Bank of Queensland Ltd v Dutta - [2010] NSWSC 574

No judgment structure available for this case.

CITATION: Bank of Queensland Ltd v Dutta [2010] NSWSC 574

HEARING DATE(S): 17-20 May 2010

JUDGMENT DATE :
30 July 2010

JURISDICTION: POSSESSION LIST

JUDGMENT OF: Davies J

DECISION: (1) The Bank is entitled to possession of the Pymble property and to a judgment for the appropriate sum outstanding. (2) The Plaintiff should bring in Short Minutes of Order to reflect these reasons.

CATCHWORDS: CONTRACTS - unjust contracts - borrowers obtained 3 loans partly to refinance existing loan - false and misleading information provided to lender by borrowers - whether lender under obligation to advise borrowers about serviceability problems - borrowers not vulnerable persons - borrowers fully aware of their financial position - whether funds borrowed predominantly for personal, domestic or household purposes - appropriate test to be applied - whether test differs because false purposes stated by borrowers - failure of lender to obtain valid Business Purpose Declarations - whether lender engaged in asset-based lending - failure of lender to follow lending Guidelines and Banking Code strictly - failure to serve s 80 notice - whether proceedings should be dismissed for such failure.

LEGISLATION CITED: Contracts Review Act 1980
Credit (Home Finance Contracts) Act 1984
Trade Practices Act 1974 (Cth)
Uniform Consumer Credit Code

CATEGORY: Principal judgment

CASES CITED: Bahadori v Permanent Mortgages Pty Ltd [2008] NSWCA 150
Beckley v Consumer, Trader and Tenancy Tribunal [2009] NSWSC 703
Beneficial Finance Corporation v Karavas (1991) 23 NSWLR 256
Benjamin v Ashikian [2007] NSWSC 735
Berowra Holdings Pty Ltd v Gordon (2006) 225 CLR 364
Bunberry Foods Pty Ltd v National Bank of Australasia Ltd (1984) 153 CLR 491
Citicorp Australia Ltd v O’Brien (1996) 40 NSWLR 398
Collier v Moreland Finance Corporation (Victoria) Pty Ltd (unreported – Court of Appeal – 21 April 1989)
Dale v Nichols Constructions Pty Ltd [2003] QDC 453
David v David [2009] NSWCA 8
Dominic v Riz [2009] NSWCA 216
Emanuele v Australian Securities Commission (1997) 188 CLR 114
First Mortgage Managed Investments Ltd v Oberlechner [2006] NSWSC 1397
Graham v Aluma Lite Pty Ltd (1996) 39 NSWLR 58
Hamafam Pty Ltd v Saadullah [2007] NSWSC 818
Jonsson v Arkway Pty Ltd [2003] NSWSC 815
Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343
Linkenholt Pty Ltd v Quirk [2000] VSC 166
Mir Bros Projects Pty Ltd v 1924 Pty Ltd [1980] 2 NSWLR 907
Park Ave Nominees Pty Ltd v Boon [2001] NSWSC 700
Permanent Mortgages Pty Ltd v Cook [2006] NSWSC 1104
Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41
Perpetual Trustees Victoria Ltd v English [2009] NSWSC 478
Plowman v Palmer (1914) 18 CLR 339
Rafiqi v Wacal Investments Pty Ltd (1998) ASC 155-024
Shakespeare Haney Securities Ltd v Crawford [2009] QCA 85
Smith v Elders Rural Finance Ltd (unreported – Bryson J – 25 November 1994)
West v AGC (Advances) Ltd (1986) 5 NSWLR 610
Woods v Bate (1986) 7 NSWLR 560

PARTIES: Bank of Queensland Ltd (Plaintiff)
Swarup Dutta (First Defendant)
Sumitra Dutta (Second Defendant)

FILE NUMBER(S): SC 2008/283060

COUNSEL: S Couper QC & D Sulan (Plaintiff)
In person (Defendants)

SOLICITORS: HWL Ebsworth (Plaintiff)

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION
POSSESSION LIST

DAVIES J

30 JULY 2010

2008/283060 BANK OF QUEENSLAND LTD V DUTTA & ANOR

JUDGMENT

1 Mr and Mrs Dutta entered into 3 loan agreements with the Bank of Queensland. The first was on 30 May 2005 and was a housing loan for $850,000. The second was a Line of Credit advanced pursuant to an agreement signed 2 June 2005 for the sum of $270,000. The third was an extension of the Line of Credit by a further $162,000 by an agreement signed on 3 May 2006.

2 Mr and Mrs Dutta have defaulted under those Agreements and the Bank now seeks to obtain possession of a property at 12 Mayfield Avenue, Pymble that was provided in security for the loans.

3 Mr and Mrs Dutta defend the claim on a number of bases. First, they say that the loans were governed by the Consumer Credit Code and that there was a failure to serve a s 80 Notice thereby invalidating the proceedings. Secondly, they say that the Agreements were unjust within the meaning of both the Code and the Contracts Review Act 1980. Finally, the Defendants say the Memorandum containing the terms of the mortgage was never provided to the Defendants but in any event the terms of the Memorandum do not bind the Defendants in the sense that the borrowed money is not secured by these terms.

4 The Defendants also filed a cross-claim against the Bank seeking declarations and orders concerning the assertion that the contract was unjust within both the Code and the CRA and also seeking an order under s 87 Trade Practices Act 1974 (Cth) declaring the whole or any part of the loan contracts to be void.

5 Mr and Mrs Dutta assert also that they only applied for 1 loan in May 2005 but say that the Bank divided that loan into 2 parts, one being a home loan to pay out the existing mortgage on the Pymble property and the other to provide general funds to them to live since they had moved to Melbourne. The significance of this was never made clear.

Background

6 At the time when Mr and Mrs Dutta first came into contact with the Bank at the Hampton Branch in Melbourne they owned 2 properties. The first was their former home at 12 Mayfield Avenue, Pymble. The second was a property at Lawrence Hargrave Drive, Coalcliff, NSW.

7 Mr Dutta ran a business called Planit Organiser through a company called Outback Designers Pty Ltd. Mr and Mrs Dutta were the Directors of that Company which apparently made personal organisers in Australia and exported them to the USA and New Zealand.

8 In about May or June 2004 Mr and Mrs Dutta moved to Melbourne and rented out the property at Pymble. They kept the property at Coalcliff as their Sydney base where they stayed if they were coming to Sydney.

9 Much of the detail of what transpired to bring about the loan agreements was disputed between the Defendants and Ms Merta, the Branch Manager of the Hampton Branch of the Bank who dealt with the Defendants. It will be necessary to return to this detail at a later point. At the present time it is sufficient to say that Mr Dutta found his way to the Hampton Branch of the Bank, which had recently opened, sometime in May 2005. It was ultimately agreed between him and Ms Merta that the Defendants would refinance the existing loan over the Pymble property and that the amounts that they borrowed would exceed what was needed simply to pay out the existing mortgage. Mr Dutta filled out some of the loan Application but Ms Merta filled out other parts of it while Mr Dutta observed her. Mr Dutta took the form home so that his wife could sign it. He is not sure if he signed it at the Bank or at home later.

10 When Ms Merta initially entered the details in the Bank’s system she entered it as an investment property loan and not as a Line of Credit facility. She realised that this was a mistake at the time when the various documents arrived from Head Office for signing. The loan for $270,000 was then altered so that it became a Line of Credit rather than an investment property loan.

11 Subsequently the Bank received a valuation of the Pymble property from a valuer, David Ward-Smith, who assessed the value at $1.6 to $1.7 million. On the basis of that valuation the Bank sent 2 sets of loan approval letters to the Defendants, one set to each of them, offering a home loan of $850,000 and what was described as a Secured Overdraft of $270,000. This has been described elsewhere and more frequently as a Line of Credit. Each of the letters contained a number of attached documents one of which was described as “The Consumer Lending General Conditions” and another was a form of the mortgage. These documents assumed considerable importance in the defences that the Defendants sought to raise to the claim. I shall return to their significance presently.

12 It appears that the mortgage sent out with these sets of documents was signed by the Defendants, but it was later realised by the Bank that the wrong mortgage had been used. It would appear from Ms Merta’s evidence that the Bank did not use a New South Wales mortgage but, probably, a Victorian one. After the Bank realised that a New South Wales property was involved and that a New South Wales mortgage was necessary it obtained the signatures of the Defendants to the proper mortgage in July 2005 after the settlement of the loan. This was a matter emphasised by Mr Dutta and it will be necessary to return to it in due course.

13 The Defendants accept that the Business Purposes Declaration for the purposes of the Consumer Credit Code was signed although they do not recall signing it. The Declaration is not able to be relied upon, and the Bank does not seek to do so, for the purposes of s 11 of the Code because it is not dated. However, the Bank asserts it has an evidentiary value in providing an admission on the part of the Defendants that the loan was made for business purposes.

14 In May 2006 the Line of Credit was varied to provide a further $162,000 to the Defendants. There is considerable dispute about how and why this occurred but the Defendants do not dispute that they signed the necessary documents that resulted in the further advance to them.

15 The Defendants do not dispute that default was made under the loans in about November/December 2007. The Defendants say that that was because of financial difficulties and the deterioration in the health of Mr Dutta. The Defendants applied to the Plaintiff to vary the loan arrangements but this was not agreed to and the proceedings were ultimately commenced.

16 Because the Defendants admit the default and because they accept that they are obliged to pay to the Plaintiff the sum of $850,000, presumably on the basis of the principle referred to in Collier v Moreland Finance Corporation (Victoria) Pty Ltd (unreported – Court of Appeal – 21 April 1989 at p14), the Bank has, prima facie, established its right to an order for possession of the land.

17 The Defendants did not acknowledge that they had to pay the sum of $850,000 until final submissions but, in any event, the matter proceeded generally on the issues raised by the Defendants’ defence and cross-claim that I have identified at the beginning of this judgment.

Defendants’ assertions

18 What I have set out above contains the matters which were not disputed between the parties. A great deal more factual material was put forward by both parties and it will be necessary to make factual findings in relation to that material. So that the factual findings can be properly understood and their relevance seen, it is important, in the first instance, to set out what it is about the contracts that the Defendants assert were unjust whether for the purposes of the Code or the CRA or both.

19 First, and principally, the Defendants claimed that the Bank knew that the Defendants would not be able to service the loans and, therefore, should not have entered into the arrangements with the Defendants. Associated with this is the claim that the Bank engaged in asset-based lending and breached its lending guidelines and the Banking Code of Conduct. Secondly, it was said that the Bank discouraged the Defendants from seeking legal advice before they entered into the loan agreements. Thirdly, it was said that there was undue pressure put on the Defendants, principally because on 2 occasions Ms Merta offered to bring the documents to their home in Melbourne for signing.

20 Other matters to note concerned with the other defences and claims, are these. First, the Defendants say that the loans are governed by the Code because they were for personal use and that that was known to the Bank’s representatives, notwithstanding the non-enforceable Declarations which the Defendants signed. Secondly, the mortgage is said not to bind the Defendants both because of its true construction and also because the Memorandum incorporated into the mortgage was never provided to the Defendants before they entered into the loans.

Assessment of witnesses

21 The disputed issues of fact in the case were, as I have noted, essentially between Ms Merta and Mr Dutta. Although Mr Dutta required 3 other deponents for cross-examination, including the Plaintiff’s solicitor Mr Schneider, there was no real challenge to their evidence. Indeed, even though Ms Merta was cross-examined at slightly greater length, it seemed only to be for the purposes of getting some admissions to matters which were otherwise made plain by documents in any event. Ms Merta was not challenged by Mr Dutta as to the factual differences between them contained in their respective affidavits. Nevertheless, I bear in mind that Mr and Mrs Dutta were not legally represented, and it is clear from a reading of their affidavits that issue was joined between them in relation to most or all of those factual differences. I certainly do not propose to decide this case on the basis that Mr Dutta failed to put particular factual matters to Ms Merta to comply with Browne v Dunn.

22 Even though the Defendants were not legally represented, and even though it is clear Mrs Dutta played a minor role in the mattter, there is some significance in the fact that she did not swear an affidavit in the matter nor give any evidence.

23 Mr Dutta was cross-examined at considerable length by Mr Couper of senior counsel for the Plaintiff. I found Mr Dutta to be an unsatisfactory witness who, on a number of occasions, was not prepared to answer questions put to him in the sense that the answers were non-responsive, and whose evidence on many occasions sat very uneasily with contemporaneous documentary material. In some respects he gave untruthful evidence as he himself ultimately accepted. I will deal with specific instances of inconsistent and unsatisfactory evidence as they arise in the narrative which follows. The result is that where there is a dispute between the evidence of Ms Merta and Mr Dutta I generally prefer the evidence of Ms Merta.

24 In the light of those matters I will now set out my findings in relation to the disputed histories of the events given by Ms Merta and Mr Dutta.

The loans of 2005

25 Mr Dutta went into the Hampton Branch of the Bank and introduced himself to Ms Merta. He told her that he was paying a high interest rate with his existing lender, the National Australia Bank, and he wanted to refinance. He told her that the State Government had rezoned the area in which his house was situated for 3-5 level multi-storey apartments, and he was looking to do a 10 apartment complex development on the site. He said he wanted $850,000 to refinance the existing loan and a further $270,00 as a Line of Credit so he could start the approval and development process for the apartment project. He provided her with some documents showing the proposed development.

26 It was put to Mr Dutta that when he first met Ms Merta he wanted to borrow $850,000 to refinance the GE Capital loan on the Pymble property and a further $270,000 to develop the property into units as a result of the rezoning. On the first day of the hearing he gave the following evidence:

Q. And what you told Ms Merta was that you wished to take steps to obtain a development approval for a development of this type that is perhaps eight to ten units on this site, correct?
A. Yes.

Q. And you told her you needed $270,000 to achieve that object, didn't you?
A. No.

Q. Do you say you told Ms Merta you wanted $270,000 to buy food and to pay rent?
A. I said for personal expenses.

Q. Do you say you told Ms Merta you wanted $270,000 to buy food and pay rent?
A. Personal expenses is food and rent, as far as I am concerned.

Q. Well, I will ask you this question: did you say to Ms Merta, "I need this money to buy food"?
A. No.

Q. Did you say to Ms Merta, "I need $270,000 to pay rent"?
A. I would have said rent, but not all of it was rent.

Q. And what was the financial sense, Mr Dutta, in borrowing $270,000 to buy food and pay rent?
A. Well, I had expenses. I had moved to Melbourne by - do you want me to explain or give a yes or no answer.

Q. You give the explanation?
A. Yes, I did. I moved. My money was drying up, whatever resources I had from the GE line of credit. My rents were - would have to be paid, as would be my mortgage, and I said, you know, that's what I require for personal expenses.

27 This was at least initially consistent with what he said he had asked the National Australia Bank to provide in April 2005 as follows:

Q. And your application to the National Australia Bank in April, Mr Dutta, was in two parts, can I suggest to you. One was to refinance your existing loan from GE Capital on the Pymble property, and the second was to borrow a further $270,000, correct?
A. That was the discussion, yes.

Q. And the purpose of borrowing an extra $270,000 was to develop the Pymble property, was it not?
A. No.

Q. What was the purpose the extra $270,000?
A. The purpose of the $270,000 was to pay for my expenses, Mr Couper, and the bank said they will not pay for expenses unless there was some security or something tangible, and that is why I showed that this could be possible in the event that one has to sell the property.

Q. When you say pay for expenses, do you mean pay for the expenses of taking steps towards obtaining a development approval for this land?
A. Expenses to pay for the rent, food, and so on in Melbourne.

Q. You say that your application to the National Australia Bank to borrow $270,000 was for the purpose of paying rent and buying food, is that right?
A. That's what I told them verbally, not - I did not fill up an application and said, this is what we require, we move to Melbourne, we need some money.

Q. When had you moved to Melbourne, Mr Dutta?
A. 2004 or five. Four, because - four.

Q. Your affidavit tells us it was in April 2004. Is that right?
A. Yes, that's correct.

Q. So you had been in Melbourne for a year by the time you applied to the National Australia Bank for a loan, is that right?
A. Correct.

Q. And for a bit more than a year when you first spoke to Ms Merta, is that right?
A. I am sorry.

28 The following day he asserted that when he first saw Ms Merta he simply asked for the $850,000 to refinance the GE Capital loan. He gave the following evidence:

Q. Yes, I will ask you again. Is it your evidence that when you first applied for a loan to the Bank of Queensland in May 2005, you asked only for a loan sufficient to pay out the debt to GE on the Pymble property?
A. That was my first assumption, yes.

Q. And do you say that's what you asked for?
A. And Miss Merta said if there was an increase, that could be used for the other purpose and I accepted that.

Q. So your evidence is that you asked for a loan of $850,000, is that right?
A. Refinance, yes.

Q. Refinance. You say Miss Merta told you she could get you more than that, is that right?
A. If she had a satisfactory valuation, yes.

Q. She didn't tell you how much more she could get, is that right?
A. That's correct.

Q. You didn't ask for any more, you say?
A. That is right.

Q. And do you say the first time you found out that you were going to be lent more than $850,000 was when you got an approval letter some weeks later?

A. That's correct.

Q. If that's the case, at what stage do you say you told Miss Merta that you needed the additional advance for paying personal expenses?
A. When I first met her, that I was looking for additional money for my personal expenses.

29 Quite inconsistently, and within 15 minutes of giving that evidence Mr Dutta said the following:

30 When it was put to Mr Dutta that he had sought the amount of $270,000 from the National Australia Bank just a short time before, he endeavoured to back away from the evidence he had given the previous day which I have set out earlier, in this way:

Q. I will ask you my question again. Please answer it. You nominated to the National Australia Bank that the additional sum you wanted was $270,000 didn't you?
A. I would have said, "I would like more money". I can't remember exactly what amount.

31 It is also of some significance that when Mr Dutta answered the assertion in Ms Merta’s affidavit where she recorded Mr Dutta as saying he wanted $270,000 as a Line of Credit so he could start the approval and development process for the apartment project, Mr Dutta did not deny that but said only that at that time he did not have knowledge of the funds that he would require to start the approval and development process. The inference I draw is that he did inform Ms Merta that he wanted extra money to spend on the approval and development process.

32 I reject Mr Dutta’s evidence that he did not seek more than to refinance the $850,000 GE loan over the Pymble property and that it was Ms Merta who suggested he borrow more. The application to the National Australia Bank for the additional $270,000 only a month before is strong evidence against what Mr Dutta now asserts. The position is further strengthened by a document showing that in February 2005 Mr Dutta had sought to borrow $280,000 from the ANZ Banking Group.

33 I also reject Mr Dutta’s evidence that he told Ms Merta that he needed additional monies to pay for personal expenses, whatever precise language he said he used. Whether or not he truly intended to develop the Pymble property, I find that he told Ms Merta that he required an extra $270,000 so he could start the approval and development process. His evidence that he was not able to develop the Pymble land in isolation from the surrounding blocks does not appear to be consistent with the documentary material he provided to Ms Merta. His assertion that the words “en globo” (in the valuation the Bank obtained) was a reference to his land and the surrounding lands, as providing an explanation that he could not develop his own land without those other parcels, had little ring of veracity about it.

34 There is every chance that Mr Dutta was really endeavouring to obtain extra funds for his living expenses, as he constantly asserted, because he appeared to have been living beyond his means (a matter to which I shall return presently) but I find that he did not inform Ms Merta of that desire, probably because he realised that the Bank was unlikely to lend him money for that purpose.

35 Mr Dutta did not provide accurate information to the Bank either at the time he applied for the original loans nor at the time he applied for the increase in 2006. The Consumer Lending Application signed by Mr and Mrs Dutta on 5 May 2005 is inaccurate in a number of respects. Mr Dutta claimed that he only filled out some of the information in that document, notably the section headed “Applicant Details” on the second page of the Application and the address of the Coalcliff property with its mortgagee’s name, the amount owing to that mortgagee and the statement that that property was to be sold shortly. Everything else is said to be Ms Merta’s handwriting but it was completed whilst Mr Dutta provided the information to her and looked over her shoulder as she wrote it, as he accepted.

36 Information that was not contained on the form included the facts that Mr Dutta had a BMW motorcar in respect of which he paid leasing charges of $1400 per month, that he had 2 further credit cardsbeing another Visa Card and a Master Card, that he was renting premises at a cost of $6,700 per month and (probably) that the Pymble property had ceased to be rented or was about to become vacant.

37 His evidence about the BMW showed prevarication. He gave this evidence about it:

Q. What you did not tell Miss Merta was that there was a second car, a BMW 5 Series for which you had to pay $1,400 per month, correct?
A. Miss Merta knew there was a BMW because I parked the car in front of her bank, but I did not tell her - I did tell her, but she didn't put it.

Q. Which of those things are you going to say is the truth Mr Dutta? You did not tell her?
A. No, I did tell her that I had a BMW.

Q. Did you tell her how much per month?
A. She never asked me and I never said anything.

Q. I take it the entry about the Golf came up because she was asking you about what vehicles you owned and whether they were leased or hire purchased and how much was owing on them, correct?
A. That would have been my conclusion, yes.

Q. Well, that's how the Golf came up, wasn't it, she asked you, "Tell me about motor vehicles. What are they? How much do you owe on them? What are the monthly payments?" Correct?
A. No, she would have said, "Do you have any motor vehicles?" I said "Yes, a Golf and a BMW" and she put the Golf details down and did not put the BMW.

Q. And you say that having asked you about vehicles, when you told her there were two, she chose for her own purposes to include one and ignore the other, is that right?
A. That was her decision. It looks like she has made some entries and she decided not to; the same as the credit cards.

Q. But you didn't tell her, in response to her questions about vehicles, that the BMW was costing you $1,400 a month, is that right?
A. No, I don't recall saying that.

Q. Mr Dutta, that is simply untrue, isn't it? You did not mention a BMW or any liability in respect of a BMW when speaking to Miss Merta about completing this form, correct?
A. I did tell her that I had a BMW. The car used to be parked in front of her grounds, because I used to live very close by to her branch.

38 He also admitted noticing that the references to the BMW and the extra credit cards were missing from the form because he read that page after Ms Merta filled it in. He was then asked about that and gave this evidence:

Q. Do you say you made any comment about the inaccuracy of the form at that time?
A. Miss Merta said that's what she would like to fill in and I left it at that.

39 I reject Mr Dutta’s evidence to the extent that it implies he gave Ms Merta all the necessary information about himself and his wife but that she chose to omit certain matters when she filled out the application form. In any event, Mr and Mrs Dutta had signed the form and Mr Dutta knew it was going forward containing those signatures with missing or inaccurate information.

40 His evidence about when the Pymble property ceased to be rented was most unsatisfactory. He referred first to the lease being for about 12 months but the tenant not paying the rent. Although he claimed to have an uncertain memory about when the rent ceased to be paid, he agreed that by April 2006 the rent would probably have ceased, and when it was put to him that he did not bother telling Ms Merta in April 2006 that the Pymble property was no longer rented he said:

I don't believe she asked me the question.

41 Mr Dutta’s provision of documents purporting to be his tax returns to Ms Merta was a further indication of his lack of frankness towards her and the Bank. Putting to one side inferences that might be drawn about his failure to comply with his tax obligations either by submitting tax returns or paying tax since 2003, and inferences that might be available from his claimed inability to remember precisely when it was he ceased lodging tax returns and why that was so, it was clear from his evidence that he provided copies of documents to Ms Merta and the Bank that on their face appeared to be tax returns or intended tax returns with the intention that the Bank would believe that they were copies of his tax returns.

42 In that regard he gave this evidence:

Q. Just look at 705 and 706 [these were pages in the Court Book exhibit A]. This is a document which you provided to Ms Merta as a copy of your 2004 income tax return, is that right?
A. I was asked to provide some documentation and that is what I provided, yes.

Q. And did you intend Ms Merta to understand that this was a copy of your 2004 income tax return?
A. She would have come to that conclusion, that this was in preparation of the income tax.

Q. Is this document in fact a copy of your 2004 income tax return?
A. That's the only document I have that says 2004 document.

Q. I will ask you my question again. Please listen to it and answer it. Is this document a copy of your 2004 income tax return?
A. This is a document that was prepared for the income tax return for the year 2004, yes.

Q. Did you lodge an income tax return for 2004?
A. I did instruct my accountant to do that, and that's what I - that's the only document that was prepared for 2004.

Q. Did you lodge an income tax return for 2004?
A. I cannot recall, probably not.

Q. Is it the case that you have not lodged income tax returns for 2004 or any subsequent year?
A. That's correct.

Q. How long has it been since you last lodged an income tax return?
A. Soon after that stage the company went in liquidation and I cannot speak about our income tax position because the company went into liquidation.

Q. When was the last time you lodged an income tax return?
A. I cannot recall, maybe 2003 or 2004.

Q. You just told me you didn't lodge an income tax return in 2004?
A. Yes, so 2003, probably.

Q. Have you ever lodged an income tax return?
A. Of course.

Q. Well, this document then, can we be clear, that whatever it is, it is not a copy of a 2004 income tax return lodged by you?
A. That was a document prepared on the information that I had.

Q. Whatever it was, it is not a copy of an income tax return which you lodged, is it?
A. Yes.

Q. Sorry?
A. It is not.

43 He was then asked about the company tax return for Outback Designers Pty Ltd. He gave this evidence:

Q. You gave this document at 723 through to 726 to Ms Merta wishing her to understand this was a copy of the 2004 income tax return for Outback Designers, correct?
A. No. She asked me have I got any documentation for the company and myself. I said that's what I've got and I gave it.

Q. And you intended her to think this was a copy of the 2004 income tax return for that company, didn't you?
A. No, this was the document that was available, and that's what I provided and there was nothing available for 2005 and I told her there was nothing available for 2005.

Q. We are talking about your communication with Ms Merta in May 2005?
A. Yes.

Q. You were asked for income tax returns for yourself and Mrs Dutta and the company Outback Designers and this is one of the documents which you provided to Ms Merta in response to that request?
A. That's correct.

Q. And you intended her to believe this was a copy of the 2004 income tax return for Outback Designers?
A. I expected her to believe that was documentation prepared on the profit and loss statement that I had already given her. She wanted something independent of my profit and loss statement.

Q. You didn't say "this is not a copy of the company tax return"?
A. No.

Q. You certainly didn't say to her "the company has not lodged a 2004 tax return"?
A. I don't recall saying that.

Q. You didn't say to her "the company has no intention of lodging its 2004 tax return", did you?
A. I did not say that at all. I had given instructions to my accountant to lodge the tax returns.

HIS HONOUR

Q. But you knew that Ms Merta would believe this was the company tax return for 2004 for the company, didn't you?
A. Ms Merta asked me to provide her something which shows what kind of income the company would have been earning, and I said that's all I have.

Q. But you knew she would think that was the company's tax return because it is headed "company tax return 2004" and it had the company's name on it?
A. That's correct.

44 Mr Dutta made it clear that he did this because he realised that there was a good chance he would not get a loan from the Bank if the Bank knew that tax returns had not been lodged. He gave this evidence:

COUPER

Q. You understood that if you disclosed to Ms Merta that neither you, Mrs Dutta nor the company had put in any tax returns for the 2004 financial year the chances were you would not get a loan from the Bank of Queensland; you knew that, didn't you?
A. One of the conditions of the lending policy says that we have to produce a tax assessment. She didn't ask for it and I didn't provide it either, so she knew there was no evidence of that.

Q. I will ask you my question again, Mr Dutta. Please listen to it and answer it. You knew that if you told Ms Merta that neither you nor Mrs Dutta or Outback Designers had lodged a tax return for the 2004 year that the chances were that you would not get a loan from the Bank of Queensland, didn't you?
A. Ms Merta did not ask me for a tax's assessment as she should have. That is all I gave her, and that's where we kept it at.

HIS HONOUR

Q. That is not an answer to Mr Couper's question?
A. Okay, no.

COUPER

Q. Let us be clear, are you agreeing with me that you knew that if you told Ms Merta that you had not lodged a tax return for yourself, your wife or your company that the chances were you would not get a loan from the Bank of Queensland?
A. Can you say that - ask the question again, please.

Q. You knew this, Mr Dutta, that if you told Ms Merta that you had not lodged a tax return for yourself, Mrs Dutta or the company that the chances were that you would not get a loan from the Bank of Queensland?
A. That would be a possibility, yes.

Q. That is what you understood, wasn't it?
A. I was asked to provide the documents that I provided.

Q. And you knew you were asked to provide the documents because the bank wanted to see them before deciding to make a loan?
A. That's correct.

Q. So you decided to deceive Ms Merta by pretending that these were in fact copies of tax returns for you, your wife and the company, correct?
A. No, I did not deceive her. I did not say they were lodged. They were copies. I did not provide assessment either.

HIS HONOUR

Q. But you agreed with that, that Ms Merta would have believed that was the company's tax return at page 723?
A. Ms Merta should have asked me "also could I have a look at the assessment" and she did not, and she was obliged to ask the question according to the credit policy. That would have eliminated any doubt on any party.

Q. You could have eliminated any doubt by telling her that you hadn't lodged them, couldn't you?
A. I could have.

45 I find that Mr Dutta provided documents that purported to be copies of tax returns for himself and his Company (but were not) to Ms Merta knowing that she would believe that they were copies of tax returns that had been lodged, and intending her to believe that.

46 I find that Mr Dutta provided the misleading and false information to Ms Merta in an endeavour to obtain the loan funds that he needed for his business and his family to survive. I shall return to this matter when discussing the Defendants’ complaint that they ought to have been advised by the Bank that they could not service the loan.

47 I mentioned earlier that the letters of offer from the Bank, which were dated 26 May 2005 and 1 June 2005, attached what were described as Consumer Lending General Conditions. In his affidavit Mr Dutta swore “no memorandum or loan terms and conditions were given to me by the Plaintiff”. It became clear that, in making that statement, Mr Dutta was, in part, seeking to distinguish between 2 documents. One was a document headed “Memorandum” which was, strictly, a registered dealing lodged at the Department of Lands, Land and Property Information Division, and given number AA170454D. This document, apart from the first page which was the registrable form of Memorandum, contained behind it a document headed “Real Property Mortgage General Conditions’’. Those conditions are all the usual conditions which apply to Bank of Queensland mortgages and take the form of a standard Memorandum lodged with the LPI, a procedure to which most banks and regular lenders adhere. I accept that the Defendants may not have been provided with a copy of that Memorandum.

48 There was another document also entitled “Real Property Mortgage General Conditions’’ by the Bank of Queensland. These general conditions were identical to the general conditions attached to the Memorandum. On the second page they contained the registered numbers in each State and Territory of the Commonwealth relevant to the lodged Memoranda. This document contained the registered number of the Memorandum in respect of New South Wales. The 2 documents differed only in their cover pages and in the layout of their list of contents. The list of contents and the conditions themselves were identical in the 2 documents.

49 Mr Dutta ultimately admitted to having received the second of these 2 documents that I have described. His statement in his affidavit that no loan terms and conditions were given to him by the Plaintiff was untrue.

50 The settlement of the home loan took place in early June 2005 with $842,850.18 being used to pay out the investments to GE Mortgage Investments Pty Ltd. The surplus funds of $7,149.82 was credited to the Defendants’ account with the Plaintiffs although an amount for loan fees was deducted.

51 At about the same time the facility of the Line of Credit of $270,000 was put in place and on 9 June 2005 the Defendants were notified that they could draw from that line of credit.

The increased facility - 2006

52 Ms Merta, in her affidavits, gave evidence that in April 2006 the Defendants submitted an application form to the Bank seeking an increase of $162,000 in their business Line of Credit facility. She says that she is now unable to locate the application form. Mr Dutta denies that any such application form was submitted and denies that he ever sought an increase of $162,000. Rather, he says that in April 2006 he contacted Ms Merta by telephone and email requesting a temporary overdraft of $20,000 to be used for business purposes.

53 The request in April 2006, whether for $20,000 or $162,000, cannot be viewed in isolation from a series of emails forwarded by Mr Dutta from October 2005.

54 On 15 October 2005 Mr Dutta sent an email to Ms Merta saying that he and his wife were looking to buy an investment property in Brighton in Melbourne. The asking price was $1.7m and the rent on the property was $93,600 per annum. Ms Merta replied by asking if the Sydney property (by which it seems she was likely to have meant the property in Coalcliff) had been sold. That was the property Mr Dutta had told the Bank he was intending to sell and about which he had written on the May 2005 Loan Application “Property to be sold shortly”.

55 A few days later Mr Dutta sent an email to Ms Merta headed “Refinance of our absolute oceanfront property at 209 Lawrence Hargrave Drive, Coalcliff, NSW” which asked if the Sydney valuer could value that property before they made application to borrow for the Brighton property.

56 At about the same time it seems that the Defendants made a loan application to Colonial through a broker known as The Mortgage Store. It is not quite clear what the purpose of the loan was but one may infer from some indications on the documents that it was to refinance the Bluestone Mortgage over Coalcliff. That inference is available because in the section where properties were listed with amounts owing the box headed “to cease” was ticked in respect of the Bluestone mortgage. The amount owing was said to be $970,000 but the loan being sought was $1,360,000.

57 Significantly, this document on the very page signed by Mr and Mrs Dutta stated that the gross taxable income of the Applicants was $477,536.40. However, in another document produced on subpoena by the Mortgage Store it was said that the Defendants were seeking finance approval to purchase an investment property for $1.7m with the funds to complete coming from the sale of the Coalcliff property.

58 On 10 November 2005 Mr Dutta sent an email to Ms Merta asking if the Bank could increase the overdraft to 80% instead of 70% - the reference was, presumably, to the valuation of the Pymble property. That was made clear in a later email of the same day.

59 Ms Merta replied by saying that she would have a look at increasing the Line of Credit to 80%. On 14 November 2005 Mr Dutta sent a further email to her chasing up the request for 80% of the Pymble property. On 17 November 2005 he sent a further email asking if Ms Merta could confirm 80% against the $1.6m valuation with insurance that it was okay to proceed.

60 Ms Merta replied the same day saying that mortgage insurance covered only up to $1m and the mortgage insurance company would not allow any more than that. She went on to say:

The other request of 80% lend unfortunately (sic) the Bank will only lend up to 70% on residential property valued above $1.5m, if the value is under $1.5m then we could lend 80%. The other way we could achieve something for you is that we refinance your other properties however, we are still faced with the serviceability problem unless your figures have dramatically improved. If you have figures from your accountant to show the improvement we could possible (sic) look at refinancing your other property that has equity to increase your Line of Credit.

61 Around the same time on 3 November 2005 an application was made to GE for a home loan of $1,360,000 in relation to the purchase of the Brighton property. The document, signed in a number of places by Mr and Mrs Dutta contained an assertion by them that their respective incomes were $250,000 and $200,000 per annum.

62 On 14 December 2005 Mr Dutta sent an email to Ms Merta saying:

Can you advise how best we can secure a loan of $50-$70K as the other lenders all stopped off at 65-70% also – after saying 80% was ok!

63 Ms Merta replied on 5 January 2006 reminding him that a maximum of 70% was all that was able to be lent because the amount was over $1.5m. She said that he only had $9000 equity against the Pymble property. She then went on to say:

Really Sorry (sic) as I don’t know what else you can do unless your Accountant can provide 2005 figures. I can do a service calculation and then we can look at refinancing your other property that may have equity to borrow full capacity.

64 On 22 February 2006 Mr Dutta sent an email to Ms Merta saying:

A friend of mine was saying Bank Qld has given him 80% LVR. Have the rules changed and if it has can we increase the amount from 70% to 80%?

Income to date this year is $110K (interim) + rental $36K.

65 On 1 March 2006 Mr Dutta sent Ms Merta another email attaching what was said to be the current profit for July 2005 to 28 February 2006 at Planit Organiser. He noted that rent of $600 per week was additional and asked “Will this help to secure additional funding?”

66 The attached Profit and Loss statement showed inventory sales at $110,155.89 with further miscellaneous sales of $35,000 meaning that the total income was $145,155.99. Costs of sales reduced the gross profit to $115,947.16. Total expenses were said to be $119.06 leaving a net income of $115,828.10.

67 Ms Merta replied by asking for a copy of the balance sheet. It is important to set out part of this balance sheet as follows:

Balance Sheet

As of March 1, 2006

ASSETS

Current Assets

Current/Savings

Bank – ANZ – Planit Organizer 9,264.76

Other Bank Accts/Credit Cards -4,257.76

Total Current/Savings 5,007.00

Accounts Receivable

Accounts Receivable 290,237.49

Total Accounts Receivable 290,237.49

Other Current Assets

Suspense 51.00

Inventory Asset 78,692.80

Undeposited Funds 189,808.38

Total Other Current Assets 268,352.18

….

Drawings 28,748.17

Open Bal Equity 72,287.02

Retained Earnings 240,247.00

Net Income 115,828.10

Total Equity 457,110.29

TOTAL LIABILITIES & EQUITY 534,553.63

68 On 12 April 2006 Mr Dutta sent an email to Ms Merta saying this:

We have been offered a refinance package via a different bank on the home loan and Line of Credit facility. They would like to settle on 21 ^st April.

I was hoping Bank Qld could increase my Line of Credit based on the information I have already given you. The same information was given to the other bank at the same time.

69 Later that day Ms Merta’s assistant Ms Maestre sent an email to Mr Dutta attaching a copy of an email sent the previous week which said this:

Unfortunately, we need complete financials statement (sic) (including the balance sheet and P&L) for 2005 and 2004 signed by a certified accountant, as well as your personal tax returns 2005 (we only have it for 2004). Additionally, I need you to fill out and sign a business lending declaration, which you can find attached in this email.

70 That prompted a further email from Mr Dutta attaching the Profit and Loss statement and balance sheet for Planit Organiser for the whole of the financial year ending on 30 June 2005. In the email Mr Dutta gave some reasons why the profit (disclosed at $61,000-$62,491.43) was lower, one of the reasons for which was that “Sydney rental does not exist for 06”. The relevance of that statement is unclear since it was the profit and loss for the year ended 30 June 2005. Somewhat inconsistently, the email finished by saying “On top of the income there was $36,000 rental income.”

71 On 15 April 2006 Ms Maestre filled out and signed a form headed “Confirmation of employment”. The person who provided the confirmation of the information in the form was Roger J Huntington who Mr Dutta acknowledged was his accountant. The information recorded showed that Mr Dutta’s salary was $174,000.

72 On 18 April 2006 Mr Dutta sent Ms Merta an email saying (inter alia):

If you are unable to get the approval please let me know.

I am working on your serviceability and no matter which way I work this is slightly short on your current figures but if you could provide me with your personal tax returns showing $120k income this will work out fine on your serviceability side.

73 Mr Dutta replied by saying:

Income of $65,000

Rental $36,000

Travel, etc which I could show as part of income about $10,000

Stock in hand was $25,000

This will amount to $120,000+ in income

The last returns are not ready as I informed you earlier.

74 Ms Merta replied immediately saying:

Application is for $120,000, is this OK?

75 Mr Dutta replied:

$120 is what the other bank is offering also. The accountant will take a week to prepare a letter being a short week and will be based on the P&L and rental recpts (sic) I give. Can you proceed without that letter for now?

76 Ms Maestre then sent an email to the Head Office of the Bank saying:

Mr Dutta is requiring an increase over his line of credit of $160,000 …

Mr Dutta applied for this facility last February, but he has not had any answer from the previous lending officer. As a result of this, Mr Dutta has applied with other financial institution for this loan and has already obtained the approval. However, due to the closer business relationship that he maintains with Kate, he is still waiting for an answer from us before the 24 ^th of April (in fact, he is waiting for an answer between today and tomorrow).

77 A few things are apparent from this email. First, Mr Dutta had asked for an increase in his Line of Credit of $160,000. Secondly, he had informed Ms Maestre (or Ms Merta) that he had applied to another financial institution which had approved his application, but he was using this to press the Bank. Thirdly, he was still telling Ms Maestre (or Ms Merta) that he was selling the Coalcliff property.

78 The next day (19 April) Ms Merta emailed Mr Dutta and attached a copy of an email sent by Karen Nitschke from Head Office. That email relevantly said:

I also note the client has yet to finalise 05 accounts and given the tight serviceability evident in the last submission, I need to see the final 05 accounts together with their personal 05 tax returns. What is the current situation with the Queensland property? I note an email dated Feb 06 that there was an offer on the table – has there be any outcome to this?

79 Later that day Ms Maestre sent another email to the Head Office of the Bank which said this (inter alia):

^th

80 Later that day, and in response to an email from Ms Merta that she was still working on the matter, Mr Dutta sent an email to Ms Merta saying:

I thought you could approve temp overdraft yourself. Head Office will go back to square One. If they can’t, please advise we want to settle on Friday 21 or Monday the very latest.

81 On 20 April 2006 Ms Merta sent an email to Mr Dutta saying she had an approval and that the Line of Credit would increase to $430,000 and asked “are you happy with that?”

82 In his affidavit of 11 May 2009 Mr Dutta said that he did not provide instructions to Ms Merta to increase his Line of Credit to $430,000. He then made reference to this email from her of 20 April 2006 and said that he did not reply to it.

83 In fact Mr Dutta responded by an email as follows:

Is this formally approved and are their any other requirements to meet. Also with this approval are you able to do a temporary increase as you suggested effective now for say $20,000.

84 When cross-examined about his statement that he did not reply, and about the email which I have just set out, Mr Dutta agreed that it was an email in reply to Ms Merta’s email and that he had read it in her affidavit before he affirmed his affidavit. When it was put to him that what he said in paragraph 35 about not replying to the email was false he said:

A. The question was ““are you happy with that?” I did not say I was happy with that. That is my answer. That was a question.

85 Mr Dutta’s statement in paragraph 35 of his affidavit was false, and I find that he made the statement to further his case that he never requested the increase of $160,000 in the Line of Credit but it was, in effect, forced upon him by Ms Merta and the Bank. Needless to say, it was not refused when offered.

86 Ms Merta replied immediately to Mr Dutta’s email (in para [83] above) saying that she would increase the Line of Credit for an extra $20,000 on that day until all the paperwork for the larger permanent amount was available.

87 On the same day the Head Office of the Bank wrote to Mr Dutta saying:

We are pleased to advise that your finance application $162,200 has been formally approved subject to any special conditions included in the loan documents that we will send you.

88 Mr Dutta responded by sending an email to Ms Merta saying:

When do we sign the documents?

89 The documents were signed on 2 or 3 May 2006 and on 8 May 2006 the increased amount was made available on the Line of Credit.

90 Mr Dutta was cross-examined about the statements in his affidavit that he had requested a temporary overdraft of $20,000, that he did not request the loan amount increase by $162,000 and that he did not sign a loan application form for that amount. He gave the following evidence:

Q. Were you intending to convey by those paragraphs that all you had asked for was an increase in your overdraft for $20,000 and Ms Merta of her own initiative obtained approval to advance to you $162,000?
A. Ms Merta would have taken her own initiative to advance that amount of money.

Q. And it is your evidence that you did not ask for an increase in the overdraft for a sum greater than $20,000; is that right?
A. As far as I recall, I did not ask for $162,000. In fact, I was very surprised when she told me, "Are you happy with that?" I did not respond to that email either.

Q. Did you ask for a sum greater than $20,000?
A. I did not ask for $162,200.

91 In my opinion, Mr Dutta was being less than frank when he said he did not ask for an increase of $162,000. As the emails make abundantly clear, what he sought was an increase based on a change in the LVR from 70% to 80%. The effect was the same. Indeed, when his email of 10 November 2005 seeking an increase in the overdraft to 80% was put to Mr Dutta the following exchange occurred:

Q. Your purpose was to be able to increase your borrowing on your line of credit, correct?
A. Personal overdraft, yes.

Q. Whether you want to call it a personal overdraft or line of credit?
A. Personal overdraft is what the agreement is called.

92 In his affidavit he said nothing about asking for a change in the LVR percentage, and his statement that he sought a temporary overdraft of $20,000, whilst true at a particular point in the negotiations, was very far from being the whole truth and was designed to suggest that that was all he sought.

93 Mr Dutta also said in his affidavit:

The Plaintiff did not request any financial documents from me before offering me the Third Loan Amount.

94 He ultimately accepted that that statement was untrue but it is worth noting how he attempted to explain it when asked:

“The plaintiff did not request any financial documents from me before offering me the third loan amount.”

Do you accept that that is untrue?
A. She did ask for the 2005 documents, but I did not produce anything. I told her--

Q. When you affirmed this affidavit saying "the plaintiff did not request any financial documents from me before offering me the third loan amount", you knew that to be untrue, correct?
A. She did not ask me for any financial documents when I asked for the $20,000, that's correct.

“The plaintiff did not request any financial documents from me before offering me the third loan amount.”

Q. You see at the top of page 147, that same page?
A. Yes.

Q. You define the third loan amount as being the sum of $162,000; do you see that?
A. Correct.

Q. The statement in the first and second lines of paragraph 24 "the plaintiff did not request any financial documents from me before offering me the third loan amount" is untrue, correct?
A. She did ask for financial documents which I did not provide, yes.

Q. So the statement is untrue, correct?
A. Based on what I am looking at. At that stage I was not very prepared, so yes.

Q. You knew that statement was untrue when you affirmed the affidavit, didn't you?
A. Well, looking at the information now, I was not experienced as I am now, but I could recall it was nothing at that stage straightaway, but I did not provide any 2005 information.

Q. It is not a question of experience, Mr Dutta, you knew when you affirmed this affidavit that that statement was untrue, didn't you?
A. Yes.

Q. You chose to lie to the Court to advance your case, correct?
A. I did not do it intentionally.

Q. If you knew it was untrue when you affirmed the affidavit, how was it unintentional?
A. Because they were asked - never enforce the fact to produce any documents, and I did not produce any documents either, but having said that, there is an error there.

Q. Is this what happened: You didn't have copies of the documents in your possession so you thought you would say whatever suited your case in an affidavit?
A. At that stage that's what I recalled.

Q. And then when you saw the affidavits, you realised you couldn't get away with saying that so you thought you would try saying something else?
A. In what sense?

95 Even that explanation was not correct because in his last answer he said “The third loan could have been the $20,000” whereas in his own affidavit he had defined the third loan amount as being $162,000.

96 A few other things should be said about the material that went between Mr Dutta and the Bank in the email chain I have set out above. First, the copy of the lease of the Pymble property in evidence showed that the rent was $2,607.15 per calendar month making an annual figure of $31,286. On a number of occasions Mr Dutta informed Ms Merta that the rent was $36,000 per year and in his email of 22 February 2006 he referred to the rental to that date in the financial year as being $36,000.

97 In any event, the statements made to the Bank about rental income for Pymble in early 2006 would not appear to be correct if his evidence in the witness box was true that by 2006 the tenant had left the Pymble property and no rent was being received.

98 Secondly, the various financial documents provided by Mr Dutta to Ms Merta need to be compared. The balance sheet forwarded under cover of the email of 12 April 2006 (para [70] above) showed that at 30 June 2005 accounts receivable were $12,638.41. The inventory was said to be worth $51,708.83, yet the balance sheet as of 1 March 2006 (para [67] above) showed accounts receivable being $290,237.49. Mr Dutta had no explanation for that, taking refuge in the excuse that he was not an accountant, although he conceded that he had entered all of the figures in the computer that produced these financial documents.

99 Mr Dutta agreed that for the accounts receivable to have increased to that extent he would have to have sent out some $270,000 worth of bills which had not been paid. Mr Dutta agreed, however, that the profit and loss statement to 1 March 2006 showed that there had only been inventory sales amounting to $110,155.89.

100 The next thing to notice is that the balance sheet at 30 June 2005 showed undeposited funds as an asset in an amount of $189,808.38. The same figure appeared in the balance sheet as of 1 March 2006. Mr Dutta’s explanation for the fact that the same figure appeared twice is that it was possible he had not updated the computer system. He nevertheless accepted that he did not have either in the Bank or readily accessible an amount of $189,808.38 or anything like it.

101 All of these matters and some other evidence given by Mr Dutta in answer to questions about these financial documents, lead me to the clear view that the financial documents presented to the Bank were entirely unreliable and did not represent the true position concerning the business Planit Organiser. I am firmly of the view that they were provided to Ms Merta and the Bank to try to persuade the Bank to make loans to Mr and Mrs Dutta that they would not have been able to obtain had the true position been disclosed.

102 Thirdly, the emails show a pattern of pressure that Mr Dutta was endeavouring to assert on Ms Merta to obtain the increase in the Line of Credit by telling her he had approval from another Bank. He was cross-examined about this as follows:

“We have been offered a refinance package via a different bank on the home loan and line of credit facility.”

Was that true?
A. As far as I recall, somebody did say, yes, I can get you that kind of money. I am not sure exactly who would have said that, which bank, might have been a mortgage broker, I am not sure.

Q. Had you been offered a refinance package from a different bank on the home loan and line of credit facility?
A. I had been offered a refinance package of some form, but I can't remember exactly who that was.

Q. Do you recall which bank it might have been?
A. It might have been - I'm not sure, I couldn't tell you for sure without having to go through all the documents.

Q. On what basis, did you say: "They would like to settle on 21 April"?
A. Well, whoever it was, they were obviously pushing me to sign up and that was quite a trend at that stage where banks and mortgage brokers were falling over each other. Same as what Ms Merta did, to sign you up for a loan.

Q. You had a bank, whose name you can't now recall, that was falling over itself to lend you money, is that right?
A. Not the bank, maybe somebody from the bank. Same as Ms Merta, it wasn't the Bank of Queensland CEO did it, (sic) Ms Merta made that offer based on the figures provided to her.

Q. You can't even hazard a guess as to who this other bank may have been?
A. I can't recall because I was in a pretty bad situation. My health was bad, things weren't very good for me.

…

Q. You see in the email where you say the same information was given to the other bank at the same time?
A. That's what it says.

Q. Was that true?
A. It probably was true. If it says so, it must have been true.

Q. Well, just tell me this, if you had as at 12 May 2006 an offer from another bank for a refinance package which was satisfactory to you--
A. If it was satisfactory to me.

Q. Let me ask you the question then. Was the refinance package which you say you were offered satisfactory to you?
A. I cannot recall what the conditions were. I hadn't seen the term of conditions.

Q. Can you recall anything at all about this supposed refinance package which was offered to you?
A. Not on that particular instance, no.

Q. Nothing at all?
A. Not that I can recall straight away. They were - there was quite a few loan applications that you produced, so I need to make sure which one tallies up with this, I am not sure.

Q. You can't recall, for example, how much money this other bank was going to lend you, is that right?
A. Not the total amount, no.

Q. You have no idea about that?
A. Not exact amount, no.

Q. You can't recall which bank it was?
A. I can't, to tell you the truth, straight off the top of my head, no. It could have been the National Bank or could have been The Mortgage Store, mortgage brokers, something they were doing, so I can't say exactly which one. It was quite some time ago.

Q. You can't recall even making an application to another bank?
A. I don't believe I would have made an application. If I had they would have given me a copy or I might have had a copy, I can't recall.

Q. Is this your explanation: That without you asking for it to happen, somehow a bank made you an offer of refinance?
A. No, I would have definitely spoken to a bank and a bank would have asked me for the figures, and it would have been the same figures and the bank would have come to the same conclusion based on these figures, or whatever information that I sent them, which is the same information I got in this email.

…

Q. This is the case, Mr Dutta, that you did not have an offer of refinance from a different bank?
A. I cannot accept that.

Q. You were seeking to apply pressure to Ms Merta in order to obtain additional finance?
A. I cannot accept that. There might have been an offer.

HIS HONOUR

Q. Had you signed documents for this other bank?
A. I don't recall. I would have met somebody or a bank and given them information and they would have said "yes, based on this information it is possible that we can do the money and we can settle quickly". It is quite possible that would have happened.

Q. The email says they wanted to settle on 21 April?
A. Yes.

Q. Doesn't that suggest you signed all the necessary documentation?
A. I don't recall signing any of it. They would have said that if you proceed quickly we can do it by 21 April, would have been the scenario.

Q. Do you have some memory problems for this period?
A. Not exactly, your Honour, but I do remember some finance, whether a bank or mortgage broker was prepared to lend me some money, and they said we can do it and I am sure if I go through all my documents there could be something which says that.

103 Even if Mr Dutta had made application to another financial institution at this time I do not accept that he had had an approval of such an application, nor that he had signed any documents with the other financial institution, nor that it was ready to settle with him. Mr Dutta’s statements in his emails were simply an attempt to pressure Ms Merta and the Bank into providing him with additional funds with the threat that if they did not do so, and quickly, he would take his business elsewhere.

104 The significance of this is not the morality or otherwise of acting in that way but the fact that it demonstrates clearly the lengths Mr Dutta was prepared to go to obtain the increase in the Line of Credit. The suggestion that he only sought an extra $20,000 but that the Bank thrust upon him $162,000 must be rejected.

105 Fourthly, from at least 14 December 2005 Mr Dutta was suggesting to Ms Merta that he needed additional money for business purposes. The email of 14 December 2005 said he needed it “to complete some projects”. The email of 12 April 2006 asked for an increase “so that we can complete our software project for launching Jul/Aug 06”.

106 It is a fair inference that Ms Merta understood that it was for Mr Dutta’s business because she asked for financial statements for the business as well as his personal tax returns. Mr Dutta continued to supply Ms Merta with financial information about Planit Organiser. Further, all of Mr Dutta’s emails to the Bank from 19 April 2006 onwards were headed “Planit Organiser/Business Overdraft”. Mr Dutta was asked if he had any intention of using any part of the money to complete a software project and he gave this evidence:

A. I would have used my own money, and I am sure I would have used my own money to produce a software project.

Q. That wasn't my question, please. Did you intend to use any part of the money which you were asking to be lent to you for the purpose of completing a software project?
A. Any part could have been a very small part. It's possible.

107 In the email he sent on 12 April 2006 attaching the Profit and Loss Statement and Balance Sheet for Planit Organiser (para [70] above) he also said this:

For the software we are:

1. Working on BHP project (licensing up to 1000 users).

2. Done demo for a Financial Planning Institute (order worth $35,000 + licensing) and talking to others including Indian Government and major services provider here).

108 When asked about those matters he said that they were at the conceptual stage “and the concept was very well received”. The following evidence was then given:

Q. And the reason you mentioned those matters was because they were the software developments that you were telling the bank you needed the money for, correct?
A. Part of it for, yes, part of it.

Q. You never suggested to the bank that you wanted some part of the money to pay your rent, did you?
A. Miss Merta was always aware that it was a personal loan. Maybe that $50,000 or $75,000 email that you refer to might have been that particular amount.

Q. How do you say Miss Merta was always aware this was a personal loan?
A. Because I had only asked for - because I had only asked for 50 to $75,000 in a previous email you showed me as an overdraft which was rejected and I made very clear to Miss Merta that I was renting and she would have been aware, looking at the financial figures, I wasn't in very good shape.

Q. Let's take this in stages, just so we are clear. You never said to Miss Merta you need this money for rent, correct?
A. I said for personal purposes and for software. The software was part of the overdraft, not an application, but an email, which was rejected and I think you referred to that email prior.

109 In my opinion, Mr Dutta was endeavouring to lead Ms Merta to believe that he needed this increase in the Line of Credit for the purposes of his business for the same reason that he led her to believe the previous year that he wanted the Line of Credit to develop the Pymble property. This was because he knew that if he simply asked for an increased Line of Credit to pay rent and other personal expenses it would not be forthcoming, particularly as the Bank had proved to be difficult in agreeing to the increase because of serviceability problems.

110 It may be that Mr Dutta did intend to use some of the increased Line of Credit for business purposes but the evidence points strongly to the fact, and I find, that he intended to use the bulk of the increase in the Line of Credit for his personal living expenses without having disclosed that to Ms Merta and the Bank.

Issues for determination

111 Matters raised by the Defendants which must be determined are these:

(1) Were any of the loans governed by the Code?

(2) If so, what is the effect of failure to serve a s 80 notice?

CRA

(5) If so, what, if any, orders should be made against the Defendants?

Trade Practices Act

(1) Were the loans governed by the Code?

112 Section 11 of the Code provides:

(1) In any proceedings (whether brought under this Code or not) in which a party claims that a credit contract, mortgage or guarantee is one to which this Code applies, it is presumed to be such unless the contrary is established.

(2) Credit is presumed conclusively for the purposes of this Code not to be provided wholly or predominantly for personal, domestic or household purposes if the debtor declares, before entering into the credit contract, that the credit is to be applied wholly or predominantly for business or investment purposes (or for both purposes).

(3) However, such a declaration is ineffective for the purposes of this section if the credit provider (or any other relevant person who obtained the declaration from the debtor) knew, or had reason to believe, at the time the declaration was made that the credit was in fact to be applied wholly or predominantly for personal, domestic or household purposes. For the purposes of this subsection, a relevant person is a person associated with the credit provider or a finance broker (or a person acting for a finance broker) through whom the credit was obtained.

113 In the present case the Bank obtained 2 signed Declarations from the Defendants that the credit was not provided wholly or predominantly for personal, domestic or household purposes. However, as the Bank concedes, these Declarations did not comply with the Regulation because, in the first case, the Declaration was neither witnessed nor dated, and in the case of the increased loan in 2006, was signed after the loan Agreement was entered into.

114 The Bank argues that the fact that the Defendants signed the Business Purpose Declarations is at least an admission by them that the purpose of the loans was not wholly or predominantly for personal, domestic or household purposes.

115 The starting point, however, is the presumption in s 11(1) that the contracts are contracts to which the Code applies. The onus is on the lender to show that the loan was provided wholly or predominantly for a purpose other than personal, domestic or household purposes: Bahadori v Permanent Mortgages Pty Ltd [2008] NSWCA 150 at [5] and [191]; Beckley v Consumer, Trader and Tenancy Tribunal [2009] NSWSC 703 at [70].

116 It is then necessary to look to s 6(1)(b) of the Code which relevantly provides:

…

117 There are divergent views in the cases on what is meant by the credit being “provided or intended to be provided” for personal, domestic or household purposes. One view is that the purpose of the loan is what a reasonable person in the shoes of the credit provider understood that the loan was intended to be used for at the time the loan was made: Rafiqi v Wacal Investments Pty Ltd (1998) ASC 155-024 (Brabazon DCJ) and Park Ave Nominees Pty Ltd v Boon [2001] NSWSC 700 (Harrison AsJ).

118 The alternative view was that expressed by Gillard J in Linkenholt Pty Ltd v Quirk [2000] VSC 166 at [98]:

It is appropriate to consider what the money was used for in order to determine the purpose of the provision of the credit. In considering the question it is important to consider the substance of the transaction in the context of its performance…

119 This latter view has been followed in Jonsson v Arkway Pty Ltd [2003] NSWSC 815 (Shaw J), First Mortgage Managed Investments Ltd v Oberlechner [2006] NSWSC 1397 (Rothman J), Benjamin v Ashikian [2007] NSWSC 735 (Smart AJ), and Dale v Nichols Constructions Pty Ltd [2003] QDC 453 at [27] (McGill DCJ).

120 In Beckley I discussed the 2 different views and made reference to what had been said in the Court of Appeal in Bahadori about those views. I also made reference to the interesting discussion by Muir JA in Shakespeare Haney Securities Ltd v Crawford [2009] QCA 85. Regrettably, it was not necessary for either the New South Wales Court of Appeal in Bahadori or the Queensland Court of Appeal in Shakespeare Haney to reach a concluded view about the appropriate view. Nevertheless, I followed the view that had been espoused by Gillard J in Linkenholt. I did so because I considered that the weight of authority strongly favoured that approach (see Beckley at [69]).

121 The position in the present case is a little unusual. This is because, as I have found, Mr Dutta informed Ms Merta in 2005 that he required the additional $270,000 for the purpose of developing the Pymble property. He did not ultimately use the money for that purpose but used it, rather, to pay personal and living expenses because he and his family were living well beyond their means.

(b) Unfair pressure etc – Code para (j),

CRA

para (j)

182 The only unfair pressure complained about was the alleged offer on 2 occasions by Ms Merta to attend at the Defendant’s residence with the documents for signing. According to Mr Dutta the first occasion was at the end of his first meeting with Ms Merta when, it is to be remembered, Mrs Dutta was not present. As Mr Dutta admits that his home was near the Bank’s office, there was nothing unusual in the offer by Ms Merta to attend to have Mrs Dutta sign the documents. In any event, Ms Merta denied that on that occasion she offered to attend at Mr Dutta’s home. She said the only time that such an offer was made was in a telephone conversation with Mr Dutta on 30 May 2005 when she told him she had received the loan documents. She then asked if he would like her to drop them off at his place or whether he would rather come and collect them. It was that occasion, it would seem from Mr Dutta’s second affidavit, that caused him to feel pressure from Ms Merta to attend at his house.

183 Because, where there is a conflict, I prefer the evidence of Ms Merta to the evidence of Mr Dutta by reason of the matters of unreliability and untruthfulness in his evidence that I have discussed earlier, I find that there was only 1 offer by Ms Merta to attend at Mr Dutta’s house with the loan documents.

184 However, even if Ms Merta offered on 2 occasions as Mr Dutta asserts, it is difficult to see how, objectively, such offers could amount to unfair pressure. Mr Dutta, as he was perfectly entitled to do, refused Ms Merta’s offers. Despite those offers and his refusal, Mr and Mrs Dutta signed the documents on the later occasion. It is impossible to accept, and I do not accept, that because Ms Merta made those offers, Mr and Mrs Dutta felt pressured into signing the documents by themselves at home later that day or the next day. It is inconsistent with Mr and Mrs Dutta attending at the branch of the Bank later that day or the next day (as Ms Merta asserts and as I accept) and asking her to witness their signatures on the documents. It is inconsistent with them willingly signing other documents on that occasion and it is inconsistent with Mr Dutta asking Ms Merta when the documents would arrive for the Line of Credit loan. It is inconsistent with Mr and Mrs Dutta subsequently signing the Line of Credit documents on or about 2 June 2005.

185 I find that there was no unfair pressure on the Defendants by any actions of Ms Merta and, in particular, as a result of her offer or offers to attend at their premises.

186 The Defendants submitted also that the Bank’s silence in relation to its knowledge that the Defendants could not service the loan constituted unfair tactics. I shall deal with this matter in the next section of the judgment.

(c) Serviceability – Code para (l),

CRA

para (d)

187 Mr Dutta’s principal complaint (to which he returned time and again), was that the Bank knew he would not be able to service the loans and, therefore, the Bank should have advised him of this and refused to make the loans. It became clear, particularly during Mr Dutta’s submissions, that this complaint was associated with his assertion that the Bank had engaged in asset-based lending and had breached its own guidelines in relation to serviceability.

188 The Bank did not accept that it knew Mr and Mrs Dutta were not able to service the loans. Indeed, the Bank pointed to a number of comments both in internal Bank documents and in emails that went to Mr Dutta which demonstrated that the Bank was concerned to ensure that the loans were able to be serviced before they were made.

189 What is also clear, and was conceded by Mr Dutta, was that Mr Dutta himself knew of his financial position and the difficulties that he would have in servicing the loan. This was the more so, the Bank said, when Mr Dutta had not been frank and honest with Ms Merta in relation to his income and expenses.

190 In West v AGC (Advances) Ltd (1986) 5 NSWLR 610 McHugh JA (as he then was) said this about the Contracts Review Act (at 620-621):

Under s 7(1) 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: cf s 9(2)(d). 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: cf s 9(2)(a), 9(2)(e), 9(2)(f), 9(2)(g), 9(2)(i), 9(2)(j). 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 s 4 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” con-
tracts. Very likely its provisions signal the end of much of classical contract theory in New South Wales. Any contract or contractual provision, not excluded from the operation of the Act and which the court considers is unjust in the circumstances existing at the time when it was made, may be
the subject of relief under the Act. Moreover, the provisions of s 9(2) do not exhaustively indicate the criteria as to what can be taken into account in determining whether a contract or any of its provisions is unjust. The provisions of s 9(2) of the Act are concerned for the most part with matters of
procedural injustice. But the court is entitled to have regard to all the circumstances of the case, subject to s 9(4), and the public interest. In an appropriate case gross disparity between the price of goods or services and their value may render the contract unjust in the circumstances even though
none of the provisions of s 9(2) can be invoked by the applicant. Indeed, notions of unfairness and unreasonableness will, I think, generally be present
when a contract or any of its provisions is declared unjust. This will particularly be the case where procedural injustice is relied on. If a contract or one of its relevant provisions is neither unfair nor unreasonable so far as the applicant is concerned, it is difficult to see how the existence of inequality in bargaining power or lack of independent advice, for example, can render the contract or a provision of the contract unjust.

…

191 These remarks of McHugh JA were again adopted by the Court of Appeal in Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 at [71]-[73] and [114]-[116]. Further, as Basten JA made clear in Khoshaba at [128] an object of concern under the Act is a borrower who has demonstrated an inability reasonably to protect his or her own interests.

192 Although, as I have said, I found Mr Dutta to be an unreliable, and sometimes untruthful, witness, I formed a view that he was an intelligent man who was more than able to protect his and his wife’s interests. The manner in which he conducted the defence of the case including the affidavits he drafted and the submissions he prepared and delivered indicate clearly to me that he is not the sort of person for whom the Court needs to have a particular concern when considering the provisions of the Code and the CRA, and matters concerning unconscientious behaviour on the part of the Bank.

193 Mr Dutta did not need to be told by the Bank or anybody else that he was living beyond his means nor that he may have difficulty servicing the loans if he did not take other steps such as endeavouring to sell one or more of his properties. Of course, Mr Dutta not only conceded that that had to happen but he repeatedly told Ms Merta over the 12 months he dealt with her that he was doing just that.

194 Although Mr Dutta said both in his evidence and in his submissions that Ms Merta and the Bank ought to have advised him, Meagher JA made clear in Beneficial Finance Corporation v Karavas (1991) 23 NSWLR 256 at 276 that there is no duty on a financier to provide a borrower or a third party guarantor within any commercial advice. Nor is the present situation at all analogous to the position in Smith v Elders Rural Finance Ltd (unreported – Bryson J – 25 November 1994) (a case relied on by Mr Dutta) where his Honour found not only that the borrowers were out of their depths in a situation where the lender perceived the risks and they did not, but also that the lender was engaged in asset-based lending. Mr Dutta submitted that that was precisely what the Bank was doing in the present case.

makes it clear that where a lender engages in asset-based lending that may be sufficient to hold that the contract is unjust. So, for example, Basten JA said at [128]:

Esanda Finance Corp Ltd v Tong

Elkofairi

196 Of course, it is to be noted that Basten JA seems to impose the qualification that it is in circumstances where borrowers can be said to have demonstrated an inability reasonably to protect their own interests that such a finding will be made. As I have said, the Defendants were not in that position. They were able to look after their own interests. Not only did they know the true position in relation to their own finances but Mr Dutta deceived the Bank in a number of respects in relation to the information he provided to it to secure the loans that he wanted.

197 Although I think Ms Merta was keen to arrange the loans for the Defendants, not the least reason for which was that she was managing a new branch and was keen to build up the work at the branch, and in some cases failed to discern that Mr Dutta was trying to pull the wool over her eyes (the email of 18 April 2006 to Ms Merta is a good example – para [73] above), there is quite sufficient evidence to show that the Bank was concerned about, and examined the issue of, serviceability. The following matters clearly point to this. First, Mr Dutta was required to provide copies of his tax returns as well as tax returns of his company, Outback Designers. Secondly, he was required to produce Balance Sheets and Profit and Loss accounts of his business. Thirdly, amongst the Bank documents in May 2005 there is a completed document headed “Serviceability Worksheet”. Fourthly, in a Bank document headed “Consumer Credit Scoring Compliance Checklist” the first section is headed “Financial Quality” and shows that the question of serviceability, the checking of liabilities and commitments etc has been completed.

198 Fifthly, a string of emails from November 2005 onwards to the increase in the Line of Credit in 2006 shows a constant concern by the Bank, communicated to the Defendants, about the serviceability concerns and problems the Bank had.

199 By no measure could these loans have been said to involve asset-based lending.

200 In any event, Mr Dutta had an accountant to whom he could have gone for financial advice had he chosen to do so. The Bank asked him on a number of occasions to obtain a signed statement from his accountant concerning Mr Dutta’s income but Mr Dutta always managed to avoid doing that, probably because the accountant would not have borne out Mr Dutta’s assertions to the Bank about his income.

201 The evidence disclosed clearly enough that Mr Dutta did not need to seek his accountant’s advice to know that he was likely to have difficulties repaying the loans he was insisting on borrowing. In the first place, the fact that Mr Dutta said he needed the money for personal living such as rent and food was clear evidence that he was living beyond his means. Mr Dutta had sufficient intelligence and experience with running a business that he must have known he would have serviceability problems. He admitted that he did know these things.

202 Because Mr Dutta made so much of this complaint at the hearing it is important to set out what he himself admitted at various times both during his cross-examination and in the course of his submissions. At one point there was this evidence:

203 A little later this appears:

Q. Put it this way: You had two choices, Mr Dutta, to alleviate your financial problems. One was to sell the Coalcliff property and realise the equity; the other was to borrow money from the Bank of Queensland, correct?
A. Yes.

Q. And you chose the second of those things, correct?
A. Yes.

204 And then this:

Q. … In April of 2006 it was abundantly clear to you, was it not, that you could not afford to service an increased loan of $162,000?
A. I was hoping that my business would pick up, because I was in Melbourne and things would turn around. So that I had that hope.

Q. Let's take this in stages. The accounts which you provided to Miss Merta showed that for the 2005 financial year, your businesses gross profit before tax had been about $62,000, correct?
A. That's correct.

Q. And there had been, to arrive at that figure, there had been no deduction for directors' salaries, that is, $62,000 was the amount which your company had available to pay to you in the 2005 financial year?
A. Correct.

Q. So that your view was that that situation could be alleviated by selling the Coalcliff property?
A. That's correct, and I made every attempt the try and sell it.

205 He also gave this evidence:

Q. You knew enough about how much money you earned in the 2005 year, Mr Dutta, to know that you would have real problems continuing to service your mortgages, correct?
A. Based on these figures, I was struggling, and I admitted that.

Q. Not only based on these figures, based on whatever the true figures were, you knew you were having real trouble servicing your mortgages?
A. Yes.

206 Further, he agreed that the Bank did give him advice about serviceability problems. He gave this evidence:

207 Mr Dutta complained that Ms Merta and the Bank did not tell him what he conceded that he knew, namely, that there was a serviceability problem with the loans. However, the emails set out at paras [60], [63] and [72] above show that Ms Merta did identify the serviceability problem. When this last-mentioned email was put to Mr Dutta he agreed that the Bank was identifying the serviceability problem. This evidence was given:

Q. It must have been clear to you then that the bank's view was, unless you had income of $120,000, you couldn't service this loan?
A. That's what the bank would have - that's what the bank would have thought also, yes.

208 The email of 19 April 2006 attaching the advice from Karen Nitschke was put to Mr Dutta and he gave this evidence:

Q. If you go over to page 969, you will see the content of the reply from the credit department. You read that when you received the email of 19 April 2006, didn't you?
A. I would have - yes, I would have received that and I would have read it.

Q. And you understood what it said, that the State Manager Risk Assessment would not be prepared to support an 80% LVR where we have interest only debt and tight serviceability?
A. She also goes on to talk about the current property in Queensland and from a previous email you showed me, Mr Couper, that was to do with an overdraft which she rejected, which I think it was 50,000 or 75,000, which is what I alluded to in the morning by Ms Nitschke.

Q. You knew the credit department's response was in respect of the application Ms Merta had made on your behalf for an increase of $120,000, didn't you?
A. That's what this would imply, yes.

Q. It wasn't implied, it is clear that is what it was about, isn't it?
A. Yes.

Q. You knew the credit department was saying no?
A. According to this letter, yes.

209 He also gave this evidence:

210 During the course of submissions I pointed out to Mr Dutta what Basten JA said in Khoshaba in the passage set out in para [195] above. Mr Dutta admitted that he had been foolish.

211 All of this material leads me to these conclusions. First, Mr Dutta was fully aware of his financial position before he obtained the loans in 2005 and 2006. Secondly, not only was he aware of his financial position but he actively sought to disguise it in the material he provided to the Bank. Thirdly, although the Bank was under no duty or obligation to advise Mr Dutta, it did raise with him on a number of occasions the issue about serviceability of the loan. None of this causes me to think that there was any unjustness in the contracts.

212 Mr Dutta also points to matters contained in the Banking Code and in the Bank’s Guidelines which he alleges the Bank breached in making the loan to him. Whilst it is true that the Bank did not follow up on some matters (for example, copies of tax assessments, or letters from Mr Dutta’s accountant) and whilst it was prepared to lend him, ultimately, 80% of the value of Pymble (on a valuation that had been assessed the year before) despite its usual 70% rule, I do not consider there were any aspects of that which result in unjustness of the contracts. This is the more so when Mr Dutta did not disclose the true position to the Bank and, in fact, provided figures in relation to his business which were false on any close examination of them.

213 The Court of Appeal discussed the issue of a Bank’s failure to follow lending criteria in Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343. Campbell JA (with whom Hodgson and McColl JJA agreed) said:

[96] It can be accepted that pure asset lending – described by Basten JA in Khoshaba at [128] as being “to lend money without regard to the ability of the borrower to repay by instalments under the contract, in the knowledge that adequate security is available in the event of default” – is in at least some circumstances unjust within the meaning of the Contracts Review Act , or unconscionable: Elkofairi v Perpetual Trustee Co Ltd [2002] NSWCA 413; (2003) 11 BPR 20,841 at [57]-[59], [79] per Beazley JA (with whom Santow JA and MW Campbell AJA agreed); Khoshaba at [92] per Spigelman CJ (with whom Handley JA agreed on this point), [128] per Basten JA.

…

[99] I would accept that in some circumstances knowledge of a high degree of risk that there might be a default in payment of interest or principal so that a mortgagee sale would result, could be unjust lending, even though it could not be said that the lender knows that there will be default. However I do not accept that a lender is always bound to carry out a detailed investigation of the practicality of an intending borrower actually being able to carry through the plan the borrower says he or she has for repayment of the loan. In the present case, Kowalczuk stated to Accom that he proposed to pay the Berowra loan out through bank refinance, and the Haberfield loan through refinancing with FirstLoan (the same brokers through whom Kowalczuk was able successfully to refinance the Berowra loan) and there was no occasion for Accom to doubt that he would be able to do so. Thus, even if Mr Conti is right in saying that there can be pure asset lending if the lender knew that there was a high risk that the intended means of repayment might fail, in the present case Accom did not have knowledge of that type.

…

[101] Mr Conti also relies upon Accom having failed to follow its own due diligence procedures in relation to the making of the Berowra loan. The failure to follow due diligence procedures is relied on in relation to allegations of both injustice and unconscionability.

[102] In Khoshaba Spigelman CJ at [80]-[82] regarded a lender’s failure to observe its own lending guidelines as entitled, in the circumstances of that particular case, to significant weight. The way in which it was relevant was twofold. First, while the guidelines were designed to enable the lender to assess and minimise its own risk, and thus were for the purpose of protecting the lender rather than the borrower, following the guidelines conferred an indirect benefit on the borrower through risky loans not being made, and one of the legislative purposes of the Contracts Review Act was to protect people not able to look after themselves. The second way in which it was relevant was, in the circumstances where the lender had no idea for what purpose the loan was being borrowed, the failure to observe the lending guidelines assisted the inference that the lender was lending on the value of the security.

…

Khoshaba

214 Campbell JA then went on to consider whether there were any other factors that, when combined with departures from the lending criteria and due diligence procedures, would lead to the conclusion that the loans were unjust.

215 In the present case, I do not consider that there are other factors when combined with some relatively minor breaches by the Bank of lending criteria that make these contracts unjust. This was not asset-based lending, the interest rate was not high and the Defendants were not vulnerable people who needed protection. Mr Dutta was perfectly aware of his financial position. The Bank in fact gave him some advice about problems with serviceability. The Bank did not have the true picture about the Defendants’ financial position because Mr Dutta disguised that position in the information he provided.

216 For all these reasons, the contracts were not unjust in the circumstances relating to them when they were made within the meaning of the Consumer Credit Code or the Contracts Review Act.

217 Nothing that the Bank said or did could amount to misleading or deceptive conduct, whether by silence or positive statement. There is no basis for granting any relief under the Trade Practices Act.

Conclusion

218 The Defendants do not make out any of their defences to the claim nor the relief in their cross-claim. The Bank is entitled to possession of the Pymble property and to a judgment for the appropriate sum outstanding.

219 The Plaintiff should bring in Short Minutes of Order to reflect these reasons.

**********

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Citations

Bank of Queensland Ltd v Dutta [2010] NSWSC 574

Most Recent Citation

Commonwealth Bank of Australia v Ozden [2013] VCC 94

Cases Citing This Decision

26

Monas v Perpetual Trustees Victoria Ltd [2011] NSWCA 417

Lauvan Pty Ltd v Bega [2018] NSWSC 154

RHG Mortgage Corporation Limited v Summerfield [2016] NSWSC 1595

Cases Cited

27

Statutory Material Cited

4

Bahadori v Permanent Mortgages Pty Ltd [2008] NSWCA 150

Beckley v Consumer, Trader and Tenancy Tribunal [2009] NSWSC 703

Park Avenue Nominees Pty Ltd v Boon [2001] NSWSC 700

CITATION:	Bank of Queensland Ltd v Dutta [2010] NSWSC 574
HEARING DATE(S):	17-20 May 2010
JUDGMENT DATE :	30 July 2010
JURISDICTION:	POSSESSION LIST
JUDGMENT OF:	Davies J
DECISION:	(1) The Bank is entitled to possession of the Pymble property and to a judgment for the appropriate sum outstanding. (2) The Plaintiff should bring in Short Minutes of Order to reflect these reasons.
CATCHWORDS:	CONTRACTS - unjust contracts - borrowers obtained 3 loans partly to refinance existing loan - false and misleading information provided to lender by borrowers - whether lender under obligation to advise borrowers about serviceability problems - borrowers not vulnerable persons - borrowers fully aware of their financial position - whether funds borrowed predominantly for personal, domestic or household purposes - appropriate test to be applied - whether test differs because false purposes stated by borrowers - failure of lender to obtain valid Business Purpose Declarations - whether lender engaged in asset-based lending - failure of lender to follow lending Guidelines and Banking Code strictly - failure to serve s 80 notice - whether proceedings should be dismissed for such failure.
LEGISLATION CITED:	Contracts Review Act 1980 Credit (Home Finance Contracts) Act 1984 Trade Practices Act 1974 (Cth) Uniform Consumer Credit Code
CATEGORY:	Principal judgment
CASES CITED:	Bahadori v Permanent Mortgages Pty Ltd [2008] NSWCA 150 Beckley v Consumer, Trader and Tenancy Tribunal [2009] NSWSC 703 Beneficial Finance Corporation v Karavas (1991) 23 NSWLR 256 Benjamin v Ashikian [2007] NSWSC 735 Berowra Holdings Pty Ltd v Gordon (2006) 225 CLR 364 Bunberry Foods Pty Ltd v National Bank of Australasia Ltd (1984) 153 CLR 491 Citicorp Australia Ltd v O’Brien (1996) 40 NSWLR 398 Collier v Moreland Finance Corporation (Victoria) Pty Ltd (unreported – Court of Appeal – 21 April 1989) Dale v Nichols Constructions Pty Ltd [2003] QDC 453 David v David [2009] NSWCA 8 Dominic v Riz [2009] NSWCA 216 Emanuele v Australian Securities Commission (1997) 188 CLR 114 First Mortgage Managed Investments Ltd v Oberlechner [2006] NSWSC 1397 Graham v Aluma Lite Pty Ltd (1996) 39 NSWLR 58 Hamafam Pty Ltd v Saadullah [2007] NSWSC 818 Jonsson v Arkway Pty Ltd [2003] NSWSC 815 Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343 Linkenholt Pty Ltd v Quirk [2000] VSC 166 Mir Bros Projects Pty Ltd v 1924 Pty Ltd [1980] 2 NSWLR 907 Park Ave Nominees Pty Ltd v Boon [2001] NSWSC 700 Permanent Mortgages Pty Ltd v Cook [2006] NSWSC 1104 Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 Perpetual Trustees Victoria Ltd v English [2009] NSWSC 478 Plowman v Palmer (1914) 18 CLR 339 Rafiqi v Wacal Investments Pty Ltd (1998) ASC 155-024 Shakespeare Haney Securities Ltd v Crawford [2009] QCA 85 Smith v Elders Rural Finance Ltd (unreported – Bryson J – 25 November 1994) West v AGC (Advances) Ltd (1986) 5 NSWLR 610 Woods v Bate (1986) 7 NSWLR 560
PARTIES:	Bank of Queensland Ltd (Plaintiff) Swarup Dutta (First Defendant) Sumitra Dutta (Second Defendant)
FILE NUMBER(S):	SC 2008/283060
COUNSEL:	S Couper QC & D Sulan (Plaintiff) In person (Defendants)
SOLICITORS:	HWL Ebsworth (Plaintiff)