Court of Appeal Supreme Court New South Wales Medium Neutral Citation: First Mortgage Managed Investments Pty Limited v Pittman [2014] NSWCA 110 Hearing dates: 6, 7 November 2013 Decision date: 07 April 2014 Before: Beazley P at [1]; Gleeson JA at [2]; Sackville AJA at [3] Decision: 1 Appeal allowed in part. 2 Direct the parties to file within 14 days agreed short minutes of order giving effect to these reasons for judgment. 3 In default of agreement: (a) the appellant (FMI) file and serve within 14 days proposed short minutes of order, together with brief written submissions in support; (b) the respondents file and serve within a further 14 days their proposed short minutes of order, together with brief written submissions in support. 4 There be no order as to the costs of the appeal. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Catchwords: Contracts Review Act 1980 - whether finding that loan contract and third party mortgages were unjust should be upheld - whether primary Judge erred in declaring the loan contract and mortgages to be wholly unenforceable - whether allowance should have been made for moneys used by the borrowers to discharge existing mortgages - whether the earlier mortgages were themselves unjust Legislation Cited: Contracts Review Act 1980 Cases Cited: Collier v Morlend Finance Corporation (Victoria) Pty Ltd [1989] ANZ ConvR 515; 6 BPR 13,337 Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413; 11 BPR 20,841 Esanda Finance Corporation Ltd v Tong (1997) 41 NSWLR 482; (2002) 11 BPR 20,841 Fox v Percy [2003] HCA 22; 214 CLR 118 House v The King [1936] HCA 40; 55 CLR 499 S H Lock (Australia) Ltd v Kennedy (1988) 12 NSWLR 482 St George Bank Ltd v Trimarchi [2004] NSWCA 120 Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41; 14 BPR 26,639 Provident Capital Ltd v Papa [2013] NSWCA 36; 84 NSWLR 231 Vadasz v Pioneer Concrete (SA) Pty Ltd [1995] HCA 14; 184 CLR 102 Warren v Coombes [1979] HCA 9; 142 CLR 531 Category: Principal judgment Parties: First Mortgage Managed Investments Ltd (Appellant) Basil James Pittman (First Respondent) Rex Neil Webster (Second Respondent) Representation: Counsel: AG Bell SC / KS Howe (Appellant) TF Robertson SC / JE Lazarus (Respondents) Solicitors: Bransgroves Lawyers (Appellant) Brock Partners Lawyers (Respondents) File Number(s): 2012/396832 Decision under appeal Jurisdiction: 9111 Citation: First Mortgage Managed Investments Ltd v Pittman [2012] NSWSC 1332 Date of Decision: 2012-11-01 00:00:00 Before: Garling J File Number(s): 2008/288217 Judgment 1BEAZLEY P: I agree with the reasons of and the orders proposed by Sackville AJA. 2GLEESON JA: I agree with Sackville AJA. 3SACKVILLE JA: This appeal arises out of loans made by the appellant ("FMI") to the first respondent ("Mr Pittman") and the second respondent ("Mr Webster"). FMI and the respondents entered into a Loan Agreement in 2006 pursuant to which FMI advanced to the respondents the sum of $1,900,000 ("2006 Loan Agreement"). The loan was secured by first mortgages over three properties owned by Mr Pittman or by the respondents jointly. In 2008, the 2006 Loan Agreement was varied to increase the amount of the loan to $2,025,000 ("2008 Variation"). 4The primary Judge (Garling J) found that both the 2006 Loan Agreement and the 2008 Variation were unjust when made and, pursuant to s 7 of the Contracts Review Act 1980 ("the Act"), declared them to be unenforceable: First Mortgage Investments Ltd v Pittman [2012] NSWSC 1332 ("Primary Judgment"). FMI appeals against that decision, contending that the finding that the 2006 Loan Agreement and the 2008 Variation were unjust should be set aside. FMI also contends that the primary Judge erred in making no allowance for a financial benefit FMI says that the respondents received from the 2006 FMI mortgages. The benefit is said to be the amount of $1,172,713.04, used by the respondents to discharge loans from third parties secured by mortgages over the respondents' properties. Background The Proceedings 5FMI's loans to the respondents were secured by first mortgages over three properties located at Kurrajong Heights. The three properties were referred to by the parties as Lots 8, 9 and 23 (together "the Land"). At all material times, Mr Pittman was the registered proprietor of Lots 8 and 23, while the respondents were joint proprietors of Lot 9. 6The respondents defaulted under the 2006 Loan Agreement and in November 2008 FMI commenced proceedings against them. FMI sought possession of the Land and judgment for $2,135,179.26, being the amount of the debt due under the 2006 Loan Agreement, as varied in 2008. 7The respondents filed a defence and cross-claim against FMI, advancing a number of contentions. For present purposes, their principal claim was that the 2006 Loan Agreement, the 2008 Variation and associated mortgages (together the "FMI Mortgage") were "unjust" within the meaning of s 9 of the Act. 8The respondents filed two additional cross-claims. One was against Ms Locke, a neighbour of theirs who, as the primary Judge found, acted fraudulently in relation to the transactions. Ms Locke filed a defence, but did not appear in the proceedings. 9The second of the additional cross-claims was against a firm of solicitors, Christopher M Edwards ("the Firm"). A solicitor employed by the Firm, Ms O'Callaghan, gave what was supposed to be independent advice to the respondents in relation to the FMI Mortgages. The respondents ultimately settled their claim against the Firm for breach of duty for the sum of $200,000, inclusive of costs. 10The hearing before the primary Judge took place over five days in July 2011. Oral submissions were made on 9 August 2011. Judgment was not delivered until 1 November 2012, some fifteen months later. The primary Judge essentially found in favour of the respondents. 11The primary Judge found (at [372]) that each of the 2006 Loan Agreement and the 2008 Variation, of which the mortgages over the Land were a direct consequence, was unjust at the time it was made and would be unjust to enforce. In determining the appropriate relief pursuant to s 7(1) of the Act, the primary Judge rejected FMI's submission that the Court should not set aside the 2006 Loan Agreement, but should vary it to reduce the amount owing by the sum applied to discharge the earlier loan ("Flamanda Mortgage") ($1,172,713.04, plus interest). His Honour took this course because he found (at [409]-[410]) that the Flamanda Mortgage and all previous loans secured over the Land were "unjust", notwithstanding that the earlier mortgages had been discharged prior to the respondents entering into the Flamanda Mortgage. It followed (at [413]) that the fact that part of the moneys lent by FMI to the respondents were used to discharge the Flamanda Mortgage (which itself replaced earlier loans secured over the Land) was not an "unwarranted benefit" to the respondents. 12The primary Judge considered, however, that the settlement of $200,000 received from the Firm was a benefit to the respondents, as was a small amount paid out of the FMI Loan by way of reimbursement for council rates. 13His Honour declared pursuant to s 7 of the Act that the 2006 Loan Agreement and associated mortgages were unenforceable and ordered that FMI take the necessary steps to discharge the mortgages. His Honour made consequential orders required to give effect to his findings as to the benefits to be taken into account in granting relief. The cross-claim against Ms Locke was dismissed, presumably because the respondents succeeded in obtaining relief against FMI. The orders made by his Honour are set out below (at [99]). The Appeal 14FMI appeals against the decision of the primary Judge. It contends that the primary Judge erred: in finding that the FMI Mortgage was unjust; and in any event, in making orders that relieved the respondents of the FMI Mortgage without requiring them to account for the benefit they received from the discharge of the Flamanda Mortgages. 15The respondents belatedly sought leave to file a notice of contention, the terms of which were not formulated until after the hearing of the appeal had concluded. The matters raised in the notice of contention are as follows: "1. ...his Honour ought to have found that the respondents did not obtain any unwarranted benefit as a result of the funds lent by FMI in December 2006 to discharge the Flamanda mortgages, because the Flamanda mortgages, and each of the [preceding] Obelisk, Forrest Knoll and National Mutual mortgages, were themselves unenforceable and/or liable to be set aside.... 2. His Honour ought to have found that: (a) at least $500,000 out of the funds lent by FMI in December 2006 was used to repay a loan provided by Moranon to Ms Locke, secured by the Moranon mortgages, and related transaction costs; (b) the respondents obtained no unwarranted benefit from the repayment of that obligation owed by Ms Locke or from the discharge of the Moranon mortgages, because they were only providing security in support of a loan to Ms Locke; and (c) ... the respondents obtained no unwarranted benefit in any event from the discharge of the Moranon mortgages because the Moranon mortgages were themselves unenforceable and/or liable to be set aside...." 16Paragraph 2(a) of the notice of contention recognises that the primary Judge erred in finding that the sum of $1,172,713.04 was applied to discharge what his Honour described as the "Flamanda Mortgages". As I explain later (at [189]-[192]), it was ultimately common ground on the appeal (although not until written submissions were filed after the hearing had concluded) that only the sum of $653,089.28 was used to discharge the Flamanda Mortgage. The balance of $512,465.70 (after allowing for $7,008.06 in various fees) was used to discharge a separate loan to Ms Locke by Moranon Pty Ltd ("Moranon") and SC Heath & Sons Pty Ltd ("Heath"). That loan, referred to on the appeal as the "Moranon Mortgage", was secured by second mortgages over the Land, although those mortgages appear not to have been registered. The primary Judge disregarded the discharge of the Moranon Mortgage as a benefit to the respondents because he found (at [228]) that Moranon and Heath had not in fact advanced any moneys to Ms Locke or any of her companies. Both parties accepted on the appeal that, contrary to his Honour's finding, Moranon and Heath did advance $500,000 to Ms Locke and that the loan was discharged out of the moneys advanced to them by FMI. 17I have concluded that the primary Judge's finding that the FMI Mortgage was unjust should be upheld. However, I have also concluded that FMI's appeal should be upheld to the extent that the respondents should account for the benefit they received from applying the moneys advanced by FMI to the discharge of the Flamanda Mortgage and the Moranon Mortgage. Contracts Review Act 18The relevant provisions of the Act are as follows: "7 Principal relief (1) Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following: (a) it may decide to refuse to enforce any or all of the provisions of the contract, (b) it may make an order declaring the contract void, in whole or in part, (c) it may make an order varying, in whole or in part, any provision of the contract, (d) it may, in relation to a land instrument, make an order for or with respect to requiring the execution of an instrument that: (i) varies, or has the effect of varying, the provisions of the land instrument, or (ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the land instrument. (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. ... 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. 16 Time for making applications for relief An application for relief under this Act in relation to a contract may be made only during any of the following periods: (a) the period of 2 years after the date on which the contract was made, (b) the period of 3 months before or 2 years after the time for the exercise or performance of any power or obligation under, or the occurrence of any activity contemplated by, the contract, and (c) the period of the pendency of maintainable proceedings arising out of or in relation to the contract, being proceedings (including cross-claims, whether in the nature of set-off, cross-action or otherwise) that are pending against the party seeking relief under this Act." The Participants 19The primary Judge made findings concerning the parties to the relevant transactions and others who played a part in them. The following is a brief summary drawn primarily from his Honour's account. 20FMI, an unlisted public company, was the manager of an investment scheme which obtained funds from the public and lent them on the security of first mortgages over land. The loans were inevitably for a short period (in the present case two years) and were interest only loans. First Mortgage Investments Pty Ltd was the mortgage manager of FMI. His Honour saw no need to distinguish between the corporate entities. Nor do I. I therefore use the abbreviation "FMI" to refer to either or both entities. 21Mr Wilson was at all material times the Director and Lending Manager of FMI. He had the day-to-day conduct of the FMI Loan file and was responsible for much of the internal documentation relating to the FMI Loan. Mr Wilson gave evidence and was cross-examined. 22Mr Pittman was born in 1938 and has lived all his life at Kurrajong Heights. He left school at 16. In 1964, he inherited Lot 8 under his grandmother's will and in 1965 he purchased Lot 23. In about 1972, he and Mr Webster jointly purchased Lot 9, which adjoined Lot 8. Mr Pittman, along with Mr Webster, has lived on Lot 8 for his entire life. 23Mr Pittman's sole income at the relevant times was from the sale of fresh fruit produce grown on Lot 8. His Honour found (at [15]-[16]) that Mr Pittman's "commercial experience has been almost non-existent" and that prior to the borrowings involved in the present case, he had never taken out a mortgage or had anything other than "rudimentary" commercial dealings. Mr Pittman's earnings were very modest, he and Mr Webster between them having an income less than $30,000 per annum at the date of the hearing. 24Mr Webster was born in 1943 and, like Mr Pittman, left school at 16. He worked for 30 years as a labourer and at the time of the trial did odd jobs. The only land Mr Webster ever owned was Lot 9, in which he had the joint interest with Mr Pittman. Apart from a loan to purchase that property, he had never borrowed money. The primary Judge described (at [23]) Mr Webster as an "entirely unsophisticated and simple man" who had "no commercial knowledge or sense at all". 25Both respondents gave evidence and were cross-examined at some length. His Honour found (at [84]) that at no stage did the respondents have any financial interest in Ms Locke's property development projects. They knew nothing about the prospects of success for those projects nor about Ms Locke's financial position. 26Ms Locke, as I have noted, was joined to the proceedings as cross-defendant but did not appear at the trial. She became a neighbour of the respondents in about 1990 and commenced a friendship with Mr Pittman and his mother (Mrs Webster). After Mrs Webster's death in 1994, Ms Locke visited the respondents regularly. 27Ms Locke did not give evidence. Nonetheless, his Honour found (at [31]) that Ms Locke was an "apparently sophisticated, charming and somewhat beguiling woman", who engaged in land development in a number of places, including Silverdale and Camden, in an area near the Razorback Range. His Honour considered (at [34]) that Ms Locke was "manipulative, greedy and an exploiter of the vulnerable". The respondents were no match for her. 28From 2004, Ms O'Callaghan was a conveyancing solicitor employed by the Firm. Between late 2004 and October 2006 she was instructed by Ms Locke in connection with matters concerning Ms Locke's property interests. His Honour found (at [38]) that Ms O'Callaghan "was in all respects, Ms Locke's solicitor". Nonetheless, Ms O'Callaghan gave advice to the respondents before they executed the 2006 Loan Agreement and the associated mortgages. She also gave them advice with respect to the 2008 Variation. 29Ms O'Callaghan gave evidence. The primary Judge found (at [40]) that she was a "manifestly honest" witness, although not "wholly reliable" in her recollection. A reading of her evidence indicates that she readily acknowledged that she failed to comply with the duty of care she owed to the respondents in a number of important respects. The Earlier Transactions 30It is convenient to set out, in summary form, a chronology of the transactions affecting the Land which the respondents entered into before executing the 2006 Loan Agreement and associated mortgages. The earlier transactions are relevant because, as I have noted, the respondents' case, accepted at trial, was that each of these transactions was unjust at the time it was entered into. The account is again based largely, although not entirely, on the findings of the primary Judge. In particular, it has been necessary to add some information concerning the Moranon Mortgage. National Mutual Mortgage 31Shortly after the respondents' mother died in early 1994, Ms Locke asked the respondents "in a somewhat forceful manner" to assist her with a subdivision at Springwood by mortgaging part of the Land (at [177]). Ms Locke assured the respondents that she would pay the loan and interest and that they would not be at risk. Mr Pittman took the respondents to see a solicitor, Mr Vaughan, whom they had not previously met (at [178]). Both respondents trusted Ms Locke and made no inquiries about the financial details or the security they were to provide (at [179]). 32The respondents borrowed the principal sum of $172,500 from National Mutual on the security of a first mortgage over Lot 8. Both executed the mortgage, although only Mr Pittman was the registered proprietor of Lot 8. The National Mutual loan agreement was not in evidence, so that its precise terms are not known. However, the primary Judge inferred (at [189]) from other material that the loan was for a short term and was repaid in March 1995. 33The primary Judge found (at [190]) that the respondents obtained no financial benefit from the National Mutual Mortgage. Both knew that there might be some ultimate risk, but accepted Ms Locke's assurances that all would be well. In the result, everything she promised came to fruition, thus increasing their level of trust in her. Forrest Knoll / Obelisk Mortgages 34Over a period of several years commencing in October 1994, Forrest Knoll Nominees Pty Ltd ("Forrest Knoll"), which was renamed Obelisk Securities Pty Ltd ("Obelisk") in 1996, lent considerable sums to Ms Locke on the security of mortgages executed by the respondents ("Forrest Knoll/Obelisk Mortgage"). After the mortgages were executed, there were seven transactions, the effect of which was to increase the principal sum and adjust the term of the loan or the interest rate. On at least one occasion, the respondents executed a deed guaranteeing an additional advance by way of a variation of the mortgage. 35The respondents entered into the Forrest Knoll/Obelisk Mortgage on 6 October 1994. Forrest Knoll was named as the mortgagee and the loan was for $910,000, repayable in six months. All three Lots comprising the Land were mortgaged, together with two unrelated lots owned by Ms Locke (Lots 305 and 306). Each mortgage granted by the respondents was collateral with the other mortgages, including those granted by Ms Locke. The interest rate was 14.25 per cent per annum, increasing to 25 per cent in the event of default. The mortgage over Lot 8 was initially subject to the National Mutual Mortgage, but the latter was discharged in March 1995. 36Ms Locke attended to all dealings with Forrest Knoll and paid all expenses. The respondents' signatures to the documentation were witnessed by a solicitor who gave them little, if any, advice about the transactions. In each case, the meeting with the solicitor was short and he simply ensured that the documentation had been correctly signed. Neither Mr Pittman nor Mr Webster left the meeting with "any clear understanding ... of the true effect of [the] mortgages" (at [199]). Nor did the respondents pay for the solicitor's services. The same procedure was used for the later variations to the mortgage, with the same results so far as the respondents' understanding of the transactions was concerned. 37The primary Judge set out in a table (at [203]) the variations to the Forest Knoll/Obelisk Mortgage over the period from 23 March 1995 to 18 October 1997. On 18 October 1997, the Forrest Knoll/Obelisk Mortgage, by this stage securing a principal sum of $1,650,075, was extended for six months until 23 March 1998. However, it appears that the Forrest Knoll/Obelisk Mortgage was subsequently extended beyond that date, since it was not discharged until 24 November 1998. The last variation of this Mortgage provided for an interest rate of 13.5 per cent per annum (increasing to 17.5 per cent in the event of default). This was a reduction from the original interest rate of 14.25 per cent per annum (originally increasing to 25 per cent in the event of default). 38In addition to the Forrest Knoll/Obelisk Mortgage, on 18 October 1996 the respondents guaranteed a loan of $155,000.00 from Forrest Knoll (by now Obelisk) to Ms Locke (at [208]). The loan, which was for a period of three months, was secured by mortgages over the land, subject to the other encumbrances. 39Ultimately, these arrangements with Forrest Knoll/Obelisk were discharged on 24 November 1998, when the loans were partly refinanced through a group of lenders collectively described by the primary Judge as "Flamanda". His Honour found (at [210]) that there was little about the Forrest Knoll/Obelisk transactions which gave the respondents: "any real understanding of the reality of the risks that they were facing, the obviously deteriorating financial position of Ms Locke, and the true notion of the legal obligations which they were exposed to. On the contrary, I am satisfied that, for Mr Pittman and Mr Webster, the frequency and regularity of the transactions, accompanied by a relatively routine and somewhat perfunctory exercise involving Mr Holzman [the solicitor] at the time the documents were signed, would have created a sense of comfort, and a sense of inevitability, by which I mean that they seemed to conclude that what was happening was normal, without risk, and that which was to be expected." Flamanda Mortgage 40On 24 November 1998, the respondents mortgaged the Land to Flamanda to secure a loan of $660,000.00 (at [212], [214]). The Flamanda Mortgage recorded that the mortgagor (or mortgagors): "acknowledge[d] receipt of the sum of $660,000 lent by the Mortgagees at the request of [Ms Locke] testified by her being a party hereto and executing these presents." 41Neither Ms Locke nor any of her companies provided security to support the Flamanda Mortgage, although Ms Locke was named as a guarantor in the mortgage of each Lot. However, the effect of the refinancing of the Forrest Knoll/Obelisk Mortgage (and presumably the sale of some of Ms Locke's properties) was that the mortgages previously granted by Ms Locke's companies in support of loans to the respondents were discharged. 42The primary Judge found (at [219]) that in November 1998 Ms Locke took the respondents to see the solicitor for Flamanda who, quite properly, referred them to another solicitor in Katoomba, Mr Mitchell. The meeting with Mr Mitchell took place in Ms Locke's presence (at [221]). Mr Pittman described Ms Locke "as being quite pushy and very insistent". His Honour recorded that: "Mr Pittman said the only advice he received from Mr Mitchell was to the effect that it should be alright to sign the documents." His Honour accepted (at [222]) Mr Pittman's evidence that he felt he had no choice but to sign the documents. Mr Pittman received no moneys from Flamanda and, so far as he was concerned, Ms Locke was obliged to repay the loan and the Land was not at any real risk. 43The primary Judge made the following findings (at [223]): "The evidence does not enable me to find that Mr Mitchell gave any thorough explanation to Mr Pittman and Mr Webster about their obligations. Since Ms Locke was in the room whilst such advice as he gave was delivered, it is unlikely that he gave any real advice, independent of Ms Locke, to enable Mr Pittman and Mr Webster to rationally assess the position in which they found themselves. The explanation he gave, did not result in Mr Pittman and Mr Webster having any real understanding of the true nature and affect of the transactions, and, in particular, the risks which they were assuming." 44There was only one variation to the Flamanda Mortgage, which occurred on 5 May 1999 (at [216], [224]). The effect was to increase the principal sum from $660,000 to $720,000. The interest rate remained ten per cent per annum (13 per cent in the event of default). His Honour found (at [225]) that the respondents received no legal advice when the variation documents were executed. 45It appears that Flamanda had made loans to Ms Locke or her companies, independently of the Flamanda Mortgage (which, of course, was secured over the Land). By 2000, Ms Locke had fallen into arrears with her mortgage loans. The primary Judge found (at [240]) that a number of cheques had been dishonoured. At this stage, Flamanda had provided three loans, each supported by different securities. These were summarised by his Honour as follows: Remony Farm : $568,000 Mount View : $ 49,492 Pittman and Webster : $625,000 The apparent reduction in the principal owing under the Flamanda Mortgage is not explained in the evidence. 46Ms Locke experienced further cash flow difficulties in 2001 and 2002. During this period she arranged borrowings of $50,000 to enable arrears of interest on the Flamanda Mortgage to be paid (at [243]). The primary Judge found (at [244]) that by July 2002, Ms Locke had decided to repay loans for which she or her companies were responsible from land sales, but not to repay the moneys secured by the Flamanda Mortgage. Flamanda, apparently on the basis of information supplied by Ms Locke, regarded the Land as part of Ms Locke's "property portfolio" (at [246]). 47Correspondence between Flamanda and Ms Locke in late 2005 showed that Ms Locke was in default of interest payments and that projected sales would not discharge the indebtedness (at [249]-[250]). The primary Judge summarised (at [255]) the position as follows: "This necessarily incomplete picture which was not disclosed to Mr Pittman and Mr Webster shows a financial position which was apparently deteriorating and doing so consistently over a number of years. It shows regularly, and for lengthy periods, that Ms Locke was in default in respect of interest obligations for loans which she had initiated." The Moranon Mortgage 48On 1 March 2006, Mr Jones of Moranon wrote to Ms Locke at Forest Group Pty Ltd ("Forest") one of her companies. The letter noted that Ms Locke had sought further funds amounting to $350,000. Among a number of other conditions, Mr Jones said that Moranon would require a second mortgage over the Land "on which there is now a 1st mortgage of $620,000 and we have a letter of agreement to this effect from the [Pittman and Webster] people". A letter of 9 March 2006 from Moranon makes it clear that Forest was in default under a loan from Moranon, which was apparently secured over a property known as "Kingsview". 49On 28 June 2006, Ms Locke wrote to the respondents saying that she required an additional loan of $500,000 to develop the Razorback site and achieve a "total payout". She assured the respondents that the interest on the loan "on your property" had been met "and would be met no matter what". Ms Locke said that sales had been slow from the Silverdale development, but Razorback was a "premium market". She was "certain that this loan will be totally repaid within nine months". The letter offered to pay the respondents $20,000 "for the benefit payable when the loan is signed." 50On 27 August 2006, Mr Heath wrote on Heath letterhead to Ms Locke at Forest. The letter recorded that unsecured loans to Forest (presumably from Moranon and Heath) totalled about $500,000. The letter included the following passage: "As further security we intend to proceed with the establishment of a 2nd mortgage over Pittman & Webster for $500,000 for a period of 12 months. Unless our lawyers say otherwise we will take your word that there is no difficulty with this being done by either Pittman or Webster and therefore we will not delay the 'Kingsview' settlement with the awaiting of the formality of its production." 51On 11 October 2006, Mr Jones wrote to Ms Locke stating that second mortgage documents would be sent "directly to Pittman and Webster for their signature and also yours, before a solicitor". The letter stated that interest on the existing loan was outstanding from 1 June 2006 and that it was "important that this interest be brought up to date from any figure that you receive from either refinancing or selling Remony farm". 52On 16 October 2006, the solicitors acting for Moranon and Heath wrote a letter addressed to Ms Locke, Mr Pittman and Mr Webster. It is not clear whether a single letter was sent to Ms Locke or whether three separate letters were sent to each of the addresees. The letter included the following: "We have been instructed to prepare a loan agreement and mortgages in respect of a loan facility to [Ms] Locke provided by our clients. Security for the loan to Ms Locke is to be provided by Messrs Pittman and Webster over their [Land]. The mortgage will rank second in priority upon registration to the existing mortgage to Flamanda ... At this stage, we forward the Loan Agreement and Mortgage documents in draft, and subject to our clients' further instructions, for your consideration. It will be necessary for each of Ms Locke, Mr Webster and Mr Pittman to obtain independent legal advice from each other. We shall require certificates from the Borrower, Mortgagors, and independent solicitors in the form attached herewith." 53On 29 October 2006, prior to the execution of the Moranon Mortgage, Ms Locke wrote a letter to the respondents witnessed by a Justice of the Peace. In that letter, she stated that she would pay "all moneys, including interest for the loan advance ... until the loan is repaid in full". 54On 5 November 2006, Ms Locke wrote to the respondents promising to pay Mr Pittman $5,000 for "the period of six months that the properties will be further used for the loan". If the loan exceeded the six month period, she would pay an extra $10,000 to Mr Pittman. 55On 6 November 2006, the respondents each signed an acknowledgement that he had received legal advice from Mr Mitchell concerning the loan and security documents relating to the loan from Moranon and Heath to Ms Locke. Each of the respondents also signed a statutory declaration before Mr Mitchell. The declaration stated that Mr Webster and Mr Pittman were third party mortgagors for Ms Locke as the borrower and that each of them had received "independent legal advice regarding the loan and security documents". Mr Mitchell certified in a letter dated 8 November 2006 that he had interviewed the respondents and had given advice "in terms of Rule 45.6". This rule requires a solicitor to advise a proposed signatory of all matters that the solicitor, in exercising the professional skill and judgment called for in the circumstances of the particular case, considers appropriate. 56The respondents executed the mortgage documents in favour of Moranon and Heath on 6 November 2006, although the documents are dated 9 November 2006. It seems that the second mortgages granted by the respondents were over all three lots comprising the Land. The respondents acknowledged that the mortgages were security for the loan facility to Ms Locke, referred to in the Loan Agreement between the respondents, Ms Locke, Moranon and Heath, the principal amount of which was not to exceed $500,000. 57Both Mr Pittman and Mr Webster gave rather vague evidence in their affidavits about the second meeting with Mr Mitchell. The primary Judge merely said (at [228]) that: "Mr Pittman is unable to give any useful evidence about what occurred, other than that he does not recall any real advice being given to him with respect to the documents." 58The primary Judge said (at [230]) that he was not prepared to find that: "Mr Pittman and Mr Webster gained any true understanding of the nature and effect of the loan and mortgage transactions and the real risks of what their exposure was in undertaking these transactions in underwriting Ms Locke, with the provision of the security of their home and property." Although it is not entirely clear, it seems that this finding was intended to extend to the advice given by Mr Mitchell on 6 November 2006. No doubt his Honour did not consider it necessary to go into further detail about this meeting because, he had concluded that Moranon and Heath had not advanced any moneys to Ms Locke. As I have noted (at [16]), the parties were in agreement that that conclusion was erroneous. The FMI Mortgage 59Ms Locke had dealings with FMI prior to November 2006, which did not involve loans secured over the Land. One of the documents Ms Locke provided to FMI was in connection with an application for a loan to Skyfarm Pty Ltd ("Skyfarm"). The document, dated 12 September 2006, set out what purported to be a statement of Ms Locke's assets and liabilities. It included a 275 acre parcel of land at Razorback owned by Forest, said to be worth $3,600,000. Forest's assets were also said to include a five acre lot at Silverdale, valued at $2,250,000. According to the statement, the Razorback land was subject to a mortgage of $2,300,000, and the Silverdale land was subject to a mortgage of $1,345,000. The statement did not suggest that either of the respondents had any interest in the Razorback or Silverdale developments. 60The first proposal to FMI concerning the Land was in a letter of 1 November 2006 from Ms Locke to Mr Wilson. She said that she proposed to refinance the existing loans over the Land (Lot 23 being misdescribed as Lot 10). According to the letter, the Land was "owned in our private names, not a company". One purpose of the loan was said to be to pay out a private lender owed $1,200,000. Ms Locke requested a loan based on an LVR (loan to valuation ratio) of 70 per cent. 61On 3 November 2006, an exchange of emails occurred between Mr Wilson and Ms Locke (at [55]-[56]): "[Wilson] These lots, PR Data, shows them in different names, but of course that is not always correct. Please confirm that they are all in the name of Skyfarm. [Locke] Hi David, you are correct, the names will be Basil James Pittman and Rex Neil Webster. These two people are the borrowers." This was apparently the first that FMI learned of the respondents' proposed role in the transaction. 62On 6 November 2006, FMI issued a letter of offer addressed to the respondents (at [57]). The offer was for a loan of $2,030,000 at an interest rate of 10.75 per cent per annum if interest was paid promptly. The term of the loan was to be 12 months, with interest payable monthly in arrears. As the primary Judge found (at [58]), FMI knew nothing of the respondents, yet was prepared to lend them over $2 million, conditional only on the Land meeting a specified minimum value. 63On 8 November 2006, each of the respondents signed a printed acceptance form incorporated in the letter of offer. Their signatures were not witnessed and the document was returned to FMI by Ms Locke (at [66]). The respondents also signed a declaration under the Consumer Credit Code stating that the credit to be provided "is to be applied wholly or predominantly for business purposes". The declaration was witnessed by a Justice of the Peace (at [62]). 64The documents provided by the respondents to FMI included a Statement of Personal Particulars and an Asset and Liability Statement. The primary Judge found (at [67]-[68]) that the respondents signed these documents before they were fully completed and it was Ms Locke who filled in the details. 65The Statement of Personal Particulars was false in a number of respects. Most importantly, it recorded Mr Pittman's net weekly income as $5,000 and Mr Webster's as $4,000. In fact, they earned about $30,000 per annum between them ($600 per week) (at [68]). 66The primary Judge referred (at [71]) to the contrast between the respondents' Statement of Personal Particulars and their Asset and Liability Statement: "the Statement of Personal Particulars presented a picture of two elderly gentlemen who had lived all of their lives on the land in question and who were said to be earning on a net basis, a little under $470,000 pa. Yet, the Asset and Liability Statement suggests that they own only a very modest amount of furniture and farming equipment of indeterminate age, three motor vehicles, one of which was 35 years old, and they only had a total of $36,000 in cash and savings." His Honour pointed out (at [72]) that the Asset and Liability Statement recorded no liabilities, despite one stated purpose of the loan being to discharge existing liabilities, including the Flamanda Mortgages. 67Lots 8, 9 and 23 were valued by FMI in November 2006 for the following amounts (at [88]): Market Sale Forced Sale Lot 8 $1,030,000 $910,000 Lot 9 $790,000 $700,000 Lot 23 $970,000 $850,000 Total $2,790,000 $2,460,000 68On 1 December 2006, FMI sent a letter to the Firm, enclosing documents to be executed by the respondents. At this stage, the respondents had not given instructions to the Firm (at [77]). However, Ms Locke had dealt with the Firm over a period of years. The primary Judge rejected (at [79]) a contention by FMI that Mr Webster nominated the Firm as his solicitors. 69Between 1 December and 6 December 2006, a number of communications passed between Ms Locke and Ms O'Callaghan at the Firm. His Honour inferred (at [81]) that there was a comfortable pre-existing relationship between the two. 70On 6 December 2006, the respondents attended the Firm's offices and were seen by Ms O'Callaghan (at [86]). Ms Locke was present throughout (at [148]). At the conference, the respondents each signed what the primary Judge described (at [109]) as a "pro forma document", in which they acknowledged receiving advice from their solicitor on a number of matters relating to their obligations under the loan documents. These included the consequences of a failure to comply with any of the terms of the loan, specifically the obligation to pay principal and interest. 71At the meeting with Ms O'Callaghan on 6 December 2006, each of the respondents also signed a statutory declaration which acknowledged that they had been required to obtain independent legal advice in respect of the security documentation relating to the advances. The respondents stated that the purpose of the business and investment loan from FMI was: "To refinance initial loan with balance to complete the subdivision at 'Razerback' [sic] between Camden and Picton." The declaration recorded that FMI was relying on the truth of the matters stated by the respondents for the purposes of advancing moneys to be secured by mortgages over the Land. 72The primary Judge made a number of findings about the advice given by Ms O'Callaghan. He found (at [141]) that, despite the acknowledgements signed by the respondents, Ms O'Callaghan did not give advice or prudent advice on the following matters: "(a) the absence of any written agreement, or documentation recording any obligations or arrangements between them and Ms Locke; (b) the absence of any form of security being given to them by Ms Locke to protect their interests; and (c) most particularly, that there was no benefit at all in entering into the transaction, and that it was contrary to their interests to enter into it." His Honour also found (at [143]) that any advice given by Ms O'Callaghan was not independent of Ms Locke because of the pre-existing relationship between Ms Locke and the Firm. The result was that Ms Locke's interests were preferred to those of the respondents (at [144]). 73The Loan Agreement was dated 15 December 2006. It recorded the respondents as the borrowers and FMI as the lender. The loan amount was $2,030,000 and the repayment date was the second anniversary of the Drawdown Date. The purpose of the loan was that stated in the statutory declaration signed by the respondents. The Land to be provided as security was specified. The establishment fee payable was $22,500. 74The primary judge summarised (at [149]) the features of the 2006 Loan Agreement: "(a) the Loan Agreement was in a standard form produced by First Mortgage; (b) Mr Pittman and Mr Webster were named as borrowers; (c) the loan amount was $1.9M [not the sum stated in the Loan Agreement]; (d) the interest rate was 15.95 per cent which was reduced to 10.75 per cent if instalments were paid on time, and if there was no default in the repayment of the loan; (e) the entire loan was due to be repaid two years after the loan was drawn down; (f) the security provided included the three first registered Mortgages over the property of Mr Pittman and Mr Webster; a Bill of Sale over all of their plant and equipment, chattels and machinery in and about the mortgaged properties; a Deed of Assignment of rentals in respect of one of the mortgage properties and according to clause 17.1 of the Loan Agreement, as further security, the borrowers by the execution of the Loan Agreement charged "all freehold and leasehold interest in any land or any part of any land, which the Borrower is the registered proprietor or lessee or which the Borrower may acquire"; (g) the mortgages secured the Deed of Loan. ...; (h) each mortgage was collateral to and interdependent with the Loan Agreement and the mortgages given over the other parcels of land." 75The primary Judge made these additional observations: "150 The terms of the loan actually being made included the pre-payment of interest for a period of 12 months. This meant that some of the provisions about timely payment, and default, were inapplicable until the second year of the loan. 151 The Loan Agreement appeared to be one carrying a fixed repayment sum and a fixed rate of interest. However, clause 6 of the Loan Agreement dealt with increased costs and required the borrower to compensate the lender on demand if the lender determined that a "directive" directly or indirectly increased the lender's costs of providing the loan, reduced any amount received or receivable by the lender or the lender's effective return in connection with the loan, or reduced the lender's return on capital allocated to the loan, or its overall return on capital. 152 In short, the borrower agreed to underwrite the lender's return on capital to ensure that the lender received the return on capital fixed by the terms of the Loan Agreement." 76The bulk of the drawdown of $1,900,000 was disbursed as follows (at [91]): (a) First Mortgage for fees and performance $52,685 (b) First Mortgage for 1 year's interest in advance $204,250 (c) Payments to or on behalf of Flamanda Pty Ltd (the outgoing lender) $1,172,563 (d) Rates and miscellaneous expenses $2,262 $1,431,760 The balance of $468,240 was paid to one of Ms Locke's companies, Total Property Developments Pty Ltd. (The amount of $2,262 paid in respect of rates and miscellaneous expenses was held to be a benefit to the respondents and the subject of an adjustment to the orders made by the primary Judge.) 77As I have noted, (at [16] above), the finding that $1,172,563 was paid to or on behalf of Flamanda was not correct, in that it overlooked that part of that sum was used to discharge the Moranon Mortgage. The amount applied to secure the discharge of the Moranon Mortgage (which involved unregistered mortgages over the Land) was $512,465.70. 78The primary Judge identified the "essential features" of the advance by FMI to the respondents (at [94]): "(a) The loan sum was about 72% of the valuation obtained by First Mortgage on a market basis. The rate [sic] was about 80% on a forced sale basis. (b) Those valuations recognised and revealed that the market for the sale of the security properties was past its peak and was likely to be slow. (c) The interest payments were unaffordable for Mr Pittman and Mr Webster, whose total annual income could not have paid two month's interest payments. (d) Neither Mr Pittman, nor Mr Webster, had, apart from the secured land, any other assets which could have been used to pay the loan." 79From 26 November 2007 until late January 2008, Ms Locke negotiated with FMI to increase the amount of the loan. In doing so, as his Honour found (at [262], [263]), Ms Locke simply invented some responses to queries in order to assist her application. On 9 January 2008, Ms Locke wrote a letter, purportedly on behalf of the respondents, seeking an extension of the loan for six months and an increase in the loan sum to $2,050,000 (at [269]). On 24 January 2008, FMI, in a letter sent to the Firm, in substance accepted the proposal, except that the approved loan amount was $2,025,000. There was no explanation in the evidence as to why the letter was not sent directly to the respondents (at [273]). 80On 4 February 2008, the respondents met again with Ms O'Callaghan in the presence of Ms Locke (at [298]). According to the primary Judge, Ms O'Callaghan could not give independent advice to the respondents as she regarded Ms Locke as her client and not the respondents (at [299], [300]). His Honour found (at [300]) that Ms O'Callaghan gave no "real or substantive advice" on this occasion and saw her role as merely to witness signing of the documentation sent by FMI. Consequently, the variation was entered into by the respondents without the benefit of independent legal advice or explanation of the documents (at [303]). 81The additional drawdown, after substantial fees, amounted to approximately $125,000, all of which went to pay interest, including interest in advance (at [274]). As was pointed out in the course of argument in this Court, interest on the FMI Mortgage was never paid by the borrowers except out of borrowed funds. The Primary Judgment 82Some of the findings made by the primary Judge have already been referred to. His Honour made other important findings concerning the respondents' understanding of the FMI Mortgage and as to FMI's conduct leading up to the transaction. The Respondents' Understanding 83The primary Judge found (at [17]) that Mr Pittman was an honest and truthful witness, but that he had an imperfect recollection of some events. On the whole, his Honour accepted Mr Pittman's evidence. Mr Webster, too, was an honest witness (at [25]), but had little memory of the relevant events. His Honour had a "real sense" that from time to time Mr Webster did not understand the questions he was being asked to respond to when he made concessions against his interest. 84His Honour said (at [161]) that he took into account that the respondents' evidence sometimes suffered from a general lack of commercial sophistication and understanding of some of the concepts involved in the transactions. His Honour later added (at [162]) this observation: "In cross-examination both of them, I thought, made admissions against their interests. Those admissions have to be examined carefully because of the potential for a misunderstanding by the witnesses of the time at which they had particular knowledge, or the time at which they had a particular understanding, because it is quite clear that by the time they came to give evidence, they had a far greater knowledge of what had transpired." 85The primary judge made the following findings concerning the respondents' understanding of the FMI Mortgage: "165 Both Mr Pittman and Mr Webster gave evidence, which I accept, that their understanding was that Ms Locke was responsible for repaying the money, that they were not the borrowers, that Ms Locke's property was secured to support the loan and that, at best, they were providing a security which was not the first security to be called upon by the bank, and further the security was being provided in circumstances where it was most unlikely to be called upon. 166 Both Mr Pittman and Mr Webster, who gave evidence to this effect in their affidavits, which I accept, did not understand that they were the only borrowers on the First Mortgage loan, they did not understand that they had the obligations on the First Mortgage loan to which I have earlier referred. They did not know that Ms Locke was not a party to the loan, nor that she was not liable to First Mortgage with respect to the particular loan. They did not understand that Ms Locke had no legal obligations to do any of the things which she promised them she would do. 167 It is clear that neither of them understood that they were the borrowers. They each had an understanding that their property was being used as security, in effect of last resort, but their understanding was a long way from that which an average person would understand about all of the ramifications and conditions of this particular loan transaction and the mortgages which were to secure the loan. They did not have the benefit of appropriate advice to assist in their understanding. 168 Mr Pittman thought that, with respect to the First Mortgage loan, Ms Locke would be arranging for the payout of it and that, in a worst case circumstance, if Ms Locke did not abide by her commitment to pay out the loan, he understood that First Mortgage could take his land. But the context for this understanding was, based upon such reassurance and blandishments which Ms Locke had given them, that he believed that there was no realistic prospect of the security being called upon, and that Ms Locke would be responsible for and was capable of, attending to all of the obligations to First Mortgage. Mr Pittman had no concept, or belief, that there was any real risk that his property may be taken by First Mortgage. 169 Mr Webster specifically rejected the proposition that his understanding in December 2006 was that First Mortgage could sell his land without first resorting to Ms Locke's land. Mr Webster understood that the land was being mortgaged to First Mortgage, but not that Ms Locke had no legal obligations with respect to the loan and mortgage. On the contrary, he understood that Ms Locke was legally obliged to repay the funds in full. He did not comprehend that he was a borrower. 170 Neither Mr Pittman nor Mr Webster read through the documents. Time was not sufficient, and their education was inadequate, as were their reading skills. They were given no understanding of the nature and effect of these documents, nor the substance of the transactions prior to signing the various documents. 171 They did not know of the interest rate on the loan, and both denied that Ms O'Callaghan had explained to them the rate of interest. I accept their denials particularly having regard to the fact that interest was being prepaid, that is, deducted by First Mortgage from the capital sum of the loan, and they were not to get any of the moneys from the loan. There was no good reason why they needed to know the interest rate on the loan, unless and until the loan expired without repayment of the principal, or else it fell otherwise into default. It is for that reason that I do not think that Ms O'Callaghan explained what the interest rate was, and I do not accept her evidence to that effect. 172 Both Mr Webster and Mr Pittman knew sufficient of the concept of a mortgage and a security that if a loan was ultimately in default, a lender "...could take possession of [the] property and sell the property to recover the amount owing ...". But that understanding was, in the context of this loan, and the information which they had, seen by them as theoretical only, or entirely hypothetical and not, in reality, remotely likely to happen. Based on what they had been told this was not an unreasonable view for each of them to hold. 173 Of importance to these conclusions about the state of mind of Mr Pittman and Mr Webster, was the fact that Ms Locke was present throughout the only discussions about the loan and mortgage. Her presence would have inhibited Mr Pittman and Mr Webster from freely asking questions of Ms O'Callaghan, and would also, I am satisfied, providing ongoing comfort and reassurance to them of the extent of her involvement." FMI's Conduct 86The primary Judge found (at [311]) that FMI had breached its Prudential Lending Manual ("Manual") in a number of respects: "(a) The application for the loan was not received from either the borrower or a financial broker; (b) There was no record made in the credit analysis report noting the "borrower's exit strategy"; (c) Letter of offer of the loan was not sent to the borrower - it was sent to Ms Locke." 87Furthermore, Mr Wilson had confirmed (at [312]) that: "First Mortgage regarded the completion and sale of the development lots as being the first source of repayment, although he claimed that First Mortgage had no information at all about the development, including the number of lots, their anticipated date of completion, their actual completion and their sale. He agreed that the statement of assets and liabilities provided by Mr Pittman and Mr Webster did not include as an asset any share in any of the developments which he understood were being undertaken, and which he claimed were being undertaken by them as joint venturers." 88FMI did not challenge those findings in this Court, but it did challenge the primary Judge's findings as to FMI's understanding of the purpose of the loan. The findings are as follows: "317 It seems that First Mortgage proceeded on the basis that the subdivision at Razorback, at least, was a joint venture between Ms Locke on the one hand, and Mr Pittman and Mr Webster on the other. Mr Wilson agreed that at no time was there any document, nor any reference in a document, which related to, or recorded that, the subdivision being conducted by Ms Locke was a joint venture, or, to use another term favoured by First Mortgage, a shared development, with either or both of Mr Pittman and Mr Webster. 318 Mr Wilson asserted in his evidence that First Mortgage proceeded on the basis that it was a joint venture solely because of what he was told by Mr Pittman and Mr Webster in telephone conversations which he said that he had on or about 1 December 2006. 319 Importantly, Mr Wilson accepted that if the purpose of the loan "... didn't fit in with what we thought was appropriate, we would not have done the loan". 320 The two telephone conversations which were said to be the basis for the conclusion that Mr Pittman and Mr Webster were engaged in a joint venture of land subdivision, do not allow such a conclusion to be rationally drawn. 321 It is apparent from the conversation, as set out in Mr Wilson's affidavit, the terms of which he adhered to in his cross-examination, that although he had no document prior to the conversations suggesting that the subdivision and development project was a joint venture, it was he who first suggested that there was a joint venture to Mr Pittman and Mr Webster. However, the contemporaneous file note to which I have earlier referred, contains nothing which suggests that the phrase joint venture was used, nor that there was any basis for concluding what any such joint venture involved. I do not accept that First Mortgage had any basis from either of these conversations to draw a meaningful conclusion, upon which to base the provision of a very large loan, that Mr Pittman and Mr Webster were engaged in a joint venture property development with Ms Locke. 322 This is not a sufficient basis for First Mortgage to have relied upon as identifying the purpose of this business loan. It did not comply with the lending manual. Particularly as, so far as the evidence demonstrates, there was no basis for any conclusion that the subdivision was a joint venture. 323 As well, I am satisfied that there was no material available to Mr Wilson which enabled him to conclude that the development would be completed within the 12 months of the loan, and hence, the loan could be repaid. The basis for this satisfaction is twofold. First, as he ultimately accepted in cross-examination, there was no basis in either of the two conversations for such a conclusion. Secondly, he accepted that there was no document with which he was provided that would support such a conclusion. This was of particular importance because in his affidavit Mr Wilson deposed to the fact that the application for a loan was viewed on the basis that the "shared development" was "...to be completed prior to the expiry of the loan". ... 325 Accordingly, I would conclude that there could have been no reasonable belief, on the part of First Mortgage, that there would have been sufficient funds to repay the loan prior to the expiry of it other than from the sale or other realisation of the secured property of Mr Pittman and Mr Webster. It is to be remembered that these properties were the only assets of value and sole residence, and sole source of income, for Mr Pittman and Mr Webster." (The primary Judge was in error in stating (at [323]) that the loan was for 12 months. As he had previously found (at [93]), the term of the loan was two years.) 89His Honour summarised (at [346]) his findings as to FMI's conduct as follows: "(a) In a number of respects, First Mortgage did not comply with its own Prudential Lending Manual and standard procedures; (b) In undertaking an assessment of the risks to First Mortgage of this particular lending transaction, First Mortgage undertook no prudential check on the property development project being undertaken by Ms Locke, the beneficiary of the loan funds, to establish whether it was capable of providing a sufficient source of funds to repay the loan; (c) Notwithstanding that it was obvious that information contained in the document submitted to it was obviously untrue or incorrect, in material respects, First Mortgage took the view, apparently on the basis that a solicitor would be witnessing various documents, and providing independent advice, that it did not need to concern itself, or make enquiries about the obviously untrue and incorrect material; (d) First Mortgage suggested that it advanced the loan on a basis that Mr Pittman and Mr Webster were borrowing the money to be invested in a joint venture property development project, the joint venture being with Ms Locke. It had no material from which to be satisfied that there was any joint venture involving Mr Pittman and Mr Webster. It did not see the need to, nor did it make any attempt to, be satisfied as to the truthfulness of this basis for making the loan. Its only source of information was Ms Locke, with whom First Mortgage, according to Mr Wilson, had previous dealings; (e) First Mortgage did not itself make any assessment of the capacity of the borrowers to repay the loan, except by the obtaining of valuations of the security properties. It chose to rely on the independent solicitor "...looking after their interests..."; (f) First Mortgage knew that Mr Pittman and Mr Webster did not receive any part of the loan funds, and that after repayment of the existing loan, all excess moneys went to Ms Locke's company; (g) First Mortgage proceeded in making the loan on the basis that, whatever be the solicitor's involvement in making the loan, they were appropriately protected by the security properties. In short, the only risk mitigation strategy engaged in by First Mortgage was to take the securities over Mr Pittman and Mr Webster's property which they would realise when necessary if default occurred." Injustice of the FMI Mortgage 90His Honour was satisfied (at [372]) that each of the 2006 Loan Agreement and the 2008 Variation, of which all mortgages over the Land were a direct consequence, was unjust at the time it was made. His Honour was also satisfied that it would be unjust to enforce the mortgages. He reached those conclusions for the following reasons: "(a) there was a material inequality in the bargaining power between First Mortgage and Mr Pittman and Mr Webster because First Mortgage determined all of the terms and conditions of the loan, and did not permit of any negotiation whatsoever. The only bargaining power which Mr Pittman and Mr Webster, at least in theory, had, was to decline to enter into the transaction; (b) there was not, at or prior to the time the contract was made any negotiation at all about the terms of it. Mr Pittman and Mr Webster were presented with a "fait accompli" because it was Ms Locke who had approached First Mortgage and who dealt with First Mortgage. She had determined the sum of money required, the interest which was acceptable and the period of the loan in a proposal which was put to First Mortgage. That proposal was accepted. There was no negotiation at all by Mr Pittman or Mr Webster. Nor could it be said that Ms Locke's participation was negotiation on their behalf, or as their agent, since they did not know of the negotiations or what was occurring; (c) it was not reasonably practicable for Mr Pittman and Mr Webster to negotiate for or reject provisions of the contract. This arose in a number of ways including that they only learnt of the transaction at the last moment, they did not have the opportunity of reading the documents with sufficient time, having regard to their level of education and their capacity to read, because First Mortgage sent the documents directly to the lawyers, Christopher Edwards, who had not been nominated by either Mr Pittman nor Mr Webster and also because the Memorandum of Mortgage was not included in any of the documents. Mr Pittman and Mr Webster had no opportunity at all to attempt to negotiate for any alteration of the provision of the agreement; (d) neither Mr Pittman nor Mr Webster were, having regard to their age, their lack of formal education, their lack of commercial sophistication, and their limited capacity to read and comprehend the complex multiple-page documents, written in highly technical terms; able to reasonably protect their own interests; (e) clearly, the difference between First Mortgage and Mr Pittman and Mr Webster in terms of their relative economic circumstances, and their sophistication meant that First Mortgage was in a demonstrably superior and entirely dominant position which was not ameliorated, in the circumstances of this matter, by Mr Pittman and Mr Webster obtaining any legal (or accounting) advice of any real substance at all, let alone advice which was independent of Ms Locke; (f) whilst legal advice which was independent of First Mortgage was obtained, that advice was: (i) wholly inadequate in content; (ii) not independent of the true financial beneficiary of the loan, Ms Locke, which was known to First Mortgage; (iii) was not provided in circumstance which were conducive to its proper appreciation; (iv) could not have been provided, and was not provided, in a way which met First Mortgage's minimum requirements. The advice was not adequate because it did not explain the provisions of the loan transaction, nor the mortgages and their legal and practical effect. Neither Mr Pittman nor Mr Webster, according to contemporaneous evidence, had a clear understanding that they were the borrowers, and that Ms Locke was not legally bound to make any repayments, nor that their land could be sold by First Mortgage without first resorting to all of Ms Locke's assets." 91The primary Judge also concluded that the Loan Agreement was unjust, for the following reasons: "374 The purpose of the contract was to fund Ms Locke's property development endeavours. The effect of the contract was to make Mr Pittman and Mr Webster the underwriters of those endeavours to the extent of the sum of money borrowed. The setting, or the circumstances in which the contract was made, did not suggest that there was any good reason why Mr Pittman and Mr Webster would underwrite Ms Locke's property development activities to the extent which they did. Nor was there any compelling reason why they would do so. Although there were suggestions in the evidence that they were to receive some benefit, I am not satisfied that that was so. Nothing was proved in the evidence which provided any firm basis for such a conclusion. 375 The understanding of Mr Pittman and Mr Webster, that Ms Locke was the person responsible for the repayment of the debt and the interest was not matched by the legal effect of the loan agreement, nor the legal consequences contained in the mortgages, upon which First Mortgage intended to rely. First Mortgage recognised that it was both foreseeable, and probable, that they would need to rely on their full legal rights contained in the agreement and mortgage, namely, selling Mr Pittman and Mr Webster's land. 376 There are additional features which make the loan agreements unjust. These features include: (a) the financial structure of the loan. First Mortgage well knew that Mr Pittman and Mr Webster could not repay the loan except by the sale of the secured property (or else through the voluntary, and unenforceable, payment, by Ms Locke, of the proceeds of sale of the property developments being undertaken by her. Given that the only certain method of repayment of the loan was by the sale of the properties owned by Mr Pittman and Mr Webster, the effect of such loan and its terms upon such sale was to completely deprive Mr Pittman and Mr Webster of all of their assets. This was because the loan to value ratio was about 70 per cent, but if there was to be a forced sale, by which expression I take it to be that the mortgagee required a sale to be made without regard to the state of the market from time to time, then the loan to ratio value was close to 80%. The consequence of was that, with an interest rate for timely payment of interest at a little under 11 per cent, and a higher rate at 16 per cent, the entire equity in the properties of Mr Pittman and Mr Webster would be removed by the accumulation of a minimum of about one year's interest after default, and a maximum of two year's worth of interest after default; (b) There was a difficulty with the latter proposition, to which I have earlier referred, namely the payment by Ms Locke of the proceeds of sale of her subdivision, which was the alternative said by First Mortgage to be the "primary exit strategy", which was that Mr Pittman and Mr Webster did not know anything about the financial position of Ms Locke, the extent of her developments, her other borrowings and what properties, if any, she owned which had equity in them and which were or were not secured. As well, as First Mortgage knew there was no legal obligation upon Ms Locke to make any repayments of the loan at all. First Mortgage also had no specific detail of, and chose not make any enquiries about, the nature and extent of the subdivision and the financial position of Ms Locke; (c) the failure by First Mortgage to comply with various provisions of the lending manual to which I have earlier made reference, which is of some, but limited weight in the circumstances; and (d) neither Mr Pittman nor Mr Webster received any direct financial benefit from the loan. They were not to receive any part of the funds to spend for their own purposes, nor did they in fact receive, nor were they intended to receive, any benefit at any later point in time. They were in a position analogous to a third party guarantor." Relief 92FMI submitted to his Honour that the Loan Agreements and Mortgages should not be set aside, but should be varied to reduce the amount owing to $1,172,713.04. This amount was said to be equal to the sum that was applied to discharge the Flamanda Mortgages. FMI's submission was that the amount attributable to the discharge of the Flamanda Mortgages was a direct benefit to the respondents because it removed both an existing liability and an encumbrance over the Land. FMI submitted that the settlement sum of $200,000 received from the Firm should also be regarded as a direct benefit to the respondents. 93The primary Judge accepted the second submission, but not the first. His Honour considered that St George Bank Ltd v Trimarchi [2004] NSWCA 120 supported the proposition that where an unjust loan is used to discharge a mortgage loan which was itself unjust, the discharge of the earlier loan does not necessarily constitute an unwarranted benefit to the borrower under the later loan. 94His Honour considered (at [401]) that it was necessary to examine whether the discharge of the Flamanda Mortgage out of the moneys advanced by FMI, constituted an "unwarranted benefit" to the respondents. He recorded the respondents' submission that it was not a benefit because the Flamanda loan "was itself an unjust loan and was liable to be set aside". 95Whether the Flamanda loan was unjust could not be determined in isolation from the earlier mortgages, each of which involved no benefit to the respondents (at [402]-[403]). In essence, the respondents were in the position of third party mortgagors (at [404]). In respect of all transactions relating to FMI, the Flamanda Mortgage and the Forrest Knoll/Obelisk Mortgage, the respondents were (at [407]): "individuals proffering their land as security for a loan to a different individual or entity for use in a project in which the mortgagors have no interest, and no ability to control." 96His Honour concluded (at [408]) that the earlier loans to the respondents were unjust, for these reasons: "(a) Mr Pittman and Mr Webster had the same personal features to which I have earlier drawn attention; (b) they received no direct financial benefit from the loans. They had no legal or other right to claim in the proceeds of any of the property subdivisions of Ms Locke. They were in substance third party mortgagors; (c) they were not entitled to any fee or sum of money for offering their land as a security; (d) they had no real or substantial knowledge of Ms Locke's property dealings in the financial sense, and hence were unable to make, even with expert accounting or financial advice, any real assessment of the risks involved in proffering their land as a security (or else being the borrowers); (e) they received no independent legal advice which explained in any clear way what the true effect of the transaction was; (f) by reason of the lack of warning given by Ms Locke of the need to attend at solicitor's offices, the limited information they were given about what was going to happen, often the volume of material with which they were confronted and had to deal with, the fact that they did not know who the solicitors were, let alone choose them, and Ms Locke's presence in the room, they were not able to exercise any real independence in considering the terms of the loan, including whether or not to enter into it; (g) the amount of the sums of money borrowed, the absence of any demonstrated ability to repay the sums from anything other than the sale of their properties, the fact that the properties were their sole residence and earning source, and in many cases, the very high interest rates being charged, all combined to mean that such equity as they did have, would evaporate very quickly." 97His Honour made additional observations as follows: "409 These were on any view, mortgages which were not financially manageable by Mr Pittman and Mr Webster, they could only ever escape the liabilities which they took on, by the sale of the properties, and only then, if the properties were sold promptly and if the real estate market was sufficiently viable for the sales to occur at a proper price. In short, the realistic alternatives if the loans were not "rolled over" which events depended entirely on Ms Locke's activities and efforts, was that the secured properties were to be sold. 410 These features of themselves are sufficient to warrant a finding that each of the earlier loans was unjust. 411 I am comforted in that finding by the failure by First Mortgage in the course of its case, notwithstanding the evidence given by Mr Pittman and Mr Webster about how the signing of these mortgages came about, and notwithstanding the terms of the mortgages, to call any of the earlier witnesses to the mortgages, including the solicitors who were said to have given independent advice to Mr Pittman and Mr Webster. Nor did they call Ms Locke, who could have given evidence about the circumstances in which each of these loans were made." 98The primary Judge summarised (at [413]) his conclusions as follows: "In summary, I conclude that since the earlier mortgages were in substance third party mortgages, and they had the features to which I have drawn attention, that they were unjust within the meaning of the Contracts Review Act and accordingly, the fact that the First Mortgage moneys went to repay, at least in part, the Flamanda loan which itself replaced earlier loans, was not an unwarranted benefit to the defendants, Mr Pittman and Mr Webster, because each of those loans was unjust, and because of that conclusion, I am satisfied that the entry into those earlier loans did not constitute a financial benefit to Mr Pittman and Mr Webster. It follows that the discharge of the loans, by incoming lenders, ultimately, First Mortgage, did not amount to any benefit to Mr Pittman and Mr Webster of a kind which necessitates any consideration in the terms of the relief which is to be granted." Orders 99The substantive orders ultimately made by the primary Judge were as follows: "1. Judgment for the [respondents] in relation to the claims made by [FMI] against them the subject of this proceeding. 2. Pursuant to section 7 of the Contracts Review Act 1980 (NSW), each of: (a) the Loan Agreement between [FMI] and the [respondents] dated on or around 15 December 2006; (b) Mortgage AC836424D in respect of Lot 8... and Lot 23..., dated 15 December 2006; (c) Mortgage AC836425B in respect of Lot 9..., dated 15 December 2006; (d) Bill of Sale between [FMI] and the [respondents] dated 15 December 2006; (e) Deed of Assignment of Rentals dated 15 December 2006; and (f) the Deed of Variation of Mortgage dated 19 February 2008, is declared to be unenforceable. 3. On or before 4pm 25/1/13, [FMI's] solicitors deliver to [Mr Pitman's] solicitors: (a) Certificates of Title ... and ...; (b) a Discharge of Mortgage AC836424D in registrable form; and (c) ... 4. On or before 4pm 25/1/13 [FMI's] solicitors deliver to the [respondents'] solicitors: (a) Certificate of Title ...; (b) a Discharge of mortgage AC836425B in registrable form; and (c) ..." The respondents were ordered to pay FMI $200,000 plus interest and another sum, not now in dispute, of $4,349.20. Some of the orders were stayed pending final disposition of the appeal. Submissions FMI's submissions 100Mr Bell SC, who appeared with Mr Howe for FMI, advanced four main arguments to support the contention that the primary Judge's finding that the FMI Mortgage was unjust should be set aside. First, Mr Bell challenged the findings that the respondents did not understand the legal or practical effect of the loans obtained by the respondents before they entered into the FMI Mortgages. He submitted that the respondents each made concessions in their evidence demonstrating that they were aware of their obligations under the various loan agreements and mortgages and appreciated the consequences of default. Mr Bell submitted that his Honour had ignored the concessions made by the respondents in cross-examination and had uncritically accepted the assertions made in their affidavits. 101Mr Bell contended that the evidence disclosed that, prior to the respondents signing the FMI Mortgage documents in 2006, they knew: ● what a mortgage was; ● that the respondents were the borrowers under the loan; ● that Ms Locke was not guaranteeing the loan; ● that the loan was partly to refinance existing loans and partly to provide funds for [Ms Locke's] development; ● the interest rates for the loan; ● that if loan repayments were not made by the agreed dates that the lender could sue them for default; ● that if loan repayments were not made by the agreed dates that the lender could take their land; and ● that the lender could proceed directly against them or their land without first having to sue Ms Locke or take her land. 102Secondly, Mr Bell challenged the findings (at [165]-[173], reproduced at [85] above) concerning the respondents' understanding of the FMI Mortgage. The challenge was founded partly on the submissions relating to the respondents' understanding of the earlier transactions, but Mr Bell also relied on other passages in their cross-examination. He submitted that the primary Judge should have found that the respondents had an understanding of the essential elements of the risk they were undertaking. 103Thirdly, Mr Bell challenged the finding that the 2006 Loan Agreement and the 2008 Variation were unjust. He submitted that a number of the primary Judge's criticisms of FMI's business practices and conduct were not justified by the evidence. While he accepted that the primary Judge was entitled to take into account the adequacy of the legal advice given to the respondents, he contended that FMI was entitled to believe that proper advice had been given, since the respondents had certified to that effect. It was not FMI's fault that the solicitors failed in their duty to the respondents. 104Moreover, so far as FMI was concerned, the loan was for business purposes. FMI's lending manual did not require it to investigate whether borrowers were able to service a loan for business purposes and the respondents had stated that the loan was for such purposes. To require FMI to investigate the capacity of borrowers to service a business loan would have ramifications for the sector of the lending market in which FMI was a participant. 105Fourthly, the primary Judge should have given more weight to the telephone conversation that took place between Mr Wilson and the respondents on 1 December 2006. Mr Wilson's notes of that four and a half minute conversation made it obvious that the respondents told him that they expected to benefit financially from the Razorback development. Mr Wilson was entitled to rely on that information. He was also entitled to rely on the representations (albeit they were fraudulently made by Ms Locke) that the respondents between them had an income of about $470,000 per annum. 106Mr Bell submitted that, even if the finding of injustice stood, the primary Judge erred in not giving credit to FMI for the sum of $1,172,713.04 applied by the respondents to discharge existing mortgages over the Land. In FMI's submissions in chief, it was assumed that the whole of this sum had been applied to discharge the Flamanda Mortgage. On this basis, Mr Bell submitted that the respondents had not pleaded that the Flamanda Mortgage and the other earlier transactions were unjust and liable to be set aside. The only issue raised in the particulars was the more "amorphous question" of whether the respondents had derived a benefit from the discharge of the Flamanda Mortgage. This lack of "focus", so Mr Bell argued, contributed to the primary Judge failing to consider whether relief would have been granted in respect of each of the previous transactions. This discretionary consideration involved "complex and nuanced" questions that had not been addressed. 107Mr Bell contended that the failure to consider these questions vitiated the finding that the respondents obtained no benefit from the FMI Mortgage (other than the small payment in respect of rates). The primary Judge could not determine whether the respondents had received a benefit from any of the prior transactions unless he made findings of fact on a number of assets to which little or no attention had been paid. In determining whether the Flamanda Mortgage was liable to be set aside, it would be necessary to consider the circumstances at the time it was entered into, including the fact that it involved a refinancing of the Forrest Knoll/Obelisk Mortgage. Moreover, FMI had been ill-placed to adduce evidence relating to transactions to which it was not a party, yet the primary Judge had been "comforted" by the failure of FMI to call the solicitors who had given advice to the respondents in relation to the earlier transactions. 108Mr Bell also contended that if the respondents had instituted proceedings under the Act in 2006 to set aside the Flamanda Mortgage, they would have been met with a defence that this claim was barred by s 16 of the Act. In any event the primary responsibility for any injustice to the respondents lay with Ms Locke, not FMI. In those circumstances, it was not just for FMI to be denied any credit for providing the funds that allowed the Flamanda Mortgages to be discharged. 109In its written submissions filed after the hearing in this Court had concluded, FMI contended that once it was accepted that part of the moneys it had advanced had been applied to discharge the Moranon Mortgage, there were additional reasons to set aside the orders made by the primary Judge. His Honour had made no finding that the Moranon Mortgage (as distinct from the Flamanda Mortgage) was unjust at the time it was entered into. Nor were there any grounds for this Court to make such a finding. The evidence suggested that, in relation to the Moranon Mortgage, the respondents had received satisfactory independent advice. In any event, there was no reason for Moranon or Heath to believe otherwise or to suspect that the respondents were suffering from a relevant disability. 110Finally, Mr Bell submitted that if this Court concluded that his Honour's discretion had miscarried, the discretion should be re-exercised to require the respondents to account for the moneys advanced by FMI which were used to discharge the Moranon Mortgage and the Flamanda Mortgage. Since the respondents had not established that those Mortgages were liable to be set aside, the respondents had clearly obtained a benefit from being enabled to discharge each mortgage. The Respondents' Submissions 111Mr Robertson SC, who appeared with Mr Lazarus for the respondents, supported the primary Judge's reasoning on the question of the injustice of the FMI Mortgage. 112Mr Robertson also submitted that the primary Judge's discretion with respect to relief had not miscarried. Insofar as FMI relied on the respondents' failure to plead that the transactions preceding the FMI Mortgage were unjust, its reliance was misplaced. The matter had been put in issue by FMI's plea, in its defence to the respondents' cross-claim, that the respondents had to account to FMI for all benefits received by reason of the grant of the FMI Mortgage, including the repayment of the Flamanda Mortgage. Moreover, the respondents had pleaded in their cross-claim that they had derived no benefit from the FMI Mortgage. 113Mr Robinson did not seriously dispute that the primary Judge had made no finding that each of the previous loans were liable to be set aside at the suit of the respondents. However, he contended that the findings relevant to the question of injustice were equally relevant to the separate inquiry under the Act, namely the relief (if any) that should be granted to the claimant (see at [116] below). 114Further, there was no basis for FMI's argument that any claim by the respondents would be statute-barred since they would have been entitled to file a cross-claim had proceedings been instituted against them by the mortgagees. 115If, contrary to the respondents' submissions, this Court had to re-exercise the discretion with respect to relief, the onus was on FMI to show why the respondents should not be relieved of the entire burden of the FMI Mortgage. Mr Robertson accepted that Ms Locke was primarily responsible for the respondents' difficulties. However, FMI was the author of its own misfortune. It had failed to carry out basic prudential checks and its lending practices had caused the problem. FMI had lent money for a development and, so far as it was concerned, it did not matter how the borrowers disbursed the funds. Reasoning: The Finding of Injustice Principles 116In an application for relief under s 7 of the Act, the court undertakes a three-stage process: Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41; 14 BPR 26,639, at [99], per Handley JA; at [106], per Basten JA. The first stage is to make findings of primary fact. The second stage involves a finding that the contract is or is not unjust. The third stage is the exercise of the power to grant relief under the Act which may, but need not follow from the conclusion that a contract is unjust. 117Appellate review of findings of primary facts takes place in accordance with the principles applicable to an appeal by way of rehearing. Where the findings involve an assessment of the credibility of witnesses, the review is conducted in conformity with the principles stated in Fox v Percy [2003] HCA 22; 214 CLR 118. 118The determination that a contract is unjust requires an evaluative judgment, based on the primary facts as found. In Khoshaba, Spigelman CJ characterised (at [37]) such a determination as a finding of fact despite its evaluative character. He said (at [40]) it "may be" that an appellate court asked to review a finding that a contract was unjust should apply the principles stated in Warren v Coombes [1979] HCA 9; 142 CLR 531, rather than those applicable to the review of a discretionary judgment stated in House v The King [1936] HCA 40; 55 CLR 499. Handley JA said (at [100]) that appellate review of the indeterminate standard set by s 7 of the Act is to be undertaken in accordance with the principles in Warren v Coombes, at 551-552. Basten JA was of the same opinion (at [107]). On this basis, the appellate court, when reviewing a finding that a contract was unjust, is generally taken to be in as good a position as the trial judge to decide on the proper inferences to be drawn from the established facts, although respect and weight will be given to the conclusions reached by the trial judge. 119The third stage involves the exercise of a discretion which is subject to review by the appellate court in accordance with the principles stated in House v The King, at 504-505. Thus it is not enough that the appellate court would have exercised the discretion differently from the trial judge. The latter must be shown to have acted on a wrong principle or to have made an error of the kind vitiating the exercise of discretion, such as failing to take into account a material consideration or reaching a decision that is unreasonable or plainly unjust. Challenges to Findings of Primary Fact 120FMI's submissions challenged the findings made by the primary Judge concerning the respondents' understanding of the various transactions into which they entered. It is convenient to deal with the challenges in the way in which Mr Bell presented them. I therefore deal first with the findings concerning the transactions which predated the FMI Mortgage and then with the findings relating to the FMI Mortgage. The Earlier Transactions 121In the course of argument, Mr Bell resiled from the contention that the primary Judge's findings simply ignored the cross-examination of the respondents. His change of position acknowledged that the primary Judge expressly referred in the Primary Judgment to the cross-examination and oral evidence of the respondents. Mr Bell's modified submission was that the primary Judge erred in preferring the affidavit evidence of the respondents to the concessions they made in their cross-examination. 122It is true that each of the respondents acknowledged in his evidence that he had some understanding of the transactions into which he had entered prior to the FMI Mortgage. Mr Pittman said that he understood that as between Ms Locke and the respondents, she would be responsible for all payments due under the Flamanda Mortgages and that "her" land would be sold first to meet any shortfall. But he also acknowledged, somewhat inconsistently, that it "would be right" that Flamanda was free to sell up the respondents' Land in the event of default, without first having recourse to land owned by Ms Locke or her companies. 123Mr Webster agreed that he understood what a guarantee was when he entered into the Forest Knoll/Obelisk Mortgage in 1994. He also gave this evidence: "Q. You knew when you signed this Forrest Knoll document that if Margot Locke didn't make payments, that the lender could come and try to sell your land; isn't that right? A. Well, Margot Locke was the guarantor for those loans. Q. Did you understand what a guarantor was? A. Yes. I knew what a guarantor was. ... Q. What did you understand that you and Mr Pittman were in relation to the loan then? If she was the guarantor, what were you? A. We were part of the lenders of the money. Q. The lenders of the money? A. Well, the - we like signed the form to get the money for her, to help her out. Q. But if she was the guarantor, what were you and Mr Pittman? A. Well, I'd say we would have to be the borrowers. Q. I see. And you understood that there was an arrangement between you and Mr Pittman on the one hand and Margot Locke on the other and that Margot Locke would make all the interest payments under this loan; is that right? A. Yes. Q. And that Margot Locke would repay the loan money as well; is that right? A. Yes. ... Q. Sir, you understood, didn't you, when you signed the Forrest Knoll agreement on 6 October 1994 that if Margot Locke wasn't able to repay the interest or wasn't able to repay some of money that had been borrowed that the lender could go to you or Mr Pittman to get the interest or the sum of money that was borrowed from you; isn't that right? A. That would have been right. Q. And you understood that the lender could go to either of you and to say, "If you don't give us this money, then we will sell your land"; isn't that right? A. Well, that would have been right." 124The answers in cross-examination on which Mr Bell relied, when the transcript is read as a whole, are far from unambiguous. When the respondents agreed that Forrest Knoll could enforce the Mortgage directly against the Land in the event of default, it is not clear whether their answers reflected their understanding at the time they were being cross-examined or their understanding at the time the Forrest Knoll/Obelisk Mortgage was executed. The ambiguity was left unresolved. It is no doubt for this reason that the primary Judge said (at [162]) that apparent concessions by the respondents had to be examined carefully. 125Mr Pittman's uncertainty as to the respondents' obligations and the mortgagees' entitlements can be seen in other passages. In his cross-examination he was asked about the Flamanda Mortgage: "Q. And you didn't have any belief on 24 November 1998 that the lender, Flamanda and Davidson, had to go and sell up Margot Locke's properties before they sold your and Mr Webster's properties, did you? A. I understood it was to be that way, to Ms Locke's first and then ours if need be. Q. But, sir, what you understood was this, wasn't it, that you had a private agreement between yourself and Ms Locke that Ms Locke would sell her properties first, isn't that right? A. Yes. Q. But that as far as the lender Flamanda and Davidson was concerned, they were free, if Margot Locke didn't keep up the interest payments or repay the loan, Flamanda and Davidson were free to go directly to your land and sell that up without first having sold up any land of Margot's, isn't that right? A. Would be right, I think, yep." Mr Pittman's re-examination suggested that he did not distinguish between the respondents' agreement with Ms Locke and the terms of the agreement between the respondents and FMI: "Q. I am asking you, as at November 1998, whether you understood there to be any difference between a private agreement that you had with Ms Locke and an agreement involving you, Mr Webster, Ms Locke and the lender, Flamanda? A. No." 126In my opinion the primary Judge did not make findings without paying proper attention to the respondents' cross-examination. Nor were the findings inconsistent with their evidence, bearing in mind his Honour's assessment of the respondents' lack of commercial experience and understanding. 127Mr Bell was asked in the course of argument which of the findings made in the Primary Judgment (at [219]-[225]) (see at [42]-[44] above) were negated by the respondents' answers in cross-examination. In response, he identified the finding (at [221]) that the only advice Mr Pittman received from Mr Mitchell (the solicitor who saw the respondents in connection with the Flamanda Mortgage) was to the effect that it should be alright to sign the documents. 128The reference in the Primary Judgment at [221] was to Mr Pittman's evidence; it was not a factual finding. Moreover, the reference was cryptic and incomplete. In his affidavit, Mr Pittman said that he had been with Mr Mitchell for about an hour; that Mr Mitchell had made about ten phone calls during this time to Mr Rex (Flamanda's solicitor); and that after this Mr Mitchell said that it would be alright to sign the documents. Mr Pittman did not say that the only advice or explanation given by Mr Mitchell was that it was in order to sign the documents. 129In his cross-examination, Mr Pittman readily accepted that Mr Mitchell would have given him an explanation of at least ten "aspects of the documents" relating to the Flamanda Mortgage. However, the cross-examiner did not probe precisely what information Mr Mitchell conveyed to Mr Pittman during the meeting. Mr Pittman made it clear that Mr Mitchell repeatedly had to telephone Mr Rex in order to obtain information, but at no stage did he claim that the only advice or information he received from Mr Mitchell was to sign the documents. 130It is important to appreciate that Mr Bell did not challenge the finding (at [408(e)]) that the respondents had not received independent legal advice which explained the true effect of the Flamanda Mortgage or any of the other earlier transactions (leaving the Moranon Mortgage to one side for the moment). Nor did the primary Judge find that the respondents had no understanding of the nature of a mortgage or of a guarantee. On the contrary, his Honour found (at [172]) that each of the respondents knew that if a loan was in default the lender could take possession of the property put up as security and sell it to recover the amount owing. 131His Honour's findings were directed to the respondents' lack of understanding of the risks they were taking for no direct benefit to themselves; the absence of any advice as to the wisdom of each of the transactions; the failure to warn them that they should obtain financial advice; the lack of information available to them as to the financial stability of Ms Locke or her companies; the respondents' failure to appreciate that their financial well-being - indeed financial survival - depended on the ability and willingness of Ms Locke and her companies to meet their commitments to them; the absence of any explanation as to the vulnerability of their position in relation to Ms Locke, given that they had no contractual rights against her and that she had provided no security to the respondents; and the impossibility of the respondents servicing the loans from their own resources. 132Mr Bell submitted that, notwithstanding these matters, Mr Pittman's oral evidence was in conflict with his assertion in his affidavit that he did not think that either he or Mr Webster was under "any obligation ... to repay the loan to Flamanda". But that assertion was also ambiguous. It may well have meant that in the light of Ms Locke's assurances to them, the respondents believed (as they did) that she was the one who was obliged to pay interest and principal to the lenders. Again the ambiguity was not resolved in the evidence. 133I have said that the primary Judge was entitled to take into account his assessment of the respondents' lack of commercial sophistication. That lack of sophistication appears clearly enough from some of their answers in cross-examination. Mr Pittman, for example, said that he did not realise that he was a borrower under the National Mutual Mortgage since he and Mr Webster "were only putting up security". His answers concerning the Flamanda Mortgages revealed a similar lack of understanding: "Q. Well, you understood that Margot Locke was the guarantor of the loan, isn't that right? A. That's right. Q. And that you understood that you and Mr Webster were to be the borrowers for this loan, isn't that right? A. We were the only mortgagees, I understood. Q. Well, you were mortgagors in relation to the loan, weren't you? A. Well, one way or the other, yeah. I forgot whether we - we were guaranteeing the properties, yes." 134Mr Webster said that in 1994, although he understood that there could be difficulties if something went wrong with Ms Locke's development, he did not know what would happen in that event. He also gave evidence, accepted by the primary Judge, that he did not know that the Forrest Knoll/Obelisk Mortgage provided for a default interest rate of 25 per cent per annum, a matter of considerable significance. 135The challenge to the primary Judge's findings concerning the respondents' understanding of the loan transactions preceding the FMI Mortgages has not been made out. The Respondents' Understanding of the FMI Mortgage 136FMI correctly pointed out that Mr Pittman acknowledged in his cross-examination that at the time he signed the documents he understood that FMI was to provide a loan of $2,030,000 (later adjusted to $1,900,000) and that the money would be used to pay out the Flamanda Mortgage, with the balance to be applied to the Razorback development. Mr Pittman also said that he knew that if the loan was not repaid FMI, like the previous lenders, could sell up the Land without first having recourse to the development property. He accepted that Ms O'Callaghan (the solicitor) had told him that if there was default in repaying principal and interest, the interest rate would increase and that he and Mr Webster might be sued for any deficiency. 137Mr Webster, as the primary Judge recorded, made similar concessions, although he denied understanding the purpose of the loan from FMI. Mr Webster accepted that he understood that Ms Locke was not providing a guarantee or mortgage in connection with the FMI Mortgages and that if Ms Locke did not repay the loan FMI could sell the Land. He also said that he understood that the respondents were the borrowers. 138In assessing the primary Judge's findings, two matters are particularly important. First, his Honour made it clear in several parts of the Primary Judgment that he considered the apparent concessions made by the respondents in their cross-examination had to be evaluated in the light of their lack of commercial sophistication and unfamiliarity with the concepts about which they were being asked. Secondly, as the respondents submitted, the primary Judge enjoyed the advantage of seeing the respondents give evidence and of assessing their capacity to comprehend and respond to the questions they were being asked. There has been much debate about the extent of a trial judge's advantage in cases where credibility is in issue. But a case where unsophisticated witnesses are asked about their understanding of commercial concepts is one in which the trial judge is likely to enjoy a considerable advantage over an appellate court, which is limited to reading a transcript recording answers that are not always easy to reconcile. 139An example is Mr Pittman's agreement with the proposition that FMI could sell up the Land in the event of default, regardless of what FMI did in relation to Ms Locke. This answer was given after he had said that his understanding of the Flamanda Mortgage had been that "Ms Locke's place [would] be sold first, as we understood it. Ours was only used if necessary". He had also said that he had presumed that the agreement with FMI would be the same. The primary Judge had to evaluate the significance of Mr Pittman's apparent concession in light of the totality of his evidence. 140The respondents gave uncontradicted evidence that Ms Locke told them that her property would be the first to be sold and that in any event there was nothing to worry about (Primary Judgment, at [164]). A constant theme in Mr Pittman's evidence was that the respondents were simply providing security and that Ms Locke was the one who would be responsible for the payment of all principal and interest. His answers also indicated that he thought over the course of the various mortgage transactions that offering security and borrowing were much the same thing. 141Mr Webster's lack of understanding of the transactions to which he was a party is demonstrated by a conversation he had with Mr Wilson in February 2008, at the time the FMI loan was increased. According to Mr Wilson's contemporaneous notes, Mr Webster did not believe the loan was increasing, "just rolling over with [Ms Locke] paying the interest". Mr Webster also said in the conversation that the solicitors did not explain the loan to him and that "he wasn't sure that they were the borrowers". 142The primary Judge's findings as to the respondents' understanding of the FMI Mortgages might have been expressed with more precision. For example, his Honour accepted (at [165]) the respondents' evidence that their understanding was that they were not the borrowers, while also accepting (at [166]) their evidence that they their understanding was that they were not the only borrowers. Read in context, I interpret his Honour as concluding that the respondents understood that Ms Locke had undertaken to be responsible for repaying interest and principal under the FMI Mortgage and that, although the documents named them as borrowers, they understood that Ms Locke was primarily liable and that, accordingly, their Land would be taken as a last resort only. Moreover, they accepted Ms Locke's assurances that there was no realistic possibility of default. 143The evidence justified his Honour's findings as to the understanding of the respondents when they entered into the 2006 Loan Agreement and the associated mortgages and when they subsequently agreed to the 2008 Variation. The Evaluative Judgment 144The primary Judge's finding that the FMI Mortgages were unjust rested on a number of matters set out in the Primary Judgment (at [372]). It was not suggested that his Honour failed to take account of any of the relevant statutory criteria. Rather, FMI submitted that the evaluation of injustice overlooked or gave insufficient weight to a number of circumstances. 145Mr Bell placed greatest reliance on the certificate signed by the respondents on 6 December 2006, in which they acknowledged that they had received legal advice on the matters identified in the certificate. Mr Bell cited Provident Capital Ltd v Papa [2013] NSWCA 36; 84 NSWLR 231, where it was held, in the circumstances of that case, that a lender was not responsible for the inadequacy of independent legal advice given to a borrower: at [7], per Allsop P (with whom Sackville AJA agreed); at [114], per Macfarlan JA. 146In Provident Capital v Papa, Allsop P (at [7]) stressed the importance of considering the individual circumstances of each case: "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. Inevitably minds may differ as to conclusions about such questions. Also, it is often not fruitful to compare other cases with the particular circumstances at hand, lest one be deflected from an appropriate overall assessment by focus on particular aspects relevant to any such comparison. 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." 147The circumstances of this case are different from Papa. The primary Judge found (at [79]) that the respondents had not selected the Firm to give them advice concerning the FMI Mortgages. An email from Ms Locke to Ms O'Callaghan of 6 December 2006 indicated that Ms Locke arranged the appointment "so that Basil [Pittman] and Neil [Webster] can sign the documents". The email makes it clear that Mr Wilson was aware that the Firm had acted for Ms Locke or her companies on the Skyfarm loan. Indeed, Mr Wilson accepted in cross-examination that he knew that the Firm had previously acted for Ms Locke. 148In addition, Mr Wilson acknowledged in his cross-examination that the loan from FMI related to a property development that Ms Locke was undertaking. When it was put to him that he must have known that the Firm was not independent of Ms Locke, his response was that he did not know how many lawyers the Firm had, so that the respondents may have received independent advice. (Correspondence in FMI's files from the Firm showed that it had only four partners.) The following exchange then occurred: "Q. It stands to reason, doesn't it, Mr Wilson, that if a firm has acted for Ms Locke previously, that advice given to Mr Pittman and Mr Webster in respect of a development that plainly was going to benefit Ms Locke, that there may be a potential conflict of interest, correct? A. We are not dealing with potentialities. It never occurred to me at all. As I say, they have been told to get independent legal advice. The solicitor's certificate says that they received independent legal advice. It could have been one of the ten solicitors in the office, one of two. I don't know. It is [sic: not] for me to say. Q. But the firm was not independent, was it? A. I imagine not, no." 149FMI also had information available to it indicating that the certificate signed by the respondents could not have been correct. The certificate included the following: "(e) that I am/we are satisfied that our obligations to you will not adversely impact on our ability to meet all my/our other financial obligations (including living expenses) as and when they fall due. (f) that l/we confirm that I/we can comfortably afford all repayments resulting from this loan without incurring substantial financial hardship." 150The respondents' Asset and Liability Statement supplied to FMI disclosed no interest in the Razorback development or indeed any real property other than the Land. Even if the respondents had an income of $470,000 per annum between them (as the falsified Statement of Personal Particulars suggested), they would not have been able to repay a loan of $1,900,000 from their own resources, except by selling the Land. The Statement of Personal Particulars signed by the respondents did not disclose their ages, but said that they had lived at their current address for 68 years (Mr Webster at that stage was in fact 65). The source of their income was not stated, other than through the notation that they were "self-employed". 151Mr Wilson testified that the capacity of a borrower to repay a loan was a relevant factor in FMI's consideration of a loan application, but he accepted that the only step taken by FMI to assess that capacity was to send the borrower to an independent solicitor for advice. In particular, no efforts were made to obtain copies of tax returns or to obtain a report from the respondents' accountants. 152Mr Wilson also gave evidence that the primary source for the repayment of the loan was seen by FMI as the completion of the development project and the sale of the lots comprised in it. But beyond undertaking a Google Earth search to locate the Razorback development, FMI made no inquiries about the viability of the project or the likely returns, if any. No title search was undertaken to ascertain the proprietors of the land being developed. Moreover, except for a telephone call between Mr Wilson and the respondents, to which I shall return, FMI made no attempt to ascertain whether the respondents had any interest in the development. Indeed, FMI had information provided to it by Ms Locke in connection with her application for the Skyfarm loan asserting that one of her companies owned the Razorback land. 153The primary Judge asked Mr Wilson a series of questions, the answers to which showed how little attention was paid to the risks associated with the Razorback project. "Q. Mr Wilson, I am just listening to the evidence and I would be helped if you could answer this, it strikes me what counsel is putting to you about the Razorback development is two separate issues; one is as with every development there is a financial issue? A. Correct. Q. Will the development realise the profits that are anticipated within the time anticipated? A. Yes. Q. And that is a risk with every development? A. Correct, yes. Q. And as I understand your evidence at no time before the loan was advanced in 2006 did you have any material, any facts to enable you to assess the extent of that financial risk in this particular case? A. Correct. Q. The second proposition that counsel I think was putting to you is that with this particular loan there was a question as to what the legal interest or entitlement was of Mr Pittman and Mr Webster to the proceeds of that development? A. Correct. Q. That's not always the case in loans because often it is the developer who is coming to you for the loan? A. Yes. Q. And you take security over the land which is the subject of the development? A. Correct. Q. That was clearly not happening in this case? A. No. Q. So, there was a risk touching upon the legal interest of Mr Pittman and Mr Webster to have any entitlement at all to the proceeds of the development which would have enabled them to repay the loan? A. Yes. Q. And am I right also in understanding, please tell me if I don't understand this correctly, that so far as that legal risk was concerned, if I can call it that, you had no documents at all prior to the loan being advanced which could have satisfied you that Mr Pittman and Mr Webster had a legal entitlement to any of the proceeds of the development? A. Correct, we left it in the hands of their legal advisor that we sent the documents to. Q. Is the answer you had no documents which were capable of demonstrating to you the extent of that risk? A. Correct, yes." 154This is not merely a case of lack of interest on the part of a lender as to a borrower's capacity to repay or the borrower's role in a project. FMI had information available that, if given more than cursory attention, would have demonstrated that the financial information supposedly supplied by the respondents was almost certainly wrong. FMI had valuations of each of the three Lots. Nobody reading the description of each Lot, one of which comprised the respondents' home, could have responsibly concluded that the Land was capable of generating an income of $470,000 per annum for the respondents, or anything like that sum. For example, the valuation of Lot 23 showed that it was vacant land with essentially worthless improvements, while the valuation of Lot 9 revealed a poor quality cottage rented for $50 per week. 155There was nothing in the evidence that explained how FMI could have accepted that the respondents were earning $470,000 per annum as self-employed persons when (as a form sent by them to FMI disclosed) neither was registered for GST. On the contrary, Mr Wilson, when his attention was drawn to the documents relating to registration for GST, said that it would have indicated to him that the respondents were earning less than the GST threshold (a fraction of $470,000 per annum). But he also said that even the possibility that the respondents had lied about their income would not have troubled him sufficiently to make further inquiries. 156Mr Bell submitted that the telephone conversation of 1 December 2006 between Mr Wilson and the respondents demonstrated that FMI had taken steps to ensure that the respondents had an interest in the development. Mr Wilson's note of the conversation was as follows: "Spoke to [Webster] who is quite aware of the refinance. When asked if they were completing the subdivision - he indicated that they had been developing this for a long time and it will be worthwhile to them to complete and take profit. They use Christopher Edwards Solicitor. Told them they need to obtain independent advice for these documents. Spoke to [Pittman] (negative guy) he also advised that they would benefit financially from the Razorback development. Orchard farming too hard with no water and bushfires threatening." 157The background to this conversation is that Mr Wilson asked Ms Locke the previous day to organise the call because it was "a requirement that [he] speak to each borrower on each loan". Mr Wilson recognised in his evidence that by entertaining an application for finance from Ms Locke, notwithstanding that she was neither the borrower nor a finance broker, FMI was contravening its own Manual (as his Honour found at [311]). 158There was evidence that the conversation with the respondents lasted four and a half minutes. Mr Wilson said that he took from the conversation the proposition that the development project was a "joint venture" or "shared development" between the respondents and Ms Locke, although the note does not include either expression. Apparently Mr Wilson did not inquire as to the nature or extent of the respondents' interest in the development; the likely returns from the project; whether there was any documentation recording their interest in the project; or why Ms Locke and her companies were not providing their own properties as security. It is quite possible that the respondents were referring in the conversations to the relatively small sums offered to them by Ms Locke in late 2006 in return for their co-operation in extending the loans, but this possibility was not explored by Mr Wilson. (There is no evidence that the respondents received any of the money promised by Ms Locke.) 159Mr Boyce, the Compliance Officer of FMI, said that he had seen Mr Wilson's note of the conversation in which Mr Pittman said that the respondents would benefit from the Razorback development. Mr Boyce accepted that, other than its location, he had no knowledge whatsoever about the Razorback development and no way of assessing the risks associated with the project. Nor did he have any documentation that could have satisfied him as to the nature of the respondents' interest in the project. Mr Wilson and presumably Mr Boyce were aware that Total Property, the company that received the surplus funds after the Flamanda Mortgage had been paid out, was Ms Locke's company, but no inquiry was made as to why the funds were going to that company. 160In these circumstances, his Honour was justified in finding (at [321], [330]) that the conversation did not provide a basis from which to conclude that the respondents were engaged in a joint venture with Ms Locke, such as to provide a commercial rationale for borrowing over $2 million on the security of the Land (even taking into account the discharge of the existing Flamanda Mortgages). FMI was lending a large sum of money to borrowers whose income was massively overstated (as rudimentary inquiries would have revealed), to support a project in which they had no financial interest (as rudimentary inquiries would also have revealed). 161FMI's submission that it acted in accordance with its own Manual does not take its case further. As the primary Judge found (at [311]) there were significant contraventions of the procedures laid down by the Manual. 162In addition, FMI failed to observe its own procedures requiring attention to an "exit strategy" for a loan in the event of default. This was not a requirement imposed by the Manual, since it only required inquiries as to the serviceability of regulated loans, which this was not. But Mr Wilson said in his affidavit that in the case of the loan to the respondents "the primary consideration [was] the exit strategy and in this instance the sale of [the respondents'] land sub-divisional development at Razorback." 163In fact, the Credit Analysis Report prepared by Mr Wilson on 1 December 2006, although it referred to his conversation with the respondents that day, did not record any details in the space provided for "Exit Strategies". Neither Mr Wilson nor Mr Boyce knew anything about the Razorback development, other than its location. (Mr Wilson, in his evidence appeared to suggest that an exit strategy was not required for a "joint venture", but the distinction he drew between a direct loan to a developer and a joint venture loan is difficult to follow and was not accepted by the primary Judge as a legitimate distinction). 164The primary Judge gave cogent reasons for concluding that the FMI Mortgage was unjust in the circumstances. Since I have rejected FMI's criticisms of that conclusion, there is no basis for setting it aside. 165In essence, this is a case where a serious injustice was perpetrated on unsophisticated and vulnerable borrowers who placed their entire assets at risk to benefit development projects undertaken by a person unconnected to them otherwise than by a supposed friendship. FMI had information available that should have alerted it to the very real possibility, if not likelihood, that the respondents were being taken advantage of. Despite this, FMI did not undertake even the simplest inquiries that would have revealed that false information had been supplied purportedly on behalf of the respondents and that there was no commercially rational basis for them to enter into the FMI Mortgage, even allowing for the discharge of the existing borrowings. Moreover, FMI should have known that Ms Locke was in a position of conflict of interest and that the supposedly independent solicitor providing advice to the respondents was not truly independent. 166I add a further observation. Mr Bell's submissions appeared to assume that if FMI adhered to its own Manual, it would be rendered immune from a finding that the FMI Mortgages were unjust. A contravention of guidelines does not necessarily involve a departure from prudent lending practice: Khoshaba, at [42]. Equally, adherence to guidelines does not necessarily demonstrate compliance with prudent lending practice. Guidelines might themselves constitute a departure from prudent lending practice, for example if they dispense (as did FMI's Manual) with the need for any inquiry as to the capacity of borrowers to service a loan. There is no need to pursue the point further, since FMI departed in material respects from its own Manual. But even if FMI had complied with its Manual a finding of injustice might still have been made. Reasoning: Relief Principles 167The primary Judge correctly pointed out (at [390]) that the grant of relief, where a contract is found to be unjust, is conditioned by the terms of s 7(1) of the Act. The Court may, if it is just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, grant one or more of the forms of relief identified in the sub-section. 168The powers granted to a court by s 7(1) of the Act are not at large. In S H Lock (Australia) Ltd v Kennedy (1988) 12 NSWLR 482, Priestley JA observed (at 492) that: "[o]nce a court finds a contract unjust... it is faced with the next and quite separate task, for which the Act provides less guidance .... As I understand s 7(1), wide though the court's powers are to find a contract unjust, the remedies it may grant in respect of such injustice are strictly limited to avoiding an unjust consequence or result of the unjust contract." For this reason, his Honour considered that it is necessary to identify the unjust consequences of the contract to the relevant party and to decide whether any orders are necessary to avoid such unjust consequences as far as practicable. 169In Esanda Finance Corporation Ltd v Tong (1997) 41 NSWLR 482, Handley JA (with whom Santow and Simos AJJA agreed) cited in the approval (at 489) the passage from the judgment of Priestley JA set out above. Handley JA pointed out that s 7(1) of the Act: "gives the Court powers to grant civil remedies to remove injustice. These powers are neither penal nor disciplinary, and should not be exercised for such purposes. Once injustice to the weaker party has been remedied, the Court should not further interfere with the rights of the parties. Interference beyond that point will cause injustice to the other party, and is not authorised by the section." 170The Court in Esanda v Tong applied these principles to a contract of mortgage which, in effect, provided unlimited security in respect of a leasing finance agreement entered into by a third party. The contract of mortgage was found to be unjust. However, the Court held that since (among other things) the mortgagors understood that they would be liable in the event of default under the leasing finance agreement, the mortgage should not be set aside in its entirety. Instead, the Court varied the mortgage to impose the same monetary limit on the mortgagors' liability as had been incorporated in the previous mortgage, which had been replaced by the fresh unlimited mortgage. 171In support of this conclusion, Handley JA invoked the approach taken by equity to transactions successfully impugned, for example, by reason of misrepresentations, breach of fiduciary duty or unconscionable conduct. In particular, he referred to Vadasz v Pioneer Concrete (SA) Pty Ltd [1995] HCA 14; 184 CLR 102, where a unanimous High Court said (at 114) that: "unconscionability works in two ways. In its strict sense, it provides the justification for setting aside a transaction. More loosely, it provides the justification for not setting aside the transaction in its entirety or in doing so subject to conditions, so as to prevent one party obtaining an unwarranted benefit at the expense of the other." 172The language of "unwarranted benefit" has been applied in cases under the Act, typically to ensure that the weaker party accounts for the benefit received from an unjust loan used in part to discharge a pre-existing mortgage: Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413; 11 BPR 20,841, at [98]-[110], per Santow JA (with whom Campbell AJA agreed). Sometimes the language is more blunt, as in Collier v Morlend Finance Corporation (Victoria) Pty Ltd [1989] ANZ ConvR 515; 6 BPR 13,337, where Meagher JA said (at 13,342) that it would be "monstrous to suggest" that the Court should set aside a mortgage where the borrowers had utilised the greater part of the loan to discharge a prior mortgage. 173The fundamental reason why an "unwarranted benefit" is ordinarily taken into account in determining the relief that should be granted under s 7(1) of the Act is that to do otherwise would go beyond the statutory mandate of granting relief to avoid the unjust consequences or result of an unjust contract. The question in each case where a contract has been found to be unjust must be what relief is required to avoid the unjust consequences or result of the contract. 174The principles to which I have referred do not necessarily mean that if moneys lent pursuant to an unjust contract are applied in part by the borrower to discharge a pre-existing liability, any relief granted to the borrower must account for the moneys so applied. As Mason P (with whom Sheller JA and Cripps AJA agreed) observed in St George Bank Ltd v Trimarchi [2004] NSWCA 120, at [24], the fact that an unjust loan was used to discharge a prior debt is not conclusive as to the nature of any relief that should be granted to the borrower. 175The primary Judge placed considerable reliance on the decision in St George v Trimarchi, as did the respondents in their submissions on the appeal. In that case, St George sought to enforce a loan agreement and mortgages entered into by the Trimarchis in late 1995 or early 1996. Although the Trimarchis were designated as borrowers, they were in fact guarantors of debts incurred by their son. They granted mortgages over previously unencumbered (or at least not validly encumbered) properties in consideration of a loan of $2,675,000. Of this amount, $2,600,000 was used to discharge a loan initially made in 1994 by National Mutual, which was then in default. The Trimarchis had given mortgages to secure the National Mutual loan, but they derived no personal benefit from the loan. 176By mid 1995, the son was in serious financial difficulties. The Trimarchis knew nothing of the default under the National Mutual mortgages and did not know of the son's attempt to refinance. The son forged his parents' signatures to the St George loan documentation. The parents received no independent legal or financial advice as to the implications of the St George loan. 177The trial Judge, Dunford J, found that although the Trimarchis had been given formal advice at the time of the National Mutual loan, it was given in the presence of the son and would have been "totally meaningless" to them: St George Bank Ltd v Trimarchi [2003] NSWSC 151, at [57]. He also found (at [62]) that proper, independent advice at the time of the St George loan would have directed attention to whether there were grounds for seeking relief under the Act in respect of the National Mutual loan. Moreover, the Trimarchis had given evidence that they would have been interested in pursuing remedies available to them. 178Dunford J found that the St George contract of loan was unjust and liable to be set aside (at [101]). He also considered whether the National Mutual loan should be regarded as unjust, having regard to the criteria stated in s 9(2) of the Act. He was satisfied (at [105]) that the National Mutual mortgage was unjust and was likewise liable to be set aside. He therefore concluded that the payment out of the National Mutual loan was the discharge of an obligation that the Trimarchis did not have. 179The Court of Appeal upheld the reasoning of Dunford J. Mason P said (at [25]) that: "[s]imply because the money advanced by St George went to discharge the earlier mortgage transaction involving National Mutual did not mean that relief had to be withheld, a fortiori where the [Trimarchis] were effectively guarantors of their son's primary obligation, to the knowledge of [St George]; where the earlier transaction was tainted as regards the [Trimarchis]; and where one element of the unjustness of the present transaction was the absence of independent legal advice as to the [Trimarchis'] rights to challenge the National Mutual loan or financial advice as to the consequence of committing to the St George Bank transaction." 180Mason P went on to consider whether Dunford J had correctly concluded that the National Mutual loan was unjust having regard to the terms of s 9(2) of the Act. His Honour rejected the challenges by St George to the findings justifying that conclusion. He specifically rejected an argument that National Mutual was entitled to take at face value the solicitor's certificate. He did so partly because of defects in the certificate and partly because he considered that a transaction may be unjust even though the more powerful party was not privy to or on notice of all matters making it unjust. 181When dealing with the circumstances of the Trimarchis' entry into the St George transaction, Mason P remarked (at [40]) that National Mutual's right to enforce the debt against the Trimarchis and their properties was subject to their rights under the Act. Dunford J had "correctly held that the National Mutual contracts could have been avoided at the suit of the [Trimarchis]". Mason P also held (at [75]) that a remedial response relieving the Trimarchis of their obligations under the St George loan agreement was not "disproportionate". In his view (at [76]): "the fact that [St George's] money went to discharge the prior indebtedness of the [Trimarchis] to National Mutual did not preclude the setting aside of what were found in substance to be third party loans and mortgages." Did the Primary Judge Err in the Exercise of his Discretion? 182Mr Bell's principal criticism of the reasoning of the primary Judge was that his Honour had given an excessively broad interpretation to the decision of this Court in St George v Trimarchi. Specifically, the primary Judge, in declaring the FMI Mortgage to be wholly unenforceable, disregarded the benefit to the respondents in using the funds advanced by FMI to discharge the Flamanda Mortgage, because he characterised the Flamanda transaction as "unjust". Mr Bell submitted that St George v Trimarchi stands for the proposition that an unjust loan or mortgage can be declared wholly unenforceable under the Act even if the borrower uses the funds advanced to discharge a pre-existing liability, but only if the borrower establishes that the pre-existing liability arose under a transaction that could have been avoided at the suit of the borrower. In any event, so he contended, St George v Trimarchi was distinguishable. 183I accept Mr Bell's submission that the decision in St George v Trimarchi does not control the present case. The critical finding in St George v Trimarchi was that the earlier National Mutual contracts could have been avoided at the suit of the Trimarchis (the borrowers under the unjust St George loan): Mason P, at [40]. The primary Judge in this case did not make a finding that if the respondents had sought relief in respect of the Flamanda Mortgage, they would have succeeded in setting it aside or having it declared unenforceable. His Honour found only that the Flamanda Mortgage and each of the preceding loans was unjust. He clearly considered that a finding of injustice was sufficient to conclude that the respondents had not obtained an "unwarranted benefit" from the discharge of the Flamanda Mortgage. 184However, the fact that St George v Trimarchi does not dictate the outcome of the present case does not necessarily mean that the primary Judge erred in the exercise of his discretion to grant relief to the respondents. The Court of Appeal did not purport to decide that there were no other circumstances in which a court could declare a loan agreement to be wholly unenforceable, notwithstanding that part of the loan had been used to discharge an existing liability of the borrower. 185Nonetheless, in my opinion, the primary Judge's exercise of discretion miscarried, for two reasons. The first is that his Honour did not adequately explain why a finding that the Flamanda Mortgage and the preceding loans were unjust, without more, warranted an order under s 7(1) of the Act declaring the FMI Mortgage wholly unenforceable. In particular, his Honour did not explain why such an order, which made no allowance for the moneys used to discharge the Flamanda Mortgage, was necessary or appropriate to avoid "as far as practicable an unjust consequence or result" of the unjust FMI Mortgage. 186The primary Judge seems to have thought (at [413]) that because the loans preceding the FMI Mortgage provided no financial benefit to the respondents, the discharge of the Flamanda Mortgage did not amount to a benefit that should be taken into account in determining the relief that should be granted to them in respect of the FMI Mortgage. But if the Flamanda Mortgage was valid and enforceable against the respondents, even if "unjust" at the time it was entered into, it is difficult to see how the discharge of that mortgage was not a benefit to the respondents. As I have remarked, the primary Judge made no finding that the Flamanda Mortgage or any of the other earlier transactions was liable to be set aside or avoided at the suit of the respondents. 187I am prepared to accept that there may be circumstances in which an order declaring an unjust loan contract wholly unenforceable is necessary or appropriate to avoid an unjust consequence or result of the loan contract, notwithstanding that the borrower used part of the loan to discharge a valid and enforceable pre-existing loan or mortgage. For example, the lender's actions may have deprived a vulnerable borrower of the opportunity to take an available course, other than refinancing through the lender, that would have permitted the borrower to pay out the earlier loan. A lender who is aware of a borrower's financial position might induce the borrower to take on commitments that are so burdensome and commercially unrealistic that the borrower defaults in all his or her obligations. But if the unjust loan is to be declared wholly unenforceable, the court must explain why such a declaration is necessary or appropriate to avoid an unjust consequence or result. 188The primary Judge made no finding that FMI was aware or should have been aware of the circumstances that made the Flamanda Mortgage and the other loans unjust, much less that FMI should have been aware that the respondents could have set aside the Flamanda Mortgage. Similarly, although FMI knew or should have known that Ms O'Callaghan was not genuinely independent, no finding was made either that she should have advised the respondents that they were entitled to avoid the Flamanda Mortgage or that FMI should have realised that such advice would be given by an independent solicitor. On the findings actually made by the primary Judge, the consequence of the FMI Mortgage was to increase the indebtedness of the respondents unjustly, but not to create the entirety of the respondents' indebtedness. 189The second reason why the primary Judge's discretion miscarried is that the parties conducted the appeal on the basis that his Honour proceeded on an incorrect factual assumption, namely that no moneys had been advanced to Ms Locke under the Moranon Mortgage. His Honour recorded that of the drawdown of $1,900,000 under the FMI Mortgage on 18 December 2006, $1,172,563.04 was paid to or on behalf of "Flamanda Pty Ltd (the outgoing lender)" (at [91]). His Honour appears to have assumed that this was the amount due to Flamanda under the original Flamanda Mortgage of 24 November 1998 as varied on 5 May 1999. In fact, as belatedly emerged on the appeal, the amount of $1,172,563.04 included $512,465.70 due under the unregistered mortgage executed by the respondents in favour of Moranon and Heath as mortgagees on 6 November 2006. This was a separate transaction, although the mortgagees were part of the Flamanda group of entities. 190The position jointly adopted by the parties (that the primary Judge erred in finding that no moneys were advanced to Ms Locke under the Moranon Mortgage) is important and I therefore should say something more about it. As I have noted (at [15]), the respondents' notice of contention stated that a sum of at least $500,000 out of the funds advanced by FMI was used to repay "a loan provided by Moranon to Ms Locke", secured by the mortgages over the Land. This claim seemed to imply that, contrary to the primary Judge's finding, Moranon and Heath had advanced moneys to Ms Locke at or about the time that the parties entered into the Moranon Mortgage. 191FMI interpreted the notice of contention in this way. In paragraph 1 of its submissions in response to the notice of contention, FMI expressed agreement that the primary Judge erred in finding (at [228]) that no further monetary advance was made at the time of the Moranon Mortgage, either to Ms Locke or her companies. FMI also agreed that $500,000 had been lent by Moranon and Heath to Ms Locke in November 2006, secured by mortgages over the Land and that this sum had been repaid out of funds advanced by FMI. In paragraph 11(f) of the same submissions, FMI asserted that "the Moranon mortgages were providing new funding for the Razorback development". 192The respondents' submissions in reply on the notice of contention did not take issue with paragraph 1 of FMI's submissions. The respondents answered some of the contentions put forward in paragraph 11(f) of FMI's submissions, but did not dispute the sentence quoted above. It is therefore clear enough that the respondents accept that the Moranon Mortgage involve a fresh advance of about $500,000 to Ms Locke or her companies. 193I should record that, although the mortgages executed by the respondents and the November 2006 loan agreement are consistent with the parties' joint position, other documentation perhaps suggest that the Moranon Mortgage may have been provided by way of additional security for a pre-existing loan to Ms Locke. A letter of 27 August 2006 from Heath to Ms Locke, addressed to her at Forest, although ambiguous, is capable of that reading. However, as the parties have proceeded on the basis that Moranon and Heath advanced fresh funds to Ms Locke in November 2006, it is appropriate that this Court should proceed on the same basis. 194The primary Judge did not consider whether the Moranon Mortgage was unjust, no doubt because he found that no moneys had been advanced to the respondents pursuant to that Mortgage. Nor did he make any findings as to the adequacy of the legal advice given to the respondents by Mr Mitchell in relation to the Moranon Mortgage. As I have recorded, the respondents could remember little about Mr Mitchell's advice, but a number of contemporaneous documents attested to the fact that advice had been given concerning the respondents' obligations under the Moranon Mortgage. 195The finding that the respondents received no benefit from the discharge of the Flamanda Mortgage was made without reference to the fact (as the parties have agreed) that the FMI Mortgage loan was used in part to repay the moneys advanced pursuant to the Moranon Mortgage and to secure a discharge of the second mortgage over Lot 9 (and perhaps the other two Lots). The finding was therefore based on a false assumption. The falsity of that assumption vitiates the exercise of the primary Judge's discretion as to the relief to be granted pursuant to s 7(1) of the Act. 196In view of these conclusions, it is not necessary to consider whether the primary judge's exercise of discretion miscarried because (as FMI submitted) he failed to take account of what was said to be the inadequacy of the respondents' pleading. However, I am inclined to the view that the issues were sufficiently identified to justify his Honour addressing the arguments advanced on behalf of the respondents notwithstanding any deficiencies in the pleadings. Re-exercise of Discretion 197Since the primary Judge's exercise of discretion in relation to the grant of relief miscarried, it is necessary for this Court to exercise the discretion afresh. As the respondents used the funds advanced by FMI to discharge two distinct loans, it is appropriate to consider each separately. Accounting for the Moranon Mortgage 198The primary Judge made no finding that the Moranon Mortgage was unjust, nor that the respondents could have successfully applied to set aside the loan agreement and the unregistered mortgages executed by the respondents in favour of Moranon and Heath. I have interpreted his Honour's conclusion (at [230]) that neither of the respondents gained a true understanding of the nature and effect of the various transactions as intended to apply to the Moranon Mortgage. However, this does not necessarily establish that the Moranon Mortgage was unjust at the time the respondents entered into it or that they would have succeeded had they applied under the Act for a declaration that the Mortgage was unenforceable. 199The evidence as to the circumstances surrounding the Moranon Mortgage appears to have been sparse. This may have been because the parties did not appreciate at the trial that the respondents used part of the moneys advanced by FMI to discharge the Moranon Mortgage. If the parties did appreciate that fact, they paid little attention to the significance of that transaction or of the advice given to the respondents in respect of it. 200The documentary evidence to which I have referred (at [55]) suggests that Mr Mitchell (the solicitor) gave the respondents independent advice in relation to the Moranon Mortgage and that that advice extended to all matters that a solicitor, exercising professional skill and judgment, would consider appropriate. Mr Mitchell was not called at the trial to give evidence. Accordingly, he was not challenged on the accuracy of the certificate he signed and he was not asked about the declarations signed by the respondents confirming that they had received independent advice. Contrary to the opinion expressed by the primary Judge (at [411]), no inference can be drawn against FMI by reason of its failure to call Mr Mitchell. If anything, as the respondents' former solicitor, he was more closely associated with them than with FMI. 201As the primary Judge indicated, the respondents' evidence about their 2006 meeting with Mr Mitchell was vague. Mr Pittman gave affidavit evidence that Ms Locke had taken Mr Webster and him to see Mr Mitchell a couple of months before they saw Ms O'Callaghan in connection with the FMI Mortgage. Mr Pittman said that Mr Mitchell gave an explanation of certain parts of the mortgage documents, but he (Mr Pittman) could not remember which parts. He also said that Mr Mitchell gave no advice concerning "the merits of the transaction", although he was not asked to expand on the meaning of that phrase. Mr Webster's memory of the meeting with Mr Mitchell was "hazy" and he could not recall whether Mr Mitchell gave any explanation or legal advice. 202Clearly Mr Mitchell provided some advice to each of the respondents concerning the Moranon Mortgage, but the precise nature of that advice was not made clear by the evidence. Mr Pittman's rather vague evidence does not permit an affirmative finding to be made that, contrary to Mr Mitchell's certification, the latter failed to give the advice reasonably to be expected of an independent solicitor in the circumstances. Nor is it clear what role, if any, Ms Locke played in any meetings that took place between Mr Mitchell and the respondents. 203It is true that the primary Judge found (at [223]) that in 1998 Mr Mitchell did not give a "thorough explanation to the respondents about their obligations under the Flamanda Mortgage and that it was unlikely that he gave any real advice, independent of Ms Locke, to enable [the respondent] to rationally assess the position in which they found themselves". It is not clear whether this was intended to be a finding that Mr Mitchell failed to comply with his duty of care or whether his Honour was simply concentrating on the respondents' lack of appreciation of the risks they were assuming under the Flamanda Mortgage. In any event, findings about Mr Mitchell's conduct in 1998 cannot fill in evidentiary gaps relating to the advice he gave in 2006 to the respondents in relation to an entirely separate transaction. 204An important element in the respondents' claim that the FMI Mortgage was unjust was that Ms O'Callaghan could not give them genuinely independent advice because of her prior association with Ms Locke and that FMI was aware, or should have been aware, of Ms O'Callaghan's lack of independence. There is nothing in the evidence to justify a finding that Moranon or Heath, or their representatives should have considered that Mr Mitchell was not in a position to give the independent advice he certified that he had given (and that they acknowledged having received). 205No doubt there can be circumstances in which a loan contract will be held to be unjust, even though the lender wrongly believes that a borrower has received independent advice. But in the absence of more detailed evidence as to the information known or available to Moranon and Heath, I do not think the respondents have established any basis for concluding either that the respondents did not receive genuinely independent legal advice about the Moranon Mortgage or that Moranon had any reason to suspect that they had not received such advice. 206It is true that Moranon must have appreciated that the respondents were granting a third party mortgage to secure a loan to Ms Locke or her companies. Among other documentation, the declaration signed by the respondents refer to them as third party mortgagors. But in the absence of other evidence, this is not enough to establish that the Moranon Mortgage was unjust, or that it was liable to be set aside or declared unenforceable. The respondents did not point to any evidence that Moranon was aware or should have been aware that they did not sufficiently understand the nature of the transaction they were entering or were unable to sufficiently appreciate the risks that they were assuming. 207It is also important to appreciate that the primary Judge made no finding that FMI had any basis for appreciating that the Moranon Mortgage was unjust or that it was liable to be set aside in legal proceedings instituted by the respondents. Nor was this Court taken to evidence that would justify such a finding. While this is not necessarily determinative of the extent of the relief to which the respondents are entitled, it militates against concluding that the respondents should be wholly relieved of the obligation to repay moneys due by them under the FMI Mortgage. 208As I have explained, the test of whether the respondents should be wholly relieved from their obligation to repay the moneys advanced pursuant to the FMI Mortgage, including the moneys used by them to discharge the Moranon Mortgage, depends upon whether such relief is required to avoid the unjust consequences of the FMI Mortgage. For the reasons I have given, the respondents have not shown that they should be relieved of the obligation to repay the moneys advanced by FMI, insofar as these moneys were used to discharge the Moranon Mortgage. Accounting for the Flamanda Mortgage 209In one respect the respondents' claim to be relieved from the obligation to repay FMI the moneys used to discharge the Flamanda Mortgage is stronger than their claim to be relieved from the obligation to repay the moneys applied to discharge the Moranon Mortgage. This is because the primary Judge found that the Flamanda Mortgage was unjust at the time the respondents entered into it, but made no such finding in relation to the Moranon Mortgage. His Honour made the finding that the Flamanda Mortgage was unjust partly because Mr Mitchell's explanation of the respondents' obligations did not enable them to obtain a real understanding of the true nature and effect of the transaction. 210As FMI submitted, one difficulty in the respondents' path is that the primary Judge made no finding that, had they brought proceedings against Flamanda, they would have obtained orders setting aside the Flamanda Mortgage. A finding that a contract was unjust when made does not necessarily mean that the contract would have been set aside or declared to be unenforceable. In the present case, for example, the primary Judge made no finding that Ms O'Callaghan or Mr Mitchell should have advised the respondents in 2006 to institute proceedings to set aside the Flamanda Mortgage or, if such advice has been given, the respondents' would have acted on it. 211(The position is complicated by the possibility that if the Flamanda Mortgage had not been refinanced, Flamanda might have taken action against the respondents to enforce the Mortgage. Had this occurred, the respondents could have filed a cross-claim seeking relief under the Act. Such a cross-claim would not have encountered the limitation difficulties identified by FMI because s 16(c) of the Act permits a cross-claim to be filed during "the period of the pendency of maintainable proceedings arising out of or in relation to the contract". There was, however, no evidence as to what would have happened had Flamanda taken enforcement action against the respondents.) 212There is, in my opinion, a more fundamental difficulty in the respondents' path in supporting the orders made by the primary Judge. The Flamanda Mortgage was entered into on 24 November 1998 to secure a loan of $660,000. On the same day, the Forrest Knoll/Obelisk Mortgage was discharged. Immediately prior to discharge of that Mortgage, the respondents' Land secured an indebtedness that appears to have been no less than $1,650,000. Thus the effect of the discharge of the Forrest Knoll/Obelisk Mortgage and the entry into the Flamanda Mortgage seems to have been that the amounts secured on the Land was reduced from $1,650,000 to $660,000. (The Flamanda Mortgage was subsequently varied to increase the loan to $720,000, but only about $660,000 was ultimately required to procure its discharge.) 213I infer that it is likely that the discharge of the Forrest Knoll/Obelisk Mortgage and the refinancing of only part of the debt came about because Ms Locke or her company sold some of the development lots or took other measures to reduce the level of indebtedness secured over the Land. It also appears that Ms Locke was careful to ensure that her assets (including those of her companies) became unencumbered as the result of the refinancing, while the Land continued to provide security for the reduced loan. But there was no evidence as to the value of the land Ms Locke or her companies previously provided by way of security to support the Forrest Knoll/Obelisk Mortgage. Nor was there any evidence as to whether the respondents' overall financial position was improved or made more precarious by the November 1998 transactions. It is possible that the Flamanda Mortgage simply replaced the Forrest Knoll/Obelisk Mortgage and that the respondents' financial position remained essentially the same, but the evidence does not allow such a finding to be made. 214It follows that there is no sound basis for determining whether the Flamanda Mortgage and the discharge of the Forrest Knoll/Obelisk Mortgage made the respondents better or worse off. There is also no sound basis for determining what would have happened in November 1998 had the respondents refused (or been advised to refuse) to enter into the Flamanda Mortgage. A fortiori, no finding can be made that, if the respondents had taken action in 2006 to set aside the Flamanda Mortgage or to have it declared unenforceable (whether by initiating their own proceedings or filing a cross-claim in response to proceedings commenced by Flamanda), they would have succeeded in obtaining relief. 215I should add that I did not understand Mr Robertson to persist with the submission that once a finding of injustice is made in favour of a claimant for relief, a legal or evidentiary onus shifts to the other party to show why a full measure of relief should not be granted. Mr Robertson acknowledged in oral argument that any "onus" was merely tactical and not legal or evidentiary. In my opinion, that acknowledgment was correct. The respondents bore the onus of establishing the facts justifying an exercise of discretion in their favour. Once FMI adduced evidence that funds advanced to the respondents were used to discharge existing mortgages over the Land, the respondents had to establish facts justifying orders relieving them from the obligation to repay those moneys. In my opinion, they did not do so. Relief 216For the reasons I have given, the respondents have not shown that orders relieving them of all their obligations under the FMI Mortgage are either necessary or appropriate to avoid the unjust consequences of the FMI Mortgage. On the evidence, the respondents, despite the injustice of the FMI Mortgage, derived benefits from the discharge from both the Moranon Mortgage and the Flamanda Mortgage. The orders in their favour under s 7(1) of the Act should require them to account for the benefits they received from the FMI Mortgage. Those benefits can be quantified at $1,172,713.04. Conclusion and Orders 217FMI has failed in its challenge to the finding that the FMI Mortgage was unjust when entered into. However, it has succeeded in establishing that the primary Judge's discretion as to the grant of relief miscarried. FMI has also succeeded in establishing that the respondents should not be relieved of their obligation under the FMI Mortgage to repay that portion of the moneys advanced which they used to discharge the Moranon Mortgage and the Flamanda Mortgage. Thus FMI's appeal succeeds in part. 218There are several ways in which the orders made by the primary Judge can be modified to give effect to the conclusions I have reached. For example, the orders might provide for a declaration that the mortgage over one of the lots is unenforceable, while leaving the mortgages over the other two lots on foot to secure repayment of the sum of $1,172,713.04, plus the appropriate amount of interest. An alternative may simply be to modify the FMI Mortgage to reduce the amount due to $1,172,713.04, plus interest. The parties should have the opportunity to agree on the form of orders. 219Since each of the parties has enjoyed some success on the appeal, there should be no order as to the costs of the appeal. I also think that the costs orders made by the primary Judge should not be disturbed. 220The orders I propose are as follows; (1)Appeal allowed in part. (2)Direct the parties to file within 14 days agreed short minutes of order giving effect to these reasons for judgment. (3)In default of agreement: (a)the appellant (FMI) file and serve within 14 days proposed short minutes of order, together with brief written submissions in support; (b)the respondents file and serve within a further 14 days their proposed short minutes of order, together with brief written submissions in support. (4)There be no order as to the costs of the appeal. ********** 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: 07 April 2014