Supreme Court New South Wales Medium Neutral Citation: Capital Securities XV Pty Ltd (in liquidation) v Calleja; Calleja PJC Furniture Freighters Pty Ltd v Capital Finance XV Pty Ltd [2020] NSWSC 301 Hearing dates: 11 – 12 March 2020 Decision date: 26 March 2020 Jurisdiction: Common Law Before: Adamson J Decision: In proceedings 2016/155378 (1) The plaintiff's claim be dismissed pursuant to Uniform Civil Procedure Rules 2005 (UCPR), r 42.21(3). (2) Order that there be judgment for the defendant (Mrs Calleja) on the plaintiff's claim. (3) Grant the following relief to Mrs Calleja on the cross-claim: (a) Declare, pursuant to s 7(1)(b) of the Contracts Review Act 1980 (NSW) and s 12GM of the Australian Securities and Investments Commission Act 2001 (Cth), that the Deed of Guarantee between the plaintiff/cross-defendant (Prime) and Mrs Calleja is void. (b) Declare, pursuant to s 7(1)(b) of the Contracts Review Act 1980 (NSW) and s 12GM of the Australian Securities and Investments Commission Act 2001 (Cth), that the General Security Deed between Mrs Calleja, as grantor, and Prime, as secured party, is void. (c) Order Prime, pursuant to s 7(1)(d) of the Contracts Review Act 1980 (NSW) and s 12GD of the Australian Securities and Investments Commission Act 2001 (Cth), to execute and provide to the defendant's solicitor within 7 days hereof: (i) a discharge in registrable form of the mortgage granted by Mrs Calleja to Prime over the property known as 2213 Pacific Highway, Heatherbrae in Folio reference 511/587997; (ii) a notice of withdrawal of the caveat lodged in respect of the property known as 227 Minimbah Road, Minimbah in Folio reference 3/251789; (iii) a discharge of the General Deed of Security granted by Mrs Calleja to Prime in respect of her assets (the Calleja General Deed of Security). (d) If order (3)(c) above is not complied with, authorise and direct the Registrar of the Court to execute the documents described in order (3)(c)(i), (ii) and (iii) above on behalf of Prime. (e) Order Prime to provide, in registrable form, a financial change statement to remove the registration of the Calleja General Deed of Security from the register under the Personal Property Securities Act 2009 (NSW) within 7 days of receipt of a notice of demand from Mrs Calleja. (f) If order (3)(e) above is not complied with, authorise and direct the Registrar of the Court to execute on behalf of Prime such a financial change statement. (4) Order Prime to pay Mrs Calleja's costs of the proceedings, including the costs of the cross-claim and the first trial before Wilson J and any reserved costs, less the amount of $152,496.44. (5) Reserve the question whether such costs ought be ordered to be paid on an indemnity basis. (6) Grant liberty to apply on 3 days' notice. In proceedings 2016/260959 (1) Order that there be judgment for the plaintiff on the plaintiff's claim. (2) Declare, pursuant to s 12GM of the Australian Securities and Investments Commission Act 2001 (Cth) that the Loan Agreement between the plaintiff and the defendant is void. (3) Order the defendant, pursuant to s 12GD of the Australian Securities and Investments Commission Act 2001 (Cth): (a) to execute a discharge of the General Deed of Security executed by the plaintiff in favour of the defendant (the Company General Deed of Security); and (b) to provide, in registrable form, a financial change statement to remove the registration of the Company General Deed of Security from the register under the Personal Property Securities Act 2009 (NSW) within 7 days of receipt of a notice of demand from the plaintiff. (4) If order (3) above is not complied with, authorise and direct the Registrar of the Court to execute the documents described in order (3) on behalf of Prime. (5) Order the defendant to pay the plaintiff's costs of the proceedings, including the costs of the first trial before Wilson J and any reserved costs, less the amount of $17,220.08. (6) Reserve the question whether such costs ought be ordered to be paid on an indemnity basis. (7) Grant liberty to apply on 3 days' notice. Catchwords: CONTRACTS — Unjust contracts — Contracts Review Act 1980 (NSW) — where defendant contracted to provide guarantee and security for loan facility agreement — whether contracts unjust BANKING AND FINANCE — Loan facility agreements — Australian Securities and Investments Commission Act 2001 (Cth) s 12CB — whether creditor's conduct unconscionable Legislation Cited: Australian Securities and Investments Commission Act 2001 (Cth), ss 12CA, 12CB, 12CC, 12DA, 12GD, 12GM Contracts Review Act 1980 (NSW), ss 4, 6, 7, 9, 19 Corporations Act 2001 (Cth), s 500 Evidence Act 1995 (NSW), s 131 Personal Property Securities Act 2009 (Cth) Real Property Act 1900 (NSW), s 57 Uniform Civil Procedure Rules 2005 (NSW), rr 13.4, 42.1, 42.21 Cases Cited: Ankar Proprietary Limited v National Westminster Finance (Australia) Limited (1987) 162 CLR 549; [1987] HCA 15 Australian Competition and Consumer Commission v Lux [2013] FCAFC 90 Brittain v Commonwealth of Australia (No 2) [2004] NSWCA 427 Capital Securities XV Pty Ltd (formerly known as Prime Capital Securities Pty Ltd v Calleja) [2018] NSWCA 26 Capital Securities XV Pty Ltd v Calleja (No 2) [2018] NSWSC 1498 Capital Securities XV Pty Ltd v Calleja (No 3) [2018] NSWSC 1501 Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 Permanent Trustee Co Ltd v O'Donnell [2009] NSWSC 902 Prime Capital Securities Pty Ltd v Calleja; Calleja PJC Furniture Freighters Pty Ltd v Prime Capital Securities Pty Ltd; Calleja v Prime Capital Securities Pty Ltd [2017] NSWSC 1694 Provident Capital Ltd v Papa [2013] NSWCA 36 Tonto Home Loans Australia Pty Ltd v Tavares; FirstMac Ltd v Di Benedetto; FirstMac Ltd v O'Donnell [2011] NSWCA 389 Toscano v Holland Securities Pty Ltd (1985) 1 NSWLR 145 Category: Procedural and other rulings Parties: Proceedings 2016/155378 Capital Securities XV Pty Ltd (Plaintiff) Elizabeth Ann Calleja (Defendant) Paul Scanlon (Affected party) Proceedings 2016/260959 Calleja PJC Furniture Freighters Pty Ltd (Plaintiff) Capital Finance XV Pty Ltd (Defendant) Paul Scanlon (Affected party) Representation: Proceedings 2016/155378 Counsel: No appearance for Plaintiff N Obrart (Defendant) A W Smith (Affected Party) Solicitors: Atticus Lawyers (Defendant) Summer Lawyers (Affected party) Proceedings 2016/260959 Counsel: N Obrart (Plaintiff) No appearance for Defendant A W Smith (Affected Party) Solicitors: Atticus Lawyers (Plaintiff) Summer Lawyers (Affected party) File Number(s): 2016/155378; 2016/260959 Judgment Introduction 1. There are two proceedings before the Court. The first proceeding 2016/155378 (the Possession Proceeding) was commenced by statement of claim filed on 20 May 2016 by a company which was then known as Prime Capital Securities Pty Ltd (Prime) against Elizabeth Calleja. Prime sought an order for possession of a residential property at Heatherbrae (the Heatherbrae property) on the basis of a mortgage granted to it by Mrs Calleja. 2. In her defence and cross-claim in the Possession Proceeding Mrs Calleja sought relief under the common law, Division 2 of Part 2 of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and the Contracts Review Act 1980 (NSW). In substance, she sought orders that the agreements she had entered into with Prime to guarantee and secure the borrowings of Calleja PJC Furniture Freighters Pty Ltd (the Company) be declared void. Mrs Calleja was the Company's sole director. 3. Subsequently, the Company commenced proceeding 2016/260959 in the District Court against Prime for a declaration that the loan facility entered into between Prime and the Company had been entered into without authority and was therefore void (the Company Proceeding). The Company Proceeding was transferred to this Court and has been listed to be heard with the Possession Proceeding. It was accepted that the issues raised in Mrs Calleja's defence and cross-claim in the Possession Proceeding overlapped with those raised in the Company Proceeding. 4. Mr and Mrs Calleja and the Company will be referred to collectively as the Calleja interests. 5. Both proceedings were heard by Wilson J in October and November 2017. On 6 December 2017 her Honour dismissed Prime's statement of claim in the Possession Proceeding and made orders on the cross claim in favour of Mrs Calleja: Prime Capital Securities Pty Ltd v Calleja; Calleja PJC Furniture Freighters Pty Ltd v Prime Capital Securities Pty Ltd; Calleja v Prime Capital Securities Pty Ltd [2017] NSWSC 1694. These orders were set aside on appeal and a new trial was ordered: Capital Securities XV Pty Ltd (formerly known as Prime Capital Securities Pty Ltd) v Calleja [2018] NSWCA 26. The basis of the decision of the Court of Appeal was that her Honour had wrongly excluded business records sought to be tendered by Prime against Mrs Calleja. 6. On 23 April 2019 the shareholders of Prime resolved to wind up the company and a liquidator was appointed. On 13 September 2019, Fagan J granted leave to Mrs Calleja and the Company to proceed against Prime in liquidation. Prime's liquidator has made it clear that he does not have the funds to defend the proceedings. 7. Mrs Calleja and the Company moved by amended notice of motion for orders on the cross-claim in the Possession Proceeding and in the Company Proceeding (the Principal Claim). This is the application which is the subject of these reasons. As Prime did not appear at the hearing of the application before me, the evidence adduced by the applicants was not challenged and I accept it. 8. They also sought an order that the costs of the proceedings, if such an order is made, be paid by Paul Scanlon, who was the sole director and shareholder of Prime (the Third Party Costs Application). By reason of the nature of this application, Mr Scanlon's legal representatives were present at the hearing of the Principal Claim although they accepted that they had a right to be heard only in relation to the Third Party Costs Application since Mr Scanlon was not a party to the Principal Claim. 9. Accordingly, these reasons address only the Principal Claim and the costs of the Principal Claim. The Third Party Costs Application is to be heard separately, although, for convenience, the evidence relating to it was tendered at the hearing of the Principal Claim. The facts Background 1. Mrs Calleja attended Maitland Girls High School until she was about 15 years old. Once she had completed Year 10, she entered the workforce. Her first job after leaving high school was in the delicatessen at Woolworths. After about 12 months she started working at Fossies, a clothing store in Maitland. She worked in retail for about 20 years. She has no formal qualifications apart from her Year 10 certificate. When she married Mr Calleja, she started working with him in the freight business. 2. In about 1997, Mrs Calleja purchased the Heatherbrae property. She funded the purchase from a loan from Bankwest, a trading arm of the Commonwealth Bank of Australia, which became the first, and sole, mortgagee over the property. In about 2009, Mrs Calleja purchased another property with funds she borrowed from Bankwest (the Minimbah property). These funds were secured over both the Heatherbrae and Minimbah properties. The period up to the commencement of the Possession Proceeding on 20 May 2016 The Company's business and requirement for finance 1. The Company conducted a small freight business. In about October 2014, Mrs Calleja asked the Company's marketing manager, Frank Bugeja, to investigate the possibility of a loan that would permit the Company to buy trailers for its business rather than incur the costs of hiring such vehicles. Mr Bugeja searched the internet for a lender and located a business known as Fast Commercial Loans. By email to Fast Commercial Loans dated 28 October 2014, Mr Bugeja sought a loan for the Company of $500,000 for three semi-trailers. 2. Mrs Calleja's expectations were more modest. She wanted to buy second-hand trailers and had learned from her husband's internet searches that second-hand trailers were selling for about $40,000 each. Prime's letter of offer 1. On 29 October 2014, Prime wrote to the Company and offered a loan facility on the terms set out in the attachment to the letter. The facility limit was said to be $450,000. The expiry date was said to be 12 months. The Security Property identified was the Heatherbrae property of which Mrs Calleja was registered proprietor. The attachment recorded that the sum of $62,000 to Bankwest was the "1st Priority" which I take to mean that Prime had been told that the Heatherbrae property was subject to a first registered mortgage in favour of Bankwest. There was a reference to certain fees and charges, including the following: "Up Front contribution to Fees and Costs Upon execution of this Offer Letter by you, we require a payment of $2,000 towards these fees and costs. The payment will be deducted from the fees and costs outlined above, and are NOT in addition to them." 1. The letter of offer required the Company and Mr and Mrs Calleja to charge all their present and after-acquired property in favour of Prime. Mr and Mrs Calleja were also required to give guarantees. 2. On the execution page, Prime said: "Before accepting this Offer Letter we recommend that you obtain independent financial and legal advice." The Company's reaction to Prime's offer and further discussions 1. Mrs Calleja read the offer and decided not to proceed with the loan as the Company was not in a position to repay the loan within 12 months. The first meeting 1. In about early November 2014, both Peter Ainsworth, an employee of Prime, and Paul Scanlon, Prime's sole director, contacted Mr Bugeja about the proposed loan. When Mr Bugeja told them of the Company's decision, Mr Scanlon and Mr Ainsworth offered to come to the Company's business premises at Chullora to meet with Mr and Mrs Calleja and Mr Bugeja to discuss the loan. 2. Mrs Calleja's recollection was that the two representatives of Prime who came to Chullora for the first meeting were Mr Ainsworth and Mr Scanlon. However, when she saw that Mr Scanlon had denied having ever met her in his affidavit she accepted that it was possible that she had confused Mr Scanlon with someone else. There is no evidence of any other person associated with Prime who might have been the second person other than Mr Scanlon. 3. At the meeting Mrs Calleja reiterated her position that the Company could not repay the loan within 12 months. The Prime representatives agreed to extend the period of the loan to make it three years. Mrs Calleja asked for the loan to be amended accordingly. Mrs Calleja also confirmed at the meeting that the Company only wanted a loan of between $100,000 and $150,000 to purchase two trailers. Mr Scanlon and Mr Ainsworth informed her that they were not required to draw down on the total amount of the loan facility and that they would only be charged interest on the amount drawn down. Mr Scanlon told them that the $450,000 would be there if they needed it. Mrs Calleja assured him that the Company did not require a loan of that amount. 4. As a result of this conversation, Mrs Calleja believed that she would have control over how much money was drawn from the facility. She only intended to draw down up to between $100,000 and $150,000 to purchase the trailers. She understood that during the term of the facility, the Company would be paying interest at 2% per month. She performed various calculations and worked out that the Company would be able to meet the monthly payment even if it drew down the full $150,000 since, at most, the monthly repayments would be $3,000. She reasoned that, as the Company was already spending more than that per month to hire two trailers, it made more sense to borrow money to buy trailers which would be assets of the business. 5. Mrs Calleja believed that the Company would be able to meet the interest payments for such an amount borrowed from Prime together with its existing commitment to Baycorp Collections PDL (Australia) Pty Ltd (Baycorp) referred to below. The Baycorp debt 1. The Company's debt to Baycorp arose when, in 2010, one of the Company's trailers was damaged when it flipped over in a wet loading yard. As the trailer was being used to load cattle, the Company's insurance claim was rejected by its insurer because the trailer was not insured for that purpose. The trailer, which was financed by Capital Finance, was repossessed. The Company was obliged to pay out the outstanding debt on the trailer, which was over $100,000. Baycorp took an assignment of the debt owing to Capital Finance, although it would appear that there was still a small amount owing to Capital Finance. The Company entered into an instalment arrangement with Baycorp. The original amount outstanding of about $120,000 had been reduced to about $65,000 by 2015. From about March 2014, the Company had been making weekly payments of $500 in reduction of the debt. As far as Mrs Calleja understood, Baycorp did not charge interest on the debt. The second meeting 1. A second meeting at Chullora occurred later in November 2014. Mr Ainsworth attended the meeting on behalf of Prime. At that meeting Mr Ainsworth added the words "with the option to roll over for another 12 months" in handwriting on the loan agreement after the description of the term of the facility. Mrs Calleja signed the Letter of Offer on behalf of the Company. On 19 November 2014, Mrs Calleja signed a "Declaration of Purposes for which Credit is Provided" in which she declared that she was obtaining $450,000 from Prime. She and her husband also signed guarantor's acknowledgements on that day. The payment of the application fee and the lodgement of a caveat over the Heatherbrae property 1. On 27 November 2014, the Calleja interests paid the $2,000 application fee. 2. On 28 November 2014 JPM Valuers and Property Consultants, at the request of Prime, carried out a "desktop assessment" of the value of the Heatherbrae property for which they invoiced Prime the amount of $660 (including GST). This document was first provided to the Calleja interests (to their solicitor, Ms Doig) on 9 October 2017. 3. On 18 December 2014, Prime lodged a caveat over the Heatherbrae property. Mr Scanlon swore a statutory declaration on behalf of Prime in support of the interest claimed in Schedule 1 which identified the estate or interest in the land as follows: "Equitable interest to secure moneys owed from time to time to the Caveator by the Registered Proprietor as a guarantor pursuant to the instrument(s) described below." 1. The instrument identified in the notice of caveat was the letter of offer dated 19 November 2014. 2. After the meeting at Chullora, Mrs Calleja took the draft loan agreement to Lea Smith, their solicitor, who practised in Raymond Terrace, for her review while she was on leave over the Christmas period. The solicitor raised concerns with Mrs Calleja, including cl 6.4 which provided: "The Borrower must pay to the Lender a termination fee equal to 2.5% of the Limit on the Termination Date." 1. Ms Smith advised Mr and Mrs Calleja not to sign the documents because it was such a bad deal. Mr Calleja thought that the Company's solicitor had listed some of the issues with the loan agreement and sent them in an email to Mr Scanlon. However, he was unable to locate a copy of the email. 2. On 12 January 2015, Mr Bugeja sent an email to Prime asking Mr Ainsworth to contact him urgently. Further messages were sent. On 14 January 2015, Mrs Calleja sent an email to Mr Ainsworth in which she said: "Hi Peter We went over to see the solicitor in our break to sign the papers but the solicitor was not happy with them as they are incorrect [as] to what we agreed in our office here at Chullora. There is one clause that says that we have to PAY the interest at the end of the 12 MONTHS on the full amount of $360,000.00 even though we were not actually using the full amount. We told you we could not pay the amount that we borrowed in the 12 months required and that the load [sic] would carry on for another 12 months at least which works out to be around $9000.00 Nothing has been signed until you get back to my solicitor with some answers please" 1. On 15 January 2015 Mr Scanlon responded on behalf of Prime in Mr Ainsworth's absence, as follows: "Peter is away on holidays still until next week. There seems to be some confusion, the docs do not say that about interest. Interest is payable on the drawn balance. …" 1. On 27 January 2015, Mr Calleja phoned Mr Ainsworth and told him that they were not happy with the agreement because it said that the term was 12 months when they had agreed that it would be three years. He also referred to the facility limit being $360,000 and told him that the Company did not need that much. Mr Ainsworth assured him that interest would only be payable on funds that were drawn down and that, provided the account was kept in good order, the facility would be rolled over. Mr Calleja asked Mr Ainsworth to put what he had said in writing. Mr Ainsworth did so in an email on 27 January 2015. 2. On 6 February 2015, Mr Scanlon emailed the Calleja interests and said, in respect of cl 6.4 (which had been raised by the Company's solicitor): "To overcome the disagreement, you can write in to change it so it reads: '6.4 Provided an Event of Default has occurred the Borrower must pay to the Lender a termination fee equal to 2.5% of the Limit on the Termination Date." 1. On 9 February 2015, Mr Bugeja responded by email as follows: "Paul this will solve the issue but the only way this can be done [is] if one of you Peter or yourself will come out to our office and do the changes yourselves as this Must be done in your own hand writing and signed by you too, and the quicker we can get this done the better." [Emphasis in original.] 1. In about February 2015, Mr Ainsworth phoned Mr Calleja and asked how he and his wife were going to get the documents executed. Mr Calleja responded that their solicitor refused to sign such documents and had advised them not to sign them. Mr Ainsworth told them that their solicitor did not know what she was talking about and that he could arrange for a solicitor to come and see them to witness the documents. The execution of the loan agreement and security documents 1. On 12 February 2015, Prime sent its solicitor, Robert Shacklady, to the Company's office in Chullora to arrange for the loan documents to be signed. The Calleja interests were not given a copy of the documents they signed. Mr Shacklady required them to pay $300 in cash for his fees, for which they were given no receipt. This was the only occasion on which Mr and Mrs Calleja met Mr Shacklady. He did not explain the documents to them. 2. The executed loan agreement does not bear a date. Mr Scanlon admitted in his affidavit (which was tendered by the Calleja interests as an admission) that the loan agreement was executed some time between 12 January 2015 and 17 April 2015. I infer from Mrs Calleja's evidence about what occurred on 12 February 2015 and the circumstance that Mr Shacklady witnessed the signatures that it was executed on 12 February 2015. 3. At around this time, Mr Ainsworth phoned Mr Calleja and told him that Prime needed the executed documents back quickly. Mr Calleja said that there was a document which their accountant needed to sign but that he had not been able to get hold of him. Mr Ainsworth told him that he could arrange for an accountant to go out and see them. I infer that the document to which Mr Calleja referred was a certificate of financial advice. 4. About a week later a man came to Chullora and signed the document which certified that Mr and Mrs Calleja had received financial advice. The man neither gave financial advice nor looked at the documents. He simply filled in the documents and gave them back to the Callejas. 5. As far as Mrs Calleja could recall she and her husband took the documents they had signed to the offices of Gadens solicitors in Sydney. They were required to show their drivers' licences. Someone at Gadens took the documents from them but did not supply copies to them. Mr Calleja could not remember doing so and thought that they might have posted the documents back to Prime or Gadens. As far as the evidence revealed, Gadens were the solicitors for Bankwest, the first registered mortgagee over the Heatherbrae property. The terms of the written loan agreement 1. The loan agreement provided that Prime (who was referred to as the Lender) agreed to make available to the Company (who was referred to as the Borrower) "a cash advance facility on a progressive basis up to but not exceeding the Limit": cl 2.1. "Limit" was defined to mean $360,000. Clause 2.3(a) required the Borrower to apply the proceeds of all Advances for the purpose(s) set out in Item 10. Item 10 read "Capital to replace three semi-trailers for freight business". 2. Clause 3.2 provided that the Borrower could draw an Advance if the Initial Advance occurs on or before the Initial Advance Drawdown Date, which was defined to mean 20 December 2014 (a date prior to the execution of the loan agreement). Clause 3.3 provided for progressive drawdowns. Clause 4.1 obliged the Borrower to repay the aggregate of the Advances outstanding on the Termination Date which was defined to mean "the earlier of Termination of the Facility by the Lender or 12 months from the Initial Advance". 3. Clause 5.1 required interest to be paid in advance and provided: "(a) The Borrower must pay interest in advance to the Lender on each Advance for each of its Interest Periods at the applicable Interest Rate. The Borrower must pay the applicable amount of interest on each Interest Payment Date. (b) Interest accrues daily from and including the first day of each Interest Period to, but excluding, the last day of the Interest Period, or, in the case of a prepayment or repayment being made on a date other than an Interest Payment Date, in relation to the amount prepaid, to the relevant prepayment or repayment date." 1. Clause 5.2 provided for compound interest. The Lower Rate of interest was defined to be 2.0% per month; the Higher Rate of Interest was defined to be 4% per month. 2. An establishment fee was required to be paid in full on or before the earlier of the Initial Advance Drawdown Date or the first Advance Date: cl 6. Advance Date was defined to mean the date on which each advance was made. If no event of default occurred, the Borrower was entitled to pay the Discounted Establishment Fee which is defined to be 2.5% of the Limit (of $360,000), which amounts to $9,000. The establishment fee was otherwise defined to be $70,000. 3. Clause 6.5 provided for a loan management fee as follows: "Loan Management Fee The Borrower must pay to the Lender a non-refundable loan management fee of 0.2% per month of the Limit payable in advance on the first day of each calendar month from the date of the Initial Advance until the Termination Date." Further enquiries made by Prime 1. On about 16 February 2015, Mr Ainsworth phoned Mrs Calleja and told her that he had been looking through the Company's documents. He asked about the debt to Baycorp. She explained how the debt arose and what the repayment arrangement was. He asked her for details of the repayment arrangement, which she emailed to him. 2. At some time between mid-February 2015 and March 2015, Mrs Calleja received a phone call from someone at Baycorp who told her that if the Company paid the loan out on that day, Baycorp would accept $60,000 in full and final settlement of the debt. Mrs Calleja did not know what had prompted the enquiry. She informed the caller that the Company did not have the funds available to pay the debt. She was not aware that Prime was going to pay the Company's debt to Baycorp from the funds advanced pursuant to the loan facility and did not authorise any such payment to be made. 3. On 24 February 2015, Mrs Calleja received a letter from Bankwest informing her that the interest rate on her home loan had been decreased from 5.77% up to that date to 5.52% on and from that date. She was also informed that the loan was in arrears in an amount of $6,674.69. 4. On 2 March 2015 Mr Ainsworth emailed Mrs Calleja and told her that valuations were going to be undertaken with respect to the Heatherbrae and Minimbah properties. Mrs Calleja believed that the properties were being valued because she was signing the documents as guarantor. She assumed that Prime was communicating with Bankwest because Bankwest had mortgages over the properties. 5. On 1 April 2015, Prime emailed Bankwest and copied Mrs Calleja into the email. It said, of present relevance: "Thanks for your email, re questions below: 1. Bankwest arrears: the client will use funds from our facility to fix up the arrears and val [valuation] fee 2. Security separation: please confirm how much of the Bankwest facility will be allocated to the Minimbah property. We will take security of the Heatherbrae property and payout any residual balance owed to Bankwest Any q's let me know." 1. Mrs Calleja did not recall receiving the email. She did not understand what "security separation" meant or what Mr Ainsworth meant about paying the balance owing to Bankwest. Her evidence was that it was possible that she understood the email to mean that Mr Ainsworth was referring to the mortgage arrears which had been referred to in Bankwest's letter to her dated 24 February 2015. 2. On 16 April 2015 Kemp Strang, who acted for Capital Finance, wrote to Gadens, who acted for Bankwest, and informed them that on "settlement", they would require two bank cheques. The first cheque was required to be drawn in favour of Capital Finance Australia Limited in the amount of $6,805.97; and the second was required to be drawn in favour of Kemp Strang in the amount of $2,571.57. Kemp Strang said that in return for those cheques, a withdrawal of caveat would be given. Kemp Strang also noted their understanding that Baycorp requested that Gadens pay the amount owing of $64,918.41 after settlement. Until 13 May 2015 when Mr and Mrs Calleja received the settlement statement referred to below, they were unaware of these communications or that Prime was intending to pay these amounts on their behalf. Mr and Mrs Calleja first saw this letter when it was obtained by their solicitor, Ms Doig, from Prime's solicitors on 3 October 2017. 3. On 17 April 2015 Bankwest and Prime entered into a Common Priority Deed pursuant to which they agreed that Bankwest would have first priority over Prime's interest in the Heatherbrae property for the aggregate of the principal sum of $107,000, together with all interest and costs, and that Prime would have second priority for all of the money secured by Prime's mortgage over the Heatherbrae property. 4. On 17 April 2015, Prime sent an email to the Calleja interests asking for details of the account into which Prime could deposit the loan funds. Before receiving this email, Mrs Calleja had not spoken to anyone from Prime since the emails into which she had been copied in March and early April 2015. Mrs Calleja provided the Company's bank account details by email on 21 April 2015. According to Mr Scanlon's affidavit of 7 September 2016, parts of which were tendered as admissions by the Calleja interests, Prime advanced a total amount of $292,000 on 17 April 2015. He annexed a settlement sheet dated 17 April 2015 to the letter informing them of the settlement. The Calleja interests did not receive the settlement statement until they asked for it in mid-May 2015 (see below). The evidence referred to below showed that no monies were advanced on 17 April 2015. The settlement statement was erroneous. 5. On 17 April 2015 two amounts were withdrawn from a Westpac account in the name of Prime Capital Securities Administration Pty Limited (to be distinguished from Prime): $6,805.97 and $62,877.61. These amounts correspond to the amounts owed to Capital Finance and to Baycorp, which were shown as having been paid in the settlement statement referred to below as items 4 and 6. This Westpac bank statement was first provided, in redacted form, to the Callejas through their solicitor, Ms Doig, on 12 October 2017. A further version of the account statement, with one fewer redaction was provided on 18 October 2017. The second version showed that the sum of $2,571.57 was also withdrawn from that account on 17 April 2015. This corresponds with the amount paid to Kemp Strang, Capital Finance's solicitors (item 5 in the settlement statement referred to below). The execution of further documents 1. Mr and Mrs Calleja each signed a confirmation, as guarantors, that they had been given advice by Charbel Boutros of Blueprint Financial Planners. The documents were dated 24 April 2015. Mrs Calleja signed the confirmation although she had neither been given financial nor legal advice about the loan documents or the guarantee, apart from the advice she obtained from her solicitor at Raymond Terrace which is referred to above. It is also of importance that the certificate is dated 24 April 2015, which is after the period of time during which Prime (through Mr Scanlon) admitted the loan agreement was executed: namely, between 12 January 2015 and 17 April 2015. I accept the evidence of the Calleja interests that no legal advice was given. I infer from the date of the certificate that the solicitor visited them only after the loan agreement had been executed. 2. On 1 May 2015 Prime emailed Mrs Calleja and asked her for insurance details for the Heatherbrae property so that Prime's interest, as second mortgagee, could be noted. Mrs Calleja provided this information as she understood that the Heatherbrae property would be used to secure the Company's debt arising from the loan facility. 3. On 4 May 2015 each of the Company, Mr and Mrs Calleja executed a General Security Deed over their assets, including after-acquired property, which Prime registered under the Personal Property Securities Act 2009 (Cth). Mrs Calleja executed a mortgage over the Heatherbrae property. 4. Prime neither advised the Calleja interests of the date for settlement of the loan facility nor provided any indication of the amount which would be drawn down or how the funds would be disbursed. 5. On 4 May 2015 Gadens, Bankwest's solicitors, prepared a draft invoice for the period 5 December 2014 to 4 May 2015. The amount said to be due, including GST was $8,808.58. This amount was paid to Gadens from the funds said to have been advanced to the Company, as is apparent from item 1 on the settlement statement below. This document was first produced by Prime's solicitors to Ms Doig on 9 October 2017. 6. On 5 May 2015, the mortgage over the Heatherbrae property was registered. The advances made by Prime 1. On 5 May 2015 the sum of $34,676.50 was deposited into the bank account which the Company had nominated. When Mrs Calleja noticed the credit of that amount she was at a loss to understand where it had come from. She discussed the matter with her husband who suggested that it had come from Prime. Mr and Mrs Calleja were very concerned when they realised that the Company had only received that amount and tried to contact Mr Scanlon, who would not return their calls. 2. Mr and Mrs Calleja learned that, on 5 May 2015, Prime paid Bankwest the sum of $152,496.44, purportedly from the loan facility, in reduction of the debt secured by mortgages over the Heatherbrae property and the Minimbah property, both of which were owned by Mrs Calleja. Mrs Calleja did not authorise this payment and had not agreed for the Minimbah property to be used to secure the loan facility. Prime also lodged a caveat over the Minimbah property, having already lodged a caveat over the Heatherbrae property on 18 December 2014, pending registration of the mortgage granted by Mrs Calleja to Prime in 2015. 3. On 6 May 2015 Bankwest wrote to Mrs Calleja and said, in part: "We refer to the terms of your request to vary the terms of your Loan Contract and are pleased to advise you that the Bank offers to vary your Loan Contract as set out below. RELEASED SECURITY • Mortgage from Elizabeth Calleja over [the Heatherbrae property]. AMOUNT OF CREDIT Your Amount of Credit is reduced to $397,500.00." 1. Mrs Calleja did not recall when she received the letter but thought that it may have been in about mid-May 2015 at the earliest. She neither instructed nor authorised Prime to pay any sum to Bankwest in respect of the Minimbah property. No such request was made of her by Prime. Her understanding was that the Minimbah property was not to be used as security for the loan from Prime. She had not discussed the Minimbah property with Prime other than to have it valued. 2. Eventually, on about 13 May 2015, after several unsuccessful attempts, Mr Calleja managed to speak with Mr Scanlon. He asked him what the $34,000 was for. Mr Scanlon responded that if Mr Calleja had read the settlement statement he would know that $290,000 had been disbursed. Mr Calleja told Mr Scanlon that no settlement statement had been received and that the Company did not want to borrow $290,000; it only wanted to borrow $100,000 to buy some new trailers. Mr Scanlon told Mr Calleja that he had done the Company a favour and had paid off some of its existing debt. Mr Calleja said: "Well, I don't want it, you might as well have the whole lot back, I'm no further ahead than I was before and I can't even afford one trailer with the money you've given us." 1. Mr Scanlon replied: "You've got it now, live with it and get on with your life." 1. Mr Scanlon then hung up on Mr Calleja. 2. On 13 May 2015 Mr Scanlon sent by email to the Calleja interests copies of the letter confirming settlement and a copy of the settlement statement. The covering email said: "Hi Michael, copies of corro are attached as requested. Originals have been posted to you." 1. I accept Mrs Calleja's evidence that these documents had not been received by the Calleja interests before receipt of the email dated 13 May 2015. The letter and the settlement statement attached to the email were each dated 17 April 2015. The letter said: "We refer to your signed Loan Agreement and security documentation received by us. We confirm that your Facility Limit has today been drawn down in accordance with your instructions. Please refer to attached settlement statement. Please note your monthly payments at the Lower Rate of $6,380.00 (including Loan Management Fee) are due on the first of each month (commencing 1 May 2015) to our account as follows: …" [Emphasis added.] 1. The settlement statement said as follows: FUNDS AVAILABLE Amount ($) DISBURSMENTS Amount ($) Drawdown 290,000.00 Legal fees 4,950.00 Deposit received 2,000.00 Lodgement fees, duty & outlays 3,858.58 Application Fee 0.00 Discount Establishment Fee 7,250.00 Interest 2,513.33 Loan Management Fee 580.00 Valuation fees 660.00 Balance at borrower's direction 272,188.09 TOTAL 292,000.00 TOTAL 292,000.00 DISBURSEMENT OF FUNDS AVAILABLE Amount ($) Payee 1. Gadens Lawyers (BSB 012006 Ace 837310166) 8,808.58 2. Prime Capital Securities Pty Ltd (BSB 034239 Ace 368224) 3,093.33 3. Prime Capital Securities Administration Pty Ltd (BSB 034239 Ace 360601) 7,910.00 4. Capital Finance Australia Limited 6,805.97 5. Kemp Strang 2,571.57 6. Baycorp Collections PDL (Australia) Pty Ltd 62,877.61 7. Fast Commercial Loans 6,380.00 8. Bankwest 152,496.44 9. Calleja PJC Furniture Freighters (BSB 082124 Ace 946180305) 41,056.50 TOTAL 292,000.00 1. It is apparent from the cell entitled "Funds available" that Prime treated the $2,000 deposit which had been paid on 27 November 2014 as part of the principal which accrues 2% per month. It is difficult to see the justification for that as the Calleja interests had actually paid that amount. 2. Mrs Calleja had borrowed money from Bankwest (Item 8) pursuant to a home loan facility which was secured by mortgages over the Heatherbrae and Minimbah properties. The applicable rate was the home loan interest rate. The loan was repayable over 30 years by 36 monthly payments of principal and interest of $3,559.85 followed by 324 monthly payments of principal and interest of $3,372.13. The account statements for the Bankwest debt showed that on 5 May 2015 the debit account balance of $552,325.41 was reduced to $399,828.97 by reason of the payment of $152,496.44. Mrs Calleja did not authorise Prime to repay any money to Bankwest in reduction of her loan. 3. Item 9 of the settlement statement recorded that the Company received an amount of $41,056.50 on 17 April 2015, that being the date of the settlement statement. The Company's bank statements record that the Company was actually paid $34,676.50 on 5 May 2015. 4. When she saw the settlement statement Mrs Calleja was shocked to realise that Prime had paid funds to itself and to various third parties without the authority of Mrs Calleja or the Company. She was particularly upset about the payment to Bankwest. She appreciated from the settlement statement that the Company did not have sufficient funds to purchase any new trailers with the amount received from Prime because of the way in which Prime had disbursed funds from the facility. These payments had exposed the Company to a higher interest rate than had previously applied to its debts. The Company used most of the $34,676.50 from Prime to repair the engine of a prime mover the Company owned. It also used part of the funds to repay the monthly instalments to Prime. 5. When Mr Calleja saw the settlement statement, he was very angry when he realised that Prime had paid off the loan the Company had obtained from Capital Finance for one of its vehicles. Before the loan was repaid there was only $6,805.97 owing to Capital Finance, which corresponds to item 4 on the settlement statement. 6. In substance, what appears to have occurred is that Prime made a series of payments, including to itself, which totalled $292,000 and treated those payments as a drawdown on the facility. It began to charge interest on the total sum from 17 April 2015 although the funds were not all disbursed on that day. The documents which revealed the detail of the transactions were only provided to the Calleja interests in 2017 and will be referred to further below. 7. Mr Calleja and Mr Bugeja tried to contact Mr Scanlon to discuss the disbursement of the funds. Between 13 May 2015 and 26 May 2015, the Company sent five emails to Prime, requesting that either Mr Scanlon or Mr Ainsworth call Mr Calleja immediately. No contact was made. Mrs Calleja was very concerned about losing her house. 8. I accept Mrs Calleja's evidence from her affidavit as follows: "48. I thought at all times that it was always our choice how much money was drawn down from the facility, and I never intended to draw down more than we needed to buy some second hand trailers for the business. I signed the facility agreement and guarantee and mortgage based on this understanding. I would not have signed the facility agreement, guarantee or mortgage otherwise. The Company had intended to continue to make its instalment repayments to Baycorp, and I had intended to continue to make my mortgage repayments to Bankwest on my loans. The Company did not have to enter into this facility, it was able to continue to conduct its business using hired trailers as it had done in the past. The facility to purchase trailers was just to save the Company the hire costs but it was not necessary. 49. The $34,676.50 advanced by Prime Capital to the Company was not enough to buy even one second hand trailer, and the Company has continued to rent trailers for the business. 50. After Prime Capital had done what it did with the loan facility, I didn't think I had a choice but to make the monthly interest payments because I didn't want to default on the loan to Prime Capital, especially because the Heatherbrae property which is my and Michael's home was mortgaged to Prime Capital and I didn't want to lose my house. 51. If I had known that Prime Capital was going to use the facility to pay off company debts and pay a large amount to Bankwest in respect of my personal property, I would never have signed the loan agreement, guaranteed the Company's obligations or mortgaged my property to Prime Capital. The Company's debts were all being serviced, and I never intended to obtain finance to pay them off. 52. Neither I or the Company had the money to spend fighting Prime Capital, so I did what I could to make the interest payments on time." 1. Mr Calleja's evidence was to similar effect: if he had known that Prime was going to use the monies borrowed by the Company to pay off its debts and some of the money owing on the properties, he would never have signed any of the loan documents. Because the money they actually received was not enough even to purchase a second-hand trailer, the Company had to continue to hire trailers for its business. Mr Calleja did not think that there was any way of undoing the transactions. He deposed, and I accept: "I didn't want to lose our house so Elizabeth and I just tried out best to get through every month paying the interest, but in around June last year we received documents from Prime Capital's solicitors suing for possession of our house." Payments made by the Company 1. Between 17 April 2015 and 17 April 2016, the Company paid Prime amounts which totalled $73,540. During that period, Prime charged interest of $69,928.41. Mrs Calleja believed that the payments were up to date and that the Company was complying with the terms of the facility. 2. Between 17 April 2015 and 1 June 2016 the Company is recorded in Prime's ledger as having paid to Prime a total amount of $93,100 in respect of interest. This amount comprises the sum of Prime's records of the Company's actual payments together with a further interest payment of $6,380, which was the May 2015 payment which Prime disbursed to itself and added to the principal. The last payment ever made by the Company was the sum of $6,380 which was transferred from the Company's account on 31 May 2016 and apparently received by Prime on 1 June 2016. 3. On 2 June 2015, Prime sent a letter to the Company which said in part: "We note your payments are due on the first day of each calendar month. We refer to correspondence sent to you on 17 April 2015 reminding you of this obligation. We note with disappointment that you have failed to make the payment due on 1 June 2015. This represents an event of default under the Facility. We reserve all rights arising out of this event of default including our rights to proceed at any time with enforcement of our security. A covenant breach fee applies to an event of default…" 1. On 5 June 2015, Mrs Calleja wrote an email to Prime which said: "Please note we have already paid JUNE PAYMENT – check your records again please AND Please note its [sic] very very disappointing that Peter or Paul from Prime Capital cannot return our phonecalls and EMAILS. We have been constantly emailing them and phoning them but we don't get any response from either one. Now that you have our business no one wants to talk to us. …" 1. Mrs Calleja did not recall receiving any documents from Prime to the effect that the facility would be expiring. She believed on the basis of what Mr Scanlon had told her at the meeting at Chullora that the loan would not expire until 2018. Continued need to hire trailers 1. As the funds advanced by the facility were insufficient to buy a trailer, the Company continued to incur expenses in the hiring of trailers for its business. The expenses up to and including 6 May 2017 which the Company incurred are set out in the table below. Period Hiring Expenses Additional expenses associated with hiring (excl. GST) (excl. GST) 7 May 2015 - 6 May 2016 $31,700 $10,112.31 7 May 2016 - 6 May 2017 $36,500 $17,707.77 1. Thereafter the Company continued to incur the expense of hiring trailers as it could not afford to purchase them. The s 57(2)(b) notice 1. Summer Lawyers sent a letter dated 11 May 2016 addressed to the Company and Mr and Mrs Calleja to which a notice pursuant to s 57(2)(b) of the Real Property Act 1900 (NSW) (the s 57(2)(b) notice) was enclosed. The notice claimed a "Principal" sum of $360,000 and required payment by 14 June 2016. It alleged that the facility terminated on 17 April 2016. The notice was signed by Paul Reese of Summer Lawyers. The Possession Proceeding The relief claimed by Prime 1. As referred to above, Prime filed a statement of claim in the Possession Proceeding on 20 May 2016. The pleading was received by the Company in June 2016 when it was served through the post. Although the s 57(2)(b) notice was dated 11 May 2016, Mrs Calleja's recollection was that she did not receive it until June 2016, which was around the same time as she received the court documents for the Possession Proceeding in her letterbox. 2. The only relief which Prime claimed in the Possession Proceeding was an order for possession and leave to issue a writ of possession for the Heatherbrae property. In the statement of claim which was filed on 20 May 2016, Prime alleged that the parties had agreed on or about 19 November 2014 that it would advance the sum of $360,000 to the Company, which was defined as "the Principal". It alleged that it had advanced the Principal on 17 April 2015. I note that in the amended statement of claim which was filed on 9 May 2018 (after the first trial and the appeal) it alleged that the parties had agreed between February and 5 May 2015 that it would advance $290,000. Further documents evidencing the loan agreement and payments made Prime's ledger 1. The affidavit relied on by Prime in support of the Possession Proceeding was sworn by Mr Scanlon on 7 September 2016. He annexed a copy of Prime's ledger with respect to the Company's loan account. On 17 April 2016, Prime charged to the account the sum of $62,750, described "Balance of Establishment Fee". 2. By 1 December 2017, Prime's ledger recorded that the Company owed it $703,109.36 which comprised the principal sum of $290,000 and interest, including compound interest of $413,109.36. In the version of the ledger annexed to Mr Scanlon's affidavit of 18 December 2017, the item described as "Balance of Establishment Fee" as at 17 April 2016 had been deleted. This affidavit was read by Prime in opposition to the Company's application for security for costs and a stay. Attempts by the solicitors for the Calleja interests to obtain documents evidencing payments and authorities 1. On 7 July 2016, Mrs Calleja instructed Ms Doig of Atticus Lawyers, who are the solicitors on the record for the Calleja interests in both proceedings. On 28 July 2016, Ms Doig emailed Ms Parsons of Summer Lawyers requesting copies of directions alleged to have been given by the Calleja interests for the payments of amounts to those persons listed at items 1-8 of the settlement statement reproduced above. On 1 August 2016, Ms Parsons responded as follows: "The majority of the cheque directions required for settlement were not directions which came from Mrs Calleja but rather were directions from other creditors, for example, Bankwest. In this case, the settlement statement sets out the most accurate detail as to the disbursement of funds. We do have a copy of an email from your client to our client where she directed our client to pay the balance of the draw down into the company nominated account …" 1. Ms Doig reiterated her request for such directions by letter dated 16 January 2017. The documents were not forthcoming. Ms Doig served a notice to produce on Prime's solicitors on 7 February 2017 which sought documents which included Prime's file; payment receipts, invoices and cheque directions for the payments made to the parties named in items 1-8 of the settlement statement. Despite repeated attempts to obtain the documents, Ms Doig was unsuccessful. Ultimately, on 1 June 2017, Ms Parsons rang Ms Doig and told her that Prime had nothing to produce in answer to the notice as they did not have such documents. Ms Doig then sought particulars of the payments. Ms Parsons objected to the request for particulars. Further correspondence ensued between the solicitors. 2. Finally, on 12 October 2017, Ms Parsons provided to Ms Doig a redacted copy of the Westpac Business One bank account statement of Prime Capital Securities Administration Pty Ltd for the period 27 February 2015 to 28 May 2015 which purported to evidence the withdrawal of sums of $6,805.97 and $62,877.61. A further version provided on 18 October 2017 included a withdrawal of $2,571.57 which relates to the payment to Kemp Strang. The Dentons trust account statement 1. On 17 October 2017, 15 months after the initial request, Ms Doig received a statement for the trust account in the name of Dentons Australia Pty Ltd for the Company's matter, which covered the period from 1 April 2015 to 12 October 2017. The statement was addressed to Gadens from Dentons dated 12 October 2017 and appeared to evidence the payments referred to in the settlement statement. 2. The table below replicates the table in the trust account statement, with additional text in square brackets in the "Debit Amount" column to indicate the item in the settlement statement to which each amount corresponds. TRUST ACCOUNT STATEMENT FOR PERIOD 01 April 2015 TO 12 October 2017 Date Type/ Reference Paid To / Rec'd From / Jnl To/From Reason Debit Amount Credit Amount Balance Opening Balance $0.00 22/04/2015 Receipt 2035888 ANZ $76,125.00 $76,125.00 --- On account of settlement 22/04/2015 Receipt 2035889 ANZ $126,875.00 $203,000.00 --- On account of settlement 22/04/2015 Receipt 2035890 Dipvis P/L $50,750.00 $253,750.00 --- On account of settlement Prime Capital Securities Pty Ltd 05/05/2015 Adjustment 5151955 Settlement Funds 034239 $6,380.00 $247,370.00 368224 05/05/2015 Adjustment 5151956 Prime Capital Securities Administration Pty Ltd $34,005.15 $213,364.85 Settlement Funds 034239 360601 05/05/2015 Adjustment 5151957 Fast Commercial Loans Settlement Funds 034239 360601 $6,380.00 $206,984.85 [item 7 of settlement statement] 05/05/2015 Adjustment 5151958 Prime Capital Securities Pty Ltd $3,093.33 $203,891.52 Settlement Funds 034239 368224 [item 2 of settlement statement] 05/05/2015 Adjustment 5151959 Prime Capital Securities Administration Pty Ltd Settlement Funds 034239 360601 $7,910.00 $195,981.52 [item 3 of settlement statement] 05/05/2015 Adjustment 5151960 Calleja PJC Furniture Freighters Pty Ltd $34,676.50 $161,305.02 Settlement Funds 082124 946180305 [part of item 9 of settlement statement] Bankwest $152,496.44 05/05/2015 Adjustment 5154445 Settlement funds - ANZ bank [item 8 of settlement statement] $8,808.58 cheque 965241 --- Gadens Lawyers Sydney Pty 12/05/2015 Disbursement 129701 Ltd $8,808.58 $0.00 --- Created to pay Cash [item 1 of settlement statement] Receipt for Invoices [1057569] Closing Balance AUD $0.00 1. It can be seen that the first three amounts were deposits to the trust account, two from an unnamed account at the ANZ Bank and the third from an entity called "Dipvis Pty Ltd". The three deposits were made on 22 April 2015. As at the date of the settlement statement, 17 April 2015, the balance of the trust account was nil. The evidence does not reveal the name of the holder of the ANZ account. However as the evidence shows that Prime's account was a Westpac account, I infer that the ANZ account holder is not Prime. 2. The figures in the trust account statement are to be contrasted with the ledger referred to above, which treated the sum of $290,000 as having been advanced on 17 April 2015 and which recorded that interest was charged from that day onwards, although the payment in the order of $34,000 was not made until 5 May 2015. The figure of $3,093 appears to be the sum of $2,513 interest accrual and the $580 loan management fee. These two payments are treated as a disbursement to Prime. 3. The "payment" of $6,380 on 1 May 2015 (according to the ledger) was not made by the Company (as no advance had yet been made to it). Prime appears to have added that amount to the amount of $34,676.50, which was paid to the Company to arrive at the figure of $41,056.50 which appears as item 9 on the settlement statement. Thus, Prime capitalised the first interest payment of $6,380 to increase the principal sum. The payments made by the Company to Prime 1. There are discrepancies in the evidence as to the dates and amount of payments made by the Company. The two principal sources of evidence are the Company's bank's records on the one hand and Prime's ledger on the other. From the Company's perspective, the first payment of interest made to Prime was the payment of $6,380 made in June 2015. As referred to above, Prime's ledger recorded that a payment of interest was made on 1 May 2015. Prime capitalised this amount in its ledger, without the Company's knowledge. As at 1 May 2015, the Company was not aware that there had been any settlement and had not received any funds from Prime. 2. The following table sets out the payments made by the Company on the following dates by reference to the different sources of evidence: Date payment made Amount of payment Date as per Company's bank records Date as per Prime Ledger, if different Amount as per Company's bank records Amount as per Prime Ledger, if different 1 May 2015 $6,380 3 June 2015 $6,380 1 July 2015 $6,800 $6,380 3 August 2015 $6,800 2 September 2015 3 September 2015 $6,800 1 October 2015 $6,800 4 November 2015 $6,800 1 December 2015 $5,900 2 December 2015 $900 30 December 2015 1 January 2016 $6,800 3 February 2016 $6,800 2 March 2016 $6,800 26 April 2016 $6,800 23 May 2016 $6,000 26 May 2016 $380 1 June 2016 $6,380 TOTAL $87,140 $93,100 1. Although the ledger records the May 2015 payment of interest, as this amount was capitalised, I propose not to treat it as a payment made by the Company for the purposes of assessing the net benefit to the Company, the significance of which is addressed below. The covenant breach fees charged 1. The ledger recorded a number of occasions on which a "covenant breach fee" of $2,000 was charged, purportedly in the exercise of the right to do so under cl 6.3 of the loan agreement. A covenant breach fee was charged on several occasions, including on 4 April 2016. Prime sent default notices dated 2 June 2015, 2 September 2015, 2 November 2015 and 4 April 2016 to the Company. The evidence established that if the payments were not processed by noon on the first day of the month, Prime would charge a covenant breach fee of $2,000. When substantiating documents were produced to Ms Doig 1. Reference has been made in the reasons given above to the attempts which Ms Doig made to obtain documents to substantiate the payments made by Prime from monies advanced to the Calleja interests. The documents and the date of first production are set out below. Date first provided Document 3 October 2017 Letter from Kemp Strang to Gadens dated 16 April 2015 9 October 2017 Draft invoice from Gadens to Prime dated 4 May 2015 9 October 2017 Invoice from JPM Valuers & Property Consultants dated 28 November 2014 12 October 2017 Redacted Westpac bank statement of Prime Capital Securities Administration Pty Ltd showing two withdrawals made on 17 April 2015 17 October 2017 Trust account statement of Dentons for period from 1 April 2015 to 12 October 2017 18 October 2017 Further redacted Westpac bank statement of Prime Capital Securities Administration Pty Ltd showing three withdrawals made on 17 April 2015 Admissions made in the Possession Proceedings 1. Ms Obrart, who appeared on behalf of the Calleja interests, tendered portions of the transcript of oral evidence given in the hearing before Wilson J, in support of the relief claimed. It is convenient to record the effect of these admissions (which are summarised in a table marked MFI 4) and the person who made the admissions on behalf of Prime, together with the transcript reference to the evidence before Wilson J. 2. Mr Ainsworth admitted that Prime would draw down the sum of $290,000 although the Callejas were seeking no more than a total of $150,000 (tr. 156.9-.35). The balance of the relevant admissions were made by Mr Scanlon as set out in the table below. Substance of admission Transcript reference Interest was charged on the full amount of $290,000. Tr. 49.25-.30 Prime took the position that it was entitled to charge interest on monies which had not yet been disbursed. Tr. 101.41-46 Interest at the default rate would be charged if the interest payment was not received by noon on the 1st day of the month. Tr. 122.36-.47 Mr Scanlon knew that it might take up to three days for a bank transaction to take effect. Tr. 79.8-.12 Mr Scanlon drafted the 17 April 2015 settlement letter. Tr. 38.28-.29 The settlement statement was the only document regarding the payment to Bankwest which Mr Scanlon could identify as having been sent to the Calleja interests. Tr. 133.5-.12 Mr Scanlon made no enquiries about the nature of the debt owed by the Company to Capital Finance which was being collected by Baycorp. When Prime realised that a caveat in favour of Capital Finance was lodged on the title, they took steps to pay out the debt so that the second mortgage in favour of Prime could be registered. Tr. 42.34-.38 It would have been open to Prime to register a second mortgage behind the first registered mortgage to Bankwest without any funds having to be paid to Bankwest. Tr. 128.15-.21 On 17 April 2016, the $70,000 loan establishment fee became payable. Tr. 80.8-.17 As at the date of the s 57(2)(b) notice, Mr Scanlon was not "exactly" aware of the total amount said to be owing to Prime by the Calleja interests. Tr. 63.16-.19 No statements were provided to the Calleja interests until after the commencement of the Possession Proceedings. Tr. 60.35-61.1 Subsequent applications in the Possession Proceeding and on appeal 1. The further matters referred to below are not relevant to the question whether any contract entered into was unjust at the time it was made since they were not reasonably foreseeable at the time the contracts were entered into. However, they explain the recent absence of Prime from the proceedings. These matters, which I understand to be uncontroversial, are potentially relevant to the application by the Calleja interests for a third party costs order against Mr Scanlon, which is yet to be determined. Disputed matters, or matters purely germane to the application for a third party costs order will be the subject of findings made in reasons to be given in respect of that application after the conclusion of the hearing of that application. 2. As referred to above, the first hearing of the Possession Proceeding took place before Wilson J. After the trial concluded on 8 November 2017 but before judgment was delivered on 6 December 2017 Prime changed its name from Prime Capital Securities Pty Ltd to Capital Securities XV Pty Ltd. Her Honour delivered judgment in the Principal Proceedings. In addition to making orders setting aside the loan agreement and the associated security documents, her Honour ordered Prime to pay the costs of the Calleja interests on an indemnity basis. The Calleja interests then applied for a non-party costs order against Mr Scanlon which was refused: Prime Capital Securities Pty Ltd v Calleja; Calleja PJC Furniture Freighters Pty Ltd v Prime Capital Securities Pty Ltd; Calleja v Prime Capital Securities Pty Ltd [2017] NSWSC 1801. The orders which required Prime to execute particular documents (orders (10) and (11) made by Wilson J on 6 December 2017) and the order for costs against Prime were stayed by Basten JA on 19 December 2017 pending determination of Prime's appeal. On 26 February 2018, the Court of Appeal (Basten, Gleeson and Leeming JJA) set aside the orders made by Wilson J on 6 December 2017 and also set aside order (2) made on 19 December 2017 (which confirmed the order made on 6 December 2017 that Prime pay the costs of the Calleja interests on an indemnity basis): Capital Securities XV Pty Ltd (formerly known as Prime Capital Securities Pty Ltd) v Calleja [2018] NSWCA 26. 3. By amended statement of claim filed on 9 May 2018, in addition to the amendments referred to above, Prime joined Commonwealth Bank of Australia trading as Bankwest as the second defendant. It sought against Bankwest restitution of the sum of $152,469.44. On the application of Bankwest, Fagan J, on 11 October 2018, dismissed the amended statement of claim against Bankwest pursuant to Uniform Civil Procedure Rules 2005 (NSW), r 13.4 and ordered Prime to pay Bankwest's costs of the proceedings: Capital Securities XV Pty Ltd v Calleja (No 2) [2018] NSWSC 1498. 4. By motion filed on 12 July 2018 Mrs Calleja sought security for costs of the proceedings on the basis that Prime had effectively ceased to carry its sole business of lending during the 2015 calendar year. Fagan J ordered Prime to pay $80,000 by way of security for costs within 14 days of 11 October 2018: Capital Securities XV Pty Ltd v Calleja (No 3) [2018] NSWSC 1501. His Honour also ordered that if security was not paid by that date, Mrs Calleja could apply at any time after 15 February 2019 for the proceedings, that is, the Possession Proceeding, to be struck out. 5. By notice of motion filed on 5 March 2019, Mrs Calleja sought orders including dismissal of Prime's claim for possession in the Possession Proceedings. She also sought orders on the cross-claim in those proceedings. The Company sought judgment in the Company Proceeding. In both proceedings, the applicants sought third party costs orders against Mr Scanlon, which will be determined separately. 6. On 23 April 2019 Prime's shareholders resolved to wind it up. On 30 April 2019 the Calleja interests became aware that Prime was in liquidation. 7. An amended notice of motion was filed on 25 June 2016 in both proceedings by the Calleja interests which added to the claims made in the notice of motion filed, an application for leave to proceed against Prime. 8. On 13 September 2019 Fagan J granted leave pursuant to s 500 of the Corporations Act 2001 (Cth) to Mrs Calleja to proceed with her cross-claim against Prime in the Possession Proceeding and also granted leave to the Company to proceed with its claim against Prime in the Company Proceeding. Consideration 1. The present applications to be determined in these reasons are: whether, in the Possession Proceedings, Prime's claim for possession ought be dismissed and orders should be made in favour of Mrs Calleja on the cross-claim; and whether orders should be made in favour of the Company in the Company Proceeding. The question of appropriate costs orders between the parties also needs to be determined. The cross-claim in the Possession Proceeding 1. Mrs Calleja's cross-claim in the Possession Proceeding seeks relief under the common law, Division 2 of Part 2 of the ASIC Act and the Contracts Review Act 1980 (NSW). I propose to address the Contracts Review Act first, followed by, if need be, a consideration of the ASIC Act and the common law. 2. I note that relief under the Contracts Review Act is not available to the Company in the Company Proceeding as the loan agreement was entered into by the Company in the course of and for the purposes of its transport business: s 6(2) of the Contracts Review Act. Mrs Calleja is not, however, disqualified from relief under that Act as she was not personally carrying on the business: Toscano v Holland Securities Pty Ltd (1985) 1 NSWLR 145 at 149B (McLelland J). Relief under the Contracts Review Act Legislative provisions 1. Section 7 confers jurisdiction on this Court to vary the contractual rights of parties. The opening words to s 7 are: "Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result …" 1. The word "unjust" is defined by s 4 as including "unconscionable, harsh or oppressive, and injustice shall be construed in a corresponding manner". 2. Section 9 provides for the matters relevant to the determination of whether a contract is unjust as follows: "(1) In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of: (a) compliance with any or all of the provisions of the contract, or (b) non-compliance with, or contravention of, any or all of the provisions of the contract. (2) Without in any way affecting the generality of subsection (1), the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following: (a) whether or not there was any material inequality in bargaining power between the parties to the contract, (b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation, (c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract, (d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract, (e) whether or not: (i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or (ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented, because of his or her age or the state of his or her physical or mental capacity, (f) the relative economic circumstances, educational background and literacy of: (i) the parties to the contract (other than a corporation), and (ii) any person who represented any of the parties to the contract, (g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed, (h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act, (i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect, (j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act: (i) by any other party to the contract, (ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or (iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract, (k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and (l) the commercial or other setting, purpose and effect of the contract. (3) For the purposes of subsection (2), a person shall be deemed to have represented a party to a contract if the person represented the party, or assisted the party to a significant degree, in negotiations prior to or at the time the contract was made. (4) In determining whether a contract or a provision of a contract is unjust, the Court shall not have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the contract was made. (5) In determining whether it is just to grant relief in respect of a contract or a provision of a contract that is found to be unjust, the Court may have regard to the conduct of the parties to the proceedings in relation to the performance of the contract since it was made." General principles 1. The application for relief under the Contracts Review Act requires consideration of two questions. The first question is whether the relevant contract or contracts are unjust in the circumstances relating to the contracts at the time they were made. Matters subsequent to the making of the contract are relevant to the first question only if they were reasonably foreseeable at the time the contract was made: s 9(4) of the Contracts Review Act. The second question, if the first is answered in the affirmative, is whether it is just to grant relief. The matters relevant to the second question include "the conduct of the parties to the proceedings in relation to the performance of the contract since it was made": s 9(5) of the Contracts Review Act. 2. The nature of the assessment required was explained by Allsop P in Provident Capital Ltd v Papa (2013) 84 NSWLR 231; [2013] NSWCA 36 in the following terms at [7]: "The broad evaluation of unjustness under the Contracts Review Act 1980 (NSW) ss 4, 7 and 9 involves the normative evaluation of the totality of relevant circumstances … Central to the normative evaluation is the recognition that there is a need for the protection of some people in some circumstances, who are not able fully to protect their own interests against factors that may cause injustice. That vulnerability may come from one or more of many circumstances, such as lack of education or of intelligence, from gullibility, from the predation of fraud and greed, and also sometimes from loyalty and love. The characterisation of a contract as unjust and the sheeting home to the other contracting party of the consequences of its unjustness may be a difficult evaluative exercise. At its heart, however, is the recognition of the inadequacy of one party to protect her or his interests in the circumstances." Whether the relevant contracts were unjust 1. There are several relevant contracts to which Mrs Calleja was a party in respect of which she claims relief: the guarantee of the loan agreement by Mrs Calleja, the second registered mortgage over Heatherbrae and the General Deed of Security which led to the caveat being lodged against the title of the Minimbah property. In my view, these contracts need to be considered together since they are part of a single transaction. 2. The loan agreement is also relevant as a starting point since it was the Company's obligations under that agreement which were guaranteed by Mrs Calleja. The purpose of the loan agreement was to permit the Company to buy up to three trailers for its trucking business instead of having to pay onerous rental costs. It did not want the funds to be provided all at once since it wanted to buy the trailers sequentially and pay interest only on the outstanding principal. It wanted, at the outset, $100,000 for this purpose. Mrs Calleja was prepared to provide security for the Company's obligations in the form of the guarantee, mortgage and General Deed of Security. 3. As referred to above, the Company did not receive sufficient funds for one trailer, let alone three. The agreement put the Company in a significantly worse position since it still had to incur the cost of renting vehicles for its business and on top of that it had to pay interest to Prime at a rate which was unsustainable. These were matters known to Prime (although not to the Company) at the time the agreements were made. 4. In substance, what Prime did was to increase the monies owed by the Company to it (either directly from the Company under the loan agreement, or indirectly through the agreements entered into by Mrs Calleja) by paying off other debts of the Company and of Mrs Calleja. It was in Prime's interests to increase the principal sum and, accordingly, the amount of income Prime would receive through interest payments and management fees. It was, however, very much to the detriment of the Company and Mrs Calleja since it effectively deprived them of funds at lower rates and made the Company and, in turn, Mrs Calleja, liable to pay the substantial rates at which Prime advanced funds. Further, it deprived the Company of the benefit of the bargain by failing to make available sufficient funds to purchase trailers and putting it in a worse position as far as the interest rates on its debts was concerned. Prime did not expose itself to any risk by increasing the principal in this way because of the extensive security over both real and personal property which it had obtained. 5. This arrangement made it inevitable that the Company would default on the loan agreement. Once it defaulted, the interest rate would double and compound which would, in turn, cause the amount outstanding to rise exponentially. Thus, Mrs Calleja as guarantor would lose whatever property she had (up to the value of the Company's indebtedness to Prime) and Prime would obtain a substantial benefit from the transaction. Because the Company had no prospect of repaying $290,000 in 12 months, even apart from the fees and interest that was charged on that amount, the guarantee given by Mrs Calleja would inevitably be called upon. 6. I turn now to address Mrs Calleja's understanding of the agreements to which she was a party: the guarantee, the mortgage over Heatherbrae and the General Deed of Security whereby she charged all of her assets in favour of Prime. It is plain from the evidence that Mrs Calleja knew what mortgages and guarantees were and understood their effect. She appreciated that the loan agreement provided for the advance of a greater principal sum than the Company's business required. Her uncontroverted evidence showed that what was significant for her was: that the Company be permitted to draw down only what it required; that it be charged interest only on what it had drawn down; and that the loan be for a term of at least three years. Although the written form of the agreement provided for a one year term, she was assured that the loan would be rolled over. She would never have agreed either to a loan at the level actually advanced or for her own debts (such as the loans to Bankwest) to be included in the Company's indebtedness to Prime. She was conscious of the level of the interest rate but believed that it would only be charged on what the Company had drawn down for the purchase of one or two trailers and was confident that the Company would not default in making the interest payments. 7. While the Callejas were told by their own solicitor, Ms Smith, that the deal was a bad one from their point of view and that they should not sign, they were subsequently assured, contrary to the terms of the written agreement, that they would be able to roll over the loan and that they would not be charged interest on any monies which were not outstanding. Mrs Calleja was subject to substantial pressure from Prime to sign the agreement. Apart from the advice she received from Ms Smith, Mrs Calleja did not obtain any legal or financial advice. Had Mrs Calleja appreciated the effect of the loan agreement and the way in which Prime proposed to perform it, she would not have signed the guarantee, the mortgages or the security agreements. Prime's technique was evident from the period before the loan agreement was made. Although Mrs Calleja was unaware that Prime would pay out some of the Company's and the Calleja's existing creditors, thereby effecting a refinancing of their debts, these matters were known to, or reasonably foreseeable by, Prime by the time the contract was made. 8. In these circumstances I am satisfied that the guarantee, the mortgage granted by Mrs Calleja and the General Deed of Security executed by Mrs Calleja are unjust by reason of the injustice of the loan agreement, the performance of which was guaranteed by Mrs Calleja. In effect, Prime misrepresented the effect of the agreement not only to the Company but also to Mrs Calleja who would not have agreed to execute the guarantee, the mortgage or the General Deed of Security, had she appreciated the effect of the agreement and the sums which would be advanced pursuant to it. Prime not only misrepresented the effect of the agreement but it criticised Ms Smith, the solicitor for the Calleja interests, and sent Mr Shacklady to obtain the executed documents. He failed to give them any legal advice. Similarly, Prime sent a financial adviser who failed to give them any financial advice but who nonetheless completed a certificate asserting that such advice had been provided. Further, for the reasons given above, the contracts were not reasonable between the parties since the obligation which was being guaranteed was one which the Company neither required nor appreciated it was undertaking. 9. The further question arises whether relief ought be granted and, if so, how the relief ought be fashioned. 10. In considering whether relief ought be granted it is instructive (although not determinative) to consider the reasons why, under the general law, a surety is discharged from its obligations in a contract of suretyship by the creditor's breach. In Ankar Proprietary Limited v National Westminster Finance (Australia) Limited (1987) 162 CLR 549; [1987] HCA 15 (Ankar), the High Court held that the reason for the discharge was the special relationship between the creditor and the surety arising out of the contract of suretyship in which equity sought to protect the surety's interests when the creditor's conduct affected the surety's liability. In Ankar, it was held that the creditor's breaches of the contract of surety by failing to notify the surety of the assignment of machinery and of the hirer's breach discharged the surety from liability. In the joint judgment, Mason ACJ, Wilson, Brennan and Dawson JJ said at 561: "If the surety is to be discharged for breach of a promissory term in the suretyship contract, the justification for the discharge must be that the creditor has failed to comply with a provision that, as a matter of interpretation, requires strict performance as a condition precedent to the surety's obligation or at least requires substantial performance of the promise such that the surety would not have entered into the contract if it had not been assured that there would not be a breach such as the breach which in fact occurred." 1. In the present case, the loan agreement which had been presented to Mrs Calleja by Prime was an entirely different transaction from the one which was actually entered into. It was important to Mrs Calleja that the loan be for a term longer than twelve months, that the Company be required to pay interest only on the amount outstanding and that the funds advanced would be available to the Company to buy one or two trailers. These were, if not terms of the contract, at least matters which Prime knew were vital to Mrs Calleja's agreement to provide the guarantee and execute the securities. Each was departed from. Had any of these matters been terms of the guarantee, Mrs Calleja would have been entitled, as surety, to be discharged from her guarantee. As referred to above, the breadth of this Court's jurisdiction under the Contracts Review Act is broader than at common law. The mortgage was executed in support of the guarantee. It is unjust that the mortgage, the guarantee or the General Deed of Security be enforced against Mrs Calleja. Each must be set aside. 2. I do not consider that this conclusion is affected by the argument that Mrs Calleja obtained a benefit from the refinancing of the Bankwest debt by Prime to which account must be taken. The first point is that the refinancing of her debt to Bankwest was effected neither with her knowledge nor her instructions. Although the effect of the refinance was to reduce her indebtedness to Bankwest under the loan agreement between her and Bankwest, it increased the Company's indebtedness to Prime and therefore her liability under the guarantee. Further, it was very much to her detriment since it increased the interest rate payable by a substantial factor. The rate charged by Bankwest was 5.52% per annum. The rate charged by Prime to the Company (for which Mrs Calleja would be liable under the guarantee) was 2% per month (24% per annum), which on default by the Company increased to 4% per month (48% per year). If the other fees, including the "loan management fee", are treated as part of the interest rate the figure is much higher. Therefore, although some of the principal on the Bankwest loan was repaid by Prime, the balance was subject to significantly higher interest rates. Any "benefit" obtained by Mrs Calleja from the transaction was not a benefit which ameliorated her liability to Prime under the guarantee. Rather, it aggravated it in the manner outlined above. 3. The present case is, accordingly, to be distinguished from a case such as Permanent Trustee Co Ltd v O'Donnell [2009] NSWSC 902 (O'Donnell), where the borrowers were refinancing an existing loan and appreciated that a portion of the monies advanced by the lender would be used to pay off a prior debt. In such cases, it is usual to impose as a condition of relief being granted in respect of loan or mortgage transactions that the borrower pay to the lender the amount that has been used to repay a prior debt: O'Donnell at [182] (Price J). 4. The present case is more complicated than the situation in O'Donnell. Had Mrs Calleja's debt to Bankwest been the Company's debt, it would have been appropriate to impose a condition on the Company's right to relief (as to which see below) that it repay the benefit of the amount of the existing loan. However, to fail to make any allowance for the benefit which Mrs Calleja obtained of having the amount of $152,496.44 in reduction of her debt to Bankwest would be to give her a windfall which it would not be just to allow her to retain. The question of how this is to be accommodated in the orders will be dealt with together with an associated question of the benefit which the Company obtained which is considered below. 5. Subject to the allowance for the benefit Mrs Calleja has obtained, I am satisfied that Mrs Calleja has made out her claim for relief under the Contracts Review Act and orders ought be made with the effect that the guarantee and General Deed of Security are not enforceable, that the caveat over the Minimbah property be withdrawn and that the mortgage over the Heatherbrae property ought be discharged. 6. Section 19 of the Contracts Review Act provides that an order made under s 7(1)(b) or (c) has no effect in relation to a contract constituted by a "land instrument" that is registered under the Real Property Act 1900 (NSW). As a mortgage is a land instrument this Court has no power to declare a registered mortgage to be void, or make an order varying its provisions. However, pursuant to s 7(1)(d), a court may make an order requiring Prime as mortgagee to execute an instrument that varies or discharges the mortgage or directing the execution of a deed that operates between the parties to vary the terms of a registered mortgage. 7. In these circumstances it is not necessary to address in detail the claim for relief under the ASIC Act or whether the guarantee would cease to be binding on her under the principles relied upon in Ankar. It is sufficient to say that the reasons set out below for my conclusion that Prime's conduct was unconscionable within the meaning of the ASIC Act apply a fortiori to Mrs Calleja's claim for relief under that Act. Unlike the evaluative assessment required to be performed under the Contracts Review Act, which is constrained by a consideration of the facts and circumstances at the time the contract was made and such facts and circumstances that were reasonably foreseeable at that time, the assessment of unconscionability is not so limited. Thus, even had Mrs Calleja not made out her claim for relief under the Contracts Review Act, I am satisfied that she would be entitled to substantially the same relief under the ASIC Act. Accordingly, the relief granted in respect of Mrs Calleja is founded on both the Contracts Review Act and the ASIC Act. The Company's claim in the Company Proceeding 1. I turn now to the Company's claim in the Company Proceeding. The Company was a party to the loan agreement and also executed a General Security Deed in favour of Prime. In light of Prime's insolvency, the Company no longer presses its claim for damages against Prime. Its claim for relief is limited to a claim for discharge of the General Security Deed and is based on Division 2 of Part 2 of the ASIC Act. Relevant legislative provisions Unconscionable conduct 1. Section 12CA prohibits unconscionable conduct in relation to financial services within the meaning of the unwritten law. Section 12CB prohibits unconscionable conduct in connection with financial services. Under s 12CB(4), the Court is not limited to the unwritten law relating to unconscionable conduct. 2. Section 12CC(1) sets out a list of matters to which the court may have regard for the purposes of s 12CB which include matters such as whether the recipient was able to understand the documents, whether the recipient was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier and the conduct of the supplier towards the recipient in the context of their commercial relationship. Misleading or deceptive conduct 1. Section 12DA prohibits misleading or deceptive conduct. Alleged unconscionable conduct by Prime 1. There are four aspects of Prime's conduct which are relied on by the Company as amounting to unconscionable conduct: 1. entering into a loan agreement which was said to be a progressive cash advance facility to enable trailers to be purchased when it knew that the agreement as structured would not achieve its purpose; 2. arranging to add into the sum "advanced" to the Company various debts of the Company and Mr and Mrs Calleja and refinancing them at a higher rate than was applicable prior to the refinance; 3. representing that the facility would be rolled over after twelve months in circumstances where Prime had no intention of doing so since its business model was to lend funds for one year only; and 4. offering a higher limit and lending up to that limit in order that it could inflate the amount of the Company's debts with elevated fees and refinance the debts of the Company and third parties in circumstances where the Company neither needed nor wanted the higher limit. 1. Because the alleged misleading and deceptive conduct of Prime is also relied on in support of the contention that Prime's conduct was unconscionable, I propose to consider the question of unconscionability first. Judicial statements about the meaning of unconscionable conduct as used in legislation such as the ASIC Act emphasise the gravity of the conduct required before the definition will be satisfied. The "normative standard of conscience" is informed by community values: Australian Competition and Consumer Commission v Lux [2013] FCAFC 90 at [23] (Allsop CJ, Jacobson and Gordon JJ). Their Honours said at [41]: "… The word "unconscionability" means something not done in good conscience … No argument was put that required any consideration of the authorities. Notions of moral tainting have been said to be relevant, as often they no doubt are, as long as one recognises that it is conduct against conscience by reference to the norms of society that is in question. The statutory norm is one which must be understood and applied in the context in which the circumstances arise. The context here is consumer protection directed at the requirements of honest and fair conduct free of deception. Notions of justice and fairness are central, as are vulnerability, advantage and honesty." 1. In Tonto Home Loans Australia Pty Ltd v Tavares; FirstMac Ltd v Di Benedetto; FirstMac Ltd v O'Donnell [2011] NSWCA 389, Allsop P, Bathurst CJ and Campbell JA agreeing, said at [291]: "… It is neither possible nor desirable to provide a comprehensive definition. The range of conduct is wide and can include bullying and thuggish behaviour, undue pressure and unfair tactics, taking advantage of vulnerability or lack of understanding, trickery or misleading conduct. A finding requires an examination of all the circumstances." 1. I consider each of the elements of undue pressure and unfair tactics, taking advantage of vulnerability or lack of understanding, trickery or misleading conduct to be present in Prime's conduct. In effect, once it learned of Mrs Calleja's assets, it enthusiastically pursued her and the Company to persuade them to enter into the agreements. All the while, Prime appreciated that the Company would not get what it bargained for (money for at least one second-hand trailer) and would inevitably default (because of the terms of the loan agreement and its arbitrary imposition of uncontracted for time limits (noon on the due date)). Prime knew that its interests would be protected on default because it would have access to the value of Mrs Calleja's equity in the Heatherbrae property, subject to Bankwest's priority in respect of $107,000 plus interest and costs, together with the value of her equity in the Minimbah property and any other of her assets or those of Mr Calleja or the Company. 2. On no reasonable view, could it be said to have been in the Company's interests to enter into the loan agreement and execute the General Deed of Security. The Company was tricked into signing it by Prime's misrepresentations and its conduct in sending people to have documents signed who provided no explanation about the legal effect of the transaction on the Company. Prime saddled the Company with a significant debt owed by Mrs Calleja which the Company was unable to repay. Prime must have known that the Company, through its human agent, Mrs Calleja, was vulnerable and unsophisticated. Its conduct was predatory and egregious. 3. Although the Company obtained a minor transient benefit from the advance under the loan agreement because its debt to Capital Finance Australia Limited in the sum of $6,805.97 had been repaid, the benefit was largely illusory. Not only did the Company have to pay interest at the rate of 2% per month but it also had to pay Kemp Strang's fees in the amount of $2,571.57 for the withdrawal of the caveat and associated legal services. The question of what allowance ought be made for the benefit which the Company obtained is addressed below. 4. I am satisfied on the basis of the matters referred to above, that Prime has infringed the prohibition against unconscionable conduct. I am persuaded that it is appropriate, in those circumstances, to make declarations pursuant to ss 12GD and 12GM of the ASIC Act that the loan agreement and General Deed of Security executed by Prime are void. Alleged misleading or deceptive conduct 1. The Company has made out its allegation that Prime engaged in misleading or deceptive conduct by representing to the Company that the facility was a cash advance facility which would be rolled over after 12 months and by failing to disclose the true nature of the transaction. It is not necessary to address this further as Prime's misleading or deceptive conduct has been taken into account in the context of the claim for relief based on its unconscionable conduct. The identity of the party which conferred any benefit on the Calleja interests 1. I note for completeness that Ms Obrart raised a further issue: whether Prime itself conferred a benefit on the Company. As referred to above, the monies advanced pursuant to the loan facility were provided by Dipvis Pty Ltd, an unidentified person or persons with an ANZ account, and Prime Capital Securities Administration Pty Ltd. The list of creditors in the liquidation which was tendered does not allow the inference to be drawn that the persons who provided the money to Prime were creditors of Prime at the time of its liquidation. Ms Obrart contended that, in these circumstances, it had not been established that Prime itself suffered any concomitant detriment as a result of the "benefit" conferred on either Mrs Calleja or the Company. While I accept that there is an evidentiary deficiency about the provenance of the funds advanced and the relationship between Prime and those entities which appear to have provided the funds, I infer that, because Prime was the entity, under the loan agreement, that advanced the funds, it was the entity which conferred the benefit on Mrs Calleja and the Company. The evidence does not permit me to infer that it did not incur an equivalent liability to the entity which advanced the money to it. Accounting for the benefit to Mrs Calleja and the Company from the transaction as a whole 1. As set out in the recitation of facts, the monies advanced by Prime to the Company conferred the following net benefits on Mrs Calleja and the Company as set out in the tables below. Net benefit obtained by Mrs Calleja Nature of payment and identity of payee Amount of payment Payment in reduction of Bankwest home loan facility $152,496.44 TOTAL NET BENEFIT $152,496.44 Net benefit obtained by the Company Nature of payment and identity of payee Amount of payment Payment to Baycorp to discharge debt relating to damage to uninsured trailer $62,877.61 Payment of funds to Company's bank account $34,676.50 Payment of debt to Capital Finance for vehicle finance $6,805.97 Less amounts of interest paid by the Company to Prime, according to the Company's records ($87,140) TOTAL NET BENEFIT $17,220.08 1. Rather than make repayment of the net benefit a condition of the grant of relief, I propose that benefit be set off against the costs orders in favour of Mrs Calleja and the Company against Prime addressed below. This course is desirable in circumstances where the amount of the costs will inevitably exceed the amount of the set-off. Although this point is probably moot because Prime has no assets to pay the costs, there will be a consequential benefit to Mr Scanlon if the application for a third party costs order against him is successful since, in that event, he will be entitled to the benefit of the set-off. Proposed orders 1. The orders sought by the Company and Mrs Calleja are set out in the amended notice of motion. I propose to make orders substantially in accordance with the orders sought. However, I will grant liberty to the Company and Mrs Calleja to apply for further orders if more specific orders are required to achieve the result outlined in these reasons. Costs 1. Mrs Calleja applies for the costs of the Possession Proceeding, including the costs of the proceedings before Wilson J and the costs of the motion for security for costs. The Company applies for its costs of the Company Proceedings. Where a new trial is ordered, the general rule is that the costs of the first trial await the result of the retrial, as costs in the cause: Brittain v Commonwealth of Australia (No 2) [2004] NSWCA 427 at [30]; Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 at [62]. 2. I am not satisfied that there is any reason why costs ought not follow the event in accordance with the general rule: UCPR, r 42.1. Accordingly, such orders will be made. 3. Mrs Calleja and the Company also seek an order that the costs of both proceedings be paid on an indemnity basis. One of the bases advanced for the application for indemnity costs relates to without prejudice offers made. These offers are not presently before me, the tender having been deferred pending publication of these reasons by reason of s 131 of the Evidence Act 1995 (NSW). In these circumstances, it is not appropriate for me to address the question of whether Prime ought be ordered to pay the costs on an indemnity basis, pending admission of that evidence. Orders 1. For the reasons given above, I make the following orders: In proceedings 2016/155378 1. The plaintiff's claim be dismissed pursuant to Uniform Civil Procedure Rules 2005 (UCPR), r 42.21(3). 2. Order that there be judgment for the defendant (Mrs Calleja) on the plaintiff's claim. 3. Grant the following relief to Mrs Calleja on the cross-claim: 1. Declare, pursuant to s 7(1)(b) of the Contracts Review Act 1980 (NSW) and s 12GM of the Australian Securities and Investments Commission Act 2001 (Cth), that the Deed of Guarantee between the plaintiff/cross-defendant (Prime) and Mrs Calleja is void. 2. Declare, pursuant to s 7(1)(b) of the Contracts Review Act 1980 (NSW) and s 12GM of the Australian Securities and Investments Commission Act 2001 (Cth), that the General Security Deed between Mrs Calleja, as grantor, and Prime, as secured party, is void. 3. Order Prime, pursuant to s 7(1)(d) of the Contracts Review Act 1980 (NSW) and s 12GD of the Australian Securities and Investments Commission Act 2001 (Cth), to execute and provide to the defendant's solicitor within 7 days hereof: 1. a discharge in registrable form of the mortgage granted by Mrs Calleja to Prime over the property known as 2213 Pacific Highway, Heatherbrae in Folio reference 511/587997; 2. a notice of withdrawal of the caveat lodged in respect of the property known as 227 Minimbah Road, Minimbah in Folio reference 3/251789; 3. a discharge of the General Deed of Security granted by Mrs Calleja to Prime in respect of her assets (the Calleja General Deed of Security). 1. If order (3)(c) above is not complied with, authorise and direct the Registrar of the Court to execute the documents described in order (3)(c)(i), (ii) and (iii) above on behalf of Prime. 2. Order Prime to provide, in registrable form, a financial change statement to remove the registration of the Calleja General Deed of Security from the register under the Personal Property Securities Act 2009 (NSW) within 7 days of receipt of a notice of demand from Mrs Calleja. 3. If order (3)(e) above is not complied with, authorise and direct the Registrar of the Court to execute on behalf of Prime such a financial change statement. 1. Order Prime to pay Mrs Calleja's costs of the proceedings, including the costs of the cross-claim and the first trial before Wilson J and any reserved costs, less the amount of $152,496.44. 2. Reserve the question whether such costs ought be ordered to be paid on an indemnity basis. 3. Grant liberty to apply on 3 days' notice. In proceedings 2016/260959 1. Order that there be judgment for the plaintiff on the plaintiff's claim. 2. Declare, pursuant to s 12GM of the Australian Securities and Investments Commission Act 2001 (Cth) that the Loan Agreement between the plaintiff and the defendant is void. 3. Order the defendant, pursuant to s 12GD of the Australian Securities and Investments Commission Act 2001 (Cth): 1. to execute a discharge of the General Deed of Security executed by the plaintiff in favour of the defendant (the Company General Deed of Security); and 2. to provide, in registrable form, a financial change statement to remove the registration of the Company General Deed of Security from the register under the Personal Property Securities Act 2009 (NSW) within 7 days of receipt of a notice of demand from the plaintiff. 1. If order (3) above is not complied with, authorise and direct the Registrar of the Court to execute the documents described in order (3) on behalf of Prime. 2. Order the defendant to pay the plaintiff's costs of the proceedings, including the costs of the first trial before Wilson J and any reserved costs, less the amount of $17,220.08. 3. Reserve the question whether such costs ought be ordered to be paid on an indemnity basis. 4. Grant liberty to apply on 3 days' notice. ********** Amendments 26 March 2020 - semi-colon deleted in case title 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: 26 March 2020