HomeSec Finance Express Pty Ltd v Richardson
[2012] NSWSC 1375
•14 November 2012
Supreme Court
New South Wales
Medium Neutral Citation: HomeSec Finance Express Pty Ltd v Richardson [2012] NSWSC 1375 Hearing dates: 25 - 28 June 2012 Decision date: 14 November 2012 Jurisdiction: Common Law Before: Button J Decision: (1) Judgment for the plaintiffs.
(2) Stand proceedings over for further directions to 9:15am on 28 November 2012.
(3) Counsel for the plaintiffs to file and serve short minutes of order on or before 4pm 23 November 2012, setting out the orders he seeks in light of the judgment, including as to costs.
(4) Liberty to the parties to re-list the matter before Button J before then, on 2 days' notice.
Catchwords: CONTRACTS - loan agreements and registered mortgages - proceedings by lender against borrower for possession and monetary order - Contracts Review Act 1980 - loan for a business purpose - not asset lending - whether conduct of "mortgage broker" amounted to agency - consideration of s 9 factual matters - not unjust - lender conduct not "unconscionable" - Trade Practices Act and Fair Trading Act not applicable Legislation Cited: Australian Securities and Investments Commission Act 2001 (Cth)
Competition and Consumer Act 2010 (Cth)
Contracts Review Act 1980
Evidence Act 1995
Fair Trading Act 1987
Industrial Relations Act 1996
Trade Practices Act 1974 (Cth)Cases Cited: Brighton v Australia and New Zealand Banking Group Ltd [2011] NSWCA 152
Chen v Song [2005] NSWSC 19
Collins v Parker (Supreme Court of NSW, Lee J, 11 May 1984, unreported)
Ellison v Vukicevic (1986) 7 NSWLR 104
Fish v Solution 6 Holdings Limited [2006] HCA 22; (2006) 225 CLR 180
Ford by his Tutor Beatrice Ann Watkinson v Perpetual Trustees Victoria Limited [2009] NSWCA 186
Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298
Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313
Kowalczuk v Accom Finance [2008] NSWCA 343
Permanent Custodians Ltd v Nobilo [2012] NSWSC 109
Permanent Mortgages Pty Ltd v MacFadyen [2012] NSWSC 130
Perpetual Trustee v Khoshaba [2006] NSWCA 41
The Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447
Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389
Wallis v Downard-Pickford (North Queensland) Pty Ltd [1994] HCA 17; (1994) 179 CLR 388
West v AGC (Advances) Ltd (1986) 5 NSWLR 610Category: Principal judgment Parties: HomeSec Finance Express Pty Ltd (P1)
Luc Jean Pierre (P2)
Hedley Murdoch (P3)
Jill Richardson (D)Representation: Counsel:
M J Cohen (P1-3)
S T Haddad (D)
Solicitors:
Ronayne Lawyers Pty Ltd (P1-3)
Self (D)
File Number(s): 2011/195194
Judgment
1. Introduction
Pursuant to a statement of claim filed on 15 June 2011, the plaintiffs claim a judgment for possession with regard to two pieces of land. They also seek repayment of a loan plus very substantial interest. They rely on a loan contract of 28 October 2010 and a registered mortgage of the same date.
By way of an amended defence and cross claim, the defendant seeks to resist those orders. The amended defence and cross claim are in virtually identical terms. The cross claim does not join any further parties.
In those pleadings, the defendant relies upon the following bases for submitting that the loan, and the mortgage securing it, should not be enforced in this Court:
(1) the Contracts Review Act 1980 ("the Act");
(2) unconscionability;
(3) the Trade Practices Act 1974 (Cth), s 51AA, s 51AB or s 51AC, along with ss 82 and 87;
(4) the Fair Trading Act 1987, ss 42, 53, 68 and 72; and
(5) misrepresentations said to have been made by Mr Justin Goodwin, a mortgage broker, that give rise to consideration of ss 51A and 52 of the Trade Practices Act.
By the end of the trial, the bases for relief had been refined somewhat. I will discuss that refinement below.
2. Evidence Summary
The case for the plaintiffs was founded upon an affidavit of Mr Paul Stone, the director of the first plaintiff, dated 3 November 2011. He also swore two further affidavits of 15 December 2011 and 21 June 2012 that went only to calculation of the amount said to be outstanding as at that date. Mr Stone was called as a witness and cross-examined. I shall have more to say about his evidence below. An affidavit sworn on 21 December 2011 by Niki Belogiannis was also read and relied upon by the plaintiffs for the purpose of exhibiting relevant documents.
The defendant swore two affidavits, one of 8 November 2011 and one of 10 February 2012. She was cross-examined, and I shall refer to her evidence below as well.
It is noteworthy that a number of persons who played important roles in the surrounding circumstances of the loan and the mortgage were not called as witnesses by either party. They include a mortgage broker, Mr Goodwin; Mr Jason Brockmuller; the accountant for the defendant, Mr Doug Witham; and the solicitor for the defendant, Mr Christopher Maley.
3. Facts that were not in dispute
Many of the facts were not in dispute. I proceed to set them out in rough chronological order. I shall discuss disputed matters separately.
For convenience, I shall refer to the first plaintiff as "HomeSec".
The defendant was born in the United Kingdom in 1952, but seems to have grown up in New Zealand. As at the date of the making of the loan agreement on 28 October 2010, she was 57 years of age. She speaks English as her first language. There is no evidence that, at any relevant time, she suffered from an intellectual disability or a psychiatric illness.
At some stage before 1979, the defendant bought property in New Zealand.
In about 1979 or 1980, the defendant arrived in Australia and purchased her first property at Stanmore, with finance from a building society.
In about 1987, the defendant purchased a property in Lewisham ("the Lewisham property") with finance from St George. That became her home. In about the same year, the defendant commenced to rent rooms out at the Lewisham property, with gross income from that activity of between $10,000 and $15,000 per year.
At some indeterminate time between 1987 and 2000, the defendant purchased a property in Summer Hill. It was subsequently sold in order to purchase a further property in Summer Hill ("the Summer Hill property").
In April 2000, the defendant purchased the Summer Hill property. At the time, she used Citibank to take over the financing of the Lewisham property and fund the purchase of the Summer Hill property. The defendant never lived in the Summer Hill property. The property is obviously a large residence that had been used as a community services building, and includes a main house in which a family would have lived, what would have been servants' quarters, and a coach house. When originally purchased it was in dilapidated condition. It was renovated over some years and used to generate income by way of rent. The Summer Hill property is so large as to permit three separate tenancies.
In about 2005 or 2006, the defendant borrowed from Bankwest in order to fund renovations at the Summer Hill property. Citibank was paid out by Bankwest in this transaction.
In 2006, the defendant started an antiques business. It was successful.
In 2009, the defendant purchased two terraces in Lewisham ("the Lewisham terraces") for the sum of $950,000. This investment did not succeed, and the terraces were sold at a loss, once one factors in the amount spent renovating them.
On 5 March 2009, Mr Goodwin, the mortgage broker, signed an introducer accreditation form on the letterhead of HomeSec. That appears to have been the commencement of his professional relationship with HomeSec. Under the heading "Rules of Engagement" it was recorded, amongst other things:
"· I/we agree that we (herein called "The Introducer") act as an agent for the borrower when referring loans to HomeSec Finance Express Pty Ltd to fund or broker, and are in no way acting as an agent for HomeSec Finance Express Pty Ltd. The Introducer agrees to indemnify HomeSec Finance Express Pty Ltd as against any action by any other party, as a result of the actions of The Introducer."
With regard to a tax return pertaining to the financial year ending 30 June 2009, the defendant stated that she had a total income of $258,375.
With regard to rent, it was stated that gross rent received was $95,200, with interest deductions of $72,532 and other rental deductions of $8,301, leaving a net rental income of $15,367.
The Lewisham property was recorded as generating $32,760 in rent, with expenses of $26,748, leaving net rent of $6,012.
The Summer Hill property was recorded as generating $63,440 in rent, with total expenses of $54,055, leaving a net rent of $9,355.
With regard to the business that was described as "antiques & jewellery retailing", a business income of $396,829 was recorded, with expenses of $153,821, leaving a net income from the business during that financial year of $243,008.
As at March 2010, the defendant owned both the Lewisham property and the Summer Hill property. She was living in the Lewisham property with her teenage daughter, but, as described above, generating income from renting out parts of it. The Summer Hill property was generating income by way of rent. The antiques business was going well. However, the loans from Bankwest were in arrears, and she was being pressured by that institution to put her affairs in order, otherwise she might be "sold up".
In around March 2010, another mortgage broker, Mr Butler, informed the defendant that there was a good prospect that he could obtain long-term refinancing that would solve her problems with Bankwest. The interest rate was in the order of 11.5 per cent. The defendant rejected that solution, because she considered that she could obtain long-term refinancing at a somewhat more favourable interest rate. At around that time, she engaged Mr Goodwin to act as her mortgage broker, on the advice of her accountant.
On 8 June 2010, Mr Goodwin advised the defendant that he had sent a proposed loan agreement to her solicitors.
On 10 June 2010, Mr Goodwin sent a forceful email to the defendant. I quote precisely the whole of the email, including typographical and other errors, and will replicate whether sentences appear in upper or lower case. If possible, I will seek to replicate contrasts in text size:
"Caveat URGENT
From: Justin Goodwin ([email protected])
Sent: Thursday, 10 June 2010 2:25:04 PM
To: [email protected]
Hi Jill,
Ned you to urgently reply to my email or text message..
Solicitors have advised that you have not been in to sign today..
As per the offer you signed and as documents have been issued, the funder will caveat your property anyway this arvo to recover costs...
This means that to have it removed you will need to pay the $2900 legal fees PLUS discharge of approx $550 which will stop us been able to look at the 2nd mortgage option or even 1st mortgage..
PLEASE REPLY ASAP AS I DON'T WANT THIS TO GET MESSY FOR YOU...
Regards,
Justin Goodwin
Home Loan Manager
HomeSec Finance
Ph 08 85326858
Fax 08 8532435"
The email ended with what appears to be the logo of HomeSec.
On 25 June 2010, Bankwest served a demand for repayment on the defendant.
On 29 June 2010, Mr Goodwin sent an email to the solicitors for the defendant. It was "cc'd" electronically to an email address belonging to the teenage daughter of the defendant. Again, I will set out the whole email precisely and replicate as best I can the case of the sentences and their text size:
"Jill Richardson URGENT EMAIL
From: Justin Goodwin ([email protected])
Sent: Tuesday, 29 June 2010 11:25:21AM
To: [email protected];
[email protected]
CC: 'Homesec Finance Express (Paul Stone)'
([email protected]); 'Homesec Finance Express
(Jason Brockmuller)' ([email protected]); t-
[email protected]
Hi Chris and Tina,
I am emailing you this morning to clarify the clear position that our mutual client is in, for your attention.
I have been speaking with Bankwest and they advised me on Friday 25th June that a Demand Letter sent to Jill in May had expired nearly 3 weeks ago as she had ignored calls and any correspondence.
When I spoke to them the file was in the last stages with Gaden Solicitors to have judgement for Bankwest to take possession of both properties for loan arrears in excess of 6 months and totalling with legal costs so far of $73K. (This judgement would also tarnish Jill's clear credit rating and the ability to borrow for many years to come)
After length discussions I was able to convince them that we had funds available to clear this once yourself and Jill executed the contracts that you have.
We were lucky enough that they then agreed to put a stay on proceedings to allow us to pay these arrears.
Bankwest emailed Jill on Friday and express posted letters advising amount that was due and if paid by the 30th June, they would withdraw all action against your client.
Failure to pay by the 30th June would result in legal action been resumed to seize both properties which would include as you would be aware, a letter to vacate, sheriff to have locks changed and tenants to be forced to vacate, before sale at auction to recover all costs.
As Jason would have advised you yesterday as well, after the 30th June, we are unable to offer the caveat loan under new legislation which would result in your client having NO option of obtaining any finance to save these properties.
I have been informed that you have contracts at your office for signing and that these contracts were amended in accordance with your requests of specific wording with your conversations with Jason last week.
We acknowledge your request for a 6 month term, however this cannot be provided as clearly caveats are for a maximum term of 4 months.. (we recently increased from 2 to 4 months for client anyway). I have also advised client we are going to look at refinance options of one of the properties once caveat settled to seek additional funds that she was seeking for subdivision and subsequent payout of the caveat for a 12 month or more period. However this could not even be looked at whilst the large arrears remain, hence the reason of the caveat.
I cannot stress enough the urgency of this situation, to allow our/your clients to keep both properties and to save the tenants that she has occupying.
For this to happen we require the contracts that you have to be fully signed and witnessed to our solicitors in NSW by NO LATER than 12 noon on Wednesday 30th June 2010 for settlement that afternoon.
After this date if not settled we will have to let Bankwest know that our finance option is now unavailable and they will have to proceed with foreclosure.
The reason I have sent this email is to ensure that HomeSec has done everything it can to make both yourself and the client aware of the seriousness of this situation and the outcome will now solely rest with you both based on what you decide today.
I will wait for your urgent reply to the above.
Regards,
Justin Goodwin
Senior Home Loan Manager
HomeSec Finance
Ph 08 85326858
Fax 08 85324335".
It can be seen that the email address from which that email is sent is [email protected]. The email ended with a phone and fax number that are not associated with HomeSec. It also ended with the logo HomeSec Finance Express.
In her tax return for year ending 30 June 2010, the defendant stated that she earned a total income of $12,894. That figure was calculated by way of a gross rent of $97,183, interest deductions of $75,860, and other rental deductions of $8,429, leaving a net rent of $12,894.
With regard to the Lewisham property, it was stated that the property was first rented in July 2001, and that it had been rented for the entirety of the financial year in question. A gross rent of $33,743 was obtained. What appears to be $28,057 was claimed as total expenses, leaving a net rent of $5,686. The expenses included $23,812 claimed as interest on loans.
With regard to the Summer Hill property, it was stated that it was first rented in December 2000, that it had been rented out for the whole of the financial year in question, and that a gross rent of $63,440 was obtained. $56,232 in total expenses were claimed, including what appears to be $52,048 in interest in loans. This left a net rent of $7,208.
With regard to a profit and loss account that formed part of her tax return, gross sales are described as amounting to $347,801. I infer that that reference is to the antiques business. A total of $145,207 is recorded as expenses, leaving a total of $201,594. I shall record later my finding as to whether the failure to have the income figure reflect the profit from the business, in contrast to what was done in the tax return of the previous year, demonstrated dishonesty.
Before the defendant signed the first loan agreement, to which I refer immediately below, she consulted her solicitor. He advised her against entering into the loan agreement as it then stood, and various amendments were made to it by way of negotiation.
On 30 June 2010, the defendant borrowed $130,000 from SC Hall & Co Pty Ltd ("the first loan"). The loan was secured by a mortgage over the Lewisham and Summer Hill properties. That loan was arranged by Mr Goodwin. It is noteworthy that HomeSec was not the lender with regard to the first loan. However, it was the administrator of the loan.
The principal sum of the first loan was $137,000, repayable in 4 months, that is, on 30 October 2010. A standard rate of interest at 6 per cent per month applied, with a default rate of 12 per cent per month. In other words, the standard effective annual rate of simple interest was 72 per cent and, in the event of default, 144 per cent. The first loan contract also provided a mechanism for the lender, at its election, to calculate interest on a compounding basis. However, the lender appears to have elected to calculate interest on a simple basis.
The proceeds were applied as follows:
Payee
Amount
Pre-paid interest for 4 months
$32,880.00
Establishment fee (including legals) payable to HomeSec
$14,120.00
Bank West Loan No. 100 134 742 1 (payment of arrears)
$14,498.24
Bank West Loan No. 100 072 782 0 (payment of arrears)
$42,169.85
Balance as directed below [Bendigo Bank]
$33,331.91
TOTAL ADVANCE
$137,000.00
The solicitor for the defendant witnessed her signature on both the first loan and the accompanying mortgage.
In September 2010, the defendant signed an application form for long-term finance in the amount of $2.5 million.
In October 2010, the defendant incorporated Ostara Property Group Pty Ltd ("Ostara") on the advice of her accountant.
On 8 October 2010, Mr Goodwin sent an email to the defendant on the letterhead of HomeSec requesting that the defendant sign and return an attached document. The attachment was a letter dated 8 October 2010, addressed to Northwest Commercial, and bearing the name of the defendant at the bottom but not her signature. The following precise words appear:
"To Whom it may concern,
Re: Mortgage Statement History
In relation to the past mortgage history I would like to explain some events that resulted in the missed payments and arrears during the period of Jan 2010 and June 2010.
- I had 2 terrace houses that I was developing and was meant to sell around August 2009, however I could not finish the project until after a 3 month delay due to council technicalities. Finally I was able to sell and settle in Dec 2009 for $600K.
- My next issue then was that Bankwest were only meant to take a portion of the proceeds from the sale and release the rest to myself to help cover next lot of payments while I was moving to my next project been the subdivision. However, they kept the whole amount which caused me to have issues with paying the following months payments and to do my next project that would have netted me another $400K-600K.
- In relation to my tenants, I had a tenant in my [Summer Hill] property that agreed to pay higher rental if I did some renovations with I did early 2010 at a cost of $10K. However upon completion refused to pay the extra rent amount. This has resulted me in terminating her rental lease in late July 2010, which affected my Sept home loan payment.
- I have now had a new tenant move in last week paying $1K per week for that part of the rental premises which will help with cash flow.
I have included with this letter the Bankwest Home Loan Statement showing the $600K from settlement been paid into my loan to back up the above explanation.
With this loan from your company, I am able to cover the next 12 months payments, whilst completing the sub division and sale thereof to assist with me moving forward to refinance to a mainstream lender with good repayment history.
I hope that this explains sufficiently what you are requiring and that we can move forward to formal approval and valuations to settle by the end of October latest as Caveat will be overdue by then and I have worked too hard to let things not succeed for me now.
Thanking you in anticipation.
Regards,
Jill Richardson".
In a document on the letterhead of HomeSec Finance Express and headed "SHORT TERM LOAN APPLICATION FORM" the name of the defendant appears, along with a date that appears to be 17 October 2010, but the document is unsigned. There is no dispute that the document is filled in in the handwriting of the defendant. It refers to the borrower as being "Ostara Property Group Pty Ltd", and contains the personal details of the defendant. In a rather illegible portion of the document, next to a section that says "Your occupation" the handwritten words appear to be "Property Investor/Director ".
In the same document a valuation of the Lewisham property is given, and of the Summer Hill property, but pursuant to a successful objection by counsel for the plaintiff, that part of the document was not admitted into evidence.
In a section entitled "CLEARLY STATE HOW FUNDS WILL BE USED" the words "Payout existing caveat, clear mortgage arrears and company cash injection" appear.
In an email of 18 October 2010 from Mr Stone to Mr Goodwin, and "cc'd" electronically to Ms Anderson, an employee of HomeSec, the following precise words appears:
"Hi Justin
Just on this, we have a few issues which is stopping us getting the offer out.
1. The last loan was for investment purposes. Therefore in taking that out and catching up the current arrears, more than 50% of the loan is for investment purposes, and not wholly or predominantly for business purposes.
2. In the last application, the exit was to prepare the property for sale. This hasn't been done, and now she is after a refi... which we would need to investigate what our changes are of getting this through. Firstly we have arrears again, and IF the credit repair place cant get all the defaults off (and there is no guarantee they can all the time), we are shot.
We just have to be very careful on this one as the exit is flaky and the purpose is an issue. Can you advise anything we may not know."
On 19 October 2010, Mr Goodwin emailed to the defendant a draft short term loan application form on the letterhead of HomeSec.
On 21 October 2010, HomeSec sent a document entitled "Indicative approval" to the defendant. The opening words of the letter to the defendant are "Please find the following indicative terms and conditions that our company is prepared to provide finance." The sum of $440,000 was discussed. The following appears in that document: "REFINANCE within two months or Sale of property if refinance unsuccessful with regard to exit strategy."
Under the heading "Agency", the following appears:
"You acknowledge that if you have engaged a finance broker or any other person or company in relation to this loan, that person or company acts as a representative and agent for YOU and not the lender. The lender will not be responsible for any representation or warranties made by your finance broker or any other person or company you have engaged in relation to the loan."
The defendant initialled every page of that document, and signed and dated it under the following words: "I hereby formally accept the Terms and Conditions as detailed within the lenders indicative letter of offer dated, Thursday, 21 October 2010".
In a document headed "SHORT TERM LOAN APPLICATION FORM" and on the letterhead of HomeSec, and signed and dated by the defendant on 22 October 2010, the defendant describes her employment status as "self-employed". She also describes her occupation as "property/antique dealer". The property at Summer Hill is described as having seven bedrooms and four bathrooms. Next to the words "Exit Strategy", there has been written in handwriting "refinance or sale of property". With regard to declaration of purpose, the following words appear: "payout existing caveat, clear mortgage arrears and company cash injection". An acknowledgement dated 22 October 2010 is as follows:
"Acknowledgement I acknowledge that neither HomeSec Finance Express Pty Ltd (and/or its ultimate lenders) nor any other party associated with HomeSec Finance Express Pty Ltd (and/or its ultimate lenders), including the credit provider, has acted as my agent. I further acknowledge that any person who may have introduced me to HomeSec Finance Express Pty Ltd (and/or its ultimate lenders) has not acted as an agent of HomeSec Finance Express Pty Ltd (and/or its ultimate lenders) for the purpose of this loan."
The following day, the defendant lodged that loan application with HomeSec.
On 26 October 2010, with regard to the second loan, the defendant signed a document entitled "Declaration of purpose". A signature was witnessed by her solicitor. I proceed to set out precisely the whole of the document:
"Declaration of Purpose
To: LUC JEAN PIERRE MINERVE AND HEDLEY MURDOCH AND HOMESEC FINANCE EXPRESS PTY LTD CAN 079 939 610 ("the credit provider")
From: JILL RICHARDSON
I declare that the credit to be provided to me by the credit provider is to be applied wholly or predominantly for the following purpose(s): Set out in detail how loan amount is to be utilised
PLEASE DO NOT USE THE WORDING "BUSINESS OR INVESTMENT PURPOSES".
to clear existing bankwest mortgage arrears, to payout existing cavaet and to allow company cashflow. [this portion of the document is in handwriting]
IMPORTANT
You should not sign this declaration unless this loan is wholly or predominantly for business or investment purposes. By signing this declaration you may lose your protection under the Consumer Credit Code.
Date: 26th day of October 2010
JRichardson
Signed by JILL RICHARDSON
CPMaley
Witness signature
Christopher Paul Maley
Solicitor
Merrylands
Witness name (please print)
232 Merrylands Road
Merrylands 2160
Address (please print)
9682-3777
Business Telephone Number".
In a document created by HomeSec and entitled "Due Diligence Assessment" it appears that a real estate agent had appraised the Lewisham property as being worth between $1.8 million and $2.2 million, and the Summer Hill property as being worth between $1.9 million and $2.2 million. The same document is to the effect that the amount of arrears owing on the two loans from Bankwest was $1,425 and $21,697 respectively.
Under the heading "EXIT STRATEGY" and next to the word "REFINANCE:" the following has been written in handwriting: "Justin to refinance".
The document is undated, but one can safely infer that it was created shortly before the loan described immediately below.
On 28 October 2010, the loan agreement that is the subject of these proceedings was signed by the defendant, along with a mortgage over the Lewisham property and the Summer Hill property. I shall refer to it as "the second loan". The witness of the signature of the defendant on both the loan agreement and the mortgage was the solicitor for the defendant.
The principal sum of the second loan was $440,000, repayable in 4 months, that is, on 28 February 2011. A standard rate of interest of 5 per cent per month applied, with a default rate of 12 per cent per month. In other words, the standard effective annual rate of simple interest was 60 per cent and, in the event of default, 144 per cent. The second loan contract also provided a mechanism for HomeSec, at its election, to calculate interest on a compounding basis. However, interest appears to have been calculated on a simple basis. The monies were applied as follows:
Payee
Amount
Pre-paid interest for 4 months
$88,000.00
Establishment fee (including legals) payable to HomeSec
$47,000.00
Bank West Loan No. 100 134 742 1 (payment of arrears)
$1,425.70
Bank West Loan No. 100 072 782 0 (payment of arrears)
$21,697.30
Rebfin Pty Ltd (repay business loan)
$137,000.00
Balance as directed below [Bendigo Bank]
$144,877.00
TOTAL ADVANCE
$440,000.00
On 30 October 2010, the first loan became due, but it had already been repaid by some of the proceeds of the second loan, as detailed above in the entry entitled "Rebfin Pty Ltd".
In an email of 18 November 2010 (that is, a little over 2 weeks after settlement of the second loan) sent by Mr Stone to Mr Goodwin, and "cc'd" to Ms Anderson and Mr Jason Brockmuller, the following words appear:
"Hi Justin & Elissa.
Can you advise on this. When we funded this loan, we were of the opinion that you were refinancing the client through a mainstream lender. Can you advise what happened (ie: why we are now going through Kremniser), and at what stage are they at, and if they will be settling in time in December."
Thanks".
On 28 February 2011, the defendant defaulted in repaying the second loan. On 3 May 2011, the plaintiff notified the defendant in writing of her default, and commenced enforcement shortly thereafter. Since that time, she has not repaid any of the loan or interest. No point has been taken by the defendant to the effect that there has been any formal defect in the enforcement procedures.
4. Aspects of oral and affidavit evidence
Mr Stone
In evidence-in-chief, Mr Stone said, with regard to the introducer's agreement to which I have already referred:
"We have got over 600 brokers that put business through us and it's a condition before they put business through us that they complete an introducer accreditation form which is what this one is and it sets out a whole lot of things, one to do with agency and also to get their bank details and those sorts of things so we can pay them a commission."
Mr Stone also gave evidence in cross-examination that the first plaintiff did not rely on any information given to it by Mr Goodwin, but would undertake its own enquiries.
In cross-examination with regard to the first loan, in which the lender it will be recalled was S C Hall & Co Pty Ltd, the following exchange occurred between counsel for the defendant and Mr Stone:
"Q. Would you agree, then, that Homesec knew the terms, then, of that first loan?
A. I would, yes.
Q. Would you also agree that Homesec would have known the circumstances of that first loan?
A. Yes."
With regard to Mr Brockmuller, when asked to explain his role with regard to Homesec, the following exchange occurred:
"Q. [Referring to an email] And Jason Brockmuller's name is in the same format with the same words "Homesec Finance Express" before his name, next to her name; isn't that correct?
A. That is correct.
Q. I'm going to put to you, then, that he was an employee of Homesec; what do you say about that?
A. He's not; he's simply not.
Q. What is it that you say his role is in association with Homesec?
A. He's, it would be fair to say he's a business partner. He certainly doesn't draw a wage. He's not a director of Homesec. He's got no legal entitlement or anything like that. So, but he's definitely not an employee.
HIS HONOUR: Well now, you were just asked what Mr Brockmuller's position as at today. It might be useful if we knew the answer to the same question as at the time of these events.
HADDAD: Yes, your Honour.
Q. What was Jason Brockmuller's role with respect to the first loan?
A. Okay. It's the same as it is today; he's an associate of the company and doesn't draw a wage. I don't know what else to say, really.
Q. What was his role, Mr Stone, how was he involved in establishing these two loans?
COHEN: I object to that question; it presupposes he was involved.
HIS HONOUR: Well, I think that if it were the case, he had no involvement, Mr Cohen, I would expect the witness to say so.
Q. Mr Stone, can you answer that?
A. Certainly. You mentioned two loans. The first one, he would have had very little involvement in. The second one, which is the current one, Jason liaises with the funders which is Luc Minerve and Hedley, I can't remember his surname, it's there somewhere.
Q. Murdoch?
A. Murdoch, yes.
COHEN: Please?
WITNESS: So that was his involvement which is basically to organise the funds for the funding of the loan and to report back to those two funders on the progress of the loan."
When Mr Stone was asked about conversations or communications between Mr Brockmuller and the defendant prior to the first loan, he replied "I don't know the answer, I'm sorry. I don't."
A little later in evidence, Mr Stone denied that Mr Brockmuller persuaded the defendant into entering the first loan, though he conceded that that proposition could not be maintained with certainty, but merely on the basis of "the way we operate".
I asked the following questions of the witness:
"Q. To get it clear in my own mind: Justin Goodwin is a home loan manager of Homesec Finance, as at 10 June 2010?
A. No, your Honour. He's not an employee and he didn't have any role other than as an introducer. It was a marketing decision to give him access to a Homesec email account, but there were also a lot of correspondence between Mrs Richardson and Justin, were also by Justin's own company email, which is, I believe, aloanforyou.com.au. So there were occasions where he used the Homesec one and when he probably shouldn't have.
Q. Leaving aside the email address, if he was not a home loan manager for Homesec, why is that appearing at the end of his email; can you shed any light on that?
A. I must admit I didn't see it as an awfully big deal at the time. Certainly things have changed since but we have tightened up on all that.
Q. Were you aware as at that date he was sending emails out with that ending?
A. I was your Honour, yes."
In cross-examination, Mr Stone conceded that at the times of the first and second loan, to his knowledge Mr Goodwin was using an email address associated with HomeSec. He also accepted that he knew that Mr Goodwin was signing off as Home Lending Manager of HomeSec, and also had the ability and permission to use the Homesec Finance logo.
In cross-examination, Mr Stone was asked:
"Q. Why would Justin Goodwin need an email address associated with Homesec if he has his own, "[email protected]"?
A. He's got his own business obviously. Homesec, within private lending circles, is a well known brand. We've been in business for 8 years. We're well respected. And I guess to for [sic] an introducer that gives us a lot of business to carry our email address and have permission to carry our logo for marketing purposes, it's going to benefit his business. That's it."
Mr Stone agreed that at the time of the first and second loans he had no contact with the defendant herself.
Mr Stone accepted that, through Mr Goodwin, Mr Stone had knowledge of the time constraint with regard to the first and second loans. However, he staunchly denied the proposition that at the time of administering the first loan he knew that the defendant would require a second loan to avoid default.
A little later, he accepted that the defendant would require some sort of loan, as part of the exit strategy from the first loan.
With regard to the topic of "asset lending", the following exchange between counsel for the defendant and Mr Stone took place:
"Q. Mr Stone, I'm going to put it to you that you don't require information such as total income and loss in a tax return, because the first plaintiff here is more interested in only the information concerning the security of assets under the loan rather than the ability of the defendant to pay the loan - to actually pay the advancement back.
A. That's totally incorrect. As I said earlier today, for every 10 applications we get we fund one. So if we were interested only in equity in property, then we would fund a lot more than that. There has to be a genuine purpose, whether it is to get the borrower out of a sticky situation they're in, or sometimes the borrower comes to us and they need funds in a hurry to get - like, to actually make money buying stock off price or whatever, if they can get their hands on the money quick enough. And that's the reason for the funding that we provide. There has to be a business purpose and there has to be an exit strategy. And we want - we just want the money turning over. We don't want it stuck on loans that go in situations like this particular one.
Q. Your exit strategy - that is associated with property under security; isn't that correct?
A. Yes. Yes."
The Defendant
In her first affidavit of 8 November 2011, the defendant deposed that, prior to the entry into the first loan, Mr Goodwin had been in constant contact with her through a number of text messages. A number of these text messages relate to Mr Goodwin indicating to the defendant that time was of the essence regarding her financial affairs.
In relation to the second loan, the defendant deposed in the same affidavit that Mr Goodwin had, shortly before entry into it, intimated to the defendant that he would be able to refinance the second loan before it expired.
In her second affidavit of 10 February 2012, the defendant gave further details regarding the circumstances surrounding the entry into the first and second loans. In that affidavit, the defendant deposed that she understood that the role of Mr Goodwin as the "lending manager" of HomeSec. The defendant further deposed that she had a conversation with Mr Brockmuller at the same time to the effect that he represented himself as the solicitor for HomeSec and that the first loan was her only option.
In her second affidavit of 10 February 2012, the defendant described herself as a casual relief teacher, and a part-time antiques trader.
In the same document, the defendant deposed:
"Ultimately, I entered into the 1st Loan Agreement to pay out Bankwest, pay water and council rates on both properties and to finance the sub-division of the Lewisham property, and in turn pay down my personal debt. At the time, I had two offers for the proposed subsidised land, which I considered to be favourable."
In the same affidavit, the defendant deposed that Mr Goodwin dictated to her the contents of the application for the second loan, comprised of "to clear existing Bankwest mortgage arrears, to payout existing caveat and to allow company cashflow purposes."
Although the defendant deposed in cross-examination that the letter to Northwest Commercial quoted at [43] of this judgment was prepared by Mr Goodwin, she accepted that she signed it. A number of aspects of that letter are noteworthy.
First, the defendant referred to herself as "developing" two terrace houses.
Secondly, she refers to "my next project", and that that project "would have netted me another $400K-600K."
Thirdly, the import of the letter is that the two terrace houses were sold for a total figure of $600,000.
Fourthly, the words "I have worked too hard to let things not succeed for me now" is not suggestive of a person who is merely a naïve part-time kindergarten teacher.
In cross-examination, the defendant accepted that she approaches the conduct of her business activities in a careful manner, and that it is her practice to read documents carefully before signing them.
The defendant indicated that, in her opinion, the process of renting out parts of the Lewisham property over the years was not a business, but rather a matter of helping out friends and acquaintances.
The defendant accepted, that since the purchase of the Summer Hill property in 2000, a great deal of money had been expended on restoring it.
She agreed that the earlier Summer Hill property was used as an investment as well.
The defendant accepted that she took a deduction on her tax returns for the interest and other expenses incurred on those loans pertaining to the properties that were rented out. In particular, the interest expenses incurred with regard to the Citibank and the Bankwest loan were set off in their totality as a deductible expense against the income of the defendant.
The defendant accepted that it was her ultimate strategy to reduce the debt load by resale of one or more of the properties, in particular by way of resale involving subdivision. It was accepted that the Lewisham property was quite large, and was amenable to either "finger subdivision" or "battleaxe subdivision".
The defendant accepted that by 2005 she "had a clear understanding of the nature and effect of the loan agreement used to advance monies from a bank", and that she "had an equally clear understanding of the purpose and effect of a mortgage securing such an advance".
With regard to the two terraces at Lewisham purchased in 2009, the defendant gave evidence that they were derelict and it was her idea to restore them and sell them to make money to pay down her loan. She gave evidence that she paid $950,000 for both of them. One was sold for $610,000 and the other was sold for $621,000. Although the net proceeds of over $1.2 million were obviously more than $950,000, the defendant gave evidence that the sale was in fact at a loss, because of the work undertaken on the dwellings and interest payments. She estimated that the total cost of these two factors was about $400,000. She accepted that the dealings with regard to the two terraces were "very clearly a business undertaking".
With regard to the letter to Northwest Commercial, the defendant accepted that it bore her signature. She also accepted that she was obviously not being entirely truthful when she signed that letter to the effect that the two terraces had been sold for the sum of $600,000 (as opposed to the correct figure of $1.2 million).
In response to the question "You, Ms Richardson, have a very sophisticated understanding of the risks and rewards that are inherent in property investment, aren't you? [sic]", the defendant replied "I thought I had."
With regard to whether in truth it was the loss on the terrace houses or the dispute with one of the tenants in the property at Summer Hill that caused the financial problems of the defendant, she asserted that it was both. Her evidence was that the differential between the sum being paid by the tenant per week, and the sum to which the defendant wished to increase the weekly rent, was only $150.
With regard to the document signed on 17 October 2010 to the effect that Mr Goodwin was the agent of the defendant and not HomeSec, the defendant claimed no knowledge or memory of that document.
When asked about the advice given to her by her solicitor with regard to the second loan and related mortgage, the following exchange occurred:
"Q. And he explained to you that in giving a mortgage you were undertaking a charge over your property assets at Lewisham and Summer Hill?
A. I understood it would be over one. I didn't know it would be over both."
She claimed, despite the clear contents of the documents to that effect, that she had "slipped up". The defendant was cross-examined in some detail about how it could be that she made that mistake.
The defendant gave evidence that, in effect, her accountant was not available to give evidence because he has retired.
The defendant was taken to that portion of her affidavit in which she deposed that she had contacted a broker by the name of Mr Butler. She accepted that at that time he was able to obtain long-term finance for $2.25 million. She accepted that she turned that down. She asserted that she had done so because Mr Goodwin had claimed that he could obtain the same finance at a lesser interest rate. The difference in interest rates was that between 10 per cent and 9 per cent per annum. The defendant rejected the proposition that she was "haggling about the cost of the finance", but stated that she was making "an astute business decision".
With regard to the offer of long-term finance from Mr Butler, the defendant agreed with the proposition that she had "a real live option" in March 2010 that was a complete solution to her dilemma, and she chose to refuse it.
In answer to the question "What you say about the conduct of Mr Goodwin just is nonsense, isn't it?" the defendant replied "it is truthful".
In answer to questions suggesting she was well aware that Mr Goodwin was an independent broker and not an employee of HomeSec, the defendant denied that proposition. She did accept that she was referred to Mr Goodwin by her own accountant.
An application to cross-examine the defendant upon a document that, through oversight, had not been provided to the solicitors for the defendant as part of a process of discovery was rejected by me. Although there was no documentary evidence in support of the proposition, the defendant accepted that in September 2010 she signed an application form seeking a loan of $2.5 million with regard to long-term finance. She did not accept that the application was approved, and that she rejected the transaction.
The defendant would not accept that she had indicative approval of the second loan on 21 October 2010. She agreed that she took advice from her solicitor on 25 October 2010, and that she accepted the offer on the following day.
At one stage, the defendant denied that the sum of $144,877 revealed in the terms of settlement of the second loan had, in fact, been received into her bank account by her.
The defendant gave an answer in cross-examination to the effect that she had "no means of repaying" the second loan. However, when taken to her tax returns for 2009 and 2010, she did not maintain her evidence that she did not have the resources to deal with the debt. The defendant accepted that her tax return demonstrated that her income for the financial years ending on 30 June 2009 and 30 June 2010 averaged about $125,000.
The defendant staunchly denied that, in the period leading up to entry into the second loan, she was neither oppressed nor subject to special disadvantage, nor the recipient of unfair tactics.
The defendant claimed that the reason why she had not accepted the long-term refinance in March 2010 was because of her reliance on the assurances of Mr Goodwin that he could obtain long-term refinance on more favourable terms.
At the end of the cross-examination, the defendant accepted that she had indeed received the sum of about $145,000 pursuant to the second loan. She gave evidence that $72,000 of that sum went to pay not only arrears but some of the principal owing to Bankwest. As for the other approximately $70,000, she gave evidence that it went to "Office of State Revenue for land tax, water rates, that sort of thing." In answer to the question "For a business purpose?", she replied "Well for residential also because it would have been, water rates were the house as well as the other house, so a bit of each I guess."
In re-examination, in answer to the question "Any money you earnt from renting the premises out at Summer Hill and Lewisham, where did that usually go, how did you utilise those funds?", the defendant replied "Upgrading my property."
5. Submissions of parties on the facts
The Plaintiffs
In answer to an enquiry from me about whether there was any expert evidence with regard to whether the rates of interest that appeared in the second loan agreement were to be expected in this context, counsel for the plaintiffs submitted that I could look to other decisions of this Court at first instance and on appeal.
With regard to the email of Mr Goodwin of 29 June 2010, counsel for the plaintiff submitted that it was noteworthy that it was sent to the solicitor for the defendant, not the defendant herself. He also submitted that, to the extent that the opening words of the email referred to "our mutual client", that is strongly supportive of the proposition that Mr Goodwin was an agent of the defendant and not HomeSec.
He submitted that, on any fair analysis of the evidence of the defendant, not all of it should be accepted.
He submitted that the prepayment of interest would not trouble the Court. He further emphasised that the plaintiff had calculated the interest owing on the basis of simple interest, not compound interest. He submitted that so much is established by the fact that the amount charged does not increase each month.
He also emphasised that the loan in question is not secured by first mortgages over the properties. Only one of them relates to the home of the defendant, itself used at least partly for her business purposes. He submitted that that is in sharp contrast to many other cases in which the relief sought by the defendant has been granted.
As for inequality of bargaining power, he submitted that, in truth, the defendant was "picking and choosing" which loans to accept at certain times. He particularly referred to the rejection of long-term finance that would have solved the pressing problems of the defendant in March 2010 and, he submitted, in September 2010.
Counsel for the plaintiff accepted that the evidence in cross-examination of Mr Stone was that Mr Stone would have known of the email of 29 June 2010 of Mr Goodwin. But he emphasised that Homesec was not a party to the first loan and its related mortgage.
As for asset lending, he submitted that any such submission should be rejected. He submitted that, on the evidence, it was clear that Mr Stone focussed very much on an exit strategy by way of refinancing at the end of the four month period of the loan, and was not merely lending on the basis that any default could be cured by selling up the properties pursuant to the mortgage.
He submitted that any submission on the part of the defendant that there had been some sort of sinister agreement between the plaintiffs, Mr Stone, Mr Goodwin and Mr Brockmuller to lure or entrap the defendant into the second loan and accompanying security was simply unsubstantiated by the evidence as a whole.
The Defendant
Counsel for the defendant submitted that the role of Mr Brockmuller was more significant with regard to the first loan than the second, but that Mr Goodwin had a much more significant role with regard to the second loan. She submitted that that was done "on purpose" because Homesec knew that it could create a situation whereby it could dissociate itself from Mr Goodwin but not from Mr Brockmuller.
She also submitted that refinancing was delayed "on purpose" by Mr Goodwin until very shortly before the first loan was going to go into default. She submitted that that was done to create pressure, and that resulted in a position of special disadvantage on the part of the defendant. Her analysis was underpinned by the proposition that, in truth, Mr Goodwin was the agent of HomeSec.
She submitted that the second loan was for personal use, and not a business purpose.
As for the discrepancy with regard to the sale price of the two terrace houses, counsel submitted that that was a matter of confusion on the part of the defendant, not dishonesty.
She submitted that there had clearly been asset lending in this case. To the extent that Mr Stone had referred to the three lending criteria as purpose, exit strategy and property under security, she submitted that, in truth, that demonstrated that asset lending had taken place. She submitted that, of those three criteria, the first was breached, and that the other two criteria were merely related to assets.
6. Credibility Findings
Mr Stone could on occasion be somewhat querulous in the witness box. He also sometimes declined to answer a direct question directly, and sought to provide unresponsive answers that he thought would assist the case of the plaintiffs. However, I generally regarded him as a truthful witness. His evidence had an internal consistentency. Furthermore, there was no external evidence that demonstrated that his evidence was untruthful.
I am more circumspect with regard to the evidence of the defendant. She presented as someone who was desperate but determined. I appreciate that one should not make an adverse finding about the credibility of a witness lightly. However, with regard to a number of matters, I find that she was not entirely truthful. They are as follows.
First, the suggestion that her accountant was not available to be called as a witness because he had retired. I readily reject that.
Secondly, the proposition that she did not understand, at the time she executed the second loan and its related mortgage, that she was mortgaging both properties, not one. I firmly reject that proposition.
Thirdly, her evidence (which was not maintained once challenged) that she had never received into her bank account the proceeds of the second loan.
Fourthly, it is important to recall that the defendant accepted that the letter she signed addressed to Northwest and discussing the sale of the Lewisham terraces contained material that was not truthful with regard to the sale proceeds of those properties.
Fifthly, I do not accept the evidence of the defendant that she knew or recalled nothing of the document in which she accepted that Mr Goodwin was her agent.
Sixthly, substantial sums of the first and second loans were not used to pay out arrears and for other substantiated purposes. They were $33,331.91 and $144,877.00 respectively. The purpose to which they were applied is not completely clear. I do not consider that the defendant has been entirely frank about them.
Seventhly and finally, I consider that the picture that was sought to be painted by way of the affidavits of the defendant of her being nothing more than a part-time kindergarten teacher and part-time antiques dealer was, to say the least, incomplete.
In short, I approach assertions of the defendant, whether in her affidavits or in oral evidence, about matters that are favourable to her position and that are not corroborated by evidence from some other source with considerable caution.
Having said that, I am satisfied that the discrepancies as to how income was dealt with in the tax return for the year ending 30 June 2010 were the result of oversight of the defendant or her accountant, and not dishonesty.
7. The Rule in Jones v Dunkel and related matters
Although the tenor of some of the cross-examination of the defendant suggested that he would do so, counsel for the plaintiffs did not ask me to draw an inference pursuant to the principle in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 to the effect that the failure of counsel for the defendant to call the accountant of the defendant meant that his evidence would not assist the defendant's case. Accordingly, I will not do so. Nor do I draw the same inference with regard to the absence of evidence from her solicitor. Client legal privilege was not waived by the defendant with regard to conversations between herself and her solicitor, and the rule in Jones v Dunkel should not be permitted to undermine the privilege in those circumstances.
As for her failure to call Mr Goodwin and Mr Brockmuller, I do not draw any such inference against the defendant. One would hardly expect her to have called two persons whom she was asserting behaved inappropriately towards her, and who were both associated, to some degree, with HomeSec.
If anyone was to call them, it could well have been the plaintiffs. However, I do not believe that it was incumbent in any sense upon them to call those two witnesses, and I do not draw a Jones v Dunkel inference against the plaintiffs either.
Furthermore, counsel for the plaintiffs submitted that, if the professional behaviour of those persons was to be impugned, they should have been joined in the cross claim; if not Mr Brockmuller, at the least Mr Goodwin. There is some force to that submission. Furthermore, he submitted that the onus is on the defendant, having admitted the formal correctness of the documentation and other matters, to establish on the balance of probabilities the matters that would free her of her obligations under the loan contract. I accept that submission.
8. Findings of fact regarding disputed matters
Save for the first two paragraphs immediately below, which I regard as the most important, my findings of fact are organised in rough chronological order.
As at the date of the second loan, the defendant was an experienced business woman. She was especially experienced in property transactions. She knew what she was exposing herself to; apart from anything else, she had entered into a very similar agreement four months before when she obtained the first loan.
I am not satisfied that the defendant, a person experienced in buying and selling property, renting out two premises to a large number of tenants, undertaking renovations, and running a successful antiques business, believed that Mr Goodwin was an employee of HomeSec. I say that whilst well aware of the contents of the emails, in particular the email addresses, the logo, and the parties under the signature. Whilst I consider that the defendant believed that there was some unclear relationship between Mr Goodwin and HomeSec, I consider that at all material times she understood that he was in fact her mortgage broker.
Considering the email sent by Mr Goodwin on 29 June 2010 as a whole, its layout, the capitalisation of words, and the differences in text size, I find that that email was intended to elicit an emotional reaction from the defendant. Whether it was designed merely to stir the defendant into action or had a further intention I am unable to say on the balance of probabilities. However, I do find to that standard that the email pressured and upset the defendant.
As for Mr Brockmuller, I find that he played some role in the affairs of HomeSec that is not fully explained by the evidence. I also accept that he had some contact with the defendant before the first loan. I suspect that he placed some pressure on the defendant. However, this evidence of the defendant was not supported by any documentary evidence, whether it be by way of records of SMS messages, or telephone records, or diary notes, or contemporaneous emails that the defendant may have sent to other persons complaining of the conduct of Mr Brockmuller. Nor was there any evidence from any other person supporting the proposition that he had engaged in that conduct. In the absence of any corroboration at all of the assertions of the defendant about the topic, I am not satisfied on the balance of probabilities as to what he said to the defendant, before the first loan.
In light of the concession of counsel in submissions, I am satisfied on the balance of probabilities that Mr Stone was aware of the email of 29 June 2010, and countenanced Mr Goodwin sending emails of that flavour.
Based on the supporting evidence of the emails, I accept that Mr Goodwin had contact with the defendant after the first loan and before the second loan that placed pressure on her. As for the extent and precise details of that contact, I am unable to make a finding.
The defendant was in arrears to Bankwest at the time of the first loan in the sum of about $56,000, and at the time of the second loan in the sum of about $23,000. The defendant sought to explain those arrears by way of a recalcitrant tenant at the Summer Hill property. However, I am satisfied that the financial pressure that the defendant was experiencing from Bankwest in 2010 was substantially caused by the failure of the investment in the Lewisham terraces.
The defendant has deposed that, shortly before she entered into the second loan, Mr Goodwin assured her that he would be able to obtain further finance that would mean that the defendant would not default on the second loan and thereby become liable for an extremely high rate of interest.
In light of the credibility findings that I have made about the defendant, and the absence of any supporting documentary or other evidence, although I suspect that that may have occurred, I am not prepared to make that finding on the balance of probabilities.
Even if he did do so, it is not possible, on the evidence, to sheet that conduct home to the plaintiffs. By that I mean there is no evidence on which I could be satisfied that Mr Stone, or anyone else associated with HomeSec, authorised Mr Goodwin to say such a thing, or knew that he was going to say it, or that he had said it.
I do not find on the balance of probabilities that there was any sinister agreement to lure or force the defendant into a further short term loan shortly before she signed the second loan agreement, thereby extracting further monies from her. The evidence simply does not sustain that proposition.
At the time of the second loan, the defendant had the benefit of advice from her solicitor and her accountant. There is nothing to suggest that there was any deficiency in that advice.
On 25 October 2010, the defendant received legal advice with regard to the second loan from her solicitor. Mr Maley was a person with whom she had had a professional relationship with for some time. It was not the case that she merely walked in off the street and received his advice at the last minute.
At the time she signed those documents I am satisfied that the defendant was perfectly aware that the mortgage was over both properties. I am also satisfied that she appreciated that the mortgage was for a period of only four months, and that the interest rate was very high indeed. I am also satisfied that she was aware that the disbursements were to be paid out from the proceeds of the loan.
Although the default rate of interest of 144 per cent per annum may be described as eye-watering, neither party provided expert evidence as to whether such a rate is excessive, or even unusual, in the context of very short term and very high risk finance. In the circumstances, I am unable to make a determination that such a rate is exceptional or unusual. Nor am I persuaded that it is a matter about which I can take judicial notice pursuant to s 144 of the Evidence Act 1995. I simply approach it objectively, and make determinations about it as best I can.
Although the second loan agreement permitted the plaintiffs to calculate the interest on a compound basis, that has not been done. This was disputed by counsel for the defendant; however, the mathematics are indisputable. I find that the calculations are founded on simple interest, as demonstrated by the fact that the calculations have precisely the same interest amount owing every month.
Counsel for the plaintiffs submitted to me that, having made that election, it is not open to the plaintiffs to claim a higher rate of interest in the future or to seek to recalculate the interest by way of compound as opposed to simple calculations, pursuant to the doctrine of election. I accept that submission, and it forms one of the bases for this judgment.
I am not satisfied that this was an example of asset lending. The question of the ability of the defendant to meet interest payments over the period of the loan did not arise, because they were prepaid. I do not consider that Mr Stone was prepared to have HomeSec enter into the contract not caring whether the loan would or could be repaid without calling up the security. The document from which I have quoted demonstrates his reticence. Furthermore, I consider that the presence of an exit strategy at the end of the four month period of the loan was important to HomeSec. In truth that was one of two things; obtain further finance, most probably long-term finance, or promptly sell one of both of the properties voluntarily. I do not accept that it could be practical for HomeSec to do business and turn a profit simply by asset lending.
9. Submissions of the parties regarding the law
The Plaintiffs
Counsel for the plaintiffs submitted that there was no formal or other defect in the contracts upon which the plaintiff sued. Nor was there any failing in the demonstration of default in repayment of the loan, or other orthodox matters.
He submitted that any claim regarding the Contracts Review Act should be peremptorily rejected, on the simple basis of s 6(2) of that Act. He submitted that, on the evidence, the Court would comfortably find that "the contract was entered into in the course of or for the purpose of a trade, business or profession carried on by the person." He submitted that the defendant was in truth in the business of being a property investor and developer.
His ancillary position with regard to the Act was that, even if it did apply, the Court would find that, in truth, the defendant was an astute business woman who had simply made poor decisions and entered into short term finance at very high interest rates as a result. He submitted that she was perfectly well aware of what she was entering into with regard to the second loan, not least because she had four months previously entered into a very similar contract: the first loan and the mortgage securing it.
At my invitation he ran through the matters to be considered by the Court in s 9 of the Act, in support of his ancillary submission that, if the submission with regard to s 6(2) were rejected, relief should not be granted under the Act in any event. There is no need for me to summarise his submissions with regard to all of those matters. It suffices to say that his submission was that, on any fair analysis of the evidence, the matters to be considered did not demonstrate that it would be proper for relief to be granted under s 7 of the Act, on the basis that the Court would not consider that the second loan was "unjust in the circumstances relating to the contract at the time it was made".
As for any assertion of agency on the part of Mr Goodwin with regard to HomeSec, he submitted that that had not been established. In particular, he submitted that the fact that one or two emails sent before entering into the first loan may have suggested that Mr Goodwin was an employee of HomeSec hardly altered the position, in light of all of the other evidence to the contrary.
He submitted that, in light of the fact that the circumstances that will give rise to relief pursuant to the Act are broader and less extreme than those that need to be established to give rise to relief pursuant to the doctrine of unconscionability, if the defence and cross claim fail with regard to the Act, then that should be an end to the matter.
As for unconscionability, he submitted that first, in truth there was no asset lending; secondly, the defendant was not in a position of special disadvantage; and, thirdly, there could be no moral obloquy attaching to the behaviour of the plaintiffs.
The Defendant
A substantial part of the case for the defendant was founded on the proposition that, on various bases, Mr Goodwin was the agent of the first plaintiff. The submission was that, in light of the email address used, the HomeSec logo, and the description of Mr Goodwin as a home loan manager of HomeSec, he was holding himself out as representing HomeSec. Not only that, but Mr Stone the director of Homesec, knew that that was occurring. Therefore, it was submitted, any of the acts and words of Mr Goodwin that may have adversely affected the defendant before she entered the second loan can be laid at the feet of the first plaintiff.
Counsel for the defendant made it clear that she was relying upon ostensible authority. By that she meant that Mr Goodwin held himself out as an employee of HomeSec, Mr Stone was aware of those actions, Mr Goodwin held himself out in that way to the defendant, the defendant believed that Mr Goodwin was a home loan manager of HomeSec, and Mr Stone was aware that Mr Goodwin had been dealing directly with the defendant with regard to the loan.
She maintained her primary position with regard to the Act that the defendant should be relieved of all obligations arising from the second loan. Her ancillary position was that, if I were not prepared to completely free the defendant from her obligations under the second loan, I should at least adjust the interest rate downward substantially. She suggested that "a simple rate should be considered per annum such as 7 or 8 per cent".
Counsel for the defendant submitted that she was still relying upon s 52 of the Trade Practices Act, and s 43 of the Fair Trading Act as it applied as at the date of the second loan and related mortgage.
10. Agency
I was helpfully referred by counsel for the plaintiffs to the discussion regarding agency of Allsop P (with whom Bathurst CJ and Campbell JA agreed) in Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389. I am content to rely upon [176] of that judgment as follows:
"It is appropriate to set out the whole of Art 1 from Bowstead and Reynolds on Agency (19 th Ed) at 1 [1-001] since Art 1(4), in particular, posits a form of agency of some relevance here - one in which the agent has no power to create or affect legal relations:
"(1) Agency is the fiduciary relationship which exists between two persons, one of whom expressly or impliedly manifests assent that the other should act on his behalf so as to affect his relations with third parties, and the other of whom similarly manifests assent so to act or so acts pursuant to the manifestation. The one on whose behalf the act or acts are to be done is called the principal. The one who is to act is called the agent. Any person other than the principal and the agent may be referred to as a third party.
(2) In respect of the acts to which the principal so assents, the agent is said to have authority to act; and this authority constitutes a power to affect the principal's legal relations with third parties.
(3) Where the agent's authority results from a manifestation of assent that he should represent or act for the principal expressly or impliedly made by the principal to the agent himself, the authority is called actual authority, express or implied. But the agent may also have authority resulting from such a manifestation made by the principal to a third party ; such authority is called apparent authority.
(4) A person may have the same fiduciary relationship with a principal where he acts on behalf of that principal but has no authority, and hence no power, to affect the principal's relations with third parties. Because of the fiduciary relationship such a person may also be called an agent."
(Footnotes omitted.)"
I have found on the balance or probabilities that the emails of Mr Goodwin before the entry into the first loan were designed to elicit an emotional response in the defendant, and that that they in fact pressured and upset her. There is no dispute on the part of Mr Stone that he was aware of the email sent by Mr Goodwin on 29 June 2010 and its contents. I have also found that Mr Goodwin, between the entry into the first and second loans and their attendant mortgages, further pressured the defendant.
However, I have also found that the defendant was well aware that Mr Goodwin was her mortgage broker. I have also found that she was aware that, although there may have been some working relationship between HomeSec and Mr Goodwin, he did not represent them. Furthermore, I do not find that the defendant relied upon what Mr Goodwin said or did as being the acts or words of Homesec. I find that the defendant, whilst believing that there was some business connection between Mr Goodwin and HomeSec, understood that she was being pressured to resolve her position by her mortgage broker, not by one of her prospective lenders.
As Allsop P explained in Tonto Home Loans Australia Pty Ltd v Tavares, what the parties say about their relationships is not determinative, but nevertheless important. It is important that there was an agreement between Mr Goodwin and HomeSec to the effect that Mr Goodwin was not the agent of HomeSec. It is also important that, as between HomeSec and the defendant, there were acknowledgements by the defendant that Mr Goodwin was acting as her agent.
There is no evidence of express actual agency between HomeSec and Mr Goodwin. Nor is there is any evidence of an implied actual agency. Counsel for the defendant did not submit otherwise.
It may well be that Mr Goodwin was, at the time of the first loan, the agent of HomeSec by way of the doctrine of apparent agency. I say that because of the form of the emails that Mr Goodwin sent to the defendant, and the fact that the director of HomeSec knew that Mr Goodwin was sending emails styled in that way.
However, it is worth recalling a number of matters. The first is that the first loan, and those emails, predated the contract under consideration by some four months. The second is that I am not satisfied that, at any time, the defendant believed that the person whom she had retained as a mortgage broker was in fact representing someone else. The third is that, very shortly before entering into the contract under consideration, the defendant explicitly acknowledged that Mr Goodwin was her agent, and not the agent of HomeSec. The fourth is that, even if I were wrong in my finding of facts that the defendant did not consider, at the time of the first loan, that Mr Goodwin was in truth representing HomeSec, I would nevertheless maintain my finding that, by the time of the second loan, she was aware that he was her agent, in accordance with her acknowledgment.
In short, even if one accepts that Mr Goodwin was the agent of HomeSec at the time of the first loan by way of apparent agency, it does not follow that he was the agent of HomeSec at the time of the second loan four months later. Finally, even if I am wrong in that legal characterisation, and he was indeed the agent of HomeSec at the time of the second loan, I am not satisfied that the defendant relied to any substantial degree on anything he said in deciding to enter into the second loan.
That does not mean, of course, that the actions of Mr Goodwin are rendered irrelevant to the matter. They would certainly be relevant to, at the least, ss 9(2)(j)(ii) and (iii) of the Act. I will come to consider those provisions shortly.
11. Contracts Review Act - threshold question
Introduction
Section 6(2) of the Act is as follows:
"6 Certain restrictions on grant of relief
(1) The Crown, a public or local authority or a corporation may not be granted relief under this Act.
(2) A person may not be granted relief under this Act in relation to a contract so far as the contract was entered into in the course of or for the purpose of a trade, business or profession carried on by the person or proposed to be carried on by the person, other than a farming undertaking (including, but not limited to, an agricultural, pastoral, horticultural, orcharding or viticultural undertaking) carried on by the person or proposed to be carried on by the person wholly or principally in New South Wales."
In short, s 6(2) excludes contracts that were entered into:
(a) "for the purpose of a trade, business or profession"; and
(b) "carried on by the person or proposed to be carried on by the person".
There is no suggestion that the farming exception applies.
"For the purpose of trade, business or profession"
This part of the section has only received the attention of the High Court of Australia twice since its inception, and on neither occasion was it the subject of detailed analysis.
In the course of canvassing the consistency of statutory remedies with the operation of provisions of the Industrial Relations Act 1996, Kirby J referred fleetingly to s 6 of the Act in the decision in Fish v Solution 6 Holdings Limited [2006] HCA 22; (2006) 225 CLR 180. However, his Honour did not provide any analysis of the operation of s 6 of the Act.
The provision was also quoted and analysed briefly in Wallis v Downard-Pickford (North Queensland) Pty Ltd [1994] HCA 17; (1994) 179 CLR 388. However, as that decision arose from an appeal from the Supreme Court of Queensland, the context in which s 6(2) was considered was limited. Section 6(2) was referred to in the course of interpreting "for the purpose of a trade, business or profession" which appeared in the terms of s 74(3) of the Trade Practices Act.
In the course of considering s 74(3), Toohey and Gaudron JJ quoted the construction of s 6 of the Contracts Review Act that was adopted by Lee J in Collins v Parker (Supreme Court of NSW, Lee J, 11 May 1984, unreported).
I consider that the judgment of Lee J is of assistance in construing the phrase "for the purpose of a trade, business or profession". The relevant portion of the judgment at p 18 is as follows:
"The expression 'for the purpose of' has the meaning that the contract under consideration is entered into as an ordinary incident of the carrying on of a particular trade, business or profession then being carried on or proposed to be carried on."
The approach of Lee J was also adopted by Young J in Ellison v Vukicevic (1986) 7 NSWLR 104 at 111. However, that case was concerned with a business that was a farming undertaking, and no further detailed analysis was deemed necessary by his Honour in resolving the issue.
The "ordinary incident" test has received some, albeit reserved, endorsement in the Court of Appeal in Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 at [222].
In short, I propose to apply the "ordinary incident" test.
"Carried on by the person or proposed to be carried on by the person"
This aspect of the section has been considered in a number of decisions of the New South Wales Court of Appeal, such as Ford by his Tutor Beatrice Ann Watkinson v Perpetual Trustees Victoria Limited [2009] NSWCA 186; and Brighton v Australia and New Zealand Banking Group Ltd [2011] NSWCA 152. These decisions are to do with situations in which both a natural person and a corporation have had an involvement in the circumstances surrounding an impugned contract.
Here the defendant signed the second loan agreement on her own behalf. The Lewisham property, the Summer Hill property and the Lewisham terraces were all owned by her. Indeed, as I have noted, Ostara was not incorporated until October 2010. Although it received a brief mention in the loan application of 22 October 2010, it is clear on the evidence that Ostara had nothing to do with the contract and was not a vehicle used by the defendant over the years for her property activities or her antique business.
In the circumstances, I do not consider that I need to analyse the cases to which I have referred. That is for the reason that, on the evidence, it is clear that, if there was a business being engaged in, it was on the part of the defendant herself.
Determination
I have found that the defendant was a person who bought and sold many properties, rented at least two out, renovated them, and, in the case of the Lewisham terraces, sought to develop them. She borrowed significant sums for those purposes. She claimed as tax deductions expenses associated with the premises that were rented out, including interest expenses. The letter of 8 October 2010 to Northwest Commercial gives a flavour of how the defendant viewed herself, and was prepared to present herself, to a potential lender in 2010. As I have noted, in the short term loan application document that I extracted at [44] of this judgment, she described herself as a "Property Investor/Director ".
In all of the circumstances, I accept the submission of counsel for the plaintiffs that the defendant was engaged in a business of property investing, developing, and renting out of properties. I find that that was the activity that in truth occupied the time and effort of the defendant, not being a part-time kindergarten teacher. Whilst the antiques business also found success, I consider that the main commercial focus of the defendant for many years was her activities with regard to developing properties.
In light of the connection between the second loan and the arrears that existed with regard to the Lewisham property and the Summer Hill property, and in light of the purposes of the whole of the second loan identified in the agreement signed by the defendant, I find that the second loan was entered into "in the course of or for the purpose of" that business.
It follows that I accept that the threshold prohibition in s 6 of the Act applies. Therefore I hold that the defendant cannot rely upon the Act to seek relief with regard to this loan and mortgage.
12. Contracts Review Act - ancillary question
For abundant caution, I turn to consider the Act, on the assumption that I am wrong about the threshold question discussed immediately above.
Statute
I set out the most salient parts of the Act:
"7 Principal relief
(1) Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following:
(a) it may decide to refuse to enforce any or all of the provisions of the contract,
(b) it may make an order declaring the contract void, in whole or in part,
(c) it may make an order varying, in whole or in part, any provision of the contract,
(d) it may, in relation to a land instrument, make an order for or with respect to requiring the execution of an instrument that:
(i) varies, or has the effect of varying, the provisions of the land instrument, or
(ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the land instrument.
(2) Where the Court makes an order under subsection (1) (b) or (c), the declaration or variation shall have effect as from the time when the contract was made or (as to the whole or any part or parts of the contract) from some other time or times as specified in the order.
(3) The operation of this section is subject to the provisions of section 19.
4 Definitions
(1) In this Act, except in so far as the context or subject-matter otherwise indicates or requires:
...
unjust includes unconscionable, harsh or oppressive, and injustice shall be construed in a corresponding manner.
...
9 Matters to be considered by Court
(1) In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of:
(a) compliance with any or all of the provisions of the contract, or
(b) non-compliance with, or contravention of, any or all of the provisions of the contract.
(2) Without in any way affecting the generality of subsection (1), the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following:
(a) whether or not there was any material inequality in bargaining power between the parties to the contract,
(b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation,
(c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract,
(d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract,
(e) whether or not:
(i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or
(ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented,
because of his or her age or the state of his or her physical or mental capacity,
(f) the relative economic circumstances, educational background and literacy of:
(i) the parties to the contract (other than a corporation), and
(ii) any person who represented any of the parties to the contract,
(g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed,
(h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act,
(i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect,
(j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act:
(i) by any other party to the contract,
(ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or
(iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract,
(k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and
(l) the commercial or other setting, purpose and effect of the contract.
(3) For the purposes of subsection (2), a person shall be deemed to have represented a party to a contract if the person represented the party, or assisted the party to a significant degree, in negotiations prior to or at the time the contract was made.
(4) In determining whether a contract or a provision of a contract is unjust, the Court shall not have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the contract was made.
(5) In determining whether it is just to grant relief in respect of a contract or a provision of a contract that is found to be unjust, the Court may have regard to the conduct of the parties to the proceedings in relation to the performance of the contract since it was made."
General Approach
In Perpetual Trustee v Khoshaba [2006] NSWCA 41, Handley JA said:
"99 In this appeal I have had the benefit of reading the reasons for judgment of the Chief Justice and Basten JA in draft form. I agree that a case under the Contracts Review Act involves a three stage process - the making of findings of primary fact where these are disputed, the formation of an evaluative judgment as to whether or not the contract is unjust, and why, and then, if necessary, the exercise of the Court's discretionary power to grant relief and determine its extent.
100 The first stage may involve credit findings, and the drawing of inferences which attract the usual standards of appellate review, the second involves a drawing of inferences and the application of an indeterminate legal standard which, as to fact is subject to review in accordance with Warren v Coombs (1979) 142 CLR 531, and as to law is open to full review. The exercise of the Judge's discretion on the nature and extent of relief is subject to review in accordance with the principles in House v The King (1936) 55 CLR 499.
101 I agree with Basten JA that the phrase "the unjustness calculus" is not helpful because it suggests, wrongly, that the exercise is mechanistic whereas in my view it is, within broad legal limits, impressionistic and evaluative."
In the same case, and referring to the considerations under s 9, Basten JA said:
"112 The considerations identified in s 9 are matters to which a court shall, to the extent that they are relevant, have regard. In judicial review terms, they would be described as mandatory considerations. They involve factors which may tend in different directions in a particular case or may simply be inapplicable. However, I do not, with respect, find it helpful to refer to them as part of "the unjustness calculus". This phrase appears to reflect a label adopted in relation to the exercise required of a court in determining whether there is negligence or not in a tort case, derived from Wyong Shire Council v Shirt (1980) 146 CLR 40 at 47, known as the "Shirt calculus". As was said by Gleeson CJ and Kirby J in Mulligan v Coffs Harbour City Council (2006) 221 ALR 764 at [2], the use of the word "calculus" is unfortunate, because it tends to misdescribe the process to be engaged in as a method of calculation. In mathematical terms, it has a precise meaning, as in reference to differential calculus, which gives it a flavour far distant from the exercise required to be undertaken under ss 7 and 9 of the Contracts Review Act.
113 One danger of identifying the exercise as some form of calculation is that it may lead, subconsciously, to an approach whereby the power is thought to be engaged when at least one criterion is satisfied and should be exercised when a reasonable number of criteria are satisfied. That approach would be incorrect. The exercise requires an assessment of the relevant circumstances in relation to a broad concept of unjustness."
Factors required to be taken into account
A large number of matters are set out in s 9(2) to which I must have regard. I will relate each of them to the facts of this case.
"(a) whether or not there was any material inequality in bargaining power between the parties to the contract"
There was a degree of inequality of bargaining power, in the sense that the defendant was in urgent need of a loan in order to stop the first loan defaulting, and in order to bring the loans from Bankwest into order. HomeSec, on the other hand, at least through Mr Stone, was reluctant to enter into the second loan.
However, as I have discussed, the defendant had, some months before rejected long-term finance, on at least one occasion, that would have solved her problem. She rejected it on the basis that the interest rate was somewhat too high. The defendant had the assistance of an accountant and a solicitor. In the circumstances, I am not satisfied that there was material inequality in bargaining power.
"(b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation"
As I have said, prior to the first loan, the solicitor for the defendant had made some alterations to the loan contract that had been accepted by the lender on that occasion. However, with regard to the second loan, there is no evidence of negotiations between the defendant and the plaintiffs.
"(c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract"
As noted above, at the time of the first loan, at the suggestion of the solicitor for the defendant, certain terms of the loan contract were altered in favour of the defendant.
On the evidence, I am not able to determine whether or not, if the defendant had sought alterations to the terms of the second loan, the plaintiffs would have agreed to such alteration in her favour. I suspect that, in the circumstances, there would have been no such agreement.
"(d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract"
There is nothing about the conditions of the contract that makes them unreasonably difficult to comply with. In short, the defendant was required to repay the sum of money when it fell due or else face the possible consequence of having her two properties sold up in order to pay that sum with any interest owed.
As for whether or not the contract imposes conditions that are not reasonable necessary for the protection of the legitimate interests of the plaintiffs, I have already indicated that, in the absence of expert or other evidence with regard to the business of very short term, high risk lending, I am not in a position to say whether the interest rate charged goes beyond what was reasonably necessary to protect the interests of the plaintiffs.
In saying that I am referring to the default rate charged on a simple interest basis only. If the plaintiffs had sought to enforce the contract on the basis of compound interest, I would have regarded that as not being reasonably necessary for the protection of the legitimate interests of the plaintiffs.
"(e) whether or not:
(i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or
(ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented,
because of his or her age or the state of his or her physical or mental capacity"
I do not consider that the defendant was unable to protect her interests because of her age or the state of her physical or mental capacity. Indeed, the evidence is to the opposite effect.
I do not find that any person represented the defendant as defined in s 9(3), which is as follows:
"(3) For the purposes of subsection (2), a person shall be deemed to have represented a party to a contract if the person represented the party, or assisted the party to a significant degree, in negotiations prior to or at the time the contract was made."
"(f) the relative economic circumstances, educational background and literacy of:
(i) the parties to the contract (other than a corporation), and
(ii) any person who represented any of the parties to the contract"
As at the time of entering into the second loan, the defendant owned properties that, very roughly, were worth $4 million. She also ran a successful antiques business that turned a not insubstantial annual profit. She was completely literate. Although I did not receive direct evidence of her level of educational attainment, I assessed her as intelligent, not unsophisticated, and possessing business acumen.
"(g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed"
The contract and the mortgage are each lengthy and expressed in language that a layperson unused to commercial matters would have difficult understanding. Having said that, they are no more difficult to understand than the vast majority of legal documents.
"(h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act"
The defendant obtained independent legal advice from her solicitor of longstanding very shortly before she entered into the second loan and attendant mortgage.
"(i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect"
There is nothing to suggest that the solicitor for the defendant did anything other than fulfil his duty in explaining the provisions of the contract to the defendant. I have already indicated that I am satisfied that the defendant well understood the effect of the contracts into which she was entering. As I have indicated, I reject the proposition that she did not understand that she was signing a mortgage with regard to two properties as opposed to one. I am also well satisfied that the defendant knew that, if she defaulted on the second loan, there was a risk of losing both properties.
"(j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act:
(i) by any other party to the contract,
(ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or
(iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract"
The second and third plaintiffs had no contact whatsoever with the defendant.
As for HomeSec, neither Mr Stone nor any other employee of HomeSec had contact with the defendant.
I have found that Mr Goodwin, at least at the time he sent the email on 29 June 2010 before the first loan, sought to elicit an emotional reaction from the defendant that would cause her to do something about the arrears to Bankwest. I have also found that the receipt of that email caused the defendant to feel upset and pressured. Because of the attributes of that and other emails, I consider that it can be said that, at the time of sending them, Mr Goodwin was "appearing or purporting to act for or on behalf of" HomeSec. Finally, it was also the case that Mr Stone was aware that Mr Goodwin was sending emails styled in that way and with those general contents.
I have also found that, on the balance or probabilities, Mr Goodwin separately pressured the defendant between the first loan and the second loan. However, I am not satisfied that that behaviour can be sheeted home to Homesec.
I consider that it could be said that that behaviour on the part of Mr Goodwin amounted to unfair pressure.
"(k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party"
I have no evidence of similar contracts into which the plaintiffs had entered. As for the defendant, I am satisfied that she has entered into a large number of mortgages, and well understood them.
"(l) the commercial or other setting, purpose and effect of the contract"
The commercial setting was that an experienced and successful business woman had run into financial difficulties, the precise causes and extent of which are not made clear in the evidence. Although I have found that the loan was for business purposes, the precise purpose is also unclear, to the extent that, although the arrears to Bankwest were paid from the proceeds of the second loan, and although the first loan was discharged by the proceeds of the second loan, a not insubstantial sum was paid to the defendant that was used for her own purposes. Why the defendant borrowed that amount, above and beyond what was necessary to discharge the arrears to Bankwest and discharge the first loan, at an extremely high rate of interest, is a mystery to me that is not solved by the evidence. In the witness box, the defendant did not satisfactorily explain it.
The effect of the contract was that the defendant received a substantial sum of money, secured by her two properties, that led to her arrears to Bankwest being discharged and the first loan being discharged. It also had the effect that a very high rate of interest was to be prepaid, and that, if she defaulted in repaying the principal four months after the date of entry into the contract, she ran the risk of losing both her properties.
Evaluation
Determining a defence under the Act requires a three step process: first, finding the primary facts; secondly, deciding whether the contract is unjust; and thirdly, if so, deciding whether in the exercise of discretion to make orders.
As for the first step, I consider that I have found the facts, both generally and by direct reference to the mandatory factors, sufficient to determine the defence.
As for the second step, although each case under the Act falls to be determined on its own facts, I have been greatly assisted by considering the approaches adopted in the judgments at first instance of James J in Chen v Song [2005] NSWSC 19, Adamson J in Permanent Custodians Ltd v Nobilo [2012] NSWSC 109, and Johnson J in Permanent Mortgages Pty Ltd v MacFadyen [2012] NSWSC 130. I have also considered the approach to this evaluation by the New South Wales Court of Appeal in Perpetual Trustee v Khoshaba, Kowalczuk v Accom Finance [2008] NSWCA 343 and Tonto Home Loans Australia Pty Ltd v Tavares.
I do not find that the second loan and its attendant mortgage, or either of them as sought to be enforced, were unjust in the circumstances relating to the contract at the time it was made. I say that taking into account the fact that the defendant was under pressure from various sources. But balanced against that is the fact that the defendant was an experienced intelligent business woman, that she well understood the nature of the transaction into which she was entering, that she had received legal advice shortly before she entered into the second loan, that the mortgage was not a first mortgage over either the Lewisham property or the Summer Hill property, that the mortgage attached only partly to the family home (itself partly used to generate income), and finally that this is not a case of asset lending.
I repeat that, on the evidence before me, and in light of the absence of any expert evidence as to the usual rates of interest pertaining in the very short term, very high risk lending market, I am unable to conclude that the rate of interest, when calculated on a simple basis, is unjust. It follows that I do not accept the ancillary submission of the defendant about adjusting the interest rate of the contract.
Having said that, if the plaintiffs had sought to enforce, or were in the future to seek to enforce, an interest rate of 144 per cent per annum compounded monthly on a loan of $440,000 for four months, that would be, to use the words of Campbell JA in Kowalczuk v Accom Finance (with whom Hodgson and McColl JJA agreed) "utterly crushing". I would regard such a rate of interest as unjust within the meaning of the Act, and would have varied it. There is no need for me to provide a detailed calculation of the result, except to say that it would be in the order of an effective annual rate of interest of 290 per cent. Again, to adopt the words of his Honour, "there are some injustices too plain to need elaboration".
As a result of my finding, the third step does not arise.
In conclusion, I have borne in mind what McHugh JA (with whom Hope J agreed, and with whom Kirby P agreed on this point) said in West v AGC (Advances) Ltd (1986) 5 NSWLR 610 on this point at p 631 "The Contracts Review Act 1980 is beneficial legislation. It must be interpreted liberally." But, even adopting that approach, I do not find that this contract was unjust in the circumstances in which it was made.
13. Unconscionability
Because relief under the Act is almost always more broadly available than relief pursuant to the doctrine of unconscionability, I consider that I can deal with this aspect of the case for the defendant quite quickly.
I am not satisfied that the defendant was in a position of special disadvantage or disability. It is true that she was at a disadvantage, because of the pressing need to deal with the arrears to Bankwest, and the fact that the first loan would very soon come to an end. She was under pressure due to the failure of the development of the Lewisham terraces, her refusal to voluntarily sell one of her properties to deal with the arrears, her rejection of long-term finance on at least one occasion, and the words, oral and written, of Mr Goodwin. I have borne in mind what Deane J (with whom Mason and Wilson JJ agreed) said in The Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447 at p 474:
"The adverse circumstances which may constitute a special disability for the purposes of the principles relating to relief against unconscionable dealing may take a wide variety of forms and are not susceptible to being comprehensively catalogues."
But even adopting a broad and open-ended approach to the question, I do not find that this experienced business woman was in a position of special disadvantage. In particular, I find that she was under pressure very largely as a result of her own actions.
Secondly, I am not satisfied that any of the plaintiffs engaged in an exploitation of the weakness of the defendant that was morally culpable or would attract moral obloquy. In truth, as I have said, the documentary evidence suggests that, far from being eager to exploit the defendant, Mr Stone was cautious and reluctant about entering into the second loan.
Finally, the contract has had disastrous consequences for the defendant, especially with regard to the amount of interest that she is called upon to pay with regard to it. It could also be said that, as things turned out, it was very improvident of the defendant to enter into that contract. However, I do not consider that the transaction was inherently oppressive.
In short, I am not satisfied that the elements of unconscionability have been made out by the defendant.
14. Other Relief
Trade Practices Act claim
The defendant also relied upon Part IVA and Part V of the Trade Practices Act as it stood at the time of the loan.
I note that the Trade Practices Act has since been repealed by the enactment of the Competition and Consumer Act 2010 (Cth). However counsel for the defendant invited my attention to the transitional provisions of that Act and submitted that, as the loan was entered into on 28 October 2010, the Trade Practices Act is the correct statute to apply under this head of the defence and cross claim. Counsel for the plaintiffs did not submit to the contrary, and was content for me to proceed under the Trade Practices Act, subject to the submissions regarding the applicability of the Act that I discuss below.
Relevantly, the defendant asserts that the first plaintiff contravened ss 51AA, 51AB or 51AC and also s 52 of the Trade Practices Act. As I understand the structure of the relevant sections, the first group of provisions concerns unconscionability, whilst s 52 provides that corporations will not act in a misleading or deceptive manner.
Counsel for the plaintiffs drew my attention to the inapplicability of both Parts of the Trade Practices Act relied upon by the defendant. When pressed by me, counsel for the defendant conceded that ss 51AA, 51AB and 51AC had no application in the present litigation by operation of s 51AAB of the same Act, which provides that Part IVA (in which ss 51AA, 51AB and 51AC appear) does not apply to the provision of financial services. She also conceded that the present dispute is in relation to the provision of financial services.
However, the position of counsel for the defendant regarding the applicability of s 52 of the Trade Practices Act was not made clear. It appeared that the defendant pressed this Court to make a finding that the first plaintiff had behaved in a manner inconsistent with s 52 of the Trade Practices Act. However, when I drew her attention to s 51AF of the Trade Practices Act, noting that s 51AF appeared to operate in a similar fashion to s 51AAB but in the context of Part V (in which s 52 appears), counsel for the defendant was unable to assist the Court any further.
Counsel for the plaintiffs urged this Court to note that s 51AF excluded s 52 from operation when financial services are the subject matter of dispute. In support of this submission, he took the Court to the Australian Securities and Investments Commission Act 2001 (Cth), and invited my attention in particular to Part 2 of that Act, which he submitted to be mirror provisions of the Trade Practices Act as applicable to providers of financial services.
Counsel for the plaintiffs also sought to hold the defendant strictly to the case that was pleaded, both in the amended defence and the amended cross claim. Neither of those pleadings made reference to the Australian Securities and Investments Commission Act, instead only referring to the Trade Practices Act. Nor did the defendant seek leave relevantly to amend the pleadings on which she sought to rely.
In light of the position of the parties, I propose to consider only whether the Trade Practices Act sections identified in the pleadings may be relied upon by the defendant. To be clear, as counsel for the defendant conceded that Part IVA has no application, I am only considering whether s 52 founds the grounds of relief sought by the defendant.
As I drew the attention of counsel for the defendant to s 51AF of the Trade Practices Act, it is useful to set out the section (as it stood at the time of the impugned loan agreement) in full:
"51AF Part does not apply to financial services
(1) This Part does not apply to the supply, or possible supply, of services that are financial services.
(2) Without limiting subsection (1):
(a) sections 52 and 55A do not apply to conduct engaged in in relation to financial services; and
(b) if a financial product consists of or includes an interest in land, section 53A does not apply to that interest; and
(c) section 63A does not apply to:
(i) a credit card that is part of, or that provides access to, a credit facility that is a financial product; or
(ii) a debit card that allows access to an account that is a financial product.
(3) In subsection (2):
credit card has the same meaning as in section 63A.
debit card has the same meaning as in section 63A."
I consider that s 51AF(2)(a) excludes the operation of s 52 regarding conduct engaged in which relates to financial services. As counsel for the defendant has properly conceded that the impugned loan agreement is "in relation to financial services", I am satisfied that s 52 of the Trade Practices Act does not operate to provide any relief to the defendant.
In short, I would not uphold any of the relief sought pursuant to any of the provisions of the Trade Practices Act relied upon in the pleadings of the defendant.
Fair Trading Act claim
I now turn to consider the claim based on the Fair Trading Act.
The pleadings referred to ss 42 and 43 of the Fair Trading Act. However I indicated to counsel for the defendant that it appeared to me that the references to those provisions could be incorrect, as the current s 42 of the Fair Trading Act refers to the issuing of a subpoena, rather than being relevant to unconscionable conduct.
Counsel for the defendant then indicated that it may have been the case that the provisions she sought to rely upon had been moved, particularly in light of the enactment of the Competition and Consumer Act.
I consider that it is appropriate for me to examine ss 42 and 43 of the Fair Trading Act as at the date of the impugned agreement.
They were as follows:
"42 Misleading or deceptive conduct
(TPA s 52)
(1) A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
(2) Nothing in this Part shall be taken as limiting by implication the generality of subsection (1)."
43 Unconscionable conduct
(TPA s 52A)
(1) A supplier shall not, in trade or commerce, in connection with the supply or possible supply of goods or services to a consumer, engage in conduct that is, in all the circumstances, unconscionable.
(2) Without limiting the matters to which the Supreme Court may have regard for the purpose of determining whether a supplier has contravened subsection (1) in connection with the supply or possible supply of goods or services, the Court may have regard to:
(a) the relative strengths of the bargaining positions of the supplier and the consumer,
(b) whether, as a result of conduct engaged in by the supplier, the consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier,
(c) whether the consumer was able to understand any documents relating to the supply or possible supply of the goods or services,
(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the consumer (or a person acting on behalf of the consumer) by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services, and
(e) the amount for which, and the circumstances under which, the consumer could have acquired identical or equivalent goods or services from a person other than the supplier.
(3) A supplier shall not be taken for the purposes of this section to engage in unconscionable conduct in connection with the supply or possible supply of goods or services to a consumer only because the supplier institutes legal proceedings in relation to that supply or possible supply or refers a dispute or claim in relation to that supply or possible supply to arbitration.
(4) For the purpose of determining whether a supplier has contravened subsection (1) in connection with the supply or possible supply of goods or services to a consumer:
(a) the Supreme Court shall not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention, and
(b) the Court may have regard to conduct engaged in, or circumstances existing, before the commencement of this Act.
(5) (Repealed)
(6) A reference in this section to the supply or possible supply of goods includes a reference to the supply or possible supply of goods for the purpose of re-supply or for the purpose of using them up or transforming them in trade or commerce."
Counsel for the plaintiffs did not submit to me that I should not consider the sections as they stood at the time of the impugned agreement.
However, it is common ground between the parties that these provisions only operate insofar as against the second and third plaintiffs, as they are natural persons rather than corporations.
Both of these sections are concerned with the quality of the conduct of a party, and in that regard can be distinguished from relief pursuant to the Act, which is concerned with the justness or otherwise of a contract in the circumstances relating to it at the time it was made. The claim, therefore, depends upon the ability of the defendant to demonstrate that the conduct of the second and third plaintiffs is in some way a contravention of the two sections above.
I can dispose of this issue shortly.
No evidence was tendered at the hearing that demonstrated that the second and third defendants were in any way involved in the arrangement of the loan.
To the contrary, the plaintiffs led evidence that the role of the second and third plaintiffs was simply to invest funds and receive a return on their investment that the first plaintiff arranged. I accept the proposition that they had no responsibilities, and took no action, in any of the pre-contract negotiations.
In these circumstances, I am unable to find that the second and third plaintiffs engaged in any conduct related to the procurement of the loan under consideration, let alone any conduct that may have fallen foul of ss 42 and 43 entitling relief under ss 60 and 72 of the Fair Trading Act.
It follows that I would not uphold any claim for relief under the Fair Trading Act.
15. Conclusion and Orders
In short, I reject all of the bases for relief pleaded in the defence and cross claim.
It follows that I propose to enter judgment for the plaintiffs. I am not clear as to what is the current position with regard to possession of the two properties. Nor am I aware what is the current amount outstanding on the loan. In those circumstances, I propose to request that counsel for the plaintiffs draft orders that would give effect to my judgment, if possible with the agreement of counsel for the defendant as to their form. If it is convenient I would request the parties settle the proposed orders in two weeks, and file them three days before that time, such filing being able to be achieved through my Associate. The matter can be re-listed before then, at the convenience of the parties, on two days' notice, if those orders can be settled more quickly.
Costs
With regard to costs, counsel for the plaintiffs submitted that there is a provision in both the second loan agreement and attendant mortgage that permits the plaintiff to seek costs on a solicitor/client basis arising from these proceedings. In light of my findings in this judgment, I propose to allow the plaintiffs to recover their costs in accordance with those provisions. Again, that should be the subject of draft orders.
Orders
(1) Judgment for the plaintiffs.
(2) Stand proceedings over for further directions to 9:15am on 28 November 2012.
(3) Counsel for the plaintiffs to file and serve short minutes of order on or before 4pm 23 November 2012, setting out the orders he seeks in light of the judgment, including as to costs.
(4) Liberty to the parties to re-list the matter before Button J before then, on 2 days' notice.
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Decision last updated: 14 November 2012
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