Permanent Custodians Ltd v Shannon [No 2] - [2018] WASC 295

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION:   PERMANENT CUSTODIANS LTD -v- SHANNON [No 2] [2018] WASC 295
CORAM:   LE MIERE J
HEARD:   4-8 DECEMBER 2017
DELIVERED          :   21 SEPTEMBER 2018
FILE NO/S:   CIV 1174 of 2013
BETWEEN:   PERMANENT CUSTODIANS LTD
Plaintiff
AND
ANITA LOUISE SHANNON
First Defendant
CHRISTOPHER CHARLES SHANNON
Second Defendant
ANITA LOUISE SHANNON
First Plaintiff by Counterclaim
CHRISTOPHER CHARLES SHANNON
Second Plaintiff by Counterclaim
AND
PERMANENT CUSTODIANS LTD
First Defendant by Counterclaim
GEL CUSTODIANS PTY LTD
Second Defendant by Counterclaim
AUSTRALIAN MORTGAGE SECURITIES PTY LTD
Third Defendant by Counterclaim
AFIG WHOLESALE PTY LTD
Fourth Defendant by Counterclaim
REGISTER OF TITLES
Fifth Defendant by Counterclaim
PEPPER GROUP LTD
Sixth Defendant by Counterclaim

Catchwords:

Contract law - Mortgage contract - Default - Repayments not made in accordance with terms of agreement

Contract law - Enforceability of contract - Terms and conditions - Whether terms and conditions contained in separate document form part of the contract

Contract law - Agency - Whether intermediary between lender and borrower was an agent of the lender

Contract law - Whether assignment of rights, title and interest was effective

Contract law - Misrepresentation - Whether transaction is void or voidable as a result of misrepresentation

Misleading and deceptive conduct - Whether representations were misleading or deceptive under ASIC Act 2001 (Cth) s 12DA - Whether false or misleading representations made in contravention of National Credit Code s 124 and s 154 or Consumer Credit (Western Australia) Code s 144 and s 114

General law - Unconscionable conduct - Whether defendants were in a position of weakness and vulnerability and accordingly under a special disability at the time of entering the contract

Statutory unconscionable conduct - Whether procuring mortgage and loan was unconscionable conduct in contravention of ASIC Act 2001 (Cth) s 12CB

Property law - Fraud - Whether mortgage is void pursuant to Transfer of Land Act 1983 (WA) s 214A

National Credit Code - Unjust transactions - Whether transaction should be reopened pursuant to s 76

Limitation periods - Valid cause of action - Whether various claims by the defendant are time barred

Legislation:

Australian Securities and Investments Commission Act 2001 (Cth), s 12CB, s 12DA, s 12GF, s 12GM
Consumer Credit (Western Australia) Code (WA), s 114, s 144
Limitation Act 2005 (WA), s 13, s 38
National Credit Code (Cth), s 76, s 77, s 124, s 154, s 188
Transfer of Land Act 1893 (WA), s 214, s 214A

Result:

Judgment for the plaintiff
Defendants' counterclaims dismissed

Category: B

Representation:

Original Action

Counsel:

Plaintiff	:	Mr G D Cobby
First Defendant	:	Mr M M Mony de Kerloy
Second Defendant	:	Mr M M Mony de Kerloy

Solicitors:

Plaintiff	:	Norton Rose Fulbright Australia
First Defendant	:	Mony De Kerloy Barristers and Solicitors
Second Defendant	:	Mony De Kerloy Barristers and Solicitors

Counterclaim

Counsel:

First Plaintiff by Counterclaim	:	Mr M M Mony de Kerloy
Second Plaintiff by Counterclaim	:	Mr M M Mony de Kerloy
First Defendant by Counterclaim	:	Mr G D Cobby
Second Defendant by Counterclaim	:	Mr G D Cobby
Third Defendant by Counterclaim	:	Mr G D Cobby
Fourth Defendant by Counterclaim	:	Mr G D Cobby
Fifth Defendant by Counterclaim	:	No appearance
Sixth Defendant by Counterclaim	:	Mr G D Cobby

Solicitors:

First Plaintiff by Counterclaim	:	Mony De Kerloy Barristers and Solicitors
Second Plaintiff by Counterclaim	:	Mony De Kerloy Barristers and Solicitors
First Defendant by Counterclaim	:	Norton Rose Fulbright Australia
Second Defendant by Counterclaim	:	Norton Rose Fulbright Australia
Third Defendant by Counterclaim	:	Norton Rose Fulbright Australia
Fourth Defendant by Counterclaim	:	Norton Rose Fulbright Australia
Fifth Defendant by Counterclaim	:	No appearance
Sixth Defendant by Counterclaim	:	Norton Rose Fulbright Australia

Case(s) referred to in decision(s):

Ag‑Exports (Australia) Pty Ltd v Export Finance & Insurance Corp [2006] NSWSC 467
AME Hospitals Pty Ltd v Dixon (2015) 48 WAR 139
Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175
Attorney‑General (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557
Australian Competition and Consumer Commission (ACCC) v Berbatis Holdings Pty Ltd (2003) 214 CLR 51
Australian Competition and Consumer Commission (ACCC) v Lux Distributors Pty Ltd [2013] FCAFC 90
Australian Societies Group Financial Services (NSW) Ltd v Bogan [1989] ASC 55‑938
Barker v GE Mortgage Solutions Ltd [2013] QCA 137
Blomley v Ryan (1956) 99 CLR 362
Chapman v Luminis Pty Ltd [No 5] [2001] FCA 1106
Cheney v Duncan [2001] NSWCA 197
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447
Esanda Finance Corp Ltd v Viet Nho Tong & Thi Kim Lien Tong (1997) 41 NSWLR 482
Hawkins v Clayton (1988) 164 CLR 539
Ipstar Australia Pty Ltd v APS Satellite Pty Ltd [2018] NSWCA 15
Issa v Issa [2015] NSWSC 112
Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392
Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205
Louth v Diprose (1992) 175 CLR 621
Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494
Micarone v Perpetual Trustees Australia Ltd (1999) 75 SASR 1
Orchard Holdings Pty Ltd v Paxhill Pty Ltd as Trustee for Paxhill Trust trading as Property People [2012] WASC 271
Paciocco v Australia and New Zealand Banking Group Ltd (2014) 309 ALR 249
Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199
Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525
Paciocco v Australia and New Zealand Banking Group Ltd [2015] FCAFC 50
Perpetual Trustee Company Ltd v Burniston [No 2] [2012] WASC 383
Riz v Perpetual Trustee Australia Ltd [2007] NSWSC 1153
Scarcella v Lettice (2001) 51 NSWLR 302
Serventy v Commonwealth Bank of Australia [No 2] [2016] WASCA 223
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389
Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514
West v AGC (Advances) Ltd (1986) 5 NSWLR 610
Wombat Nominees Pty Ltd v De Tullio (1990) 98 ALR 307

LE MIERE J:

Summary

In 2006 the defendants, Mr and Mrs Shannon, purchased a residential property in Bakers Hill (the Land) on which they have lived since. Approximately $132,000 of the purchase price was provided by a loan from Mr Shannon's mother. The defendants paid the balance of the purchase price from a loan of $452,000. The documents signed by the defendants in relation to the loan were principally a loan agreement (Loan Agreement) with GEL Custodians Pty Ltd (GEL Custodians) and a mortgage in favour of GEL Custodians over the Land (Mortgage) as security for repayment of the loan (Loan).
GEL Custodians acted as the trustee and lender of record and mortgagee in respect of loans made under the ARMS III securitisation programme. Australian Mortgage Securities Ltd (AMS) had overall responsibility for the originating and servicing of loans under the programme. AMS appointed AFIG Wholesale Pty Ltd (AFIG) as its agent to exercise all of its powers, rights and functions. Yes Home Loans Pty Ltd (YHL) carried out functions under the ARMS III Programme, including originating and managing mortgages under the programme.
The Loan and mortgage loan insurance in respect of the Loan were procured by misrepresentations made by David Lock to AFIG and Genworth Financial Mortgage Insurance Pty Ltd (Genworth Financial) respectively concerning the employment, income, assets and liabilities of the defendants. Mr Lock was the South Australian manager of YHL and a friend of the defendants.
The defendants failed to make loan repayments on the dates specified in the Loan Agreement and the Mortgage on numerous occasions until July 2011, when they ceased making any payments. GEL Custodians served on the defendants a notice of default requiring the defendants to remedy the default, failing which it required payment of all the money owing pursuant to the Loan Agreement and the Mortgage. The defendants did not remedy the defaults specified in the default notice and, the plaintiff says, GEL Custodians became entitled to payment of all the moneys secured by the Mortgage and to possession of the Land.
In 2016 GEL Custodians assigned all its rights and interests in the Loan Agreement and the Mortgage to the plaintiff, Permanent Custodians Ltd (Permanent Custodians). Permanent Custodians was subsequently registered as the proprietor of the Mortgage. Permanent Custodians claims payment of the amounts owing under the Loan Agreement and the Mortgage, including interest, and possession of the Land.
The defendants deny a number of elements of the plaintiff's case. The defendants deny that the terms of the Loan Agreement included terms in the Terms and Conditions Release 4.02 document (Terms and Conditions document or Terms and Conditions), which set out terms on which the plaintiff relies. The defendants deny that the Mortgage incorporates the terms and provisions in the Memorandum of Common Provisions G309402 (Memorandum) filed and registered at the Department of Lands, which also sets out terms on which the plaintiff relies. The defendants do not admit that GEL Custodians advanced the loan amount at settlement of the purchase of the Land. The defendants deny that there was a valid assignment of the Loan Agreement and the Mortgage to the plaintiff.
In further answer to the plaintiff's claim, the defendants advance a number of claims of their own. The defendants' claims are based principally on alleged wrongdoing by YHL which introduced the defendants to AFIG and GEL Custodians. The defendants claim that YHL, as agent for AFIG, AMS and GEL Custodians, made a number of misrepresentations. The defendants claim that GEL Custodians acted unconscionably by the wrongful conduct of its agent YHL and by failing to check the veracity of the information in the defendants' loan application and that YHL had complied with the guidelines for making and processing a loan application. The defendants ask the court to reopen the transaction that gave rise to the Loan Agreement and the Mortgage on the ground that the Loan Agreement and the Mortgage were unjust. The defendants make a number of other claims which I will refer to later in these reasons. The defendants' counterclaim seeks declarations and orders which would have the effect of discharging or setting aside or making void the Loan Agreement and Mortgage, or reducing the amount payable under the Loan Agreement and Mortgage, and orders for compensation or damages.
For the reasons which follow, the plaintiff has proved that the debt of $1,301,131.80 plus interest from 4 December 2017 is due and payable to it by the defendants and the plaintiff is entitled to possession of the Land. The defendants have failed to prove any of their claims. Judgment should be entered for the plaintiff in the amount of $1,301,131.80 together with interest and fees, charges and enforcement expenses under the Loan Agreement and Mortgage, and for possession of the Land. The defendants' counterclaim should be dismissed.

The evidence

The plaintiff relied principally upon documentary evidence, of which there is a lot.
The plaintiff adduced evidence from one witness - Mr Williams, who has been general counsel and company secretary of Pepper Australia Pty Ltd (Pepper Australia) (now known as Pepper Group Ltd the sixth defendant by counterclaim) since February 2012. Mr Williams was a truthful witness who tried to assist the court. However, he did not have personal knowledge of many matters about which he was asked questions.
The defendants each gave evidence by way of a witness statement and were cross-examined. They also rely upon documentary evidence.

Credibility and reliability of defendants

The evidence of each of Mr and Mrs Shannon on critical issues was unreliable and lacked credibility. The first matter to observe is that because of the circumstances in which they recorded the material which comprises their evidence first in affidavits, and subsequently in their witness statements which became their evidence‑in‑chief, I am not satisfied that each of them accurately perceived, recalled or recorded the material which comprises their evidence. Each of their witness statements is not a statement of their independent recollection.
First, their witness statements are the result of a collaborative effort. Each of the defendants swore a number of affidavits in interlocutory proceedings in the course of which they gave evidence of relevant events, representations made to them and their knowledge of matters such as the identity of the lender, when they learned of GEL Custodians, and the role of GEL Custodians in the relevant transactions. The affidavits sworn by Mr Shannon are identical to those sworn by Mrs Shannon. Mrs Shannon explained that some of the affidavits were prepared by her and some of them were prepared by her husband and that is the process involved by which they gave identical evidence. Their witness statements follow a similar structure and often contain identical statements. Mrs Shannon explained that in writing their affidavits they each read the drafts and suggested changes. When it was put to her that she and her husband had discussed what evidence they should each give she replied:
As a collective evidence, I guess it was.
When it was put to her that her affidavits were not her independent recollection of what had occurred she said:
On some of them. I would say so, yes. Some would be my recollection and some would be Chris' recollection.
Secondly, the defendants' witness statements are in large part a reconstruction of what they assume, believe or assert to have occurred after examining emails and other documents. Each of them conceded that in preparing their evidence over the course of the years they had had regard to documents and wrote their affidavits and witness statements by reference to the documents rather than their independent recollections. For example, in cross‑examination Mrs Shannon said that Mr Lock called the defendants on 22 May 2006 and told them that finance had been formally approved. In explaining why she said that happened Mrs Shannon said:
When I put the emails together and created that story, I would say yes, that would be the date that it happened.
She went on to explain that she:
probably looked at a lot of documents that we got in 2006 to work out and to explain to the court what happened in a witness statement.
Significant parts of Mr Shannon's evidence were reconstructed to fit the case he was putting forward. For example, in explaining that he did not know that the Loan Agreement incorporated terms contained in the separate Terms and Conditions document, notwithstanding that the Loan Agreement stated that the loan contract was offered on the terms and conditions set out in 'this Loan Agreement and additional terms and conditions contained in the document titled "Terms and Conditions" release number 4.02 enclosed', Mr Shannon said:
[M]y understanding of English led me, I think, to believe that 'enclosed' means within these pages, not a separate, supplementary document which wasn't even in the document bundle that I was meant to have somehow imagine I haven't got … well, that sounds like the same terms, 4.02, in the very first page on 899, which I thought were enclosed and therefore, I didn't see a problem. At least that's what I imagined would have occurred, in my mind, at the time 11 years ago.
In cross‑examination at times each of Mr and Mrs Shannon made argumentative statements rather than simply answering the questions put to them. At times Mr Shannon was belligerent. I acknowledge that Mr Shannon is aggrieved by what has happened and that he believes the plaintiff, GEL Custodians and the other companies involved in the ARMS III Programme, are at least in part responsible for what has happened. However, Mr Shannon's evidence in significant respects appeared to be tailored to fit his case rather than being a frank recollection.
The evidence of each of Mrs Shannon and Mr Shannon on a number of significant issues lacked credibility. For a long time in the course of these proceedings they deliberately concealed the nature of their relationship with Mr Lock because they thought it would or might adversely affect their case. The defendants approached YHL for a loan because they knew Mr Lock personally. However, in 14 affidavits sworn by each of the defendants in the proceedings neither of them made any reference to their friendship with Mr Lock and referred to approaching YHL because it had won a non‑bank lender award. It was not until the defendants engaged their present solicitors and delivered new witness statements shortly before trial that they disclosed their friendship with Mr Lock. Mrs Shannon said in cross‑examination that she had not mentioned their friendship with Mr Lock earlier because she assumed that the plaintiff would question the relationship and she was concerned that 'people were trying to put that connection rather than exactly what had happened'. Mrs Shannon said that if she had mentioned their relationship with Mr Lock:
[T]he line of questioning would go along the lines of what you're after or asking now and it would be difficult for me … to put my side of the story forward.
I find that Mr and Mrs Shannon each made misleading statements in affidavits about why they approached YHL because they wished to conceal from the plaintiff and the court their relationship with Mr Lock.
I find that some of the statements made by each of Mr Shannon and Mrs Shannon are not true and were not made in good faith. In particular, each of them gave evidence that they had not heard of GEL Custodians before 13 June 2006 and that on 13 June Mr Shannon telephoned Mr Lock who said that GEL was a subsidiary of YHL and its trustee, and YHL was the lender. For the reasons I set out later, I do not believe them.
In their defence, the defendants plead that on or about 22 May 2006, without further reference to the defendants and without obtaining any agreement or acceptance to any proposed loan or the conditions thereof from the defendants, YHL advised Elders Real Estate that YHL had approved a $452,000 loan to the defendants thereby making the contract for sale unconditional and committing the defendants to the purchase of the Land. In their witness statements, each of Mr Shannon and Mrs Shannon state that on 22 May 2006 YHL informed them that it had sent an approval letter to the real estate agent that YHL had unconditionally approved their loan. Neither of them referred to Mr Shannon's email of 18 May 2006 to Mr Lock in which he referred to the defendants' deadline for finance approval being 22 May 2006 and asked Mr Lock to make sure that the approval got to the real estate agent before then. Neither of them referred to the telephone call Mr Shannon made to Mr Lock on the morning of 22 May 2006 to make sure that Mr Lock sent the finance approval later that day. Mr and Mrs Shannon's evidence was disingenuous and misleading.
Before setting out the events involving the defendants giving rise to these proceedings, I will refer to the mortgage securitisation programme under which the Loan was made to the defendants.

ARMS II and ARMS III securitisation programmes

The evidence includes a number of documents which set up or govern the ARMS II Programme and the ARMS III Programme, which succeeded it in May 2006. The documents are complex. I will summarise only those aspects of the ARMS programme structure and the documents establishing it that are necessary for an understanding of the issues in this case.

The structure of the ARMS II and ARMS III Programmes involved a number of trusts. The original trustee was Permanent Custodians but the original Master Trust and Security Trust Deed is not in evidence. The ARMS III Programme is based on the Master Trust and Security Trust Deed dated 5 May 2006. It was common ground that the ARMS II Programme was based on a Master Trust and Security Trust Deed executed in or before 1995 under which Permanent Custodians was the initial Trustee. Under the Master Trust and Security Trust Deed dated 5 May 2006 GEL Custodians is the Trustee. The obligations of the trustee, trust manager, and trust servicer are also contained in the Master Originating & Servicing Agreement for the ARMS II Programme dated 7 March 1995.
From time to time persons invested money in trusts set up by AMS under the ARMS II Programme. The money invested in the trusts was available for investment on registered first home mortgages.
The mortgages were originated and managed by 'correspondents' and/or AFIG. The mortgages were covered by mortgage insurance. The mortgages were registered in the name of and held by Permanent Custodians as trustee of the trust. AMS had overall responsibility for the originating and servicing of loans and relied on the correspondents to perform its obligations to originate mortgages satisfying the standards and other criteria, which were set out in a deed between AMS and each correspondent, and a manual entitled Operations Manual. AMS appointed AFIG as its agent to exercise all of its powers, rights and functions.
In 1999 YHL agreed to become a correspondent and to carry out functions in relation to the origination and management of loans and mortgages on the terms and conditions set out in a deed (the Correspondent Deed). Under the Correspondent Deed YHL agreed that in exercising its powers and performing its obligations under the deed it would comply and act in accordance with the Operations Manual.
AMS established a new trust which gave rise to the ARMS III Programme. On 25 May 2006 AFIG announced, and informed the correspondents, of a change to its ARMS Programme. AFIG would no longer place any business in the ARMS II Programme with Permanent Custodians as lender of record and effective from 29 May 2006 all new business would be funded through the new ARMS III Programme with GEL Custodians as the lender of record and mortgagee. The Operations Manual was updated. It is common ground that YHL continued as a correspondent in accordance with the terms of the Correspondent Deed executed in 1999.
The Correspondent Deed provides that the correspondent may from time to time give to AMS mortgage proposals, that is, a proposal by the correspondent to AMS for the making of a loan secured by a mortgage. Each mortgage proposal must be in the form and in accordance with the Operations Manual and any relevant mortgage insurance policy. The correspondent must give AMS all information requested by AMS in relation to a particular mortgage proposal which is reasonably required by AMS to give consideration to and process the mortgage proposal. AMS may accept but has no obligation to accept a mortgage proposal. If AMS accepts a mortgage proposal the correspondent must take all actions which it is required to take in implementing that proposal under the Operations Manual and it must comply with the Operations Manual. The Correspondent Deed provides for reimbursement of the correspondent for performing its obligations under the Correspondent Deed. AMS is obliged to pay to the correspondent fees agreed from time to time between them in relation to the performance by the correspondent of its obligations under the Deed.

Defendants' friendship with Mr Lock

In 2001 the defendants were living in Sydney. Mr Lock and his partner were friends of the defendants. Mr Shannon worked with Mr Lock at a business called Storage King for about a year before Mr Shannon left and started an online marketing business called E-News Direct. Mr Lock was an exponent of mixed martial arts and Mr Shannon a boxer. They trained together. They ran together. The defendants saw Mr Lock and his partner socially. Mr Shannon described Mr Lock as a fairly close friend. In 2004 Mr Lock left for Adelaide and became the South Australian State manager of YHL. The defendants visited him and stayed at his house for a week in Adelaide. They remained friends.

Defendants' financial circumstances

The defendants say that when they entered into the Loan Agreement in June 2006 they could not afford the Loan and they would not be able to meet the repayments under the Loan Agreement but that at the time they thought they could. The evidence is that in June 2006 the defendants could not afford the Loan and would not be able to meet the repayments without substantial hardship unless there was some change in their financial circumstances for the better. Their only source of income was the profit earned from their partnership operating the E‑News Direct business. The partnership tax return for 2004 shows that the profit available for distribution was $62,446 which was divided equally between the defendants.
The defendants moved to Western Australia in early 2005. In April 2005 they registered the business name E-News Direct in Western Australia. The partnership tax return for 2005 shows that the net income from the business before tax had fallen to $24,213. The business recovered somewhat the following year. The partnership tax return for 2006 shows that the net income of the business before tax was $88,137. Those figures alone, in the absence of some other source for paying the mortgage repayments, leads to the inference that in June 2006 the defendants would not be able to pay monthly repayments of $2,595.23 ($31,143 per year) without substantial hardship.
Mrs Shannon said that the defendants thought they could afford to pay between $2,000 and $2,500 a month mortgage repayments based on what they had been paying in Sydney for rent. The defendants had left Sydney in March 2005. Mrs Shannon said that nevertheless they thought they could still make repayments in that amount. Mrs Shannon acknowledged that their business had fallen off after they moved to Perth in 2005 but said that business was picking up again. The defendants did not have available to them any profit and loss statements or cash flow statements, budgets or projections for the business because they had not prepared such statements. The defendants did not have reasonable grounds for believing that they could make monthly mortgage repayments in the order of $2,500.

Defendants approach YHL for a loan

In late 2005 the defendants started looking for a house to buy. They were living in rented accommodation in Bassendean. As I have said, the defendants thought that based on what they had been paying in Sydney for rent they could pay mortgage repayments between $2,000 and $2,500 a month, notwithstanding that they did not have reasonable grounds for that belief. The defendants formed that belief as a result of their own assessment. That belief and assessment was not based on any information provided by, or conduct of, YHL or GEL Custodians. The defendants decided to approach YHL for a loan. They decided to approach YHL because they knew their friend Mr Lock was the South Australian State manager of YHL.
On 23 March 2006 the defendants took Mr Shannon's mother, who I will refer to as Mrs Shannon Snr, to look at the Land. Mrs Shannon Snr suggested that she purchase the Land. Between 23 March and 19 April the defendants and Mrs Shannon Snr discussed buying the Land. Mrs Shannon Snr offered to buy the Land. The defendants decided to see if they could get finance to purchase the Land themselves.
The evidence does not clearly establish when the defendants first approached Mr Lock about a loan to purchase a house. Telephone records show that Mr Shannon telephoned YHL's Adelaide office on 20 January 2006. Mrs Shannon thought that they first approached Mr Lock in March. On 23 March Mr Shannon sent an email to Mr Lock saying that he had not received the application form from Mr Lock. Mr Lock immediately sent a loan application form to Mr Shannon. The application form states that YHL is the mortgage manager and that the credit provider is each of the organisations named in sch A (whether acting individually or together). The credit providers listed in sch A include Permanent Custodians but not YHL. I note that at that time AMS funded business through the ARMS II Programme with Permanent Custodians as the lender of record.
The defendants partially completed the loan application form. The partially completed form stated that Mr Shannon and Mrs Shannon were employed by E-News Direct as sales manager and production manager respectively. They did not fill in any financial details, that is, their income, assets and liabilities. They signed the form, dated it 19 April 2006 and sent it to Mr Lock by email on 19 April.

Defendants sign contract to purchase the Land

On 24 April 2006 the defendants signed a contract to purchase the Land by a contract for sale of land by offer and acceptance. It was signed by the vendor on the same day. The purchase price is $565,000. The contract states that it is conditional upon finance approval being obtained before 22 May 2006 in an amount of 80% of the purchase price, which is $452,000. The specified lender is YHL. The defendants sent a copy of the contract for sale of land to YHL. On 26 April Mr Shannon sent an email to Mr Lock asking Mr Lock to give Mr Shannon a call because there were some new details Mr Shannon needed to talk to Mr Lock about regarding the loan they had been discussing.

YHL informs vendor's agent finance approved

From late April there were communications between the defendants and Mr Lock concerning a valuation report in respect of the Land. On 27 April Mr Lock emailed the defendants 'with regards to the valuation and the concerns you may have'. Mr Lock said that he would do whatever he could to ensure 'this goes ahead' but it was critical that 'the valuation stacks up'. Telephone records show that Mr Shannon called YHL's Adelaide office on 1 May and 3 May. On 4 May Mr Lock emailed the defendants concerning arrangements for the valuation. There were further emails concerning the valuer and the valuation report on the following days. On 11 May YHL received a valuation report from Hegney Property Valuations. On the same day Mr Lock emailed a copy of the valuation report to the defendants with the request that they not call the valuer and discuss it 'as we are not meant to give these out'. Later that day Mr Shannon responded thanking Mr Lock 'for all your assistance in getting this deal financed' and that the defendants 'really appreciate and want you to know we think you're a really good bloke to have as a friend'. Mr Shannon finished:
Cheers mate and thanks one million … (or at least thanks a 450,000!).
Telephone records show that Mr Shannon telephoned YHL's Adelaide office on 16 May and 18 May. On 18 May Mr Shannon emailed to Mr Lock a copy of a building report and stated that it should give Mr Lock 'some confidence that you have backed a good each way bet'. Mr Shannon stated:
Also, our deadline for finance approval is Monday, (22/05/06). Could you, please, make sure the approval paperwork gets to the REA before close of business Monday, please?
On 22 May at 10.44 am Mr Shannon telephoned Mr Lock to make sure that Mr Lock sent the finance approval letter that day. At 11.35 am (1.05 pm Australian Central Standard Time) Mr Lock emailed to Elders Real Estate an inter‑office memorandum referring to the approval for purchase of the Land and stating:
Please accept this memo as advice of the formal approval with regards to the aforementioned purchase. We have approved $452,000 in the names of Christopher Shannon and Anita Gibson.
(Mrs Shannon was Anita Gibson prior to marrying Mr Shannon in 2007.) At 12.30 pm Mr Lock emailed to Mr Shannon that the approval letter had been sent to Elders.
In their defence the defendants plead that on or about 22 May 2006, without further reference to the defendants and without obtaining any agreement or acceptance to any proposed loan or the conditions thereof from the defendants, YHL advised Elders Real Estate that YHL had formally approved a $452,000 loan to the defendants, thereby making the contract for sale unconditional and committing the defendants to the purchase of the Land. In oral submissions counsel for the defendants, Mr Mony de Kerloy, submitted that upon YHL informing the vendor's agent, Elders Real Estate, that the defendants had obtained approval for a loan of $452,000 the defendants were 'committed to a loan without seeing the terms and conditions or the loan approval' because the contract of sale had then become unconditional and the defendants had no option but to proceed with the loan which they subsequently agreed in the Loan Agreement.
The statement in the pleading that YHL informed Elders of the finance approval 'without further reference to the defendants and without obtaining any agreement or acceptance to any proposed loan or the conditions thereof from the defendants' is wrong. Mr Shannon says that he knew the essential terms on which the loan would be offered ‑ the amount, the interest rate and the term. There is nothing unusual in the other terms and conditions of the Loan Agreement or the Mortgage. Mr Lock informed Elders of finance approval at the urging of Mr Shannon. In his email of 18 May 2006 Mr Shannon referred to the defendants' deadline for finance approval being Monday, 22 May 2006 and asked Mr Lock to 'make sure the approval paperwork gets to the REA before close of business Monday'. On the morning of 22 May Mr Shannon telephoned Mr Lock to make sure that Mr Lock sent the finance approval later that day. Mr Shannon knew that the defendants had not received a copy of the proposed loan agreement and mortgage or their terms and conditions other than the amount, interest rate and term. The defendants pressed Mr Lock to inform the vendor's agent that finance had been approved in those circumstances and knowing that the sale and purchase contract would become unconditional and the settlement date specified in the contract for sale and purchase of the Land was on or before 19 June 2006.

YHL obtains mortgage insurance approval from Genworth Financial

On 25 May Mr Lock sent a facsimile to Genworth Financial attaching an application for mortgage insurance in respect of a loan of $452,000 to the defendants; the security address was the Land. The application form states that the lender is Permanent Custodians, the funding programme was AFIG and the originator was YHL. Attached to the application was a copy of what was said to be the loan application. The first three pages of the loan application form are completed in handwriting that is not the defendants'. I infer, as did the parties, that the pages were completed by Mr Lock or someone at his direction. The form states that Mr Shannon was employed by Red Dirt Personnel Group as operations manager at a gross salary of $96,600. The defendants are said to have assets with values including furniture of $60,000, a motor vehicle of $36,000, savings of $186,000, superannuation of $124,000 and art of $50,000. All of that information is a complete fabrication. Mr Shannon had never been employed by Red Dirt Personnel Group and the defendants did not have the assets listed.
The application declared that the accompanying loan documentation is a true copy of the application made by the borrower for the loan, that the lender has satisfied itself that the statements and answers made in the loan application form are true and correct to the best of its knowledge and belief. The form states:
It will be a term of any contract of insurance with Genworth Financial that any loan introducer, mortgage manager, financial agent, broker or loan originator involved in the establishment of the loan is agreed to be the agent of the lender for the purpose of provision of information and statements in and accompanying this application.

AFIG approves Loan

On 31 May 2006 YHL emailed to AFIG a mortgage purchase application by which, pursuant to the Correspondent Deed, AFIG was requested to accept the purchase of the mortgage loan to the defendants of $452,000. YHL certified in respect of the mortgage loan that as at the date of the application:
1.The information contained in the application and all attachments is correct.
2.The mortgage complies with the criteria set out in the Operations Manual and upon registration the mortgage loan will meet all criteria in the Operations Manual.
3.YHL was not aware, nor been able to ascertain by reasonable enquiry, of any reason or circumstances under which the borrower might be unable to pay in accordance with the terms set out in the loan contract or not without substantial hardship.
4.YHL was not in default under the Correspondent Deed and each mortgage loan was to be acquired by the Trustee pursuant to and in accordance with the Correspondent Deed.
The attachments to the application include a schedule (sch 2 to mortgage purchase application) signed by Mr Lock stating that the signed and completed application form and evidence of income were held on file and the employer had been telephoned by YHL to verify income. Also attached was a document titled 'Lender's Mortgage Insurance ‑ Acceptance Advice', from Genworth Financial.
The information contained in the application and the attachments was not correct. The mortgage did not comply with the criteria set out in the Operations Manual.

Mrs Shannon obtains home insurance

On 1 June SGIO issued a certificate of home insurance. The insured are the defendants and the home insured is the Land. The certificate states that the credit provider and first mortgagee is Permanent Custodians. Mrs Shannon arranged the insurance. She could not remember but accepted that she told SGIO that Permanent Custodians was going to be the mortgagee, and that Mr Lock had told her that Permanent Custodians was to be the mortgagee.

Defendants receive Loan Agreement and Mortgage

On 6 June AFIG completed an 'instruction to solicitor'. The instruction stated that AFIG confirmed acceptance of the mortgage and loan detailed in the schedule. The schedule stated the borrowers to be the defendants, the mortgagee to be GEL Custodians, the loan to be for $452,000 over 30 years with a five-year interest only period. The monthly repayments were to be $2,595.23 during the interest only period and $3,162.99 for the remainder of the term. The instruction instructed the solicitor to prepare and serve the loan contract, mortgage and other ancillary documents and to settle the loan. In accordance with the Operations Manual the instruction was forwarded by YHL to Wignall Solicitors on 6 June.
On 12 June the defendants received from Wignalls Lenders Mortgage Services (WLMS) a loan pack. The loan pack included a letter dated 8 June 2006 from WLMS to Mr Shannon headed 'Congratulations on being approved for a new Yes Home Loans Pty Ltd loan'. The letter listed documents that needed to be signed and returned and some additional documents that would need to be supplied for WLMS to provide the loan as quickly as possible. The letter contained the following note:
We recommend you obtain independent advice. Please note we act for the mortgagee and cannot provide advice to you.
The defendants spent an hour or so reading through the documents on the evening of 12 June and read them again in detail on the morning of 13 June. Mrs Shannon said she read the whole of the Loan Agreement before signing it. Mr Shannon said he read the Loan Agreement and the Mortgage fairly thoroughly. Mr Shannon saw that the offer was made by GEL Custodians in its capacity as trustee. The defendants signed the Loan Agreement and the Mortgage. The Mortgage states that the mortgagee is GEL Custodians. The Loan Agreement states that GEL Custodians in its capacity as trustee offers a loan contract on the terms and conditions set out and the additional terms and conditions contained in the Terms and Conditions document enclosed. The Mortgage states that the mortgagee agrees to observe and perform the terms and provisions contained in the Memorandum filed and registered with the Department of Land Administration which is deemed to be incorporated in and apply as if set out in full in the Mortgage.

Terms in the Terms and Conditions document incorporated in Loan Agreement

The defendants gave evidence that the Terms and Conditions document was not enclosed with the loan pack, they did not receive a copy of the document before they signed the Loan Agreement and they did not know that the Loan Agreement incorporated terms contained in the Terms and Conditions document.
The opening words of the Loan Agreement are:
GEL Custodians … in its capacity as Trustee is pleased to offer you a loan contract on the terms and conditions set out in this Loan Agreement and the additional terms and conditions contained in the document entitled 'Terms and Conditions' release number 4.02 enclosed ('Terms and Conditions').
The acceptance clause of the Loan Agreement says:
I/We have each received a copy of this Loan Agreement, the Terms and Conditions (Release No 4.02) and the Information Statement (Proposed Credit Contract). I/We agree to the terms of and accept this Loan Agreement.
Furthermore, a bullet point below the defendants' signatures states:
Please note that the Terms and Conditions and the Information Statement should be enclosed with this Loan Agreement. If you have not received the Terms and Conditions or the Information Statement, you should contact our solicitor for a copy.
The defendants spent some hours reading the Loan Agreement. Mr Shannon says he read it fairly carefully. Nevertheless, Mr Shannon claims that he did not understand that the Terms and Conditions document was a separate document. His explanation is that his 'lack of legal knowledge' and his 'understanding of English' led him to believe that 'enclosed' means within the pages of that document, not a separate document. I do not accept that explanation. The opening sentence of the Loan Agreement clearly states that the loan contract offered is on the terms and conditions set out in 'this Loan Agreement' and the additional terms and conditions contained in the document titled 'Terms and Conditions Release No 4.02'. Furthermore, the note below the defendants' signature says that the Terms and Conditions should be enclosed with this Loan Agreement and if you have not received the Terms and Conditions you should contact our solicitor for a copy. English is the first language of each of the defendants. Neither of them appeared to have any difficulty comprehending ordinary English words or sentences. If, as they say they did, the defendants read those sentences carefully they could not fail to understand that the Terms and Conditions document was a document separate from the Loan Agreement document read and signed by the defendants.
The defendants did not contact the solicitor for a copy of the Terms and Conditions document or inform anybody that they had not received a copy. I conclude that either the Terms and Conditions document was enclosed with the other documents in the loan pack or the defendants knew that the terms and conditions of the loan contract included terms and conditions in a separate Terms and Conditions document and were content to enter into a contract which included those terms and conditions without receiving a copy of it.
The defendants deny that the Loan Agreement expressly incorporates the terms and conditions contained in the Terms and Conditions document. I find that the Loan Agreement includes the terms and conditions contained in the Terms and Conditions document.
The objective theory of contract holds that agreement and intention are determined as a matter of inference from conduct, not a subjective, mental state. The parties are to be judged not by what was in their minds but what they wrote or did. Where a person has signed a document, which is intended to affect legal relations, and there is no question of misrepresentation, duress, mistake or any other vitiating element, the fact that the person has signed the document without reading it does not put the other party in the position of having to show that due notice was given of its terms: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 [54]. The defendants have not made out any misrepresentation, duress, mistake, or any other vitiating element in relation to the incorporation in the Loan Agreement of the terms and conditions in the Terms and Conditions document.

Terms of Memorandum incorporated in Mortgage

The Mortgage signed by each of the defendants is a simple document. The first page sets out in tabular form the description of the Land, the estate and interest, limitation and encumbrances, the mortgagor and the mortgagee. The second page states that the mortgagor agrees with the mortgagee the four matters then stated. The first is that the mortgagor will observe and perform the terms and provisions contained in the Memorandum which is deemed to be incorporated in and applied to the mortgage as if set out in full in the Mortgage. The defendants signed the Mortgage. In accordance with the objective theory of contract to which I have referred they are bound by the terms of the document they signed which incorporates the terms and provisions of the Memorandum into the Mortgage.
The Mortgage incorporates the terms and provisions in the Memorandum as terms and conditions of the Mortgage even if, contrary to the mortgage instrument which they signed, the defendants have not received a copy of the Memorandum or read all of its provisions before signing the mortgage instrument. They are bound by the terms of the Mortgage which incorporates the terms and conditions in the Memorandum as terms and conditions of the Mortgage. There is no evidence of any misrepresentation, duress, mistake or any other vitiating element in relation to the incorporation of the terms and provisions of the Memorandum into the Mortgage.

YHL did not represent that GEL Custodians was a subsidiary and trustee of YHL

The defendants said in evidence that they had not heard of GEL Custodians before 13 June 2006 and that on 13 June Mr Shannon telephoned Mr Lock and Mr Lock said that GEL was a subsidiary of YHL and its trustee and YHL was the lender.
In his witness statement Mr Shannon says:
60.I recall being perturbed by the sudden appearance of GEL Custodians Pty Ltd (as trustee) of the Loan Agreement and Mortgage. I was both surprised and concerned by this sudden change as I had not heard GEL mentioned at any time during the previous three months of negotiations with Yes Home Loans.
61.Mr Lock emailed us on 13 June 2006 and asked us to ring him ASAP. I spoke to Mr Lock about my concerns on 13 June 2006. Anita was in on the phone call. He had emailed me and asked me to ring him.
…
63.I also asked Mr Lock who GEL was and why it was appearing as the Credit Provider and Mortgagee instead of Yes Home Loans as I had anticipated. Mr Lock assured me it was a subsidiary owned and operated by Yes Home Loans and was Yes Home Loans' trustee. It was this reassurance which relieved my concerns and caused me to feel comfortable to sign the Loan Agreement and Mortgage.
64.On those bases, we then signed the forms and sent them back to Wignalls LMS in Adelaide.
Mrs Shannon gave in substance the same evidence in her witness statement.
I do not accept the evidence of either Mr Shannon or Mrs Shannon. Each of them swore an affidavit on 16 April 2014. The contents of each affidavit are identical. Each of them swore:
8.At no time did YHL ever mention GEL or PCL to myself or that they would eventually be listed as the Credit Provider and Mortgagee. They were simply never mentioned because YHL consistently claimed that it would be the Lender.
..
10.So, as I had no idea that the plaintiff, GEL, even existed or had any remote connection to the deal, my only intention was to enter directly into a contract with YHL when I signed the Loan Agreement.
11.On the 12th June 2006, when I saw GEL Custodians listed as the Credit Provider and Mortgagee, I simply presumed that GEL was a subsidiary of YHL and, that I was still dealing with YHL. I believe I had actually spoken with YHL that afternoon and even then, nothing was said to me about GEL or its role in the deal.
When confronted in cross‑examination with the inconsistency between the statements in her affidavit and in her witness statement Mrs Shannon explained why her evidence has changed. She said that in September 2014 she went to an old computer to bring up all the emails and had seen the email sent by Mr Lock at 8.26 am on 13 June 2006 to Mr Shannon saying 'Please call Dave Lock in office ASAP'. Mrs Shannon said that then she 'started to work out … the timeline of things happening'. She said that the email jogged her memory of what occurred through that time period. Mr Shannon, who was present in court during Mrs Shannon's cross‑examination, gave the same explanation. He said that the email that Mrs Shannon had referred to in her cross‑examination had jogged his memory about what had happened.
I do not believe them. It is not a case of a witness subsequently recalling something he or she had not recalled or referred to earlier. Their witness statements are directly inconsistent with their affidavits. I do not accept their explanation for the change of their evidence. The email does nothing more than suggest Mr Shannon may have called Mr Lock on 13 June 2006. In their affidavits Mr Shannon and Mrs Shannon each adverted to having spoken with YHL on the afternoon when they saw GEL Custodians listed as the credit provider and mortgagee and swore that nothing was said about GEL Custodians or its role in the deal.
Mrs Shannon conceded that on or before 1 June she had informed SGIO that Permanent Custodians was to be the mortgagee and that Mr Lock had told her that Permanent Custodians was to be the mortgagee. That is directly inconsistent with Mrs Shannon's statement in her affidavit of 16 April 2014 that 'at no time did YHL ever mention GEL or PCL to myself or that they would eventually be listed as the credit provider and mortgagee'. Furthermore, the statement of each of Mr and Mrs Shannon that they were perturbed by the sudden appearance of GEL Custodians in the Loan Agreement and Mortgage and that they asked Mr Lock why GEL was appearing as the credit provider and mortgagee instead of YHL is inconsistent with Mrs Shannon having been informed by Mr Lock on or before 1 June that Permanent Custodians not YHL was to be the mortgagee.
The defendants' conduct in 2009 and 2011 in asserting that their contract was with GEL Custodians further leads to the inference that the defendants knew that the Loan Agreement and the Mortgage were made with GEL Custodians not YHL. The defendants made a hardship application in June 2009, that is approximately three years after they signed the Loan Agreement and Mortgage. They dealt with AFIG trading as GE Money. In 2011 when YHL informed the defendants that Pepper Australia had entered into arrangements in relation to the home loan portfolio of GE Capital and the defendants' home loan was now being managed by or on behalf of Pepper Australia, the defendants did not protest that their home loan was with YHL. The defendants protested that their contract was with GEL Custodians which was the original lender.
I find that Mr and Mrs Shannon changed their evidence to fit the case they were presenting. In their affidavits they sought to argue that they had no intention to enter legal relations with GEL Custodians. At trial they were concerned to advance the case that Mr Lock had misrepresented to them GEL Custodians' role in the transaction.

Defendants sign Loan Agreement and Mortgage

The defendants signed the Loan Agreement and Mortgage documents and returned them to WLMS on 13 June. On 14 June WLMS sent a facsimile to YHL stating that settlement had been arranged for 19 June and attaching a Solicitors Certificate together with a copy of the loan contract, insurance and direct debit.
There is no doubt that the defendants signed the Loan Agreement by which they agreed to the terms of and to accept the Loan Agreement. The Loan Agreement states that it is made with GEL Custodians in its capacity as trustee. GEL Custodians is specified to be the credit provider. There is no doubt that the defendants signed the Mortgage as mortgagors and that GEL Custodians is stated to be the mortgagee.
In accordance with the objective theory of contract the Loan Agreement and the Mortgage each constituted an agreement between GEL Custodians and the defendants. The Loan Agreement included the terms and conditions contained in the Terms and Conditions document. The Mortgage includes the terms and provisions contained in the Memorandum.

Loan and purchase of Land settled

On 14 June YHL sent to AFIG settlement documents including a settlement notice in which YHL certified that as at the settlement date the warranties given in the Correspondent Deed will be true and correct, that the mortgage is to be acquired by the trustee (GEL Custodians) pursuant to and in accordance with the Correspondent Deed, that YHL was not aware, nor had been able to ascertain by reasonable enquiry, of any reason or circumstance under which the borrowers might be unable to pay in accordance with the terms set out in the loan contract or not with substantial hardship, that YHL had reviewed the solicitors certificate, loan contract and Mortgage and found them to be in order for settlement. Those statements were not correct.
The Solicitors Certificate was addressed to GEL Custodians, AFIG and YHL. It stated that 'you' are authorised and requested to ensure funds are available by way of interbank transfer to the firm's trust account to enable settlement to proceed on the settlement date specified. The funds required at settlement were stated to be $452,000 and GEL Custodians to be noted as first mortgagee.
On 16 June AFIG sent a facsimile to YHL stating that transfer of loan funds had been arranged to Wignall Solicitors trust account, that the total advanced was $452,000. Settlement occurred on 19 June 2006.

Loan amount was paid by or on behalf of GEL Custodians

AFIG instructed Wignall Solicitors that the transfer of loan funds of $452,000 to the solicitors trust account had been arranged in relation to the loan to the defendants to purchase the Land. The Solicitors Certificate stated that the loan amount was $452,000 and GEL Custodians was the first mortgagee. Wignall Solicitors purchased a bank cheque. A bank cheque was presented to the vendor's conveyancer at settlement.
Nevertheless the defendants do not admit that GEL Custodians paid the loan amount advanced to the defendants. The issue as to who provided the funds arises from an entry in WLMS's client trust ledger which gives the payee detail as 'Permanent Custodians Ltd'. That is inconsistent with the loan contract and the settlement instructions given to WLMS. The most likely explanation for that is that the employee of WLMS who made the data entry overlooked that Permanent Custodians had been replaced by GEL Custodians as the trustee and mortgagee on record under the ARMS III Programme which had succeeded the ARMS II Programme. There can be no doubt that AFIG arranged for the payment of $452,000 to the WLMS trust account from the funds held by the trustee of the ARMS III Programme. The Operations Manual cl 8.1 deals with the loan settlement procedure. Step 8 is that AFIG will arrange for the funds to be forwarded electronically to the approved solicitor's trust account on the day of settlement. The trustee was then GEL Custodians not Permanent Custodians, which had been the trustee of the ARMS II Programme before it was succeeded by the ARMS III Programme in May. At settlement the funds paid to the vendor were paid by bank cheque purchased by WLMS. On 22 June the defendants were registered as proprietors of the Land and the mortgage in favour of GEL Custodians was registered.
The plaintiff pleads that GEL Custodians advanced $452,000 to the defendants on or about 19 June 2006 pursuant to the Loan Agreement. That is not admitted by the defendants except that the defendants admit that at settlement they received $452,000 less $2,707 which WLMS deducted for their legal fees and disbursements, for mortgage stamp duty, the valuation fee and the Mortgage registration fees.
I find that GEL Custodians advanced $452,000 to the defendants pursuant to the Loan Agreement and the Mortgage. As I have said, the most likely explanation for the WLMS ledger detailing the payee as Permanent Custodians rather than GEL Custodians is that the employee of WLMS who made the data entry overlooked that Permanent Custodians had been replaced by GEL Custodians as the trustee and mortgagee on record under the ARMS III Programme which had succeeded the ARMS II Programme.
However, it does not matter. The funds were paid in discharge of GEL Custodians obligations under the Loan Agreement and pursuant to the Mortgage.
In its written submissions the plaintiff submits that if GEL Custodians did not itself advance the funds, the delegation of performance of contractual obligations is permissible where the obligations assumed do not require personal performance but only the producing of a result. Whether a given contract may be performed vicariously is dependent upon the proper inference to be drawn from the contract itself, including its subject matter and the surrounding circumstances. There is nothing in the nature of a loan agreement which requires that the advance of the funds the subject of that agreement be made by the lender personally, since it is the provision of funds for which the borrower contracts. There is no reason why a covenant to advance funds cannot be performed vicariously, at least where there has been no novation or assignment of the loan agreement by the lender, so that the identity of and the terms agreed between the parties remain unchanged. I accept those submissions. If GEL Custodians did not advance the funds itself, the inference that GEL Custodians arranged for the funds to be advanced pursuant to the Loan Agreement between GEL Custodians and the defendants is overwhelming. There is no other rational explanation for WLMS paying $452,000 to the vendors at the settlement of the purchase of the Land and the defendants having come to be registered as the proprietors of the property which they then mortgaged to GEL Custodians as contemplated by the Loan Agreement.

Defendants fail to make loan repayments

In July 2006 the defendants commenced making interest only loan repayments. On 31 July the defendants' lawyers, Clarke Whyte, lodged a caveat over the Land on behalf of Mrs Shannon Snr in which she claimed an interest as equitable mortgagee pursuant to an unregistered private mortgage entered into between her as lender and the defendants as mortgagor.
On 19 October 2006 the defendants failed to make the loan repayment then due and payable. The defendants failed to make the payment when due and payable each month to and including May 2007 and on numerous occasions again until July 2011 when they ceased making payments.
On 10 June 2009 the defendants made a hardship request. On 12 June 2009 AMS approved a hardship application by the defendants. It stated that three monthly instalments of $1,444 were to be paid from 19 June to 19 August 2009 and at the conclusion of that arrangement the arrears amount of $14,582.30 on the Loan would be incorporated into the balance of the loan account (capitalised) and the loan repayments increased to ensure the balance was paid over the existing term of the loan.
On 20 October 2009 the defendants completed a Hardship Request Form together with a letter addressed 'GE Hardship Request Form' in which they asked the GE Hardship team to extend their hardship relief until 31 January 2010. On 10 November 2009 AFIG (trading as GE Money) informed the defendants that their hardship application had been approved. The terms of the hardship arrangement were that three monthly instalments of $1,550.35 were to be paid from 19 November 2009 to 19 January 2010, after three consecutive monthly instalments had been paid the arrears amount of $7,325.45 would be incorporated into the balance of the loan account (capitalised) and the loan repayments increased to ensure the balance was paid over the existing term of the loan contract.

On 1 March 2011 GE Money acknowledged a further request for hardship assistance from the defendants but said that the request was incomplete. On 22 March 2011 GEL Custodians' solicitors, Norton Rose Fullbright Australia (Norton Rose), served upon the defendants a default notice. The notice stated that the defendants were in default under the Loan and the Mortgage, required payment of the arrears and stated that if the amount due was not paid within the time specified the whole of the balance outstanding under the Loan would become immediately due and payable in accordance with the terms and conditions of the Loan without further demand and GEL Custodians may exercise its various remedies.
On 15 August 2011 YHL informed the defendants that Pepper Australia had entered into arrangements in relation to the home loan portfolio of GE Capital Australia and New Zealand and that the defendants' home loan was now being managed by, or on behalf of, Pepper Australia. By a letter of 22 September 2011 the defendants referred to a letter regarding Pepper Australia assessing their request for hardship assistance and stated that their contract was with 'GE Custodians', which was the original lender, and they had not agreed to any change to the terms, conditions and management of their loan contract. On 5 October 2011 the defendants wrote to 'GE Custodians' stating that upon the sale of their property it was their intention to resolve the mortgage debt with 'GE Custodians' in full.

Defendants complain to Credit Ombudsman Service (COSL)

On 9 November 2011 Mrs Shannon made a complaint to COSL. The complaint summary stated that GE Money/GEL Custodians has not responded to the defendants' letter seeking clarification of their interest in the defendants' mortgage contract nor to the defendants' letter concerning a hardship proposal. By letter of 9 November 2011 to GEL Custodians Mrs Shannon had sought a response to the defendants' request for a hardship offer, referred to the defendants' mortgage contract with GEL Custodians and that they had not been informed of GEL Custodians' intentions to sell its interest in the mortgage contract to Pepper Australia. On 31 January 2012 COSL stated that as it had not received a response requested from Mrs Shannon it assumed she was no longer pursuing the matter and the matter had been closed.

GEL Custodians brings enforcement proceedings

On 20 February 2012 GEL Custodians commenced by writ of summons proceeding CIV 1276 of 2012 in this court against the defendants. The statement of claim alleged that the defendants had defaulted under the Loan and the Mortgage, GEL Custodians had sent a notice of default and the defendants had failed to comply with the notice. GEL Custodians sought payment of the outstanding amount of the Loan and possession of the Land. The defendants entered a memorandum of appearance and filed a defence.
The defendants corresponded with Pepper Australia about the enforcement proceedings. The correspondence included references to who owned and managed the Mortgage. On 3 August 2012 the defendants said that they had compiled evidence 'showing that forgery and fraud have been committed in the creation of the loan and mortgage'. They had found out that the loan application form held on file by YHL and submitted to Genworth Financial was not the loan application form they had completed. The first three pages had been substituted and contained the false information concerning their income, assets and liabilities to which I have earlier referred.
On 15 August 2012 Pepper Australia received from YHL documents which it said it had received from Genworth Financial including the YHL application form which contained the false information concerning Mr Shannon's employment and the defendants' assets and liabilities. There was further correspondence between the defendants and the solicitors for Pepper Australia. On 23 November GEL Custodians discontinued CIV 1276 of 2012.

GEL Custodians issues fresh default notice

On 27 November 2012 Norton Rose served a default notice on the defendants. The notice was stated to be given by GEL Custodians as credit provider under the Loan and mortgagee under the Mortgage. The notice stated that Pepper Australia was the servicer of loans made by GEL Custodians and acts for GEL Custodians. The notice stated that the defendants were in default under the Loan and the Mortgage in that they had failed to pay the agreed payments on the due dates set out in a schedule to the notice. The notice sets out payments due in every month from April 2011 to November 2012. The notice required the defendants to pay the full amount by which the loan was in arrears together with reasonable enforcement expenses and stated that if the total amount due was not paid within the time specified then the whole of the balance outstanding under the loan as specified in a schedule would become immediately due and payable in accordance with the terms and conditions of the Loan, that GEL Custodians may start proceedings to recover any payment due to it under the Loan and the Mortgage, may enter upon and take possession of the Land and may exercise its power of sale. The notice further stated that GEL Custodians may commence enforcement proceedings for the repossession of the Land if the default was not remedied.
There is no doubt that the defendants defaulted under the Loan Agreement and the Mortgage as asserted by GEL Custodians in its notice of default. There is no doubt that the defendants failed to remedy that default. Under the terms of the Loan Agreement and the Mortgage the whole of the amount owing to GEL Custodians under the Loan Agreement became due and payable by the defendants. GEL Custodians became entitled to the remedies provided for under the Loan Agreement, the Mortgage and the Transfer of Land Act 1893 (WA) (TLA).
The defendants requested that GEL Custodians and Pepper Australia refrain from pursuing enforcement proceedings at the expiration of the notice and enter into negotiations to attain a mutually acceptable resolution. On 24 January 2013 Norton Rose wrote to the defendants stating that the default identified in the default notice had not been rectified and the total amount outstanding under the loan and mortgage was then $572,191.34. Norton Rose stated that the defendants had not indicated a genuine intent to resolve the matter. Norton Rose stated that they had been instructed to commence proceedings for debt recovery and possession of the Land. On 5 February 2013 GEL Custodians commenced this action.

Second complaint to COSL

On 13 February 2013 the defendants instituted a second complaint to the COSL.

GEL Custodians assigned rights under Loan Agreement and Mortgage to plaintiff

The defendants deny that GEL Custodians assigned all its rights, title and interest in the Loan Agreement and the Mortgage to the plaintiff. First, the defendants say that there has been and can be no valid assignment of the Loan Agreement and the Mortgage because there was no property to assign. Subject to the defendants' claims that the Loan Agreement and the Mortgage were procured by misrepresentations and unconscionable conduct which I will consider later in these reasons I reject that argument for the reasons stated above.
The defendants' second argument that there was no assignment of the Loan Agreement and the Mortgage to Permanent Custodians depends upon the interpretation of the relevant transaction documents in light of the events that occurred. I find that the Loan Agreement and the Mortgage were effectively assigned. Pursuant to the terms of an agreement titled 'Amended and Restated Loans Purchase Deed (Australian Insured Portfolio)' dated 1 July 2011 (the Loans Purchase Deed) GEL Custodians sold its present and future right, title and interest in, amongst other things, the Loan Agreement and the Mortgage to Pepper Australia. Pursuant to the terms of a document titled 'Purchaser Nominee Trustee Accession Deed Poll' dated 6 July 2011 Permanent Custodians agreed to become a party to the Loans Purchase Deed and assumed the rights and obligations of Pepper Australia under the Loans Purchase Deed.
Under the terms of the Loan Purchase Deed the loans that were sold and transferred by GEL Custodians to Permanent Custodians did not include COSL Loans. A COSL Loan was defined as a loan originated before the cut‑off date and which was the subject of a complaint or dispute before the COSL and that had not been resolved, settled, determined, discontinued or otherwise finalised by the cut‑off date. The cut‑off date (as defined in the Loans Purchase Deed) was the last day in the month immediately preceding the 'closing date'. The closing date (as defined in the Loans Purchase Deed) was 5 August 2011. The defendants' complaint to the COSL was not made before the cut‑off date. The defendants made a complaint to the COSL about the loan on or about 9 November 2011. The loan the subject of the Loan Agreement and the Mortgage was not a COSL Loan.

The plaintiff's case

I will now turn to the plaintiff's case for payment of the amount due under the Loan Agreement and the Mortgage and possession of the Land.
The plaintiff's case is simple. It is as follows. GEL Custodians agreed to lend money to the defendants pursuant to the Loan Agreement between GEL Custodians and the defendants. The Loan Agreement incorporates the terms and conditions contained in the Terms and Conditions document. GEL Custodians advanced $452,000 to the defendants on or about 19 June 2006 pursuant to the Loan Agreement. By the Mortgage the defendants mortgaged the Land to GEL Custodians as security for payment of the Loan. The Mortgage incorporates the terms and provisions of the Memorandum. The terms of the Loan Agreement include the following. First, the defendants are to pay GEL Custodians 360 monthly repayments. Secondly, the defendants would be in default under the Loan Agreement if they did not pay an amount payable under the Loan Agreement by its due date. Thirdly, if the defendants are in default then after giving any notice stating the default and waiting the required period for the defendants to rectify the default, GEL Custodians may make the balance owing under the Loan and any other amount payable by the defendants immediately due and payable and exercise any and all of its rights under the Loan Agreement and any security.
In breach of the terms of the Loan Agreement and the Mortgage the defendants failed to pay a number of monthly repayments, fees and charges due in the months of October 2006 ‑ July 2011, and failed to make any payments from August 2011 to November 2012. On or around 27 November 2012 GEL Custodians by written notice gave the defendants notice of default requiring the defendants to remedy the default within 31 days failing which it required repayment of all the money owing pursuant to the Loan Agreement and the Mortgage. The defendants failed to remedy the defaults specified in the default notice and GEL Custodians became entitled to payment of all monies secured by the Mortgage and possession of the Land pursuant to cl 15.2 of the Memorandum and the TLA.
On or around 23 August 2016 GEL Custodians assigned all its rights, title and interest in the Loan Agreement and the Mortgage to the plaintiff, Permanent Custodians, and gave the defendants written notice of the assignment. On or around 14 October 2016 Permanent Custodians was registered as the proprietor of the Mortgage at the Department of Land Information.
Permanent Custodians claims the amount owing to it, as assignee, under the Loan Agreement and possession of the Land. Clause 21 of the Memorandum provides, in effect, that a certificate issued by the plaintiff to the defendants which states the amount payable is sufficient evidence of the amount unless the defendants prove it to be incorrect. The plaintiff produced a certificate dated 4 December 2017 certifying the amount outstanding under the Loan was then $1,301,131.80.

Conclusions on the defendants' default and the debt due

The effect of the defendants' default and their failure to rectify the breaches identified in the default notice was that once the grace period expired the outstanding balance became immediately due and payable under the Loan Agreement as secured by the Mortgage.
I am satisfied that the plaintiff has proved the defendants defaulted under the Loan Agreement. I am also satisfied that the plaintiff has proved that GEL Custodians assigned all its rights, title and interest in or deriving from the Loan Agreement and the Mortgage to the plaintiff and the assignment is effective in law. If the Loan Agreement is enforceable then the plaintiff has also proved that the total debt ($561,458.34) was owed by the defendants to GEL Custodians on 3 January 2013 (date for commencement of enforcement proceedings under the default notice) and that amount remained due and payable when GEL Custodians commenced proceedings seeking judgment for debt then owing and possession of the Land. I am also satisfied that if the Loan Agreement and Mortgage are enforceable then the plaintiff has proved that the amount of $1,301,131.80 was due and owing to the plaintiff on 4 December 2017 and that amount plus interest remains due and payable to the plaintiff and the plaintiff is entitled to possession of the Land. The central issues in this case concern whether the Loan Agreement and Mortgage are enforceable or whether the transactions underlying the Loan Agreement and Mortgage should be reopened.

Defendants' misrepresentation claims

The defendants say that YHL represented itself to the defendants to be a lender of home loans and the lender of the proposed loan (First Misrepresentation). The defendants say that YHL represented to them that GEL Custodians was a subsidiary of YHL and the trustee of YHL (Second Misrepresentation). The defendants say that the First and Second Misrepresentations were false, that if the defendants had known the true state of affairs they would not have made the loan application and would not have entered into the Loan Agreement and the Mortgage.
The defendants say that YHL altered, forged or fabricated the first two pages of the loan application made by the defendants to include information about the defendants' income, assets and liabilities which was false (Third Misrepresentation). The defendants say that YHL, including as agent for AFIG and/or AMS and/or GEL Custodians, knew the representation constituted by the loan application to be false and by making that misrepresentation YHL, AFIG, AMS and GEL committed fraud.
The defendants say that YHL certified by a settlement notice to AFIG and AMS that warranties given in the deed between YHL and AMS were correct when they were not and YHL, by providing to Genworth Financial a copy of the forged loan application in arranging a policy of insurance, made a further misrepresentation (Fourth Misrepresentation).
The defendants say that as a result of those misrepresentations the Loan Agreement and the Mortgage are void or voidable at the option of the defendants and in 2012 the defendants avoided the Loan Agreement and the Mortgage.

Defendants' misleading or deceptive conduct claims

The defendants say that by making the First, Second and the Third Misrepresentations YHL, its principals AFIG, AMS and GEL Custodians engaged in misleading or deceptive conduct contrary to s 12DA(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).

Defendants claim unconscionable conduct at general law

The defendants say that they were in a position of weakness and vulnerability and were accordingly under a special disability and in entering the Loan Agreement and Mortgage GEL Custodians acted unconscionably at law.

Defendants' statutory unconscionable conduct claims

The defendants say that the Loan Agreement and the Mortgage were procured by conduct by YHL as agent of GEL Custodians, AFIG and/or AMS, and that is unconscionable conduct in contravention of ASIC Act s 12CB(1).

Defendants claim relief under ASIC Act s 12GM

The defendants claim various relief under s 12GM of the ASIC Act on the ground that GEL Custodians, by its agent YHL, engaged in misleading or deceptive conduct in contravention of ASIC Act s 12DA or engaged in unconscionable conduct in contravention of ASIC Act s 12CB(1). The relief claimed includes declaratory relief, an order that the Loan Agreement and Mortgage are void and an order that the Mortgage be discharged.

Defendants' claims of misleading representation contrary to National Credit Code or Consumer Credit (Western Australia) Code

The defendants say that GEL Custodians, AFIG and/or AMS by the conduct of their agent, YHL, contravened s 124 of the National Credit Code and made false or misleading representations in relation to a matter that is material to entry into a credit contract or related transaction to induce the defendants to enter into the contract or transaction, in contravention of s 154 and s 124 of the National Credit Code, or alternatively s 144 and s 114 of the Consumer Credit (Western Australia) Code.
The Consumer Credit (Western Australia) Code was given force as a law of Western Australia by the Consumer Credit (Western Australia) Act 1996 (WA) which was enacted as part of the uniform legislative scheme to make provision of consumer credit. It was repealed by the Credit (Commonwealth Powers) (Transitional and Consequential Provisions) Act2010 (WA) as at 1 July 2010. It was effectively replaced by the National Credit Code which is sch 1 to the National Consumer Credit Protection Act 2009 (Cth) which commenced on 1 July 2010.

Defendants claim Mortgage void pursuant to TLA s 214A

The defendants further say that the Mortgage is void pursuant to s 214A of the TLA which provides that, amongst other things, an instrument, entry or alteration procured or made by fraud in any of the circumstances set out in s 214 of the TLA is void as against all persons who are party to that fraud.

Defendants claim Loan Agreement and Mortgage void by reason of common mistake

The defendants further say that the Loan Agreement and the Mortgage were entered into on the basis of a common mistake and are void.

Defendants' claim for court to reopen transactions pursuant to National Conduct Code s 76

The defendants' claim that the Loan Agreement and the Mortgage are unjust transactions which the court should reopen pursuant to s 76 of the National Credit Code. The defendants claim relief under s 77 of the National Credit Code including orders setting aside the Loan Agreement and Mortgage, discharging the Mortgage or relieving the defendants of payments due under the Loan Agreement and Mortgage.

Plaintiff says defendants' claims are out of time except National Credit Code s 76 claim

The plaintiff says that all the defendants' claims except their claim to reopen the transactions pursuant to s 76 of the National Credit Code, are time barred or based upon provisions of the National Credit Code that do not apply to the Loan, Loan Agreement or the Mortgage. I will consider the defendants' claims pursuant to s 76 of the National Credit Code after considering the defendants' other claims.

National Credit Code s 188 does not apply

At [12] of their defence the defendants plead that YHL was a credit provider within the meaning of s 166(2) of the Consumer Credit (Western Australia) Code. In [17] the defendants plead that by virtue of s 188 of the National Credit Code the defendants have and may exercise the same rights in respect of the Loan, Loan Agreement and Mortgage against both GEL Custodians and Permanent Custodians as they could have against YHL.
Section 188(1) provides that if the rights of a credit provider under a credit contract or mortgage are assigned to another person, the Code from then on applies to that other person and does not impose any further obligation on the credit provider. Section 188(2) provides that the debtor or mortgagor has and may exercise the same rights in respect of the credit contract or mortgage against the assignee as the debtor or mortgagor has against the credit provider.

I am not satisfied that the defendants suffered or are likely to suffer loss or damage 'by conduct of GEL Custodians that was engaged in in contravention of a provision of this division'. Any loss suffered by the defendants is a result of entering into the Loan Agreement and Mortgage not a result of YHL applying for and obtaining mortgage loan insurance.

National Credit Code s 76

The defendants ask the court to reopen the transaction that gave rise to the Loan Agreement and the Mortgage pursuant to s 76 of the National Credit Code on the ground that the Loan Agreement and the Mortgage were unjust. The plaintiff accepts that the National Credit Code applies to the Loan Agreement and the Mortgage with some presently irrelevant modifications. The plaintiff accepts that an application made pursuant to s 76 of the National Credit Code is not time barred.
Under s 76 of the National Credit Code the court may, if satisfied that, in the circumstances relating to a credit contract or mortgage at the time it was entered into, the contract or mortgage was unjust, reopen the transaction that gave rise to the contract or mortgage. Reopening of unjust transactions involves two stages. First, the court must determine whether a particular contract or mortgage was unjust. Secondly, if the court finds that a contract or mortgage was unjust, the court has a discretion whether to reopen the transaction that gave rise to the contract or mortgage.
Section 76(1) of the National Credit Code headed 'Court may reopen unjust transactions' relevantly provides:
Power to reopen unjust transactions
(1)The court may, if satisfied on the application of a debtor … that, in the circumstances relating to the relevant credit contract … at the time it was entered into or changed (whether or not by agreement), the contract … was unjust, reopen the transaction that gave rise to the contract … or change.
Whereas unconscionability under ASIC Act s 12CB requires the court to consider the conduct of the party alleged to have acted unconscionably, s 76 of the National Credit Code requires the court to consider whether the contract was unjust. That may include consideration of the circumstances and conduct of both parties and the effect of the contract.
In determining whether a term of a particular credit contract is unjust, the court must have regard to some matters and may have regard to other matters: s 76(2) of the National Credit Code.
Section 76(2) of the National Credit Code relevantly provides:
In determining whether a term of a particular credit contract … is unjust in the circumstances relating to it at the time it was entered into or changed, the court is to have regard to the public interest and to all the circumstances of the case and may have regard to the following:
Section 76(2) then sets out 16 matters the court may have regard to including:
(p)any other relevant factor.
The definition of unjust in National Credit Code s 204 includes unconscionable, harsh or oppressive. This is a non‑exhaustive definition. The following features of the definition of unjust are relevant. First, the injustice complained of must relate to a particular contract or mortgage: West v AGC (Advances) Ltd (1986) 5 NSWLR 610 (West) referring to the definition of 'unjust' in the Contracts Review Act 1980 (NSW) (621); Paciocco v Australia and New Zealand Banking Group Ltd (2014) 309 ALR 249 [318] (Gordon J) (While Gordon J's decision that the late payment fees were penalties under common law and equity was overturned on appeal by the Full Court of the Federal Court in Paciocco v Australia and New Zealand Banking Group Ltd [2015] FCAFC 50, the Full Court at [352] ‑ [365] agreed with Gordon J's analysis that the fees were not unjust, unfair or unconscionable).
Secondly, a contract or mortgage may be unjust because its terms, consequences or effects are unjust (substantive injustice) or because the conduct which induced entry into the contract or mortgage was unjust (procedural injustice): West (620). However, it is the contract or the provisions, not the transaction that must be unjust.
Thirdly, the definition of unjust does not cover contracts or mortgages that may be described as unfair merely because they favour the interests of one of the parties over the other. However, they may be unjust if the conduct of the favoured party in obtaining those advantages has been unfair: West.
Fourthly, on its own a failure to ensure a customer has independent advice is unlikely to amount to unfair conduct: West (613) and (621). Nevertheless, it is a matter to be considered in determining whether a contract or mortgage is unfair.
Fifthly, in determining whether a term of a credit contract or mortgage is unjust the court must have regard to the public interest and all the circumstances of the case. One aspect of the public interest referred to by Allsop P in Tonto Homes is keeping people to their freely entered bargains (269). His Honour observed that it is an aspect of society that is of vital importance. Another aspect of the public interest is the advancement of the protection, which the National Credit Code intends to give, to those not able fully to protect themselves and to those preyed upon by dishonesty, trickery and other forms of predation.

The defendants National Credit Code s 76 case

The defendants say that the chief bases for their claim that the court should reopen the Loan Agreement and Mortgage pursuant to s 76 of the National Credit Code is that the Loan Agreement and Mortgage are unjust transactions, unconscionable or induced by misleading and deceptive conduct. I have found that the Loan Agreement and Mortgage are not unconscionable and were not induced by misleading and deceptive conduct of GEL Custodians.
The defendants say that in deciding whether a transaction is unjust a court is to have regard to the public interest and may look to all of the circumstances. As I have said, the public interest considerations are consumer protection and upholding bargains. Both must be given weight appropriate in the circumstances.
The defendants have set out a number of matters which they say relate to the matters which, pursuant to s 76(2) of the National Credit Code, the court is to have regard to in determining whether a term of a credit contract or mortgage are just in the circumstances.
The first s 76(2) matter is:
(a)The consequences of compliance, or non‑compliance, with all or any of the provisions of the contract, mortgage or guarantee.
The defendants say that if the contracts are not set aside they will lose their home and face bankruptcy due to the Loan, which they did not and do not have the capacity to service, or at least not without more than substantial hardship. If the Loan Agreement and Mortgage are not reopened and set aside or discharged the plaintiff will be given judgment for a sum exceeding $1 million and possession of the Land. The defendants will lose their home. That consideration is relevant but is lessened somewhat by the facts that the defendants acquired that home by entering into the Loan Agreement and the Mortgage and have lived in it for 12 years notwithstanding that they made only three monthly loan repayments before defaulting in October 2006, failed to make the monthly payments from then until May 2007 and failed to make the monthly repayments on numerous occasions from May 2007 until July 2011 when they ceased making any payments.
More importantly, a contract will not be unjust merely because it was not in the claimant's interest to enter into it, or because the claimant cannot perform when called upon to do so, or because enforcement of the contract will lead to the loss of the claimant's home: Esanda Finance Corp Ltd v Viet Nho Tong & Thi Kim Lien Tong (1997) 41 NSWLR 482 per Handley JA at 491:
Moreover as this court held in West v AGC (Advances) Ltd (1986) 5 NSWLR 610, a contract is not unjust merely because it was not in someone's interest to enter into it, or because a person is unable to pay the debt when called upon to do so, or because its enforcement will lead to the loss of a home.
The second s 76(2) matter relied upon by the defendants is:
(b)the relative bargaining power of the parties.
If a contract or its relevant provisions is neither unfair nor unreasonable it is difficult to see how the existence of any inequality of bargaining power or lack of independent advice, for example, can render a contract or a provision of the contract unjust: West [621].
The third s 76(2) matter relied upon by the defendants is:
(d)whether or not it was reasonably practicable for the applicant to negotiate for the alteration of, or to reject, any of the provisions of the contract, mortgage or guarantee or the change.
The defendants say that having committed the defendants (without their knowledge) to a settlement on 19 June 2006, YHL exploited that fact to allow the defendants no time to consider the terms of or seek advice upon the contracts. The defendants say they had no realistic opportunity to negotiate, alter or reject any terms. I have found that YHL did not commit the defendants 'without their knowledge' to a settlement on 19 June 2006. YHL, by Mr Lock, informed Elders Real Estate that the defendants' finance had been approved at the urging of the defendants. Mr Shannon pressed Mr Lock to inform Elders of finance approval by his email of 18 May 2006 and his telephone call to Mr Lock on 22 May 2006. Mr Shannon says that he knew the proposed term of the loan and the interest rate. Indeed, he claims the interest rate was one of the matters that made him approach YHL. The defendants did not simply sign the Loan Agreement and Mortgage because they had no other option. They spent hours reading through the terms. They did not at the time identify any terms they considered to be harsh or unjust. They claim to have spoken to Mr Lock by telephone on 13 June 2006 but did not seek to negotiate or change any of the terms or raise any question about any of the terms.
The fourth s 76(2) matter raised by the defendants is:
(e)whether or not any of the provisions of the contract, mortgage or guarantee imposed conditions that are unreasonably difficult to comply with, or not reasonably necessary for the protection of the legitimate interests of a party to the contract, mortgage or guarantee.
The defendants say that the Loan Agreement imposed conditions (that is repayment) on the defendants' actual financial position that were not only unreasonably difficult to comply with, they could not be complied with. The defendants knew the amount of the contractual repayments. They turned their minds to whether they could make the repayments without substantial hardship. They considered they could do so because they had been able to make similar payments for rent previously. They knew how their circumstances had changed since that time, albeit they did not have any financial statements for their business available at that time. Neither GEL Custodians nor YHL made any representations to the defendants concerning their capacity to make the repayments. YHL did not make any representations to induce the defendants to enter into the agreements. To the contrary, the defendants approached YHL. The defendants did not provide YHL with any information concerning their financial situation notwithstanding that they knew the loan application form required such information.
The fifth s 76(2) matter relied upon by the defendants is:
(g)the form of the contract, mortgage or guarantee and the intelligibility of the language in which it is expressed.
The defendants say that the Terms and Conditions were missing from the loan package as was advice about the need for financial advice. I have found that either the Terms and Conditions document was enclosed in the loan pack or the defendants knew that the terms and conditions of the Loan Agreement included terms and conditions in a separate document and were content to enter into a contract which included those terms and conditions without receiving a copy of it. There are no terms in the Terms and Conditions document which are unusual in a Loan Agreement or which are themselves harsh or unjust.
The sixth s 76(2) matter relied upon by the defendants is:
(h)whether or not, and if so when, independent legal or other expert advice was obtained by the debtor, mortgagor or guarantor.
The defendants did not obtain independent legal or other expert advice. The letter which accompanied the loan pack recommended the defendants obtain independent advice. I am satisfied that the defendants read and understood that recommendation. They elected not to obtain legal or other expert advice. Any time constraints upon the defendants was a matter of their own doing ‑ YHL informed Elders of the defendants' finance approval at the urging of the defendants.
The seventh s 76(2) matter relied upon by the defendants is:
(i)the extent to which the provisions of the contract, mortgage … and their legal and practical effect were accurately explained to the debtor, mortgagor … and whether or not the debtor, mortgagor … understood those provisions and their effect.
GEL Custodians did not explain to the defendants the legal and practical effect of the Loan Agreement and the Mortgage. I am not satisfied that the defendants did not understand the provisions and their effect. The defendants understood the amount of the Loan, the term of the Loan, the rate of interest and the repayments. The defendants signed an acknowledgement that they had read and understood the nature and effect of the Loan Agreement and the security referred to in the Loan Agreement, that is the Mortgage.
The eighth s 76(2) matter relied upon by the defendants is:
(j)whether the credit provider or any other person exerted or used unfair pressure, undue influence or unfair tactics on the debtor, mortgagor … and, if so, the nature and extent of that unfair pressure, undue influence or unfair tactics.
The defendants say that YHL exerted unfair pressure on the defendants to sign and return the documents without a proper understanding, without any opportunity to obtain it and their lack of understanding was underlined by the fact that the material terms and conditions to the Loan Agreement were not included. I am not satisfied that YHL exerted unfair pressure on the defendants to sign and return the documents. As I have said, Mr Shannon pressed Mr Lock to inform Elders Real Estate that finance had been approved. The defendants did not simply sign the documents and return them without reading them because of any pressure exerted. To the contrary, they spent hours reading them before signing them and returning them.
The ninth s 76(2) matter relied upon by the defendants is:
(k)whether the credit provider took measures to ensure that the debtor, mortgagor … understood the nature and implications of the transaction, and if so, the adequacy of those measures.
The defendants say GEL Custodians took no measures to ensure that the defendants understood the nature and implications of the contracts because the defendants were never given the opportunity to do so. I do not accept that. The Loan Agreement and Mortgage were sent to the defendants at their home so that they might read and consider them in their own time. The defendants spent hours doing so. The defendants did not identify any provision in the documents which they did not understand or in relation to which they wanted advice but had no time to obtain it. I have found that either the Terms and Conditions document was enclosed with the other documents sent to the defendants or the defendants knew that the terms and conditions of the Loan included the terms and conditions in a separate Terms and Conditions document and the defendants were content to enter into a contract which included those terms and conditions without receiving a copy of it.
The tenth s 76(2) matter relied upon by the defendants is:
(l)whether at the time the contract, mortgage … was entered into …, the credit provider knew, or could have ascertained by reasonable enquiry at the time, that the debtor could not pay in accordance with its terms or without substantial hardship.
The defendants say that YHL (and thus GEL Custodians) and from 2012 GEL Custodians or the plaintiff itself knew that the defendants did not and could not meet the ARMS programme parameters ‑ that is why YHL fabricated the loan application and application for mortgage insurance in the first place. The defendants further say that any reasonable enquiry or checking in 2006 and again from 2012 onwards would have determined that the defendants could not pay in accordance with the terms of the Loan Agreement at all, let alone without substantial hardship.
The knowledge of YHL that may be attributed to GEL Custodians is that the defendants had not provided any details of their income, assets or liabilities. There is no evidence that the defendants gave to YHL any information that, or from which it could be inferred, that they could not meet the mortgage repayments or not without substantial hardship. Mrs Shannon's evidence is that at the time the defendants had no financial statements available for their business. Reasonable enquiry would not have disclosed that the defendants were not able to make the repayments without substantial hardship but it would have disclosed that the defendants did not have financial statements available to substantiate their belief that they could make the repayments without substantial hardship.
The eleventh s 76(2) matter is:
(p)any other relevant factor
The defendants say that rendering the offer and acceptance unconditional bound the defendants in circumstances where they had not agreed or seen the transaction documents. They further say that the misrepresentations induced them into the transactions when they would otherwise have not entered into them. They further say that the manager's failure to make any enquiries about YHL's fraudulent conduct allowed it to remain uncovered.
I have found that the rendering of the offer and acceptance unconditional by YHL informing Elders Real Estate that the defendants' finance had been approved was done by Mr Lock at the urging of Mr Shannon. Mr Shannon did that knowing that the defendants had not received the loan and mortgage documents. I have found that the defendants were not induced into the transactions by misrepresentations. I find that the procedures set out in the Correspondent Deed and Operations Manual were not complied with.
The defendants referred to the responsible lender provisions of the National Consumer Credit Protection Act 2009 (Cth). The Act does not act retrospectively. Part 3‑1 of the Act which imposes 'responsible lending' obligations upon credit licensees that provide assistance in relation to credit contracts has no application in these proceedings.
A lender does not owe a general common law duty of care to a borrower, or prospective borrower, to warn or to guard against risk of loss. In Perpetual Trustee Edelman J said at [331] there is no general common law duty upon a lender to advise or to protect a borrower against fraud. At [335] his Honour said that there is no general common law duty upon a lender to advise or protect a borrower against fraud, or to check the accuracy of information or warn of the risk of loss, but a specific duty can arise at common law in some circumstances. His Honour said that one of those circumstances was an assumption of responsibility.
In Micarone v Perpetual Trustees Australia Ltd (1999) 75 SASR 1 Debelle and Wicks JJ rejected the contention that a lender owed a duty to its borrower to take care to verify the borrower's application. Their Honours explained:
What inquiries a lender makes to verify information given in support of a loan application is entirely its concern. It may choose to make no independent inquiries … there is no duty on a financier to provide either a borrower or a third party with commercial advice, although if such advice is tendered, the financier may assume the duty of care …[A] lender is not to be treated as a branch of a social services agency [624] ‑ [625].

In Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205 Campbell JA (with whom Hodgson & McColl JJA agreed) said:
I would accept that in some circumstances knowledge of a high degree of risk that there might be a default in payment of interest or principal so that a mortgagee sale would result, could be unjust lending, even though it could not be said that the lender knows that there will be default. However I do not accept that a lender is always bound to carry out a detailed investigation of the practicality of an intending borrower actually being able to carry through the plan the borrower says he or she has for repayment of the loan. In the present case, Kowalczuk stated to Accom that he proposed to pay the Berowra loan out through bank refinance, and the Haberfield loan through refinancing with FirstLoan Australia (the same brokers through whom Kowalczuk was able successfully to refinance the Berowra loan) and there was no occasion for Accom to doubt that he would be able to do so. Thus, even if Mr Conti is right in saying that there can be pure asset lending if the lender knew that there was a high risk that the intended means of repayment might fail, in the present case Accom did not have knowledge of that type [99].
Furthermore, a lender does not owe any duty under the general law to be alert for fraud by or on behalf of a borrower. A lender does not owe any duty under the general law to assess the capacity of a borrower to repay a loan, to ascertain the viability of the loan or to verify the details provided in a loan application. The provision of false information by or on behalf of a borrower to a lender does not make a loan unjust: Riz v Perpetual Trustee Australia Ltd [2007] NSWSC 1153 [78]. Nor does the fact, without more, that a party cannot afford a loan make a credit contract unjust: Barker v GE Mortgage Solutions Ltd [72] citing Australian Societies Group Financial Services (NSW) Ltd v Bogan [1989] ASC 55‑938.
The Loan Agreement and the Mortgage are unexceptional. They contain no harsh or unjust terms of themselves. The unjustness of the contracts arises, if at all, from the fraud upon GEL Custodians and AFIG practised by YHL in the arrangement of the Loan Agreement and the Mortgage, or the defendants' inability to meet the mortgage repayments without substantial hardship or at all. I find that in all the circumstances the agreements were not unjust. I will not reiterate all the facts. The following matters are important.
There was, at the time the Loan Agreement and Mortgage were entered into the real possibility of detriment to the defendants in incurring the debts and interest liability without the means to meet them. However that on its own is insufficient to render the Loan Agreement and the Mortgage unjust.
Whilst unconscionability looks to the conduct of the person said to have acted unconscionably, the assessment of unjustness requires consideration of the extent to which both the lender and borrowers bear responsibility for what happened in applying the broad considerations contained in the National Credit Code, founded as they are in justice and fairness. It is only fair and just to recognise the significant responsibility of the defendants in the circumstances of this case.
The defendants signed the loan application form with the information concerning their income, assets and liabilities blank. They have offered no explanation as to how they thought the loan application might be completed and processed without them providing any such information. By leaving those sections blank the defendants were careless and facilitated the fraud by YHL.
The defendants made the loan application and entered into the Loan Agreement without making any proper enquiry or assessment whether they could afford the repayments without substantial hardship or at all. Their only source of income was the E‑News Direct business. The defendants did not have any financial statements showing the income and expenses of the business nor make any attempt to obtain such financial statements. The defendants made no attempt to ascertain the income and expenses of the business in the preceding 12 months or to assess its present profitability and the likely income it would deliver to them in the short and medium term.
The principal wrongdoing was the fraud of YHL in filling in and submitting the various forms and information to AFIG. This brought about the agreements which would not have been entered into without the false information. There was no misleading conduct, trickery or predatory conduct by GEL Custodians. The defendants' entry into the Loan Agreement and the Mortgage was not facilitated by GEL Custodians or AFIG failing to require appropriate information, it came about because of the fraudulent conduct of YHL. YHL was not the agent of GEL Custodians or AFIG in making the loan application, it was operating its own business.
This is not a case, like in Tonto Homes, where the fraud was effected by a mortgage introducer who was an intimate commercial counterparty to the lender but a stranger to the borrower and effected the fraud for the financial advantage of the mortgage introducer. Here, the defendants were 'fairly close friends' of the principal person acting on behalf of YHL. YHL did not make representations or induce the defendants to enter into the Loan Agreement. The defendants urged and pressed YHL to obtain finance approval for a loan. They knew the amount of the loan, its term and interest rate and the required repayments. The defendants did not provide any financial information to YHL which would enable YHL to assess whether the defendants could make the repayments without substantial financial hardship or at all. The defendants alone made that assessment. The defendants knew that they had not provided any financial information to YHL and that they had not completed the information required on the loan application form concerning their income, assets and liabilities.
In all the circumstances I am not persuaded that in the circumstances relating to the Loan Agreement and the Mortgage at the time they were entered into those agreements were unjust.

Counterclaim

The defendants have not made out any of their claims in their defence or counterclaim. Judgment should be entered for the plaintiff for $1,301,131.80 together with interest from 4 December 2017 and for possession of the Land. The counterclaim must be dismissed.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
RK
ASSOCIATE TO THE HONOURABLE JUSTICE LE MIERE
21 SEPTEMBER 2018