Supreme Court New South Wales Medium Neutral Citation: NWC Finance Pty Limited v Borsellino [2018] NSWSC 134 Hearing dates: 3 – 5 April 2017 Date of orders: 20 February 2018 Decision date: 20 February 2018 Jurisdiction: Common Law Before: Rothman J Decision: (1) The first defendant shall pay the plaintiff the amount of $151,802.59; (2) Pursuant to the terms of s 100 of the Civil Procedure Act 2005 (NSW), the Court orders interest before judgment on the aforesaid amount at the rate prescribed by the Uniform Civil Procedure Rules 2005 (NSW) for interest after judgment. Such interest shall be calculated to commence from 30 September 2016 until the date of judgment; (3) Pursuant to the terms of s 101 of the Civil Procedure Act, interest on the judgment amount from the date of judgment; (4) The first defendant shall pay the plaintiff's costs of and incidental to the proceedings incurred after 30 September 2016; (5) Otherwise the proceedings are dismissed. Catchwords: POSSESSION – Registered mortgage – default – compromise of debt – alleged repudiation of Deed of Release – no repudiation – debt confined to outstanding money from Deed CONTRACT – principles of repudiation – secondary obligation to pay damages for the breach – construction of the contract Legislation Cited: Bankruptcy Act 1966 (Cth), s 50 Civil Procedure Act 2005 (NSW), ss 100, 101 Contracts Review Act 1980 (NSW), ss 6(2), 7 Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Byrne & Frew v Australian Airlines Ltd (1995) 185 CLR 410 at 465; [1995] HCA 24 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; [1983] HCA 14 Commissioner of Taxation v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342; [2008] HCA 22 Esanda Finance Corp Ltd v Viet Nho Tong (1997) 41 NSWLR 482 Garcia v National Australia Bank Ltd (1998) 194 CLR 395; [1998] HCA 48 Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 Hyundai Heavy Industries Co Ltd v Papadopoulos [1980] 2 All ER 29 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115; [2007] HCA 61 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; [1933] HCA 25 Morris Finance Ltd v Brown (2016) 93 NSWLR 551; [2016] NSWCA 343 Moschi v Lep Air Services Ltd; Lep Air Services Ltd v Rolloswin [1973] AC 331 Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 Provident Capital Ltd v Papa (2013) 84 NSWLR 231; [2013] NSWCA 36 Re Municipal Officers' Association of Australia v Kenneth Lawrence Lancaster and Michael James Canny (1981) 54 FLR 129; [1981] FCA 151 Scott v Bagshaw (2000) 99 FCR 573; [2000] FCA 816 Sistrom v Urh (1992) 117 ALR 528; [1992] FCA 1054 Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 West v AGC (Advances) Ltd (1986) 5 NSWLR 610 Yerkey v Jones (1939) 63 CLR 649; [1939] HCA 3 Category: Principal judgment Parties: NWC Finance Pty Limited ACN 143 762 583 (Plaintiff) Elisa Borsellino (First Defendant) Steven Giuseppe Borsellino (Second Defendant) Representation: Counsel: A G Martin (Plaintiff) M Mando (First Defendant) No appearance (Second Defendant) Solicitors: Summer Lawyers (Plaintiff) Legal Edge Australia (First Defendant) No appearance (Second Defendant) File Number(s): 2013/209276 Judgment 1. HIS HONOUR: The plaintiff, NWC Finance Pty Limited, seeks orders for both a monetary judgment and possession of the property known as 4 Kew Place, St John's Park in Sydney ("the property"). The plaintiff is a registered mortgagee of the property the mortgage for which was executed by the first and second defendants Elisa Borsellino ("the first defendant") and Steven Borsellino ("the second defendant). 2. The property was owned jointly by the first and second defendants. The loan was taken out by the first and second defendants against the property, which is their family home, in order to fund the start-up of a new business, a fruit and vegetable store in Casula. 3. As executed, the loan was a short-term loan with the principal to be paid within three months of the loan moneys being disbursed/received and the loan provided for interest at 84% per annum, compounding monthly, and, if paid on time, 42% per annum, compounding monthly. 4. At the time that the loan was taken out, the second defendant was, in fact, bankrupt. This information was known to the accountant for the first and second defendants assisted with the loan. At the time of the execution of the loan, the plaintiff and the first defendant were unaware that the second defendant was bankrupt. 5. The property was valued at over $750,000 and the first defendant believed that the amount to be borrowed was $330,000. The plan was for the defendants to repay the short-term loan through the profits of the new business. The defendants defaulted on their first interest payment and on the payment of the principal. 6. On 13 April 2016, the first defendant entered into a Deed of Release with the plaintiff under which: * The first defendant would pay $224,000 to the plaintiff within 90 days of execution of the Deed; * The solicitor for the first defendant (as a result of settlement of a claim in which the first defendant asserted negligent advice against the solicitor) would pay $400,000 to the plaintiff within 90 days of the execution of the Deed; * The first defendant would pay a further $350,000 or such lesser amount as remained payable after the plaintiff received moneys held in Court pursuant to proceedings 2014/99246. 1. The plaintiff received the following payments purportedly pursuant to the aforesaid Deed of Release: * On 18 May 2016, the plaintiff received $390,000 from the solicitor; * On 10 July 2016, the plaintiff received $10,000 from the solicitor; * On 20 July 2016, the plaintiff received $224,000 from the first defendant; * On 30 September 2016, the plaintiff received $198,197.41 from the moneys paid into Court in proceedings 2014/99246, which represented the first defendant's share of the funds paid into Court; * No further amounts were paid (the outstanding amount being $151,802.59). 1. The second defendant has not filed any Defence or Cross-Claim and has adduced no evidence. The second defendant's interest in the land vested in the Trustee in Bankruptcy following the sequestration order: see s 50 of the Bankruptcy Act 1966 (Cth). Ordinarily, the vesting to a third person of the property interest of one of the joint tenants of a property will sever the joint tenancy and create a tenancy in common: Sistrom v Urh (1992) 117 ALR 528 at 556; [1992] FCA 1054. 2. Thus, following the vesting of the property in the Trustee in Bankruptcy pursuant to the provisions of the Bankruptcy Act, the first defendant held a half interest in the property and the Trustee in Bankruptcy held the other half interest, each of them as tenants in common. 3. The Trustee in Bankruptcy has indicated that it does not wish to be heard or to participate in these proceedings, but the nature of the prior secured interest in the form of the registered mortgage in the property, which is not contested, seems to render the attitude of the Trustee in Bankruptcy irrelevant: Scott v Bagshaw (2000) 99 FCR 573; [2000] FCA 816; Morris Finance Ltd v Brown (2016) 93 NSWLR 551; [2016] NSWCA 343. There is no reason why judgment ought not issue against the second defendant in relation to the second defendant's (or the Trustee in Bankruptcy's) interest in the property, except to the extent otherwise flowing from any successful defence by the first defendant. 4. The facts are relatively uncontroversial and uncontested. As already stated the first and second defendants were at all times the registered proprietors of the property and, subject to the interests of the Trustee in Bankruptcy, to which earlier reference has been made, remain the registered proprietors of the land. 5. The plaintiff holds a registered mortgage over the property being mortgage number A8628025. The terms of the mortgage required the first and second defendants to repay the principal and interest by 25 June 2013. The first and second defendants failed to pay interest in the amount of $11,567.50 on 25 April 2013 and failed to pay the principal sum on 25 June 2013. 6. At the time of filing of the Statement of Claim, the amount outstanding on the mortgage, calculating the interest on the basis of the interest in the loan agreement, was $440,672.25. 7. Further, on the basis of the foregoing uncontested facts, it is not contested before the Court that the plaintiff has the power or right, without more (and without taking into account any further fact or circumstance such as the Deed of Settlement and Release, or any alleged unconscionability or unjustness in the conduct or contract), to obtain possession, sell the property and recover the monetary sum owing. 8. As earlier stated, the purpose of the short-term loan was to finance the commencement of the business at Casula. The premises at Casula, which were to be used for the business, were the subject of a lease in which the first and second defendants were both joint tenants (Ex CB2, p 569). According to the evidence of the first defendant, she was involved in a conversation with the second defendant (her husband) in which he informed her that he was obtaining a loan in order to set up the business based on the deeds of the property, which was to be short-term and was intended to be repaid from the profits obtained from the business. 9. The first defendant attended at the business and commenced preparing the business and knew, at the time, that it was necessary to obtain stock and to advertise the existence of the business and its produce. According to the first defendant, the second defendant borrowed a further $20,000 from his brother, which was provided to the second defendant in cash. The first defendant was involved in withdrawing money from the bank and paying tradespersons. 10. The opening of the business did not occur because there was insufficient stock. The second defendant informed the first defendant that she was required to sign documents relating to the Deed for the house, after the first defendant received a call from their lawyer to come in and sign documents and enquired of the second defendant what documents were to be signed. 11. The first defendant attended on the lawyers and took the Title Deeds of the house with her. Later, on or about 19 March 2013, she was requested to sign documents and did so. 12. According to the first defendant, at the time of executing the documents, she was unaware of the amount of the loan, or the interest rate, or the length of the loan. She was aware it was for a short period. Nevertheless, the first defendant is unsure of whether, she would have signed the documents anyway, even if she had known all of the details or sufficient details to understand the loan documents,. The first defendant attests to the fact that she would at least have sought to obtain a bank loan, at bank interest rates, and for a lengthier period of time that would have better allowed repayment. 13. As earlier stated, the first defendant was unaware, at the time of the execution of the loan documents and until a conversation with the accountant on or about 8 April 2013, that her husband, the first defendant, was possibly bankrupt. 14. From the perspective of the plaintiff, the first defendant signed the mortgage documents, including a Disbursement Authority and, separately from the second defendant, a declaration that she had "received independent legal advice regarding the loan and security documents". Each of the relevant documents was signed on 18 March 2013. 15. The first defendant raises a number of issues based, essentially, on her disadvantage relative to the second defendant: the inadequacy of the advice (both from the solicitor acting for the first and second defendant in the loan transactions and the accountant); the exorbitant nature of the interest rate acting as a penalty; unconscionability; the proposition that the loan documents are unjust within the meaning of s 7 of the Contracts Review Act 1980 (NSW); and, lastly, the existence of the Deed of Settlement and Release. I will deal with this last aspect first. Deed of Settlement and Release 1. A Deed of Release was executed on 13 April 2016 between the plaintiff and the first defendant. The second defendant, by that time bankrupt, was not a party to the Deed of Release. It is necessary to refer in some detail to the terms of that document (Ex CB2, p 380 and following). 2. As earlier stated the release, in the form of a Deed, recites the parties by name, being the plaintiff and first defendant in these proceedings. Further, the solicitor acting for the first and second defendant in the loan transactions is a party to the Deed. It is described as "a Deed of Release". 3. The recitals essentially recount the circumstances of the loan and the default and the fact that Mr Dib (the defendants' solicitor) was retained to act and to advise on the Deed of Loan. It also recites the circumstances surrounding the Supreme Court proceedings with which the Court is now dealing. 4. The Deed, unsurprisingly, defines certain terms including the subject of release and the claims that are otherwise referred to in the substance of the Deed. In the course of defining the subject of release a reference is made to the "St George Proceedings", which are proceedings in this Court (2014/99426). 5. Clause 2 of the Deed is, in part, in the following terms: "2. Settlement and Release 2.1 Mrs Borsellino agrees that NWC is entitled to her interest in the moneys paid into Court in the St. George Proceedings. 2.2 Mrs Borsellino agrees that she will not object to NWC's claim in respect of the St. George Proceedings, including but not limited to, Mr Borsellino's interest in the moneys paid into Court in the St. George Proceedings. 2.3 NWC and Mrs Borsellino assume that the money in the St. George Proceedings is at least $350,000 (St. George Money) and Mrs Borsellino warrants that she will pay any difference between $350,000 and the amount ultimately received by NWC in the St. George Proceedings which is less than $350,000. 2.4 The solicitor for Mrs Borsellino or Mrs Borsellino will provide a letter to NWC within 14 days of the date of this Deed confirming that she makes no claim in respect of the St. George Money. 2.5 Mrs Borsellino will pay NWC $224,000 within 90 days of the date of this Deed (Borsellino Payment). 2.6 Without admission of liability, and at the irrevocable direction of Mrs Borsellino, Dib will pay, on behalf of Mrs Borsellino to NWC: (a) $390,000 within 28 days of the date of this Deed; and (b) $10,000 within 90 days of the date of this Deed; (Dib Payment). 2.7 The parties agree to inform the Court that the Proceedings have settled in principle and seek a vacation of the hearing date in the Proceedings. 2.8 Upon payment of the Borsellino Payment, the St. George Money and Dib Payment: (a) NWC will provide Mrs Borsellino and Mr Borsellino with a discharge of mortgage, withdraw any caveats and deliver to Mrs Borsellino and Mr Borsellino the original certificate of title in respect of the Property and will otherwise release the Property from any charge or encumbrance NWC may have; (b) NWC releases and discharges Mrs Borsellino and Mr Borsellino from all Claims which it had, has now or may in the future have against Mrs Borsellino and Mr Borsellino, arising out of, relating to, or in any way connected with any one or more of the Release Subjects except for any Claims arising out of a breach of this Deed; and (c) if Mrs Borsellino requests, NWC will sign a release deed with Mr Borsellino containing a release in favour of Mr Borsellino in the same terms as clause 2.8(b) above, and containing releases by Mr Borsellino in the same terms as clauses 2.13 and 2.14 below. 2.9 Upon payment of the Borsellino Payment, the St. George Money and the Dib Payment, the proceedings against Mrs Borsellino and Mr Borsellino will be dismissed with each party bearing its own costs. 2.10 Upon payment of the Borsellino Payment, the St. George Money and the Dib Payment, the Cross Claim against NWC will be dismissed with each party bearing its own costs. … 2.13 Mrs Borsellino releases and discharges NWC from all Claims which she had, has now or may in the future have against NWC, arising out of, relating to, or in any way connected with any one or more of the Release Subjects. … 2.16 For the avoidance of doubt, nothing in this clause 2 will affect the rights created by this Deed. 3. Covenant not to sue 3.1 Each Party covenants not to sue each other Party in respect of any Claim arising out of the facts, matters and circumstances the subject of or referred to in the Proceedings or any Claim pleaded in, arising out of, relating to, or in any way connected with the Proceedings. … 7.14 Non merger (a) A term or condition of, or act done in connection with, this Deed does not operate as a merger of any of the rights or remedies of NWC and Mrs Borsellino under this Deed and the Proceedings and those rights and remedies continue unchanged. In the event of a breach of this Deed existing rights and remedies at the time of entry into the Deed remain available and enforceable. (b) This clause 7.14 does not apply to or affect the Cross Claim by Mrs Borsellino as against Dib, nor the releases in favour of Dib." 1. The plaintiff submits that two of the three payments required under the Deed were paid and the third was not. That is not totally accurate. 2. As earlier stated and as is uncontentious in the proceedings, the full amount of the Dib Payment and the payment of $224,000 (being the initial payment by the first defendant) were both paid. The third payment was a payment of the money in the St George Proceedings payable to the first defendant, being almost $200,000 of the $350,000 due under the third payment. 3. The plaintiff submits that it "regards [the first defendant] as having repudiated the Deed by her failure to perform its essential terms, which repudiation the plaintiff has accepted. The plaintiff relies upon its original mortgage documentation." 4. Little more was put in relation to the alleged repudiation. It is necessary to examine this issue. 5. First, in this respect, it is appropriate to deal with the nature of the contractual terms in a deed. This was described by Lord Diplock in the following terms, albeit in the context of a guarantee: "The law of guarantee is part of the law of contract. The law of contract is part of the law of obligations. The English law of obligations is about their sources and the remedies which the court can grant to the obligee for a failure by the obligor to perform his obligation voluntarily. Obligations which are performed voluntarily require no intervention by a court of law. They do not give rise to any cause of action. English law is thus concerned with contracts as a source of obligations. The basic principle which the law of contract seeks to enforce is that a person who makes a promise to another ought to keep his promise. This basic principle is subject to an historical exception that English law does not give the promisee a remedy for the failure by a promisor to perform his promise unless either the promise was made in a particular form, e.g., under seal, or the promisee in return promises to do something for the promisor which he would not otherwise be obliged to do, i.e., gives consideration for the promise. The contract which gives rise to the instant appeal does not fall within this exception. In return for the guarantor's promise to the creditor the latter promised to extend credit to the debtor and to release his lien upon the debtor's goods. Each promise that a promisor makes to a promisee by entering into a contract with him creates an obligation to perform it owed by the promisor as obligor to the promisee as obligee. If he does not do so voluntarily there are two kinds of remedies which the court can grant to the promisee. It can compel the obligor to pay to the obligee a sum of money to compensate him for the loss that he has sustained as a result of the obligee's failure to perform his obligation. This is the remedy at common law in damages for breach of contract. But there are some kinds of obligation which the court is able to compel the obligor actually to perform. In some cases, such as obligations to transfer title or possession of property to the obligee or to refrain from doing something to the detriment of the obligee, a remedy to compel performance by a decree of specific performance or by injunction is also available. It was formerly obtainable only in a court of equity. In these cases it was an alternative remedy to that of damages for breach of contract obtainable only in a court of common law. But, since a court of common law could make and enforce orders for payment of a sum of money, where the obligation was itself an obligation to pay a sum of money, even a court of common law could compel the obligor to perform it. Historically this was the only remedy which the court would grant at common law when an obligor failed to perform this kind of obligation. The remedy of damages for non-performance of the obligation was not available as an alternative." (Moschi v Lep Air Services Ltd; Lep Air Services Ltd v Rolloswin [1973] AC 331 at 347-348.) 1. The uncontested facts before the Court include that the mortgage was in default, that there were proceedings before the Court in relation to that default and that the default was compromised in terms of the Deed of Release. It is also uncontested that the remainder amount (an amount of approximately $150,000) has not been paid in accordance with the requirements of the Deed. 2. The plaintiff submits that the non-payment of the remainder amount is a repudiation of the contract evidenced by the Deed that requires that obligation to be performed. Every breach of contract or non-performance of a step in a contract is not a repudiation of the contract. 3. Historically, the most oft-cited passage on repudiation is that contained in the reasons for judgment in McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; [1933] HCA 25. The classic passage (or part of it) states: "When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected. When a contract is rescinded because of matters which affect its formation, as in the case of fraud, the parties are to be rehabilitated and restored, so far as may be, to the position they occupied before the contract was made. But when a contract, which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach." McDonald v Dennys Lascelles Ltd, supra, per Dixon J at 476-477. 1. While the passage recited above relates to remedies, the question of whether a party has the right to terminate a contract as a result of what is said to be repudiation can be a more difficult issue. The term rescission (or rescind) will not be used. In these reasons for judgment the termination of the contract following repudiation will not be called "rescission" or "rescind", simply because the term is often confused with rescission ab initio as a result of fraud or another matter that affects the formation of the contract: see Commissioner of Taxation v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342; [2008] HCA 22 at [2], 346 per Gleeson CJ, Gummow, Heydon, Crennan and Kiefel JJ; see also Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 844 per Lord Wilberforce. 2. There are two ways in which the discharge or termination of a contract may occur. The first of them is by agreement: either the terms of the agreement reached (the original contract); or by some collateral or subsequent agreement. 3. Often the consequences of termination will be specified or necessarily implied from the contract's terms. Where, on the other hand, as occurred in relation to the Deed, termination occurs, not by frustration of the contract, but for alleged breach or repudiation, the terms or result of that termination will be specified under the express terms of the original contract or under a collateral contract or under the common law. Under the common law, such a right to discharge or terminate occurs when the promisor has breached a condition (or essential term) or sufficiently seriously breached an intermediate term: Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115; [2007] HCA 61. 4. The majority judgment in Koompahtoo (Gleeson CJ, Gummow, Kirby, Heydon and Crennan JJ) made clear that an essential term is one which the parties have agreed will always justify termination, if breached. The agreement of the parties is determined by the terms of the contract into which they have entered. Those terms will either expressly define that which is essential and would justify termination of the contract or, by the words of the contract, as understood in the context of the relationship between the parties that the contract creates and the commercial purpose that it serves, will imply that the term is essential: see Koompahtoo at [47], citing Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 at 641-642 and at [48], [49]. 5. While the majority judgment in Koompahtoo recites the English Court of Appeal judgment in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 in relation to the issue of repudiation, there may be a nuanced difference between the use by the English Court of Appeal and the High Court of the terms "non-essential" and "going to the root of the contract". The High Court approach seems to involve the possibility of greater flexibility but, in so doing, leaves a degree of discretion in drawing the distinction between essential and non-essential terms. This latter aspect seems to be the view expressed by Kirby J in Koompahtoo, particularly at [106]. 6. In Hong Kong Fir, supra, at 71.6, per Lord Diplock, the Court of Appeal described the determinative factor, entitling a party to discharge the contract, as being that the breach of the other party "deprived the [terminating party] of substantially the whole benefit" of the promise for which they had originally contracted: see Hong Kong Fir, supra, at 72.3, per Lord Diplock. In describing that test in that way, his Lordship described the test in similar terms to the test under the doctrine of frustration: per Lord Diplock at 65.9-66.5 and at 69.3. 7. Whatever be the nuanced difference between the wording in Hong Kong Fir from that of the High Court in Koompahtoo, it is the High Court judgment that is binding and, in any event, each ultimately effects the same result. As a consequence, it is sufficient, for present purposes, to accept that, subject to the express terms of the contract, a breach of a condition or a sufficiently serious breach of an intermediate term by one party provides a right to the other party, under the common law, to elect to discharge the contract. 8. Once the right of discharge occurs, then one returns to the principle described by Dixon J (as his Honour then was) in McDonald v Dennys Lascelles Ltd, supra. 9. As explained in Moschi, supra, by Lord Diplock (at 350-351), generally speaking, the termination of a contract for repudiation puts an end to the primary obligations of the party not in default. That party is not then required to perform any of the contractual promises that have not already been performed by the time of the repudiation. It does not give rise to any secondary obligation in substitution for the primary obligations in the contract. It also deprives the non-defaulting party of any right, as against the other party, to continue to perform contractual promises 10. Further, the primary obligations of the party in default, remaining unperformed, likewise come to an end as does his right to continue to perform those promises. But, in the case of the party in default, secondary obligations are substituted, by operation of law, to pay to the party not in default a sum of money to compensate the non-defaulting party for the loss he or she has sustained as a result of the failure to perform the primary obligations. 11. Further, it is abundantly clear, and has been, at least since the judgment in McDonald v Dennys Lascelles Ltd, supra, that, with one "possible exception", all primary obligations arising from a terminated contract are, from the time of the termination, discharged. The "possible exception" to which Dixon J (as his Honour then was) referred, is that already unconditionally acquired rights are not discharged. 12. While the application of the principle is sometimes difficult and has led to confusion (see, for example, Hyundai Heavy Industries Co Ltd v Papadopoulos [1980] 2 All ER 29), the principle is clear. It is necessary then for the Court to return to the terms of the Deed, the relevant terms of which are recited above. 13. There are a number of aspects that require comment. The plaintiff received, pursuant to the terms of the Deed, $624,000 and a further payment of $198,197.41. The non-payment of $151,802.59, being the outstanding amount (and being calculated by reducing the promised payment of $350,000 by the amount of $198,197.41) does not, on its face, bear the hallmarks of a breach going "to the root of the contract". 14. Nor does it appear to be a breach of contract that seeks to deprive the plaintiff of the benefits of the contract and turn it into a contract that is incapable of being performed in the terms originally agreed. As such, it fails to pass each of the tests referred to by the High Court and the English Court of Appeal in Koompahtoo and Hong Kong Fir, respectively. 15. Further, the terms of cl 2.3 of the Deed, recited above, while fixing a time for the payment of the $224,000 by the first defendant and the $400,000 by Mr Dib, does not fix a time for the payment of the difference between that which results from the payment out of Court of the moneys in the St George Proceedings and the payment of the remainder of the $350,000. Ordinarily, that would mean that the amount of the difference would be paid within a reasonable time of 30 September 2016 (the date on which the St George Proceedings moneys became available). 16. The Court accepts that, as at the date of the hearing of these proceedings, it is at least arguable that a reasonable time has elapsed. One would expect (although no submissions have been made on it) that a reasonable time, in the context of the payments required by this Deed and bearing in mind that the Deed is dated April 2016 and the last payment is in September 2016, would be at least a further three months. 17. No submissions have been made on the question and, if a determination of a reasonable period after September 2016 (in circumstances of proceedings that were commenced in 2013, resolved in April 2016 and the last payment for which was made in September 2016) was say, three months, that would mean breach of the Deed did not occur until December 2016. It is unnecessary, for reasons which will become obvious, to determine finally a reasonable period. 18. Lastly in relation to this aspect of the Deed, the Court refers to the terms of cl 2.8. Clause 2.8 of the Deed requires the plaintiff to provide the first defendant with a Discharge of Mortgage, withdraw any caveats and deliver to the first defendant and to the second defendant the original Certificate of Title in respect of the whole of the property and to release, otherwise, the property from any charge or encumbrance that the plaintiff may have. 19. The foregoing obligation, mutual in nature, arises at the point in time that payment of the Borsellino payment ($224,000) and the Dib payment ($400,000) and the St George Money was paid to the plaintiff. The "St George Money" is defined or described at cl 2.3, recited above, in terms in which both the plaintiff and the first defendant assume "that the money in the St. George Proceedings is at least $350,000 (St. George Money)". 20. The first defendant, pursuant to cl 2.3, then warrants that she will pay any difference between the $350,000 and the amount ultimately received by the plaintiff in the St George Proceedings which is less than that amount. It would seem that the obligation to provide a release and discharge of the mortgage arises, on one view, on the payment out of Court from the St George Proceedings, which has occurred. On that basis, the right to a discharge and the release and discharge of both the first and second defendants from all claims has accrued. 21. If, on the other hand, the discharge of the mortgage is dependent on the payment of the remainder of the $350,000, then, on payment of that amount, subject to termination following repudiation, the plaintiff would be required to discharge the mortgage. 22. One must then deal with the provisions of cl 7.14 of the Deed, which, recited above, provides that the Deed does not operate as a merger of any of the rights under this Deed and the proceedings. It further provides that those rights and remedies continue unchanged. In its ordinary meaning, that cannot be the intention of the parties. On its face, such a clause would mean that the full and complete performance of the obligations under the Deed by the first defendant would not affect the rights of the plaintiff in its, already commenced, Supreme Court proceedings. 23. Clause 7.14 also provides that "In the event of a breach of this Deed, existing rights and remedies at the time of entry into the Deed remain available and enforceable". 1. The difficulty with giving that its ordinary and grammatical meaning is that it would have the effect that a payment that was late by one day (for example, the $10,000 aspect of the Dib payment being paid at 91 days from the date of the Deed and after all other payments had otherwise been made) would provide the plaintiff with the right to continue with the Supreme Court proceedings and obtain a full remedy. Further, since the payments made under the Deed are not payments on the mortgage, the full remedy may not give credit to those payments made pursuant to the obligations created by the Deed and already performed (leaving aside independent equitable remedy). 2. It seems, again taking into account the commercial purpose of the Deed (and the extraordinary interest rates that are accruing), that the Deed was intended to be a compromise of the arrangements between the parties, which has now been part performed, and the reference to terms or conditions or acts done in connection with the Deed not operating in such a way that the rights in the Proceedings "continue unchanged" refers to a situation in which the Deed has not been performed in a way that there is a breach of a condition or a sufficiently serious breach of an intermediate term. Likewise the reference to "a breach" of the Deed in the second sentence of cl 7.14(a) is a reference to a breach of a condition of the Deed or of a sufficiently serious intermediate term of the Deed. Such a clause would certainly not affect accrued rights. 3. In those circumstances, the Court takes the view that the Deed has not been validly repudiated by the first defendant. As a consequence, under the Deed, the first defendant continues to owe the plaintiff an amount of $151,802.59, together with such interest before judgment and after judgment as is appropriate. 4. The payment of the $151,802.59 is, to utilise the characterisation of Lord Diplock in Moschi, either an order for the performance of the contract, or, as a secondary obligation, an award of money to the non-defaulting party to compensate that non-defaulting party for the loss that party has sustained as a result of the failure of the first defendant to perform her primary obligations under the Deed. This latter obligation arises, as a secondary obligation, even if there had been a valid termination by the plaintiff after repudiatory breach. Unconscionability and Unjustness 1. On one view of the foregoing determination, it is unnecessary to deal with the equitable and statutory remedies based upon unconscionability and unjustness. Nevertheless, the Court will deal briefly with those issues. 2. The operation and effect of the Contracts Review Act has been the subject of much authority. It has been suggested that the necessity for the Contracts Review Act arises from an inflexibility in approach associated with equitable remedies otherwise available as they were being implemented at the time that the Act was promulgated. It has been said that the "sheeting home … [of] … the consequences of … unjustness may be a difficult evaluative exercise" (Provident Capital Ltd v Papa (2013) 84 NSWLR 231; [2013] NSWCA 36 at [7], per Allsop P). 3. Where, as in Provident Capital Ltd, supra, and as in this case, the borrowers have access to legal advice, the borrower is in a position that is greatly enhanced, as against the lender, to protect her interests: see Provident Capital Ltd, supra at [113]. If the advice received from the legal advisers were inadequate, such inadequacy is not the fault of the lender: Provident Capital Ltd at [7] and Esanda Finance Corp Ltd v Viet Nho Tong (1997) 41 NSWLR 482 at 491, per Handley JA. 4. In this case, there is real question as to whether the Contracts Review Act applies to the Loan Agreement and the mortgage. The express purpose of the loan was to seed fund a business. Given the terms of s 6(2) of the Contracts Review Act, which renders the Contracts Review Act inapplicable to a transaction entered into for the purposes of business, trade or commerce, the uncontested purpose of the loan represents a hurdle over which it is, for the first and/or second defendant, impossible to overcome. 5. Even if the Contracts Review Act were to apply, it is difficult to understand how it can be said, against the plaintiff, that the contract or loan is unconscionable, harsh or oppressive. The Contracts Review Act does not act as an anodyne, soothing all ills caused by the contract. The jurisdiction of courts is predicated on evaluations that the contract before them was unjust, which can occur in two ways: either the terms of the contract itself is unjust; or the circumstances leading to the making of the contract may render the contract unfair (within the statutory meaning): West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 620-621. All that amounts to is that the distinction between procedure and substance is sometimes elusive: Byrne & Frew v Australian Airlines Ltd (1995) 185 CLR 410 at 465; [1995] HCA 24, per McHugh and Gummow JJ. 6. The term or "tautological trinity" (West, supra) of "unconscionable, harsh or oppressive" was defined by Deane J in Re Municipal Officers' Association of Australia v Kenneth Lawrence Lancaster and Michael James Canny (1981) 54 FLR 129; [1981] FCA 151 at 165 of the Report, albeit in a different context, and utilising the term "unreasonable", not "unconscionable", but still a context which discloses no different meaning to be ascribed to the words: "Those three words are used objectively in the clause and each of them is to be given its ordinary strong meaning. Plainly, their meanings overlap and definition is liable to adulterate the strength which the words possess. Nonetheless, it seems desirable that I indicate the meaning which I ascribe to them. To be oppressive, a condition, obligation or restriction must be burdensome, harsh and wrongful. To be unreasonable, it must be immoderate and inappropriate. To be unjust, it must be contrary to right and justice and to ordinary standards of fair play." (References omitted.) 1. There are a number of matters raised by the first defendant suggesting unconscionability or relief under s 7 of the Contracts Review Act. The first of them is the second defendant's bankruptcy, of which the first defendant was unaware. 2. The difficulty with that submission is that the plaintiff was also unaware of the bankruptcy and, in relative terms, it seems the plaintiff was more at risk in that regard than was the first defendant. Moreover, the plaintiff is in a worse position than the first defendant to be made aware of the bankruptcy. 3. Other matters raised by the first defendant as a matter of submission seem, on the evidence before the Court, not to be supported by the evidence. First, there is no evidence to suggest that the first defendant was at a special disadvantage of a kind that was known or ought to have been known to the plaintiff. 4. Secondly, the submission that the plaintiff relied upon the second defendant to obtain the first defendant's consent is a submission based upon no evidence whatsoever. On the contrary, the evidence before the Court was that the plaintiff required the first defendant to declare that she had received independent advice. 5. This brings the Court to the next point, which is the failure of the solicitor advising the first and second defendants to provide independent advice to the first defendant or appropriate advice to the first defendant. There are a number of answers to this proposition. 6. First, the plaintiff was unaware of the advice received and unaware of any disadvantage or unfairness created by it. Secondly, if the solicitor breached his duty to the first defendant either by providing negligent advice or by failing to advise the first defendant to receive independent advice because of the conflict, action lies against the solicitor. Again, the plaintiff is unaware of that course. 7. Further, the first defendant relies upon the exercise of undue influence by the second defendant over her, based in part on the marital relationship between them and the reposing of trust in the second defendant. There is no evidence to support undue influence. 8. There is no claim by the first defendant against the second defendant. Even if there were undue influence, it cannot be sheeted home to the plaintiff who, on the evidence before the Court, could not be held to have any knowledge of any such influence. 9. Penultimately, the Court deals with the failure of the plaintiff to verify income and to lend on the security of the house alone. Following the judgment of the Court of Appeal in Provident Capital Ltd v Papa, supra, it is no longer the case (as it may once have been) that the Court will, automatically, consider a loan unjust or unconscionable because the lender cannot show an income to repay or because the moneys are advanced solely on the basis of the equity in the property. This case is an excellent example of it. 10. The defendants borrowed the money, knowingly, on the basis of anticipated future income for the purpose of commencing a business which was to produce that income. Were lending institutions to be unjust in every case where such a situation arises, no potential business person would ever commence operations. 11. On the basis of the evidence adduced through the first defendant, it seems the business would have been successful (Affidavit of the first defendant of 29 May 2014 at [23]), but for the failure to organise the loan and the timing of the opening day appropriately. 12. Another matter raised by the first defendant is her role as a volunteer. As already indicated in these reasons, the first defendant is a joint lessee of the premises at which the business was to operate; was aware of the need for and cost of stock for the business and the fit out; met and arranged for tradespersons to attend; and arranged for the advertising of the opening. The evidence does not support a finding that the first defendant was a volunteer in the sense that she had no interest, legal or beneficial, in the outcome of the business. 13. Lastly, I deal with the issue of interest rates. As already indicated, the interest rate that applies under the loan is 84% per annum. While, if payments are made on time, that interest rate reduced to 42%, unless one were to take the view that the higher rate was a penalty, one must judge the interest rate on the basis of the whole of the contract. 14. If the Court were satisfied that the terms of the Contracts Review Act applied and that the Court could vary the contract pursuant to the Contracts Review Act, the Court would also be of the view that an interest rate of 84% per annum, even on a short-term loan is "contrary to right and justice and to ordinary standards of fair play": Re Municipal Officers' Association of Australia v Lancaster, supra. Such a rate is unjust. 15. It is also immoderate and inappropriate and as a consequence the rate is unreasonable. Further, it would seem that the rate of 84% is oppressive, being an interest rate that is burdensome, harsh and wrongful. The Court, however, is not dealing with relief under the Contracts Review Act. As already stated, the Contracts Review Act does not apply to this transaction because of its business purpose. 16. Does the foregoing render the contract "unconscionable"?: Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; [1983] HCA 14. There is no misrepresentation nor any conduct that could be said to be "improper". If the contract were to be unconscionable, it would be because the Court was determining that an interest rate of 84% per annum on a short-term loan is, in and of itself, unconscionable. 17. In Garcia v National Australia Bank Ltd (1998) 194 CLR 395; [1998] HCA 48, the majority (Gaudron, McHugh, Gummow, Kirby and Hayne JJ) discussed the judgment in Amadio, supra, and the judgment of the High Court in Yerkey v Jones (1939) 63 CLR 649; [1939] HCA 3. Yerkey v Jones (and Garcia) concerned issues where the contract in question was a guarantee and in which the spouse was a volunteer. 18. It may well be that in the two circumstances discussed by Dixon J (as his Honour then was) in Yerkey v Jones, unconscionability can be sheeted home to the lender. Those circumstances are the situation where undue influence has been exercised by one spouse over another; and the second circumstance is even where there is no undue influence, there is a failure to explain adequately and accurately the transaction which renders one spouse liable in circumstances where the liability is for the immediate economic benefit of the other spouse. 19. As is made clear by the judgment of Dixon J in Yerkey v Jones (at 684), the fact that the lender is dealing directly with the suborned spouse will not protect the lender. In these proceedings, there is no suggestion of subornation and the case does not fit the first situation described by Dixon J. 20. However, in the second situation, more akin to the situation before the Court in these proceedings, relief will depend or may substantially depend on the degree to which the lender relies upon the benefiting spouse explaining to the non-benefiting spouse the effect of the liability into which the latter is embarking. 21. As earlier explained, the evidence in these proceedings does not suggest that the plaintiff relied upon the second defendant to explain to the first defendant the nature and extent of the liability into which she was embarking. On the contrary, the plaintiff insisted on a declaration by the first defendant that she had received independent advice. 22. Beyond that, if the first defendant were to have a remedy it is against the person that provided the advice. Further, this is not a case in which the nature of the obligation was misunderstood, except, perhaps, in relation to the rate of interest. Nor is it a situation in which the second defendant exercised undue influence on the first defendant. 23. In other words, the Court does not find unconscionability, notwithstanding that it considers the interest rate to be exorbitant, unfair and oppressive. 24. As earlier stated, the Court has the view that the Deed of Release operates and continues to operate. The remedy for the plaintiff is to sue for the breach of the Deed of Release, which is covered in the action now before the Court, given the nature of the defence. In all of the circumstances, the Court makes the following orders: 1. The first defendant shall pay the plaintiff the amount of $151,802.59; 2. Pursuant to the terms of s 100 of the Civil Procedure Act 2005 (NSW), the Court orders interest before judgment on the aforesaid amount at the rate prescribed by the Uniform Civil Procedure Rules 2005 (NSW) for interest after judgment. Such interest shall be calculated to commence from 30 September 2016 until the date of judgment; 3. Pursuant to the terms of s 101 of the Civil Procedure Act, interest on the judgment amount from the date of judgment; 4. The first defendant shall pay the plaintiff's costs of and incidental to the proceedings incurred after 30 September 2016; 5. Otherwise the proceedings are dismissed. ********** 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: 20 February 2018