Supreme Court New South Wales Medium Neutral Citation: Australia & New Zealand Banking Group Limited v Fink [2015] NSWSC 506 Hearing dates: 20, 21, 22 and 24 April 2015 Decision date: 05 May 2015 Jurisdiction: Common Law Before: Adamson J Decision: (1) Judgment for the plaintiff against the defendants in the sum of $3,389,750.48. (2) Judgment for the cross-defendant on the amended cross-claim. (3) Order the defendants to pay the plaintiff's/ cross-defendant's costs of the proceedings Catchwords: CONTRACTS – loans to complete construction of French-style chateau on Wallis Island and to provide working capital for the defendants' business as antique dealers – relief claimed under Contracts Review Act 1980 (NSW) - refinance of existing mortgage and overdraft facility - loans not shown to be improvident – defendants not subject to any relevant disability or disadvantage - no unfairness or injustice demonstrated – relief not available since business loans obtained for business purposes – no breach of Banking Code of Conduct established even if contractual Legislation Cited: Consumer Credit (NSW) Code 1996 Contracts Review Act 1980 (NSW) National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 (Cth) National Credit Code 2009 (Cth) Real Property Act 1900 (NSW) Cases Cited: Australia and New Zealand Banking Group Limited v Fink [2013] NSWSC 1781 Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2003] HCA 18; 214 CLR 51 Bahadori v Permanent Mortgages Pty Ltd [2008] NSWCA 150; 72 NSWLR 44 Dodds v National Bank of Australasia Ltd (1935) 53 CLR 643 Linkenholt Pty Ltd v Quirk [2000] VSC 166 Provident Capital Limited v Papa [2013] NSWCA 36 Sam Management Services (Australia) Pty Ltd v Bank of Western Australia Ltd [2009] NSWCA 320 Category: Principal judgment Parties: Australia & New Zealand Banking Group Limited (Plaintiff) Andre Fink (First Defendant) Cecile Fink (Second Defendant) Representation: Counsel: S Docker (Plaintiff) First Defendant in person and by leave, on behalf of Second Defendant Solicitors: HWL Ebsworth, Lawyers (Plaintiff) File Number(s): 2012/240914 Judgment Introduction 1. The plaintiff (ANZ) seeks judgment against Andre and Cecile Fink for monetary sums alleged to be owing to it by them as a result of two loans made to them: the Home Loan and the Supplementary Home Loan. The loans were secured by a property known as Le Marais, which is located on two lots (Lots 1 and 2) on Wallis Island, off the coast of New South Wales near Forster (the Property). 2. On 4 December 2013 Adams J made an order for possession in respect of the Property following the ANZ's application for summary judgment: Australia and New Zealand Banking Group Limited v Fink [2013] NSWSC 1781. The Facts Background 1. Mr Fink was born in Croatia in 1948. He was educated in Slovenia and moved to France when he was 17. He eventually bought some land in France on which he constructed a house and a shop. In 1968 he met his wife Cecile. They were married in 1970 and had three children. From about 1970 Mr Fink sold kitchens, bathrooms, antiques and shop fittings from his shop. 2. In 1982 he came to Australia to visit an uncle, with a view to bringing his family to this country. In 1983 Mr and Mrs Fink sold their property in France and moved to Australia with their children and five containers of French antiques. They continued to speak exclusively in French at home. In 1985 the couple opened an antiques shop in Adelaide but decided that it would be better for their business were they to move to Sydney. They established two antiques shops that specialised in 18th century French antiques: the first in Double Bay in 1987 and the second in Queen Street, Woollahra in 1988. They also operated a restoration workshop in which they employed three or four people at a time. 3. In 1996 Mr and Mrs Fink conducted an auction of their antique stock with a view to raising funds to buy land on which to construct a residence in the style of a French chateau. Mr Fink did not recall how much the auction raised; however, it raised sufficient funds to purchase the Property, commence its development and also to provide sufficient capital for Mrs Fink to start her own business selling imported blouses in a shop. When Mrs Fink was running her own business she did not spend much time in the antique business, although she was still responsible for the paperwork and the accounts of the antique business and, according to Mr Fink, performed the role of book-keeper. 4. Mr Fink frequently referred to the Property in his oral evidence as "our egg nest". He described the Property as: "our dream to pass to our family and for me a little challenge". The loan from the National Australia Bank 1. In 2000 Mr and Mrs Fink borrowed money from the National Australia Bank Limited (NAB) to build the house on Lot 1 of the Property. The loan was secured by a mortgage over Lot 1 (the NAB mortgage). In 2002 they held another auction of their stock, which was conducted by Christie's, to raise funds for the house. Following this auction, Mr and Mrs Fink closed the Woollahra shop for six months to enable them to oversee the construction of the house on Lot 1 of the Property. They intended from the outset to use the house not only as their own residence but also as a showroom in which to display French antiques to upmarket clients. Mr Fink explained that antique dealers can conduct their business either from home or from external premises, such as a shopfront in Double Bay or on Queen Street, Woollahra or from Juniper Hall, Paddington, as occurred in the present case. 2. The house they constructed had a floor area of more than 990 square metres. Mr Fink oversaw all the building work himself. He also engaged specialist stonemasons and tradespeople. He continued to fund the construction from the proceeds of his antique business although this, at times, proved problematic. He paid for the antiques on delivery but could not realise the profit from them until they were sold. Mr Fink was at pains both in his evidence and in submissions to distinguish an antiques business from other businesses. He insisted that his business was not a bakery and emphasised the points of difference: including the substantially greater time between the purchase of antique stock and its sale; and also the fact that antiques tend to retain their value. 3. By about 2007 the Finks needed more capital for their business and also for the construction of the house, which Mr Fink agreed was at "lock-up stage". The stone work needed to be finished in order to protect the house from the elements and the floors had to be completed to make the property habitable. At that time they owed the NAB about $1.5m on their home loan and about $100,000 on their overdraft facility. Mr and Mrs Fink engaged Peter Nest, a mortgage broker, to arrange additional finance. Mr Nest introduced them to Peter Ebert, a Business Banking Manager at the ANZ's Port Macquarie branch. The refinance of the NAB loan with the ANZ loans 1. Following a meeting with the Finks, Mr Ebert arranged for one of the ANZ's panel valuers to value that part of the Property that comprised Lot 1 (on which the house had been built). Michael Reid inspected Lot 1 on 15 August 2007 and valued it as at that date at $3m to $3.2m "as is" and $4m to $4.5m on completion. Mr Reid described the improvements on Lot 1 of the Property as a "near complete French-style mansion". As the valuation figure exceeded a threshold set by the ANZ, it was necessary for Mr Ebert to refer the valuation to the ANZ's in-house valuers for review. It was reviewed on 11 September 2007 by John Miller, a valuer in the ANZ's Tamworth branch who reported in part to Mr Ebert as follows: "This is obviously a unique property which has quite a high degree of difficulty as a valuation exercise. The Valuation of $4,000,000 does appear high for this locality given the "shortcomings" that you alluded to in your earlier email however of course some of these "shortcomings" such as access by plane or boat, the wetlands and other environmental assets of the island are attractive to a growing group in the community. Nevertheless JRF [Jeffrey Reid Flanagan, Mr Reid's firm] is the local Panel firm and unless we have evidence to the contrary I recommend the valuations be accepted." 1. Lot 2 was also valued but, as it was vacant land, the ANZ sought only a short form report in respect of it. It was valued by Mr Reid as at 27 September 2007 at $1.2m. 2. Mr and Mr Fink, with the assistance of Mr Nest, filled out a loan application dated 11 September 2007, using the ANZ Business Credit Application form, for a total amount of $2.1m which was said to be required "immediately" and a further $500,000 upon completion of the home (bringing the total to $2.6m). The application structured the loans sought as follows: 1. $1.5m to refinance NAB home loan; 2. $500,000 to complete the home; 3. $300,000 to refinance the NAB overdraft and provide further working capital; and 4. $300,000 to refinance a loan from Stacks, solicitors, by way of business loan. 1. Mr and Mrs Fink stated on the form that they were equal partners in a business described as "French antiques dealer". They offered as security both Lots 1 and 2 (which together comprised the Property). A document entitled "Supporting Comments" included the following narrative under the heading "Background": "Andre has been an Antique dealer in Australia for over 20 years after migrating from France initially to Foster [sic, Adelaide] and then relocating to Sydney for business purposes as this is where his client base was. He has been successfully trading since that time slowly building their wealth. Several years ago they purchased some land at Foster on Wallis Island being only 10 minutes to Foster CBD by boat. On this island he has built a traditional French Château which he intends to complete now. They intend to use Chateau as a show room for up market clients by showing them what they can do with a house full of antiques. Five years ago Andre stopped trading to build his home at Foster, the project took three years and he then re-commenced business hence only two years figures are available. Cecile is a chartered accountant who works for Terrie enterprises which are the owner of Boss clothing stores." 1. Figures which indicated the trading and cash flow performance of the business were also provided. They showed that in the 2006 financial year the net profit was $100,000 (from total sales of $723,000) and in the 2007 financial year the net profit was $251,000 (from total sales of $1,414,000). Mr Fink confirmed that those figures were taken from their tax returns. 2. The section of the "Supporting Comments" document concluded with the following "Summary": "Applicant is an experienced operator who has built up a substantial asset base from many years successful trading. Client has advised that he has approximately $2m in stock at the present time which provides him a margin of safety should anything go wrong. He advises that he can just reduce stock levels to overcome any problems. Clients shop is at Paddington however managed locally at Foster rather than in Sydney. He has no problems with current bankers NAB with whom he has been with for over 10 years. He advises that he would like to make a change as he hasn't seen or spoken to NAB manager in 2 years. Applicant employs one experienced sales person at the Antiques store who has been with them for many years. He operates the business in Sydney when client is visiting Foster home. Applicants are successful and experienced operators." 1. Mr and Mrs Fink made a declaration on 11 September 2007 that each of the loans covered by the application was "to be applied wholly or predominantly for business purposes". As can be seen from the narrative set out below the ANZ structured the loans such that the loan of $1.5m became the Home Loan and the loan of $500,000 became the Supplementary Home Loan; the loan of $300,000 to repay Stacks became the Business Loan and the $300,000 to refinance the NAB overdraft became the overdraft facility. The ANZ accepted that the Home Loan and Supplementary Home Loans were, notwithstanding the declaration made by Mr and Mrs Fink, loans to which the Contracts Review Act 1980 (NSW) applied. 2. By letter dated 25 September 2007 the ANZ offered to lend Mr and Mrs Fink $300,000 (the Business Loan) and a further $300,000 (the Overdraft Facility). The purpose of the Business Loan was said to be to "assist refinance [of] private solicitor finance". The purpose of the Overdraft Facility was said to be "working capital requirements". The security was identified as being the Property. Mr and Mrs Fink accepted the offer by signing and dating the portion of the letter of offer designated "acceptance" in the presence of Mr Ebert on 25 September 2007. On that day they also filled in a discharge authority to authorise the NAB to discharge its mortgage over Lot 1 when sufficient funds were received to do so from the ANZ. The NAB did not have a mortgage over Lot 2. 3. On 5 October 2007 Mr and Mrs Fink executed all-monies mortgages to the ANZ over Lots 1 and 2 of the Property in the presence of Mr Ebert. Mr Fink understood what a mortgage entailed and, in particular, that it entitled the mortgagee to sell the mortgaged property if the borrower defaulted on the loan. I accept Mr Fink's evidence that he was loath to grant a mortgage over Lot 2 since he wanted to keep it unencumbered, in case he needed to use it to raise money in hard times. He referred to Lot 2 as his "pear in the desert". However, the loan application which Mr Nest prepared on behalf of the Finks identified Lots 1 and 2 as the available security. I am satisfied that Mr Fink realised that it was a condition of the ANZ's provision of finance and that he was prepared to accept that condition. 4. Mrs Fink's affidavit was ultimately read without objection, notwithstanding that she had been required for cross-examination and did not attend. I infer that she, too, knew what a mortgage was as Mr Fink said that she attended to the accounts and the paperwork of the business and, as referred to above, she ran businesses of her own. Further, her reluctance, and indeed initial refusal, to sign a mortgage over the assets of the antique business, which is referred to below, is an important indication that she knew the purpose and effect of a mortgage. On about 9 October 2007 the Business Loan and the Overdraft Facility were drawn down. 5. By letters of offer dated 29 October 2007 the ANZ offered to lend Mr and Mrs Fink for a term of 30 years the respective sums of $1.5m (referred to above as the Home Loan) and $500,000 (referred to above as the Supplementary Home Loan), each of which was to be secured by the mortgages over Lots 1 and 2 of the Property. The purpose of the ANZ Home Loan was expressed to be refinancing. The purpose of the Supplementary Loan was expressed to be property improvements. The Finks accepted the offers that day and signed the letters. They were given a copy of the Consumer Lending Terms and Conditions (version 6, August 2006) which was incorporated into their agreement with the ANZ. Clause 18 of the conditions provided: "If you are an individual or a small business (as defined in the Code of Banking Practice) ANZ is bound by the Code of Banking Practice when it provides its products and services to you." 1. The Home Loan of $1.5m and $115,585.04 of the Supplementary Home Loan were drawn down on 8 November 2007 to repay the NAB home loan and overdraft and discharge the NAB mortgage. A further amount of $200,000 was drawn down on the Supplementary Home Loan on 13 November 2007 and used to effect improvements to the Property. A further amount of $100,000 was drawn down for the same purpose on 4 December 2007. The Supplementary Home Loan was fully drawn down by 19 September 2008, following which, by letter of 29 September 2008, the ANZ offered, at the Finks' request, to increase the amount advanced under the Supplementary Home Loan from $500,000 to $800,000. The Finks agreed to the increase on the ANZ's terms. The express purpose of the loan was for the interior and exterior decoration of the house on the Property. 2. The Business Loan and the Overdraft Facility were varied from time to time as summarised below: Date of offer/ date of acceptance Business Loan Overdraft Facility Security for loans 25 September 2007 $300,000 (First Business Loan) $300,000 Mortgage over Property 28 March 2008/ 16 April 2008 $300,000 Temporarily extended to $450,000 until 30 April 2008 and then to revert to $300,000 Mortgage over Property 16 April 2008/ 22 April 2008 $300,000 Temporarily extended to $500,000 until 31 July 2008 and then to revert to $300,000 Mortgage over Property 1 October 2008/ 2 October 2008 $290,000 (Second Business Loan) Temporarily extended to $640,000 until 31 May 2009 and then to revert to $300,000 Mortgage over Property 16 June 2009/ 15 June 2009 $270,000 Temporarily extended to $750,000 until 31 December 2009 and then to revert to $300,000 Mortgage over Property 29 March 2010/ 21 April 2010 $254,000 (Third Business Loan) Further temporary extension of $750,000 limit until 30 June 2010 and then to expire. Mortgage over Property and Goods and Property Mortgage over all stock (antiques) 1. It was common ground that Mr and Mrs Fink's antique business was adversely affected by the Global Financial Crisis. Previously, when they needed substantial additional capital either to repay debt or for some other reason (such as to purchase the Property) they had sold their stock at auction. However, the market for 18th century French antiques diminished significantly in 2008 and the strategy which they had previously used to raise capital was not as effective as it had once been. 2. Throughout the period summarised in the table above, Mr Fink made various representations to the ANZ about his expectation that he would be able to sell a substantial quantity of stock to a client, Dr Freyer. In oral evidence he said that he expected to sell $700,000 worth of antiques to Dr Freyer. The ANZ relied on these representations and granted temporary extensions to enable the sale to Dr Freyer to proceed (which are referred to in more detail below). However, the sale did not eventuate. The Mossgreen auction on 12 May 2009 1. As the table set out above indicates, Mr and Mrs Fink were required to reduce his overdraft to $300,000 by 31 May 2009. They arranged to sell their whole business stock through Mossgreen at an auction which was to take place on 12 May 2009 and informed Mr Ebert that this was their plan. At that time the antique business was conducted from Juniper Hall, a two-storeyed heritage building on Oxford Street Paddington which Mr and Mrs Fink leased. Although Mr Fink would not accept in cross-examination that he wanted to move his whole business to the Property at that time, he agreed that he wanted to reduce the space occupied by the premises from the whole building to the ground floor of Juniper Hall and eventually relocate the business to the Property. He explained that the relocation of the business to the house on Lot 1 would be a "disaster" unless the house was in "top condition". 2. Mr Fink was involved in the preparation of a lavish auction catalogue which contained coloured photographs of his goods with descriptions of their provenance. He provided the retail value of each item to the auctioneer. The auctioneer made an estimate of what each item would sell for at auction. As it happened, the auction date coincided with the bringing down of the 2009 budget of the Rudd Government. Mr Fink wanted to change the date because he was concerned that the timing would adversely affect the amounts realised. He described his clients as "very pedant[ic]". 3. The auction was not a success. On 18 May 2009 Mr Fink told Mr Ebert that, although there had been no sales, he expected that stock would be sold in the fortnight after the auction. Mr Ebert agreed to cover the excess on the overdraft on an "unarranged basis" in the interim. As Mr Fink expected some items were sold and on 17 June 2009 the following payments were made by Mossgreen to the Finks' overdraft account: $23,849.05; $53,400; $65,057.80 and $65,800. 4. Mr Fink met with Mr Ebert on 16 June 2009 to discuss the overdraft limit. He provided Mr Ebert with a list of the unsold stock which he valued at $4.5m and also a copy of the auction catalogue from which Mr Ebert concluded that the stock "appears to be top class". Mr Ebert's file note of the meeting (which I accept as accurate) recorded: "Client advises he has now taken control of assets sale and he is confident sufficient stock can be sold to clear OD. He was advised the banks main concern is to get limit back to $300K. He provided a spreadsheet showing costs are around $40Kpm. In view of equity held in antiques it is proposed to record a limit of $750K as a final measure of assistance, and give client 6 months to reduce debt to $300K. Client is most appreciative of the banks support, which he should be." 1. On 3 November 2009, the ANZ informed Mr and Mrs Fink that it required an updated valuation of the Property. 2. The sale to Dr Freyer remained a possibility for a considerable time. For example, Mr Ebert's diary note of 29 December 2009 recorded: "Limit is due to expire 31/12. Andre has been in contact with us regarding a $450000 payment for sale of goods to a regular purchaser. The sale has been delayed until Jan '10 and email has been provided confirming the same. We have requested update fins [financials] and we hold tax portal showing all payments are in order. Manager has also had joint visit with PV to seek updated valuation. Both fins [financials] & valuation should be to hand mid Jan. It is proposed to record temp limit $450k (total limit $750k) for 30 days to allow for expected payment. AM Please record temp limit when existing limit expires." 1. On 6 January 2010 the ANZ extended the time within which the Second Business Loan was to revert to $300,000 to 5 February 2010. 2. On the same day, 6 January 2010, the ANZ received an updated valuation report of the Property which valued the Property as at 26 November 2009 at $3.3m (Lot 1 at $2.5m and Lot 2 at $800,000), in accordance with its normal practice to update the valuations of its security properties. The receipt of the valuation was a significant matter, both for the ANZ and for the Finks. It meant that the ANZ was unsecured for part of the debt owing and, accordingly, was not inclined to increase borrowings. 3. On 7 January 2010, Mr Ebert sent an email to Mr Fink, to which the valuation was attached. He said, in part: "Result is very low, but not unexpected I suppose, looking at other sales. It is even more imperative that the limit is reduced to $300K by 31/1/10. . ." 1. Mr Fink described this email in which the ANZ communicated its concern about the valuation as "a gypsy warning". He realised the importance of obtaining a valuation of his own, or at least a quantity surveyor's report, that would convince the ANZ not only not to insist on reduction of the Overdraft Facility but also to provide him with further funds. Mr Fink's own assessment of the valuation that the ANZ had obtained appears from the following passage from his submissions: "The land when I bought it, it was for nothing. I mean it was a song if you wish but today where can you find one kilometre of beach on the sand? Where can you find your own jetty? The view, when you look at it, where can you find it? It's the best climate in the world in this type of land. It's not a property where you can talk over the fence with the neighbour. It's for the top end executive which comes with his family and wants the peace, you see, and later he retire and say when he is very old, when he cannot handle the thing, then he will sell the property. I think - I mean, please, it's unique. You've got lagoons. You've got wildlife. The biggest bird population in the island because all the migrating birds come. It's just beautiful. It's unique. That's what I can say. . . . I mean it's ridiculous. I mean the valuation and everything. I'm sorry, but it's beyond my belief. It's beyond my logic. It's against human intelligence. That's as simple as that, that I can say. It's really robbery; that's it." 1. On 13 January 2010 Mr Fink rang Mr Ebert to tell him that he was expecting to receive $550,000 on 8 February 2010. The ANZ extended the limit to 10 February 2010. However, later that day, Mr Fink told Mr Ebert that the funds had been delayed again and he would not be in a position to reduce the debt until late February 2010. Mr Fink also informed Mr Ebert that he had engaged a quantity surveyor who advised that the construction cost of the house on the Property was $9m, although the ANZ's valuer had valued the land and buildings at $2.5m (Lot 1 only). 2. Mr and Mrs Fink provided a report to the ANZ prepared by John Hurst, a quantity surveyor. Mr Hurst assessed the replacement cost of the improvements to the house on Lot 1 and the improvements required to be performed to complete it to have a current construction cost in the order of $9m. 3. Mr Fink questioned the ANZ's requirement of a goods and property mortgage over his stock (which had been proposed by the ANZ as a condition of the extension) since he was concerned that it would restrict his ability to sell stock and operate his business. Mr Ebert told him that it was required if debt remained at its current level and explained in cross-examination that it was required: ". . . because of our concerns that the level of security we had through the valuations we had on file. I was only prepared to recommend that we extend the Finks' facilities for a further four months if our security position was improved by way of a goods and property mortgage being executed. So in other words, I was happy to support – continue to support the Finks on that, provided our security position was strengthened." 1. Mr and Mrs Fink initially refused to execute a goods and property mortgage over their stock on the grounds of their concern that the ANZ would act on the document to sell their stock at a greatly reduced price. They wrote to the ANZ by letter dated 19 January 2010 expressing their concern about the latest valuation and requesting that the ANZ not require a goods and property mortgage. The letter said in part: "The equity the bank requires is more than covered by the invested value of the property at Wallis Island. The land and building costs of the property are well documented and recorded in the balance sheet of A & C Fink as $4,692,728 (as at 30 June 2009). These costs do not include other expenses paid from private funds or the value of items included from personal assets held when we first entered Australia (bathroom fittings etc). We will employ a Quality Surveyor to prepare an estimate for current replacement cost for the improvements and the properties at Wallis Island and will forward it on to you as soon as possible. There is no logical reason why the valuation of this property should or could be based on recent sales of so called like properties in the near vicinity. Even when using the actual costs for the property as a basis for discounting the value for the bank's position the level of exposure should be well within the requirements for lending. We believe that we should not be put in the position of offering further security over the assets of the business partnership as the bank has sufficient cover in the Wallis Island properties. The property valuation is the cause of the bank's need to take additional security and if under valued will cause an unjustifiable position in which we will be disadvantaged. We appeal to the bank to review its position and remove the Goods Mortgage as a condition of approval and only seek security over the land and buildings." 1. Further discussions ensued, in the course of which the ANZ reiterated its requirement for a goods and property mortgage and the Finks continued to resist it. The ANZ sought to formalise the further extension of the overdraft (beyond the expiry that had earlier been agreed of 31 December 2010) by Letter of Offer dated 29 March 2010 for what became the Third Business Loan. It was a condition of the further extension of the overdraft to $750,000 until 30 June 2010 that Mr and Mrs Fink execute a goods and property mortgage over the stock of the business. The ANZ file note of 30 March 2010 recorded in part: "We cannot issue breach notice in regards GOPM [goods and property mortgage] not being provided, unless there is LOO [letter of offer] signed by customer seeking extension." 1. The letter of offer dated 29 March 2010 was signed on 21 April 2010 and returned. There is a version of the goods and property mortgage which was executed by Mr Fink at about this time. However, it was not executed by Mrs Fink, who refused to sign it because she was concerned that it would affect the business if the ANZ had a right to sell the stock. 2. Although Mr and Mrs Fink were unhappy about having to sign a goods and property mortgage, on 5 May 2010 they nonetheless went to the offices of Makinson & d'Apice, solicitors, to execute the Goods and Property Mortgage. Their signatures were witnessed by Stewart Roberts, a solicitor at that firm. Before they executed the document, its terms and effect were explained to them by Rosemary Karras, a solicitor from that firm. A phone call was made to Mr Ebert as to the amount that was to be filled in the space after the words "the present advance of" and he informed the speaker (whom I infer was a solicitor at Makinson d'Apice) that the amount of $1,004,000 was to be filled in. I am satisfied that the Finks understood the effect of the Goods and Property Mortgage. I accept that they felt that they had no real choice but to sign because they were concerned that the ANZ would move to sell the Property if they did not. They hoped that they would be able to sell stock or refinance the Property to ameliorate the situation. 3. On 22 June 2010, Mr Fink tried to persuade Mr Paul Donovan, a valuer, to value the Property. However, Mr Donovan refused to undertake the valuation because of the special nature of the Property and his lack of expertise to perform the task. 4. On 23 June 2010, a week before the expiry of the temporary extension of the Third Business Loan, Mr Ebert wrote an email to Ms Tamie Orr of the ANZ in the following terms: "You have seen this file before, he is the antique dealer with a house he built for $9M and we now have a valuation of $2.5M, RG [rating] 7F [poor]. Limits expire 30/6 and debts won't be reduced, so account will be $450K in excess on 1/7. Client is looking to get a fresh valuation to enable refinance, not sure how he will go. As account will be excess come 1/7 I need your guidance on what steps to take, letters to send etc, to enable transfer of file to LS [Lending Services], in a timely manner." The transfer of the Finks file from Mr Ebert to the Lending Services Department 1. On about 15 July 2010 the ANZ transferred the Finks' file to its Lending Services Department, where it came under the control of Sandra Campagna. Mr Ebert was no longer authorised to deal with Mr and Mrs Fink on behalf of the ANZ. He recorded in a file note dated 16 July 2010: "File is to transfer to LS [Lending Services]. Limit expired on OD 30/6 and debt not reduced as expected. Client advises that he still has a sale for around $450K but we have been hearing that for some time now." 1. By letter dated 4 August 2010 Ms Campagna wrote to Mr and Mrs Fink seeking their formal proposal for clearance of debt. 2. On 9 August 2010, Mr and Mrs Fink met with Ms Campagna and Wayne Christey (Acting Senior Manager of Lending Services) to discuss the account and how the debt could be reduced. I accept Ms Campagna's evidence that Mr Fink told her that he had $13m worth of stock. Ms Campagna suggested that they consider selling antiques to reduce the debt. Mr Fink proposed that the ANZ lend them more money ($750,000) so that they could finish construction of the house on the Property. He informed Ms Campagna that the Property could not be sold quickly and ought not be put on the market until it was completed. Ms Campagna confirmed that the ANZ was not prepared to lend any more money to Mr and Mrs Fink. 3. Mr Fink also suggested that he be permitted sufficient time to send stock to France where individual pieces could be expected to realise higher prices. At the conclusion of the meeting, Ms Campagna reiterated the ANZ's request for a written proposal for clearance of the debts by 20 August 2010. Her request was confirmed in a letter of 9 August 2010. 4. Shortly after the meeting on 9 August 2010 the Finks instructed Manual Theos, a solicitor at Heidtman & Co. to act on their behalf. By letter dated 19 August 2010 (emailed at 5.46pm that day), Mr Theos wrote to the ANZ, in part as follows: "3. Our clients are anxious to formalise an arrangement for the full clearance of all facilities and have instructed us to assist them with a written proposal to this effect. 4. As part of the proposal, our clients will formulate a timetable for the sale of valuable antique goods owned by them. Our clients intend to use the proceeds from the sale of these goods to repay their debts to ANZ. 5. Our clients are actively taking steps to arrange for the auction of their goods and require a reasonable period of time to provide the detail of their proposal. 6. As you would appreciate, auctioning valuable antique goods requires careful planning to target what is a specialised market. Our client is attempting to obtain the best possible price within the short time frame available to them." 1. Ms Campagna responded to the email the following day and sought details of the proposal by 10 September 2010. The Bonhams auction on 31 October 2010 1. By letter dated 10 September 2010 Mr Theos wrote to the ANZ, informing it that the auction was scheduled for 31 October 2010 and was to be conducted by Bonhams auction house. He attached a copy of Bonhams' proposal and indicated that the Finks believed that the goods sold at auction would realise between $2m and $3.5m. Mr Theos also proposed the following: "All proceeds of sale to go to ANZ, except for $150,000, of which $120,000 is to be used to pay outstanding court fees and the remaining $30,000 for working capital." 1. The Bonhams proposal (contained in a letter to the Finks dated 6 September 2010) was that there be an auction on 31 October 2010. Various parameters were recommended, including that the level at which the "lot" estimates would be set would be no less than 50% of the Mossgreen estimates and that any items with an estimate of $1,000 or less could be sold without reserve. The letter contained the following recommendation: "Bonhams would also recommend that a select number of items are placed throughout the sale that can be sold without reserve (sacrificed) in order to maintain momentum and an exciting auction atmosphere. Andre Fink will advise Bonhams of those items which are to be sacrificed prior to catalogue production so that they can be correctly placed within the sale." 1. The ANZ accepted the proposal by email dated 14 September 2010 in the following terms: "We confirm that the Bank is prepared to withhold enforcement action until 18 December, 2010 subject to the following conditions: 1. Customers to provide a copy of the Mossgreen Auction Estimates to the Bank by 20 September, 2010. 2. Customers to maintain a monthly Interest payment to the Overdraft account. 3. Customers to maintain monthly loan repayments to all loan facilities. 4. Customers to provide the Bank a list of items sold at auction and price by 5 November, 2010. 5. ANZ to receive the net proceeds less $150,000 from the auction by 26 November, 2010. 6 Any shortfall is to be repaid by no later than 18 December, 2010. Failing any of the above, the Bank may proceed with enforcement action for recovery of all debts." 1. The auction took place on 31 October 2010. Representatives of the ANZ, including Ms Campagna, met with Mr and Mrs Fink and their solicitors, on 11 November 2010. I accept the accuracy of the following ANZ diary note as to what was discussed at the meeting: "In summary, the following issues were discussed: Andre advised that the auction for the sale of the antiques had resulted in an appalling situation whereby his asserts were sold by Bonhams at low or no reserves. The auction resulted in 91% clearance rate, however, the values were approximately much less than the Mossgreen Auction Estimates. The business had stopped trading. Andre advised that he was under the impression that if he had reduced the OD debt to below $300k, the limit will be reinstated to $300k and he would be allowed to retain the facilities and requested controlling of the accounts can then be returned to RM Peter Ebert. It was made clear to Andre that the Bank did not agree to reduce the OD limit to $300k and it is not possible for his accounts to be returned to Mr Ebert. Andre proposed that the Bank will receive approx. $1.2m from the Auction sales proceeds, however, propose that we allow disbursements of $50k to Andrea & Cecil's private use, $323k towards 12 months interest of the facilities and provide them with $830k to complete the "Le Marais" property. In his written proposal, Andre proposed that he engage himself to finish the property for 4-6 months. After finishing he will contact top and international buyers to purchase the property. If this is not successful, 1.5 months later, Andre propose to list with a real estate agent who will contact top end Australian buyers discreetly. Failing this, a broader marketing plan will be incorporated. Andre will commit to maintain "Le Marais" until the property is sold. Andre believes that his proposal will be satisfactory to the Bank and would greatly reduce the Bank's exposure. The proposals were unclear given different figures/calculations used, different timelines and customers failed to address how the total debts are to be repaid and/or if the consumer facilities are retained, how will the debts be serviced given that the business has now ceased trading. Advised Andre and his solicitors that the Bank is not prepared to allow him to retain funds from the auction sales to complete the property. The funds will need to be applied to the business debts in accordance to the Bank's Goods and Other Property Mortgage over all assets of the business." 1. The ANZ wrote to Mr Theos by letter dated 15 November 2010 rejecting the proposals advanced by the Finks and requesting that the entire net sale proceeds of the auction be paid to the ANZ within seven days. 2. On 8 December 2010 the Finks' solicitor provided to the ANZ's solicitor a statement which set out the proceeds of sale of the auction. The statement recorded that of the $1,031,050.84 net of GST received by Heidtman & Co from the auction, $150,000 was paid to Mrs Fink, $30,000 was paid for Venue Salux; $1,950.08 was retained by Heidtman & Co; and the balance was applied to repayment of loans from the ANZ to the Finks. 3. In late 2010 or early 2011, Mr and Mrs Fink instructed a valuer, Ari Vasiliou, to provide a critique of two valuations obtained by the ANZ from valuers on its panel: a valuation conducted by Damien Burley dated 26 November 2009 and a valuation of David Curtis dated 19 August 2010. Mr Burley valued the Property "as is" at $3.05m. Mr Curtis valued the Property "as is" at $2.9m and at $2.2m on a forced sale. Mr Vasiliou's report dated 4 January 2011 contained various criticisms of these reports but did not separately value the Property. Mr Fink provided Mr Vasiliou's report to Ms Campagna, who did not have regard to it, for reasons she explained in cross-examination: "They didn't act for ANZ. They acted for you and they're not on our panel, they're not accredited, so we rely on valuations that are done by our valuers where the valuation is addressed to ANZ and it's done on behalf of ANZ. We do not rely on a forensic valuation that has been done by the customer and a valuer that he knows. We don't know the valuer, so we don't rely on that. We rely on what we have that's done by our panel valuer." 1. On 25 March 2012 Mr and Mrs Fink entered into an agency agreement with a real estate agent known as Unique Estates Australia to sell the Property. The agreement provided that the Property was to be offered for sale for $20m. The recommended method of sale was said to be "private treaty" and the agent's opinion as to the current estimated selling price was said to be $17.5m, with the qualification that "this opinion is not to be construed as a valuation". The Property did not sell at that time and remained unsold at the time of the hearing of these proceedings. The defaults by the Finks 1. On 8 April 2011 the Finks defaulted under the ANZ Home Loan. On 11 June 2011 the Finks defaulted on the ANZ Supplementary Loan. It was a term of each of these agreements that an event of default would occur if the Finks did not make a payment by its due date. In that event the ANZ could require them to pay, within 30 days of service of a notice of default, all monies owing to it. 2. On 20 June 2012 notices were served on Mr and Mrs Fink under s 88 of the National Credit Code 2009 (Cth) (the National Credit Code) and s 57(2)(b) of the Real Property Act 1900 (NSW) in respect of the Home Loan and the Supplementary Home Loan. These proceedings 1. The ANZ commenced these proceedings by statement of claim filed on 2 August 2012, which was subsequently amended to add a claim for restitution. The amended statement of claim sought: 1. Judgment for possession of the Property (this relief was granted summarily by Adams J); 2. Judgment for the amounts owing under the ANZ Home Loan and the Supplementary Home Loan plus interest and costs. 1. The Finks filed a defence and cross-claim in which they alleged that the ANZ was not entitled to possession of the Property or judgment of the amounts outstanding and claimed damages and other relief under the Contracts Review Act and the National Credit Code. They also claimed damages for alleged breaches of the Banking Code of Conduct (the Banking Code). As referred to above the ANZ applied for, and was granted, summary judgment for possession of the Property. 2. The following issues were determined by Adams J in the summary judgment proceedings: 1. The ANZ Home Loan and the Supplementary Loan are valid and binding on Mr and Mrs Fink. 2. The interest rate provisions in the ANZ Home Loan and the Supplementary Loan are not void for uncertainty and are otherwise enforceable. 3. Mr and Mrs Fink's claim for relief under the Contracts Review Act was not made out in respect of the ANZ Home Loan and the Supplementary Loan on the basis of any matters raised before Adams J. 1. The following issues require determination in these proceedings: 1. Is there any basis (other than that raised before Adams J) for relief to be granted to the Finks under the Contracts Review Act in respect of the ANZ Home Loan and the Supplementary Loan? 2. If the answer to (1) is no, what is the amount owing to ANZ under the ANZ Home Loan and the Supplementary Loan? 3. Are the interest provisions in the Third Business Loan and the Overdraft Facility void for uncertainty and should any amounts paid or charged for such interest be repaid by the ANZ? 4. Are the Finks entitled to relief in respect of the Third Business Loan and Goods and Property Mortgage pursuant to the Contracts Review Act or the National Credit Code. 5. Was the Banking Code of Conduct incorporated in the Third Business Loan and, if so, did it give rise to any contractual rights and obligations; did the ANZ breach it and, if so, did the Finks suffer damage as a result of any such breach. Whether the Finks are entitled to relief under the Contracts Review Act in respect of the ANZ Home Loan and the Supplementary Loan 1. Section 9 of the Contracts Review Act requires the Court to take into account various matters including the matters listed in s 9(2), to the extent relevant. Section 9(4) of the Contracts Review Act provides that: 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. 1. As the narrative set out above shows, Mr and Mrs Fink approached the ANZ with the assistance of a mortgage broker to refinance their debt to the NAB and to increase their borrowings to complete the house on the Property. By the time they approached the ANZ, they had owned the Property for about ten years and the house on Lot 1 was already at lock-up stage. The structure of these loans (together with the Business Loan and the Overdraft Facility) was formulated by Mr Nest, on behalf of Mr and Mrs Fink. At the time the monies were advanced in October 2007, Mr and Mrs Fink were in a strong financial position: their profit after tax for the 2007 financial year was $250,000; the value of their stock was $2m and Mrs Fink derived income from Terrie Enterprises, which operated Boss clothing stores. Furthermore, they had conducted their antique business in Sydney for over two decades. 2. In my view, there was no reason for the ANZ to consider any of the borrowings in 2007 (the ANZ Home Loan, the Supplementary Loan, the Business Loan or the Overdraft Facility) or in 2008 (the increase of the Supplementary Home Loan from $500,000 to $800,000) to have been in any way improvident or beyond the means of Mr and Mrs Fink to repay. Although English was neither the mother tongue of Mr nor Mrs Fink, they had lived in Australia for over twenty years. Their capacity to run businesses in Australia was a powerful indication of their ability to express themselves and understand written and spoken English. They were experienced business people who had conducted a successful antique business in Australia for decades. They knew the nature and effect of a loan and a mortgage and were capable of protecting their own interests. It was reasonable for the ANZ to regard them as such. Indeed, their scrupulous adherence to their contractual obligations to repay the debt for a number of years is a powerful indication of their ability to repay and their appreciation of their legal obligation to do so. 3. In determining whether a contract is unjust for the purposes of the Contracts Review Act, it is not appropriate to diagnose what went wrong in the performance of the contract and consider, with the benefit of hindsight, whether the party asserting its rights against the party claiming relief could have acted differently to avoid any resultant misfortune. It is almost always reasonably foreseeable that economic conditions will change adversely to a borrower: income thought to be sufficient to service the loan may prove to be inadequate; assets relied upon to be realised to provide ready cash in difficult times may lose value; and the usual vicissitudes of economic fortunes may wax and wane. In the present case, it was common ground that the fortunes of Mr and Mrs Fink were affected by the Global Financial Crisis, which diminished the demand for 18th century French antiques and therefore reduced the income of the business and the value of its stock. 4. The house which Mr and Mrs Fink built on the Lot 1 had special value to them, over and above its market value. Having regard to its exceptional character and location, there was always a risk that the cost of its building would exceed its market value. The ANZ did, in my view, no more than was commercially reasonable to protect itself against these possibilities. To obtain a mortgage to secure lending is orthodox, prudent business practice. To lend money on unremarkable commercial terms for the completion of a partially constructed dwelling, even if its style and location give it the character of a folly rather than an investment, is not unjust where the borrowers have a demonstrated capacity to pay and there is, as here, no reason to believe that they are not capable of acting in their own interests. Were it otherwise, the provision of funds for depreciating or whimsical assets, such as luxury cars or boats, or overcapitalised real estate, would be put in jeopardy. Financial institutions, such as the ANZ, are neither required, nor expected, to be paternalistic to customers such as Mr and Mrs Fink. As long as borrowers are reasonably able to make financial decisions in their own interests they are entitled to take risks and obliged to bear the consequences, unless it would be unjust to hold them to their bargain in circumstances where relief under the Contracts Review Act is available. 5. I do not regard Mr or Mrs Fink as having been in any material way incapable of, or compromised in, either acting in, or protecting, their own interests. There is nothing to suggest that they were not of one mind in when it came to deciding to borrow money on the terms on which it was offered. The monies advanced were used for their benefit: their intention was to live in the house on the Property and use it to showcase their antique goods. The broadly based evaluative judgment referred to by Allsop P in Provident Capital Limited v Papa [2013] NSWCA 36 at [7] does not result in the conclusion that there is any reason to adjust the contractual obligations of the parties by reason of any injustice. 6. I reject the claim for relief under the Contracts Review Act in respect of the ANZ Home Loan and the Supplementary Loan. I am satisfied that the ANZ is entitled to all monies outstanding under these loans. The ANZ was entitled by reason of cl 9.9 of the memorandum to the two mortgages to give a certificate certifying how much is owed: Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643. The certificate annexed to the affidavit of Craig Martin sworn 16 April 2015 established that, as at 14 April 2015, the amount owing on the ANZ Home Loan was $1,891,776.88 and the amount owing on the ANZ Supplementary Loan was $1,227,964.49. The judgment sum provided for in the final order includes daily interest to 5 May 2015. Whether the Finks are entitled to relief under the Contracts Review Act of the National Credit Code in respect of the Third Business Loan or the Goods and Property Mortgage 1. The ANZ did not seek judgment in respect of any money sums owing under the Third Business Loan or the Overdraft Facility in these proceedings. It is entitled, by the terms of the ANZ mortgages to deduct such amounts from any proceeds of sale in any event. However, Mr and Mrs Fink claimed relief under the Contracts Review Act and the National Credit Code in respect of the Third Business Loan and the Goods and Property Mortgage in their amended cross-claim filed 28 January 2014. The relevant allegation, at [9], was: In the alternative to the extent it is otherwise enforceable and not liable to be set aside an order pursuant to section 7 of the Contracts Review Act and/or section 71 of the Consumer Credit Code varying the Third Business Loan and Business Mortgage [the Goods and Property Mortgage] from the date of entry into the Third Business Loan and of Third Business Mortgage [the Goods and Property Mortgage] so that All interest payment be calculated as if the interest payable on the overdraft component of the Third Business Loan be reduced to Nil. 1. The ANZ, in its further amended defence to the amended cross-claim, denied that the Finks were entitled to relief in respect of the Third Business Loan and the Goods and Property Mortgage and relied on s 6(2) of the Contracts Review Act and s 6(1)(b) of the National Credit Code. Claim for relief under the Contracts Review Act in respect of the Third Business Loan and the Goods and Property Mortgage 1. Section 6(2) of the Contracts Review Act provides: (2) A person may not be granted relief under this Act in relation to a contract so far as the contract was entered into in the course of or for the purpose of a trade, business or profession carried on by the person or proposed to be carried on by the person, other than a farming undertaking (including, but not limited to, an agricultural, pastoral, horticultural, orcharding or viticultural undertaking) carried on by the person or proposed to be carried on by the person wholly or principally in New South Wales. 1. The ANZ relied on s 6(2) to support its contention that the Finks were not entitled to relief under the Contracts Review Act in respect of the Third Business Loan or the Goods and Property Mortgage. 2. The genesis of the Third Business Loan is set out above. It derived from the Business Loan, which in turn refinanced a loan for business purposes from Stacks. Mr Nest identified the loan from Stacks as a business loan in the credit application he submitted to the ANZ on behalf of Mr and Mrs Fink in 2007. Mr Fink admitted that further advances made by the ANZ from time to time to increase the Business Loan were required for working capital and for the purchase of stock for the antique business. Mr and Mrs Fink operated the business personally and not through a corporate entity. They were both involved in the business. In my view, the ANZ has established that the Third Business Loan was "entered into in the course of or for the purpose of a . . . business . . . carried on by" Mr and Mrs Fink within the meaning of s 6(2) of the Contracts Review Act. Accordingly, they are not entitled to relief under the Act. 3. I am, however, required, as trial judge to determine all relevant questions of fact, in case a different view is formed about the application of s 6(2) of the Contracts Review Act to the present case. Accordingly, I shall address whether, notwithstanding my finding that relief is precluded by s 6(2), the Finks would otherwise be entitled to relief. 4. Mr and Mrs Fink alleged both substantive and procedural injustice in their claim for relief under the Contracts Review Act in respect of the Third Business Loan and the Goods and Property Mortgage. The procedural injustice was said to arise from: their financial circumstances in early 2010 due to the downturn in the antiques business; the expiry of their temporary overdraft limit of $750,000; their inability to reduce the balance of the Overdraft Facility back to its permanent limit of $300,000; and the ANZ's response to their request for further time to reduce the balance to $300,000, which was to require the Goods and Property Mortgage. The substantive injustice was said to be that requiring the Goods and Property Mortgage as a condition of the Third Business Loan was not reasonably necessary to protect ANZ's legitimate interests. 5. In addition, Mr Fink, in the course of the hearing through his cross-examination of witnesses and in oral address, developed further submissions which were, as far as I could discern, as follows. 1. Because the ANZ decided to lend money to the Finks which permitted them to realise their "vision", it was obliged to continue to grant them latitude and additional funds in order to make the dream a reality, as long as the loan funds were actually spent on the house. Mr Fink also relied on his telling Mr Ebert, when he took him to visit the Property (at an unspecified date), that there was "a big financial crisis coming". 2. Because the Overdraft Facility was at a high level for a considerable time, it would have been better, with hindsight, to add the loan monies to the Home Loan, which would have given the Finks more time to repay it and subjected them to a lower rate of interest. It was, in the circumstances, unrealistic for the ANZ to grant short temporary extensions, having regard to the time required to complete the Marais, and the need to space auctions of French antiques so as not to flood the market and destroy demand. 3. The ANZ was relying on valuations which were erroneous as they were prepared on a false basis. Had the ANZ valued the Property correctly, it would not have required Mr and Mrs Fink to execute the Goods and Property Mortgage because it would have realised that it had more than enough security for the extant loans and for any further amounts that the Finks required to complete the house on Lot 1. 4. The ANZ engaged in "bullying" and "gangsterism", which I take to be, in substance, a submission that the ANZ took unconscientious advantage of its superior bargaining position when dealing with Mr and Mrs Fink. 1. I propose to address these additional submissions before turning to the case as pleaded. First, the ANZ was entitled to act commercially as a financial institution in its own interests. It was not obliged to share the "vision" of its customers and continue to provide them with financial support, irrespective of the terms of the agreements between them. Secondly, the ANZ was entitled to have its own policies as to how loans would be advanced. Mr Ebert justified the provision of the Overdraft Facility and the Business Loan on three bases which I accept did not give rise to injustice: first, it was the ANZ's policy that business lending would not be treated as personal debt; secondly, as the monies for the business were intended to be short-term, it was not in the Finks' interests to have all their indebtedness encompassed by the Home Loan, which was, by its nature, long term; and thirdly, the ANZ had internal policies that only a certain percentage of the valuation of a Property could be advanced by way of a home loan. Moreover, the structure adopted by the ANZ corresponded with the structure proposed by Mr Nest, the mortgage broker who had acted on their behalf. 2. Further, the ANZ was entitled to rely on valuations prepared by valuers with whom it had a contractual relationship and who had been engaged to provide an opinion of the market value of the Property. Although Mr and Mrs Fink took great umbrage at the values arrived at, they did not proffer alternative valuations to the ANZ, notwithstanding Mr Ebert's warning in January 2010 that the reduced value (according to the most recent valuation) made it imperative that they comply with the terms of their agreements with the ANZ. 3. I reject the submission that the ANZ took unconscientious advantage of its superior bargaining position at the time of the Third Business Loan and the Goods and Property Mortgage. The analysis in Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2003] HCA 18; 214 CLR 51 is apposite to the facts of the present case (although different statutory provisions applied). When the ANZ entered into the Third Business Loan, it was in a superior bargaining position since, without a further extension, the Finks would have been in default of the limits of the Overdraft Facility. The critical disadvantage from which the Finks suffered was that they had no legal entitlement to an extension of the Overdraft Facility above $300,000 beyond 31 December 2009 and no means of repaying the $450,000 excess at that time. However, they had a choice, albeit an unpalatable one. Their choice was either to remain in default, and face enforcement action, or enter into the Third Business Loan, which was available only on condition that they execute the Goods and Property Mortgage, and keep themselves in compliance with their limits until 30 June 2010. Choosing the latter option gave them the opportunity of receiving the expected proceeds of the sale to Dr Freyer. The parties involved in the transaction: the ANZ on the one hand and the Finks on the other, were concerned to advance or protect their own financial interests. The Finks were not subject to any special disadvantage; nor was the ANZ's conduct unconscionable. 4. It can be seen from the table of loans set out above that the Business Loan was increased from time to time such that the $300,000 originally owed increased to $640,000 in 2008 and, ultimately, to $750,000 in 2009 and 2010 (which became the Third Business Loan). These extensions were intended to be temporary such that the indebtedness would revert to $300,000. The principal purpose of the extensions was to allow sufficient time to enable the sale to Dr Freyer to proceed. Although the sale did not in fact eventuate, had it done so, as Mr Fink expected it would, the temporary extensions would have been repaid and the Business Loan would have been brought back into compliance with its terms. Such a process (the reduction of debt by sale of stock) had been contemplated by the parties from the outset. After all, Mr Nest, on behalf of the Finks, had mentioned the sale of stock as an additional measure that could be taken to reduce debt in the initial application (extracts of which are set out above). 5. In these circumstances, and having regard to the matters referred to above about the Finks' understanding of the nature and purpose of the loans and their terms, I am not satisfied that, even were relief under the Contracts Review Act not excluded by s 6(2), there is anything unjust about the Third Business Loan or any reason to exercise my discretion to grant relief. 6. The execution of the Goods and Property Mortgage was a condition of the ANZ extending the temporary extension of the Third Business Loan which would otherwise have been required to be reduced to $300,000 from 31 December 2009. It was extended, as referred to above, to enable Mr Fink to obtain the proceeds of the sale of some of his stock to Dr Freyer, which was the source of funds identified by Mr Fink as the basis for the extension. The ANZ's purpose in obtaining the Goods and Property Mortgage was to ensure that, if any stock was sold (whether to Dr Freyer, to other clients or by way of auction), the ANZ would be a secured creditor and, as such, gain priority over all unsecured creditors. Further, at the time the ANZ required the Goods and Property Mortgage it was concerned that the realisable value of the Property had diminished since the original valuation. 7. In circumstances where the ANZ was the Finks' principal, if not sole, lender, it was not unreasonable for it to seek to protect its interests by obtaining security as the price of a further extension. Although the Goods and Property Mortgage entitled the ANZ, on default, to sell the stock of the antique business, it did not purport to exercise the right. Both auctions, as the evidence set out above established, were conducted by and on behalf of Mr Fink, as was contemplated at the time the Goods and Property Mortgage was executed. Even had Mr and Mrs Fink not executed the Goods and Property Mortgage, I am not satisfied that there would have been any different result. Had they, instead of repaying the ANZ with the proceeds of the last auction, spent the money on the house on Lot 1, all that would have occurred is that the ANZ would have moved to enforce their mortgages at an earlier time. I am not persuaded that the Finks have established that the Goods and Property Mortgage was unjust. 8. Although the amended cross-claim contained allegations that the interest charged under the Third Business Loan was void for uncertainty or otherwise unjust, this allegation was not developed by Mr Fink during the hearing either in evidence or in submissions. Furthermore, the issue was decided against Mr and Mrs Fink in respect of the ANZ Home Loan and the Supplementary Home Loan by Adams J. In any event, the interest provisions are not, for the reasons given by Adams J in ANZ Banking Group Limited v Fink [2013] NSWSC 1781 at [17] – [26], void for uncertainty because they do not confer on ANZ an unfettered discretion to determine the interest rate. Relief under the National Credit Code 1. The National Credit Code came into force on 1 July 2010 and replaced the Consumer Credit (NSW) Code 1996 (the NSW Code). The National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 (the Transition Act) made provision for contracts and instruments entered into before that date and, by s 4, defined "carried over instrument" as: "a contract or other instrument that: (a) was made before commencement; and (b) was in force immediately before commencement; and (c) the old Credit Code of a referring State or a Territory applied to immediately before commencement." 1. The Third Business Loan and Goods and Property Mortgage, having been made prior to 1 July 2010, are thus, if the NSW Code applied to them, "carried over" instruments. 2. The ANZ did not submit that the Third Business Loan or the Goods and Property Mortgage were not governed by the National Credit Code by reason of the monetary sum involved. It accepted that the declaration of purpose made by the Finks on 11 September 2007 had no effect because it related to an earlier credit contract, being the loan offer dated 29 September 2007. Accordingly, the ANZ accepted that it bore the onus of rebutting the presumption in cl 13 (set out below) that the National Credit Code applied. 3. The National Credit Code relevantly provided, by cl 5: Provision of credit to which this Code applies (1) This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of precontractual obligations) is proposed to be entered into: . . . (b) the credit is provided or intended to be provided wholly or predominantly: (i) for personal, domestic or household purposes; or (ii) to purchase, renovate or improve residential property for investment purposes; or (iii) to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes; . . . 1. Clause 13 of the National Credit Code relevantly provides: Presumptions relating to application of Code (1) In any proceedings (whether brought under this Code or not) in which a party claims that a credit contract, mortgage or guarantee is one to which this Code applies, it is presumed to be such unless the contrary is established. (2) It is presumed for the purposes of this Code that credit is not provided or intended to be provided under a contract wholly or predominantly for any or all of the following purposes (a Code purpose): (a) for personal, domestic or household purposes; (b) to purchase, renovate or improve residential property for investment purposes; (c) to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes; if the debtor declares, before entering the contract, that the credit is to be applied wholly or predominantly for a purpose that is not a Code purpose, unless the contrary is established. (3) However, the declaration is ineffective if, when the declaration was made, the credit provider or a person (the prescribed person) of a kind prescribed by the regulations: (a) knew, or had reason to believe; or (b) would have known, or had reason to believe, if the credit provider or prescribed person had made reasonable inquiries about the purpose for which the credit was provided, or intended to be provided, under the contract; that the credit was in fact to be applied wholly or predominantly for a Code purpose. 1. The test to be applied to determine whether the credit provided or to be provided was intended to be provided wholly or predominantly for personal, domestic or household purposes has not been authoritatively determined. Two tests have been suggested in the cases: the objective test; and what I shall refer to as the performance test. 2. If the matter is to be determined by reference to the objective test, the question is what a reasonable person would, in all the circumstances, consider to be the purpose for which the credit was intended to be provided: Bahadori v Permanent Mortgages Pty Ltd [2008] NSWCA 150; 72 NSWLR 44 at [184] – [186] per Tobias JA (in which it was not necessary to decide which test applied). 3. Justice Gillard in Linkenholt Pty Ltd v Quirk [2000] VSC 166 expressed the performance test at [98] as follows: "In my opinion, it is appropriate to consider what the money was used for in order to determine the purpose of the provision of the credit. In considering the question it is important to consider the substance of the transaction in the context of its performance." 1. It is not necessary, in circumstances where the appropriate test has not been authoritatively determined, for me to express any concluded view, particularly since the present case is one in which the formulation of the relevant test is not, in my view, decisive. 2. The Third Business Loan had the effect of extending the temporary extension of the Overdraft Facility until 30 June 2010. The Goods and Property Mortgage had the effect of charging the business stock for the purposes of securing $1,004,000, being the sum of the amount Third Business Loan ($254,000) and the amount outstanding on the Overdraft Facility ($750,000) until 30 June 2010 and $300,000 thereafter). Clause 3 of the National Credit Code provides that credit is provided for the purposes of the Code if under a contract payment of a debt owed by one person (the debtor) to another (the credit provider) is deferred. The amount of credit is taken to be the amount of the debt actually deferred. Accordingly, the Third Business Loan was a credit contract pursuant to which credit was provided by the ANZ because repayment of the debt of $450,000 (being the amount outstanding in respect of the Overdraft Facility over the limit of $300,000) owing by the Finks was deferred until 30 June 2010. 3. Mr Fink admitted that the monies covered by the Third Business Loan and the Overdraft Facility were used for rent and working capital for the antiques business, including the costs of the auctions and were applied for those purposes. Both of the loans secured by the Goods and Property Mortgage were for business purposes and not for a Code purpose (as defined). The evidence permits the inference to be drawn that at least some of the monies covered by the Third Business Loan were used to pay for improvements to the Property on Lot 1. However, this was not the dominant purpose to which the monies were applied. Furthermore the house on Lot 1 was designed to be used as a showroom for 18th century antiques to be sold in the antique business conducted by the Finks. 4. Therefore, although it was intended that the Finks reside there, the house was also to be used as a place of business and, ultimately, their sole place of business. This demarcation is consistent with the way in which the Finks applied for the original loans and the structure the ANZ adopted for the original loans: namely that there would be a distinction between the ANZ Home Loan and the Supplementary Home Loan on the one hand and the Business Loans and the Overdraft Facility on the other. The Goods and Property Mortgage secured the latter category of loans but not the former. I am satisfied that the ANZ has established that credit was neither provided nor was to be provided under the Third Business Loan nor the Goods and Property Mortgage wholly or predominantly for personal, domestic or household purposes. Nor was it provided, wholly or predominantly, to improve residential property for investment purposes. Accordingly, relief cannot be granted to the Finks in respect of these contracts under the National Credit Code. Claim for damages for breach of the Banking Code 1. Mr and Mrs Fink alleged that the Banking Code gave rise to legal rights and obligations between them and the ANZ Bank; that the ANZ breached its obligations to them arising from the Banking Code of Conduct; and that they suffered damages as a result, for which the ANZ is liable. They alleged the following two breaches, which will be considered in turn: 1. Breach of cl 25.1 of the Banking Code in entering into the Third Business Loan and Goods and Property Mortgage; and 2. Breaches of cl 2.2 and cl 25.2 of the Banking Code by directing them in August 2010 to sell all their stock at auction. 1. The Finks' submission as to the conduct of the ANZ appears, in summary form, from the following exchange in the cross-examination of Mr Fink: "Q. Yes, but you also understood that if you were in default the bank could take the property, Le Marais, and sell it. A. That's ridiculous, I mean when you see the property value and what was put in, please, you have to be a bit more serious than going the trusting way as you're doing, otherwise - if you haven't got any relationship and you haven't got any understanding of the bank where you're going. That's not a banker." 1. The first question is whether the Banking Code is contractual: in other words, whether it gives rise to legal rights and obligations. Clause 35 of the terms and conditions for the Third Business Loan provided: If you are an individual or if you are using ANZ's products and services in connection with a small business (as defined by the Code of Banking Practice), ANZ is bound by the Code of Banking Practice when it provides its products and services to you. 1. On the basis of cl 35, the Finks contended that the Banking Code was incorporated into the Third Business Loan and had contractual force. In Sam Management Services (Australia) Pty Ltd v Bank of Western Australia Ltd [2009] NSWCA 320, the appellant appealed, in part, against a finding by the trial judge that the respondent had not breached the Banking Code and sought consequential declarations and injunctions. As this finding was not overturned on appeal, it was not necessary for the Court to determine the nature of the rights, if any, conferred on the appellant by the Banking Code. Young JA said at [72] – [74]: [72] This appeal has been made viable because of the inclusion in the contract between the parties of the Code of Banking Practice, a document which was probably never prepared by its drafters to form part of a legal document. It is drafted as a lay person's document to be understood in a quick reading by a person considering dealing with the bank. It thus lacks the precision that one would expect in a term to be included in a contract dealing with megadollars. [73] The relevant clause in the Code of Practice is 2.2 … [74] The clause in a legal document is so fraught with ambiguity. Its exact meaning was not canvassed before us so that it would be unwise to attempt to be definitive in its construction. Assuming it must be given some meaning in a commercial document, it probably does not operate to beyond requiring the bank to act in good faith towards the customer. 1. The Finks relied on cll 2.2, 25.1 and 25.2 of the Banking Code. Clause 2.2 (which was in the same terms as considered in Sam Management Services (Australia) Pty Ltd v Bank of Western Australia Ltd) provided: We will act fairly and reasonably towards you in a consistent and ethical manner. In doing so we will consider your conduct, our conduct and the contract between us. 1. Clause 25 of the Banking Code provided: 25.1 Before we offer or give you a credit facility (or increase an existing credit facility), we will exercise the care and skill of a diligent and prudent banker in selecting and applying our credit assessment methods and in forming our opinion about your ability to repay it. 25.2 With your agreement, we will try to help you overcome your financial difficulties with any credit facility you have with us. We could, for example, work with you to develop a repayment plan. If, at the time, the hardship variation provisions of the Uniform Consumer Credit Code could apply to your circumstances, we will inform you about them. 1. Mr and Mrs Fink alleged that the ANZ was in breach of cl 25.1 when it entered into the Third Business Loan on condition that the Goods and Property Mortgage would be executed. They contended that the ANZ knew that they would not be able to service or repay within the specified period the advances that were the subject of the Third Business Loan. 2. The difficulty with this argument is that the ANZ's belief and understanding that the Finks would, given time, be able to reduce the Overdraft Facility from $750,000 to $300,000 were based on representations made by Mr Fink that he was about to receive the proceeds of a substantial sale of his stock to an overseas buyer. The narrative set out above documents some, but not all, occasions on which Mr Fink told the ANZ that the Finks needed an extension to reduce the Overdraft Facility and that they would be receiving the monies from the sale at a specified date. There is no suggestion that Mr Fink did not genuinely believe on reasonable grounds in the truth of the various representations that he made to the ANZ to that effect. Furthermore, the evidence established that the ANZ, too, believed in Mr Fink's statements, as it was entitled to. The first indication of any scepticism on the part of the ANZ appeared in the words contained in Mr Ebert's file note of 16 July 2010 which are highlighted below: "Client advises he still has a sale for around $450K but we have been hearing that for some time now." 1. There is no evidence about what a "diligent and prudent banker" would have done on 21 April 2010 at the time the Third Business Loan was entered into. In substance, the purpose of the Third Business Loan was to give Mr and Mrs Fink further time to realise the proceeds from the sale to Dr Freyer so as to obviate the need for any enforcement action to be taken by the ANZ. Although the sale did not go through in time to bring the Overdraft Facility back within agreed limits, I am not satisfied that this arose through any lack of care, skill, diligence or prudence on the part of the ANZ or any breach of cl 25.1 of the Banking Code. Mr and Mrs Fink have not established the alleged breach. 2. Mr and Mrs Fink also alleged that the ANZ breached cl 2.2 and cl 25.2 by directing them to sell their stock at auction and failing to work with them in developing a repayment plan. In my view, no breach of these clauses of the Banking Code has been established. As the narrative set out above shows, representatives of the ANZ met with Mr and Mrs Fink on 9 August 2010 to discuss how the debt could be reduced. Although Mrs Campagna suggested that they sell stock, the evidence does not establish that she required the debt to be reduced in that way. I do not regard the ANZ as being in breach of the Banking Code by refusing to advance further funds to Mr and Mrs Fink either to complete the house on Lot 1 of the Property or to return the stock to France to be sold. 3. Moreover, it was Mr Theos, the solicitor engaged by Mr and Mrs Fink, who suggested, in his letter to the ANZ of 9 August 2010, a sale of antiques by auction. The evidence established that the auction was arranged by Mr and Mrs Fink without any intervention by the ANZ. The ANZ played no part in the nomination of the date, the identity of the auctioneer, the presentation of the goods in the auction catalogue, the determination of the lot estimates and reserve prices, the selection of items to be sold, or the selection of items to be "sacrificed" to generate enthusiasm at the auction. Since the ANZ played no part in these decisions, I infer that Mr and Mrs Fink instructed the auctioneers as to each of these matters. The result of the auction was that all of their business stock was sold and the money raised was sufficient to repay at least the Overdraft Facility. As all of the stock was sold, the Finks had to cease to trade. 4. The ANZ continued to meet with Mr and Mrs Fink following the auction. Mr and Mrs Fink defaulted on 8 April 2011 but notices were not served under s 88 of the National Credit Code or s 57(2)(b) of the Real Property Act until June 2012. I am not satisfied that the Finks have proved that the ANZ breached the Banking Code as alleged. 5. However, in any event, the Finks have not established any loss by reason of their entry into the Third Business Loan or the Goods and Property Mortgage. The effect of the Third Business Loan was to defer the date for repayment of the temporary extension. The effect of the Goods and Property Mortgage was to convert the ANZ into a secured creditor in respect of monies realised from sale of stock. However, as the ANZ did not conduct the sale, the transaction did not materially affect what occurred. Although the auction was disappointing as far as they were concerned, it at least raised sufficient funds to repay the Overdraft Facility. There is no evidence that further time would have enabled them to recoup more for the goods or that any such increase would have been sufficient to offset the interest that would have accrued in the interim. 6. The Finks have failed to establish any entitlement to relief on their cross-claim. Orders 1. I make the following orders: 1. Judgment for the plaintiff against the defendants in the sum of $3,389,750.48. 2. Judgment for the cross-defendant on the amended cross-claim. 3. Order the defendants to pay the plaintiff's/ cross-defendant's costs of the proceedings. ********** 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: 05 May 2015