Supreme Court New South Wales Medium Neutral Citation: Gray v Latter [2014] NSWSC 122 Hearing dates: 17 February 2014; 18 February 2014 Decision date: 27 February 2014 Jurisdiction: Common Law Before: Adamson J Decision: 1. Direct the parties to make any submissions as to the form of the proposed orders or as to costs in writing addressed to my associate on or before 4 pm 5 March 2014. 2. Grant liberty to apply on 2 days' notice to my associate to restore the matter before me in the event that the parties want to address me orally on the form of orders or the appropriate costs orders. Catchwords: CONTRACTS - Contracts Review Act - purpose, scope and applicability - sale of land between two couples - no bank or financial institution involved - vendors setting an exorbitant price which bore no relation to value on terms of vendor finance that concealed from the purchasers the improvidence of the transaction - exploitation of trust and friendship MORTGAGES - inevitability of default at conclusion of period for vendor finance - setting of contract price grossly outside the fair or market value range of property Legislation Cited: Competition and Consumer Act 2010 (Cth), Schedule 2 (Australian Consumer Law) Contracts Review Act 1980 (NSW), s 4, s 6, s 7, s 9, s 19 Interpretation Act 1987 (NSW), s 34 National Consumer Credit Protection Act 2009 (Cth), Schedule 1 Trade Practices Act 1974 (Cth) Cases Cited: Australian Competition and Consumer Commission v Lux Distributors Pty Limited [2013] FCAFC 90 Blomley v Ryan (1956) 99 CLR 362 Henville v Walker [2001] HCA 52; 206 CLR 459 O'Brien v Smolonogov (1983) 53 ALR 107 Provident Capital Limited v Papa [2013] NSWCA 36 Texts Cited: John R Peden, The Law of Unjust Contracts, (1982, Butterworths) John R Peden, Harsh and Unconscionable Contracts: Report to the Minister for Consumer Affairs and Co-operative Societies and the Attorney-General for New South Wales, (1976) Category: Principal judgment Parties: John Russell Gray (First Plaintiff) Narelle Lynn Steinwede (Second Plaintiff) Geoffrey Wayne Latter (First Defendant) Sonia Lee Perkins (Second Defendant) Representation: Counsel: M Young SC (Plaintiffs) M Klooster (Defendants) Solicitors: Bransgrove Lawyers (Plaintiffs) Cordato Partners Lawyers (Defendants) File Number(s): 2013/75672 Publication restriction: Nil Judgment Introduction 1In September 2010 John Gray and Narelle Steinwede, the plaintiffs, purchased a property at Swan Bay for $145,000. Two months later they sold the property to Geoffrey Latter and Sonia Perkins, the defendants, for $240,000. Vendor finance was agreed on terms that the defendants would make repayments of $300 per week but that they would have to repay the outstanding principal after two years. Because of the disparity between the purchase price and the value of the property the defendants were unable to refinance the loan. They defaulted. The plaintiffs claim possession and judgment in the amount of the purchase price. 2The defendants seek relief under Schedule 1 of the National Consumer Credit Protection Act 2009 (Cth) (the Code), the Contracts Review Act 1980 (NSW) or Schedule 2 of the Competition and Consumer Act 2010 (Cth) (the Australian Consumer Law). Their claim for relief includes a prayer that the purchase price of the property be varied to accord with the undisputed value of the property at the time of purchase and a prayer that the mortgage be varied accordingly. 3The issues include whether the mortgage is a "credit contract" to which the Code applies; whether the plaintiffs made misrepresentations to the defendants; whether the plaintiffs were engaged in trade or commerce within the meaning of the Australian Consumer Law when they sold the property; and whether the transaction, or any part of it, is unjust. Facts 4In order to consider the defences raised and the cross-claim, it is necessary to set out in greater detail than is contained in the summary above what led to the contract for sale and mortgage. The plaintiffs' purchase of the property 5In about 2010, the plaintiffs decided to move from Cairns, which had been their home for about 20 years, to New South Wales. They intended to use Mr Gray's savings of $140,000 to buy a property. There were various reasons for the move. They wanted to make a fresh start following the untimely death of Ms Steinwede's daughter. Ms Steinwede wished to be closer to her son, who lived in Terrigal. Further, Ms Steinwede had health problems arising from trigeminal neuralgia which sometimes required her to travel to Sydney for treatment. Because of Ms Steinwede's bereavement her assistance was confined to looking at various properties on the Internet and it was Mr Gray who undertook the task of finding a property in New South Wales where they could live. 6In August 2010 Mr Gray saw a property on the Internet at Swan Bay which was advertised for sale for $149,950. There was a three-bedroom home and a large shed on the property, which was said to have an area of 1087 square metres. On 18 August 2010, he flew to New South Wales to see it. He immediately adjudged it to be suitable. The following day, 19 August 2010, he and Ms Steinwede exchanged contracts for the purchase of the property for $145,000. No searches were conducted of Council records nor other enquiries made prior to exchange. No building inspection report was obtained. Ms Steinwede, who had neither seen the property except on the Internet nor visited the area, was prepared to sign the contract because she trusted Mr Gray's judgment and wanted to be near her son. 7The contract provided for a 28-day period between exchange and completion. The plaintiffs were able to complete the purchase without borrowing money. 8On 21 August 2010, the plaintiffs signed documents to appoint an agent from 12 September 2010 to lease the unit in which they had been living in Cairns. 9The contract was completed on 16 September 2010. The plaintiffs became registered proprietors of the unencumbered fee simple of the property, which the expert valuers agreed was then worth what the plaintiffs paid for it, $145,000. The plaintiffs' discovery of the increased land size of the property 10In September 2010, after completion, the plaintiffs had the property surveyed in order to erect a fence. They learned from the survey report that its area was 1851 square metres, 70% larger than its advertised area when they purchased it. They were delighted to learn of their windfall and concluded that the property must be worth more than they had paid for it. They took no steps to ascertain the quantum of any such increase in value. The engagement of Mr Latter and the ensuing relationship 11It was necessary for the plaintiffs to make the shed on the property habitable so that they could live there while they were renovating the house which was dilapidated and contained asbestos. Mr Gray had no experience in renovation. 12Mr Latter, who lived in a rented house at Raymond Terrace with his partner Ms Perkins, had recently become unemployed. He decided to advertise his services as a handyman in the local newspaper. The plaintiffs saw the advertisement and agreed to retain Mr Latter to do some work on the property for which they agreed to pay him $25 per hour in cash. Neither the plaintiffs nor Mr Latter kept any record of the money that changed hands between them for the work he performed on various days between late September and mid-November. The plaintiffs also engaged other tradespeople to do work on the property. 13A rapport developed between Mr Latter and the plaintiffs. On days when Mr Latter was working on the property the plaintiffs would invite him to join them for lunch. Mr Latter and Mr Gray would drink beer together on these occasions. The topics of their conversations were not confined to the work to be done on the property and extended to personal matters including life experience and family and other relationships. In October 2010, in the course of one of these discussions, Mr Latter told Ms Steinwede that he was interested in buying the property if the plaintiffs ever wanted to sell it. The sewerage works 14In early November 2010 the local Council contacted the plaintiffs and told them that they would need to do substantial works on the sewerage system to the property within the following year. A Council officer came to the property to meet the plaintiffs on 2 November 2010. Mr Gray's own estimate of the cost of installing a sewerage bio-system was $20,000. The plaintiffs' decision to return to Queensland 15Not long after the plaintiffs moved to Swan Bay, Ms Steinwede's mother, who lived in Queensland, was diagnosed with bowel cancer. Ms Steinwede was herself unwell and believed that the dust from the renovation works was adversely affecting her health. These two factors caused them to consider selling the property and returning to Queensland to live. 16Although the plaintiffs were adamant that the need to spend a substantial sum on the sewerage system had no effect on their decision to sell the property and move back to Queensland, I do not accept their evidence and consider that it is probable that this was a factor, although not necessarily a major one, in these decisions. The initial discussions between Mr Latter and the plaintiffs about the possibility of the defendants purchasing the property 17There is some dispute about the precise dates on which certain conversations occurred. However I am satisfied that around the time the plaintiffs found out about the works required to be done to the sewerage system, Mr Latter telephoned to say that he could not come to work that day because he and Ms Perkins had just received notice that they were required to vacate their rental property at Raymond Terrace as the owner wanted to regain possession. 18A couple of days later, when Mr Latter returned to the property to resume working there, he and Ms Steinwede discussed the possibility of the defendants buying the property. On that occasion, the plaintiffs told him that they wanted $250,000 for the property but that they would sell to the defendants for $240,000. Mr Latter said that he would pay whatever they wanted because he loved the property but that he did not think they would be able to get a bank loan. Ms Steinwede mentioned the possibility of vendor finance. The plaintiffs invited Mr Latter to bring Ms Perkins to the property so that she could see it. 19There was a dispute about whether certain things were said on that occasion in addition to what I have set out above. The plaintiffs' case was that, in the course of this conversation, Mr Latter asked Ms Steinwede how much they had paid for the property and she told him that they had paid $150,000. It was also the plaintiffs' case that Mr Latter asked her how much she had spent on the property and she told him that they had spent $30,000. It was the defendants' case that neither of these exchanges occurred and that Mr Latter had neither asked what the plaintiffs had spent on the property, nor how much they had paid for it. 20I am satisfied, for the reasons given in more detail below where I address the credibility of witnesses that at no time did Mr Latter ask what the plaintiffs had paid for the property or what they had spent on it. The defendants' circumstances in November 2010 21The defendants were required to vacate their rental property in early January 2011. Their immediate concern was to find another property to rent for themselves and their two dogs. Ms Perkins was finding this difficult. She applied unsuccessfully for at least two properties. Their means were limited. Mr Latter's income depended on the cash he received for his handyman work. Ms Perkins was working part-time as an office assistant. They had been paying $245 per week for the Raymond Terrace house. When Ms Perkins asked Mr Latter whether they could afford to pay up to $300 per week to rent another property, he answered "Maybe". 22Ms Perkins had had a bad experience buying property in the past and had almost been made bankrupt as a result. She was anxious to have a roof over their heads but did not consider themselves to be in a position to buy a property. They had not saved a deposit by November 2010. It was common ground that they had no realistic prospect of obtaining bank finance to purchase a property at that stage. Since about 2008 she had looked at various properties on the Internet to see what was available. She believed that property in the Port Stephens area would be out of their reach but that they might one day be able to buy in Maitland or Cessnock. The negotiations for the purchase of the property 23On or about 12 November 2010 Mr Latter and Ms Perkins visited the plaintiffs at the property so that she could inspect it, meet the plaintiffs and, if she was willing, negotiate for its purchase. I accept Mr Latter's evidence that he was not particularly good with numbers or business and that he left all financial decisions to Ms Perkins. 24It is common ground that Ms Perkins attempted to negotiate the purchase price with Ms Steinwede by asking if they would accept $220,000. Ms Steinwede's response was to reiterate the asking price of $240,000. 25There is an issue as to whether, in the course of this discussion, Mr Gray said to the defendants: "The property is worth $250,000 any day of the week." 26Only Mr Latter recalls Mr Gray making such a statement. Mr Gray and Ms Steinwede deny that such a statement was made. Ms Perkins was not present when the statement was alleged to have been made and Mr Latter did not tell her about it. I accept Mr Latter's evidence that Mr Gray made such a statement. 27The discussion then turned to vendor finance. When Ms Steinwede asked the defendants how much they could afford to pay each week Ms Perkins nominated the sum of $300. The plaintiffs agreed that repayments could be made at this level. There was no discussion of what proportion of each payment would be attributed to principal and what to interest. I accept Ms Perkins evidence that she did not become aware of how the repayments would be applied between principal and interest until she attended her solicitors' office to sign the contractual documents at the end of November. 28The defendants said that they could only afford to pay $5,000 by way of a deposit. The defendants also asked the plaintiffs whether their solicitor could act for them so that they could save money on legal costs. 29The plaintiffs proposed that the outstanding principal would be due for repayment two years after settlement, at which time it was contemplated that the defendants would refinance the loan with an external lender. 30Mr Gray's uncontroverted evidence was that he said to the defendants: "We will set up the loan just as a bank would. You can look at us as a really nice, friendly bank to deal with. We will need to enter into a mortgage." 31This statement led Ms Perkins, who was aware that banks usually require a valuation, to ask Ms Steinwede whether the plaintiffs needed a valuation of the property. Ms Steinwede replied: "No, we know what the property's worth." 32At the time Ms Steinwede made this statement, she may not have known precisely what the property was worth but she did know that it was not worth the contract price of $240,000. However, in my view, this statement would have reassured Ms Perkins that the property was worth what the defendants had just agreed to pay for it. Post-negotiation events and the exchange of contracts 33Later in November 2010 the plaintiffs and the defendants met again on the property to celebrate the transaction. Ms Steinwede gave them various documents regarding the property including a termite report, a Council valuation and receipts relating to the property. There was no building report supplied as none had been obtained. I am satisfied that the letter from the Council regarding the need for sewerage works to be undertaken was not among the documents handed over at this point and that the defendants did not become aware of the need to do these works at any time prior to settlement. 34The plaintiffs' solicitor refused to act for the defendants, on the basis that it would give rise to a conflict. The defendants retained another firm to act on their behalf on the purchase. 35The agreement between the parties was reduced to writing and, on 29 November 2010, contracts were exchanged. The agreed purchase price was $240,000, of which $5,000 was paid as a deposit. The balance was to be provided by the plaintiffs. The agreed completion date was 7 January 2011. The occupation by the defendants between exchange and completion 36The defendants rented the property at an agreed rate of $150 per week from 5 December 2010 until the settlement date of 7 January 2011. Completion of the contract and the grant of the mortgage 37On 7 January 2011 the defendants granted a mortgage to the plaintiffs to secure the outstanding purchase monies of $235,000. The mortgage was registered. It was a term of the mortgage that the defendants would pay $300 per week, which comprised $150 in interest and $150 in repayment of principal, until 7 January 2013, at which date they were obliged to pay $218,500, being the outstanding principal. 38The expert valuers agreed that, as at the date of completion, the value of the property was $167,500. I infer from the expert conclave report that the increase in value from $145,000 (when the plaintiffs completed their purchase) to $167,500 (the date on which they completed its sale) is attributable to the increase in the area which was revealed by the survey. In other words there was no capital gain. Post-completion events 39On 3 January 2012 Ms Perkins sent an email to Ms Steinwede in the following terms: Hi Narelle and John Happy New year to the both of you as well. Sorry to hear that you have not been well, hope this year is a much better year for you both. We are getting married on the 5th February at the house. We have done lots of work on the place but still heaps to go, it is nearly all level again. We will contact this guy and go from there, we were planning on refinancing in the middle of the year so that we could pay you guys back. We can not express the thanks for what you did for us and the opportunity it has given us both. Cheers. 40Other emails passed between Ms Perkins and Ms Steinwede between 2010 and 2012 concerning the progress of the work the defendants were performing on the house, the timeliness of the weekly payments and the date for settlement of the final payment. 41The tone of the emails changed in about November 2012 from effusive, affectionate exchanges to more formal and, at times, hostile communications. By this time Ms Perkins had realised that it would be difficult, if not impossible, for them to obtain refinance. Ms Steinwede became anxious that she would not get the money back on the due date. Ms Steinwede was at that time distraught for another reason: her grandson had recently committed suicide. The defendants' default 42The defendants complied with the terms of the mortgage until 7 January 2013.The due date for repayment came and went. On 23 January 2013 the plaintiffs served on the defendants a notice under s 57(2)(b) of the Conveyancing Act 1919 (NSW) seeking repayment of the sum of $218,500. They have not served a notice under s 88 of the Code. The plaintiffs commenced these proceedings for possession on 12 March 2013. 43By letter dated 31 July 2013, the plaintiffs' solicitors wrote to the defendants saying that the repayment of the mortgage advance "is" due on 7 January 2013. 44The outstanding principal remains unpaid since the defendants have been unable to obtain refinance. The defendants have continued to pay the sum of $300 per week. It is common ground that the principal sum outstanding as at 14 February 2014 is $209,800. 45The expert valuers agreed that the property was worth $165,000 at 7 January on 12 December 2013. In the absence of any evidence of any increase since then I infer that its current value is $165.000. Credibility of witnesses The plaintiffs' credibility 46I consider that both Mr Gray and Ms Steinwede gave their evidence in a defensive and, at times, belligerent manner which gave me the impression that they realised that their behaviour towards the defendants was unacceptable. The plaintiffs were keen to emphasise that the agreement that gave the defendants two years within which to refinance had been made "out of the goodness of [their] heart[s]". The plaintiffs obviously resented the insinuation that they had taken advantage of the defendants, or that they were in any way responsible for the eventual default. Ms Steinwede refused to concede that there was a benefit to her and Mr Gray in the sale, as appears from the following exchange: Q. Isn't it the case that you offered Mr Latter vendor finance because it provided you with an exit strategy to get rid of the property? A. Absolutely not. 47Both plaintiffs exaggerated how much they had spent on the property and demonstrated a misplaced sense of entitlement to recoup all their expenses when they sold the property. In cross-examination Ms Steinwede denied knowing that taking out insurance of itself could not increase the value of the property. I was not convinced that she was as ingenuous as she purported to be. I do not accept her evidence that she had calculated the asking price by reference to what she and Mr Gray had spent on the purchase, legal fees, stamp duty, the cost of improvements of about $30,000 and the extra land gained from the survey. I consider that this calculation was no more than a retrospective justification for a figure that she had plucked from the air as amounting to what she thought she could get for the property from Mr Latter whom she knew, from their regular contact in a semi-social environment, would be prepared to pay whatever she wanted. 48Although Mr Gray admitted that he was not particularly mathematical, I am satisfied that he was keen to recoup the costs they had incurred in the move to New South Wales and to back up Ms Steinwede, who had come up with the price in the initial discussion with Mr Latter. As referred to above, I find that, contrary to his evidence, he made the statement that the property was worth $250,000 although he had no genuine belief that the property was worth that, or anything like it. It is understandable that Mr Gray felt he had to do his part to get the sale through particularly as he had been responsible for its selection and purchase. Even on the basis of his own unfounded view, the difference the survey could have made to the property was between $40,000-$60,000 which, at best would have brought the value to $200,000. Although Mr Gray wanted to recoup their costs, he could not reasonably have believed that amounts paid to removalists, airlines and lawyers or for stamp duty had any material effect on the value of the property. 49Both plaintiffs sought to minimise the familiarity between themselves and Mr Latter. It was put to Ms Steinwede that she became friends with Mr Latter. She made the following parsimonious concession in response, which I regard as a deliberate understatement affected by hindsight: "Friendly acquaintances I believe you could put it." Mr Latter's credibility 50I found Mr Latter to be a reliable and honest witness who gave answers in cross-examination that did not necessarily align with his forensic interests. Indeed, he did not appear to have any conception of the forensic significance of any of his answers. Mr Latter impressed me as a simple man who tended to recall matters as they happened, rather than place them in a context of what else was going on. He did not extrapolate beyond that which he could recall and did not concern himself with matters of little interest to him. For example, he recalled, incorrectly, that Ms Steinwede had spoken of her daughter and said that she was living on the Central Coast. I am satisfied that his faulty recollection of what she said arose from his lack of interest in her family but that his evidence is otherwise reliable. 51When asked why Ms Perkins' evidence of a particular conversation was more detailed than his, Mr Latter answered that it was because he was drinking beer at the time. Further questions elicited a response to the effect that when he is drinking beer, that is the matter of prime interest to him. 52I accept Mr Latter's assessment of himself, which he gave in the following evidence: "I don't look at business as such. I do work. I am not a money person." 53Mr Latter's lack of familiarity with business dealings is exemplified by his belief that only real estate agents negotiate a purchase price for property. 54Mr Latter's conduct can, in my view, be explained by the following exchange in re-examination: "Q. Mr Latter, you were asked a question didn't you become curious about how much they, being the plaintiffs, paid for the property. You then gave an answer no. You were then asked a future question, "Why". And you responded, "I trusted them". Why did you trust them? A. Just I trust everybody, in a sense. I never disbelieve what anybody tells me. It's the way I am." 55I accept this answer as truthful. It was not self-serving in the context of the proceedings since Mr Latter did not, in his answer, place any emphasis on the familiarity that had developed between him and the plaintiffs. It also explains why he did not ask what the plaintiffs paid for the property and why it was not necessary for Ms Steinwede to justify the asking price by reference to it and other factors such as the increase in the area of the land and the costs incurred by the plaintiffs. 56The view I have formed of Mr Latter leads me to find, contrary to the plaintiffs' evidence, that he did not know either of the work that needed to be done to the sewerage system or of the increased land size. Even if he had been present when the Council officer arrived (as the plaintiffs' testified) I do not accept that he suspected that the visit might indicate that there was a problem that could affect the purchase price of the property. Although Mr Latter probably saw surveyor's pegs on the ground, I reject the plaintiffs' submission that he knew that the survey revealed that the land size was significantly larger than the plaintiffs had understood it to be when they had bought it. There was no particular reason for him to appreciate the significance of surveyor's pegs on the ground and I am satisfied that he did not. Ms Perkins' credibility 57Ms Perkins impressed me as an honest witness. She accepted her responsibility, as between herself and Mr Latter, for financial decisions and was frank about her past financial experience which had made her cautious. She gave her evidence without regard to the forensic consequences of her answers and was prepared to make concessions. The National Credit Code and the Australian Competition Law 58Whether this legislation applies depends on whether the plaintiffs were, in the case of the Code, engaged in a business and, in the case of Australian Competition Law, engaged in trade or commerce. 59The defendants sought to rely on the plaintiffs' retention of the Cairns unit and their ownership of another property in Southport in which they currently live to support the proposition that the plaintiffs intended to use the Swan Bay property as an investment for re-sale at a profit and that they were therefore engaged in a business. The defendants also relied on the plaintiffs' concern that no pets would be allowed in the Cairns unit as an indication that they intended to return to live there. I do not accept this submission. I accept the plaintiffs' evidence that when they bought the property they intended to stay in Swan Bay indefinitely and that they did not buy it for investment purposes. Their concern to preserve the state of the Cairns unit is, in my view, consistent with their desire to conserve the value of the property either for rental purposes or for ultimate sale. Although, as it turned out, they sold the property at Swan Bay shortly after they had bought it and made, at least on paper, a significant capital gain, I do not accept that this was their intention when they bought it. The capital gain was a product of their opportunistic greed, rather than a result of any astute investment plan. 60I do not consider that the defendants have established that the plaintiffs were engaged in other than an isolated transaction for personal reasons. They were not conducting a business of providing credit; nor were they engaged in trade or commerce: O'Brien v Smolonogov (1983) 53 ALR 107. 61In any event, I do not consider that the misrepresentation by Mr Gray about the value of the property being $250,000 had any effect. Ms Perkins, who was relevantly the decision maker and negotiator for the defendants, was not present when it was made and Mr Latter did not tell her about it. Although Mr Latter heard it, it meant nothing to him because he was prepared to pay whatever the plaintiffs asked. It does not reflect well on Mr Gray that he would make such a statement when he had no genuine belief in what he was saying, but his reasons for doing so, to make Ms Steinwede's offer seem reasonable, are explicable, although incriminating. There is no causal connection between the misrepresentation and the purchase. Nor in my view does it have any material effect on the justness or otherwise of the transaction. Relief under the Contracts Review Act Legislative provisions 62Section 7 empowers this Court to alter the contractual rights of parties. The prefatory words of s 7 are: "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 . . ." 63Section 4 defines "unjust" in the following terms: unjust includes unconscionable, harsh or oppressive, and injustice shall be construed in a corresponding manner. 64Section 9 provides for the matters relevant to the determination of whether a contract is unjust. It provides: (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. 65The Contracts Review Act provides for a two-stage process. First, the Court is required to determine whether the contract is just; and secondly, it is to determine whether, if so, it is appropriate to grant relief. 66The nature of the assessment of unjustness (and the fashioning of appropriate relief) was explained by Allsop P in Provident Capital Limited v Papa [2013] NSWCA 36 in the following terms at [7]: "The broad evaluation of unjustness under the Contracts Review Act 1980 (NSW) ss 4, 7 and 9 involves the normative evaluation of the totality of relevant circumstances. . . . Central to the normative evaluation is the recognition that there is a need for the protection of some people in some circumstances, who are not able fully to protect their own interests against factors that may cause injustice. That vulnerability may come from one or more of many circumstances, such as lack of education or of intelligence, from gullibility, from the predation of fraud and greed, and also sometimes from loyalty and love. The characterisation of a contract as unjust and the sheeting home to the other contracting party of the consequences of its unjustness may be a difficult evaluative exercise. At its heart, however, is the recognition of the inadequacy of one party to protect her or his interests in the circumstances." Whether the contract was unjust 67There are two relevant contracts: the contract for purchase of the property and the mortgage contract. In my view, they need to be considered together since they are part of a single transaction. It would be artificial to do otherwise. It is common ground that the defendants could not have purchased the property had vendor finance on the terms offered by the plaintiffs not been forthcoming. 68The principal bases on which the contract for sale and the mortgage are said to be unjust are the amount of the purchase price coupled with the terms of the vendor finance. The genesis of the purchase price and the defendants' reasons for accepting the asking price without investigation are therefore important matters to be considered in the assessment of whether the transaction was unjust. 69The Contracts Review Act requires consideration of matters that will be addressed in further detail below. Before I turn to the matters referred to in s 9, I propose to address the asking price and the terms of the vendor finance since they are central to the relevant determination and can conveniently be dealt with here, although they are germane to the matters identified in the legislation, both in s 9(1) and in s 9(2), and will not be reiterated when I come to a consideration of s 9. The genesis of the asking price of $240,000 70In my view, the plaintiffs set $240,000 as the asking price because this is the amount that Ms Steinwede wanted. It had no rational basis and could not withstand any reasonable investigation. 71Neither Ms Steinwede, nor Mr Gray, knew what the property was worth. They knew only what they had paid for it and that it was actually larger than they had believed it to be when they bought it. As their counsel accepted in his written submissions on their behalf: "The plaintiffs knew what they wanted for the land, but had only the vaguest of ideas as to what it was actually worth". 72Ms Steinwede's justification for the asking price of $250,000, which was reduced to $240,000 for the defendants, appears in the following exchange: "Q. When you said the words, "We are going to sell the property and put it on the market for $250,000." What was your view as to the property's value? A. I don't know. That was what we wanted. Q. How did you arrive at that figure? A. As I stated before I approximately put it in my head what we paid for the property, what we roughly spent coming down and everything coming out of the bank, and I calculated the extra little bit of land." 73I regard Ms Steinwede's "calculations" as being no more than a ruse, devised after the event to justify an exorbitant asking price. When she was cross-examined about the arithmetic, her answers were unsatisfactory. When it was put to Ms Steinwede that their total expenditure amounted to about $185,000, which was $65,000 less than $250,000, she resorted to a simple, emotional response and answered: "It's what we wanted for the property. It was our home." 74I accept Mr Gray's evidence that he played no part whatsoever in the fixing of the price of $240,00 and that the figure came wholly from Ms Steinwede. I also accept his evidence that he did not ask Ms Steinwede how she had arrived at the figure although she subsequently explained to him how she came to it. Nonetheless, he did what he could to achieve the sale by misrepresenting that the property was worth $250,000 (although he had no grounds, whether reasonable or otherwise, for supposing that to be the case) and by describing himself and Ms Steinwede as a "friendly bank". 75I accept that the plaintiffs did not give any thought to whether the defendants could perform their side of the bargain. The plaintiffs were entirely focussed on their own interests and on obtaining recompense for all the costs associated with their ill-fated move from Cairns to Swan Bay. They justified the exorbitant price for which they offered to sell the property by reference to the costs which they had incurred including stamp duty and legal fees, as well as travel and moving expenses. They can have had no reasonable apprehension that these expenses would have had any effect on the value of the property whatsoever. 76The plaintiffs sought to portray themselves as "kind" and charitable towards the defendants on the ground that their conduct permitted them to purchase a home which would otherwise have been impossible. 77The plaintiffs salved their consciences by surmising that the increased area of the property together with any handyman work that Mr Latter was able to perform on the property would substantially add to its value. I do not accept that the plaintiffs had any genuine belief that Mr Latter could effect major improvements that would substantially increase the value of the property. Indeed the plaintiffs did not have any particular faith in Mr Latter's capacity to improve the property. They engaged other tradespeople to work on the property. The following exchange (which I accept is probably affected by hindsight) shows the diffidence with which Mr Gray regarded Mr Latter's work: Q. You were happy with his work, weren't you? A. Wasn't bad. It wasn't great but it wasn't bad. 78Further, when the plaintiffs purchased the property they had not decided whether to renovate the house or to demolish it and build a new house. Had they thought about it, they might have reached the conclusion that the property might be worth no more than its land value. 79It is possible that Ms Steinwede would have told the defendants about the increase in the land area if Mr Latter or Ms Perkins had sought information about what they had paid for the property, or if the defendants had put up more resistance to the asking price at the meeting on or about 12 November 2010. However, this was not necessary, because of Mr Latter's credulity and Ms Perkins' misplaced expectation that the plaintiffs would not behave in an unscrupulous way towards her and Mr Latter. 80It is a further aggravating factor that the plaintiffs did not disclose to the defendants the likelihood that they would be obliged to spend a substantial sum on sewerage works. Why the defendants agreed to pay the asking price of $240,000 81The defendants' imminent homelessness arising from their eviction from rental property on 8 January 2011 and Mr Latter's fondness for the plaintiffs' property on which he had spent time working meant that in November 2010 the defendants had both a strong desire, and need, for a home. Another rental property was proving difficult to come by at a price the defendants could afford. Ms Perkins asked the plaintiffs if they would rent the property to them, but this proposal was immediately rejected. 82Ms Perkins' expectations and her assessment of what she and Mr Latter could afford to pay each week were, in my view, both realistic and responsible. She was acutely conscious of their limited financial means and aware that they could not commit to a transaction that required them either to make payments of more than $300 per week or to pay a deposit of more than $5,000. That they have made payments of $300 per week to the plaintiffs since the agreement was made is a good indication that Ms Perkins' assessment of their financial means was accurate. I accept that the reason they have not made greater payments, which would have had the effect of reducing the principal sum owing, is also a reflection of their limited financial means. 83Ms Perkins was not naïve. She appreciated that a vendor would not necessarily offer to sell a property at its market price but that there could be negotiation between vendor and purchaser. Indeed, Ms Perkins attempted to negotiate by offering $220,000, but Ms Steinwede would not move from $240,000, which she had already given the defendants to understand was a concessional price and that they were the beneficiaries of a special deal, because of the relationship between the plaintiffs and Mr Latter. 84Ms Perkins had no real idea of the value of the property. Her searches on the Internet had given her some passing acquaintance with the price at which real estate was offered for sale, and was sold, but it was wholly insufficient to give her any real appreciation of the market. This is hardly surprising. The expert valuers who were retained for the proceedings themselves had difficulty in valuing the property because of the dearth of sales in the area and the lack of comparable properties. It is reasonable to assume that the expert valuers regarded the purchase price paid by the plaintiffs, $145,000, as an acceptable indicator of value because, unlike the transfer from the plaintiffs to the defendants, the transfer to the plaintiffs was at arms length. 85Why, then, did this cautious woman, who appreciated that she was relevantly responsible for the financial decisions affecting her and Mr Latter, accept the asking price for the property? In my view, the answer to this question is threefold: first, Ms Perkins believed the asking price to be within the range of a fair value for the property; secondly, she had confidence that she and Mr Latter could comply with the weekly repayments of $300; and, thirdly, she had reasonable grounds to believe that, after the two year period during which vendor finance was available, they would have sufficient equity in the property to enable them to refinance the loan with an external lender, on the assumption that the purchase price represented fair value. 86The second matter was correct and has been borne out by the fact that the defendants have made payments of $300 per week since completion of the sale. The third matter is not an unreasonable inference, if the asking price had reflected the fair value of the land. It is the first matter, her belief that the asking price reflected the fair value, to which I will turn. 87Ms Perkins explained why she thought that the asking price was broadly what the property was worth in the following terms: "They were friends with Geoff and it never crossed my mind that they would be dishonest." 88Mr Young SC cross-examined her about what she meant by that evidence in the following exchanges: Q. You think it's dishonest for a vendor to name an asking price that may be higher than what the property is worth? A. Yes, it is. Q. You knew, didn't you, that it was your job as a purchaser of the property to make your own enquiries as to what it was worth and make your own decision as to what you were prepared to pay. You knew that, didn't you? A. I did know that, it just never crossed my mind. Q. It didn't cross your mind that it was your job as a purchaser, particularly when Geoff was leaving it up to you, for you to do the negotiations, that it was your job to form your own view as to what the property was worth? A. It didn't really cross my mind. It's an error I've made. 89Mr Perkins' frankness in accepting her "error" is in her favour. She accepted responsibility for the "error" but nonetheless felt that the plaintiffs had been dishonest. 90Minds might differ about whether the word "dishonest" is apt. However, in my view, the plaintiffs took advantage of the defendants for their own benefit and exploited the familiarity that had developed between them and Mr Latter to engender trust in Ms Perkins. 91I accept that the reason Ms Perkins did not make any real investigation of what the property was actually worth was because she trusted the plaintiffs not to ask for a price that was above a fair range of its value. The reason she trusted them was because they had befriended Mr Latter. She believed that they would not exploit the relationship by nominating an asking price for the property which was substantially in excess of what they believed it could reasonably be worth. Indeed, her view was, as her answers set out above show, that such conduct was dishonest. That her trust was misplaced reflects adversely on the plaintiffs but not, in my view, on Ms Perkins whom, as I have said above, I found to be an honest and reliable witness. The commerciality of the transaction 92The defendants could only afford to pay $300 per week. This equated to an interest rate of 6.6% on the outstanding sum of $235,000 if the loan had been interest only. The way the payments for the two-year period were structured ($150 per week towards the principal and $150 per week for interest) meant that at the commencement of the loan the defendants were paying an effective interest rate of half that, or 3.3%. It is common ground that this rate is substantially less than the defendants would have had to pay to an arms length lender. However because the repayment terms agreed did not take account of the diminishing principal, the interest rate effectively becomes higher over the term of the loan since the interest payable is constant but the principal diminishes over time. Therefore the bare figure of 3.3% does not reflect the true interest rate, which, over the period, is considerably higher. 93Mr Young submitted, on behalf of the plaintiffs, that there was an element of generosity and accommodation in the plaintiffs' preparedness to accept the amount of weekly payments that the defendants could afford and a deposit in the order of 2%, being $5,000, being the capital sum that the defendants could assemble for that purpose. I do not accept this submission. The terms of the vendor finance gave the defendants a false sense of security in that it engendered in them the wholly unjustified belief that they could afford to buy the property at the exorbitant price sought by the plaintiffs and that they would have some equity in the property when it came to refinancing the loan after two years. 94Absent a substantial windfall, such as might be received on inheritance, it was effectively inevitable that the defendants would be unable to refinance and that they would default when the time for repayment of the outstanding principal arrived. Further, although the plaintiffs were sufficiently thoughtless not to have considered whether the defendants would have any equity in the property when it came to refinancing, they would have realised, had they addressed the question, that there was a substantial risk that the defendants' equity would be negative since the contract price (and therefore the amount outstanding) was devised by reference to the plaintiffs' desires rather than by reference to the value of the property. 95I accept that the plaintiffs did not consider what was likely to happen at the end of the two years. Although their legal rights were protected by the terms of the mortgage which gave them a right to possession and to the outstanding debt, there was no real prospect either that the defendants would be able refinance or that the debt could be recouped from the proceeds of sale of the property or that the balance of the debt owing after sale of the property could be repaid by the defendants. 96The plaintiffs purported to believe that the defendants would "honour the contract" although a reasonable person in their position would have realised that this was nigh impossible once it came to repayment of the principal sum, given their lack of equity. The following passages from Ms Steinwede's cross-examination reveal her failure to assess the prospects of default: "Q. You never made independent enquiries as to the defendants' ability to repay the loan? A. No, I did not. Q. Even though you were prepared to lend them a substantial sum of money? A. They were two adults. . . . Q. You didn't turn your mind to how much the defendants would pay back in two years time? A. No, we were helping them. . . . Q. Having decided on a term of two years and been aware they could only repay $300 a week, you never crunched the numbers? A. No. The application of the Contracts Review Act to the present transaction 97Mr Young submitted, in substance, that the principal purpose of the Act was to moderate the lending practices of large financial institutions and that it was not designed to alter transactions such as in the present case, which were largely to be determined by reference to freedom of contract, except where affected by equitable principles 98The Act is not confined to contracts between individuals on the one hand and large corporations on the other. There is no reason why it does not apply to the transactions in the present case, although they may not conform to the typical case. Indeed, it is noteworthy that the requirements in other legislation, such as the Code and the Australian Consumer Law, that the person whose conduct is to be governed be engaged in a business or trade or commerce are absent from the Contracts Review Act. The Act is expressed in general terms. Its operation has few limitations, of which s 6(2) (irrelevant here) is perhaps the most notable. Further, although some so-called consumer legislation is directed at transactions with a limited value, this is not the case under the Contracts Review Act. 99Mr Young submitted on behalf of the plaintiffs that the contracts were not unjust and I ought not grant relief to the defendants in circumstances where there was no conduct for which the plaintiffs could reasonably be criticised. He submitted that there was no unconscionability in the plaintiffs' actions since the defendants were educated, English-speaking adults who were not subject to any relevant disability or disadvantage. 100Although equitable considerations are relevant to the application of the Contracts Review Act, they neither define, nor confine, it. The purpose of the Act is not to punish wrongdoers. The Act is not directly, or even primarily, concerned with the conscience of the party other than the party seeking relief. Rather, it empowers the Court to provide redress to those who are subjected to unjust contracts and, where required, to relieve them from compliance with some or all of their legal obligations arising from an unjust contract or provision in certain circumstances. Further, the matters to be taken into account in determining whether a contract is, in whole or in part, unjust demonstrate that educated English-speaking adults who are not disabled are not disentitled on those grounds to relief under the Act. The relevance of the public interest: s 9(1) of the Contracts Review Act 101The Act specifically makes the public interest and the circumstances of the case mandatory relevant considerations in the determination of whether a contract or provision of a contract is unjust: s 9(1). 102The Act followed the draft Bill contained in the Peden Report (John R Peden, Harsh and Unconscionable Contracts: Report to the Minister for Consumer Affairs and Co-operative Societies and the Attorney-General for New South Wales, (1976)). The author identified the purpose of the reference to public interest in the draft Bill as being to: "direct the courts' attention to the underlying purpose of the Bill, namely to prevent unjust dealings which offend against community standards of business morality" John R Peden, The Law of Unjust Contracts, (1982, Butterworths) at 122 (Peden). 103The Peden Report is relevant extrinsic material that may be considered in the interpretation of "public interest" in s 9(1): s 34(2)(b) of the Interpretation Act 1987 (NSW). In my view it confirms the ordinary meaning (s 34(1)(a) of the Interpretation Act) and the intended breadth of the operation of the Contracts Review Act. It follows that ome consideration of community values and standards is required, to give effect to the Act as a whole, and to the words "public interest" in s 9(1) in particular. 104Although the Contracts Review Act has features that are not replicated in the laws of other States, and in some respects is of wider and more general application, it belongs to the category of laws referred to by the Full Federal Court (Allsop CJ, Jacobson and Gordon JJ) in Australian Competition and Consumer Commission v Lux Distributors Pty Limited [2013] FCAFC 90 at [23]: These laws of the States and the operative provisions of the ACL [Australian Cosumer Law] reinforce the recognised societal values and expectations that consumers will be dealt with honestly, fairly and without deception or unfair pressure. 105I consider that the public interest identified in the Peden Report of preventing unjust dealings which offend against community standards of business morality militates in favour of a determination that the transaction was unjust. Ms Perkins' view was, in substance, that an asking price sought in circumstances where there was a personal relationship between the putative vendor and purchaser, which was substantially closer than arms length, ought not be in excess of what could reasonably be regarded as a fair market value. A vendor would be entitled to specify a price in the upper end of the range in the expectation that there could be some negotiation to reduce the figure but ought not nominate an exorbitant asking price. I do not consider her view to be at odds with community standards of business morality. 106A substantial disparity between price and value (sometimes referred to in the authorities in terms of "inadequate consideration") is a not uncommon symptom of unfairness and may, indeed, be an indication of it. The relevance of the factor is explained in Peden at 26-27: " . . . a gross inadequacy of consideration remains an important element in the determination of whether a transaction as a whole is fair. Thus, where the inadequate consideration is linked with some element of procedural unconscionability it may demonstrate that the unequal exchange has resulted from a positive abuse of superior bargaining position. In Blomley v Ryan (1956) 99 CLR 362 at 405 Fullagar J explained: "inadequacy of consideration, while never of itself a ground for resisting enforcement, will often be a specially important element in cases of this type. It may be important in either or both of two ways - firstly as supporting the inference that a position of disadvantage existed, and secondly as tending to show that an unfair use was made of the occasion. Where, as here, intoxication is the main element relied upon as creating the position of disadvantage, the question of adequacy or inadequacy of consideration is, I think, likely to be a matter of major, and perhaps decisive, importance." 107In Blomley v Ryan, the defendant sold his rural property for a gross undervalue. In the instant case, the defendants purchased the property for a gross overvalue. Although such disparity does not of itself prove unfairness it tends to show that unfair use was made of an occasion, as indeed I consider occurred in the present case. Other relevant factors: s 9(2) of the Contracts Review Act 108The matters listed in s 9(2) of the Act must be taken into account to the extent to which they are relevant. I do not consider that there was any particularly material inequality in bargaining power between the plaintiffs and the defendants. The contract to sell the property was the subject of negotiation. It was reasonably practicable for the defendants to reject any of the provisions of the contracts and not proceed with the purchase. Indeed, had they appreciated that the price was grossly in excess of its value, they would not have entered into the transaction. 109As to s 9(2)(d) of the Act, in my view, the condition that the defendants repay the whole principal sum owing on 7 January 2013, coupled with the setting of a purchase price which was grossly in excess of the market value of the property, was unreasonably difficult for the defendants to comply with since their equity was likely to remain negative for much longer than the two-year period. The setting of a purchase price which was almost 50% higher than the true value of the property was not reasonably necessary for the protection of the plaintiffs' legitimate interests. The plaintiffs had a legitimate interest in capitalising on the increased land that the survey revealed but they had no legitimate interest in obtaining an indemnity for all their costs and expenses of their relocation from Queensland to New South Wales, together with a sizeable profit margin. 110I do not consider s 9(2)(e) or (f) (which concern age, mental or physical incapacity, economic circumstances, educational background or literacy) to be relevant. Nor do I consider s 9(2)(g) to assist the defendants since the contract was reasonably clear and in plain English and they understood its legal, although not its practical or financial, effect. 111Section 9(2)(h) and (i) are relevant. Although no complaint in respect of the legal advice obtained was made, no financial advice was obtained by the defendants. Had they obtained such advice, they would have been advised that the transaction was improvident. They did not understand that the practical effect of the contracts was to bind them to an agreement to purchase a property so far in excess of its market value that they would be unable to obtain refinance within the stipulated period. 112Section 9(2)(j) refers to undue influence, unfair pressure and unfair tactics. The defendants did not press the allegation of undue influence. I do not consider that unfair pressure was exerted by the plaintiffs against the defendants. Although I am not necessarily satisfied that the word "dishonest", which was used by Ms Perkins to describe the plaintiffs' conduct, is apposite, I consider that the plaintiffs used "unfair tactics" in their dealings with the defendants. 113In my view, the plaintiffs took advantage of the belief they had engendered in Ms Perkins particularly, that they were trustworthy and that they would not seek to take advantage of the relationship that they had developed with Mr Latter to ask for an exorbitant price which could not, on any view, be justified as being in the realm of fair market value. To borrow the words of Fullagar J in the passage from Blomley v Ryan cited above, "an unfair use was made of the occasion" by the plaintiffs. 114In any event, the plaintiffs did not seek in the proceedings to justify the price as being the value of the property: they asked for it because it was the amount of money they wanted for their property. Any rationalisations they engaged in to come to the figure of $240,000 required extraneous matters to be included, including expenses and profit. 115Mr Gray's representation to the defendants that they should consider the plaintiffs to be a "really nice, friendly bank" gave the defendants, in my view, a false sense that there was some assessment, albeit a rudimentary one, by the lender that they could actually afford the borrowings, that there was a prospect of their being able to refinance on commercial terms after two years and that the purchase price was broadly commensurate with the value of the property. The plaintiffs packaged the exorbitant purchase price within a transaction that the defendants could perform for the first two years by reference to a weekly amount that Ms Perkins adjudged that they could afford. I do not consider that the plaintiffs did so knowingly; the plaintiffs appeared to have no appreciation that their "victory" in obtaining a purchase price which gave them a complete indemnity for their costs and expenses and a profit element (depending on what allowance was notionally made for the increased land) was likely to be a Pyrrhic one in that default in January 2013 was probable, if not inevitable. 116There was, however, some chance that the defendants, by their expenditure and as a result of Mr Latter's labour, would improve the property in the two years in which they would have been in occupation before they were required to refinance. The plaintiffs were protected by their right to possession and sale although, because of the exorbitance of the sale price, and the corresponding loan, it was not realistic for them to expect to recover the whole of the outstanding principal from the proceeds of sale of the property. 117Section 9(2)(k) is not relevant since the parties have not had any other relevant commercial dealings. 118I consider s 9(2)(l) to be relevant. The effect of the contracts has been sufficiently described above. It is a significant factor. 119Although the plaintiffs may not have actually set out to trick the defendants, they exploited their trust and the associated vulnerability. This occurred in circumstances where the defendants were not able to protect their own interests since they did not have the capacity to assess the true commercial effect of the contract in circumstances where the discrepancy, of which they were unaware, between the contract price and the value of the property was so substantial. Conclusion 120For the foregoing reasons, I find the transaction, constituted by the contract for sale and the mortgage, to be unjust within the meaning of the Contracts Review Act. The determination that a contract, or as in the present case, the effect of two contracts, is unjust involves, as appears from the above reasons, a consideration of many factors. The effect of the orders I propose to make will be to deprive the plaintiffs of a substantial portion of the price for which they agreed to sell their home to the defendants. I have set out in detail above the matters which have led to my conclusions. 121In summary, the most significant of these are: (1)The plaintiffs knew, from their friendship with Mr Latter, that he was unsophisticated and would pay whatever they wanted for the property as long as he could afford the deposit and weekly payments. (2)The plaintiffs appreciated that Ms Perkins was treating them on a closer than arms length basis because she knew that they had developed a personal relationship with Mr Latter and that she trusted them for that reason. (3)The plaintiffs knew that the defendants' finances were constrained and that they were only able to afford a deposit of $5,000 and weekly payments of $300. The plaintiffs also knew that there was so little latitude in the defendants' circumstances that they were anxious to halve their legal costs by sharing the plaintiffs' solicitor for the conveyance. (4)The plaintiffs also knew that Mr Latter and Ms Perkins had to vacate their rental property in January 2011 and were, at that time, unable to purchase a property because their circumstances precluded bank finance. (5)The plaintiffs insisted on a purchase price for the property that they had no basis for believing would be other than grossly in excess of its value having regard to what they had paid for it and taking into account its increased area as revealed by the survey. (6)The agreed purchase price was in fact grossly in excess of the value of the property. (7)The plaintiffs also knew that Ms Perkins would not agree to any transaction which she foresaw would put her and Mr Latter in a position of default, which is why they agreed to weekly payments of $300 for the two-year period of vendor finance. (8)The plaintiffs exploited the defendants' trust, and most particularly Ms Perkins' trust, for what they perceived to be their own interests. (9)The period of vendor finance was wholly insufficient for the repayments of principal to be sufficient to bridge the gap between the exorbitant purchase price and the value of the property. (10)The prospects of the defendants' refinancing the property, having regard to the exorbitant purchase price, were illusory and that, accordingly, default after two years was nigh inevitable. Whether relief should be granted and the nature of such relief 122Section 7(1) authorises the Court, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, to declare the contract void (s 7(1)(b)), refuse to enforce the contract (s 7(1)(a)), vary the contract (s 7(1)(c)) and, in respect of a land instrument, make orders requiring execution of an instrument that varies, terminates or affects the land instrument or its operation (s 7(1)(d)). Section 7 is subject to s 19 (1) which provides: "An order made under section 7(1) (b) or (c) has no effect in relation to a contract so far as the contract is constituted by a land instrument that is registered under the Real Property Act 1900 ." 123The parties accept that the prohibition in s 19 of the Contracts Review Act would not prevent my making an order that the parties execute a variation of the mortgage in registrable form. 124I am not persuaded by Mr Young's principal submission that, even if I found the contracts to be unjust, I ought not grant relief. Having found the contracts unjust, I am disposed to grant relief under the Act. 125The parties accepted that the discretion to grant relief was wide and that I could fashion relief otherwise than precisely in accordance with the parties' submissions. However, in the course of the hearing I invited submissions on the following three forms of relief: (1)The defendants transfer the property to the plaintiffs and that any payments already made by the defendants and work done by them on the property be taken as sufficient to discharge their obligations under the mortgage in full; (2)The defendants refinance the mortgage such that they obtain an advance of $140,000 from an external lender, who would become the first mortgagee, to pay out the plaintiffs and that the balance of, say, $69,800 be secured by a second registered mortgage in favour of the plaintiffs on terms that would require them to repay the plaintiffs at a rate of $250 per week until the debt was fully repaid; and (3)The consideration for the sale contract be reduced from $240,000 to $167,500, being the value of the property at the time the defendants purchased it and that account be taken of payments already made in reduction of the principal to reduce the amount owing to an amount in the order of $140,000 and that the defendants be permitted time to refinance this debt to enable them to pay out the plaintiffs and retain the property. 126The plaintiffs submitted that, although they opposed the grant of relief altogether, they would rank these options in descending order of preference: (1), (2) and (3). The defendants' preference is for (3). Scenario (1): re-transfer to the plaintiffs 127The relief proposed in scenario (1) above has the advantage for the defendants of extinguishing a debt which substantially exceeds the value of the property. However, the benefit they will have obtained from their payments of $300 per week will be limited to their right to occupy the land. The only evidence of the market rent for the property is what the plaintiffs charged the defendants by way of a licence fee for the period between exchange and settlement, which was $150 per week. The defendants will obtain no benefit for any monies expended and work done on the property. However, the plaintiffs will obtain no benefit from such improvements since they have not increased the value of the property. 128Scenario (1) has the advantage for the plaintiffs of permitting them to exercise their legal rights over the property as soon as the transfer is registered. However, the payments made to the plaintiffs by the defendants over the three years since the transfer exceed commercial rates of interest on the real value. 129In my view, scenario (1) is that it is too advantageous to the plaintiffs and insufficient to redress the injustice of the transactions as far as the defendants are concerned. Scenario (2): refinance arrangement that retains the total loan amount 130As I see it, the difficulty with scenario (2) is that it does not provide any real relief to the defendants and carries with it a substantial risk of imminent default. It also ties the plaintiffs to the defendants in a long-term transaction (unless the defendants can refinance the whole of the debt, which appears unlikely, having regard to the discrepancy between the debt and the value of the property) whereas the original transactions had the effect that the plaintiffs would have their money back by January 2013. Scenario (3): variation of the purchase price and loan amount 131I consider that scenario (3) provides the appropriate basis for relief since it, of all scenarios postulated, redresses the features of the transaction that made it unjust. 132In my view, the appropriate course is to vary the consideration for the purchase of the property from $240,000 to $167,500, being its true value. Since a deposit of $5,000 was paid, the adjusted balance is $162,500. 133I note that in the outline of relief ultimately relied upon by the defendants, in a document marked MFI4, they calculate the amount outstanding by substituting the original principal sum of $235,000 with $167,500. This seems to me to be an obvious error in that the second figure ought be $162,500, being the agreed value of $167,500 less the deposit of $5,000, for which credit ought be given, as it has been in the setting of the $235,000 which is the contract price of $240,000 less the deposit of $5,000. 134If one applies the $300 per week and adopts the parties' split of principal and interest ($150/$150), the amount of principal repaid as at 28 February 2014 is in the order of $24,600 (164 weeks x $150 per week), leaving an outstanding principal of $137,900. The total interest paid to that date is, given the equivalence of principal and interest, $24,600. 135One can test the commerciality, or reasonableness, of this result in various ways. 136Payments of $300 per week, if treated as interest only, give rise to an effective interest rate on the new initial outstanding principal of $162,500 of 9.6%, which is, in my view, in excess of commercial interest rates for home loans. If one adopts the split agreed by the parties, and applies $150 per week to interest, the rate becomes 4.8%, which is below commercial interest at the time of the advance. However because the repayment terms agreed did not take account of the diminishing principal, the interest rate effectively becomes higher over the term of the loan because the interest payable is constant but the principal diminishes over time. 137Alternatively, one can test the proposed result by adopting a more orthodox commercial approach. If one applies an interest rate of, say, 5.5% to an initial principal of $162,500 over a period of, say, three years from 7 January 2011 to 7 January 2014, the principal outstanding as at 7 January 2014 would be $140,606 and a total amount of $25,023 would have been paid in interest. The parties' agreement, if the purchase price is adjusted to make it accord with the agreed value of the property at the time of purchase, is, accordingly, broadly in line with what might have been available by way of Bank finance at the time of the contract. I have used the calculation based on 5.5% as a check only. There is insufficient evidence for me to determine prevailing interest rates. 138I consider that it is preferable to vary the parties' agreement to the minimum extent necessary to redress the injustice, which is why I have adopted the 50/50 split between principal and interest for the repayments of $300 per week as set out above. This method gives the plaintiffs a higher rate of interest on the reduced amount than they were prepared to agree to on the higher amount when they entered into the contract. Alternative remedy if the defendants are unable to refinance on the basis of the principal relief proposed 139I do not consider that the plaintiffs should be obliged to remain in an extended contractual relationship with the defendants when this was not their agreement. An end to the relationship can be achieved by requiring the defendants, if they wish to retain title to the land, to pay the plaintiffs the outstanding amount of principal within 90 days of the date of the orders in these proceedings in full satisfaction of their debt to the plaintiffs. 140If they fail to do so, then the plaintiffs will be entitled to possession of the property for the purposes of exercising their power of sale, or to have title to the property transferred to them. However, in that event, in my view the plaintiffs ought be obliged to pay to the defendants a sum equivalent to $150 per week by way of restitution for monies paid in excess of an occupation fee of $150. The figure of $150 for an occupation fee appears to me to be reasonable since it was the figure that the parties agreed for the defendants' occupation between exchange and completion. Justice to the plaintiffs 141I have considered whether this result would be, in all the circumstances, unjust to the plaintiffs. After all, on one view, they were simply "trying it on" and it might be said that they ought not have to bear the consequences of being met with such little resistance. It is easy to say, with hindsight, that had the defendants, or at least Ms Perkins, performed relatively basic calculations and made simple inquiries, they might have realised that they would be unlikely to be able to refinance the loan in January 2013. 142For example, had Ms Perkins, before executing the mortgage enquired how much of the $300 would be allocated to principal and how much to interest, she would have appreciated that the outstanding principal that would have to be refinanced in January 2013 would have been $219,400 ($235,000 less $15,600). She could, with that information, have worked out that, unless they were able to increase their weekly payments from $300, any interest rate above 6.6% would mean that they could not meet even their interest repayments. Ms Perkins might also have appreciated that, assuming the property was still worth the $240,000 that they had paid for it, their equity would not even amount to 10%, since their equity would be only $20,600 ($5,000 for the deposit plus the $15,600 of principal repayments). 143However, for the reasons given above, the real injustice arose from the gross disparity between price and value. The plaintiffs were the ones who knew of the disparity; indeed they were its progenitors. The defendants did not. The defendants were, on one view, too polite and too trusting and, on another view, insufficiently impertinent to interrogate the plaintiffs, to whom they believed themselves to be closer than arms length, about what they had paid for the property, what they had spent on it and why there was such a disparity between the asking price and what they had paid for it. 144In a different context, Gleeson CJ, in Henville v Walker [2001] HCA 52; 206 CLR 459 at [13] said the following of victims of misleading or deceptive representations made in contravention of the Trade Practices Act 1974 (Cth): "It will commonly be the case that a person who is induced by a misleading or deceptive representation to undertake a course of action will have acted carelessly, or will have been otherwise at fault, in responding to the inducement. The purpose of the legislation is not restricted to the protection of the careful or the astute." 145In the present case, the defendants were, in my view, neither at fault, nor careless. However, Gleeson CJ's observation about the purpose of the Trade Practices Act is apposite, in my view, to the Contracts Review Act. I do not regard the remedy I propose to order as being in any way unjust to the plaintiffs, or more than is appropriate under the Contracts Review Act. Proposed orders 146I have not heard the parties on the form of orders arising from these reasons. The orders I propose are as follows, but I will hear the parties on the form of the orders unless agreement can be reached. (1)Order that the price nominated in the contract for sale between the plaintiffs as vendors and the defendants as purchasers for the property known as129 Davis Road, Swan Bay be varied from $240,000 to $167,500 and that clause 39 be amended accordingly. (2)Direct the parties to execute a variation of the mortgage in registrable form to vary the principal sum advanced from $235,000 to $162,500. (3)Order the plaintiffs to deliver up a discharge of mortgage in registrable form to the defendants, if: (a)the defendants pay to the plaintiffs the sum of $137,900, less any amounts paid after 28 February 2014 in reduction of that sum in accordance with (2)(b) below, within 12 weeks of 28 February 2014, being 23 May 2014; and (b)the defendants continue to pay to the plaintiffs $300 per week, being $150 for interest and $150 in repayment of principal until the earlier of: (i)payment of the outstanding principal sum in accordance with order (2)(a) above; and (ii)23 May 2014. (4)If the conditions provided for in (3)(a) and (b) are not met, order: (a)Judgment for possession of the property in favour of the plaintiffs. (b)Grant leave to issue writ of possession of the property such writ to issue at any time on and from 24 May 2014. (c) Judgment for the defendants against the plaintiffs in an amount of $24,600 plus the sum of any payments of $150 per week made by way of interest since 28 February 2014 until the date on which the defendants vacate the premises. (5)Grant liberty to apply on three days' notice. Costs 147I have not heard the parties on costs. My preliminary view is that, as the defendants have had substantial success, the plaintiffs ought pay the costs of the proceedings but, as I have not heard the parties, I shall reserve the question of costs. Orders 148I make the following orders: (1)Direct the parties to make any submissions as to the form of the proposed orders or as to costs in writing addressed to my associate on or before 4 pm 5 March 2014. (2)Grant liberty to apply on 2 days' notice to my associate to restore the matter before me in the event that the parties want to address me orally on the form of orders or the appropriate costs orders. ********** 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: 27 February 2014