Permanent Mortgages Pty Limited v Sibylle Ulrike MacFadyen [2012] NSWSC 130 (29 February 2012)

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Permanent Mortgages Pty Limited v Sibylle Ulrike MacFadyen [2012] NSWSC 130 (29 February 2012)

Last Updated: 6 March 2012

Supreme Court New South Wales

Case Title:	Permanent Mortgages Pty Limited v Sibylle Ulrike MacFadyen
Medium Neutral Citation:	[2012] NSWSC 130
Hearing Date(s):	16 November 2011, 17 November 2011, 18 November 2011
Decision Date:	29 February 2012
Jurisdiction:	Common Law
Before:	Johnson J
Decision:	Leave is granted to the Plaintiff to bring in short minutes of order to give effect to this judgment, and to incorporate the quantum of the monetary judgment calculated as at today's date.
Catchwords:	REAL PROPERTY - claim for possession of land and monetary judgment - mortgage default - claim by Defendant that lender owed borrower a duty of care and duty breached - claim by Defendant of unconscionability and claim for relief under Contracts Review Act 1980 - Plaintiff establishes entitlement to relief - claims by Defendant rejected - judgment for Plaintiff
Legislation Cited:	Real Property Act 1900 Contracts Review Act 1980
Cases Cited:	Permanent Mortgages Pty Limited v Sibylle MacFadyen [2010] NSWSC 1053 Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; 219 CLR 165 Commercial Bank of Australia Limited v Amadio [1983] HCA 14; 151 CLR 447 National Commercial Bank (Jamaica) Ltd v Hew and Anor [2003] UKPC 51; 63 WIR 183 Perpetual Trustees Australia Limited v Schmidt [2010] VSC 67 Buccoliero v Commonwealth Bank of Australia [2011] NSWCA 371 Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Limited (No. 2) [2000] FCA 2; 96 FCR 491 CG Berbatis Holdings Pty Limited v Australian Competition and Consumer Commission [2001] FCA 75; 185 ALR 555 Australian Competition and Consumer Commissioner v CG Berbatis Holdings Pty Limited [2003] HCA 18; 214 CLR 51 Australia and New Zealand Banking Group Limited v Karam [2005] NSWCA 344; 64 NSWLR 149 Australian Bank Ltd v Stokes (1985) 3 NSWLR 174 West v AGC (Advances) Ltd (1986) 5 NSWLR 610 Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41 Fast Fix Loans Pty Limited v Samardzic [2011] NSWCA 260 Elkofairi v Permanent Trustees Co Limited [2002] NSWCA 413; (2002) Aust Contracts Reports No. 90-157 Perpetual Trustee Company Limited v Khoshaba and Kowalczuk v Accom Finance Pty Limited [2008] NSWCA 343 Riz v Perpetual Trustee Australia Limited [2007] NSWSC 1153; (2008) NSW Conv R No. 56-198 Dominic v Riz [2009] NSWCA 216
Texts Cited:	---
Category:	Principal judgment
Parties:	Permanent Mortgages Pty Limited (Plaintiff) Sibylle Ulrike MacFadyen (Defendant)
Representation
- Counsel:	Mr A Combe (Plaintiff) Ms SU MacFadyen (Defendant in Person)
- Solicitors:	Kells The Lawyers (Plaintiff) Ms SU MacFadyen (Defendant in Person)
File number(s):	2008/289028
Publication Restriction:	---

JUDGMENT

1. JOHNSON J : The Plaintiff, Permanent Mortgages Pty Limited, seeks relief against the Defendant, Sibylle Ulrike MacFadyen, arising from alleged mortgage default. The Plaintiff seeks judgment for possession of land known as 6 Harold Street, Floraville ("the Floraville property") together with monetary judgment against the Defendant.

The Proceedings

2. The proceedings were commenced by Statement of Claim filed 22 December 2008. By a document entitled "Further and Final Amended Defence" filed 2 December 2009, the Defendant resists the Plaintiff's claim for relief.

3. The proceedings have had a somewhat protracted interlocutory history, part of which may be gleaned from the judgment of Harrison AsJ of 16 September 2010 in which her Honour, amongst other orders, struck out certain Cross-Claims which had been brought by the Defendant: Permanent Mortgages Pty Limited v Sibylle MacFadyen [2010] NSWSC 1053.

4. The Defendant has appeared for herself at a number of interlocutory hearings. For a short period in mid-2011, she was legally represented. However, her solicitors ceased to act and she was unrepresented at the hearing before me. As will be seen, the Defendant is an educated person with business experience. Although legally untrained, the Defendant possessed an understanding of issues which arose for determination at the hearing. She made submissions in writing and orally by reference to the facts and case law on those issues.

The Present Hearing

5. The proceedings were heard on 16, 17 and 18 November 2011. Mr A Combe of counsel appeared for the Plaintiff. The Defendant was unrepresented at the hearing.

6. The Plaintiff read in its case affidavits of Stephen Paul Lawrence sworn 28 February 2011 and 30 August 2011. A folder of documents which accompanied Mr Lawrence's first affidavit was admitted as Exhibit SL1. Mr Lawrence was required for cross-examination and gave oral evidence at the hearing.

7. In addition, affidavits of Cameron Lake sworn 30 June 2011 and Gabrielle Kara Polczynski affirmed 4 November 2011 were read in the Plaintiff's case. A folder of documents referred to in the affidavit of Ms Polczynski were admitted as Exhibit GP1. Neither Mr Lake nor Ms Polczynski were required for cross-examination.

8. The Defendant relied upon an affidavit which constituted a form of expanded affidavit verifying the Further and Final Amended Defence. In addition, an affidavit of the Defendant sworn 4 July 2011 was read in her case. A number of objections were taken to each of the Defendant's affidavits and rulings were made concerning those objections during the course of the hearing (T74-91). The Defendant was required for cross-examination and gave oral evidence (T91-131).

9. Mr Combe addressed first at the conclusion of the hearing on the afternoon of 17 November 2011. Counsel handed up an outline of submissions to which he spoke. A copy of these submissions was provided to the Defendant at that time. Mr Combe completed his submissions on the morning of 18 November 2011, providing a supplementary outline of submissions, a copy of which was once again provided to the Defendant. Accordingly, the Defendant had an appropriate opportunity to consider submissions to be made in response to those made for the Plaintiff. The Defendant provided a written outline of submissions when she rose to address on 18 November 2011.

Factual Matters

10. There were limited areas of factual dispute at the hearing. The Plaintiff's case was almost entirely documentary. What follows may be taken as my findings of fact. Mention will be made where there is a factual dispute on issues of significance which calls for resolution by the Court.

11. The Plaintiff is a non-bank lender and is part of the La Trobe Group of Companies ("La Trobe"). La Trobe acts as the mortgage manager for credit providers within that group, including the Plaintiff.

12. The Defendant was the sole director and shareholder of Amadeus Building & Design Pty Limited ("Amadeus"). Amadeus was a building company which, at relevant times in 2007, conducted a building business to develop four residential units at 14A and 14B Fennell Street, Fassifern ("the Fassifern property").

13. In April 2007, Amadeus was undertaking development of the Fassifern property. The Defendant had an existing home loan with Perpetual Trustees (Vic) Limited for the purchase of her residential premises at the Floraville property. The Defendant had a redraw available on that loan in the sum of $22,000.00.

14. The Defendant sought a loan from the Plaintiff for the purposes of completing the development by Amadeus of the Fassifern property. Amadeus had insufficient equity to permit the Plaintiff and La Trobe to lend to it on a "stand alone basis" .

15. The Defendant's loan application was for commercial/development purposes and it was accepted by the Defendant that the application was not subject to the Consumer Credit Code .

16. On 24 April 2007, La Trobe received a "Low Doc" Construction and Refinance Loan Application from All Together Finance, a mortgage broker, on behalf of Amadeus. The application was made by Ms Marina Heydon, a broker with All Together Finance. The purpose of the loan sought was stated as "refinance home loan and land loan and construction of four units on two blocks of land" . The security offered as part of the application were the Floraville property and the Fassifern property. The background to the application was described in the application in the following way (Exhibit SL1, page 8):

"Amadeus Building and Design P/L, has a history of successfully developing sites for a long time, Sybille MacFadyen is the sole director of this company. A history of her previous experience is attached. Her current project has presales agreements which are attached. She wishes to refinance her personal, home loan and investment land loan and build the 4 units. A fixed price building contract is attached as well as plans for the units.

The land loan shows some arrears on the statement but those can be explained by the attached letter. This will be rectified by the purchasers as they feel responsible for this predicament. Once conditional approval has been received. They are very keen to exchange on the purchases. Up until that date the loan has been paid on time. I have attached CRA which shows clear Credit History.

Sybille is $20 000 in advance on her home loan which is always paid on time."

17. The documents comprising the application submitted on 24 April 2007 included an "Application for Mortgage Finance" completed by the Defendant. A schedule of assets and liabilities of the Defendant and Amadeus was also provided which stated, amongst other things, that the Fassifern property had a value of $540,000.00 and had development approval for four units, together with a statement "all presold through a JV agreement at $395,000 each plus GST" (Exhibit SL1, page 9). The application was supported by an application for mortgage finance signed by the Defendant as a "guarantor" and as "sole director" .

18. In support of the application, the Defendant stated the occupation of glass supply, and indicated a gross taxable income of $160,000.00. A document entitled "Repayment Certificate - Lite Doc" was completed and signed by the Defendant, indicating the borrower's name as Amadeus and a current gross taxable income of $128,900.00 per annum, including rental income of $27,600.00 per annum (Exhibit SL1, page 13).

19. On 27 April 2007, Ms Krysten Hayes, an officer of La Trobe, opened a new file with respect to the Defendant and commenced a La Trobe New Loan Application/Letter of Offer Check List (Exhibit SL1, pages 25-26). As part of this process, ASIC searches were made with respect to Amadeus and credit checks were undertaken concerning Amadeus and the Defendant (Exhibit SL1, pages 31-42).

20. On about 30 April 2007, Mr Lawrence, the Head of Commercial Lending at La Trobe, became involved with the assessment process of the applications.

21. On 30 April 2007, La Trobe received a further document "Repayment Certification - Lite Doc" signed by the Defendant and dated 30 April 2007 (Exhibit SL1, page 45). The document identified the borrower as "Sibylle Ulrike MacFadyen" and indicated a current gross taxable income per annum of $139,000.00.

22. Although the Defendant acknowledged that the signature and date on this document were written by her, she denied that she had written her name and the stated gross annual income. The Defendant did not identify the person whom she alleged had completed this part of the document.

23. The Defendant was cross-examined concerning this document. Tellingly, the document carries a facsimile transmission line at its head, disclosing that it was faxed from "Exclusive Glass" at Newcastle on 30 April 2007. In cross-examination, the Defendant accepted that the document had been sent by facsimile from her own business premises to La Trobe on that day. Despite the fact that the evidence demonstrated direct transmission from her small business to La Trobe, she maintained her denial that she had written her name and income on the document.

24. I do not accept the Defendant's evidence in this respect. Even if it was the case that someone else completed that part of the document (which I do not accept), I am satisfied on the balance of probabilities that the Defendant transmitted by facsimile the completed form to La Trobe, knowing its contents, which she accepted.

25. On 30 April 2007, La Trobe sent an indicative offer to the Defendant (Exhibit SL1, pages 47-48). Pertinent features of this letter were as follows:

(a) the borrower was the Defendant personally;

(b) the loan amount was $680,000.00 or 80% of a valuation, whichever was the lesser;

(c) the loan purpose was stated as "refinance - owner occupied" ;

(d) the security was to be a registered first mortgage over the Floraville property;

(e) the repayment schedule was $4,985.04 per month principal and interest;

(f) security over the Fassifern property was to be cross-collaterised with the offered loan of $680,000.00.

26. On 2 May 2007, the Defendant signed a document entitled "Acceptance of Advice of Proposed Loan Advance" which named the borrowers as Amadeus and the Defendant personally (Exhibit SL1, page 49).

27. On 4 May 2007, Ms Amanda Hoogerwerf, an officer of La Trobe, requested a valuation of the Floraville property and, on 10 May 2007, Duponts (a valuer acting on behalf of La Trobe) valued the Floraville property at $840,000.00, made up of land at $600,000.00 and improvements at $240,000.00 (Exhibit SL1, page 51).

28. On about 23 May 2007, Mr Lawrence completed a number of documents as part of the assessment of the application, including a Net Disposable Income ("NDI") serviceability calculator. The NDI serviceability calculator indicated that the Defendant had a negative NDI (Exhibit SL1, page 59). In his affidavit sworn 28 February 2011 (paragraph 26.4), Mr Lawrence said that whilst a negative NDI result would usually count against approval of a loan based on serviceability, he considered this to be satisfactory having regard to the following matters particular to this loan:

(a) part of the interest of the construction loan had been set aside, which was a normal standard practice for construction loans of this type, as the development is normally looked at on a stand-alone basis;

(b) the servicing of the interest for the Defendant's loan had been accounted for already; and

(c) the future tax deductibility of the interest from the loan was not accounted for, in circumstances where this would have positively contributed to serviceability.

29. In evidence, Mr Lawrence agreed that he had written the words "interest prepaid and all units presold" on the NDI serviceability calculator document. The Defendant asked Mr Lawrence in cross-examination (T40.22):

"Q. Can you read to me what it says at the bottom next to the maximum loan size, which I believe is in your handwriting?

A. It is in my handwriting and it says, 'interest prepaid and all units pre sold'?

Q. So, if that was a comment made on your NGI [sic] worksheet where a maximum loan size is given to you at $807,000, why would you not get deposit verification?

A. We were happy that the units were pre sold and there were contracts in place and our solicitors, as part of the letter of offer, were to undertake a due diligence of those contracts to ensure that they were unconditional. That was carried out by them and also, as I mentioned, the interest was prepaid and our letter of offer stated that the pre sale contracts were to be found unconditional."

30. Shortly after, Mr Lawrence gave the following evidence in answer to questions from me (T46.17):

"Q. Mr Lawrence, would you turn to the NDI calculation sheet at page 112. I think you indicated a little while ago that the handwriting was yours saying 'interest prepaid and all units presold'?

A. Correct.

Q. What was the significance of those matters which you wrote on this document in the context of this application?

A. When we look at a proposal we don't just look at one issue, we look at a range of issues; I mentioned earlier character, the credit quality of the borrower, the valuation that is attached, the serviceability is another aspect. There are many aspects that we look at. When we did the NDI we looked at that and, as I mentioned, we had a comfort factor that the four units were presold, so therefore all that had to happen was for the four of them to be built and there were four presales in place and that would have been taken out the loan on completion. Also this loan had some prepaid interest in place, so therefore Ms MacFadyen didn't have to pay any interest for a period of time because that was already covered within the loan amount. So, yes, it was a bit lower, but we had some prepaid interest in place which means Ms MacFadyen didn't have to make those interest payments early in the loan, plus we had the four units presold. So taking into account all of that, we were happy to proceed with the loan."

31. As will be seen, the Defendant made submissions by reference to the NDI serviceability calculator and certain provisions in the La Trobe Lending Division Operational Procedures Manual ("the Manual") (Exhibit GP1, page 11ff). The Defendant contended that the Manual should be construed as a set of mandatory requirements to be applied by La Trobe in the assessment of applications for finance. I do not consider that such a construction is consistent with either a fair reading of the Manual itself or the evidence of Mr Lawrence, which supported the view that the Manual constituted guidelines to assist the discretionary process of assessment of applications for finance. Certainly, I am not persuaded that La Trobe or the Plaintiff failed to comply with any provision of the Manual in any way which advances the Defendant's case in these proceedings. I will return to this topic when considering the submissions made by the parties.

32. On about 24 May 2007, La Trobe conducted business name and other searches with respect to the Defendant and Amadeus (Exhibit SL, pages 61-67).

33. On 25 May 2007, a Letter of Loan Offer was sent by La Trobe to the Defendant (Exhibit SL1, pages 70-77). Significant features of the offer were as follows:

(a) the borrower was the Defendant in person;

(b) the total loan was $672,000.00, being not more than 80% of the valuation of the Floraville property;

(c) the loan purpose was identified as "Refinance - Investment" ;

(d) the indicative interest rate was 8.50% per annum variable;

(e) the late payment fee was 6.00% per annum calculated per calendar month on the outstanding loan balance;

(f) the security was to be a registered first mortgage over the Floraville property;

(g) the repayment schedule of principal and interest was to be $4,926.39 per month principal and interest;

(h) the period of the loan was to be 40 years;

(i) the existing Perpetual Trustees (Vic) Limited loan to the Defendant personally was to be repaid in full by the advance;

(j) the loan was to be cross-collateralised with the loan secured over the Fassifern property.

34. On 30 May 2007, the Defendant signed and accepted the loan offer on these terms (Exhibit SL1, page 76).

35. On or about 30 May 2007, the Defendant or her broker spoke to Mr Lawrence and requested of La Trobe a split facility for the loan of $672,000.00, allocating $290,000.00 to the refinance part of the loan and $382,000.00 to the construction to be conducted by Amadeus. This split was to enable the Defendant to claim a tax deduction in respect of the construction loan (affidavit of Mr Lawrence, 28 February 2011, paragraph 29). On 30 May 2007, Mr Lawrence sent a letter to the Defendant confirming that the loan of $672,000.00 would be split as follows:

(a) Loan 1 - an amount of $290,000.00, with principal and interest repayments of $2,125.97 per month;

(b) Loan 2 - an amount of $382.000.00, with principal and interest repayments, with interest only repayments for the first three years of $2,705.83 per month.

All other terms and conditions of the Letter of Offer remained unchanged.

36. On 30 May 2007, the Defendant executed a Quick Pay Authority to La Trobe to deduct minimum monthly payments on a weekly basis from a Westpac Banking Corporation account in her name. This Authority was received by La Trobe on 5 June 2007 (affidavit of Mr Lake, 30 June 2011, paragraph 6).

37. On 30 May 2007, the Defendant signed a GST Consideration of a Property Declaration to confirm the GST status of the Floraville property, this document being received by La Trobe on 5 June 2007 (Exhibit SL1, page 86).

38. By separate letter dated 25 May 2007, La Trobe made a loan offer to Amadeus in the sum of $1 million for the purposes of a one-year construction loan to be secured by registered first mortgage over the Fassifern property. The Defendant accepted this loan offer on behalf of Amadeus on 30 May 2007 (Exhibit A, page 9). This separate loan and mortgage formed part of the background to the present proceedings. Their suggested relevance, according to the Defendant, was the impact upon serviceability of the loan and mortgage in her name. I will return to this issue when considering the submissions of the parties.

39. I pause here to observe that the Defendant accepts that she believed, as at 30 May 2007, that the presales contracts of the four units to be constructed on the Fassifern property would proceed to completion, and that she and Amadeus would be in a position to meet their obligations under the loan and mortgage in the Defendant's name. The Defendant accepted that this was the position indicated to the Plaintiff and La Trobe as well, at that time.

40. The Plaintiff submits that what happened thereafter was that things did not eventuate, from a business perspective, as anticipated by the Defendant. In short, circumstances changed after the loan monies had been advanced by the Plaintiff to the Defendant and the Defendant gave a mortgage over the Floraville property to the Plaintiff. I am satisfied that this characterises accurately what happened. This is an important issue, given the arguments advanced by the Defendant as to why she should not be held liable to the Plaintiff under the loan and mortgage arrangements.

41. La Trobe instructed Purcell Partners, solicitors, to act for it on the loan and mortgage transaction with the Defendant, arising from her acceptance of the loan offer. The evidence reveals that Purcell Partners took a number of steps on behalf of La Trobe in accordance with these instructions.

42. On about 20 June 2007, the Defendant signed and had witnessed a statutory declaration as to proprietorship of the Floraville property and also acknowledging that she had received a Memorandum of Common Provisions (Exhibit SL1, pages 91-93).

43. On 3 July 2007, the Defendant as director of Amadeus, executed a Deed of Assignment and Charge Over Planning and Building Permit for the Fassifern property (Exhibit SL1, pages 101-102).

44. On 13 July 2007, the Defendant signed and had witnessed a statutory declaration as to her identity as borrower (Exhibit SL1, page 111).

45. On 19 July 2007, La Trobe confirmed in a letter to the Defendant that the Defendant had authorised the deduction of five one-off payments of $1,392.28 weekly from 2 August 2007 (Exhibit SL1, page 122).

46. On 19 July 2007, La Trobe advanced the sum of $165,293.32 to the Defendant's La Trobe Loan 1 account. The sum of $90.00 was debited from that account as a settlement disbursement fee, and the sum of $6,616.68 was also debited as a "balance of upfront fees" (affidavit of Mr Lake, 30 June 2011, paragraph 12).

47. On 23 July 2007, La Trobe received a stamped and registered mortgage over the Floraville property given by the Defendant in favour of the Plaintiff (Exhibit SL1, page 127).

48. On 31 July 2007, the sum of $665,293.32 (being $672,000.00 less fees in the sums of $90.00 and $6,616.68) was advanced to the Defendant's Loan 1 account. On 1 August 2007, the settlement was adjusted whereby the sum of $382,000.00 was advanced to the Defendant's Loan 2 account with the balance of the Loan 1 account being $291,523.52 (affidavit of Mr Lake, 30 June 2011, paragraph 12).

49. The Defendant made sporadic repayments of Loan 1 from 2 August 2007. Many repayments were late or dishonoured, resulting in additional fees being imposed on Loan 1. As at 4 November 2011, Loan 1 had arrears of $65,534.84 and a loan balance of $361,609.10 (affidavit of Ms Polczynski, 4 November 2011, paragraph 4; Exhibit GP1, page 7).

50. The Defendant made monthly repayments of Loan 2 until 20 June 2008, but no repayments of Loan 2 thereafter. As at 4 November 2011, Loan 2 had arrears of $261,096.45 and a loan balance of $681,719.98 (affidavit of Ms Polczynski, 4 November 2011, paragraph 4; Exhibit GP1, page 10). The total balance for Loans 1 and 2, as at 4 November 2011, was $1,043,329.00.

51. On 19 August 2008, a notice was issued by Purcell Partners to the Defendant pursuant to s.57(2)(b) Real Property Act 1900 , indicating that there had been default in payment in accordance with the terms of the mortgage. The Defendant did not respond to that notice and the default was not remedied (affidavit of Ms Polczynski, 4 November 2011, paragraph 3; Exhibit GP1, pages 1-4).

52. On 22 December 2008, the Plaintiff filed a Statement of Claim in this Court seeking an order for possession of the Floraville property and monetary judgment against the Defendant.

53. On 2 December 2009, the Defendant filed the Further and Final Amended Defence.

Issues To Be Determined - The Plaintiff's Claim for Relief

54. It is appropriate to refer firstly to the matters which the Plaintiff must establish to found its claim for relief. There is no real issue in this case that the Plaintiff has established each of these matters. I will then address the real contested issues in the proceedings, which concern the bases upon which the Defendant seeks to avoid the orders sought against her by the Plaintiff.

55. The evidence establishes the following matters:

(a) that the Defendant was at all relevant times the registered proprietor of the Floraville property;

(b) that in 2007, the Defendant granted to the Plaintiff a registered mortgage over the Floraville property to secure a loan of $672,000.00 advanced by the Plaintiff to the Defendant;

(c) at the request of the Defendant, the Plaintiff split the loan of $672,000.00 into Loan 1 and Loan 2, both of which fall under the umbrella of the $672,000.00 loan, and the mortgage over the Floraville property which secured that loan;

(d) the Defendant has defaulted on her obligations to repay the loan of $672,000.00, in particular by her failure to make any repayments of Loan 2 since 30 June 2008;

(e) the Defendant was served with a notice under s.57(2)(b) Real Property Act 1900 in August 2008, but has not remedied her default, with the loan accounts remaining in significant arrears;

(f) the Defendant signed a loan offer which contained the General Terms and Conditions, including the obligation to make monthly repayments, and she is bound by the written agreement: Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; 219 CLR 165 at 184 [54].

56. Prima facie, the Plaintiff is entitled to the relief sought in the Statement of Claim, being an order for possession of the Floraville property and monetary judgment.

57. The Further and Final Amended Defence filed 2 December 2009 appears to have been drawn by the Defendant herself. The pleading resists the Plaintiff's claim for relief on a number of bases. Mr Combe submitted that the Further and Final Amended Defence raised an amalgam of issues which incorporate the following:

(a) an asserted breach of duty of care by the Plaintiff regarding the capacity to repay the development loan (Loan 2);

(b) some form of unconscionability, possibly analogous to equitable relief available on the principles in Commercial Bank of Australia Limited v Amadio [1983] HCA 14; 151 CLR 447;

(c) relief under s.7 Contracts Review Act 1980 .

58. The Defendant accepted this summary of the bases upon which she seeks to establish some vitiating factor, so as to avoid the orders sought by the Plaintiff.

59. In her written submissions handed up on the final hearing day, the Defendant asserted that she should be granted relief under s.7(1) Contracts Review Act 1980 . Her written submissions developed arguments under that heading. However, the Defendant did not abandon those parts of her arguments which fall to be considered under the heading of "Breach of Duty of Care and Unconscionability" . It remains appropriate that the Court should resolve those issues.

60. The Plaintiff submitted, and the Defendant accepted, that the nub of these defences seems to be that the presales contracts for the four units to be constructed on the Fassifern property did not come to fruition.

The Defendant's Contention That the Plaintiff Owed Her a Duty of Care and Breached that Duty

61. The Defendant contends that the Plaintiff (as lender) owed a duty of care to her (as borrower) and that the duty was breached by the Plaintiff in this case. The Further and Final Amended Defence asserts, at paragraph 9(a), that the Plaintiff "acted negligently and in serious breach of the duty of care it undertook in relation to its inspection and assessment of the Contracts thereby exposing the Defendant to an unreasonable and excessive risk of losing her home and further loss and damages" . It was asserted in paragraph 9(b) that the Plaintiff had "substantially departed from its own lending guidelines and further has departed from normal, prudent and appropriate lending practice" .

62. Mr Combe submitted that the Plaintiff did not owe a duty of care to the Defendant to advise her, as a customer, with respect to commercial projects for which the Plaintiff was asked to lend money. He relied upon the decision of the Privy Council in National Commercial Bank (Jamaica) Ltd v Hew and Anor [2003] UKPC 51; 63 WIR 183 in this respect. To establish such a duty of care, he submitted that it must be shown either that the lender advised that the project was viable, or assumed an obligation to advise as to its viability and failed to advise that it was not. Mr Combe submitted that there was no evidence which would allow the Court to find that a duty of care arose between the Defendant and the Plaintiff, let alone that such a duty of care had been breached in this case.

63. The Defendant used the term "duty of care" in a somewhat flexible way and asserted that, in effect, the Plaintiff had an obligation (and thus a duty) to check a range of matters concerning the presales contracts before advancing money to her, and that the Plaintiff had not made such enquiries in this case. Thus, it was submitted that this suggested omission should stand in the way of the Plaintiff succeeding, at least with respect to Loan 2.

64. I accept the Plaintiff's submission that the legal principles to be applied are contained in the judgment of the Privy Council in National Commercial Bank (Jamaica) Ltd v Hew and Anor . In that case, a bank sued two persons for a substantial sum due on an overdraft facility together with interest. One of the borrowers counterclaimed for damages for negligence in breach of fiduciary duty asserting that, if successful, his claim would extinguish any indebtedness on his part to the bank. The trial Judge rejected the claim in negligence and upheld his claim to have the transaction set aside on the ground of undue influence. The bank appealed and the Court of Appeal dismissed the appeal, upholding the trial Judge's finding of undue influence and reversing his finding in favour of the bank on the issue of negligence. The Privy Council upheld the appeal and directed that judgment be given to the bank against both defendants.

65. Lord Millett delivered the advice of the Board (Lord Nicholls of Birkenhead, Lord Steyn, Lord Hope of Craighead, Lord Millett and Lord Rodger of Earlsferry). In approaching the claim in negligence, Lord Millett said at [13]-[14]:

"[13] The legal context in which this question falls to be decided is well established. In Banbury v Bank of Montreal [1918] AC 626 Lord Finlay LC said at p 654:

'While it is not part of the ordinary business of a banker to give advice to customers as to investments generally, it appears to me to be clear that there may be occasions when advice may be given by a banker as such and in the course of his business . . . If he undertakes to advise, he must exercise reasonable care and skill in giving the advice. He is under no obligation to advise, but if he takes upon himself to do so, he will incur liability if he does so negligently.'

In relation to a failure to advise a customer, Warne & Elliot Banking Litigation (1999) states at p 28:

'A banker cannot be liable for failing to advise a customer if he owes the customer no duty to do so. Generally speaking, banks do not owe their customers a duty to advise them on the wisdom of commercial projects for the purpose of which the bank is asked to lend them money. If the bank is to be placed under such a duty, there must be a request from the customer, accepted by the bank, under which the advice is to be given.'

[14] It is, therefore, not sufficient to render the Bank liable to Mr Hew in negligence that Mr Cobham knew or ought to have known that the development of Barrett Town with the borrowed funds was not a viable proposition. It must be shown either that Mr Cobham advised that the project was viable, or that he assumed an obligation to advise as to its viability and failed to advise that it was not. Their Lordships have examined the transcripts of the trial with care, and have failed to find any evidence to support any such finding."

66. After referring to factual matters, Lord Millett continued at [21]-[22]:

"[21] Their Lordships consider that the only possible conclusion on the evidence is that it was Mr Hew's idea to build on the Barrett Town land, that Mr Cobham agreed to lend the money for that purpose, and that insofar as he insisted that the money should be used for that purpose he was merely insisting that it be used for the purpose for which it had been borrowed. This is normal banking practice - it would have been normal banking practice to have made it an express condition of the loan in the facility letter - and such a condition does not amount even to tacit advice that the customer's proposal is a viable one.

[22] It may well have been foolhardy of Mr Hew to embark on the project without obtaining estimates of the likely costs and cash flow forecasts; but the Bank was under no duty to advise him against such a course. It may have been unwise of Mr Cobham to have lent the money without insisting on being provided with such estimates and forecasts and without having conducted a feasibility study of his own. But as Mr Cobham explained, any such study would have been for the Bank's protection, not Mr Hew's. The reason he did not call for such a study is that he did not think that the Bank's interests required it; the Bank had sufficient security to support a much larger loan than anything that was contemplated at the time. This is a useful illustration of the truism that the viability of a transaction may depend on the vantage point from which it is viewed; what is a viable loan may not be a viable borrowing. This is one reason why a borrower is not entitled to rely on the fact that the lender has chosen to lend him the money as evidence, still less as advice, that the lender thinks that the purpose for which the borrower intends to use it is sound."

67. Following an examination of other submissions touching on this issue, Lord Millett concluded that part of the judgment dealing with the negligence claim in the following way (at [28]):

"In the circumstances their Lordships can find no support in the evidence for a finding that Mr Cobham advised Mr Hew as to the wisdom of developing Barrett Town or that the Bank assumed a duty to do so. This is sufficient to dispose of the claim for negligence; and their Lordships do not find it necessary to deal with the Bank's contentions that project was not a foolhardy one doomed from the outset; that Mr Hew's losses were caused by factors independent of any advice alleged to have been given by the Bank; or that he was, to a significant extent, the author of his own misfortune."

68. I accept the Plaintiff's submission that the principles to be applied to this case are those contained in National Commercial Bank (Jamaica) Ltd v Hew and Anor . Although the decision of the Privy Council was not cited, Forrest J referred to other authority in Perpetual Trustees Australia Limited v Schmidt [2010] VSC 67 at [173], in the course of reaching a similar conclusion:

"The assertion of breach by Mr Schmidt presupposes the existence of such a duty. The law, however, does not recognise any duty upon a lender to assess the capacity of a borrower to repay a loan, or to ascertain the viability, of a loan or to verify the details provided in loan applications. Nor is a lender under any duty to provide either a borrower or third party with commercial advice, although once such advice is tendered, the financier may assume a duty of care."

69. The Court of Appeal in this State has said that there is no duty owed by a lender to make reasonable enquiries to be satisfied that the borrower can service the loan: Buccoliero v Commonwealth Bank of Australia [2011] NSWCA 371 at [71].

70. To establish a duty of care between lender and customer, I accept that it must be shown either that the lender advised that the project was viable or assumed an obligation to advise as to its viability and failed to advise that it was not.

71. In the present case, there is no evidence that the Defendant sought financial or legal advice from the Plaintiff or La Trobe as to the viability of the loan based on presales contracts for the four units to be constructed on the Fassifern property. Indeed, the General Terms and Conditions of the loan recommended that the Defendant should obtain independent financial and legal advice. This serves to confirm that the Plaintiff was not assuming responsibility for providing financial advice.

72. The evidence reveals that the Defendant had retained a Mr Harry Foteades, solicitor, to act for her and Amadeus with respect to the development of the Fassifern property. Although it seems clear that the Defendant has become dissatisfied with aspects of her association with Mr Foteades, the fact that she and Amadeus had a solicitor advising them undermines, in a fundamental respect, her claim that the Plaintiff or La Trobe was, in some way, advising her with respect to the development.

73. There is no evidence that the Plaintiff or La Trobe advised that the development of the Fassifern property was viable based on presales contracts or, in any other way, assumed an obligation to advise as to its viability and failed to advise that it was not. In these circumstances, there was no obligation on the part of the Plaintiff to enquire as to the commercial viability of the purported purchases under the presales contracts, or whether those presales contracts were commercially viable by accepting a $5,000.00 initial deposit.

74. I accept the Plaintiff's submission that it was entitled to rely on the material provided by the Defendant and her broker, including income certifications. I have already found (at [24] above) that the Defendant provided the income certifications to La Trobe, thereby inviting La Trobe to consider the application on that basis.

75. I reject the Defendant's submission that the Plaintiff owed a duty of care to her which was, in some way, breached so as to entitle her to resist the Plaintiff's claim for relief in whole or in part.

Unconscionability

76. In the Further and Final Amended Defence, the Defendant contended at paragraph 9(c) that the Plaintiff had "acted unjustly, harshly and unconscionably towards and in relation to the Defendant" . This allegation is to be read in conjunction with paragraph 9(a) and (b) set out at [61] above.

77. The parties accepted that the elements of the equitable doctrine of unconscionability were stated by Deane J (Wilson J agreeing) in Commercial Bank of Australia Ltd v Amadio at 474:

"The jurisdiction is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them, and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or 'unconscientious' that he procure, or accept, the weaker party's assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable."

78. Mr Combe submitted that the categories of special disability or disadvantage fall within the rubric of "situational disadvantage" (based on the features of a relationship between actors in the transaction, such as unequal bargaining power) and/or the "constitutional disadvantage" of a weaker party (such as illiteracy or lack of education, illness or infirmity): Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Limited (No. 2) [2000] FCA 2; 96 FCR 491 at 498-502 [13]- [21]; CG Berbatis Holdings Pty Limited v Australian Competition and Consumer Commission [2001] FCA 75; 185 ALR 555 at 570-571 [75]- [83]; Australian Competition and Consumer Commissioner v CG Berbatis Holdings Pty Limited [2003] HCA 18; 214 CLR 51 at 62-65 [6]-[15].

79. Mr Combe submitted that an element of both situational and constitutional disadvantage is the financial predicament in which one of the participants finds himself or herself at the time of contracting and, if it exists, any economic duress exercised by the stronger party in the formation of the contract: Australia and New Zealand Banking Group Limited v Karam [2005] NSWCA 344; 64 NSWLR 149 at 168 [66].

80. I accept the Plaintiff's submission that the principles set out at [77]-[79] above provide the framework for determination of this part of the proceedings.

81. The Defendant was born in 1970. She holds a Bachelor of Arts Degree obtained from the University of Newcastle (T98). The Defendant had experience in property development when married to her husband, who became bankrupt in about 2001 (T129). She separated from her husband in around 2004 or 2005 and was divorced in July 2005 (T129).

82. The application for mortgage finance submitted by the Defendant on 20 April 2007 was accompanied by a document entitled "Project History/Resume" which outlined six property developments in the Newcastle and Central Coast areas between 1995 and 2007, in which the Defendant had some involvement. The development of the Fassifern property was the fifth project described in the document, with a sixth project being a development of 14 one-bedroom units at New Lambton, with a gross realisable value of $4.8 million.

83. Although the Defendant indicated that much of this property development experience had occurred at times when she was married (the suggestion apparently being that her husband was the driving force in this regard), it was the fact that the application for finance made to the Plaintiff in 2007 occurred when she was the sole director and secretary of Amadeus, and was already divorced from her husband. Although the Defendant sought to explain in re-examination that there was some residual involvement with her husband after their divorce, the evidence does not suggest that her ex-husband was in some way exercising some control over the Defendant.

84. I make these observations as part of an assessment of the intelligence and capacity of the Defendant and her experience in business affairs, all being attributes which existed when she applied to La Trobe for finance in 2007.

85. In my view, the Defendant was an unsatisfactory witness. I have already recorded my finding (at [24] above) rejecting her evidence that the income certification document was not completed by her (or apparently, on her case, by anyone else) before she transmitted it, by facsimile, in signed form to La Trobe. The Defendant's denial in the face of contemporaneous documentation, including the facsimile, is not plausible.

86. Apart from this, the Defendant was evasive as a witness, tending to respond to questions by adverting to material which seemed to assist her argument, rather than providing a direct answer to the question. Frequently, her evidence could be seen as a form of advocacy rather than direct answers to questions.

87. There is considerable support for the Plaintiff's submission that the Defendant's approach to the litigation, including the giving of evidence, was to attribute blame to anyone but herself for the unhappy position in which she now finds herself. I will return to aspects of the Defendant's evidence when considering her claims for relief under the Contracts Review Act 1980 .

88. For the moment, and in the context of her claim of unconscionability, I accept the Plaintiff's submission that there is no evidence that the Defendant suffered from any disability or was placed in some special situation of disadvantage qua her dealings with the Plaintiff or La Trobe. Nor is there any evidence that the Plaintiff or La Trobe made unconscientious use of any superior position.

89. The evidence indicates that the Defendant was, and is, an experienced businessperson and company director holding a tertiary qualification. I accept the Plaintiff's submission that she is not unsophisticated.

90. There is no evidence that the Defendant laboured under any physical or mental disability.

91. Although the Defendant said in evidence that she was under financial pressure at the time when the application was made in April 2007, the only contemporaneous evidence asserting such a position to which she can point were the statements contained in the application lodged by her broker on 24 April 2007 set out at [16] above. To the extent that any business person may have some measure of pressure operating upon them, the position communicated by the Defendant to the Plaintiff in that application is, in my view, unremarkable. The indicated position, in any event, was that the Defendant would be in a position to meet her commitments under the loan if the loan was approved.

92. As mentioned earlier, the Defendant had access to a solicitor, Mr Foteades, who had created the four presales contracts. The application for mortgage finance disclosed as well that the Defendant had an accountant.

93. The Defendant was engaged in the business of property development. She offered the Floraville property as security for a proposed loan of $1.58 million. The Defendant received an indicative offer, then a final offer, which gave her the opportunity to consider the loan and the terms and conditions of the loan. The loan process was not rushed or characterised by haste.

94. It was the Defendant who requested that the loan be split into two so as to maximise tax benefits for her and Amadeus.

95. The Defendant was and is able to read and write English for business purposes.

96. The Defendant stood to benefit personally from the loans by refinance and the provision of funds for the unit development of the Fassifern property. I accept the Plaintiff's submission that communications and dealings were "at arm's length" in the documents and information which were provided either by facsimile or post, and in telephone conversations between Mr Lawrence and the Defendant. There were no face-to-face meetings at which it may be suggested, directly or impliedly, that undue influence was brought to bear on the Defendant.

97. It was submitted for the Plaintiff, and accepted by the Defendant, that if the development of the four units on the Fassifern property went according to plan, she and Amadeus would have made a profit. This is not a case where the transaction entered into was to operate only for the benefit of a third person.

98. I accept the Plaintiff's submission that these factors militate against a finding that the Defendant is entitled to relief on the basis of unconscionability. There is no evidence of a special disability, whether situational or constitutional, of which the Plaintiff was or should have been aware so as to make it unconscionable to obtain and enforce the mortgage over the Floraville property, and to insist on payment of the loan amount in full.

99. I reject the Defendant's submission that she is entitled to some measure of relief in this case on the ground of unconscionability.

Section 7 Contracts Review Act 1980

100. The Defendant's final written submissions identified her claim for relief as being under s.7(1) Contracts Review Act 1980 . There is a significant overlap between this claim, and her claims in negligence and unconscionability (in particular), which have been addressed so far in this judgment.

101. In the Plaintiff's Statement of Issues prepared in advance of the hearing, a foreshadowed issue was whether the contract for the loan of $672,000.00 was excluded from review by s.6(2) Contracts Review Act 1980 . That provision excludes the grant of relief under that Act to a person in relation to a contract so far as the contract was entered into in the course of or for the purpose of a trade, business or profession carried on by the person or proposed to be carried on by the person. At the hearing, Mr Combe did not press an argument that s.6(2) operated to exclude the Defendant from seeking relief under the Act. He pointed to the distinction between the Defendant and Amadeus, a separate corporate entity carrying on the business, referring to the decision in Australian Bank Ltd v Stokes (1985) 3 NSWLR 174.

102. Accordingly, the question to be considered is whether the Defendant has established, on the balance of probabilities, a basis upon which relief ought be granted to her under s.7 Contracts Review Act 1980 .

103. Section 4 Contracts Review Act 1980 defines "unjust" to include the terms "unconscionable, harsh or oppressive" .

104. Section 7 Contracts Review Act 1980 is in the following terms:

"7 Principal relief

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

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

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

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

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

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

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

(2) Where the Court makes an order under subsection (1) (b) or (c), the declaration or variation shall have effect as from the time when the contract was made or (as to the whole or any part or parts of the contract) from some other time or times as specified in the order.

(3) The operation of this section is subject to the provisions of section 19."

105. Section 9 provides for matters to be considered by the Court in determining whether a contract or a provision of a contract is unjust in the circumstances relating to it at the time it was made:

"9 Matters to be considered by Court

(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."

106. The Court may have regard to any circumstance existing at the time of the contract whether or not a party was aware of that circumstance, but the Court cannot have regard to any injustice arising from a circumstance that was not reasonably foreseeable at the time when the contract was made: West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 620.

107. The purpose for which a loan is advanced is a relevant circumstance: s.9(2)(l) Contracts Review Act 1980 : Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41 at [68].

Submissions of the Parties

108. The Defendant submitted that relief should be granted to her under s.7(1) Contracts Review Act 1980 so as to return Loan 1 (which she described as the "home loan" ) to its original amount of $290,000.00, discounting what she described as unreasonable fees and charges inhibiting her from properly servicing this loan amount, and setting aside the remaining mortgage contract on the Floraville property, including what she described as all the accumulated and unreasonable fees and charges as evidenced on the loan account statement.

109. The Defendant submitted that the purpose of the loan was predominantly for the unit development on the Fassifern property by Amadeus, a separate legal entity to herself. The Defendant submitted that her difficulties with Mr Foteades placed her at a situational disadvantage. She submitted that she was under pressure in the circumstances.

110. Whilst accepting that the Manual may only be a guideline for loan assessments and documentation, the Defendant submitted that any discrepancies between initial applications and subsequent documentation should have alerted La Trobe at the time, so that it should have carried out further investigations to completely satisfy itself that the borrower was able to meet the repayments. The Defendant submitted that La Trobe should have insisted upon obtaining a certificate from the borrower's accountant to the effect that the Defendant had received advice concerning her ability to meet repayment obligations. The Defendant asserted that there was a discrepancy between documentation and a declaration which she denied had been provided to La Trobe in completed form, so that La Trobe and the Plaintiff should have made further enquiries. I have already rejected the Defendant's evidence on this aspect (see [24] above). I accept that the documents in question were submitted by her in completed form, and that she was aware of the contents of the documents at the time.

111. The Defendant relied upon the decision of Forrest J in Perpetual Trustees Australia Limited v Schmidt . The Defendant submitted that this case supports her argument based upon La Trobe not following its own lending guidelines in this case. The Defendant submits that, if the loan was not serviceable, then in substance it is not a loan, but an asset sale.

112. The Defendant's written submissions included the somewhat extraordinary proposition (paragraph 7):

"It is unreasonable to expect the defendant to disclose on the loan application or supporting documentation initially submitted, that they are unable to meet loan servicing of the development/construction loan, given the stress and pressure on the defendant to obtain the loan to facilitate the construction of the four units at Fassifern."

113. The Defendant's written submission proceeded to assert a "common practice" to present an (inaccurate or incomplete) picture in an application to ensure success, apparently based upon the expectation that a lender would investigate the matter fully thereafter.

114. Express reliance was placed by the Defendant upon the following statement by Forrest J in Perpetual Trustees Australia Limited v Schmidt at [207] (footnote excluded):

"Acceptance of the concept of situational disadvantage extends the reach of the doctrine to cases involving asset lending where there is intentional moral obloquy, contrary to good conscience on the part of the financier or the procurer of the loan in relation to its dealings (including the processing of the loan application) with the borrower. It is not limited to knowledge of linguistic, educational or intellectual difficulties, but, I think, extends to a situation where the loan documentation alerts the financier or its representative to real issues (such as the patent discrepancies exposed in this case) concerning the borrower's ability to repay the loan, particularly where the security, in the form of the borrower's family home, is his or her only asset."

115. The Defendant submitted that undue weight should not be attached to evidence concerning her education and business experience, because of the context of that business experience involving her ex-husband.

116. Mr Combe submitted that the Defendant had not established any basis for relief under s.7 Contracts Review Act 1980 . He made detailed submissions by reference to considerations under s.9(2) of that Act, contending that it was the Plaintiff, in the end, which was hard done by in the events surrounding this litigation.

Determination Concerning Contracts Review Act 1980

117. I am not persuaded that the Defendant is entitled to relief under the Contracts Review Act 1980 with respect to any aspect of this contract. In general terms, I accept the submissions of the Plaintiff as to why the Defendant's claim ought be rejected.

118. The subject loan from the Plaintiff to the Defendant in the sum of $672,000.00 was obtained in a commercial setting for the predominant purpose of the unit development on the Fassifern property by Amadeus, a company of which the Defendant was the sole director and shareholder. I accept that the Defendant stood to make a profit or a substantial benefit from this development, by virtue of the fact that she was the sole shareholder and director of Amadeus. The Defendant was the mind and will of that company.

119. Central to the Defendant's submissions is the issue of serviceability of the loan. The Plaintiff (through La Trobe) relied on certifications as to income provided by the Defendant. I am satisfied that all certifications as to income were provided with the full knowledge of the Defendant as to their contents. There is no relevant inconsistency between parts of the documentation provided by the Defendant.

120. Aspects of the Defendant's submissions come perilously close to an argument that a borrower may submit inaccurate or incomplete information to a lender (because that is what may serve the interests of the borrower) and that the lender is under a duty to investigate the documents provided by the borrower, despite the contents of the documents which have been furnished. I reject this submission.

121. I reject, as well, the Defendant's submission that the Manual required further investigation or the demand for further material (such as an accountant's letter). The evidence reveals that the Defendant had an accountant and a solicitor at the time of the application. Fairly read, the Manual is a guideline only and did not require the provision of an accountant's letter in support of an application. Nor did the Manual require anything more if an application involved the use of presales contracts. The evidence reveals that Mr Lawrence turned his mind to the Manual as guidelines, and that he satisfied himself with respect to the issues raised by the application, including serviceability, in a manner explained in his evidence (see [29]-[30] above).

122. I accept the submissions of the Plaintiff concerning s.9(2) factors to the following effect.

123. As to s.9(2)(a), there was no material inequality in bargaining power between the Plaintiff and the Defendant. The Defendant was a sophisticated and well-educated businessperson and company director, who had the services of a solicitor and accountant available to her.

124. As to s.9(2)(b) and (c), the loan contract was the subject of negotiation. The Defendant sought and was granted a split facility. She was provided with an indicative, and then a final letter of offer. In her application, the Defendant specifically requested a low-doc construction loan or lite-doc loan.

125. As to s.9(2)(d), there is no evidence that the loan agreement for $672,000.00 imposed conditions that were difficult for the Defendant to comply with, or were not reasonably necessary to protect the legitimate interests of the Plaintiff. The Defendant offered security over the Floraville property.

126. There is no evidence of asset lending such that the only means of securing a loan was to sell the property. As Allsop P observed in Fast Fix Loans Pty Limited v Samardzic [2011] NSWCA 260 at [43], "asset lending" is not a label or a legal frame of reference. It is a convenient expression to "describe a form of lending where the lender has little, if any, regard for the capacity of the borrower to repay and rests satisfied with the security to protect itself" . In my view, that is far removed from the circumstances of this case.

127. The Defendant stated that her income was $139,000.00 per year, which would have enabled her to service the loan. This case is entirely distinguishable from the type of case considered in Perpetual Trustees Australia Limited v Schmidt . Indeed, many of the principles relied upon by Forrest J in that case operate to support the Plaintiff in the resolution of the present case.

128. As to s.9(2)(e) and (f), there is no evidence that the Defendant was unable to protect her interests. The evidence is that she approached the Plaintiff by way of a mortgage broker, and had the services of a solicitor who acted for her on the presales contracts, as well as the services of an accountant.

129. I accept that the relative economic circumstances, educational background and literacy of the Defendant were good. In my view, the loan contract was easily intelligible.

130. As to s.9(2)(h) and (i), the loan contract recommended that the Defendant should obtain independent legal and financial advice. The loan contract would not have needed explanation to the Defendant. She had previous experience in lending and the use of low-doc loans.

131. As to s.9(2)(j), there is no evidence of undue influence, unfair pressure or unfair tactics being used by La Trobe or the Plaintiff. The Defendant applied for a loan, with La Trobe sending an indicative letter, and then a final letter of offer to the Defendant. Clearly, the Defendant took time to consider the contents of these documents before accepting them in writing.

132. The Defendant raised, in a general and unparticularised way, conversations which were said to have occurred with Mr Lawrence in which she said that she could not repay any part of the loan of $672,000.00. The Defendant had not included in her affidavits any specific conversation identified in time and using direct speech. There was, in effect, a general assertion of this type which was met (understandably) by a general denial by Mr Lawrence in his affidavit sworn 30 August 2011.

133. I do not accept the evidence of the Defendant that any statement was made to Mr Lawrence, prior to the completion of the loan transaction, that she could not repay any part of the loan. Indeed, at the time when the contract was entered into (that being the relevant time), the Defendant believed that the presales contracts would be completed. It was not until 2008 that these contracts fell through.

134. In my view, the contemporaneous documentation reflects the reality of what the Defendant was conveying to La Trobe at the time. It is apparent that, at some point after the entry into the contract, the Defendant was not able to meet the requirements of the loan and defaulted. Any discussions which occurred between her and any officer of La Trobe or the Plaintiff, after the contract was entered into, cannot assist her for the purpose of the claim for relief under the Contracts Review Act 1980 .

135. I am not satisfied on the balance of probabilities that the Defendant conveyed orally to Mr Lawrence, or any officer of La Trobe or the Plaintiff, prior to the entry into the contract, that there were problems with her servicing the loans which she sought to obtain.

136. Although the Defendant sought to rely, in various respects, upon the presales contracts for the units to be constructed on the Fassifern property, she did not tender the contracts in evidence. However, the cross-examination of the Defendant disclosed that:

(a) each presale contract was for sale of the unit for $395,000.00;

(b) the presales contracts were prepared for Amadeus by Mr Foteades, who was retained by the Defendant;

(c) the presales contracts were signed by the Defendant on or about 3 May 2007 as a director of the vendor, Amadeus;

(d) Special Condition 52 of the Contract for Sale in each case provided for a deposit of $5,000.00, and payment of a further $34,500.00 on the completion date, that date being the date of registration of the strata plan - when combined, these two deposit sums amounted to $39,500.00 per unit, being 10% of the sale price;

(e) the purchaser in each case was Reya Holdings Pty Limited - the purchaser and vendor of the units were both corporations so that there was no inequality in bargaining power;

(f) the contracts were unconditional in the sense that there was no contingency which the purchaser had to meet such as finance;

(g) at the time of the acceptance of the loan offer, the Defendant had no reason to believe that the purchaser would not proceed with settlement and the Defendant communicated no such belief to the Plaintiff prior to 30 May 2007.

137. I accept the Plaintiff's submission that the cumulative effect of this evidence (summarised in the preceding paragraph) is that the presales contracts were transactions of a commercial nature, created by an agent of a company of which the Defendant was the sole director and shareholder. The Defendant stood to make a personal gain from any profits Amadeus made from the unit development on the Fassifern property. It was her intention to continue property development, including the planned New Lambton project with a gross realisable value of $4.8 million (Exhibit SL1, page 97).

138. I accept that the Defendant's mind and will was that of the vendor company, Amadeus. She was the sole executive and owner of the company. The company's state of mind and knowledge of the presales contracts was therefore also that of the Defendant. I accept the Plaintiff's submission that the Defendant was not a victim of an unscrupulous or otherwise avoidable commercial arrangement with respect to the presales contracts. In reality, the Defendant had been party to the creation of the presales contracts.

139. I accept the submission of the Plaintiff that the loan offer dated 25 May 2007 for the $672,000.00 personal loan points to the presales contracts having little bearing on that matter. There is no reference to the presales contracts as a condition of that offer. As mentioned above (at [33]), the conditions of that offer involved provision of security over the Floraville property, discharge of a previous loan with Perpetual Trustees (Vic) Limited and cross-collaterisation of the Fassifern property loan. In contrast, the letter of offer for the advance to Amadeus (Exhibit A, page 9A) provided that the presales contracts were to be unconditional, and that this was established by solicitors acting for the Plaintiff as lender.

140. The ultimate relevance of the presales contracts to the personal loan was that they provided, in the words of Mr Lawrence, "a comfort factor" in the NDI serviceability calculator assessment (see [30] above).

141. I accept the Plaintiff's submission that, in any event, it was not foreseen by the Plaintiff or the Defendant that the purchaser of the Fassifern property would not proceed to settlement. Events after 30 May 2007 are irrelevant, and the subsequent failure of the contracts can have no bearing on this case.

142. I have made a number of findings which stand in the way of the Defendant establishing an entitlement to relief under s.7 Contracts Review Act 1980 .

143. Reference was made in submissions to a number of other decisions in this State under the Contracts Review Act 1980 , in particular, Elkofairi v Permanent Trustees Co Limited [2002] NSWCA 413; (2002) Aust Contracts Reports No. 90-157, Perpetual Trustee Company Limited v Khoshaba and Kowalczuk v Accom Finance Pty Limited [2008] NSWCA 343. These cases are far removed from the circumstances of the present case.

144. In Perpetual Trustee Company Limited v Khoshaba , the sum of $120,000.00 was lent to a couple with an income of $43,000.00 and a pension for immediate expenditure in a pyramid scheme. The lending was on the strength of the security alone and the lender was indifferent to the purpose of the borrowing. In the present case, the Defendant, as borrower, declared a substantial income of $139,000.00 per annum and disclosed presales contracts. The Plaintiff, as lender, satisfied itself of the purpose of the loan and serviceability. I am satisfied that the Plaintiff in this case was not indifferent to the purpose of the borrowing.

145. In Elkofairi v Permanent Trustees Co Limited , there was a substantial loan to a wife for the benefit of her husband. The wife had no income and the wife's only asset was the security property, being her home. The lender was aware of the absence of an income and was lending on the basis of a security. In the present case, the Defendant, as borrower, declared a substantial income and disclosed presales contracts. The lender satisfied itself as to the serviceability of the loan.

146. The Plaintiff submitted that the present case is closer to the circumstances in Riz v Perpetual Trustee Australia Limited [2007] NSWSC 1153; (2008) NSW Conv R No. 56-198. There, the plaintiffs borrowed $275,000.00 on the security of their home. Of this sum, $110,000.00 was applied to discharge an existing home loan with Citibank and $150,000.00 was invested in a commercial enterprise with Karl Suleman Enterprises, which later failed. The lender satisfied itself as to serviceability and was aware of the purpose of the loan (part for refinance and part for investment). Brereton J found at page 56,599 [85] that the lender's assessment of the loan application did not manifest the indifference that was crucial in Perpetual Trustee Company Limited v Khoshaba , and that the lender knew the purpose of the loan. In those circumstances, Brereton J observed that the lender could be regarded as "an innocent party" . This part of the findings of Brereton J was not appealed against, and was undisturbed by the Court of Appeal in its judgment in Dominic v Riz [2009] NSWCA 216.

147. Mr Combe submitted that the reasoning of Brereton J at pages 56,598-56,599 [83]-[88] rejecting the claim under the Contracts Review Act 1980 was applicable here. I accept that the reasoning in Riz v Perpetual Trustee Australia Limited may be utilised in a manner which assists the Plaintiff in the present case.

148. In reaching this conclusion, I have kept in mind that there is no requirement upon the Defendant to establish a degree of moral obloquy on the part of the lender: Fast Fix Loans Pty Limited v Samardzic at [50]. To frame unjustness under the Contracts Review Act 1980 in terms of "innocence" of the other party, is to misdirect the enquiry under the Act, which requires an "overall evaluation in determining both unjustness and the justness of granting relief, which involves a consideration of all the relevant circumstances of the case": Fast Fix Loans Pty Limited v Samardzic at [50]. The Defendant has not established unjustness in this case.

149. I do not consider that anything said in Perpetual Trustees Australia Limited v Schmidt assists the Defendant in this case. The present case is not one of asset lending in any sense of the word. The Defendant certified her income and made statements to La Trobe to demonstrate serviceability of the loan. The Plaintiff and La Trobe were entitled to rely upon the material being advanced by the Defendant as part of the application. There was no material inconsistency in any of the documents advanced in support of the application.

150. The monies were advanced to the Defendant but thereafter, the sale of the units did not proceed. These later events do not assist the Defendant to avoid compliance with her obligations under the loan and mortgage arrangement entered into by her with the Plaintiff.

151. I am entirely unpersuaded that any basis has been demonstrated for the Defendant to obtain relief under the Contracts Review Act 1980 .

Conclusion

152. The Plaintiff has demonstrated an entitlement to relief as sought in the Statement of Claim. The Defendant has not established any basis to avoid the relief sought by the Plaintiff, in whole or in part.

153. I have mentioned earlier (at [108]) the Defendant's complaint concerning what were described as unreasonable fees and charges, as evidenced on the loan account statements. The loan account statements form part of the evidence before the Court. They were not objected to by the Defendant, and the Defendant did not seek to cross-examine Mr Lawrence, Mr Lake of Ms Polczynski concerning those matters.

154. The Defendant did not make any submission in support of that complaint. In the course of her closing submissions, I asked the Defendant if she wished to say anything in response to Mr Combe's submission that, if the Plaintiff succeeded, there ought be judgment for possession of the Floraville property and judgment against her in the sum of $1,043,329.00 as particularised in the affidavit of Ms Polczynski and calculated up to 4 November 2011. The Defendant did not wish to say anything by way of submission with respect to that issue (T174-175).

155. The loan activity statements record a history of occasional payments, dishonoured payments and the charging of interest and fees over the history of the loans. It is the case that a substantial sum is now being sought by way of judgment against the Defendant when measured against the principal of $672,000.00 advanced in 2007. However, this is largely the consequence of the Defendant ceasing to make payments, associated with the extended delay in the proceedings coming to hearing, given the protracted interlocutory history of the matter since December 2008. The loan contract provided for interest and charges. Significant default, associated with a lengthy delay in the hearing coming on, will lead inevitably to a substantially increased level of indebtedness to be reflected in the judgment given against the Defendant.

156. I am satisfied that the orders sought by the Plaintiff should be made.

157. I propose to make orders to the following effect:

(a) judgment for the Plaintiff for possession of the land comprised in Folio Identifier 11/237013 being the land situate at and known as 6 Harold Street, Floraville, New South Wales 2280;

(b) judgment for the Plaintiff against the Defendant in the sum of $1,043,329.00, calculated as at 4 November 2011;

(c) writ of possession for the Floraville property is to issue forthwith;

(d) the Defendant is to pay the Plaintiff's costs of the proceedings.

158. I will grant leave to the Plaintiff to bring in short minutes of order to give effect to this judgment and to incorporate the quantum of the monetary judgment calculated as at today's date.

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