Supreme Court New South Wales Medium Neutral Citation: Hodgson v Besters [2018] NSWSC 21 Hearing dates: 8, 9, 10 May 2017 Decision date: 30 January 2018 Jurisdiction: Common Law Before: McCallum J Decision: Order made pursuant to s 7(1)(a) of the Contracts Review Act refusing to enforce the loan agreement dated 3 May 2005 Catchwords: CONTRACTS – loan agreement for vendor finance on sale of combined commercial and residential property – commercial premises occupied by accounting business owned by vendor which employed purchaser – where vendor proposed that purchaser buy the property as part of vendor's business succession plan which would also involve his selling the business to the purchaser – purchase of land completed with no legal entitlement to buy the business – excessive purchase price – purchaser's employment later terminated – whether vendor loan agreement unjust TRADE PRACTICES – sale of commercial and residential property – commercial premises occupied by accounting business owned by vendor which employed purchaser – where vendor represented that he would sell the accounting business to the purchaser – whether vendor engaged in misleading or deceptive conduct Legislation Cited: Australian Consumer Law, ss 18, 236, 237 Contracts Review Act 1980 (NSW), ss 6, 7, 9 Conveyancing Act 1919 (NSW), s 12 Fair Trading Act 1987 (NSW), ss 42, 72 Limitations Act 1969 (NSW) Superannuation Industry (Supervision) Act 1993 (Cth) Trade Practices Act 1974 (Cth), ss 52, 68, 82, 87 Cases Cited: Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 443; [1983] HCA 14 Fast Fix Loans Pty Ltd v Samardzic [2011] NSWCA 260 Ford by his Tutor Beatrice Ann Watkinson v Perpetual Trustees Victoria Limited (2009) 75 NSWLR 42; [2009] NSWCA 186 Gray v Latter [2014] NSWSC 122 Provident Capital Ltd v Papa (2013) 84 NSWLR 231; [2013] NSWCA 36 Watson v Foxman (1995) 49 NSWLR 315 Category: Principal judgment Parties: Ian Robert Hodgson (first plaintiff) Marika Hodgson (second plaintiff) Tracey Anne Besters (first defendant) Jason Besters (second defendant) Representation: Counsel: S Clemmett (plaintiffs) Defendants self-represented Solicitors: Stacks Law Firm (plaintiffs) File Number(s): 2015/205491 Publication restriction: None Judgment 1. HER HONOUR: Ian Hodgson conducted an accounting practice for many years in Moss Vale under the name IR Hodgson & Associates. Tracey Besters was employed by Mr Hodgson as an accountant shortly after she graduated. In the year 2000, at around the time Mrs Besters began working for the firm, Mr Hodgson and his wife bought a combined residential and commercial property at 465-469A Argyle Street in Moss Vale for $440,000. The building was old and required substantial renovation. Mr Hodgson estimates that he spent in the order of $700,000 on the property over the years. In due course, Mr and Mrs Hodgson moved into the residence and Mr Hodgson moved the business of IR Hodgson & Associates into the commercial suites. 2. In late 2004, Mr Hodgson began to speak of retirement. He was then aged 58 years. He suggested that Mrs Besters should take over the business and, in that context, offered to sell her the property for $1.8 million, to which she ultimately agreed. Mr and Mrs Besters had no funds to contribute to the purchase price. The agreement for sale contemplated the provision of vendor finance in the sum of $540,000 on the assumption that the purchasers would be able to borrow $1,260,000 from a bank. However, a later independent valuation came in well under the purchase price and the bank ultimately would lend only $875,000. Mr Hodgson offered vendor finance for the difference. Mrs Besters and her husband proceeded to complete the purchase in May 2005. An agreement for the sale of the business was entered into at a later date but came to an end when Mr Hodgson terminated Mrs Besters' employment. In May 2015, the property was sold on the open market for $950,000. The entire proceeds of sale were paid to the bank as first registered mortgagee. 3. By these proceedings, Mr Hodgson and his wife seek repayment of the amount allowed by way of vendor finance together with interest at the agreed rate of 9%, giving a total claim of $2,329,524.91. 4. Apart from a number of issues arising from a dispute as to the terms of the vendor finance agreement, the principal issues in the proceedings are those raised by a cross-claim brought by Mrs Besters and her husband. The cross-claim raises issues of misleading or deceptive conduct, undue influence, unconscionability or unjustness under the Contracts Review Act 1980 (NSW) and estoppel. 5. It was common ground that, by the time of the hearing, the second plaintiff, Mrs Hodgson, lacked the capacity to participate in the proceedings. Her claim was conducted by Mr Hodgson as tutor. She did not give evidence. 6. Mr and Mrs Besters had legal representation at an early stage in the proceedings but represented themselves at the hearing. Mr Besters was present throughout the hearing but was content to allow Mrs Besters to conduct the hearing on their behalf. Circumstances in which the property was offered for sale 1. Mrs Besters graduated with a Bachelor of Commerce (Accounting) in April 2000 when she was aged 23 or 24 years. She commenced work as a contractor to IR Hodgson & Associates later that year. She was employed as an accountant on a full time basis from 1 July 2001. 2. Mr Besters had worked as a sales and support representative for a small business in the IT industry and had previously met Mr Hodgson in that context. 3. From the time when Mrs Besters began working full time for IR Hodgson & Associates, Mr Hodgson acted as accountant and tax advisor to both Mr and Mrs Besters (there is a contest on that issue which is addressed below). They say that Mr Hodgson also gave them financial advice from time to time. From about 2003, on Mr Hodgson's advice, they invested their self-managed superannuation fund in a property investment trust managed and controlled by him (called Lyrebird Management Services Unit Trust). 4. When Mrs Besters joined IR Hodgson & Associates, the practice was conducted from premises in Clarence Street, Moss Vale. Mr Hodgson and his wife purchased the Argyle Street property in October 2001. As already noted, the purchase price was $440,000. Mr Hodgson claims to have spent an additional $700,000 on the property over the years. However, no records were in evidence to establish the reliability of that estimate. 5. The residential part of the property was a separate dwelling at the rear of the property known as Tussi Mussi Cottage. Mr and Mrs Hodgson moved into the cottage in about 2001 together with their close friend, Mr Robert Ramsey. The commercial suites were in the main building at the front of the property. IR Hodgson & Associates moved into part of those premises in 2002, leaving part vacant for leasing. 6. Mr Hodgson attributed his decision to offer the property for sale to Mr and Mrs Besters to the fact that, in late 2004, he underwent quadruple bypass surgery. He explained that, while he was able to return to work shortly after his surgery, he started to consider the future of the business and retirement plans for himself and Mrs Hodgson at around that time. However, in cross-examination, it emerged that Mr Hodgson had previously listed the property for sale on the open market, in March 2003. His evidence on that issue was vague. At first he claimed to have little recollection, saying (at T22.3) "I think we tested the market once but I don't remember when". Upon being shown the sales listing (at pages 156-159 of the court book), he agreed that the property was listed for sale in March 2003 for $2.2 million. That price was not based on any independent valuation but simply represented what Mr and Mrs Hodgson wanted for the property at that time (T23.10). Mr Hodgson claimed he could not remember whether there were any parties interested in buying the property. He said "we had people come through the property but I don't think we had any offers". 7. In December 2003, nine months after failing to attract interest at the ambitious price of $2.2 million, the property was valued by Carpenter & Associates under instructions from Westpac. The valuation report was admitted into evidence without objection and for all purposes. The report valued the property at $1,075,000 as at 1 December 2003. The valuer noted that the property consisted of three commercial suites, referred to as suite 1, suite 2 and suite 3, together with the rear residence (Tussi Mussi Cottage). Suite 1 and the cottage were noted to be "owner occupied". Suites 2 and 3 were vacant; it was noted that a law firm had occupied suite 2 until 31 October 2003 but only on an 11-month lease. As at the date of valuation, that tenant had vacated the premises. 8. The valuer said (CB 184): "We have estimated market rentals on each of the individual tenancies as two are owner occupied and two are vacant. Since my previous valuation of this property in April of this year the only external tenant has vacated, there has been no improvement in the southern section of Moss Vale and the outlook for the property market is less buoyant. Accordingly, a slightly more conservative approach has been adopted." 1. The previous valuation referred to (evidently undertaken at around the time the property was listed for sale for $2.2 million) was not in evidence before me. First meeting - presentation of "the Ian document" 1. It was common ground that Mr Hodgson's offer to sell the property to Mrs Besters and her husband was presented in the context that Mr Hodgson was considering retirement and wanted Mrs Besters to take over the business. In his affidavit sworn 18 April 2016 at par 10, Mr Hodgson said that, in around November 2004, Mrs Besters and her husband visited him at home while he was recovering from his bypass surgery (Mrs Besters' evidence places that conversation at 23 October 2004, a Saturday). According to Mr Hodgson's evidence, he said to them words to the effect: "I have been thinking about the future of the business and my retirement plans. It would make sense for you to take over running the business in the long term. My idea is that you will run the business and we will keep shares in it. That way, if something happens to me, [Mrs Hodgson] will still be able to earn an income from the business. We'll sell you the property as well." 1. Mrs Besters gave evidence of a similar conversation but denied that there was any reference to Mr and Mrs Hodgson retaining shares in the business or her running the business for him (par 37 of her affidavit sworn 22 July 2016). According to her version, Mr Hodgson told her that he anticipated "slowly backing out of the business and giving more control of the day to day running" to Mrs Besters and that he believed it was "a natural fit" for her to take over the business in the future. She says it was in that context that Mr Hodgson said (par 34 of her affidavit): "I have a proposal that I want you both to have a think about. How would you feel about acquiring this property? Tussy Mussy Cottage and the commercial property out the front? It is an obvious progression that you will eventually take over the business and this property purchase will fit into that path." 1. During that initial conversation, Mr Hodgson gave Mrs Besters a document (referred to by Mrs Besters as "the Ian document"). In his affidavit (at par 12), Mr Hodgson described it as "a diagram which set out my workings showing how I ascertained the value of the property, which I calculated to be $1.8 m". 2. The first page of the document was in the following terms: Rental Income LJH Front Shops 800 41,600 Prof/Suite 1st Floor 700 36,400 Prof Suite 1a 175 9,100 Rear Cottage 650 33,800 Gross rental income $120,000 Less: Holding Costs Rates etc 3,000 Interest: Funding 1,800,000 8% 153,000 Total Holding Costs $156,000 Preliminary Net Loss $ 35,100 Depreciation Est. 30,000 Tax Loss $ 65,100 Tax Saving @ 47.50% 30,992 Actual Net Loss $ 4,108 Valuation: Income (Net) $120,900 - $3,000 117,900 Add Net Tax Saved @ 47.50% 30,992 $148,892 % to Cost Price $1,800,000/148,892 8.27% 1. The second page presented the same information in diagrammatic form and concluded with the following representation as to the value of property: Sales value draft: Assume Main street shops: $ 85,000 First floor offices: $ 375,000 Rear cottage: $ 575,000 $1,800,000 1. The only external tenants of the property at that time were two individuals trading as LJ Hooker Moss Vale. They had entered into a lease of suites 2 and 3 in January 2004 for a term of three years from 1 April 2004 (CB 197). The rent was $800 per week. 2. Mrs Besters said in her affidavit that Mr Hodgson pointed to the rental details on the document and said words to the effect: "I believe this is a fair market rate for the rent. This is what LJ Hooker is paying." 1. He also told them that the holdings costs were $3,000 per year (the Carpenter valuation allowed $9,000 per year). As set out above, the Ian document assumed that, apart from holding costs, the cost of funding the purchase would be the cost of interest at 8% on $1.8 million, supposedly being $153,000 (that figure in fact represents interest on that sum at 8.5%). Mrs Besters said in her affidavit that Mr Hodgson said to them, in reference to the interest amount of $153,000 per annum: "This is how much interest you would have to pay. When you take depreciation of $30,000 and tax into consideration you will have a tax loss of $65,100 and so at the end of the day it is only going to cost you $4,000 a year. This is how I see the valuation. Downstairs is worth $850,000. Upstairs is worth $375,000 and the cottage is $575,000 so that comes to a figure of $1.8m. As you can see with the potential tax savings and income from the rental it won't really cost you anything to acquire the property. Your cash flow and lifestyle will not be affected by the purchase. I think about things like this: you have a choice of either paying tax or interest. I believe you may as well pay interest and acquire an appreciating asset. I do not want you to make a decision now. Talk about it together and let's say we'll meet again in one week to see what you think". 1. Mrs Besters' evidence as to what Mr Hodgson said in addressing the Ian document was not refuted by Mr Hodgson. 2. Mrs Besters gave evidence that she was concerned about the cash flow and affordability of the property, particularly since Mr Besters had little income at that time. However, she accepted the value of the property and the rental and cost figures provided to her by Mr Hodgson. She said (at par 40 of her affidavit): "From my experience in working with Ian, I was aware that he had developed a property at Clarence Street, Moss Vale, that he had developed residential units in Elizabeth Street, Moss Vale and that he had bought and sold many properties. I believed that he had the experience and expertise in these matters and that his calculations would be accurate. Ian was my employer, accountant and advisor. 1. Mrs Besters said that, given the history between Mr Hodgson and herself, she had no reason to think he would not be telling her the truth. Discussion of future work for Mr Besters 1. Mrs Besters was the primary source of income for the couple at that time. Mr Besters had previously worked in the IT industry and more recently had been attempting to establish himself as a mortgage broker. He began working with a small mortgage broking business in January 2004, obtaining a TAFE Certificate III in mortgage lending in March of that year. He worked as a sole trader for approximately six months after that but generated very little income. From July 2004, he worked from home. In September 2004, he began working on a contract basis for two local lawyers, Mr William and Mr Oates, who were evidently seeking to expand their financial services in discussion with "Stacks" (CB 244; it is not clear what their relationship with Stacks was at that time. Mr Williams and Mr Oates were already providing legal services under the name "Stacks William Oates" but the financial services appear to have been separate). At around the time Mr Hodgson offered to sell the property to Mr and Mrs Besters, Mr Besters mentioned this consulting work to Mr Hodgson. Mr Besters said they had a conversation to the following effect: Besters: "Ian as you know I have been doing some consulting work with Stacks at Bowral. They are interested in getting me involved in their finance side of the business, what do you think?" Hodgson: "Do you have to go into business with them? Can't you do this sort of finance business yourself? I've got heaps of finance work I could refer to you. I currently refer all my client finance requirements directly to the banks. Why don't you run your finance business from here?" 1. Mr Hodgson told Mr Besters that he and Mrs Hodgson were thinking of renovating the kitchen downstairs in the property and turning it into more office space. He suggested Mr Besters could run his business from there and in the meantime work in the back office upstairs. Mr Besters was interested but said he could not really afford rent at that time. Mr Hodgson said he would not charge him any rent. The proposed new suite appears to have been represented as suite 1a on the Ian document. 2. Following the 23 October meeting and consideration of the Ian document, Mr Besters said that, based on what Mr Hodgson had said to them, he considered that by acquiring the property they would be acquiring "an income-generating and capital growth asset"; that Mrs Besters would be receiving an increased income and that he (Mr Besters) would be receiving increased referral finance work in the short term and ultimately business ownership. He said (at par 29 of his affidavit): "I still did not really understand how it could all be possible but I trusted Ian completely and believe that as Ian knew our personal situation as our accountant and tax agent he would have our best interests at heart and that it was going to be a win-win scenario for everyone involved. I recall feeling super excited about the opportunity Ian had presented." 1. On 25 October 2004, Mr Besters ended his consultancy with Williams Oates, telling them that he and Mrs Besters had been made an offer they thought they really couldn't refuse (par 31 of his affidavit). The following day, he incorporated a corporate vehicle, Proview Pty Ltd, and from that date operated business as a mortgage broker at the commercial premises in Argyle Street. Second meeting - discussion of a pay-rise for Mrs Besters 1. On 30 October 2004, there was a further meeting concerning the proposed purchase of the property. Present on that occasion were Mr and Mrs Hodgson, Mr Ramsay (the friend who lived with them) and Mr and Mrs Besters. Mrs Besters gave evidence that the conversation was to the following effect: Mr Hodgson: "So what do you think about my proposal and have you got any questions? There is one point that I must make however. The price is not negotiable. I know how much we have spent on this property and what it is worth. I know $1.8m is a fair price. If you don't decide to buy it I will just wait and sell it to someone else." Mr Besters: "Well we have spent a fair bit of time discussing the proposal. It all sounds really good. I guess it would be fair to say that we are interested in doing this but I'm not sure how we will be able to afford to purchase this property?" Mr Ramsay: "I don't want to see you guys get in over your heads." Mr Besters: "Neither do we." Mr Hodgson: "Tracey is due a pay rise anyway. I envisage that her income will increase to say around $150,000 almost straight away. This will naturally continue to rise over time as she takes on more and more responsibility. Like I said, I see it as a natural fit for Tracey and you to take over the practice moving forward. Also Jason, you will start to earn more and more income through the finance business and I will get you more involved in the accounting business. There is scope for you to help us with our SMSF administration work. I expect that the net effect will not negatively affect your personal cash flow and lifestyle. We will work it so that you are no worse off than your current situation." Mr Besters: "A commercial lender is only going to lend up to around 70% of the property's value and we do not have any cash to go towards the purchase. How will we get the funds to purchase the property?" Mr Hodgson: "You investigate your lending options. Borrow as much as the bank will give you and I will cover the rest with vendor finance." Mrs Hodgson: "I am not sure what you are planning in regards to a family." Mrs Besters: "We have also been thinking about our future and how best to fit a child into our overall plans." Mrs Hodgson: "I see this property as a perfect fit for a young couple like you, who want to have a family one day. If you have a baby, and Tracey needed to see a client it would be easy to leave the baby with Jason at the house while you go to the appointment in the office and vice versa." Mr Besters: "If we can work out a way that we can afford the property then we would be keen to purchase the property. Tracey and I have always envisaged that we would end up working together someday in a family owned business. This property will help give us the flexibility we will need to have a family and work together in the business." 1. Mr Hodgson gave no specific evidence as to any conversation on that date but did not deny that there was a conversation in those terms. According to the evidence of Mr and Mrs Besters (which I accept), there was no discussion of the amount or terms of the proposed vendor finance at that stage. 2. Mrs Besters prepared her own cash flow document which assumed receipt of rental and personal income in accordance with their discussions with Mr Hodgson. Mr Hodgson gave evidence that, at some point after the second meeting, Mrs Besters told him that they would like to "go ahead with the plan to buy the property" and that they had done their own calculation and spreadsheets and were "comfortable with the deal" (par 13 of his affidavit). Mrs Besters did not specifically recall that conversation but did recall being comfortable with the calculations she had prepared based on the Ian document and her discussions with Mr Hodgson as to her taking over the business, her future income, Mr Besters' future income through referrals from IR Hodgson & Associates and the representations that their cash flow would not be negatively affected and that "Ian would make it work so that we were no worse off than we were" (Mrs Besters' affidavit, par 49). 3. On 9 November 2004, Mr Hodgson wrote to Mr Williams at Stacks Williams Oates confirming instructions to act for both parties on the sale. The evidence does not establish whether there was any discussion of the need for Mr and Mrs Besters to receive independent advice. The email identified the purchase price of $1.8 million, stating: "Funding will be provided by first mortgage to a lender/bank as arranged by the purchasers with the balance of funds to be provided by other private funds through this office, secured by a second mortgage over the above property, terms will be as mutually agreed, we ask that you also prepare the appropriate second mortgage documentation." 1. Given that the email was sent by Mr Hodgson himself, the reference to funds being provided by "other private funds through this office" is curious. The proposed second mortgage, if it was ever entered into, was not in evidence. 2. In the same letter, Mr Hodgson instructed Mr Williams to prepare three leases. As noted at [21] above, there was already a lease in place at that time for the only external tenant of the property, LJ Hooker. Mr Hodgson instructed Mr Williams to prepare the other three leases referred to in the Ian document, as follows: 1. a lease of what was described as "suite 2" to Proview Financial Solutions Pty Ltd (Mr Besters' company) for a term of 3 years for $175 per week; 2. a lease of suite 1 to IR Hodgson & Associates Pty Ltd for a term of 3 years for $700 per week; 3. a lease of the rear cottage to Mr and Mrs Hodgson for a term of 1 year for $650 per week. 1. Contracts for the sale of the property for a purchase price of $1.8 million were exchanged on 30 November 2004. The contract contained two important special conditions. Condition 14, headed "vendor carrying finance", provided (CB 445): "On completion the sum of $540,000 will be secured to the vendor or its nominee by a registrable second mortgage over the property to be prepared by the vendor's solicitor at the expense of the purchaser and in the form attached to this contract completed to provide: The term to be 2 years calculated from the Completion date; and interest to be 8.5% computed from the Completion date, behind a first mortgage the principal sum of which must not exceed $1,260,000, the terms of which shall be substantially the same as those outlined in the following special condition number 15 hereto." 1. Special condition 15, headed "contract conditional upon grant of first mortgage finance to purchasers", provided (CB 446): "The parties agree that the completion of this contract by the purchasers is subject to and conditional upon the purchasers obtaining first mortgage finance substantially on the following terms and conditions within the time limit specified herein, namely: (a) Loan amount: Not less than 70% of the value of the property, being $1,260,000.00 or such other amount as the vendor and purchaser may agree during the term hereof in writing; (b) Loan term: Not less than 2 years; (c) Interest rate: Not more than 8.5% or such other rate as the parties may agree in writing; (d) Security: First registered mortgage over the subject property and second registered mortgage over the property owned by the purchasers and situate at 32 Bronwyn Place, Bowral, and personal guarantees of Tracey Anne Besters and Jason Cornelius Besters; provided however, that in the event that the purchasers do not obtain an approval in writing on terms and conditions that are reasonably acceptable to them within 60 days of the date hereof, then either party shall have the right to rescind within 7 days of the expiry of the said 30 [sic] days, and further provided, that in the event that neither party shall elect to rescind within the aforesaid 7 day period then, unless otherwise provided herein, this contract shall become unconditional and the purchaser shall be required to complete the contract within the time specified herein for completion." 1. On the basis of that provision, Mr and Mrs Besters contend that the term of the vendor finance agreement was two years and that the present claim is accordingly statute-barred. 2. Following the exchange of contracts, Mr Hodgson took a number of steps to help Mr and Mrs Besters to obtain finance. In a letter dated 30 November 2004 addressed "to whom it may concern", he confirmed that Mrs Besters had been employed as "senior accountant" since September 2000 and that her salary package was $116,829 gross. The letter continued: "Her promotion this month to Superannuation and Corporate Tax Manager together with her acceptance by the Australian Tax Agents Registration Board as a tax agent nominee of this practice will result in her salary package increasing to a minimum of $154,000 gross. This package commences 1 January 2005." 1. Mr and Mrs Besters initially applied for a loan from Westpac, who sought a further valuation from Carpenter & Associates. Carpenters provided a report dated 20 December 2004 which placed a value on the property of $1,250,000. The valuation report noted that the author had been provided with the front page of the contract for sale indicating that contracts had been exchanged at a price of $1.8 million. The author said (CB 318): "Based upon my own calculations such a value is substantially above the property's real worth. It would appear that certain leases have been entered into by the owners at inflated levels so as to justify a higher price. Whilst they are legal documents and therefore must be taken into account, our calculations are based on market rates with an adjustment for the over rent for the lease term only." 1. The valuer would have allowed commercial rents as follows (less outgoings of $9,122): Suite 1: $28,000 Suites 2 & 3 (the LJ Hooker lease): $41,600 Annual gross rent: $69,600 1. The leases entered into in accordance with the Ian document provided for annual rent for suite 1 (leased by IR Hodgson & Associates) of $36,400 (against Carpenter's $28,000) and also provided for rental income of $9,100 for suite 1a (to be leased by Proview, Mr Besters' company). Further, whereas Mr Hodgson's proposal provided for rent for the residential cottage of $33,800, Carpenter's valuation allowed only $20,800. The Carpenter valuation thus identified "over-rents" of $17,500 for suites 1 and 1a and over-rent of $13,000 for the residence. Without the over-rents, the valuation would have been $1,195,289 (CB 319). As explained in the remarks set out above, however, the valuer considered that the leases were "legal documents" and had to be taken into account. Accordingly, the over-rent was included within the calculations, giving the final valuation of $1,250,000. 2. By way of general comment, the valuer said (CB 321): "Unfortunately the location of the property is poor, being on the southern side of the railway overpass in a fringe position. Surrounding development is generally unattractive and accommodating inferior quality tenants. Nonetheless, there are indications that some further improvements will take place soon on adjoining buildings and it is also becoming further enhanced by the relocation of some of the real estate offices." 1. Following receipt of that report, Mr Hodgson called Mrs Besters and said "if you want to pull out there will be no hard feelings. But I think the property is worth it". She said "well it is all going to come down to the finance". He said "it is not the first time Carpenters have got the valuation wrong. I have sold many properties over their valuations. They are so conservative that it is not a true market value. It is not realistic". 2. On 22 December 2004, Mr Hodgson signed a letter to Westpac Bank in the following terms (CB 335): "As we discussed I confirm our agreement for vendor finance is as follows: Amount of loan: $1,035,000 Term: Ten years fixed at 9% Interest paid: Quarterly in arrears Principal sum may be reduced without penalty at any time." 1. The terms recorded in that letter are inconsistent with the special conditions in the exchanged contracts for sale, which contemplated vendor finance for a smaller sum and for a term of only 2 years. Mr Hodgson's evidence as to the term of the loan was vague and unsatisfactory. In his affidavit, he said that they had initially discussed "the vendor finance loan being for a term of 12 months" on the basis that Mr and Mrs Besters would refinance within that period (par 26). However, in cross-examination, he said "it was always ten years" (T56.39). When pressed as to the inconsistency between that evidence and his affidavit, he said, "my memory of the one year arrangement was just so we could capitalise the interest to get you the tax deduction in that first year." Mr Hodgson then explained, in respect of his correspondence with the bank, "I think we were trying to support your application for a loan from Westpac and then realising you had to do the ten years" (T57.41). 2. As in a number of instances, Mr Hodgson gave the impression of tailoring his evidence on that topic to suit the occasion, forgetting what he had said or what had been written elsewhere and seeking to portray Mrs Besters as the real architect of the transaction. I am satisfied that, in truth, the course of the transaction was entirely directed by Mr Hodgson, who was willing to go to considerable lengths to secure the sale to Mr and Mrs Besters at an inflated price. 3. Westpac rejected the loan application. 4. Mr and Mrs Besters then applied to Latrobe Home Loans Australia. On 20 January 2005, Mr Hodgson wrote a letter to Latrobe to support the Besters' application for a loan of $825,000. The letter was written by Mr Hodgson "as accountant to Jason and Tracey Besters" and said (CB 378): "I know the borrowers' income and expenditure and based on that knowledge and my understanding of their financial position I am of the opinion that the borrower is able to repay the loan in accordance with its term and can do so without substantial hardship." 1. Latrobe approved the loan but only for a term of 12 months. Mrs Besters gave evidence that they rejected that offer because the loan would not comply with the terms of special condition 15 (which she understood required first mortgage finance for not less than two years). In her closing submissions, Mrs Besters indicated that she appreciated that the contract had "an out" (my words) in special condition 15. However, based on her evidence concerning the Latrobe loan and aspects of her closing submissions, I am not persuaded that Mrs Besters appreciated the importance of the protection condition 15 was intended to provide for her and Mr Besters. 2. The agreement for sale became unconditional on about 28 January 2005. 3. On 1 February 2005, Mr Hodgson wrote to the CBA in exactly the same terms as the letter to Westpac set out above (concerning the terms of the vendor loan). On 11 February 2005, he wrote to the CBA concerning Mr Besters' business, stating "further to our telephone discussions we confirm that a minimum amount of $37,000 contract will be paid per annum to Jason/Proview this figure is based on our present self-managed superannuation fund base of 43 funds". The letter anticipated that the contract amount would increase "markedly" following an expected change in the regulations and said "it would be a reasonable assumption that the Proview contract payment could exceed $50,000 within 15-18 months". 4. Mr Hodgson accepted that he wrote and signed that letter. Under cross-examination by Mrs Besters as to his basis for writing in those terms, he said (T76.20): "I've got no idea now. I've got no idea what we said. It was that long ago. I know you and I talked about trying to add value to Jason's income because his income was so low and there was – he was going to do certain work for the practice as an extra, and he would be able to get extra income that way, because you were very worried about the stress situation and we did a calculation based upon the number of funds we had and he'd be doing the accounting side for that and he would have come up with that sort of thing but what we spoke to Kathy about I don't know." 1. In my assessment, the answer was disingenuous. It is clear that the letter to the CBA was not referring to work Mr Besters might do for the practice "as an extra" but to Proview's likely income through its core business. The letter concluded with an explanation as to the fees payable to Proview: "this service being provided by Proview will be funded as an added value to our SMSF base and will be funded as an extra fee paid by the client on top of our usual professional charges". 1. The letter was clearly calculated to persuade the bank that Proview had a reliable source of income through valuable referral work Mr Hodgson's business had committed to provide to it in the future. 2. Mr and Mrs Besters ultimately obtained approval from the CBA for a loan of $875,000 (70% of the Carpenter valuation of $1,250,000). Mr Hodgson said the approval was subject to a number of requirements including a requirement that he guarantee the bank's loan and that he undertake not to seek any repayment of the vendor finance loan within 10 years (par 27 of his affidavit). He agreed to those requirements. 3. Completion of the sale of the property took place on 3 May 2005. After the settlement, Mr Hodgson asked Mr and Mrs Besters to his office where he provided them with two copies of a document titled "loan agreement". He said "we should document the vendor loan and I have prepared this for you to sign". 4. The document he presented (CB 459) was drawn as an agreement between Mr and Mrs Hodgson as lenders and Mrs and Mrs Besters as borrowers. Curiously, it made no specific reference to the amount loaned upon completion of the sale of the property. It provided: "It is agreed that Ian Robert and Marika Hodgson will advance to the borrowers various amounts from time to time. The amount outstanding will be recorded in the books of account of the lenders and will include all interest due as per the terms of this agreement." 1. The loan agreement further provided: "Term of the loan is ten years (10). Interest at 9% or agreed between the parties. It is also agreed that this loan will be assigned to Hereford Management Services Unit Trust." 1. Mr Hodgson gave evidence that, notwithstanding the terms of that clause, he did not "assign" the loan to the Hereford unit trust. It is appropriate to set out the whole of the relevant exchange, which occurred during his cross-examination by Mrs Besters (T87-88): "Q. Why did you insert, "It is also agreed that this loan will be assigned to Hereford Management Services Unit Trust." A. At one stage you approached me and said that it would be good that if the loan ‑ the money that we advanced to you, you took over my loans in the Hereford Lyrebird entities and we considered that for a little while and then I rejected that because I felt it was bad enough ‑ not bad enough, that I was the primary borrower as it was without you being a borrower as well and we didn't go ahead with it. Q. Where is that in any of your affidavits, Mr Hodgson? A. You just asked me where this comes from, I'm just telling you what happened. Q. I put it to you that that's not the case, Mr Hodgson, that that hasn't been mentioned in any of your affidavit evidence at all so I put it to you that that's not correct. HER HONOUR: Are you putting it to him that the conversation didn't occur? FIRST DEFENDANT Q. That that conversation did not occur. A. I reject that because it did. I remember it very clearly. FIRST DEFENDANT: Your Honour, I'm not sure what to say to that in terms of the fact that it's not mentioned in the affidavit. HER HONOUR: The process is just question and answer and when the evidence is finished you can make your submissions. So you don't have to‑‑ FIRST DEFENDANT: Comment on everything. HER HONOUR: You don't have to distinguish as between your role as the person questioning Mr Hodgson on your behalf and your own role as a witness. That comes later. FIRST DEFENDANT: Sorry, your Honour. Q. So when you put that clause in that loan agreement, Mr Hodgson, what timeframe were you thinking? It said this loan will be assigned so it seems pretty obvious that that's the intention there, will be assigned to Hereford Management Services. What timeframe were you thinking for that? A. As fast as that document was prepared it didn't happen, we changed our mind straight away after that but‑‑ Q. So when you mean straight away you mean as soon as it was signed or you mean‑‑ A. I was not comfortable with it so we didn't do it. Q. Why did you put it in in the first place then? A. You asked me to. Q. I put it to you that I didn't ask you to do that, Mr Hodgson? A. Well. Q. We had just signed a second contract of sale the day before, Mr Hodgson, that had a vendor finance agreement for two years, 8.5%, no mention of anything to do with Hereford Management Unit Services and then the very next day on 3 May 2005 all of a sudden this has changed. A. It was a very fluid time for both of us, that's all I can say. HER HONOUR Q. Sorry, I missed what you said, a very difficult‑‑ A. Fluid. A very fluid time, yeah. Q. Why didn't you feel comfortable assigning the loan? A. Well, Tracey worked for me and initially I thought it wasn't a bad idea and then I thought about it overnight and thought, no, it doesn't work for me. I'm the primary borrower of the majority of the funds in the trusts. I'm responsible without her being involved in the practice and also being a borrower. Q. I see. So for some other investments you were the person borrowing the funds? A. Correct, I was borrowing. Q. So the success of the fund turned on your capacity to service those loans? A. Correct." 1. I do not accept that it was Mrs Besters who suggested assignment of the loan to the Hereford unit trust. She did not recall any discussion about assigning the loan to Hereford prior to being presented with the loan agreement document (par 101 of her affidavit). I found Mr Hodgson's evidence on that issue unsatisfactory and unconvincing. His reference to being "the primary borrower" was not well explained. Mr Hodgson later said "I'm the primary borrower of the majority of the funds in the trusts" (T88.35). He said that, of $6.86 million in property security loans held by Hereford Unit Trust as at September 2004, he was the borrower of "probably half" (T89.44). 2. Upon closer analysis of those answers in the context of the evidence as a whole, Mr Hodgson appears to have been acknowledging (perhaps inadvertently) that the vendor loan to Mr and Mrs Besters created a credit risk for the Hereford Unit Trust, perhaps because it had involved borrowing from the trust to pay him as vendor or the Besters' taking over borrowings from the trust for the purpose of renovating the property. That would explain the curious terms of the letter to the solicitor acting on the conveyance in which Mr Hodgson said that the balance of funds (apart from a bank loan) was to be provided by "other private funds through this office", to be secured by the absent second mortgage. That issue was not explored at the hearing and I do not think I can make any positive finding about it. However, I was left with the strong impression that Mr Hodgson's version of events was, at the least, selective and that the Court has not heard all there is to hear about the financial dealings surrounding the transaction the subject of the plaintiffs' claim. 3. In late 2005, Mr and Mrs Hodgson and Mr and Mrs Besters entered into an agreement which provided for the Besters to acquire the Hodgsons' shares in IR Hodgson & Associates Pty Ltd on terms. However, settlement of the sale (which was to occur three years later) was conditional upon Mrs Besters continuing to be employed by Mr Hodgson. Again, the evidence does not reveal whether there was any discussion of the need for Mr and Mrs Besters to receive independent advice in respect of that agreement. In late 2006, the relationship between Mrs Besters and Mr Hodgson deteriorated and her employment was terminated. Mr Hodgson attributed that decision to a number of disagreements he had with Mrs Besters, primarily as to "the work Tracey was bringing into the business". He said she wanted to act for a number of clients he did not want to work for because he had "doubts about the legitimacy of their financial dealings". 4. Mrs Besters said the termination of her employment coincided with her noticing some irregularities with a client's superannuation fund. She approached Mr Hodgson about her concerns and was asked to adjust some figures in one of the unit trusts to deal with the irregularity. She said she was not comfortable doing this as she thought it might have breached the Superannuation Industry (Supervision) Act 1993 (Cth). Her evidence on that issue finds support in a contemporaneous document. On 2 November 2006 at 5:27pm, she sent Mr Hodgson a lengthy email explaining her position. She acknowledged that the issue was "not a huge contravention" but said: "I do not believe that this can be covered up by 'processing everything through suspense'." 1. It may be inferred that the words in quotes record Mr Hodgson's instruction to Mrs Besters. The email revealed that Mrs Besters had already discussed the issue with a professional body who considered that there was "no way around reporting it in a contravention report with the ATO". The email set out the course of action Mrs Besters recommended and concluded "if you still want to cover the events then I am really sorry, but I can't in good conscience prepare the accounts" (CB 670). Mrs Besters received a voicemail message that evening telling her not to come into the office the following day until Mr Hodgson was there. The following day, he terminated her employment, effective immediately. 2. I do not believe Mr Hodgson's evidence as to his reason for terminating Mrs Besters' employment. The overwhelming likelihood is that his decision was made in response to the stance she took in her email of 2 November 2006. The immediate consequence of the termination was that Mrs Besters (as Mr Hodgson's former employee) was excluded from the commercial part of the property she and her husband then owned. Mr Besters also vacated the commercial premises at that time and began to conduct the business of Proview from Tussi Mussi Cottage, in which Mr and Mrs Besters continued to live. In the longer term, the effect of the termination of Mrs Besters' employment was that it removed her right to acquire the business of IR Hodgson & Associates, which was the commercial premise of her decision to acquire the Argyle Street property. 3. On 3 January 2007, Mr and Mrs Besters received a default notice demanding payment of interest in the amount of $27,708.68 to Havilah Moss Vale Holdings by 5 January 2007 (CB 688). The basis for that demand and Havilah's role is explained below. There followed an exchange of correspondence which raised a dispute as to the terms of the vendor finance agreement, including an assertion made on behalf of Mr and Mrs Besters that the loan was for a term of ten years and so was not yet due. No further demand was made by Mr and Mrs Hodgson within that ten-year period. 4. IR Hodgson & Associates remained in the commercial premises until November 2007, paying rent for most of that period (Mrs Besters said the business owed about $7000 in rent at the time it vacated the premises). Mr and Mrs Besters moved back into the commercial part of the premises in February 2008 (T198). 5. In early 2015, Mr and Mrs Besters were struggling with their debt to the bank and decided to sell the property. Shortly after it was put on the market, Mr and Mrs Hodgson put a caveat on the title claiming an equitable charge pursuant to a vendor's lien arising out of the agreement for the sale of the property dated 3 May 2005 (CB 818), but that was subsequently withdrawn (T199). The property was sold for $950,000. The sale was completed in May 2015. At around the same time, on 12 May 2015, Mrs Besters received a letter from Stacks Law Firm demanding payment of the sum of $2,060,980.45 to Mr and Mrs Hodgson within a week. These proceedings were commenced by statement of claim filed 14 July 2015. Dispute as to the terms of the vendor loan agreement 1. In order to determine some of the issues raised by way of defence and cross-claim, it is necessary to resolve a dispute as to the terms of the vendor loan agreement. That is no easy task. At the time of these transactions, the parties had an amicable relationship evidently based on mutual trust. The prospect of a breakdown in that relationship was clearly not addressed. Further, the two main actors in the transaction (Mr Hodgson and Mrs Besters) had openly discussed treating the loan for accounting purposes in a tax effective manner. In the result, the documentation of the loan agreement was haphazard and inconsistent. 2. The special conditions of the agreement for the sale of the property (set out above) contemplated the grant of a registrable second mortgage to secure the repayment of a loan of $540,000 for a term of two years with interest at 8.5%. Clause 14 contemplated that the second mortgage would rank behind a first mortgage securing the principal sum of $1,260,000. Those figures assumed a bank would lend on a loan to value ratio of 70% against a valuation of $1.8 million. However, as already explained, the independent valuation fell significantly short of that figure. The amount advanced by the CBA was only $875,000, of which (after payment of vendor's duty and other costs) an amount in the order of $786,000 was paid to or at the direction of Mr and Mrs Hodgson on settlement. It follows that, in the absence of any reduction in the agreed purchase price, the assumed amount of vendor finance (never expressly noted) was over $1 million. 3. Confusingly, on 2 May 2005, the day before completion of the sale, a second contract for the sale of the property was entered into containing terms and conditions identical to those in the contracts exchanged on 30 November 2004. The reason for that event is unexplained. The significance of it is that, although it was known by then that the amount of vendor finance would exceed $540,000, the clause contemplating second-ranking security for the sum of only $540,000 remained in the contract. 4. To add to the confusion, two documents dated 3 May 2005 were prepared. One was signed by the parties that day, the other was never signed. Each referred only to future advances, providing: It is agreed that Ian Robert and Marika Hodgson will advance to the borrowers various amounts from time to time. 1. The unsigned document contemplated a loan for a term of 12 months with interest at 9%. The agreement signed by the parties contemplated a loan for a term of ten years with interest at 9%. It also included the clause set out above providing for assignment of the loan to Hereford Management Services Unit Trust. The uncontested evidence was that that agreement was presented to Mr and Mrs Besters for the first time after completion of the sale of the property on 3 May 2005 and signed on the same day. Limitations Act 1969 (NSW) 1. Some of the defences raised on the pleadings can be disposed of briefly. First, Mr and Mrs Besters contend that the term of the vendor loan was two years, as contemplated in the special conditions to the agreement for the sale of the property. On that basis, they contend that the present claim, which was not commenced until 2015, is statute-barred. Mr and Mrs Hodgson contend that the term of the loan was 10 years, as stated in the one-page agreement signed after settlement on 3 May 2005. 2. The terms of the one-page agreement could certainly have been clearer. An issue explored during argument at the hearing was whether the agreement might have been intended to record the terms on which any future advances would be made by Mr and Mrs Hodgson, rather than to supercede the provisions of the special conditions in the agreement for the sale of the land. On balance, I do not think that is the way in which the agreement is to be construed. While there was the prospect of further advances to be made by way of capitalised interest, the principal borrowing was the shortfall between the purchase price and the amount paid to Mr and Mrs Hodgson on settlement. I am satisfied that, objectively construed, the one-page agreement was intended to govern all of the borrowings, including the vendor finance loan as well as any future advances. For those reasons, I am not persuaded that the plaintiffs' claim is statute-barred. Estoppel 1. Alternatively, Mr and Mrs Besters contend that Mr and Mrs Hodgson are estopped from asserting a position contrary to that set out in the correspondence exchanged following the initial demand. At that time, Mr Hodgson relied upon the unsigned one-page loan agreement dated 3 May 2005 and, on that basis, asserted that the term of the loan was 12 months. However, Mr Hodgson later acknowledged that he was mistaken in relying on that document, as he plainly was, in my view. 2. I do not think there is any force in the estoppel argument. It may accepted that Mr Hodgson represented that the term of the loan was 12 months but Mr and Mrs Besters disputed that. Indeed, it was Mr and Mrs Besters who provided to Mr Hodgson's lawyers a copy of the signed one-page agreement which stated that term of the loan was 10 years (CB 704). They asserted at the same time that the one-page agreement did not constitute the whole of the agreement between the parties, but declined to set out their understanding of the agreement. Mr Hodgson responded by noting that there was clearly a misunderstanding between the parties as to the terms of their agreement and reiterated his request that they set out their understanding of the terms of the whole agreement (CB 707). There the correspondence rested. That exchange cannot afford the basis for an estoppel. Alleged assignment to Havilah and release of the second defendant 1. A further preliminary matter raised by Mr and Mrs Besters is the contention that the loan was assigned to a different entity, Havilah (Moss Vale) Holdings Pty Ltd, after settlement of the purchase. They contend on that basis that Mr and Mrs Hodgson have no standing to bring these proceedings. They further contend that, at the same time, it was agreed that Mr Besters would be released as a borrower and accordingly that there can be no verdict against him. 2. Mrs Besters gave evidence (at par 128 of her affidavit) that, in mid-2005, she had a conversation with Mr Hodgson to the following effect: Mrs Besters: "From a tax perspective it would be better if the loan was transferred into my name only, as my income is higher than Jason's and I can claim all of the interest." Mr Hodgson: "Ok. It would be better for me if the loan was transferred into the Havilah Unit Trust as it would offset interest expenses in the trust." Mrs Besters: "Ok." 1. Following that conversation, Mrs Besters understood that the loan had been assigned to the corporate trustee of the Havilah Unit Trust and that she was the sole borrower. Certainly, that understanding is consistent with the manner in which both she and Mr Hodgson treated the loan in a number of financial records after that date. 2. Perhaps the most confounding document in the court book is a letter dated 13 March 2006 from Havilah Unit Trust to Mrs Besters (CB 624). The letter was prepared at a time when Mrs Besters was attempting to refinance the vendor loan so as to enable Mr Hodgson to be released from his guarantee to the CBA. In that context, Havilah Unit Trust provided written confirmation of "our private loan arrangement" as follows: Borrower: Mrs Tracey Besters Original loan amount: $812,173 Terms: Interest only – 10 years – Principal sums can be repaid at any time with no penalty. Interest paid in advance will be recalculated at such time and apportioned to any outstanding balance. Interest rate: 11.25% payable in advance first 12 months, reducing to 5% payable in arrears thereafter. 1. Apart from the term of the loan, none of those details accord with the original negotiations between the parties. It is not clear who prepared the letter. It was signed by Mr Ramsay describing himself as "manager" of the Havilah Unit Trust. As noted above, he was a friend of Mr and Mrs Hodgson and has lived with them for many years. Mr Ramsay did not swear an affidavit in the proceedings but Mrs Besters required his attendance for cross-examination. His evidence was surprising. He agreed that he has managed businesses and building sites for Mr Hodgson, adding "but his business as an accountant, I took very little interest in". Mrs Besters asked Mr Ramsay about his involvement in the Hereford Unit Trust and whether he was a director of Hereford. He interrupted (T65.25): "I may well have been a director. You've got to remember I'm a butcher by trade. I'm not an accountant. I have absolutely – if someone puts – if you or Mr Hodgson put a piece of paper in front of me, I signed it because I trusted you both." 1. Mr Ramsay accepted that he signed the letter from Havilah Unit Trust dated 13 March 2006. He gave the following evidence about that letter (at T68.3): "Q. Mr Ramsay, what was your understanding of the Havilah Unit Trust at the time you signed that letter? A. None at all. Q. So did you know that the Havilah Unit Trust was in existence? A. I knew that we had used the name Havilah because we found the name in a renovated building that we were renovating and we liked it and so that's what I knew, that we used it. Q. Did you know whether Havilah had any assets at any point in time? A. No idea. Q. Did you know Havilah had any loans or investments or-- A. Nothing at all. Q. Nothing at all. A. No. Q. So when you signed this letter you did that under the authority of-- A. Whoever gave it to me, either you or Ian, one or the other. Whoever gave it to me I signed it in complete faith of whoever it was that gave it to me, whether it was you or Ian. Q. So Mr Ramsay, if someone gives you something and you just sign it who has the authority of the signature on that letter in your opinion? A. That would have to be determined by people smarter than me. I've already gotten into trouble off ASIC for that, yes, and I would never do it ever again, however, I was a little bit naive and totally in trust of the people around me. So, yeah, but I'd never do it again." 1. From that point, Mrs Besters understood that the loan had been assigned to Havilah. At some time in the second half of 2006, she prepared a document (CB 661) setting out a proposal for the repayment of interest in which she referred to the loan as the "Havilah loan". The document records funds advanced on 3 May 2005 in the sum $1,020,342.30. Assuming interest at 9% capitalised up to 30 June 2006, the document sets out a calculation of monthly interest repayments from that date and provides a schedule for payment of those amounts quarterly in arrears, partly by the application of Mrs Besters' bonus entitlement. 2. The document bears a handwritten annotation that the first quarterly payment in the sum of $27,708.68 (for the period ending 30 September 2006) was paid on 11 October 2006. It is common ground that no further payments were made. As already explained, Mrs Besters' employment was terminated shortly after that, on 2 November 2006. 3. Mr Hodgson accepted that the payment made in October 2006 was recorded in a journal entry as having been paid to Havilah and that he processed that payment. 4. In a later letter of demand dated 12 January 2007, Mr Hodgson relied on Mrs Besters' calculations (in which she refers to the loan as "Havilah loan") as a document "setting out the mutual agreement between the parties as to the status of the loan" (CB 692). In cross-examination, he disagreed that, in doing so, he was also accepting that the loan was with Havilah. His evidence on that issue was extraordinary (at T123): HER HONOUR Q. So why did you credit the interest as Havilah income? A. I wanted to establish why - there was a number of loans in Havilah, and I wanted to establish that there was sufficient income to - to sort of balance - make the balance sheet look better. So I -- Q. So it was effectively a false entry? A. Not a false - there were different loans to different people over time and different investments, but-- Q. But you entered it as Havilah income, and you say now it wasn't Havilah income? A. Gee, the two contra'd out, so I've never assumed is - they would be recorded as Havilah income. Yes, I'm sorry, it would have been recorded out- Q. And you're saying it wasn't Havilah income? A. It was my income washed up through Havilah. 1. Mr and Mrs Besters contend, in accordance with the understanding recorded in those documents, that the loan agreement was assigned to Havilah in accordance with the conversation set out at [81] above. Ms Clemmett, who appears for Mr and Mrs Hodgson, submitted that the conversation is to be characterised at best as a suggestion which, if agreed, would be finalised in the future. She submitted that the conversation alone could not give effect to that suggestion, since any assignment at law would have to have been by writing under the hand of the assignor, as contemplated by s 12 of the Conveyancing Act 1919 (NSW). 2. That submission must be accepted. The evidence established unequivocally that the loan was treated by Mr Hodgson as a loan by Havilah. Unfortunately, however, on the evidence before me, it is impossible to determine whether that was a dishonest pretence to obtain some accounting benefit or whether it was the fact. Mr Hodgson's cavalier administration of the loan seems inconsistent with his personally carrying the credit risk of a loan of over $1 million plus interest at 9% for 10 years. He regarded the purchase price of $1.8 million as "not negotiable" and evidently had access as a borrower to substantial loan funds. It seems possible and even likely that the transaction was effected in such a way as to place the credit risk of the vendor loan with another entity. However, on the evidence before me, the sale was completed on the basis of vendor finance; Mr and Mrs Hodgson were the vendors and there is no evidence of any assignment of the loan at law. Accordingly, I think I am compelled to reject the defence based on the suggested assignment. 3. The conclusion must be the same in respect of the alleged release of Mr Besters. As submitted by Ms Clemmett, the conversation in which that proposition was raised (set out above) did not, in terms, release Mr Besters from any liability. I accept Ms Clemmett's submission that it was, rather, a discussion as to the manner in which the loan agreement might be recorded or reflected for accounting purposes. I do not think Mr and Mrs Hodgson can be taken, from that conversation alone, to have released Mr Besters from any liability. 4. Mr Hodgson's evidence on that issue (particularly as to his practice of "washing up" his income through Havilah) is nonetheless relevant to an assessment of his attitude to his financial dealings and reflects poorly on him. Misleading or deceptive conduct 1. The first substantive claim made by Mr and Mrs Besters against Mr and Mrs Hodgson is a claim in misleading or deceptive conduct based on a combination of acts and statements including representations made by Mr Hodgson to Mr and Mrs Besters, advice offered by him as to the desirability and viability of the transaction and steps he took to assist them in obtaining finance so as to enable the transaction to proceed (pars 36-50 of the defence, repeated in par 1 of the cross-claim). 2. The defence pleads that the advice and representations were made in contravention of s 18 of the Australian Consumer Law, s 52 of the Trade Practices Act 1974 (Cth) or s 42 of the Fair Trading Act 1987 (NSW). However, the plaintiff's written submissions noted that the Australian Consumer Law was not in force at the relevant time. It was not disputed that the provisions of the Trade Practices Act and the Fair Trading Act relied upon were applicable, nor that any of the relevant conduct was in trade or commerce. As it related to the sale of commercial premises and a business, I am satisfied that it was. 3. Mr Hodgson's approach to the misleading or deceptive conduct case was to address each alleged representation or piece of advice individually. The proper approach, in my view, is to consider the circumstances established by the evidence as a whole. Mr and Mrs Besters do not contend that each aspect of the conduct relied upon, viewed separately, was misleading or deceptive. Rather, the burden of their claim is that the combination of acts undertaken and representations made was calculated to persuade them to purchase the property for a consideration of $1.8 million when it was worth considerably less than that and in circumstances which did not assure them of any right to acquire the business represented as part of the deal. 4. The individual representations specified in the defence are to be viewed in that context. Mr and Mrs Besters allege that Mr Hodgson represented to them: 1. that Mrs Besters was due a pay rise from IR Hodgson & Associates and that her income would increase to $150,000 almost straight away; 2. that Mrs Besters' income from IR Hodgson & Associates would continue to rise over time as she took on more responsibility; 3. that Mr Besters, through Proview Financial Solutions, would start to earn more and more income because Mr Hodgson would get Mr Besters and his business more involved in the accounting practice; 4. that there was scope for Mr Besters, through Proview Financial Solutions, to help the business with its SMSF (self-managed super fund) administration work; 5. that Mr Hodgson held 75 ordinary shares in IR Hodgson & Associates and that Mrs Hodgson held 25 ordinary shares; 6. that, moving forward, Mr Hodgson envisaged backing out of the business and giving more control of the day to day running of the business to Mrs Besters; 7. that Mrs Besters would be a natural fit to take over the business; 8. that Mr and Mrs Besters should purchase the property as part of a business succession proposal and to subsequently acquire the business; 9. that the price of the property was $1,800,000.00 and that the price was not negotiable; 10. that Mr Hodgson knew how much he and Mrs Hodgson had spent on the property and it was worth $1,800,000.00; 11. that, if Mr and Mrs Besters decided not to buy the property, he would sell it to someone else; and 12. that, if Mr and Mrs Besters agreed to purchase the property for $1,800,000.00, as part of the business succession plan, he would sell them the business. 1. Mr and Mrs Besters further allege that Mr Hodgson gave them the following advice: 1. that the 2004 Carpenter valuation was not a true market value of the property; 2. that Carpenters got the valuation wrong; 3. that the net effect of the purchase of the property and the business would not affect Mr and Mrs Besters' personal cash flow and lifestyle; 4. that with potential tax savings and income from the property, the purchase of the property would not really cost Mr and Mrs Besters anything; 5. that Mr and Mrs Besters had a choice of either paying tax or interest and that he (Mr Hodgson) believed that they should pay interest and acquire an appreciating asset; 6. that Mr Hodgson would arrange it so that Mr and Mrs Besters were no worse off than their current financial situation; and 7. that they should investigate their lending options, borrow as much as the bank would lend them and that Mr Hodgson would cover the difference with vendor finance. 1. There was no real dispute as to the fact that advice was given more or less in those terms. I am satisfied that it was. 2. Finally, Mr and Mrs Besters rely on the steps Mr Hodgson took to assist them to obtain finance including his correspondence and discussions with the CBA and his agreement to guarantee the CBA loan. 3. Mrs Besters submitted that Mr Hodgson was "the architect and facilitator of the transaction". He was Mrs Besters' employer and acted as accountant and sometime financial advisor to both her and her husband. In his evidence, Mr Hodgson sought to suggest that he had a lesser role in their affairs than asserted by Mr and Mrs Besters. I prefer the evidence of Mr and Mrs Besters on that issue. I am satisfied that Mr Hodgson did act in the role of an advisor and mentor to them and that they placed significant trust in him. I am satisfied that they respected him as an experienced professional whose advice they accepted. In terms of his acting as their accountant, it may be (as contended by Mr Hodgson) that Mrs Besters prepared the relevant documents but, as Mr Hodgson's employee, her professional work was ultimately under his guidance and supervision. That she ordinarily acceded to his supervision may be inferred from her careful explanation for not doing so in the difficult circumstances in which she found herself shortly before her employment was terminated, as set out in her email of 2 November 2006, considered at [65] above. 4. A significant feature of Mr Hodgson's conduct in his negotiations with Mr and Mrs Besters was the presentation of the proposed sale of the property as an aspect of his succession plan. Both the value attributed to the property by Mr Hodgson and the Besters' capacity to service their borrowings were critically dependent upon the fulfilment of the expectations Mr Hodgson created that he intended to sell the business to Mrs Besters and refer financial services work to Mr Besters. The value attributed to the property by Mr Hodgson (as set out in the Ian document and explained in the meeting on 23 October 2004) was expressly based exclusively on rental income from what were in effect three owner-occupied suites, the future receipt of which would naturally depend upon the continuity of Mrs Besters' employment by IR Hodgson & Associates and, to a lesser extent, Mr Besters' receipt of referral work through the firm. 5. The plaintiffs' atomised approach in addressing each aspect of the conduct separately in the submissions overlooks that important context. It is nonetheless appropriate to consider the principal submissions made on that issue. 6. As to representation (a) (that Mrs Besters was due a pay rise), it is true, as submitted by the plaintiffs, that Mrs Besters did in fact have her salary increased to $150,000. However, as Mrs Besters noted in her submissions, the point was that the representation to that effect was made only after she told Mr Hodgson she could not afford to buy the property. It was an aspect of his presentation of an attractive deal which would be workable for her. 7. As to representation (b) (that Mrs Besters' income from IR Hodgson & Associates would continue to rise over time as she took on more responsibility), Ms Clemmett submitted that no time frame was contained within the representation and accordingly that it was not shown to be a misrepresentation. Stripped of the context in which the representation was made, that may be accepted. However, not every aspect of the conduct relied upon was alleged to be misleading or deceptive, viewed on its own. The principal significance of the representation as to future income was that it contributed to the attractiveness of the deal presented by Mr Hodgson and the measure of reassurance he gave regarding its viability. 8. As to representations (c) and (d) (concerning the prospect of more work and greater income for Mr Besters), as in other contexts, Mr Hodgson sought in his evidence to distance himself from any such representation. In particular, he asserted that it was Mrs Besters who asked him if Mr Besters could assist in the business of IR Hodgson & Associates "with the intention that some of her income would be attributed to Jason in order to provide him with a financial benefit". I do not accept that evidence. Mr Besters' version of the discussion is summarised above. The letter written by Mr Hodgson to the CBA dated 11 February 2005 (considered at [53] above) is significant in that context. While I appreciate that the letter is directed to a third party, I am persuaded by the terms of the letter that Mr Hodgson was at that time minded to assure Mr Besters that he would receive lucrative referral work from Mr Hodgson's business. I am satisfied that Mr Hodgson made the representations attributed to him, offering the prospect of more work if Mr Besters came into the fold in the context of his presentation of an attractive deal, a part of which would be that the Besters would buy the property. 9. I am satisfied that Mr Hodgson had no reasonable grounds for making representations as to Proview's future income. He effectively acknowledged as much in his second affidavit, where he said (at par 41) that he would not have promised, and did not promise, that Mr Besters would earn more income through referrals from his business. He said: "I was very careful not to recommend Jason, in his capacity as a mortgage/finance broker, to my clients, nor refer clients to him, nor advise them to see him. At all times I was careful to keep my business separate from Jason's business, because I did not consider it would be professional to refer my clients to someone whose business was new, and was related to an employee of my business". 1. The high moral stance adopted in that evidence is completely at odds with the representations Mr Hodgson made to the CBA in the letter of 11 February 2005, which expressly represented that Mr Besters would be receiving an income of $37,000, increasing to $50,000. Mrs Besters cross-examined Mr Hodgson about that inconsistency (at T76-79). I found his evidence on that issue unsatisfactory. The fact that he wrote to the CBA in the terms set out above tends to corroborate the Besters' version of events, namely, that Mr Hodgson was representing to them (among other things) that they could have confidence in their ability to proceed with the purchase because (among other things) Mr Hodgson would direct work to Mr Besters and so increase his income. 2. The remaining representations relate to two topics, namely, the proposal that Mrs Besters should take over the business and the value of the property. As to representation (f) (that Mr Hodgson envisaged backing out of the business and giving more control of the day-to-day running to Mrs Besters), the plaintiffs submitted that Mr Hodgson made no promise to that effect. For present purposes, however, the relevant contention is that he made a clear representation as to his intention in that respect and acted in such a way as to reassure Mr and Mrs Besters that the proposal he presented would come to fruition. 3. A similar submission was made as to representation (l) (that if the defendants agreed to purchase the property for $1.8 m as part of the business succession plan, Mr Hodgson would sell the business to them). Ms Clemmett submitted that Mr Hodgson made no promise to sell the business. In his third affidavit at par 39, Mr Hodgson said: "I would not have promised, and did not promise, that Jason and Tracey would take over the business. Whilst I agree this would have been discussed as a possibility, given my age, I would not have made a definite promise that this would occur. The sale of the property and any sale of the business were not, however, conditional upon each other." 1. Again, however, the relevant contention is that Mr Hodgson made a representation as to his intention in that respect. Further, his conduct was calculated to persuade Mr and Mrs Besters that he would ensure that occurred. 2. Ms Clemmett relied in that context on the decision in Watson v Foxman (1995) 49 NSWLR 315 (McLelland CJ in Eq) where it was observed that, where the misleading conduct is alleged to have arisen as a result of spoken words, special care needs to be taken before determining, on the relevant standard of proof, that the words convey a misleading impression. His Honour said (at pages 318-319): "In many cases (but not all) the question where spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience." 1. There is no doubt that those remarks are applicable to the present case, but they do not apply exclusively to the evidence of Mr and Mrs Besters. Mr Hodgson was not an impressive witness. In my assessment, the best guide as to the nuances of his negotiations with Mr and Mrs Besters is to be gleaned from the objective records. A careful, chronological analysis of the steps taken by Mr Hodgson in respect of the sale of the property (including the earlier listing of the property on the open market and the considerable lengths to which he went to assist the Besters to obtain a bank loan) has persuaded me that, in all likelihood, his conduct towards Mr and Mrs Besters was calculated to pitching the proposal to them at its highest, giving every assurance as to its viability. 2. I have taken care in this context to make allowance for the distorting effect of self-interest on the part of Mr and Mrs Besters in their account of events. On the whole, I found their evidence to be careful and frank. No doubt the wisdom of hindsight has firmed up some of their impressions of things that were said but I do not think that undermines the central import of their evidence. 3. By contrast, Mr Hodgson's evidence was not impressive. On a number of occasions he professed no recollection of events of which one might have expected him to have some recollection (his claim to be unsure as to whether he had listed the property on the open market before he offered it for sale to Mr and Mrs Besters is one example). When presented with contemporaneous records he capitulated to the obvious. Mrs Besters, although not legally trained, conducted an effective cross-examination. On a number of occasions Mr Hodgson volunteered that aspects of his exchanges with Mrs Besters were the result of suggestions made by her to him. For example, he suggested it was Mrs Besters who first proposed that the loan should be in the name of Hereford and claimed that it was he who decided not to proceed on that basis because he did not feel comfortable doing it that way. Mrs Besters' cross-examination on that issue (set out above) had an authenticity which I found persuasive in support of her version of events (T87-88). 4. Although Mr Hodgson did not, in terms, promise to sell the business to Mr and Mrs Besters, I am satisfied that he represented he would. 5. As to the representations concerning the value of the property, it was not contentious that Mr Hodgson represented to Mr and Mrs Besters that the property was worth $1.8 million. He maintained that position at the hearing. 6. I am further satisfied that Mr Hodgson's conduct in making those two principal representations, considered in the context of his conduct as a whole (as discussed above) was misleading or deceptive. As to the sale of the business, the very fact that Mr Hodgson responds to the case against him by asserting that he made no promise to that effect tends to confirm that he had no intention of holding himself to the representation made (that, if the defendants purchased the property for $1.8 million, he would sell the business to them). A share sale agreement was ultimately entered into but, as already noted, it included a clause that settlement was conditional upon Mrs Besters continuing to work in the company on terms and conditions similar to those on which she was employed prior to the commencement of the agreement (clause 11.1 at CB 528). I am satisfied that Mr Hodgson was careful not to commit himself to a sale of the business at the time of the sale of the property but that he represented otherwise to Mr and Mrs Besters. 7. Moreover, Mr Hodgson expressly represented that the property was worth $1.8 million. It was not simply a question of that being the purchase price. He positively sought to persuade Mr and Mrs Besters that that was its true worth. Ms Clemmett noted on behalf of the plaintiffs that Mr and Mrs Besters did not adduce any evidence from an expert valuer as to the true value of the property as at the date of sale. I accept that, in those circumstances, the question of whether the representation as to value was misleading or deceptive is difficult. On balance, I have been persuaded that it was, for the following reasons. 8. Although no expert valuer was called as a witness, the two Carpenter valuations were admitted without objection or qualification. The defendants' written submissions presented a cogent argument that the property was never reasonably worth the value that Mr Hodgson represented it to be, relying on the following analysis. The property was acquired in October 2000 for $440,000. Mr Hodgson estimates that he spent $700,000 on it, giving a total investment by the Hodgsons (if indeed that was the actual expenditure) of $1,140,000. It was listed for sale in March 2003 for $2.2 million. There were no interested parties. A valuation prepared by Carpenters at around that time was not in evidence but was described in the later valuation as being slightly less conservative than the later valuation. In December 2003, Carpenters valued the property at $1,075,000. That valuation was not disclosed by Mr Hodgson to Mr and Mrs Besters until after completion of the sale. Mr Hodgson's representation as to a value of $1.8 million was made in October 2004. In December 2004, Carpenters valued the property at $1,250,000. The author of that report had the front page of the exchanged contract and described the value of $1.8 million as "substantially above the property's real worth" on the basis that "certain leases have been entered into by the owners at inflated levels so as to justify a higher price". 9. The defendants' submissions also relied on later valuations obtained at various stages. No independent valuer ever valued the property at more than $1,275,000. It was sold on the open market in May 2015 for $950,000. 10. A critical aspect of the contention that the representation as to value was misleading or deceptive is the presentation of the justification for the value in the Ian document. As already noted, the author of the Carpenter valuation considered that the leases had been entered into at inflated levels so as to justify a higher price. Since the author of the report was not called as a witness available to be cross-examined as to that opinion, I do not think I can give it any substantial weight. However, importantly, the rental income represented by Mr Hodgson would be critically dependent upon the related aspect of his proposal, namely, Mr and Mrs Besters' continued and increasing participation in the business and their ultimate acquisition of it. Mr Hodgson's representations on that issue were calculated to give reassurance not only as to Mrs Besters' capacity to service the loan but also as to his representation concerning the value of the property. Its value, as represented by him, was inextricably linked with the ongoing income to be generated by his practice and the work he represented would be referred by his practice to Proview. 11. As to the question of reliance, there was no dispute that Mr and Mrs Besters brought the property acting in reliance upon the representations made by Mr Hodgson. He did not suggest otherwise; rather the burden of his defence to the cross-claim was that the representations relied upon were not shown to have been misrepresentations. 12. For those reasons, I am satisfied that the cross-claim on the grounds of misleading or deceptive conduct should succeed. The difficult question of remedy is considered below. Undue influence 1. The defendants assert that the loan agreement was void and of no effect because Mr and Mrs Besters were induced to execute it whilst acting under the influence of Mr Hodgson (pars 51 to 54 of the defence, repeated in par 3 of the cross-claim). This aspect of the claim can be disposed of briefly. Ms Clemmett's careful and thorough submissions have persuaded me that this is not a case of undue influence. 2. The relationship between Mr Hodgson and Mr and Mrs Besters did not fall within the categories recognised to give rise to a presumption of undue influence. The onus is on Mr and Mrs Besters to establish that, by reason of Mr Hodgson's influence, they were not acting of their own free will. Ms Clemmett noted that, in making that determination, a distinction is to be drawn between unconscionable conduct and undue influence, as explained by Mason J in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 443; [1983] HCA 14 at 461 as follows: "In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party on unconscientiously taking advantage of that position." 1. Ms Clemmett's written submissions provided a comprehensive analysis of the kind of circumstances in which undue influence has been established but it is not necessary to go to those authorities. In my assessment, the evidence fell short of establishing that the will of Mr and Besters was overborne. For the reasons explained below in my consideration of the Contracts Review Act claim, I consider that the agreement was unjust. However, as Mrs Besters frankly acknowledged in her own affidavit, she felt comfortable proceeding with the transaction after preparing her own cash flow (albeit one based on the misleading information provided to her by Mr Hodgson). In her conduct of the proceedings, she presented as an intelligent woman with a healthy measure of self-determination. I am not persuaded that Mr and Mrs Besters exercised anything other than independent and voluntary will in entering into the agreement. For those reasons, the claim in undue influence must fail. Unconscionability and the Contracts Review Act 1. Paragraphs 55 to 57 of the defence (repeated in par 5 of the cross-claim) plead a claim under the Contracts Review Act. In the alternative, the same matters are relied upon as the basis for a claim of unconscionability but the principal focus of the submissions was the statutory claim. 2. The claims are based on the following aspects of the loan agreement: 1. the defendants had not seen the form of the loan agreement prior to its production by the first plaintiff to the defendants for execution by the defendants on 3 May 2005; 2. the first plaintiff produced the loan agreement to the defendants after the settlement of the purchase of the property; 3. the defendants were afforded no opportunity to negotiate any alterations to the terms of the loan agreement or to obtain independent advice thereon; 4. the loan agreement did not stipulate the amount of the funds advanced; 5. the loan agreement did not include any default provisions; 6. the terms of the loan agreement were contrary to special condition 14 of the sale contract; 7. the purchase of the property was part of a business succession plan and at the time of execution the defendants had not signed the share sale or option agreement and were not aware of the terms of those agreements; 8. the first plaintiff was the accountant to the first and second defendants; 9. the first plaintiff was a director of IR Hodgson & Associates, the first defendant's employer; 10. the first plaintiff was the first defendant's superior; 11. prior to the execution by the defendants of the loan agreement the first plaintiff orally made a number of representations to the defendants as set out at paragraph 36 [of the cross-claim] and provided advice to the defendants as set out at paragraph 37 [of the cross-claim] and provided professional assistance to the defendants as set out at paragraph 39 hereto; and 12. the representations and the advice induced the defendants to execute the loan agreement. 1. Those contentions were pleaded in response to the plaintiff's pleading which defined the relevant "loan agreement" as the agreement entered into on 3 May 2005. However, the hearing was conducted on the basis that the contracts for the sale of land exchanged on 30 November 2004 also formed part of the relevant agreement or at least informed the loan amount: see plaintiffs' primary written submissions at [3]; T225.4. 2. In defending the cross-claim, the plaintiffs did not plead or argue any issue concerning to the application of s 6(2) of the Contracts Review Act. That section provides: "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 section raises a difficult question in this case. The defendants' case is expressly based on the contention that the purchase of the property was "part of a business succession plan". It might have been argued on that basis that the loan agreement was entered into for the purpose of a business or profession "proposed to be carried on" by Mrs Besters within the meaning of s 6(2). However, for Mr Hodgson to raise that issue, it would have required him to embrace an aspect of the defendants' case he expressly rejects. It is his case that he made no promise that Mr and Mrs Besters would take over the business. He agreed "this would have been discussed as a possibility" but said, given his age, he "would not have made a definite promise" and said the sale of the property and "any" sale of the business were not conditional upon each other. 2. Perhaps that explains why the section was not pleaded in reply to the cross-claim. I have nonetheless considered whether the Court is precluded by the terms of the section from granting the relief sought. 3. The section was considered by the Court of Appeal in Ford by his Tutor Beatrice Ann Watkinson v Perpetual Trustees Victoria Limited (2009) 75 NSWLR 42; [2009] NSWCA 186. Mr Ford had signed a loan agreement and mortgage to secure a loan of $200,000 to purchase a cleaning business in his name. However, the business was to be for the benefit of Mr Ford's son, who manipulated his father's entry into the transaction. Mr Ford was found to have had no understanding at all of the transaction. There was no intention for him to take any benefit whatsoever from the cleaning business (although it was purchased in his name) or to carry on the business. The Court said (at [98] per Allsop P and Young JA, Sackville AJA agreeing at [134]): "The application of s 6(2) should be looked at as a matter of substance and not form. As the primary judge found, Mr Ford was in no real sense a participant in the scheme, but a hapless victim of manipulation. The primary judge described Scott as the "actual, but not the legal, proprietor" of the business. In such circumstances, as a matter of fact and substance, the business was not "carried on" or "proposed to be carried on" by Mr Ford for the purposes of s 6(2)." 1. There is no issue in the present case as to Mrs Bester's understanding; she well understood the transaction and, for her part, was eager to buy the property for the purpose of carrying on the business she anticipated she would take over in due course. If the test were purely subjective, it might be concluded that Mrs Besters bought the property for the purpose of a business or profession "proposed to be carried on" by her. On that analysis, s 6(2) would preclude her from obtaining relief under the Act. 2. I do not think that is the construction to be put on the section. Accepting (as the Court of Appeal has said) that the application of the section should be looked at as a matter of substance and not form, I have concluded that the phrase "proposed to be carried on" should be taken to refer to something more than a hope or an aspiration on the part of the relevant "person". To construe the section in that way would mean that the very kind of person likely to need the protection of the Act would be excluded from its operation; the more unrealistic the hope or aspiration, the more likely such a person would be to be in need of protection. Mr Hodgson's position is that he at no stage promised to sell the business to Mrs Besters. He made no legal commitment to do so at the time the relevant contract was entered into. In practical terms, it could not be said that the business (then owned by Mr Hodgson) was one "proposed" to be carried on by Mrs Besters at the time she and her husband purchased the property. For those reasons, I have concluded that s 6(2) does not preclude the grant of relief in this case. 3. Section 7 of the Contracts Review Act 1980 (NSW) provides: "(1) Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following: (a) it may decide to refuse to enforce any or all of the provisions of the contract, (b) it may make an order declaring the contract void, in whole or in part, (c) it may make an order varying, in whole or in part, any provision of the contract, (d) it may, in relation to a land instrument, make an order for or with respect to requiring the execution of an instrument that: (i) varies, or has the effect of varying, the provisions of the land instrument, or (ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the land instrument. (2) Where the Court makes an order under subsection (1) (b) or (c), the declaration or variation shall have effect as from the time when the contract was made or (as to the whole or any part or parts of the contract) from some other time or times as specified in the order. (3) The operation of this section is subject to the provisions of section 19." 1. Section 9 of the Act requires the court, 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, to have regard to the public interest and to all the circumstances of the case. Section 9(2) provides a mandatory but non-exhaustive list of factors to which the court must have regard to the extent to which they are relevant to the circumstances. 2. The first task is to determine whether the contract was unjust within the meaning of s 7. As explained by Allsop P in Provident Capital Ltd v Papa (2013) 84 NSWLR 231; [2013] NSWCA 36 at [7], that calls for a normative evaluation of the totality of the relevant circumstances. His Honour said: "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." 1. There is no requirement to find that there was any moral obloquy on the part of the respondent to a claim under the section: Fast Fix Loans Pty Ltd v Samardzic [2011] NSWCA 260 at [50] (per Allsop P, Bathurst CJ and Campbell JA agreeing at [1] and [55]): "There is no need, for the purposes of the Act, to find a degree of moral obloquy in the third party. To frame unjustness in terms of the "innocence" (or otherwise) of the third party is to misdirect the enquiry. It is not what is required by the Act, ss 7 and 9. What is to be undertaken is an overall evaluation in determining both unjustness and the justness of granting relief, which involves a consideration of all the relevant circumstances of the case." 1. In my assessment, the combination of the factors relied upon by Mr and Mrs Besters set out above resulted in a contract that was unjust in the circumstances relating to it at the time it was made. The principal basis for that conclusion is the combination of the excessive sale price and the fact that any prospect Mr and Mrs Besters had of repaying the loan was inextricably linked to their ongoing participation in the business of IR Hodgson & Associates. As already noted, the price Mr Hodgson put on the property was unrelated to any independent assessment or evaluation of its worth but rather reflected what he wanted for it. Although the Carpenter valuation might have served as a warning that he was overstating the true value of the property, I am satisfied that Mr Hodgson exerted considerable influence on Mr and Mrs Besters in persuading them otherwise. The entire basis for his purported valuation was the rental income, the whole of which was entirely dependent upon the whole proposal presented by him to Mrs Besters, importantly including the prospect of her taking over the business and of Mr Besters improving his income by receiving referral work from the business. It was presented as a whole package in circumstances where Mr and Mrs Besters trusted Mr Hodgson to look after their best interests. He actively sought to persuade them of that. 2. It must be acknowledged that there was no obligation on Mr Hodgson to sell his business to Mrs Besters. I accept that he made no promise to that effect. But he represented that Mrs Besters would ultimately take over the business. For the reasons already explained in the discussion of the misleading or deceptive conduct claim, I am satisfied that he did so having no intention of holding himself to that representation if he chose otherwise. 3. Ms Clemmett drew my attention in this context to the decision of Adamson J in Gray v Latter [2014] NSWSC 122. The circumstances of that case have some similarity with those of the present case (except that the property in question was residential). It was submitted in that case that there was no unconscionability in the plaintiffs' actions as the defendants were educated, English-speaking adults who were not subject to any relevant disability or disadvantage. The same may be said of Mr and Mrs Besters. 4. In considering that submission, Adamson J said at [100]: "Although equitable considerations are relevant to the application of the Contracts Review Act, they neither define, nor confine, it. The purpose of the Act is not to punish wrongdoers. The Act is not directly, or even primarily, concerned with the conscience of the party other than the party seeking relief. Rather, it empowers the Court to provide redress to those who are subjected to unjust contracts and, where required, to relieve them from compliance with some or all of their legal obligations arising from an unjust contract or provision in certain circumstances. Further, the matters to be taken into account in determining whether a contract is, in whole or in part, unjust demonstrate that educated English-speaking adults who are not disabled are not disentitled on those grounds to relief under the Act." 1. I would respectfully agree. 2. A principal aspect of the unjustness found by Adamson J in that case was the disparity between the price and the value of the rural property in question. At [107], her Honour noted that such disparity does not of itself prove unfairness but that it "tends to show that unfair use was made of an occasion". In my assessment, the same can be said here. In presenting the sale of property as an aspect of his succession plan without at the same time putting in place a binding arrangement whereby Mrs Besters would acquire the business, or even part of it, Mr Hodgson made unfair use of the occasion. Remedy 1. The cross-claim seeks the following relief: "1. Damages for misleading or deceptive conduct: (a) pursuant to section 236 of the Competition and Consumer Act 2010; or (b) in the alternative section 82 of the Trade Practices Act 1974; or (c) in the alternative section 68 of the Fair Trading Act 1987. 2. Interest pursuant to section 100 of the Civil Procedure Act 2005. 3. A declaration that the Loan Agreement is void. 4. Alternatively to paragraph 3, an order that the Loan Agreement be set aside pursuant to the Contracts Review Act 1980, or, alternatively, under the general law. 5. Alternatively to paragraphs 3 and 4, an order varying the Loan Agreement in such a manner as the Court shall think fit. 6. Damages. 7. Costs." 1. The reference to s 236 of the Competition and Consumer Act 2010 (Cth) should be taken to be a reference to s 236 of the Australian Consumer Law, which is schedule 2 to the Act. 2. It is convenient first to address the question of relief under the Contracts Review Act. The relief the Court is authorised to grant under s 7 of the Act (if it considers it just to do so and for the purpose of avoiding as far as practicable an unjust consequence or result) includes refusing to enforce the contract or making an order declaring the contract void. The relief sought in the cross-claim does not exactly reflect the language of those provisions; the defendants seek to have the loan agreement "set aside". However, the effect of the order sought is within the scope of those permissible remedies. 3. In my assessment, the just result in the present case is to refuse to enforce the loan agreement, for the following reasons. 4. Ms Clemmett noted that the pleaded case is that, as a result of their reliance on the representations and the advice, the defendants agreed to pay a purchase price that exceeded the value of the property together with stamp duty on that inflated price (par 2 of the cross-claim). However, it was always clear from the relief sought and the manner in which the case was conducted by Mr and Mrs Besters that their primary claim was to be relieved altogether of the burden of the loan agreement. 5. Ms Clemmett submitted that any relief under the Act ought not to lead to the result that the plaintiffs receive less than the value of the property conveyed to the defendants. She relied in that context on the decision of Adamson J in Gray v Latter referred to above. The circumstances of that case were different in that the property in question had not been sold by the time of the hearing and the purchasers (the defendants in the proceedings) wished to retain it. After hearing submissions as to a number of alternative scenarios, her Honour ultimately determined that the just course would be to reduce the consideration in the sale contract to the true value of the property at the time the defendants purchased it and to allow the defendants time to refinance the reduced debt so as to enable them to pay out the plaintiffs and retain the property. 6. Ms Clemmett submitted that the analogous course in the present case would be to vary the amount of the vendor loan so as to reflect the value of the property as being that determined by Carpenter in the 2004 valuation, namely, $1,250,000 (re-calculating interest at 9% on the reduced loan amount). As already explained, the Carpenter valuation provided only reluctant support for the valuation of $1,250,000 because of the issue of over-rent. The author considered that, but for the over-rent, the value was $1,195,289. 7. More importantly, however, the submission overlooks a number of important considerations in the present case which were not present in Gray v Latter. 8. First, as explained above, the true value of the property in the present case was inextricably linked with its ongoing use as the premises from which to conduct the business Mrs Besters anticipated she would acquire. In the result, it was Mr Hodgson, not Mrs Besters, who obtained that benefit. The sale of the property separately from the sale of the business enabled Mr Hodgson to discharge a debt of almost $750,000 to Westpac; to continue to conduct the business of IR Hodgson & Associates from the premises as a tenant and to exclude Mrs Besters from the business and the commercial part of the premises. Conversely, it left Mrs Besters and her husband with the property but also with the burden of loans in the sum of $1.8 million and no assurance of any future in the business they hoped to conduct from the commercial part of the property. 9. Secondly, the exclusion of Mrs Besters from that opportunity was a direct result of Mr Hodgson's peremptory decision to terminate her employment. That he reserved to himself the power to take that course notwithstanding her agreement to purchase the property is a critical aspect of the unjustness of the contract in the circumstances in which it was entered into. 10. The authority to take that subsequent conduct into account is to be found in s 9(5) of the Act, which provides: "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." 1. In my view, Mr Hodgson's decision to terminate Mrs Besters' employment was conduct in relation to her performance of the loan agreement because the value of the property to her and her ability to pay the price sought were so obviously dependent upon her continued participation in and ultimate acquisition of the business. Mr Hodgson said he gave no consideration to those issues when he terminated Mrs Besters' employment. It is clear that he obtained a copy of the share sale agreement before he informed Mrs Besters of his decision to end her employment. It seem likely in that circumstance that he was aware that the termination of her employment would have the result that he was not obliged to complete the share sale agreement. However, he said that he did not consider the impact his decision would have on her capacity to service the loans. He acknowledged that he did not issue any warning letter to Mrs Besters and that he did not give her any opportunity to "rectify" her position with the business (T139.44 to 142.22). 2. It would be surprising if Mr Hodgson truly gave no thought to the likely impact of his decision to terminate Mrs Besters' employment on her ability to service the loan or the fairness of taking that course in light of the circumstances in which he persuaded her to buy the property. But whether or not he did turn his mind to those matters, the result of his decision is the same. 3. I have given anxious consideration to the fact that the property was conveyed to Mr and Mrs Besters and that, although they were excluded from the business part of the premises for a period, they later regained possession of the whole of the premises and had the benefit of the property until its sale in 2015. I have concluded, however, that in being excluded from the opportunity to buy the business, they were deprived of so much of the benefit of acquiring the property, overpriced as it was, as to render it unjust in all the circumstances to enforce the loan agreement. 4. In light of that conclusion it is not necessary to determine the difficult question of the relief that might have been granted in respect of the claim for misleading or deceptive conduct. However, in case my conclusion as to the unfair contract claim is wrong, I should indicate the course I would have taken in respect of that claim. 5. The specific relief sought was damages, the quantification of which was not addressed in any great detail by either party. Ms Clemmett noted that the pleaded case (in par 2 of the cross-claim) is that the loss suffered was the difference between the price paid for the property and what was said to be its value. However, in the absence of any expert evidence, and noting the complicating factor that the value of the property to Mr and Mrs Besters was linked with their anticipation of taking over the business, its "value" is difficult to determine. 6. The relief sought did not expressly seek the alternative remedies available under s 87 of the Trade Practices Act or s 72 of the Fair Trading Act (as they stood at the relevant time; Ms Clemmett provided the Court with extracts from the historical version of the Fair Trading Act for 31 March 2005 to 14 August 2005, presumably on the basis that the purchase of the property was completed within that period). Similar remedies are now available under s 237 of the Australian Consumer Law whereas the cross-claim invoked only s 236 of that law. On the other hand, as the cross-claim sought relief under the Contracts Review Act, the plaintiffs were on notice of the fact that the relief sought included having the loan agreement set aside. As already noted, that is the basis on which the Besters conducted the case. 7. Had the misleading or deceptive conduct claim been the only claim on which the defendants were successful, it follows from my reasons given above in respect of the Contracts Review Act claim that I would have been minded to make an order of the kind contemplated by s 72(5)(c) of the Fair Trading Act, refusing to enforce the loan agreement. In that event, however, it would have been necessary first to afford the plaintiffs an opportunity to be heard on that issue, since relief under that section, although within the contemplation of the orders sought under other claims, was not expressly sought in the pleading. 8. In any event, for the reasons I have stated, pursuant to s 7(1)(a) of the Contracts Review Act, the order I make is to refuse to enforce the loan agreement dated 3 May 2005. ********** 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: 30 January 2018