Blacker v National Australia Bank Ltd [2000] NSWSC 805 (16 August 2000)

Last Updated: 16 October 2000

NEW SOUTH WALES SUPREME COURT

CITATION: Blacker v National Australia Bank Ltd [2000] NSWSC 805

CURRENT JURISDICTION: Equity Division

FILE NUMBER(S): 2676/2000

HEARING DATE{S): 27, 28 July 2000

JUDGMENT DATE: 16/08/2000

PARTIES:

Peter Raymond Blacker and Christine Blacker (P)

National Australia Bank Limited (D)

JUDGMENT OF: Young J

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL:

D B McGovern and LJW Aitken (P)

P R Graham QC and JE Thomson (D)

SOLICITORS:

Commins Hendriks (P)

Dibbs Crowther & Osborne (D)

CATCHWORDS:

CONTRACTS [146]- Harsh and unconscionable contract- Bank persuading customer to take out loan to fund unviable project- Application fails on the facts. PROCEDURE [24]- Cross-vesting- Federal Court with no jurisdiction to hear one aspect of case- Whether Supreme Court can deal with that aspect under Federal Courts (State Jurisdiction) Act, 1999.

ACTS CITED:

Contracts Review Act 1980, ss 7, 9, 16

Federal Courts (State Jurisdiction) Act 1999, s 11

DECISION:

Proceedings dismissed.

JUDGMENT:

THE SUPREME COURT

OF NEW SOUTH WALES

EQUITY DIVISION

YOUNG J

WEDNESDAY 16 AUGUST 2000

2676/2000 - BLACKER v NATIONAL AUSTRALIA BANK LTD

JUDGMENT

1 HIS HONOUR: These are rather odd proceedings. Essentially the plaintiffs seek orders under the Contracts Review Act 1980 (to which I will refer as the "CRA"). However, the procedural position is complicated because the plaintiffs originally included their application as part of a complicated set of proceedings in the Federal Court of Australia in which they claimed relief under the Trade Practices Act 1975 and certain other relief.

2 The Federal Court proceedings were heard by Katz J. The hearing of evidence occupied 20 hearing days, between 25 November 1998 and 17 August 1999. Written submissions were then gradually presented over the following six months. Katz J delivered judgment on 25 May 2000; [2000] FCA 681.

3 As to the claim under the CRA, Katz J said that by reasoning analogous with the decision of Beaumont J in Rochester Communications Group Pty Ltd v Adler (1996) 65 FCR 572, the only courts competent to hear claims under the CRA were the courts named in section 4(1) of the CRA which did not include the Federal Court. He thus had no jurisdiction to deal with it.

4 On 6 June 2000, the plaintiffs filed a summons in this Court seeking that the CRA part of the dispute involved in the Federal Court proceedings be treated as a proceeding in this Court as of 27 November 1997. They further sought orders that the Federal Court evidence be treated as evidence given in this Court. They finally sought orders under the CRA setting aside certain loan agreements and ancillary documents.

5 The summons was, by arrangement, made returnable before me. I considered that in view of the length of time that had passed whilst the Federal Court proceedings had been heard, it was essential to dispose of any remaining issue as soon as practicable. The matter was thus fixed for final hearing for 27 July 2000 with both parties to file written submissions before then.

6 Both parties filed their submissions. On receiving them, it was apparent that neither wished to argue that any of the matters found by Katz J was insupportable. The parties were asked what additional facts I might need to find. They stated these. It was apparent from those statements that cross-examination would not assist. Applications to cross-examine were not pursued.

7 The proceedings were heard on the basis that all the evidence before the Federal Court was evidence in this Court. However, I was at liberty to adopt any finding of Katz J. Further, I could assume that there was no need for me to look at any particular piece of evidence before the Federal Court unless counsel referred to it.

8 By a policy of co-operation between Katz J and myself, which would have astounded our American cousins, the Federal Court "lent" me its file, disks of the transcript and all the exhibits. I am, and I am sure the parties are, most indebted to Katz J for this favour. Submissions then proceeded with reference to the Federal Court material. The hearing took just over a day. I then reserved my decision, principally because I could see that the most efficient way to prepare a judgment was to down load Katz J's judgment and "borrow" as much of it as I felt appropriate. The parties are not to blame for the present constitutional hiccups over the jurisdiction of this nation's superior courts. It is certainly the case that if there are appeals, any appeal from Katz J will go to the Full Federal Court and any appeal from my decision will go to the NSW Court of Appeal. Although there is a slight possibility that the appellate courts will reach different results, that possibility will be minimised if, as far as is proper, the facts in each judgment are much the same.

9 At the hearing, Mr DB McGovern and Mr LJ Aitken appeared for the plaintiffs and Mr PR Graham QC and Mr JE Thomson appeared for the defendant bank.

10 Mr Graham QC commenced by challenging the right of the plaintiffs to have the matters raised by them now dealt with in this Court. This challenge had not been forecast; it was made at the commencement of the hearing.

11 The central point of the challenge was that section 11 of the Federal Courts (State Jurisdiction) Act 1999 (to which I will refer as "the statute") only applies where a person is seeking to transfer the whole of proceedings before the Federal Court to the Supreme Court, not where only part of the proceeding is being transferred.

12 Mr Graham QC put that it was not possible to transfer the whole proceeding in the Federal Court where that Court clearly had jurisdiction over the bulk of the action, but had no jurisdiction in respect of part.

13 "Proceeding" is defined in the statute as including an initiating application, but is not otherwise defined. However, it would appear from the definition of "State matter" in section 3, that a proceeding is different to a matter.

14 The statute is remedial legislation. Its purpose is to ensure that citizens are prejudiced as little as possible by the constitutional hiccups referred to earlier. The statute should be given a benign construction.

15 Furthermore, the statute should be approached with Lord Cottenham's Golden Rule in mind. It will be remembered that in Wallworth v Holt (1841) 4 My & Cr 619, 635; 41 ER 238, 244, Lord Cottenham said:

"I think it is the duty of this court to adapt its practice and course of proceeding to the existing rules of society, and not, by too strict an adherence, to decline to administer justice and to enforce rights for which there is no other remedy. This has always been the principle of this Court though not at all times sufficiently attended to."

16 Lord Cottenham had said this previously, using almost identical words in Taylor v Salmon [1838] EngR 989; (1838) 4 My & Cr 134, 142; [1838] EngR 989; 41 ER 53, 56.

17 Although the Golden Rule was proclaimed in the context of adopting procedures designed for small partnerships to disputes involving "companies" consisting of very many members, the Rule applies in a wider class of case than partnership/company cases.

18 It must not be thought that Lord Cottenham's Golden Rule was something which was said by him on the spur of the moment. It has a respectable pedigree. In Cockburn v Thompson [1809] EngR 474; (1809) 16 Ves 321; 33 ER 1005, Lord Eldon made a similar point; see also what Lord Eldon said in Adley v The Whitstable Co (1810) 17 Ves 316, 324; [1810] EngR 515; 34 ER 122, 125.

19 In the famous case of Foss v Harbottle [1843] EngR 478; (1843) 2 Hare 461, 492; [1843] EngR 478; 67 ER 189, 203, Wigram VC said that if the injustice became sufficient, "The principle so forcibly laid down by Lord Cottenham in Wallworth v Holt ... would apply, and the claims of justice would be found superior to any difficulties arising out of technical rules respecting the mode in which corporations are required to sue."

20 Although, since the Judicature Act, there has been little occasion to apply Lord Cottenham's Golden Rule, it is still a powerful rule in reserve. In this Court it is reinforced by section 23 of the Supreme Court Act 1970 and operates so that this Court may give justice untrammelled by procedural rules when necessary.

21 The Court has jurisdiction to deal with the claim under section 23 and the Golden Rule. However, there is a possible complication concerning the time limits for bringing claims under the CRA in section 16 of the CRA. It is thus necessary to decide whether the case comes within section 11 of the statute.

22 In my view section 11 does apply to the case where the Federal Court lacks jurisdiction with respect to part of an action before it. A fortiori, it applies where the Federal Court has completed all of the proceedings before it save the part over which it has held that it has no jurisdiction.

23 Ordinarily, the word "proceeding" is synonymous with "action"; see eg Pryor v City Officers Co (1883) 10 QBD 504, 508. However, the context may show that it is used in a more limited sense, see Levett v Levett [1957] P 156, 162. "Proceedings" may cover only one aspect of an action such as a claim for alimony: Mills v Mills [1963] P 329.

24 There is no application to remove the whole of the Federal Court proceedings to this Court. The Federal Court has, except for the matter of entering formal orders and any appeal process, completed its task so far as it was able to do so. That Court held that it did not have jurisdiction to deal with one of the causes of action before it. What remains of the action, to my mind qualifies as "proceedings" under section 11 of the statute. Indeed this is the way this Court has regarded transfer of proceedings to the District Court, where this Court deals with what needs to be considered in this Court and then transfers the proceedings as they then exist to the District Court; see Spence v Davidson a decision of Cohen J when a Master of 2 March 1978 noted in the District Court Practice at [s 143.1]. I have reread the decision of the Court of Appeal in Benana Pty Ltd v Deputy Commissioner of Taxation (26 April 1990, unreported) which considers what may be remitted to the Court of Appeal, but there is nothing in the judgment there which affects this question.

25 I should note that in one sense the passing of the statute has given the plaintiffs a perhaps unintended benefit. The reason why the Federal Court had no jurisdiction really had nothing to do with the failure of part of the Cross-Vesting Scheme. The reason was that the Federal Court had held that when jurisdiction is conferred on a designated State Court or Tribunal, it is not possible for the Federal Court to exercise such jurisdiction as appendant jurisdiction. The CRA has the "double function"* of creating a right and conferring the exclusive jurisdiction of enforcing that right on certain courts (often referred to as "Capital C Courts"). (*As to "double function" see R v Cth Court of Conciliation & Arbitration; Ex parte Barrett [1945] HCA 50; (1945) 70 CLR 141, 165; Smith v Smith [1986] HCA 36; (1986) 161 CLR 217, 241; Article by LJ Aitken (1990) 19 Fed Law Rev 31 cited with approval by the High Court in Byrnes v R [1999] HCA 38; (1999) 73 ALJR 1292, 1300; 164 ALR 520, 533 [37]).

26 There were some cases where the point was not taken and the Federal Court has in fact dealt with claims under the CRA intermixed with other claims; see eg Radin v Commonwealth Bank of Australia [1998] ACL 110 FC 26. However, the Federal Court has now clearly determined the matter of jurisdiction. In the present case, in a reasoned decision Katz J held that the Federal Court did not have jurisdiction. The same result was reached by Emmett J in Murphy v Overton Investments Pty Ltd [2000] FCA 801 - 15 June 2000, unreported.

27 Emmett J said at paragraph [246] that:

"... s 7 of the Contracts Review Act simply does not purport to give power to or confer jurisdiction on the Federal Court to vary any land instrument. Indeed, it would be beyond the power of the Parliament of New South Wales to confer such jurisdiction on the Federal Court of Australia - see Re Wakim; Ex parte McNally [1999] HCA 27; (1999) 163 ALR 270. Accordingly, I do not consider that the Federal Court has jurisdiction to make an order under the Contracts Review Act, either in respect of the first strand of Mr and Mrs Murphy's claims or the second strand of their claims - see Smith v Smith [1986] HCA 36; (1986) 161 CLR 217 at 237-238 and 251."

28 His Honour then considered whether there was pendent jurisdiction, but at para [249] held that jurisdiction under section 7 of the CRA cannot be attracted by those principles so as to invest the Federal Court with the jurisdiction conferred on State Courts by section 7 of the CRA.

29 Apart from a brief mention at a pre-trial hearing, this point was not raised during the hearing. It should, however, be noted.

30 I should also note that the attitude of the Court towards applications under the statute is benign, if possible; see Super John Pty Ltd v Futuris Rural Pty Ltd [1999] NSWSC 627; (1999) 32 ACSR 398; 17 ACLC 1242.

31 Applying this reasoning, I ruled on the first day of hearing that the matter could proceed. All necessary procedural orders should be made to enable the claim on the CRA to be determined on the merits. This, I will shortly proceed to do.

32 In their amended statement of claim filed in the Federal Court, the plaintiffs made the following claim under the CRA:

"29. ...the mortgages and contracts referred to in paragraph 20 aforesaid constituted a `contract' for the purposes of Section 7 of the Contracts Review Act (NSW) (`the Contracts Review Act') and were in those respects particularised hereunder unjust within the meaning and for the purposes of the Contracts Review Act in that:

(i) there was material inequality of bargaining power between the applicants and the respondent;

(ii) the applicants were not reasonably able to protect their interests to the knowledge of the respondent;

(iii) the applicants did not have any independent legal or other expert advice nor were they given the opportunity of obtaining such advice;

(iv) unfair tactics were exerted or used against the applicants such as to deprive them of a real or informed choice whether to enter into the contract;

(v) the respondent knew and appreciated the extent of the risk and what might happen to the applicants having regard to their financial position and capacity to bear the burdens which might result from the contract whereas the applicants did not have the same understanding or understand the real implications of the contract;

(vi) by silence the respondent represented that the application satisfied prudential bank lending guidelines when the respondent knew or ought to have known that the contract constituted an improvident transaction."

33 Paragraph 20 of the amended statement of claim merely noted "certain mortgages, loan agreements and irrevocable orders and guarantees and indemnities" plus lease agreements subsequent and consequent upon the same.

34 The defence was as follows:

"15. In answer to paragraph...29 of the Statement of Claim, the respondent denies any special disadvantage as alleged and further denies that the contracts referred to in paragraph 20 of the Statement of Claim were unjust within the meaning of s 7 of the Contracts Review Act.

16. In further answer to paragraph...29 of the Statement of Claim, the respondent says:

(a) the applicants had considerable experience in matters of finance and were able to protect their own interests... .

(b) The applicants sought and obtained assistance and expert advice from their accountant and solicitors in relation to whether or not the acquisition of `Springbrook' was in their best interests."

35 Considerable particulars were provided with respect to paragraph 16 of the defence which are not necessary to state at this point.

36 In para 30(iv) of the amended statement of claim the plaintiffs sought the following relief under the CRA:

"(a) declaration that any of the aforesaid loan agreements and mortgages, guarantees, indemnities and irrevocable orders are unenforceable in whole or in part;

(b) in relation to the mortgages an order that the respondent execute a discharge thereof or such other instrument varying and/or terminating the mortgage as the Court deems fit;

(c) an order that the applicants be released from the lease agreements and that the respondent assign to the applicants the silage cart and the milk vat."

37 I asked Mr McGovern during the course of his submissions what orders the plaintiffs now sought. His reply, which was not the subject of comment by counsel for the defendant, was that the plaintiffs sought that the personal covenant in the mortgage be expunged and that the plaintiffs receive compensation of $857,000. If these orders were made, the plaintiffs would be put back in the same position as if the transaction had not been entered into.

38 I now turn to the basic facts. These were found by Katz J and appear to be common ground in the written submissions filed by both parties. I thus adopt them as my own for the purpose of this judgment as follows.

39 The plaintiffs, Mr Peter and Mrs Christine Blacker, are husband and wife. Up until the determination by Katz J of the Federal Court proceedings, they owned a farm called "Springbrook", situated near Bega in southern New South Wales, on which farm they operated a dairying business. The former owners of the farm, Mr Richard Vincent Bateman and Mrs Mary Margaret Bateman, had also operated a dairying business on it. In September 1993, the Blackers paid about $1.53m to the Batemans and about $70,000 in legal fees and stamp duty in order to buy from the Batemans certain milk quotas which they then held, the farm, certain plant on it devoted to dairying and the herd of cattle then on it. For the purpose of the Blackers entering into the dairying business on Springbrook, the defendant agreed to make to them three loans totalling $1.05m. One of the three loans was for $900,000 and was to be expended as part of the $1.6m required to acquire from the Batemans the assets which I have mentioned above (with the remaining $700,000 or so to come from the Blackers' own resources). Another of the three loans was for $100,000 and was to be expended on capital improvements to the farm once acquired. The third of the three loans was for $50,000 and was to be available to be expended on the day-to-day operation of the dairying business once begun.

40 The Blackers' dairying business on Springbrook has not been a success and a consequence of that lack of success has been the Federal Court proceedings and the present proceedings. The Federal Court proceedings were commenced by the Blackers more than four years after they had begun to operate that business.

41 Mr Blacker was born in Bega in 1953. He lived with his family (apparently consisting of his parents, one brother and two sisters) in Bega until 1966, at which time he moved with them to a nearby beef farm which, I gather, they had owned and operated since the time of his birth. He worked on the beef farm from his early years. He also attended primary and secondary school in Bega (even after the family's move to the beef farm) and completed the school certificate in 1969. In the following year, he completed a farm management course at an agricultural college in Yanco, New South Wales, which course included brief exposure to the theory and practice of dairy farming. Having completed the course, he returned to Bega, where he began to work full time on the family beef farm. In 1974, his father died, leaving to one of his sisters "East Quira", one of the three separate properties which had together constituted the family beef farm, and to the other of his sisters "Willow Park", another one of those three separate properties. The third of those three separate properties was "Kanoona", a property of some 780 acres in area which his mother appears to have owned even before her husband's death. In 1975, he and his brother together bought East Quira from the sister who owned it. I gather that he and his brother operated the property as a beef farm (as well as continuing to work on Kanoona).

42 In 1977, he and Mrs Blacker were married. In 1982, he sold his interest in East Quira to his brother and acquired from his mother at a nominal price a part of Kanoona, known thereafter as "South Kanoona". (I gather that, at the same time, his brother acquired the balance of Kanoona). Mr Blacker operated South Kanoona as a beef farm. In 1985, he bought Willow Park from the sister who owned it. I gather he then operated a beef farm on Willow Park, as well as on South Kanoona. In 1989, he sold Willow Park. At that time, he began deer farming, as well as beef farming, on South Kanoona. However, deer farming was not successful and by about late 1992, the Blackers could not make a living from South Kanoona, even from the combination of beef and deer. Mr Blacker was then finding it necessary to spend up to five days a week off the farm, working for others, in order to supplement his income.

43 It is convenient to mention now that Mr Blacker appears to have made a practice, during his ownership of it, of carving out of South Kanoona by subdivision, a number of relatively small blocks of land, which blocks he then sought to sell. The last such subdivision occurred around 1989, when three blocks were created for the purpose of sale. At the end of 1992, one of those three blocks (usually called in the evidence the "bush block") remained to be sold.

44 As to Mrs Blacker, I do not know the place or year of her birth, but do know that she left high school in Cowra, New South Wales, in 1973, having obtained the school certificate. In 1974, she attended the Cowra Technical College, taking a secretarial course. She then worked at a pharmacy in Cowra and, in 1975, became employed by the Bank of New South Wales in Bega as a junior ledger machinist and batch machinist. While employed at the bank, she undertook a teller course. As I have already mentioned, in 1977 she and Mr Blacker were married. She remained with the bank until 1980, but the first of her and Mr Blacker's two children was born in that year and she has not worked off the family's farm since then.

45 Given their difficulties by about late 1992 in surviving on South Kanoona, the Blackers were then considering finding some entirely different means of earning a living than beef or deer farming. Among the things which they considered was the purchase of an existing menswear business in Bega. Being then customers of the Bega branch of the defendant bank (Mr Blacker having been one, according to him, since 1971 and Mrs Blacker having been one, according to her, since about 1980), they were in contact with the bank about the menswear business. For instance, Mr Ewan Munro, who was the Blackers' accountant, wrote to Mr Neagle the Bega branch manager, on 29 January 1993, enclosing certain financial information about the business and promising more. The Blackers also met with Mr Neagle about the proposed purchase of the business. (I should perhaps add here that the menswear business discussions had not been the Blackers' first contact as customers with Mr Neagle. They had had contact with him on numerous occasions throughout his tenure as the Bega branch manager, in particular, regarding an overdraft which they had from the bank and, in connection with that overdraft, the blocks subdivided around 1989).

46 Some time later, when Mrs Blacker was at the bank for another purpose, Mr Neagle approached her and told her that a competitor of the business which they were contemplating buying was about to move into larger premises, which move would increase competition with the business which they were contemplating buying.

47 However, it would appear that the menswear business the plaintiffs were contemplating buying was taken off the market. Thus, no question arises as to the effect of Mr Neagle's information on the Blackers' willingness to consider further the purchase of the menswear business. However, I should record now two matters about Mr Neagle's warning to Mrs Blacker about the menswear business: first, Mrs Blacker asserted in evidence that it had caused her to form the view that she and her husband could trust Mr Neagle to provide them with advice which was in their best interests; and, secondly, it was conduct by Mr Neagle which certainly went beyond the mere role of deciding whether or not to grant (or to recommend to his superiors whether or not to grant) finance in connection with a proposed business venture by a customer. As to the second of those matters, Mr Neagle's oral evidence was that he had thought that by giving them the warning which he did, he would be able to give the Blackers "a bit of a helping hand"; he had intended them to take the warning "seriously"; and he had wanted them to "trust and rely on" the warning.

48 After the false start with the menswear business, the Blackers turned their attention to the possibility of acquiring a local dairying business, a type of business of which, in substance, neither of them had had any prior experience. (It appears that they had given consideration to acquiring such a business even earlier, but that nothing had come of it at that time). Their consideration of that possibility led them to become aware of the Batemans' business, which was not then being offered for sale. However, after some preliminary discussions between the Blackers and Mr Bateman, Mr Bateman told them that the asking price for his and his wife's milk quotas, farm, and the plant and cattle herd on it was $1.68m and invited the Blackers to obtain certain financial information from his and his wife's accountant.

49 Shortly thereafter (at about the end of April 1993), the Blackers spoke to Mr Munro (their accountant) about the Batemans' assets. They told him what Mr Bateman was asking for those assets and what he had said about obtaining financial information from his and his wife's accountant. They told Mr Munro that they could pay for the Batemans' assets by selling South Kanoona (excluding the bush block) and borrowing $1m.

50 After obtaining certain financial information from the Batemans' accountant, Mr Munro prepared a two-page document making cashflow (and associated) forecasts regarding the operation by the Blackers on Springbrook of a dairying business. Mr Munro described those forecasts in evidence (having been called as a witness by the Blackers) as having been of a preliminary kind. (Those forecasts, and the broadly similar forecasts later done by Mr Neagle which are at the heart of the present proceeding, were usually referred to before me as "budgets"; I will adopt the same terminology hereafter). Mr Munro's assessment of his budget as having been of a preliminary kind was one with which Mr Neagle (having been called as a witness by the defendant) agreed in the course of his cross-examination, saying that Mr Munro's budget had been "simply a very preliminary view of the matter", as far as he was concerned. Further, Mr Richard Ivey, an expert witness called by the defendant, also agreed in substance with Mr Munro's assessment of his own budget, acknowledging in his (Mr Ivey's) evidence that Mr Munro's budget was "very much an overview type of document". It is appropriate, however, even though Messrs Munro, Neagle and Ivey all considered that it was preliminary in character, that I set out in some detail the substance of Mr Munro's budget, because it assists in understanding both the budgets subsequently prepared by Mr Neagle and the criticisms which may be made of them.

51 The first thing which Mr Munro did in his budget was to predict the milk production from the operation of a dairying business on Springbrook over a 36 month period, beginning in July 1993 (although the year was not actually mentioned).

52 Mr Munro began the 36 month period showing 175 cows being milked, a number which he increased in the fourth month of the 36 to 200, he then increased in the 22nd month of the 36 to 220 and he finally increased in the 27th month of the 36 to 250. The starting number was Mr Munro's prediction of the number of cows being milked on Springbrook as of July 1993, based on some numbers as to cows then being milked on the property, which numbers Mr Munro appears to have had at the time. As to the source of the increase in numbers, it appears that Mr Munro expected that it would come both from natural increase of the herd and from purchase, such purchase to be financed by the sale of the bush block. As to Mr Munro's choice for his timing of his three increases, the evidence was silent.

53 For each of the 36 months in the period, Mr Munro multiplied the number of cows being milked that month by an average number of litres of milk produced per cow per day. The latter number was a variable number, depending both on the particular month of the year and on the particular year in the three year period. According to Mr Munro, he had obtained those variable numbers from a generally available document published by the Bega Co-operative, which document was applicable to the local district.

54 Having multiplied the number of cows being milked in a month by the average number of litres of milk produced per cow per day for that month, Mr Munro then multiplied the product of that multiplication by the number of days in that month (with some distortions in that respect) to arrive at a total number of litres of milk produced per month by the dairy herd. The monthly figures were then added to one another to produce yearly totals. Those yearly totals were 1,238,000 litres for the first year, 1,358,000 litres for the second year and 1,607,000 litres for the third year, a total of 4,203,000 litres over the three-year period.

55 All of the information from Mr Munro's budget to which I have been referring above appeared on the first page of Mr Munro's two-page document, which page was headed "Milk Production Budget". All of the remaining information from Mr Munro's budget to which I am now about to refer appeared on the second page of Mr Munro's two-page document, which page was headed "Cash Income Budget".

56 Having arrived at figures for total annual milk production over each of the three years, Mr Munro then calculated the proceeds of the sale of that milk, showing sales in each year which were equal to the exact number of litres of milk produced in that year. He treated a fixed quantity of that milk as New South Wales quota milk, which would be sold at a rate per litre which did not vary over the entire three years, therefore producing an identical dollar amount each year. The balance of each year's production he treated as either Australian Capital Territory quota milk or non-quota milk, treating all that milk as bringing a rate per litre (less than that for New South Wales quota milk) which also did not vary over the entire three years. (Although his budget did show that the rate per litre for Australian Capital Territory quota milk and non-quota milk was greater in the first year than in the second and third years, that was merely a typographical error). He then multiplied the total of the non-NSW quota milk for each year by that fixed rate per litre, arriving at a dollar amount for the proceeds of that milk for each year. He then added together the NSW quota milk dollar amount and the non-NSW quota milk dollar amount in order to obtain a total dollar amount for proceeds of milk sales for each of the three years. (In calculating the price each litre of milk would bring, Mr Munro used a net price per litre, that is to say, excluding certain freight costs and levies which would necessarily be deducted from the gross price per litre).

57 Mr Munro then added to those dollar amounts one more dollar amount, namely "Cattle Sales & Calves", showing the same dollar amount for each of the three years.

58 Having arrived at a total income for each year, Mr Munro then deducted expenditure from that total income under four headings: "Salaries", "Fodder", "Farm Costs" and "Interest".

59 Salaries were subdivided into two in the first of the three years, representing drawings by the Blackers themselves and an employee's wages. The total salaries figure increased slightly in the third year, having remained constant for the first two, but was not subdivided in the second and third years.

60 As to the amounts for fodder, they were $120,000, $125,000 and $140,000 for the three years respectively. Those amounts represented direct fodder costs only, and not indirect costs of fodder such as seed and fertiliser, repairs and maintenance, fuel and oil and irrigation; in other words, they represented the cost of buying fodder, as opposed to the cost of growing it on Springbrook. (Indirect fodder costs, together with other, non-fodder related, farm costs, were subsumed under Mr Munro's heading "Farm Costs").

61 Mr Munro calculated his direct fodder costs in the same way that he had calculated the average number of litres of milk produced per cow per day, that is to say, by using generally available information from the Bega Co-operative. That information was that it cost between $300 and $350 per cow per year "to maintain purely in fodder, grain and hay as feed".

62 Of course, in order to make use of that information, Mr Munro had to multiply it by the average number of cows which he was predicting would be on Springbrook each year. I have already set out above information as to the number of cows which Mr Munro was predicting would be milked on Springbrook during each month of the 36 month period. From those figures, one discovers that Mr Munro was predicting that there would an average of: 194 cows being milked on Springbrook during the first year; 205 cows being milked during the second year; and 245 cows being milked during the third year.

63 However, Mr Munro did not merely multiply an amount derived from the Bega Co-operative's information by the average number of cows being milked on Springbrook in a particular year in order to arrive at his fodder cost for that year. It is recognised that in order to have a herd containing a certain number of cows being milked at any one time, the usual farm will have a herd of a greater number. That greater number is required in order to take account of the facts that a mature cow does not produce milk for about two months every year (the "drying-off" period) and that heifers are introduced into the herd to replace mature cows about to end their lives as milk producers, whether through old age, illness or some other cause. I am satisfied that, as a rule of thumb, if a herd contains one hundred cows being milked, it will also contain at the same time an additional twenty "dry" cows (a number equal to 20% of the milking cows) and an additional seventy-two heifers (a number equal to 60% of the mature cows, both milking and "dry") or, in other words, that the total herd will be 192% of the number of cows being milked.

64 Instead, however, of multiplying an amount derived from the Bega Co-operative's information by 192% of the average number of cows which he was predicting would be milked on Springbrook in a year, Mr Munro, according to his evidence, multiplied an amount derived from the Bega Co-operative's information by 200% of the average number of cows which he was predicting would be milked on Springbrook in a year, in order to produce his yearly fodder costs. Dividing each of Mr Munro's three yearly fodder allocations by double the average number of cows which he was predicting would be milked in that year yields the following figures for fodder costs for each cow in the herd: $310 for the first year, $305 for the second year and $286 for the third year. (Why Mr Munro's figure for the third year fell below the Bega Co-operative's minimum figure of $300 per cow per year was not explained in the evidence; however, if Mr Munro had actually used a multiple of 1.9, rather than a multiple of 2.0, as he said, that would have meant that his yearly figures for fodder costs per cow per year (ignoring cents) began at $325 in the first year (the midpoint between the two figures in the Bega Co-operative's range) and then fell to $320 in the second year and to $300 in the third year (the lower of the two figures in the Bega Co-operative's range). It may be that, in his evidence, Mr Munro wrongly recollected the multiple which he had used. The yearly figures derived from the use of a multiple of 1.9 are so striking by reference to the Bega Co-operative's range of figures that a false recollection in that respect by Mr Munro does not seem unlikely).

65 As to the amounts for farm costs, Mr Munro intended by them to comprehend "the normal overheads of insurance, fuel, electricity, things like that. Normal operating costs" (obviously including indirect fodder costs, as already discussed). His farm costs amounts increased in each of the second and third years.

66 The amounts for interest, which remained constant over the three year period, were said to represent interest of 12% on a loan of $1m.

67 After deducting the nominated expenditure from the total income, Mr Munro concluded that there would be a positive net cashflow of $9,000, $29,500 and $65,750 respectively for each year of the three year period. Part, at least, of those positive net cashflows would, no doubt, have been available to reduce the outstanding amount of the $1m borrowing then in contemplation.

68 Mr Munro discussed his budget with the Blackers. According to his evidence, he told them that the position disclosed by it was "tight", but he recommended neither for nor against the proposal. Instead, "I asked them to see, to have a yarn to, John...".

69 That suggestion by Mr Munro was the subject of considerable debate before the Federal Court. It was the Blackers' evidence that Mr Munro had merely referred to "John", without adding a surname, and that they had understood him to be recommending that they speak to John Neagle, their bank manager, in order to get a second opinion about the proposal's viability. Katz J accepted, and I do also, that although Mr Munro did simply say "John" Mr Munro meant John Hukins, another accountant who would check the figures. However, Katz J and I accept the Blackers' evidence that they understood Mr Munro to be referring to Mr Neagle.

70 As I have been dealing above with Mr Munro's evidence, there is one more matter referred to in that evidence which I should now mention.

71 Mr Munro said that he knew, at the time of which I have been speaking, that the Blackers intended to make the contents of his budget known to the defendant. At the same time, however, based on his experience of the making of applications for finance such as that which the Blackers were contemplating making, Mr Munro did not expect that the defendant would be content to receive from him merely the budget which he had thus far produced when deciding whether to lend money to the Blackers; instead, it would require from him more detailed figures. However, that did not occur in the Blackers' case.

72 The matter to which I have just referred was also the subject of some evidence by Mr Neagle and it is convenient to refer to that evidence now. It was suggested to Mr Neagle in cross-examination that Mr Munro's budget was not something that Mr Neagle "could possibly go forward with by itself in relation to any proposed loan", to which Mr Neagle replied, "No, I couldn't submit it just like that". Later in Mr Neagle's cross-examination, reference was made to the various budgets prepared by Mr Neagle himself, and the following exchanges occurred:

"In terms of preparing cashflow budgets, you undertook that process we know, commencing on 12 May, correct? --- For Blackers, yes.

"Setting Blackers to one side for a moment, in terms of other farm lending, the usual practice was it, was to insist upon the production of budgets of that type, that is to say the type that you have prepared up [sic] on and after the 12 May, but from the client or customer's own accountants? --- Not necessarily, some of the clients prepared their own budgets.

"In the case of the Blackers, they didn't personally prepare their own budgets, did they? --- No.

"And we know that Mr Munro didn't prepare the sort of cashflow budget of the type that would ordinarily be expected from a client or from a client's accountant, don't we? --- Yes."

73 It thus appears that, in the preparation of budgets in the case of the Blackers, Mr Neagle, contrary to the defendant's usual practice, performed, not only his own usual function, but also simultaneously a function which would usually have been performed by the accountant of a prospective borrower (assuming that that prospective borrower had an accountant). Furthermore, Mr Neagle did so, knowing full well when he did so that the Blackers did have an accountant. Why he did so is a matter about which he was not specifically asked, nor did he volunteer an explanation.

74 To return now to the chronology of events, shortly after being advised by Mr Munro to see "John", the Blackers first (in about early May 1993) saw Mr Neagle about Springbrook. Naturally, the Blackers gave in evidence their accounts of what had been said at that meeting and Mr Neagle was cross-examined about (most of) the assertions contained in those accounts. By and large, Mr Neagle agreed in cross-examination with the Blackers' accounts of what had been said at that meeting, although, as to one or two of the matters put to him as having been said, he either answered that he did not recall or that he denied it. Further, as to some of his answers, it is not easy to tell precisely what Mr Neagle was intending to convey. In what follows, I propose to deal only with Mr Neagle's evidence as to what was said at the meeting, rather than dealing with the Blackers' evidence as well. I do so because I find it unnecessary to resolve such conflicts as exist between their respective accounts as to what was said. As will be seen below, looked at from the Blackers' point of view, it is sufficient for their purposes that I proceed on the basis of acceptance of Mr Neagle's evidence about what was said between them, not only at this meeting, but on subsequent occasions as well.

75 I first set out a number of matters put to Mr Neagle about the Blackers' accounts of things said by the Blackers at that meeting with which, as I understand his evidence, Mr Neagle agreed: the Blackers had said that they were looking at Dick Bateman's dairy; the Blackers had told him something of the set up of the property, including that there was a "travelling" irrigation system; the Blackers had said that Mr Bateman's price was $1.68m; Mr Blacker had said that his brother was going to buy South Kanoona for $700,000 and that that sum would be used as a deposit; the Blackers had told him what the milk quota attached to the property was; Mr Blacker had said that if he purchased the property, he would convert the existing irrigation system from the "travelling" type to the "[motor]bike shift" type; the Blackers had said that the existing milk vat was too small and would need to be upgraded (although Mr Neagle qualified his acceptance that that had been said by adding, "Over a period of time"); the Blackers had said that they had never run a dairy farm themselves; the Blackers had asked him to do a budget, which should be "conservative"; and the Blackers had said that they were there [that is, seeing Mr Neagle] "to give them an opinion about it [that is, entering into the dairying business on Springbrook] by reason of what the cashflows would show".

76 I next set out a number of matters put to Mr Neagle about the Blackers' accounts of things said by him at that meeting with which, as I understand his evidence, Mr Neagle agreed: he had told the Blackers immediately that he could run a budget on the bank's computer system; he had asked the Blackers about the number of cows being milked at Springbrook; he had told the Blackers that most of his dairy clients did monthly herd recording to show which cows were more profitable; he had told the Blackers that he had all the figures he needed; he had told the Blackers that, having produced a budget, he would "then let them know whether or not they could proceed"; he had asked the Blackers for some time to do the figures and had told them to come back; and he had told the Blackers that it would be necessary to get an answer from Canberra.

77 I next set out a number of matters put to Mr Neagle about the Blackers' accounts of things said by the Blackers at that meeting as to which I am not certain what Mr Neagle's response was intended to mean. He was asked whether the Blackers had told him that the costs of changing the type of irrigation and upgrading the milk vat should be included in the budget; he answered, "All the improvements [sic] costs that we discussed were put in the budget". He was asked whether the Blackers had told him that they would need to buy replacement heifers, because Mr Bateman was not rearing any at that time; he answered, "I allowed for heifer purchase in the budget". He was asked whether the Blackers had told him that they were intending to take their machinery with them; he answered, "Not all their machinery. They discussed the little four wheel bike or what -- I can't remember the sort of bike it was, to do the ---". He was then asked whether the Blackers had said that they would take their motor bike for moving the irrigation system and their post driver, because extra fencing would be needed; he answered, "I can't remember the post driver. I remember the bike." I take Mr Neagle's first two answers as probably intended to convey assent to the questions asked. I take his last two answers as probably intended to convey that the only machinery which he remembered the Blackers' telling him about was their motor bike.

78 I next set out a number of matters put to Mr Neagle about the Blackers' accounts of things said by him at that meeting as to which I am not certain what Mr Neagle's response was intended to mean. He was asked whether he had told the Blackers that the budget he would do would be "based on the bank's own computer records". His answer was, "Banks - I could punch up a budget, yes, out of the computer". He was asked whether he had told the Blackers that milk production would be significantly higher in the spring. He answered, "Normally it is, yes". He was asked whether he had told the Blackers that they should be able to produce some specified number of litres of milk. His answer was, "I can't remember saying that - I can't remember what exactly what litres I said". Whether the first of those answers was intended to convey assent to the question, I am unable to say. The second and third answers appear to have been intended to convey assent to the question.

79 Mr Neagle was asked whether he had said to the Blackers that the bank had all of the milk prices and freights and levies on the computer. His answer, which (like so many of his answers to questions put to him, some of which I have already set out above) was not directly responsive, was, "I had them available to me, yes". He was next asked whether he had said to the Blackers that there were other input figures which he could use for the purpose of working out the cashflow for them, which question he answered in the affirmative.

80 Mr Neagle was asked some questions specifically relating to discussion at the meeting about Mr Munro, with which it appears to me to be appropriate to deal separately. He was asked whether the Blackers had told him that they had been advised by Mr Munro and that he had done a budget for them. Mr Neagle's answer was, "Yes, they said they'd seen Ewan Munro, yes". (He also acknowledged that, at the time of the first meeting with the Blackers, he had a copy of Mr Munro's budget). Mr Neagle was asked whether the Blackers had said to him that Mr Munro had advised them that the figures were "pretty tight". He answered that he could not recall that. Mr Neagle was also asked whether he had told the Blackers that he would not use Mr Munro's figures in preparing his own budget. Mr Neagle said he could not remember saying that.

81 Mr Neagle was also asked a number of questions, not about what had been said at the meeting, but about what he had known at the time. He agreed that he knew at that time that the Blackers were not dairy farmers, had never run a dairy farm themselves, had no capacity to do any budgets for themselves and had "no familiarity with prices of feed and freight and running costs".

82 About two weeks later, the Blackers again saw Mr Neagle, by which time he had prepared a budget dated 12 May 1993. It covered the same three year period as Mr Munro's budget had. It will obviously be necessary for me to deal in some detail with the content of that budget (as well as dealing with certain aspects of two subsequent budgets relating to Springbrook prepared by Mr Neagle, so far as they differed from those of his first). Before I do so, however, I will mention certain evidence by Mr Neagle about what he said to the Blackers at the meeting at which he gave them the 12 May 1993 budget.

83 First, according to Mr Neagle, at that meeting, "I said they [that is, the figures in the budget] were good". Secondly, Mr Neagle was asked some questions in cross-examination about whether (as they asserted) he had told the Blackers at that meeting that the budget showed that they would have "a $70,000 profit in the second year". The relevant evidence was as follows:

"So is it possible that you said to them that at the end of the second year ... [they] would have a [$]70,000 profit?---No.

...

You've got no recollection, one way or the other, as to what you said to them about the profit at the end of the second year?---I thought I told them there was going to be a profit of about [$]30,000. I can't remember.

You've got a recollection that you told them that there was a profit of about [$]30,000 in the second year?---I can't remember.

...

You now say, do you, that you think instead of saying that there would [be] a [$]70,000 profit in the second year ... in fact you said to them there will be a [$]30,000 [profit] - - -?---No, I can't remember what I said to them. I wouldn't have said there would [be] a [$]70,000 [profit] because it [that is, the budget, did not] show a [$]70,000 profit.

But you've offered up today a reference to a [$]30,000 profit?---No, I didn't offer that all, sorry, that's what - - -

That's what what?---That's what the budget shows there but I'm not saying that's what I told them then.

...

You gave them the document to take away, you didn't say anything at all about profit even though you say today that you think that there was a $30,000 profit --- No, I can't remember saying there was a [$]30,000 profit then."

84 About the evidence which I have just quoted, I make the following observations. It was obviously Mr Neagle's belief, at the time when he gave his evidence before me, that his 12 May 1993 budget had shown that the Blackers would have about a $30,000 profit in the second year from the operation of a dairying business on Springbrook. If Mr Neagle had the belief at the time when he gave his evidence before me that his first budget had shown a profit of about $30,000 in the second year, I infer that he also had that belief at the time of his meeting with the Blackers at which he gave them that budget. In those circumstances, I am prepared to accept, in spite of his later refusals to be positive about it, that he "told them there was going to be a profit of about [$]30,000" in the second year, as he at first said in oral evidence he thought he had.

85 I should, perhaps, add here that according to other evidence which he gave, Mr Neagle reached his conclusion that his 12 May 1993 budget had shown that the Blackers would have about a $30,000 profit in the second year from the operation of a dairying business on Springbrook by subtracting the amount of the closing balance in the Blackers' working account #1 at the end of July 1994 ($27,240) from the amount of the closing balance in their working account #1 at the end of June 1995 ($55,310), both of those figures being shown in his budget. Why that difference, which was actually $28,070, was thought by him to represent the profit predicted to be earned from the operation of a dairying business on Springbrook between the dates of those two closing balances, Mr Neagle did not explain in his evidence. Furthermore, I note that, on the assumption that the process of comparing two closing balances in the Blackers' working account #1 would yield the profit to be earned by a dairying business between the dates of those two closing balances, then Mr Neagle's calculation did not compare the correct closing balances in order to determine the profit for the second year. That is because he compared the closing balance at the end of June 1995 with the one at the end of July 1994, rather than with the one at the end of June 1994. If one compares the closing balance at the end of June 1995 ($55,310) with the closing balance at the end of June 1994 ($38,270), one discovers that the difference (and, therefore, according to Mr Neagle, the profit predicted for the second year) is not about $30,000, but only $17,040.

86 The inference should be drawn from the evidence that, very shortly before preparing his own budget, Mr Neagle had been made aware by Mr Munro, when the two of them had gone through Mr Munro's budget together, that Mr Munro's prediction as to the number of cows being milked at the start of the three year period, namely, 175, already represented an increase of 25 from the number then actually being milked. Such awareness by Mr Neagle militates against a conclusion that Mr Neagle's starting prediction of 190 milking cows had been based on reasonable grounds.

87 As well as the evidence to which I have just referred, the defendant tendered as part of its case in the Federal Court certain answers by the Blackers to interrogatories, in which they had asserted that they had informed Mr Neagle for the purpose of his preparing the budget that Mr Bateman was milking 180 cows. Again, such awareness by Mr Neagle, very shortly before preparing his own budget (though not as destructive as his awareness of what Mr Munro had apparently told him), militates against a conclusion that Mr Neagle's starting prediction of 190 milking cows had been based on reasonable grounds.

88 Having now discussed the question of whether there existed reasonable grounds for Mr Neagle's predictions as to the number of cows being milked during each month of the 36 month period, I mention briefly the question of whether he had reasonable grounds for his predictions as to the average number of litres of milk produced per cow per day in each of those 36 months. In the case of 35 of those 36 months, Mr Neagle simply adopted Mr Munro's (effectively, the Bega Co-operative's) figure and I treat those predictions just as I did Mr Neagle's adoption of Mr Munro's figures as to the number of cows being milked during each month of the 36 month period. However, as to the 36th prediction, namely, 16.5 litres of milk produced per cow per day for the 12th month of the 36, rather than 16, although the difference in terms of milk production is slight, still the fact is that Mr Neagle made no attempt to explain the grounds upon which he had made that particular prediction, nor did the defendant seek to prove otherwise what those grounds had been. In the absence of such proof, I conclude that there were no reasonable grounds for that particular prediction.

89 Katz J dealt with Mr Neagle's predictions in his budget concerning the income and expenditure of the proposed dairying business. I do not find it necessary to consider these in detail. For the reasons given by Katz J, it is clear that the budgets were poorly and carelessly prepared.

90 It is necessary to deal quite briefly with two subsequent budgets of his, one a budget of 25 May 1993 and the other a budget of 7 June 1993. Each of those two budgets was intended to supersede its predecessor and there is no dispute that at least the budget of 25 May 1993 was given to the Blackers, although the defendant did dispute in its scheduled final submissions that the 7 June 1993 budget was given to them.

91 So far as operating income and expenditure is concerned, there is only one difference between the budgets of 12 May 1993 and 25 May 1993. That is in Mr Neagle's predictions of operating expenditure under the heading "Seed & Fertiliser". Whereas the three annual figures under that heading in the 12 May 1993 budget were $15,000, $17,000 and $20,000 respectively, the three annual figures under that heading in the 25 May 1993 budget were $20,000, $22,500 and $23,500 respectively.

92 There is a dispute between the Blackers, on the one hand, and Mr Neagle on the other, as to the circumstances under which those substitutions occurred. Mr Neagle's evidence was, in effect, that he had been directed by Mr Blacker to substitute those precise figures, whereas the Blackers' evidence was, in effect, that they had asked Mr Neagle to increase the predicted expenditure, but had not nominated any particular increase.

93 In my view, it is unnecessary for me to resolve that dispute (although I should mention that there appears to be some incongruity between Mr Neagle's position in the dispute and his evidence that, at the relevant time, the Blackers, to his knowledge, had "no familiarity with ...running costs"). If I accepted Mr Neagle's evidence on the matter in dispute, then that would lead me to be satisfied that Mr Neagle did have reasonable grounds for making those particular predictions in his 25 May 1993 budget (and again in his 7 June 1993 budget). However, his having had reasonable grounds for the making of those particular predictions would have no effect on the multitude of other predictions in his budgets as to which I have already said that I am not satisfied that he had reasonable grounds for making them. For that reason, resolving the dispute presently under discussion would seem to me to be a matter of little consequence in the resolution of the present case.

94 I turn now to Mr Neagle's 7 June 1993 budget. Before dealing with certain changes made to it, it is appropriate to mention yet again the fact that on 1 June 1993 Mr Neagle had submitted to his superiors an application for credit by the Blackers. That application contemplated that for the first two years after they began to operate their dairying business, the Blackers would not repay any of the principal owing on their $900,000 loan from the NAB, but that they would begin to repay principal on the loan in the third year, the principal sum then being amortised over a certain number of years. Mr Neagle's superiors were, however, troubled about the Blackers' capacity to begin repaying principal on the $900,000 loan from the start of the third year of operation of their dairying business, given the figures for the third year contained in Mr Neagle's 25 May 1993 budget. Mr Neagle's superiors also appear to have wanted a shorter amortisation period for the $900,000 loan than Mr Neagle had proposed.

95 It was in that setting that Mr Neagle produced his 7 June 1993 budget. It will be recalled that in his 12 May 1993 budget, Mr Neagle had predicted milking cow numbers reaching 250 in the 13th month of the 36 month period and remaining at that level throughout the rest of the period. (The 25 May 1993 budget was the same in that respect). In his 7 June 1993 budget, Mr Neagle instead predicted that, in the 25th month of the 36 month period, milking cow numbers would increase from 250 to 275 and then remain at that level throughout the rest of the period.

96 That predicted 10% increase in milking cow numbers during the third year of the period should obviously have led to a predicted milk production in the third year of the period which was 10% greater than that which had been predicted in the 12 May 1993 and 25 May 1993 budgets. In fact, due to an arithmetic error on Mr Neagle's part, it led to a prediction by him of milk production in the third year of the period which was over two thousand litres less than a 10% increase. Be that as it may, the extra litres now predicted to be produced were all predicted to be sold as non-quota milk and their sale apparently led to an increase in the predicted gross operating income in the third year of almost $35,000.

97 However, what is striking about Mr Neagle's changes in his 7 June 1993 budget to his predictions as to the number of cows being milked and as to the resulting receipts from the sale of milk is that he found it unnecessary to predict at the same time any increase in operating expenditure in the third year in order to accommodate the predicted increase in cow numbers involved. To take just one example, either the additional cows would require to be fed no bought fodder at all or else the original cows would each have to make do with less bought fodder than first planned, with the difference going to the additional cows. Neither of those alternatives was realistically possible, without a corresponding decline in milk production.

98 In my view, determining whether Mr Neagle had reasonable grounds for the changes which he made (and did not make) in his 7 June 1993 budget is a matter of little consequence in the resolution of the present case (even assuming that he gave that budget to the Blackers). However, his failing to provide for any increase in operating expenditure whatsoever in that budget in consequence of his increase in milking cow numbers appears to me to typify the approach which Mr Neagle took to the preparation of his Blacker budgets generally. In a memorandum dated 5 April 1994, Mr Robert St John, one of Mr Neagle's successors as Bega branch manager, said that Mr Neagle's Blacker budgets had been "inflated to reflect a viable situation", an assessment with which it is hard to disagree, especially in light of Mr Neagle's conduct in connection with his 7 June 1993 budget. It seems plain that in his 7 June 1993 budget, Mr Neagle simply used a device to improve the Blackers' predicted positive net cashflow in the third year for the purpose of allaying his superiors' concerns about the Blackers' ability to switch, in that year, from payments of interest only to payments of principal and interest both on the $900,000 loan and as well accommodating a shorter amortisation period for the $900,000 loan.

99 There is, perhaps, one other aspect of Mr Neagle's 7 June 1993 budget which I should mention briefly. It will be recalled that in his memorandum to his superiors dated 1 June 1993, Mr Neagle had told them that Mr Bateman was milking 185 cows as of that date. Accepting the accuracy of that statement, the fact that Mr Bateman was milking 185 cows on 1 June 1993 militates against the reasonableness of Mr Neagle's persisting, in a budget dated only six days later, with his earlier predictions of 12 and 25 May 1993 that the number of cows being milked at the start of the three year period would be 190.

100 I have already mentioned that there exists a dispute as to whether Mr Neagle gave the Blackers his 7 June 1993 budget. It will be apparent from what I have already said about that budget that it is a matter of little moment that I should resolve that dispute. However, I note that in cross-examination Mr Neagle did give evidence that he discussed with the Blackers at some stage a budget increasing milking cow numbers from 250 to 275 and that he might have had a meeting with them at which he told them that he had redone the budget for Canberra in light of the shorter amortisation period. In those circumstances, it would, to say the least of it, not be straining credulity to conclude that Mr Neagle did give the Blackers his 7 June 1993 budget.

101 Peter Blacker gave evidence that he saw a reference to 275 milking cows in the budget. He knew Mr Bateman had only been milking 180 cows and that Mr Munro's budget had worked on the property running 250 milking cows maximum. However, Mr Neagle said to him, ""Don't worry about that. The lending manager does not understand dairying like I do".

102 Mr Neagle prepared an application for line of credit ("ALOC") and submitted all the documents including cashflow projections to the Canberra regional office. The ALOC submitted by Mr Neagle misrepresented the true facts and the loan was ultimately approved based upon those misrepresented facts. The plaintiffs had signed the supporting documents in blank. In particular, the initial ALOC dated 1 June 1993 misrepresented the extent of the Blackers' knowledge and experience in dairying. Peter Blacker did not spend six weeks assisting Mr Bateman with milking and general dairying operations to gain knowledge of the dairy. The ALOC misrepresented the extent of Peter Blacker's formal qualifications. Peter Blacker attended Yanco Agricultural College but the course was not a four year course. Although the Risk Analysis purported to advance counter measures to the Blackers' inexperience (Tender Bundle Volume 1/93.8), it conveyed the impression that the various named persons had specifically offered to assist the Blackers which was untrue. At best there were names of persons who might, if called upon, be available to assist or advise (see for example reference to Phillip Armstrong at T.897-898, reference to the sharefarmer -"It was on the understanding that he was staying on" T.897).

103 Contrary to what appears at Tender Bundle Volume 1/95.5, the property had not been set up to handle 400 acres of irrigation. This was a representation likely to make the proposal much more attractive to Canberra and more likely to suggest a much more productive property (cf T.896) especially since Mr Neagle believed that the availability of irrigation on a block would add about $1,000 per acre to the value of any property.

104 The budgets compiled by Mr Munro were not based on actual figures employed by Mr Bateman. Mr Munro had never advised Mr Neagle, nor did he in fact have 32 dairy farmers on his books. These figures were utilised in compiling Mr Munro's budgets also.

105 Expenditure figures in Mr Neagle's budgets were not in fact loaded to combat the inexperience of the Blackers.

106 A revised ALOC increased the amount to be provided in the funding table by an extra $54,167 without further reference to the Blackers.

107 In the "Customer Statement of Position" submitted to Canberra, Mr Neagle inflated the value of the bush block to $174,000 notwithstanding Mr Neagle knew that block was of similar quality and size to two other blocks which had previously been sold by the plaintiffs for less than $70,000. The value of Kanoona was similarly inflated from $700,000 to $750,000 and the value of the Blackers' assets was misrepresented in the Schedule of Securities. As to South Kanoona, Mr Neagle knew from as far back as 12 May 1993 that Bill Blacker was to pay $700,000 for that property. Putting a figure of $174,000 into the "Customer Statement of Position" for the bush block was likely to be more impressive to Canberra (T.852.21). The "Customer Statement of Position" was submitted to Canberra knowing the detail was incorrect in relation to South Kanoona.

108 The value of the bush block could not be justified by reference to the existence of a water licence attached to it. At best that would have improved the value of the property by $1,000 an acre. The existence of a water licence stood in marked contrast to the suggestion that it was of similar quality and size to the other two blocks.

109 The above has mainly been taken from the judgment of Katz J who, of course, concentrated on the facts germane to the causes of action before him. Before dealing with the facts particularly germane to the claim under the CRA, I need to note the essence of the result in the Federal Court.

110 Apart from the claim under the CRA, the Federal Court considered claims made under five heads. However, only two were still active at the time for judgment. The plaintiffs' claims under the Trade Practices Act failed because they were out of time. The plaintiffs' claim for damages for negligent misstatement causing economic loss succeeded. However, Katz J did not consider that the evidence presented on the question of quantum of damages at all satisfactory and awarded $92,500 damages plus interest from 1 February 1994. This sum was assessed as about $10,000 per month between the time the plaintiffs acquired the Batemans' assets until the end of June 1994. The defendant succeeded on its cross claim.

111 On 8 June 2000, Katz J indicated the orders that he would formally make after the present proceedings in this Court had terminated. In summary, these are:

1. The plaintiffs give the defendant possession of Springbrook.

2. The defendant have leave to issue a writ of possession.

3. The plaintiffs deliver up to the defendant the cattle on Springbrook and Kangarooby.

4. Judgment for the defendant for $1,551,475.68.

5. Order to account for sale of milk quota.

6. Judgment for the plaintiffs for negligent misrepresentation for $153,968.15.

7. Orders for costs.

112 I return to the facts relevant to the present case. Contracts for the purchase of Springbrook were exchanged on 31 August 1993.

113 On 7 September 1993, the defendant, under Mr Neagle's signature as Manager of the Bega branch, advised that the plaintiffs' application for lending facilities had been approved. Three loans were covered by this advice. First a loan for $50,000 by way of overdraft. This was to provide working capital. Secondly, a fixed loan of $900,000 to purchase the property. Thirdly, a fully drawn loan for $100,000 for capital improvements. The whole set of loans was to be repaid in no more than ten years.

114 The plaintiffs were a bit disturbed by the form of the offer. They called at the Bega branch of the defendant bank. By this time, the defendant had dismissed Mr Neagle from its employ. He in fact left the bank on 17 September 1993.

115 On 22 September 1993, the plaintiffs saw Mr Nibbs, the relieving manager, and explained their problem. Mr Nibbs accommodated the plaintiffs by adjusting the letter of offer. The plaintiffs then accepted that offer.

116 When Mr Nibbs saw the file, he considered that the deal had already been done. However, he was concerned about certain aspects of the matter and telephoned his superiors in Canberra about those concerns. However, he did not say anything to the plaintiffs, except that which is noted in his memorandum.

117 Mr Nibbs wrote a memorandum dated 22 September 1994 to Canberra which is in evidence as Tender Bundle 1/249-250. This memorandum said that in order to keep good customer relations, Mr Nibbs had reduced the figure to that sought by the customer, however, he informed Canberra:

"I have discussed all costings with them (the plaintiffs) and it appears that adequate funds are available to them for the project. HOWEVER, THERE IS VERY LITTLE MARGIN FOR ERROR AND CERTAINLY NO ALLOWANCE FOR EXCESS EXPENDITURE. THEIR MANAGEMENT WILL HAVE TO BE SPOT ON. MR & MRS BLACKER ARE ABSOLUTELY CLEAR ON THIS POINT...". (The use of upper case letters should be noted).

Mr Nibbs' memorandum concluded:

"In summary, this proposal was already tight on security. The above discrepancies make it even tighter. When the Blackers' lack of recent experience is taken into account, there is a need for absolute firm control and adherence to budget, which the incoming branch manager will need to be aware of. There is really no margin to allow for any blow out in this proposal."

118 Mr Gailer of the Canberra office replied by a note dated 27/9/1993 endorsed at the foot of a copy of Mr Nibbs' memorandum:

"On the basis of information now before us in this memo should application be now just coming before us it would be declined. We are, however, in the position of having made & communicated a commitment to applicants and must follow through on same...".

119 In accordance with the loan agreement, the plaintiffs entered into mortgages 1797836 and 1797840 over Springbrook, both of which were subject to the defendant's deposited memorandum W194969.

120 Both the plaintiffs say that Mr Nibbs' adjustment of the figures reinforced their view that the figures prepared by the bank were reliable and that the proposed purchase was viable.

121 The purchase of Springbrook was completed on 23 September 1993. The purchase price was $1,530,000 not including stamp duty and legal fees which accounted for a further $70,000.

122 Nothing of any moment occurred during the remainder of 1993. Mr Bob St John was appointed by the defendant to manage its Bega branch. In January 1994, the plaintiffs asked Mr St John for more loan funds to purchase cattle. Mr St John was not immediately forthcoming with a loan, but said he would come out to the property. When he did come, in February 1994, Mr St John said, "This loan should never have been approved. Sell the place immediately".

123 Mr St John then went away and redid the budgets and advised Christine Blacker that they did not look good.

124 There was then a meeting at Mr St John's office in early March 1994 when he again emphasised that they had no choice and said "You will have to sell". Mr St John's file note of 25 March 1994 shows that he then felt that the original loan application "should have been declined at branch level". Mr St John explained in evidence, "It's an application that should have gone nowhere".

125 The plaintiffs then retained Mr John Miller, an agricultural expert. Mr Miller went with the plaintiffs to see some more senior bank officers employed by the defendant in Canberra. These officers again said that the loan should not have been approved. Mr Miller urged the defendant to grant more money to assist the plaintiffs get out of the position in which they had been placed. The bank officers agreed to provide some funding which the plaintiffs accepted.

126 The plaintiffs carried on their dairying business on the property for some time. However, in July 1995, they put Springbrook on the market at $2,300,000. The property failed to find a buyer. The defendant continued to advance necessary funds whilst the plaintiffs were endeavouring to sell. However, in October 1998, the Federal Court proceedings were commenced and co-operation between the parties to achieve a practical result ceased.

127 I should note that, quite external to the activities of the parties inter se, were a number of factors which affected the dairying industry in the Bega Valley and the value of Springbrook. These will be referred to later in these reasons in detail. The most significant were a prolonged drought and the deregulation of the industry.

128 The plaintiffs seek relief under the CRA. So far as relevant the CRA provides:

"7. (1) Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following:

(a) it may decide to refuse to enforce any or all of the provisions of the contract;

(b) it may make an order declaring the contract void, in whole or in part;

(c) it may make an order varying, in whole or in part, any provision of the contract;

(d) it may, in relation to a land instrument, make an order for or with respect to requiring the execution of an instrument that:

(i) varies, or has the effect of varying, the provisions of the land instrument; or

(ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the land instrument.

...

Matters to be considered by Court

9. (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."

129 The plaintiffs' case basically is that they entered into an improvident transaction with the Batemans. They would not have done so had they not believed that Mr Neagle had prepared budgets with expertise which showed that the project would be profitable. The defendant bank held itself out as a skilled and experienced entity in relation to loan applications and loan approvals. On the other hand, the plaintiffs were people of little experience at the disadvantage of dealing with a large, well resourced corporation. The plaintiffs were not assisted with appropriate professional advice. By entering into the loan agreement and mortgages, they lost everything.

130 The defendant's riposte is that this summary is misleading and inadequate. The defendant says that the plaintiffs did in fact have access to the advice of solicitors and accountants. Moreover, the plaintiffs were experienced property developers who were by no means the "babes in the woods" that they would like to paint themselves. The defendant admits that Katz J has held it liable for negligent advice, but says that it has suffered an order for damages on that count and that is where that matter should lie.

131 Counsel for the defendant point to the evidence that the Blackers were advised by Mr Munro and by their solicitor, Mr Parbery. Mr Munro made it clear that his budget showed that the project was viable, but tight, and that the plaintiffs should get an opinion from "John". In the event, the Blackers went to the wrong John.

132 Mr Munro warned the Blackers of the risks of borrowing a million dollars and the consequences of failure and suggested an investment in dairying in Victoria, but the Blackers did not want to move to Victoria.

133 Both the Blackers were educated people who had been warned by Mr Munro of the risks.

134 Mr Blacker did have agricultural knowledge. This manifested itself when he told Mr Neagle to increase the allowance for seed and fertiliser in the budget and to allow for the purchase of a new milk vat. Mr Blacker has twenty years experience in pasture improvement and his training and experience placed him in a much better position than a bank officer to assess the quality of the herd and pastures on Springbrook and to appreciate the vagaries of rural life. Indeed, Mr Blacker's evidence of his intelligent assessment of other properties he had viewed showed his skill.

135 The evidence shows that Mr Blacker assessed and estimated the value of the Springbrook land at $1,000 per acre, the houses at $70,000 and $180,000, dairy sheds at $100,000 and $50,000, machinery and plant at $150,000. His notes and analysis (even before approaching Mr Munro) demonstrate his ability.

136 Furthermore, Mr Blacker seems, on the balance of the evidence, to have considered Mr Neagle's budgets and at least understood them sufficiently to make suggestions as to some adjustments that needed to be made.

137 Again, the Blackers told Mr Neagle that they had made an appointment to see the Commonwealth Bank. The defendant's counsel submit that this was to put some pressure on the defendant. It seems to be patent on the evidence that at the time in question, there was some expectation that Mr Neagle would increase the Bega branch's loan book and that he had succeeded in doing so.

138 Mr Graham QC and Mr Thomson submit that at the time that the Blackers met Mr Neagle they had already made the firm decision to purchase Springbrook. They had conceived a business plan the end goal of which was to bring Springbrook up to full productive capacity. The only effect that Mr Neagle's budgets had was to "beckon them the way they were going".

139 In reply, Messrs McGovern and Aitken challenge the defendant's submission on the facts. This challenge is not for misstating facts, but for over emphasis. I accept the submission in reply that I should prefer the Blackers' statement that they in fact had little contact with the solicitor Mr Parbery to speculation and hearsay that their contact might have been greater.

140 As to the Blackers' understanding of the various budgets for the project, I consider that the true position is somewhere between the two sets of submissions. I consider that it is more likely than not that particularly Mr Blacker had a greater understanding of the make up of the budgets, especially with respect to items of an agricultural nature, than he was prepared to acknowledge. However, I am quite sure that he did not fully comprehend the overall effect of the figures that Mr Neagle had put together to justify the defendant financing the whole project. However, I consider that the evidence shows that Mr Blacker very much wanted to go ahead with the project and was content that Mr Neagle do the necessary paper work to ensure it was financed. In this respect I agree with the comment by counsel for the defendant that it was a case of the plaintiffs being beckoned the way they were going.

141 Mr Graham QC and Mr Thomson also submit that the principal reason that the venture failed was not because the project was unviable from the beginning. They admit it was tight, but it was achievable. The principal reasons for failure were that the Blackers did not have pregnancy tests carried out on the herd, there was an extended drought and the industry was deregulated. They also say that to a great extent, the plaintiffs were the authors of their own loss as had they sold out when Mr St John advised them to do so, they would not have lost their investment. However, they put the property on the market too late and at too high a price. Thus, the value of the property kept falling and the interest kept rising until the plaintiffs lost their complete investment.

142 There is some validity in this submission, but it is not completely fair. The evidence shows that when the Blackers put the property on the market in July 1995, the officers of the bank considered that their customers were doing what they could to extricate themselves (and the bank) from a tricky situation and assisted the plaintiffs to some extent by further overdraft facilities.

143 The defendant's counsel also point to a number of factors which ensured that the plaintiffs' enterprise failed, none of which could be laid at the feet of the defendant. There was a deficiency in the expected production of the herd, prolonged drought, there was a plague of scarab beetle and there was deregulation of the dairy industry. With an enterprise whose viability was marginal, any of these factors would have pushed it over the edge into unviability. This is a fair point.

144 The question is whether relief should be given under the CRA and, if so, what relief should be given.

145 At this point, I must examine the guidelines as to how courts approach this sort of problem as laid down in the authorities.

146 In West v AGC (Advances) Ltd (1986) 5 NSWLR 610, 620-1, McHugh JA said:

"...a contract may be unjust in the circumstances existing when it was made because of the way it operates in relation to the claimant or because of the way in which it was made or both. Thus a contractual provision may be unjust simply because it imposes an unreasonable burden on the claimant when it was not reasonably necessary for the protection of the legitimate interests of the party seeking to enforce the provision... . In other cases the contract may not be unjust per se but may be unjust because in the circumstances the claimant did not have the capacity or opportunity to make an informed or real choice as to whether he should enter into the contract... . More often, it will be a combination of the operation of the contract and the manner in which it was made that renders the contract or one of its provisions unjust in the circumstances. Thus a contract may be unjust under the Act because its terms, consequences or effects are unjust. This is substantive injustice. Or a contract may be unjust because of the unfairness of the methods used to make it. This is procedural injustice. Most unjust contracts will be the product of both procedural and substantive injustice.

"The definition of `unjust' in s4 is not exclusive. It is in my opinion a mistake to think that a contract or one of its terms is only unjust when it is unconscionable, harsh or oppressive. Contracts which fall within any of those categories will be `unjust'. But the latter expression is not limited to the so-called `tautological trinity'. The Contracts Review Act, 1980 is revolutionary legislation whose evident purpose is to overcome the common law's failure to provide a comprehensive doctrinal framework to deal with `unjust' contracts... .

"It is important to bear in mind that it is the contract or its provisions which must be unjust. As Professor Lang has pointed out, `it is not the transaction but the contract which must be initially examined'. ...

"If a defendant has not been engaged in conduct depriving the claimant of a real or informed choice to enter into a contract and the terms of the contract are reasonable between the parties, I do not see how the contract can be considered unjust simply because it was not in the interest of the claimant to make the contract because she had no independent advice."

147 In Beneficial Finance Corp Ltd v Karavas (1991) 23 NSWLR 256, 269, Samuels JA again stressed that it was the contract, not the transaction that must be found to be unjust. That point was stressed time and time again by Mr Graham QC in the instant case. However, in Elders Rural Finance Ltd v Smith (1996) 41 NSWLR 296 at 309 Handley JA said:

"The distinction drawn in West v AGC (Advances) Ltd between the transaction or investment on the one hand, and the contract on the other, was important in that case where the lender played no part in the investment decision, and was not involved in the wider transaction. No such distinction can be drawn in this case."

148 Several of the cases on the CRA which have reached the Court of Appeal have concerned contracts with banks or other financial institutions; see eg the list in Arbest Pty Ltd v State Bank of NSW Ltd (1996) ATPR 41-481 at 41,981.

149 In Gough v Commonwealth Bank of Australia [1994] ASC 56-270, a wife who had mortgaged property to secure her husband's business loan failed to get her mortgage set aside under the CRA. The only part of the report that is relevant to the present case is that part of the judgment of Mahoney JA which points out that one cannot evaluate this sort of case by applying tags to people and stereotyping them as "housewife" or "bank", one must actually evaluate the facts and circumstances of each case.

150 Elders Rural Finance Ltd v Smith was an appeal from a decision of Bryson J who had granted relief under the CRA to people who owned a rural property, "Roseleigh", who had borrowed to purchase a further rural property. Bryson J had ordered that the borrowers be relieved from any interest or legal fees in connection with their loan. The upshot was that the Judge ordered that the lender pay them $415,724. The Court of Appeal dismissed the appeal.

151 The following passage from the judgment of Handley, JA at page 307, summarises the case:

"The judge concluded:

`...in practical terms there was not a realistic possibility of achieving the necessary transformation in the productivity of the partnership and the inflow of cash by the contemplated changes. It was not beyond all possibility that the projection would be realized; but they would be realized only in an extraordinary combination of favourable circumstances which did not happen and which was not realistically likely to happen, still less continue for years.'

"The Smiths `were utterly out of their depths in making a projection of this kind' and had no `appreciation overall of its commercial implications'. They knew it would be a `tough operation' and `a very hard road', but they saw Elders' readiness to advance money to them to go into the transaction as a recommendation. In this they were `extremely naïve', and Elders did not give, and did not intend to give, any such recommendation.

"There was a gross disparity between the positions of Elders and the Smiths. Elders was protected by its securities and so details of projections and their feasibility were not of critical importance to it. On the other hand, the Smiths incurred risks without any real understanding of what they were doing and stood to lose `Roseleigh', and the only way of life they knew, if the project failed. As the judge said: `There was extreme inequality in the likelihood of successful outcomes, in the capacity of the contracting parties to see this, in the contingencies adverse to (a) successful outcome, and in what would constitute a successful outcome.' "

It should be noted that the Court refused to order any compensation in Smith's case (see p 310).

152 The principles to be considered were thoroughly canvassed by Mahoney JA with whom Sheller and Powell JJA agreed in Younan v Beneficial Finance Corp Ltd - 21 November 1994, unreported. In that case, Mahoney JA said:

"The power given to the court to interfere with contractual arrangements made by parties is, if given effect according to the terms of the Act, a far-reaching power. The court must not substitute paraphrases or verbal formulae for the terms of the Act. However, in order to understand the nature and extent of the provision, it is of assistance to examine the terms of the Act and the scheme of their operation. To do this is of assistance in understanding what was done by the trial judge in this case and in considering the submissions which have been made in relation to his findings.

"There are, amongst others, four things which may be said about the power given by the Act and the scheme of the operation of it. First, the test for determining whether the power exists and whether it should be exercised in the particular case is a normative test (`unjust in the circumstances relating to the contract at the time it was made' and `considers it just to do so': cf s7(1)). Second, the Act indicates various factors or classes of factors which are to be taken into account in `deciding whether a contract or a portion of a contract is unjust...': s9(1). Third, the test laid down by the Act involves a high rather than a low standard. And, fourth, the decision of the court that the power exists and that it should be exercised is of its nature a discretionary decision and accordingly an appellate court should not set it aside except by reference to the principles illustrated by or derived from cases such as House v The King [1936] HCA 40; (1936) 55 CLR 499.

...

"In the present Act the terms of it indicate (subject to what I shall say) that the court is to form a view as to what in the circumstances the interests of each party are and the extent to which the concept of injustice requires that one be preferred to the other. However, s9(1) provides that in determining whether a contract or provision is unjust, `the Court shall have regard to the public interest and to all the circumstances of the case' including the matters there referred to. It is therefore formally open to a court to determine that, as between the parties, there is no injustice but that the public interest warrants the conclusion that a contract or provision is unjust. The circumstances in which the court can and should interfere with a contract which, in that sense, is just between the parties does not appear.

"In s9 and in particular in s9(2), the Act indicates, in a non-exclusive fashion, factors to which the court `shall have regard' in deciding whether a contract or a provision is unjust. Without limiting the factors which, expressly or by implication, the statute treats as relevant, it is to be noted that the Act refers to (as I shall describe them for brevity) public interest factors: s9(1); factors dealing with the burden of the contract: s9(2)(f); factors derived from blame: s9(2)(b), (c) and (f); factors going to the freedom of the parties in entering into the contract: s9(2)(a) and (c); and bargaining factors: s9(2)(a), (b) and (e). It would be wrong to attempt to rationalise all of the provisions of the Act and, a fortiori, to limit the operation of any of the provisions by reference to an attempt at rationalisation of all of them. As I have indicated elsewhere, it is my view that the Act must be given effect according to its terms. However, it is of assistance, in applying it to particular cases, to understand the relationship which appears to exist between its various parts. Thus, the test of whether the court should interfere is related to the injustice of the contract or its provisions.

...

"Second, and, I think, of more importance in the present case, it was in my opinion the intention of the legislature that a contract might be interfered with for reasons not limited to or comparable to those which, under the general law, would warrant interfering with its operation. The grounds on which the law had provided for review of contracts is illustrated by cases such as: Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362; Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447; Louth v Diprose [1992] HCA 61; (1992) 175 CLR 621. The effect of the Contracts Review Act is, in my opinion, not to be limited to what could be done under the principles established by these cases. However, it is proper to have regard to the state of the law prior to the Act in deciding what may or should be done in reliance upon the terms of it.

"But it does not follow from this that a contract is to be interfered with lightly or for idiosyncratic reasons. The definition of `unjust' includes terms involving a high level of injustice. To an extent, that confirms, that the reason which will justify interference must be of significant weight. But, that having been said, it is injustice which is the basis of what may be done.

"Third, it does not follow from the fact that any one or more of the grounds specified in, eg, s9(2) is established that the court can or should find that the contract was unjust. S9 specifies factors to which regard may be had for this purpose. In some cases, such factors may be relevant only in negativing the injustice of the contract, by showing that appropriate care was taken when it was made.

"Fourth, the court may, as I have said, have regard to `the public interest' in deciding the justice of the contract. Accordingly, it may consider, for example, the effect upon the conduct of affairs of the fact that contracts properly made may be put aside under the Act. One of the difficulties resulting from legislation of this kind is that it creates an atmosphere of uncertainty as to the extent to which, under contracts legally made, money lent may be recovered or promises may be enforced."

153 In Amcor Ltd v Watson [2000] Aust Contract Rep 90-110, an individual who had settled litigation sought to set aside the settlement under the CRA. She succeeded. Sheller JA gave the judgment of the Court consisting of himself, Meagher and Heydon JJA. Sheller JA said at p 91,198 (para [30]), "...before the Court intervenes it must consider if it is just to do so and any intervention must be for the purpose of, avoiding, as far as practicable, an unjust consequence or result. Sometimes insufficient attention is paid to these conditions and the purpose of the exercise of the power and too much to the matters listed in s 9 (2)... ."

154 His Honour then said at p 91,199 (para [34]) that the inequality of bargaining power between a widow claiming compensation and a large corporation and its insurer was irrefutable. Messrs McGovern and Aitken seize upon this utterance as supporting a submission that whenever one has the case of a large corporation versus "the little man or woman" there must be inequality of bargaining power and hence the plaintiffs in such a case are well on the road to success. However, a moment's reflection shows that this cannot be the case. For one thing, it runs foul of the "no decision by stereotyping" principle laid down by Mahoney JA in Gough's case and repeated on subsequent occasions.

155 In Beneficial Finance Corp Ltd v Karavas (1991) 23 NSWLR 256, 269, Samuels JA said, "the court, guiding itself by the signposts provided in s9, and paying heed to the prescription in s7(1), will first ascertain what were the circumstances `relating to the contract at the time it was made.' " However, as Mahoney JA said in Younan at page 12 "in deciding whether it is unjust, the court is to have regard, eg, to how the contract came to be made, the intelligibility of its language: s9(2)(g); the explanation given of its provisions: s9(2)(i) and the bargaining power of the parties: s9(2)(e). It might be thought that how the contract came to be made does not determine or affect a judgment as to whether that which has been agreed to is unjust. But however that be such matters may, perhaps, be taken into account in that they assist in indicating whether insistence on the terms of the contract amounts to oppression or the like."

156 I have set the circumstances leading up to the making of the loan agreement and the mortgages out in great detail in my survey of the facts early in these reasons.

157 Essentially the purchase of Springbrook was the Blackers' idea. They approached the defendant bank. It may well be that Mr Neagle was instructed or took it upon himself to increase his loan book by authorising loans which were close to the prudent limits. It may be that he authorised loans which were on the wrong side of what was financially prudent. The determination of Katz J was that the bank through Mr Neagle made negligent misstatements and his Honour ordered that the defendant pay damages for those misstatements. This, so far as money goes, was a sufficient remedy.

158 When one asks, "What apart from the misstatements was out of the ordinary"? one finds it hard to come up with an answer favourable to the plaintiffs. There was nothing in the contract concerning the interest rate or other terms which were at all out of the ordinary and to which the plaintiffs ever objected.

159 It must be remembered that on the authorities, when considering this question, I must bear in mind that the CRA is remedial legislation which should be widely construed. However, I must also look for a high level of injustice and must bear in mind the public interest in maintaining certainty of contract. I must also remember that, even if I find on the facts that the contract could be unjust, I still have a discretion as to whether to make any order or what order should be made.

160 The plaintiffs' case was that they should never have entered into the transaction or the contract as they could not reasonably ever have profited by it. They considered that the bank had the expertise and that it had carried out the necessary checks and that, because the bank had approved the loans, it was safe to proceed.

161 The plaintiffs seek to set aside the personal covenant in the mortgage and to be paid compensation of $857,000. If these orders were made, the plaintiffs would be put back in the same position as if the transaction had not been entered into.

162 In one sense there was some blame on the bank for the Blackers entering into the transaction. However, I do not consider that the action of Mr Neagle was the prime factor. The Blackers wanted to buy Springbrook: Mr Neagle was only a facilitator. I accept the position that Mr Blacker was more aware of the risks than he would now have us all believe.

163 There were no threats or force used to make the Blackers enter into the contract of loan and mortgage. The terms of that contract were not oppressive. Even accepting that there was inequality of bargaining power, this was not a case of an illiterate or otherwise disabled couple making a contract that was forced upon them. They may have been only basically educated and they may have been overawed by Mr Neagle's suggested competence, but this does not seem to me to be enough to show that there was procedural injustice in bringing about the contract. The contract itself was not one that could be said to be substantively unjust.

164 Thus, the claim must fail.

165 I should note that even if I were wrong in my assessment, this is not a case where any order for compensation should be made. It is interesting that there does not appear to be any reported case where such an order has been made and in Smith's case such an order was refused. Although the submissions of Mr Graham QC and Mr Thomson about putting Springbrook on the market too late and at too high a price were overly severe, there is not the evidence to show that the losses that the Blackers experienced were a result of their entering into the loan contract.

166 Accordingly, apart from the appropriate procedural orders to formalise the claim under the CRA as proper proceedings in this Court, the order must be that the proceedings be dismissed with costs.

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LAST UPDATED: 16/08/2000