction in Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447 where Mason J said at [2]: "2. Historically, courts have exercised jurisdiction to set aside contracts and other dealings on a variety of equitable grounds. They include fraud, misrepresentation, breach of fiduciary duty, undue influence and unconscionable conduct. In one sense they all constitute species of unconscionable conduct on the part of a party who stands to receive a benefit under a transaction which, in the eye of equity, cannot be enforced because to do so would be inconsistent with equity and good conscience. But relief on the ground of "unconscionable conduct" is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage, e.g., a catching bargain with an expectant heir or an unfair contract made by taking advantage of a person who is seriously affected by intoxicating drink. Although unconscionable conduct in this narrow sense bears some resemblance to the doctrine of undue influence, there is a difference between the two. In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position." 34Mr Nelson, in his amended defence, made no claims of special disability or disadvantage. 35Permanent Mortgages submits that neither the circumstances of this case nor the defendants provide any basis for a claim of unconscionable conduct under the general law. I agree for the reasons that are referred to later in this judgment. Essentially, it is for the same reasons that each possible claim for relief cannot succeed. The ASIC Act 36Sections 12CB and 12CC are contained in Division 2 of Part 2 of the ASIC Act which deals with unconscionable conduct and consumer protection in relation to financial services. 37Section 12BAA(1) of the ASIC Act defines a "financial product" as a "facility" through which a person, among other things, makes a "financial investment". Subsection 7(k) specifies that a "financial product" include "a credit facility (within the meaning of the regulations)". Regulation 2B(l)(h) of the ASIC Act's regulations provides that a "credit facility" includes a "guarantee of an obligation under a credit contract". 38Section 12CB(2)(a) provides that the section does not apply to conduct that is engaged in only because the person engaging in the conduct institutes legal proceedings in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition. 39Section 12CC sets out a non-exhaustive list of matters which a court may consider in determining whether "a person (the supplier) has contravened s 12CB in connection with the supply or possible supply of financial services to a person (the service recipient)", including, among other things: (a) relative strengths of the bargaining positions of the supplier and the service recipient (s 12CC(l)(a)), (b) whether, as a result of conduct engaged in by the supplier, the service recipient was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier (s 12CC(l)(b)), (c) whether the service recipient was able to understand any documents relating to the supply or possible supply of the financial services (s 12CC(l)(c)), (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the service recipient or a person acting on behalf of the service recipient by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the financial services (section 12CC(l)(d)), and (e) the extent to which the supplier unreasonably failed to disclose to the service recipient (s 12CC(l)(i)): (i) any intended conduct of the supplier that might affect the interests of the service recipient, and (ii) any risks to the service recipient arising from the supplier's intended conduct (being risks that the supplier should have foreseen would not be apparent to the service recipient), (f) if there is a contract between the supplier and the service recipient for the supply of the financial services (section 12CC(l)(j)): (i) the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the service recipient, and (ii) the terms and conditions of the contract, and (iii) the conduct of the supplier and the service recipient in complying with the terms and conditions of the contract, and (iv) any conduct that the supplier or the service recipient engaged in, in connection with their commercial relationship, after they entered into the contract, (g) the extent to which the supplier and the service recipient acted in good faith (s 12CC(1)(l)). Principles 40It is accepted that the list of factors to be considered by the Court in relation to assessing unconscionable conduct are non-exhaustive. The Court is "aided but not controlled by the factors listed...": ACCC v Simply No-Knead (Franchising) Pty Ltd [2000] FCA 1365 at [37] per Sundberg J. 41Nevertheless, the provision sets a high bar to be met by a party claiming unconscionability. As stated in Hurley v McDonalds Australia Ltd [1999] FCA 1728, (2000) ATPR 41-741 their Honours Heerey, Drummond and Emmett JJ said at [22]: "For conduct to be regarded as unconscionable, serious misconduct or something clearly unfair or unreasonable, must be demonstrated - Cameron v Qantas Airways Ltd [1995] FCA 1304, (1994) 55 FCR 147 at 179 Whatever 'unconscionable' means in sections 51AB and 51AC, the term carries the meaning given by the Shorter Oxford English Dictionary, namely, actions showing no regard for conscience, or that are irreconcilable with what is right or reasonable - Qantas Airways Ltd v Cameron [1996] FCA 1483; (1996) 66 FCR 246 at 262. The various synonyms used in relation to the term 'unconscionable' import a pejorative moral judgment - Qantas Airways Ltd v Cameron [1996] FCA 1483; (1996) 66 FCR 246 at 283-4 and 298." 42Similarly, in Canon Australia Pty Ltd v Patton [2007] NSWCA 246, it was stated by Campbell JA at [41]-[43]: "In Attorney General (NSW) v World Best Holdings Ltd [2005] NSWCA 261; (2005) 63 NSWLR 557, Spigelman CJ (at [119], 583) said, concerning a different statutory provision, 'Over recent decades legislatures have authorised courts to rearrange the legal rights of persons on the basis of vague general standards which are clearly capable of misuse unless their application is carefully confined. Unconscionability is such a standard.' He continued (at [121], 583): 'Unconscionability is a concept which requires a high level of moral obloquy. If it were to be applied as if it were equivalent to what is "fair" or "just", it could transform commercial relationships...' Those remarks can equally, in my view, be applied to the notion of 'unconscionable conduct' in section 51AC." 43Further, ordinarily, it may be necessary to demonstrate some special disadvantage: CG Berbatis Holdings Pty Ltd v ACCC [2001] FCA 757; (2001) 185 ALR 555 at [70] per Hill, Tamberlin and Emmett JJ. The Contracts Review Act 44The basis for the relief sought by the defendants is unclear as relief under the Contracts Review Act is not available to Spartacus Enterprises by virtue of s 6(1). Section 6 reads as follows: "(1) The Crown, a public or local authority or a corporation may not be granted relief under this Act. (2) A person may not be granted relief under this Act in relation to a contract so far as the contract was entered into in the course of or for the purpose of a trade, business or profession carried on by the person or proposed to be carried on by the person, other than a farming undertaking (including, but not limited to, an agricultural, pastoral, horticultural, orcharding or viticultural undertaking) carried on by the person or proposed to be carried on by the person wholly or principally in New South Wales." 45Counsel for the plaintiff submitted that relief is not available to Mr Nelson as guarantor by virtue of s 6(2) to the extent that the guarantee was entered into for the purpose of a trade, business or profession carried on by him personally. It was conceded, however, that as Mr Nelson was unavailable to be questioned as to whether he owned any of the properties in Australia personally, relief under s 6(2) would be available to him. 46Sections 7 and 9 of the Contracts Review Act read: "7 Principal relief (1) Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following: (a) it may decide to refuse to enforce any or all of the provisions of the contract, (b) it may make an order declaring the contract void, in whole or in part, (c) it may make an order varying, in whole or in part, any provision of the contract, (d) it may, in relation to a land instrument, make an order for or with respect to requiring the execution of an instrument that: (i) varies, or has the effect of varying, the provisions of the land instrument, or (ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the land instrument. (2) Where the Court makes an order under subsection (1) (b) or (c), the declaration or variation shall have effect as from the time when the contract was made or (as to the whole or any part or parts of the contract) from some other time or times as specified in the order. (3) The operation of this section is subject to the provisions of section 19. ... 9 Matters to be considered by Court (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. (3) For the purposes of subsection (2), a person shall be deemed to have represented a party to a contract if the person represented the party, or assisted the party to a significant degree, in negotiations prior to or at the time the contract was made. (4) In determining whether a contract or a provision of a contract is unjust, the Court shall not have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the contract was made. (5) In determining whether it is just to grant relief in respect of a contract or a provision of a contract that is found to be unjust, the Court may have regard to the conduct of the parties to the proceedings in relation to the performance of the contract since it was made." 47In Perpetual Trustee Company Ltd v Khoshaba [2006] NSWCA 41, the Court of Appeal referred to a three stage process to be considered in relation to a Contracts Review Act claim. Handley JA stated at [99] that the three stage process is as follows: "[99] ... the making of findings of primary fact where these are disputed, the formation of an evaluative judgment as to whether or not the contract is unjust, and why, and then, if necessary, the exercise of the Court's discretionary power to grant relief and determine its extent." 48Handley JA in Khoshaba continued at [100]: "[100] The first stage may involve credit findings, and the drawing of inferences which attract the usual standards of appellate review, the second involves a drawing of inferences and the application of an indeterminate legal standard which, as to fact is subject to review in accordance with Warren v Coombs (1979) 142 CLR 531, and as to law is open to full review. The exercise of the Judge's discretion on the nature and extent of relief is subject to review in accordance with the principles in House v R (1936) 55 CLR 499." And in Khoshaba Basten JA at [109] stated: "[109] The third step involves the exercise of the power to grant relief which may, but need not, follow from the conclusion that a contract or a provision thereof is unjust. That is truly a discretionary power to be exercised if the Court 'considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result': s 7(1). The exercise of the power will be reviewable only in accordance with the principles established in House v R (1936) 55 CLR 499 at 504-505." 49And Basten JA at [128] said of pure asset lending: "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. Something more is required: see Esanda Finance Corp Ltd v Tong (1997) 41 NSWLR 482 at 491 (Handley JA) cited with approval in Elkofairi (supra) at [77] by Beazley JA." 50Permanent Mortgages submitted that by applying for the loan, signing the loan agreement, mortgage and guarantee and providing the additional documents required as a condition of the provision of the loan, the defendants clearly expressed they were willing to be bound by the contracts. 51According to Permanent Mortgages, even if the loan was found to be unjust in the circumstances at the time it was made, or there was some element of unconscionability, any advances made for the benefit of the party seeking relief and/or to discharge an existing liability must be repaid as a condition of any relief (Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413). 52Further, Permanent Mortgages submitted that the provision of the loan in order to refinance an existing mortgage over the property does not give rise to any injustice or unconscionability warranting relief under the Contracts Review Act or the Australian Securities and Investment Commission Act 2001 (Cth), even if it were otherwise available to the defendants. It was submitted that even where loans are found to have been made largely in reliance on the assets securing them, it has been held that this is not of itself sufficient to render the loan unconscionable or unjust and that something more is required (Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343 at [96]). 53A substantial portion of moneys that were advanced by the plaintiff to the defendants under this loan were for the purpose of paying out an earlier loan on the property. On 24 August 2007, the plaintiff paid $445,864 to Adelaide Bank Limited to discharge an existing mortgage over the property and $41,004.74 to the Commonwealth Bank of Australia Limited. 54As previously stated, my conclusions in relation to the possible claims of unconscionable conduct under general law, unconscionability under the ASIC Act and Contracts Review Act, are based on the same reasoning. They are as follows. 55A credit security search shows that Mr Nelson had been involved in investing in property since 2003. The loan with Permanent Mortgages was not the first loan taken out by Spartacus Enterprises for the Empire Bay property and where Mr Nelson had acted as guarantor. 56So far as the allegation that the broker Mr Farrelly of Howard Pacific was responsible for inflating Mr Nelson's income and the value of the properties that he or Spartacus owned is concerned, in fairness to Mr Gene Farrelly, I should record that I do not make any such findings against him. There is no evidence to establish Mr Farrelly was responsible for these inflated figures appearing on the loan application. It is far more likely that the these figures came personally from Mr Nelson. The reason that I say this is because on 31 June 2005 (this is the date inserted in handwriting on the document but that cannot be correct), an earlier Lo Doc Loan application made by Spartacus Enterprises and Mr Nelson to Adelaide Bank in relation to the initial purchase of the Empire Bay property (Ex F) shows that Mr Nelson's stated income was $304,780 and the rental income was $212,680. These figures are similar to the rental income of $252,000 and the income of $410,000 asserted on the 2007 application by the plaintiff. Howard Pacific had no involvement in the obtaining of the earlier loan. 57Nor do I make any finding that Mr Farrelly was acting as an agent of Permanent Mortgage or that he provided the financial information concerning the defendants to the plaintiff. Therefore, Permanent Mortgages as the lender cannot be fixed with the knowledge of the agent. 58In any event, after the loan application was completed on 18 August 2007, Mr Nelson completed the plaintiff's LiteDoc Repayment Certification. In this document, Mr Nelson added in handwriting confirmation that his current taxable gross income per annum was $662,000 including $252,000 of rental income [B 126] and signed it. It is difficult for Mr Nelson to disclaim that he did not have any knowledge of the figures contained in the loan application document until it was produced on discovery. He had provided those figures in a latter document where the broker was not involved. 59Nr Nelson's signatures that appear on the mortgage both as director of Spartacus Enterprises and personally as guarantor were witnessed by a solicitor. The solicitor signed a certificate to the effect that he witnessed the mortgagor's signatures on the mortgage. 60Mr Nelson's contention that the loan application to La Trobe contained false information and that he was unaware of this until the document was provided to him as part of these proceedings (D [2.h]) is unsupported by evidence and is inherently improbable. There are no grounds to support the defendants' claim that the transaction as a whole was unjust. Spartacus Enterprises and/or Mr Nelson have not established any grounds that would entitle them to relief to be granted for unconscionable conduct or relief under the ASIC Act and/or the Contracts Review Act. 61The amended defence is dismissed. Permanent Mortgages is entitled to judgment on its claims against Spartacus Enterprises for the debt and possession of the property and is entitled to enforce the guarantee against Mr Nelson. Judgment is to be entered in favour of the plaintiff against both defendants. 62Costs are discretionary. Costs usually follow the event. The defendants are to pay the plaintiff's costs of the proceedings as agreed or assessed. Judgment (1) The defendants are to pay the plaintiff the sum of $696,796.41. (2) The plaintiffs are granted possession of the land comprised in certificate of title folio identifier XXX/XXXX being the land situated at and known as xxx XXXX XXXX, Empire Bay. (3) The defendants are to pay the plaintiff's costs of the proceedings as agreed or assessed. ********** 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. Decision last updated: 11 July 2013