Virginia Nemeth (by her tutor) v Australian Litigation Funders Pty Ltd and Ors
[2013] NSWSC 529
•09 May 2013
Supreme Court
New South Wales
Medium Neutral Citation: Virginia Nemeth (by her tutor) v Australian Litigation Funders Pty Ltd and Ors [2013] NSWSC 529 Hearing dates: 11, 12, 13, 14, 25, 27 February 2013, oral submissions 2 April 2013, further oral submissions 4 April 2013 Decision date: 09 May 2013 Jurisdiction: Equity Division Before: Sackar J Decision: See paragraph [328].
Catchwords: CONTRACTS - heads of agreement - whether binding arrangement - use of extrinsic evidence in determining formation of contract - construction of contracts - use of extrinsic evidence in construction of contract.
CONTRACTS - relief from obligations - relief under general law and consumer protection legislation from contractual obligations - whether contract is unjust under the Contracts Review Act 1980.
EVIDENCE - admissibility of non-expert evidence as to human condition, personal characteristics and behaviour - assessment of credibility of witness - discretion of judge to accept or reject evidence - whether appointment of tutor affects discretion to make findings as to credibility.
EQUITY - unconscionable conduct - whether defendant engaged in unconscionable conduct at general law.
TRADE AND COMMERCE - trade practices - whether defendant engaged in unconscionable conduct under the Trade Practices Act 1974 (Cth) - whether director of corporate defendants is liable as accessory.Legislation Cited: Fair Trading Act 1987
Uniform Civil Procedure Rules 2005
Australian Securities and Investments Commission Act 2001 (Cth)
Corporations Act 2001 (Cth)
Family Law Act 1975 (Cth)
Trade Practices Act 1974 (Cth)Cases Cited: Aboody v Ryan [2012] NSWCA 395
Alievski v Cross Country Realty Victoria Pty Ltd [2010] VSC 316
Antonovic v Volker (1986) 7 NSWLR 151
Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2000) 169 ALR 324
Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51
Australian Competition and Consumer Commission v Lux Pty Ltd [2004] FCA 926
Bakarich v Commonwealth Bank of Australia [2007] NSWCA 169
Azar (by her tutor Ibrahim) v Kathirgamalingan (2012) 62 MVR 462
Baltic Shipping Co v Dillon (1991) 22 NSWLR 1
Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256
Blomley v Ryan (1956) 99 CLR 362
Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153
Bridgewater v Leahy (1998) 194 CLR 457
Collier v Morlend Finance Corp (1989) ASC ¶55-176
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447
Conley v Commonwealth Bank of Australia [2000] NSWCA 101
Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184
Cubillo v Commonwealth of Australia (2000) 174 ALR 97
Current Images Pty Ltd v Dupack Pty Ltd [2012] NSWCA 99
Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413
Esanda Finance Corporation Ltd v Tong (1997) 41 NSWLR 482
Ferdinand Nemeth and Anor v Prynew Pty Limited and Ors [2005] NSWSC 1296
Fox v Percy (2003) 214 CLR 118
Franklins Pty Ltd v Metcash Trading Ltd [2009] 76 NSWLR 603
Fuji Xerox Finance Limited v CSG Limited & Ors [2012] NSWSC 890
Grace Shipping v Sharp & Co (1987) 1 Lloyds Law Rep at 207
Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343
Legal Services Commissioner v Sing [2007] LPT 4
Louth v Diprose (1992) 175 CLR 621
McCourt v Cranston [2012] WASCA 60
Mumtaz Properties) v Ahmed and Others [2011] EWCA Civ 610
New South Wales Bar Association v Maddocks [1988] NSWCA 102
Onassis v Vergottis [1968] 2 Lloyds Rep 403
Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41
Provident Capital Ltd v Papa [2013] NSWCA 36
R v Turner [1975] QB 834
Riz v Perpetual Trustee Australia Ltd [2007] NSWSC 1153
S H Lock (Australia) Ltd v Kennedy (1988) 12 NSWLR 482
Schwartz v Hadid [2013] NSWCA 89
West v AGC (Advances) Ltd and Others (1986) 5 NSWLR 610
Spina v Permanent Custodians Ltd [2009] NSWCA 206
St George Commercial Credit Corporation Ltd v Collins Wallis Properties Pty Ltd (Rolfe J, 11 February 1994, unreported)
St George Bank Ltd v Trimarchi [2004] NSWCA 120
Tame v New South Wales (2002) 211 CLR 317
Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315
Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389
Transport Publishing Co Pty Ltd v The Literature Board of Review (1956) 99 CLR 111
Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604Texts Cited: Lord Bingham, The Judge as Juror: The Judicial Determination of Factual Issues (2000) Oxford University Press
Honourable Justice P A Bergin, "Judicial Mediation Problems and Solutions", (2011) The Judicial Review 305
J R Peden, The Law of Unjust Contracts, (1982) Butterworths
Sir Owen Dixon, Jesting Pilate, (1965) The Law Book Company LtdCategory: Principal judgment Parties: Virginia Diroy Nemeth (by her tutor Salwa Elias) (Plaintiff)
Australian Litigation Funders Pty Ltd (First Defendant)
Australian Corporate Restructuring Services Pty Ltd (Second Defendant)
James Byrnes (Third Defendant)Representation: Counsel:
R Newlinds SC, J Muir (Plaintiff)
B A Coles QC, A Horvath (Defendants)
Solicitors:
Coleman Greig Lawyers (Plaintiff)
HWL Ebsworth Lawyers (Defendants)
File Number(s): 2011/44884
Judgment
This case concerns an agreement entitled "The Funding and Consultancy Agreement" (the Agreement) entered into between the plaintiff, the first defendant (ALF) and the second defendant (ACRS) in January 2010. The Agreement primarily concerned the "funding" of proceedings then on foot in the Family Court of Australia between the plaintiff and her former husband Ferdinand Nemeth.
In particular the plaintiff and ALF and ACR entered into the Agreement on 18 January 2010. On 26 January 2010 the respective parties entered into what has been described as an Addendum to the Agreement (the Addendum).
The Agreement obliged the plaintiff to pay ALF 25% of any judgment or out of court settlement that she secured in the Family Court proceedings.
The plaintiff seeks to be relieved from the Agreement under the Contracts Review Act 1980 and unconscionable conduct at general law and under the Trade Practices Act 1974 (Cth) (the TPA) or alternatively the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) and the Fair Trading Act 1987 (NSW) (the FTA) amongst other bases.
The plaintiff says that she did not understand the agreement and that its terms were on their face unjust. She also says that at the time she was ill and suffering from anxiety and depression and was effectively overborne by the third defendant, Mr Byrnes.
The defendants reject the various bases upon which the plaintiff asserts she is entitled to be relieved from her obligations under the Agreement. In any event the defendants contend that if the plaintiff was ill at the relevant time there is no evidence that the defendants were aware of her condition. They contend she is not entitled to any relief.
Factual background
The plaintiff was born in the Philippines and as married to her former husband Ferdinand Nemeth on 19 June 1989.
The plaintiff was an accountant and bookkeeper. She attended university in the Philippines and also went to secretarial school there as well. She obtained her accounting qualifications at TAFE in Sydney. Throughout the plaintiff's life she has purchased and sold numerous properties both here in Australia and in the Philippines.
Her husband, through one of his corporate entities, owned the Hampton Court Hotel in Kings Cross. The plaintiff was actively involved in the marketing and promotion of the hotel and successfully was able to increase its occupancy rate by about 75%. She also assisted in hotel renovations which took place from time to time. She managed the books for one or more of the Nemeth interests and was actively involved in the running of a number of Nemeth companies.
On 25 August 2006 the plaintiff executed and filed an application for final orders in the Family Court of Australia seeking an order for a property settlement. At the time she instructed a Ms Wendy Baker, solicitor, to act on her behalf. She decided however not to immediately inform her husband that she had commenced the proceedings as she did not want to upset him.
On 27 December 2007 the plaintiff made an amended application for final orders in the Family Court. By this time the plaintiff had changed solicitors and had retained York Family Law (a Mr Nabil Wahhab). At the same time the plaintiff sought $250,000 in interim funding to meet her legal costs. This was agreed to by Mr Nemeth finally in early February 2008 and consent orders were made on 12 February 2008. Shortly afterwards the plaintiff terminated her retainer of York Family Law and retained a Mr Trevor Hall of Hall Partners as her solicitor in the Family Court proceedings.
On 12 December 2008 as the result of a mediation the plaintiff and Mr Nemeth agreed on terms to settle the Family Court proceedings. Heads of Agreement were signed. The plaintiff however was dissatisfied with the proposed agreement and refused to implement the arrangements. In broad terms the arrangement involved the plaintiff receiving (amongst other things) $8 million plus the property at 46 Mona Road, Darling Point (unencumbered).
On 29 January 2009 the plaintiff retained a new solicitor, Mr Max Meyer of Meyer Pigdon, family lawyers. Mr Meyer continued to act for the plaintiff and he appeared on 19 August 2009 at the divorce hearing. Mr Meyer's retainer appears to have been terminated on 12 October 2009. The plaintiff indicated in an email to him of that date that she was taking that course "due to a lack of funds". She also indicated that she intended to represent herself thereafter.
In December 2009 the plaintiff asserts that she received an anonymous letter warning her that her stepson Anthony Nemeth had tried but failed to "get rid of you" and further warned her not to travel overseas because she was in danger of losing her life. This was apparently the sixth letter she had received in a similar vein since about December 2003.
In late 2009 it had been recommended she seek out the services of a Mr Roger Rogerson. A Mr Gordon Scurr made the recommendation. After Christmas 2009 the plaintiff asserts that her friend, a Ms Sarah Winter, arranged a meeting with Mr Rogerson.
In late December 2009 Mr Rogerson and Ms Winter came to the plaintiff's home. Mr Rogerson, according to the plaintiff, indicated that he would like the plaintiff to meet Mr Jim Byrnes. Mr Byrnes came to her house and a Felix Lyle, and a person who the plaintiff believed was Mr Lyle's driver also arrived at her home.
It is common ground that a conversation between a number of persons took place at the meeting. There is differing evidence about precisely what was discussed but it seems again to be common ground that the plaintiff prepared afternoon tea for her "guests".
The plaintiff asserts that Mr Byrnes represented to her that if she entered into a litigation funding agreement with him he would manage her family court proceedings; arrange for Anthony Nemeth to be offered $10 million to leave her and Ferdinand alone; negotiate the sale of the Hampton Court Hotel for $60 million; place a caveat on the hotel to prevent its sale to the Toga Group; arrange for Anthony and Ferdinand to allow her to withdraw $3 million from her loan account; and establish a charitable foundation on her behalf and make a donation to it.
It appears again common ground that at the afternoon tea the plaintiff was not asked to enter into any funding agreement or to make any decisions about entering such an agreement. There is no suggestion that any form of agreement was shown to the plaintiff on this occasion. Some three weeks later on 18 January 2010 she and her friend Ms Winter, and Mr Rogerson went to Mr Byrnes' house and it was there that she signed the Agreement.
The plaintiff asserts that prior to going to Mr Byrnes' house, she went to Ms Winter's house in Double Bay. She further asserts that she told Ms Winter that she did not want to sign any agreement with Mr Byrnes.
The plaintiff asserts that although she observed Ms Winter and Mr Rogerson reading the Agreement she did not read the Agreement "properly". Assured by Ms Winter and Mr Rogerson that all was in order, she signed the document. Her signature was witnessed by Mr Rogerson.
The Agreement contained a definition of "cooling off" (clause 1.1) which provided a seven day period after the signing of the Agreement. The definition provided that the "client" could terminate the agreement or seek amendments to the Agreement in the relevant period. There is a dispute as to what took place at Mr Byrnes' house between himself and the plaintiff.
The plaintiff sought changes to the Agreement. The plaintiff asserts that at some point after she had signed the Agreement she realised that her home in Darling Point was included in the pool of assets from which the 25% commission would be calculated. She was concerned to exclude her home from any such agreement.
The plaintiff asserts she raised this matter directly with Mr Byrnes and he agreed to amend the Agreement accordingly. Hence the Addendum was brought into existence.
In the document described as "Addendum to Deed of Agreement and Consultancy Agreement", the defendants assert that the changes brought about by the Addendum were entirely to the plaintiff's benefit and at her request.
Following the signing of the Agreement the firm of Beazley Singleton Lawyer was retained to act for the plaintiff in the Family Court proceedings. A costs agreement was prepared in March 2010. Mr Beazley acted for the plaintiff during 2010 and a tax invoice (belatedly produced) shows work done on the plaintiff's behalf from 18 February to 17 September 2010 totalling $33,178.75 in costs and disbursements.
By about August 2010 the plaintiff believed that Mr Byrnes had told her a number of untruths about his status as a director of one or more of the defendants and she felt betrayed because he had failed (although he had promised) to pay the cost of an operation to be conducted upon her friend, Ms Winter. By 18 August 2010 the plaintiff asserts she had decided to terminate the Agreement with Mr Byrnes because he was not performing his promised contractual obligations. Importantly, he had not negotiated an out of court settlement with her former husband. Mr Byrnes for and on behalf of the first and second defendants has at all times denied any breaches and has insisted that the arrangements are binding. The defendants do not accept the Agreement was terminated.
Following the plaintiff engaging her current lawyers, Coleman Greig, she and the estate of her former husband reached a settlement of the Family Court proceedings of broadly $9 million, plus the property in Darling Point unencumbered.
A question of construction
Prior to coming to the various factual issues upon which the plaintiff relies for her various forms of relief it is important in my view to address the question of construction of the Agreement. However, as a preliminary issue, the plaintiff submits that by reason of the Heads of Agreement entered into at the mediation the plaintiff had an enforceable contract which could have been enforced at any time. The defendant submits the Heads of Agreement was not legally binding.
Principles
In Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 at [52], Bathurst CJ said:
The principles underlying the construction of written contracts are well established... A contract is to be construed by reference to what a reasonable person would understand by the language in which the parties have expressed their agreement having regard to the context in which the words appear and the purpose and object of the transaction: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22]; Toll (FGCT) Pty Ltd v Alphafarm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40]; International Air Transport Assn v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 at [53]. At least in the case of ambiguity, resort can be had to the surrounding circumstances known to the parties in interpreting the particular provision: Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 at 352; Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 282 ALR 604.
In Current Images Pty Ltd v Dupack Pty Ltd [2012] NSWCA 99 at [47] the Chief Justice said:
A document may be construed otherwise than according to its literal meaning if the literal meaning results in absurdity: Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420 at 427. As was noted by Basten JA in Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSWCA 297, with whom McColl and Campbell JJA agreed, the test of absurdity is not easily satisfied: "The courts have no mandate to rewrite agreements, so as to depart from the language used by the parties, merely to give a provision an operation which, as it appears to the court, might make more commercial sense", Miwa at [18]; see also Jireh International Pty Ltd v Western Export Services Inc [2011] NSWCA 137 at [55], upheld in Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45 above.
The conflicting views in Franklins Pty Ltd v Metcash Trading Ltd [2009] 76 NSWLR 603 and Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 282 ALR 604 as to the use which can be made of surrounding circumstances for the interpretation of a contract was considered by the New South Wales Supreme Court in Fuji Xerox Finance Limited v CSG Limited & Ors [2012] NSWSC 890. In that case I adopted (at [58]) the approach suggested by the Western Australian Court of Appeal in McCourt v Cranston [2012] WASCA 60, where Pullin JA (with whom Newnes JA agreed) said (at [23]-[26]):
[23] In view of the pronouncements in Jireh, when an issue arises about the proper construction of a contract and there is evidence of surrounding circumstances known to the parties or evidence of the purpose or object of the transaction, that evidence will not be admissible unless the court determines that the contract is:
(a) "ambiguous"; or
(b) "susceptible of more than one meaning".
[24] Usually, the meaning of "ambiguous" is taken to include "open to various interpretations": see Macquarie Dictionary, but by using the phrase "ambiguous or susceptible of more than one meaning" perhaps Mason J wished to emphasise that not only a contract open to more than one meaning would allow in evidence of surrounding circumstances but also one where the contract is merely "difficult to understand". Once evidence of surrounding circumstances is allowed in, the restrictions on such evidence are clear. Evidence of subjective opinions are not admissible, nor is evidence of negotiations; the surrounding circumstances have to be objective facts and they have to be known to both parties.
...
[26] Until the High Court says more about the subject, it would be wise for trial judges, in cases where a party reasonably contends that the contract is ambiguous or susceptible of more than one meaning and there is relevant evidence of objective relevant surrounding circumstances known to both parties or objective evidence of the aim or object of the transaction, to allow that evidence in provisionally, even if the trial judge considers that his or her likely conclusion will be to reject the argument of the party contending that the agreement is ambiguous or susceptible of more than one meaning.
More recently, in Schwartz v Hadid [2013] NSWCA 89, Macfarlan JA (with whom Meagher JA generally agreed) discussed the relevance of factual background to the construction of a contract. In construing a contract, his Honour cautioned against adopting a business-like meaning unless that construction was open on the language of the particular clause under consideration (at [32]). His Honour said it was unnecessary on the case before him to consider the authority of Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604 as to the permissible use of surrounding circumstances.
Enforceability of Heads of Agreement
The plaintiff requests the court to find that, as a matter of construction, the document entitled "Heads of Agreement" dated 12 December 2008 and signed by the plaintiff and Ferdinand Nemeth is a binding agreement. The plaintiff submits that it contains no conditions precedent to its formation or performance, and that none of its terms suggests that it is not immediately binding.
After the heading "Heads of Agreement", the first line of the document provides:
That subject to negotiation of appropriate security in respect of outstanding payments (which shall [require more than instructions?]):
There then follows a list of paragraphs stating what the parties propose to agree to:
It is open to me, for the purpose of determining whether there is a binding arrangement, to have regard to both the pre and post execution conduct of the parties (Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at 163-164).
First, the text of the document indicates that the parties' negotiations were not concluded. The comments in the brackets indicated that the document was only in draft, that further instructions were required before it could be finalised and that there was still to take place further negotiation of appropriate security in respect of outstanding payments. The entire document was prefaced by the words "subject to negotiation of appropriate security". Further clause 13 of the document provided that it was an "essential" condition that each member of the plaintiff's family provides a release to Ferdinand Nemeth. These textual considerations persuade me that there was a condition precedent to either the very formation of the contract, or to the performance of the entire contract altogether.
The subsequent conduct of the parties also suggests that there was no binding agreement. Mr Meyer sent a letter to the plaintiff dated 16 April 2009 which stated that "it is now clear and Mr Paltos relies upon the last phrase of that paragraph that there will be no settlement unless you can get Jose and Virgie signed up to those releases, saying they will make no claim on Ferdy's estate." Also, a letter dated 23 April 2009 from Mr Paltos (Ferdinand's solicitor) to Mr Meyer stated "settlement with your client was conditional upon her providing releases... [W]ithout those releases the settlement will not proceed. There is irrefutable evidence that your side has always been aware of and agreed to [the requirement of provision of releases] as an essential part of the settlement." This is consistent with the advice given to the plaintiff by both Mr Meyer and Mr Richardson SC that "neither is bound at the moment by the Heads of Agreement".
The better view is that the Heads of Agreement was not intended by the parties to create a binding arrangement and they conducted themselves accordingly.
Relevant provisions in the Agreement
For ease of reference, the relevant terms of the Agreement are set out below:
2.3 Precedence
If there is any inconsistency between the provisions of this Agreement and the provisions of a Funding & Consultancy Term Sheet the provisions of the Funding & Consultancy Term Sheet prevails to the extent of the inconsistency.
...
5.1 Repayment of Costs
In any Funding Transaction the client must repay Costs paid by the Funder under clause 4.1 [Initial funding] and 4.2 [Further funding] on the Repayment Date. Subject to any qualifications contained within the Funding and Consultancy Term Sheet
5.2 Payment of Additional Sum
In addition to any amounts to be repaid under clause 5.1, the client agrees to pay to the Funder and the consultant the Additional Sum for the Funding Transaction and undertaking such work as may have been required by the consultant on the Repayment Date
...
9.2 Ability to terminate early without cause
...the Funder may at any time terminate a Funding Transaction on the giving of reasonable notice in writing...
...
9.6 Payments after termination
In the event that a Funding Transaction is terminated pursuant to [termination by Funder without cause under clause 9.2 or termination by client for breach by Funder]...the Additional Sum in respect of the Funding Transaction will remain payable to the Funder and or the consultant
...
The Terms Sheet referred to in clause 2.3 relevantly provides:
The final sum payable is 25% of the gross final settlement sum plus GST
Provided the settlement sum is in excess of $8 million dollars the fee includes the legal costs expended by the funder.
A number of expressions which are used in these provisions are defined in the Agreement at clause 1.1 as follows:
"Additional Sum" means in respect of any Funding Transaction the higher of: (a) The Percentage of the Net Final Amount received in Proceedings funded by the Funding Transaction [the definition ends here and it should be noted in particular that there is no subparagraph (b)].
...
"Costs" in relation to any Proceedings or an Examination means the aggregate of ["Legal Costs", "Enforcement Costs", other fees and expenses and government taxes].
...
"Final Amount" in relation to any Proceedings means the gross amount received by the Client, whether by way of settlement, orders made or judgment entered in the Proceedings.
...
"Maximum Amount" in relation to a Funding Transaction means the amount specified in the Funding Term Sheet as the maximum amount which will be available from the Funder in relation to the Funding Transaction subject to adjustment in accordance with clauses 6.1 to 6.3 [these clauses provide for an increase].
...
"Net Final Amount" in relation to any Proceedings means the balance of the Final Amount after deducting Costs and any applicable GST.
...
"Percentage" in relation to a Funding Transaction means the percentage specified in the Funding Term Sheet as the percentage of Gross Final Amount to be paid to the Funder in consideration for its provision of the funding or other such percentage as is determined pursuant to clauses 6.1 to 6.3 [these clauses provide for an increase in the Maximum Amount] and clause 10.5 [this clause provides for an increase to the Percentage in the event of extending funding to an appeal].
The Agreement does not define the terms "gross final settlement sum", "gross amount", "gross final amount" or "settlement sum".
Analysis of the Agreement and Parties' Submissions
The critical provisions in the Agreement by which the plaintiff is made liable to make any payment to ALF are contained in clauses 5.1 and 5.2. Under those clauses, the plaintiff is liable to pay:
(1) the "Costs" paid by ALF; plus
(2) the "Additional Sum".
It is sufficient for the present analysis to identify that "Costs" is defined in clause 1.1 to include "Legal Costs", "Enforcement Costs", other expenses and government taxes. The "Additional Sum" is defined as the "Percentage" of the "Net Final Amount". "Percentage" is in turn defined as "the percentage specified in the Funding Term Sheet as the percentage of Gross Final Amount to be paid to the Funder". The relevant provision in the Terms Sheet provides "[t]he final sum payable is 25% of the gross final settlement sum plus GST". Therefore for the purposes of the definition of "Additional Sum" in the Agreement, the "Percentage" is 25%. "Net Final Amount" is defined as the "Final Amount", less "Costs". The "Final Amount" is defined as "the gross amount received [including] by way of settlement".
Therefore the effect of the matrix of definitions is that the plaintiff was liable to pay to ALF, on settlement, two sums, being:
(1) the "Costs"; plus
(2) 25% of the difference between "the gross amount received" by way of settlement and the "Costs".
The Terms Sheet contains operative clauses which do more than merely specify certain variables that are to be fed into the Agreement. As will become apparent, the Terms Sheet provides for arrangements which are inconsistent with clauses 5.1 and 5.2 of the main document. Under the Terms Sheet, the plaintiff is required to comply with one of two possible payment arrangements, depending on whether or not the settlement sum is in excess of $8 million.
If the settlement sum is $8 million or less, the "final sum payable" by the plaintiff to ALF under the Terms Sheet is:
25% of the gross final settlement sum plus GST; plus
the "Costs".
Importantly, unlike clause 5.2 of the Agreement, there is no mention in the Terms Sheet that the sum by reference to which the 25% fee is calculated would exclude "Costs". To the contrary, the Terms Sheet's 25% fee is expressly stated to be imposed on the "gross final settlement sum", and this is said to form part of the "final sum payable".
Alternatively, if the settlement sum is in excess of $8 million, then the 25% fee is deemed to include the "Legal Costs" (which is defined in clause 1.1 of the Agreement). In other words, if the settlement sum exceeds $8 million, the plaintiff is only required to pay to ALF 25% of that settlement sum, but no costs.
To summarise, under clauses 5.1 and 5.2 of the Agreement, the plaintiff would be liable to pay to ALF:
Costs + [(25%) X (Gross Amount Received - Costs)]
Under the Terms Sheet, if the settlement sum is $8 million or less, the plaintiff would be liable to pay to ALF:
Costs + [(25%) X (Gross Final Settlement Sum)]
Under the Terms Sheet, if the settlement sum is greater than $8 million, the plaintiff would be liable to pay to ALF:
[25%] X [Gross Amount Received]
There is an inconsistency between the method of payment calculation under the Agreement and the possible calculations under the Terms Sheet. The Agreement contemplates the possibility of a conflict between its own terms and the terms of the Terms Sheet, and it expressly provides for a resolution. Clause 2.3 of the Agreement provides that "the provisions of the [Terms Sheet] prevails to the extent of the inconsistency". This is corroborated by the inclusion of the sentence "...Subject to any qualifications contained within the Funding and Consultancy Term Sheet" at the end of clause 5.1 in the Agreement.
Clause 2.3 therefore provides clear expression of the objective intention of the parties, and therefore resolves the issue of inconsistency without need, at this stage, to resort to detailed application of the legal principles of contractual construction.
Therefore the critical provisions which govern the calculation of the plaintiff's liability are those set out in the Terms Sheet, and (once again) provide:
The final sum payable is 25% of the gross final settlement sum plus GST
Provided the settlement sum is in excess of $8 million dollars the fee includes the legal costs expended by the funder.
It is plain from the above wording of the Terms Sheet that:
(1) it actually gives rise to an obligation on the part of the plaintiff to pay a certain amount to ALF;
(2) "the settlement sum" in the second sentence is a reference to "the gross final settlement sum" referred to in the previous sentence; and
(3) "the fee" in the second sentence is a reference to "25% of the gross final settlement sum plus GST" referred to in the first sentence.
In order to determine whether the plaintiff's liability is calculated in accordance with the first or second sentence of the Terms Sheet, it is necessary to identify whether her "gross final settlement sum" is in excess of $8 million.
There is no definition of "gross final settlement sum" in any of the documentation. It is therefore necessary to consider the principles of contractual construction. As noted, the assessment of the quantum of the plaintiff's liability to ALF under the terms of the Agreement will depend on the meaning of the undefined term "gross final settlement sum" (I note again, for completeness, that there is also no definition of the expressions "gross amount", "gross final amount" or "settlement sum").
The expression "Final Amount" is defined in clause 1.1 of the Agreement as "the gross amount received [including] by way of settlement". There is an obvious similarity of language between the critical expression "gross final settlement sum" and the definition of "Final Amount". However, even if, as I accept, "gross final settlement sum" is identical in meaning to the defined term "Final Amount", it is still necessary to determine precisely what is meant by "gross amount received...by way of settlement".
The obvious commercial objective of the transaction was for ALF to fund the Family Court proceedings and to (effectively) receive in return a reimbursement of its costs plus some profit margin by reference to the plaintiff's proceeds from the litigation.
Mr Newlinds SC submitted that the use of the words "received" and "amount" (in the definition of "Final Amount") indicate that the scope of assets by reference to which ALF's 25% fee is calculated should exclude:
(1) all assets which did not need to be transferred to the plaintiff's name as a result of the settlement (this restriction was said to be based on the use of the word "received"); and
(2) all non-cash, that is, non-monetary assets (this restriction was said to be based on the use of the words "amount" and "sum").
(I note that Mr Newlinds also argues that the 25% fee should only be calculated by reference to the amount (if any) received by way of cash in excess of $8 million).
Mr Coles QC contends that the ultimate settlement of the Family Court proceedings was for $23 million. This is based on the more technical proposition that, in property settlement proceedings, the Family Court considers, and makes an appropriate division by reference to, all property of both parties. According to the defendants' submissions, the plaintiff's share from this broad pool of assets, namely $23 million (less the express carve-out of the Mona Rd property being $6,750,000), is the sum by reference to which ALF's 25% fee is calculated (i.e. 25% x $16,250,000 = $4,062,500 plus GST).
Discussion
The Addendum, which was executed within a seven day cooling off period following the execution of the Agreement and Terms Sheet, provided that:
In the calculation of fees or commission payable to the "Funder" and the "consultant" both parties will not take into account when determining the fees and or commission any benefit or settlement paid or provided to the client in relation to 46 Mona Rd Darling Point.
This is the only provision in the Addendum which is relevant to the present issue of construction.
Plainly, it would only be necessary to include this provision if, on a proper construction of the terms of the Agreement and Terms Sheet, the property at 46 Mona Rd, Darling Point was understood by the parties to the Agreement to be included as an item by reference to which ALF's 25% fee would be calculated. In other words, it is more likely than not that the parties understood that, apart from the Addendum, the Mona Rd property (which was to be transferred at least in part from Mr Nemeth to the plaintiff) was indeed to be included as one of the assets on which ALF's 25% fee would be imposed.
I agree with the defendant's submission that this disposes of Mr Newlinds' argument that objectively speaking the words "sum" and "amount" convey that the 25% fee could only be imposed on the cash component of the settlement.
The second issue is whether the 25% fee would only be calculated by reference to the items which needed to be "transferred" to the plaintiff's name. The Mona Rd property was held in the names of both Mr Nemeth and the plaintiff and required a transfer (at least in part) to the plaintiff. The Addendum therefore cannot shed any light on the correctness (or otherwise) of Mr Newlinds' submission about the significance of the word "received". On this issue the terms of the Agreement and Terms Sheet are ambiguous and susceptible to each of the meanings advanced by the parties.
Turning then to the surrounding circumstances, one of the critical elements would appear to be the offer of settlement in relation to the proceedings, which was encapsulated in a "Heads of Agreement" (see paragraphs [124]-[128] of the plaintiff's affidavit). It provided (among other things):
1. ...the husband shall transfer...to the wife the property at 46 Mona Road...
2. ...the husband shall pay to the wife the sum of $7,500,000...
3. ...the husband shall pay to the wife $500,000 which sum is in addition...
...
10. Husband to discharge any debt of wife to any company ...and the wife relinquish...any claim against the company...[Note: The loans which the wife had made to various companies totalled $3,237,540. This figure is based on Nemeth's financial statements used in Family Court proceedings]
11. ...the wife shall use her best endeavours to cause each of her family members...to release each company and the husband from any claim.
This represented an offer to the plaintiff of $8 million in cash and half of the matrimonial home (among other promises). In cross-examination, Mr Byrnes gave evidence as follows (Transcript, pages 147-148):
Q. May we take it you told your wife that this was a really good deal for the company?
A. Correct.
Q. Because there was on the table, to your knowledge, an offer from the husband that produced $8 million cash and half the matrimonial home?
A. There had been.
...
Q. You expected that whenever negotiations occurred, you would be able at least to get back to the position of that offer, didn't you?
A. Yes.
Q. And therefore may we take it you said to your wife: This is actually a really good deal because we are not going to do worse than 25 per cent of $8 million?
A. I can't - you are putting words in - you know you are generalising. But I told her it was - I thought it was a very viable deal and we should proceed with it.
Q. Did you tell her about the $8 million that you thought you couldn't do worse than?
A. I told her there had been a multi million dollars - I told her there had been an $8 million...
[Emphasis added]
The Heads of Agreement only concerned the $8 million and 46 Mona Rd (unencumbered) and was an important part of the context in which the Agreement came into being. That provides in my view compelling evidence that the plaintiff and the defendants did not take into account any assets otherwise held by the plaintiff.
If this analysis is correct, then the submission that ALF's fee should be based on what the plaintiff actually "received" should be accepted.
As for the submission that the 25% should only be imposed on any amount that rises above $8 million, I cannot find any support in the Agreement for adopting this construction. Even if I had regard to surrounding circumstances, I cannot see how such circumstances would support that position.
The fee of 25% should therefore be imposed on the assets which the plaintiff received as a result of the consent orders made by the Family Court (see Tab 11 of the Court Book - Volume 1). Importantly, Order 12 provides:
...save as otherwise provided herein, the wife is declared to be solely entitled to all assets and financial resources in her name, possession or control or to which she is or may become entitled.
It follows that the loans previously advanced by the plaintiff to F & V Holdings Pty Ltd of $2,945,287 and to F & V Nemeth Investments Pty Ltd of $292,253 do not form part of the assets which the plaintiff "received" for the purpose of the assessment of her liability under the Terms Sheet/Agreement.
The result in my view of the above exercise is that the plaintiff is obliged (subject to any relief she is otherwise entitled to) to pay to ALF 25% of $9 million, which is $2,250,000. In the defence to the cross-claim the plaintiff asserts that property in the Philippines should be included but I took what I regard to be the correct position in final submissions which would be to exclude that property from the calculation.
Legal principles governing the application of the Contracts Review Act
The general policy of the law that people should honour their contracts has been stated in a number of authorities (Baltic Shipping Co v Dillon (1991) 22 NSWLR 1 at 9 per Gleeson CJ). The Contracts Review Act was recognised fairly soon after its enactment as "revolutionary" (West v AGC (Advances) Ltd and Others (1986) 5 NSWLR 610 at 621 per McHugh JA with whom Hope JA agreed; Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256 at 267 per Kirby P; Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 at [114] per Basten JA) and "likely to signal the end of much of classical contract theory" (West v AGC at 621 per McHugh JA and Hope JA, and 611 per Kirby P).
The Court of Appeal in West v AGC recognised that the Contracts Review Act had the purpose of overcoming the common law's failure to provide a comprehensive framework for dealing with "unjust contracts", and should therefore not be limited by reference to analogous doctrines at law or equity, and should be freed from preconceptions involved in earlier legal remedies for unconscionable conduct (West v AGC at 616 per Kirby P, and at 621 per McHugh JA; Beneficial Finance Corporation Ltd v Karavas at 277 per Meagher JA). The Court of Appeal also held that as the Contracts Review Act was "beneficial legislation" it should be "interpreted liberally" (West v AGC at 611 per Kirby P and at 631 per McHugh JA with whom Hope JA agreed).
In subsequent cases considering in further detail the position of the Contracts Review Act in relation to existing legal doctrines, the Court of Appeal indicated that the Contracts Review Act has a lower the threshold for relief than that of unconscionability at general law (Bakarich v Commonwealth Bank of Australia [2007] NSWCA 169 at [89] per Hodgson JA with whom Santow and Campbell JJA agreed), is of wider jurisdiction, and therefore sometimes will leave no work for analogous equitable principles (Spina v Permanent Custodians Ltd [2009] NSWCA 206 at [74] per Young JA with whom Tobias and Campbell JJA agreed), and may even permit relief in circumstances where the conscience of the defendant is not affected (Perpetual Trustee Co Ltd v Khoshaba at [115] per Basten JA).
The Court of Appeal has also indicated that an application of the Contracts Review Act involves two steps. The first involves a broadly based value judgment of whether the contract in question is unjust, and the second step involves an exercise of judicial discretion as to whether and if so what relief should be granted (Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343 at [87] per Campbell JA with whom Hodgson and McColl JJA agreed; Perpetual Trustee Co Ltd v Khoshaba at [34] per Spigelman CJ; Riz v Perpetual Trustee Australia Ltd [2007] NSWSC 1153 at [51] per Brereton J). Sometimes the process is described as consisting of three stages, involving the additional initial step of making findings of primary fact as to the circumstances revealed in the evidence (Perpetual Trustee Co Ltd v Khoshaba at [99] per Handley JA and at [106]-[109] per Basten JA). Other descriptions have been given to the process (for example Antonovic v Volker (1986) 7 NSWLR 151 at 165-166 per Mahoney JA).
As to the meaning of "unjust", the Contracts Review Act defines it in s 4 to include "unconscionable, harsh or oppressive", and identifies in s 9 a number of matters to be considered by the court. The definition of "unjust" in s 4 is not exhaustive (Kowalczuk v Accom Finance Pty Ltd at [70] per Campbell JA with whom Hodgson and McColl JJA agreed; Perpetual Trustee Co Ltd v Khoshaba at [114] per Basten JA) nor are the factors listed in s 9 (Spina v Permanent Custodians Ltd at [105] per Young JA with whom Tobias and Campbell JJA agreed).
In a more recent decision of the Court of Appeal, the then President commented on the difficulty involved in the exercise of determining whether a contract was "unjust" for the purposes of the Act, and provided some guidance as to what this normative evaluation involved (Provident Capital Ltd v Papa [2013] NSWCA 36 at [7] per Allsop P with whom Sackville AJA agreed). The difficulty of determining the content of the concept of "unjust" for the purposes of the Act has also been recognised in other cases. For example, in Perpetual Trustee Company Limited v Khoshaba Spigelman CJ commented (at [64]) that when Parliament elects to adopt a general and inherently variable standard as that of "justness", it intends for courts to apply contemporary, and therefore changing, community standards about what is just. In fact, the Court of Appeal has already observed that the relevant standards may have changed from those applied in 1986 in West v AGC (Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413 at [78]-[79]; Perpetual Trustee Co Ltd v Khoshaba at [65] per Spigelman CJ).
Despite these difficulties and the breadth of the language and concepts in the Act, the court is not (to borrow language used by the High Court in a different context) entering into pure abstraction where all principles are at large (Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at [20] per Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ; Perpetual Trustee Co Ltd v Khoshaba at [115] per Basten JA).
In the early case of West v AGC, McHugh JA reviewed the list of relevant considerations under s 9 of the Act and explained in what is perhaps now a classical passage, that for the purposes of the Act a contract may be "unjust" by reason of substantive injustice, procedural injustice, or both (at 620), and he explained the meaning of each of those expressions. His Honour went on to specify in some further detail some situations where he thought "unjustness" could not be found (at 621 and 622):
If a contract or one of its relevant provisions is neither unfair nor unreasonable so far as the applicant is concerned, it is difficult to see how the existence of inequality in bargaining power or lack of independent advice, for example, can render the contract or a provision of the contract unjust.
...
If a defendant has not been engaged in conduct depriving the claimant of a real or informed choice to enter into a contract and the terms of the contract are reasonable as between the parties, I do not see how that contract can be considered unjust simply because it was not in the interest of the claimant to make the contract or because she had no independent advice.
...
[A] contract will not be unjust as against a party unless the contract or one of its provisions is the product of unfair conduct on his part either in the terms which he has imposed or in the means which he has employed to make the contract.
These comments have been extensively quoted in subsequent cases. However, in Perpetual Trustee Co Ltd v Khoshaba at [73] Spigelman CJ described McHugh JA's comments as "instructive" and "identifying relevant considerations entitled to significant weight", but "directed to issues in that case" and not to be taken as "rules". On reviewing the authorities, it appears that the Court of Appeal has, for obvious reasons, been careful to avoid introducing rigidity to the application of the Act.
Professor Peden, who was largely responsible for the drafting of the Act, said that the "omission of the term 'unfair' in the definition and in s 9 represents an important and conscious policy decision not to allow contracts to be reviewed simply on the ground that the contract favours one party unless there has also been an abuse of power or unconscionable conduct on his part" and that "the underlying purpose of the [Act is]...to prevent unjust dealings which offend against community standards of business morality" (J R Peden, The Law of Unjust Contracts, (1982) Butterworths at 109 and 122).
The authorities make it clear that one of the general legislative purposes of the Contracts Review Act is to protect people who, for one or more of a number of potential reasons, are not able to look after themselves and who are preyed upon by dishonesty, trickery and other forms of predation (Kowalczuk v Accom Finance Pty Ltd at [102] per Campbell JA with whom Hodgson and McColl JJA agreed; Provident Capital Ltd v Papa at [7] per Allsop P with whom Sackville AJA agreed; Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 at [270]).
As Allsop P recently observed, some of the potential sources of vulnerability are a lack of education or of intelligence, gullibility, greed, loyalty and love. However, the authorities also establish that a contract will not be unjust merely because it was not in someone's interest to enter into it (Esanda Finance Corporation Ltd v Tong (1997) 41 NSWLR 482 at 491 per Handley JA with whom Santow and Simos AJJA agreed) or because it was inopportune or produced a loss (Elkofairi v Permanent Trustee Co Ltd at [78] per Beazley JA with whom Santow JA and Campbell AJA agreed), or because the party seeking relief was foolish, gullible or greedy (Perpetual Trustee Co Ltd v Khoshaba at [128] per Basten JA), or because the contract is burdensome, a hard bargain, strongly in the interests of the party against whom relief is sought, or in some sense unreasonable (Conley v Commonwealth Bank of Australia [2000] NSWCA 101 at [96] per Heydon JA with whom Handley JA agreed).
There has also been some discussion in the authorities as to the relevance of the knowledge of the person against whom relief is sought of the factors producing the alleged injustice. I consider the weight of judicial opinion favours the proposition that the absence of knowledge of factors producing the alleged injustice by the party against whom relief is sought does not prevent the characterisation of a contract as unjust (St George Bank Ltd v Trimarchi [2004] NSWCA 120 at [36] per Mason P with whom Sheller JA and Cripps AJA agreed; Beneficial Finance Corporation Ltd v Karavas at 277 per Meagher JA; Collier v Morlend Finance Corp (1989) ASC ¶55-176 at 58,433 per Meagher JA), but it may be highly relevant to whether the discretion conferred on the court by s 7 should be exercised to grant relief (Perpetual Trustee Co Ltd v Khoshaba at [119] per Basten JA; Beneficial Finance Corporation Ltd v Karavas at 277 per Meagher JA; Esanda Finance Corporation Ltd v Tong at 490 per Handley JA with whom Santow and Simos AJJA agreed). It is true that in Antonovic v Volker Samuels JA (with whom Kirby P agreed) found the relevant contract unjust and granted relief even though the party against whom relief was sought was found "innocent of fault", however, in that case, his agent's conduct was found to be "unfair" (at 157-158).
The authorities also appear to establish that the person against whom relief is sought need not take the initiative to ensure that any independent legal advice obtained by the party seeking relief is accurate or has been understood, but this may be different in circumstances where the party seeking to enforce the contract is actually aware that the advice has not been given or has not been understood (Esanda Finance Corporation Ltd v Tong at 491 per Handley JA with whom Santow and Simos AJJA agreed, approving comments in St George Commercial Credit Corporation Ltd v Collins Wallis Properties Pty Ltd (Rolfe J, 11 February 1994, unreported)).
Finally, where the court is minded to grant relief, it should not interfere with the rights of the parties any more than is necessary to remedy or to avoid the injustice to the party seeking relief (S H Lock (Australia) Ltd v Kennedy (1988) 12 NSWLR 482 at 487 per Samuels JA and at 492 and 493-494 per Priestley JA; Esanda Finance Corporation Ltd v Tong at 489 per Handley JA with whom Santow and Simos AJJA agreed).
Legal principles governing unconscionability at general law
In the recent decision of Aboody v Ryan [2012] NSWCA 395 the Court of Appeal, comprising Bathurst CJ, Allsop P and Campbell JA, considered in some detail the governing general principles in respect of relief against unconscionable dealings. Allsop P (with whom Bathurst CJ and Campbell JA agreed) said (at [62]) that these principles were to be found in the well known cases of Blomley v Ryan (1956) 99 CLR 362, Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, Louth v Diprose (1992) 175 CLR 621 and Bridgewater v Leahy (1998) 194 CLR 457.
The President endorsed the expression of principle in these High Court cases and cautioned against introducing rigidity by focusing on subsequent single instances of the application of the principle. His Honour said (at [63]):
[63] ... there is an underlying general principle, the applications or exemplifications of which are impossible to describe fully. Thus, one should always be careful not to dwell over-technically or textually on individual expressions of general principle of normative values rooted in the remedying of injustice. It is general principle, not a precisely expressed rule, that operates. The principle is wide, and the danger in further textual definition (as opposed to exemplification or illumination) is that inaccuracy or undue restriction may be brought about... Equity's norms and values can be expressed as by Mason J in Amadio at 461-462, or by Deane J in Amadio at 474-475, or by Dawson J in Amadio at 489...
In Blomley v Ryan Kitto J said (at 415 and 428-429):
It applies whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands.
...
The essence of the ground we have to consider is unconscientiousness on the part of the party seeking to enforce the contract; and unconscientiousness is not made out in this case unless it appears, first, that at the time of entering into the contract the defendant was in such a debilitated condition that there was not what Sir John Stuart called "... a reasonable degree of equality between the contracting parties"; Longmate v Ledger ... and secondly, that the defendant's condition was sufficiently evident to those who were acting for the plaintiff at the time to make it prima facie unfair for them to take his assent to the sale.
...
The fact that the defendant's condition was the result of his own self-indulgence could make no difference, for, as is shown by Cooke v Clayworth ... the principle applied is not one which extends sympathetic benevolence to a victim of undeserved misfortune; it is one which denies to those who act unconscientiously the fruits of their wrongdoing.
Fullagar J said (at 405):
The circumstances adversely affecting a party, which may induce a court of equity either to refuse its aid or to set a transaction aside, are of great variety and can hardly be satisfactorily classified. Among them are poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary. The common characteristic seems to be that they have the effect of placing one party at a serious disadvantage vis-a-vis the other.
In Commercial Bank of Australia Ltd v Amadio Mason J said (at 461 and 462):
... relief on the ground of "unconscionable conduct" is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage...
...
...the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position.
...
Relief on the ground of unconscionable conduct will be granted when unconscientious advantage is taken of an innocent party whose will is overborne so that it is not independent and voluntary, just as it will be granted when such advantage is taken of an innocent party who, though not deprived of an independent and voluntary will, is unable to make a worthwhile judgment as to what is in his best interest.
It goes almost without saying that it is impossible to describe definitively all the situations in which relief will be granted on the ground of unconscionable conduct.
...
...the situations mentioned [by Fullagar and Kitto JJ in Blomley v Ryan] are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition or circumstance is placed at a special disadvantage vis-à-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word "disadvantage" by the adjective "special" in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party.
Deane J said (at 474 and 475):
Unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so. The adverse circumstances which may constitute a special disability for the purposes of the principles relating to relief against unconscionable dealing may take a wide variety of forms and are not susceptible to being comprehensively catalogued... [T]he common characteristic of such adverse circumstances "seems to be that they have the effect of placing one party at a serious disadvantage vis-à-vis the other".
In Louth v Diprose Deane J said (at 637):
... the jurisdiction of courts of equity to relieve against unconscionable dealing extends generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party to the transaction with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that special disability was sufficiently evident to the other party to make it prima facie unfair or "unconscionable" that that other party procure, accept or retain the benefit of, the disadvantaged party's assent to the impugned transaction in the circumstances in which he or she procured or accepted it.
Brennan J made similar comments and discussed the relationship between equity's jurisdiction to set aside transactions affected by undue influence and transactions affected by unconscionable conduct (at 626-627).
Unconscionability under the Trade Practices Act
The plaintiff also alleges unconscionability under sections 51AA or 51AB of the Trade Practices Act. As s 51AA(1) does not apply to conduct that is prohibited by s 51AB it is necessary to consider the application of s 51AB first. If s 51AB is found to apply, s 51AA does not (Alievski v Cross Country Realty Victoria Pty Ltd [2010] VSC 316 at [11] per Bell J).
Section 51AB(1) relevantly provides that:
a person must not, in trade or commerce, in connection with the supply or possible supply of goods and services to another person, engage in conduct that is, in all the circumstances, unconscionable.
Section 51AB(2) lists, non-exhaustively, factors to be taken into account. A number of cases confirm the view that this section is not to be read down to apply only to conduct that would traditionally be regarded as unconscionable according to equitable principles (Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2000) 169 ALR 324).
In Australian Competition and Consumer Commission v Lux Pty Ltd [2004] FCA 926, Nicholson J said (at [98]):
[98] The word unconscionable is not a term of art It is not limited to traditional equitable or common law notions of unconscionability: Australian Competition & Consumer Commission v Simply No-Knead (Franchising) Pty Ltd (2000) 104 FCR 253 at [31]. It bears its ordinary meaning of 'showing no regard for conscience, irreconcilable with what is right or reasonable': Australian Competition & Consumer Commission v Samton Holdings Pty Ltd (2002) 117 FCR 301 at [44]; Hurley at [19]-[20]; Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 262. What is required is 'serious misconduct or something clearly unfair or unreasonable': Hurley at [19]-[20]. It will be relevant whether advantage is taken of an innocent party who, though not deprived of an independent and voluntary will, is unable to make a worthwhile judgement as to what is in his or her best interests: Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 461.
I am satisfied that she had obtained a credible DNA analysis on 9 May 2003 supporting a proposition that Anthony Nemeth could not have been the biological son of her former husband. I am also satisfied that out of financial self-interest she used that fact to try to persuade her former husband that he should disinherit Anthony. Further I am satisfied that not only did this cause or least exacerbate the rift between herself and her former husband but undoubtedly and unsurprisingly provoked both anger and distress on the part of her former husband and anger on the part of Anthony. The consequence in my opinion would undoubtedly have led Anthony and her former husband to provide the plaintiff in any settlement with what they would regard as perhaps the minimum outcome, but at least not one that was overly generous. When her former husband died the matter needed to be resolved and it was.
The lawyers whom she had hitherto retained in her mind I am satisfied could neither provide her with a solution or an outcome that she wanted nor could they deal with Anthony and hence her former husband in the way that she desired.
In the latter part of 2009 she was not looking for lawyers competent or otherwise. She was predominately looking for an unorthodox solution and that is why she was attracted to the suggestion that she retain Mr Rogerson in the first instance and Mr Byrnes.
Mr Rogerson was retained with her knowing fully what kind of reputation he had. She had no compunction at dealing with the likes of Mr Lyle who could provide her with a means to an end. She well knew Mr Lyle's reputation and I do not accept for one moment that she was frightened as she asserts in having any dealings with him. She clearly wanted Mr Rogerson to investigate and expose if he could the commission of any criminal activity on the part of Anthony so that that could be used as a pressure tactic in negotiations. She wanted Mr Rogerson to use his contacts to see whether that could be achieved. She also wanted Mr Rogerson to do violence to Anthony as part of her strategic plan.
She wanted Mr Byrnes on side for any number of reasons. First, I am satisfied that she likewise knew of Mr Byrnes' reputation before she signed the initial agreement on 18 January 2010.
In a judgment dated 7 July 2010 and which the plaintiff herself forwarded to Mr Byrnes (admittedly on 25 August 2010) Justice Palmer made the following comments in relation to the reputation of Mr Byrnes:
Introduction - the Reputation of Mr James Byrnes
1. This is an application under Section 482 Corporations Act 2001 (C'th) for the termination of the liquidation of Modena Imports Pty Ltd (in liq), conditional upon the implementation of a Deed of Company Arrangement (DOCA) which has been approved by creditor. The DOCA is funded by a company called Australian Corporate Restructuring Services Pty Limited (ACRS).
2. ACRS is in truth a front for James Warren Byrnes. Mr Bynres has a notorious reputation as a standover man and associate of major criminals. In an inquest in 2008 into the murder of one Max Gibson, the coroner described Mr Byrnes a named "person of interest" in the inquest as "untruthful" and "manipulative" who had been caught "caught lying to the court on more than one occasion.
3. This is not a trial of Mr Byrnes. I do not have to determine whether or not Mr Byrnes' reputation is deserved. I merely state the fact that Mr Byrnes has a reputation of which no judge in this State could be unaware.
I am satisfied that the plaintiff was aware of Mr Byrnes' reputation and indeed this was one of the matters that attracted her to him and led to her reaching the Agreement she did. She wanted Mr Byrnes to supply no doubt consistent with his particular skill set for the purposes of negotiating and dealing for example with Anthony. She made some very profound comments in an email to Mr Byrnes of 27 August 2010. She said:
I was not happy with the way my Family Court case being managed. There are promises from you and none has been delivered. I understand that sometimes promises can be broken. The business side of it didn't bother at all but what really upset me most was your promise of remitting the costs of Sarah's operation....
But perhaps most importantly she said towards the end of the email:
Anthony Nemeth is a very clever young man and therefore I have been advised that I should engage you to deal with him. I also thought that you are the only person who could deal with him.
There was equally no doubt in my mind that she was prepared to have Mr Byrnes' retainer cover possible project development services. As I have also found earlier I am satisfied that she discussed that very topic with him as he asserts in relation to the possible redevelopment of her home at 46 Mona Road, Darling Point. She made explicit reference to this in an earlier email to which I have referred.
As a woman with not only accounting qualifications but accounting experience she readily appreciated that a 25% commission was going to be charged. It has not been contended nor frankly could it that she would have difficulty in understanding either the Agreement signed on 18 January 2010 or the Addendum signed on 26 January. She discussed it with her trusted "Uncle" Mr Rappport and perhaps others and I am satisfied she sought the changes which became embodied in the Addendum of 26 January 2010. Importantly she was keen to have her home excluded from the calculation of the 25% commission.
That she was ultimately disappointed with Mr Byrnes or for that matter Mr Rogerson does not in my opinion lead to a conclusion that she had a disability relevantly or that she was vulnerable or relevantly suffered by any disability. There is no cogent medical evidence in this case suggesting that at any point in time but most importantly late 2009 or early 2010 she suffered from any relevant physical or psychological disabilities such as to rob her of the ability to make an informed decision as to what she wanted to do. It is not to the point as submitted by her counsel that objectively it was not in her best interests to have entered the Agreement in the first place. That really turns on the question as to why she wanted to do it. Given what she wanted Mr Byrnes and Mr Rogerson to do, I do not consider that submission is made out.
There is a limit to how far a court should intervene in actions which are the subject of free will. There is little point suggesting in a somewhat patronising way that what the plaintiff needed was a good competent lawyer. That is precisely what she did not want. There is no way in my opinion that Mr Byrnes was obliged to refuse to do business with her. He did I am satisfied point out the cooling off period and suggest that she seek independent legal advice. He was not a lawyer who might have had additional obligations to ensure that independent legal advice was in fact obtained, especially when it is by no means clear to me that at least at their initial meeting and at the time the Agreement and Addendum were signed there is no reason in my view on the state of the evidence why Mr Byrnes let alone Mr Rogerson would have necessarily concluded that her attitude towards Anthony was based on some irrational obsession.
In any event the resentment between her former husband and Anthony on the one side and the plaintiff on the other as I have observed was real and not imagined by the plaintiff. The mere fact that she was principally responsible for causing it is not to the point. One thing she did know was that neither Mr Rogerson nor Mr Byrnes were lawyers but that is not what she was looking for at the time.
Even if it is open for me to find that the plaintiff acted irrationally or with some form of obsession so far as Anthony is concerned the characteristics which I have been otherwise asked to accept wherever present, such as greed and potentially her ability to manipulate people, places her in a category where it is difficult to see how on the facts of the case she was in fact exploited by Mr Byrnes. It may be that he sugar coated things and attempted to charm her. I have little doubt she was attempting to charm him during the conversations they had because she did expect and want unorthodox methodologies to be employed against her former husband whom she knew could be violent given for example her complaint to the police of August 2006 leading as it did to his arrest.
Her use of the DNA material was in order to, I am satisfied, manipulate her former husband to her financial advantage. That is one of the very important factors that I think operates here to militate against the suggestion that Mr Byrnes exploited her.
Prior to the plaintiff meeting with Mr Byrnes the plaintiff had had a considerable amount of commercial experience spanning many years. Apart from her very good fortune in inheriting or being gifted certain properties of significant value and other assets, she clearly had a significant degree of commercial acumen herself. That is unsurprising given her university qualification in the Philippines and her accounting qualifications acquired in Australia.
She clearly made up her own mind having done some background checks to seek out Mr Byrnes and Mr Rogerson. Notwithstanding their reputations she was entirely it seems happy to deal with Mr Rogerson and Mr Byrnes and invite total strangers of somewhat dubious reputations into her home at the drop of a hat.
In my mind given the character of her stepson Anthony and the fact that she believed he or someone associated with him may attempt to kill her, her decision to use Mr Rogerson and/or Mr Byrnes knowing their reputations it seems to me was in part to convey the impression to Anthony that she was being assisted by persons of that very type. No doubt she also thought it would improve her bargaining power to get more out of the settlement which she indeed believed she deserved.
Again I see nothing irrational in a client rejecting advice. The mere fact that it might be objectively unreasonable does not mean that a client would act irrationally in deciding to have a court determine the dispute as opposed to accepting an offer in negotiation. There is no case that cannot be lost and the only thing that is certain about litigation is that the outcome is by no means capable of being predicted with certainty. There are many litigants to have an independent person determine their rights and/or liabilities as opposed to accepting a prognostication from a lawyer even one experienced in the field. That indeed is a most common occurrence.
The question therefore is whether even putting the plaintiff's case at its highest it could be suggested that the contract was substantially or procedurally unjust or that the defendant or defendants have acted in an unconscientious way.
Given the plaintiff's background and commercial acumen I do not think it can be said that this contract was unfair by its terms in any way at all. As I have already observed the services to be provided by the defendants when the execution of the document occurred went far beyond a mere management, as it were of Family Court proceedings.
I am by no means convinced therefore that the document by reason merely of the 25% and the circumstances in which it was executed gives rise to unfairness pursuant to the Contracts Review Act. As an experienced accountant and business person generally, of all people the plaintiff was well able to envisage what the likely return to the defendants would be. Whilst she would not precisely know (as it would be dependent on the ultimate outcome) even on the offer which was on the table and which she rejected the return to the defendants was going to be substantial. But she was prepared to pay for their presence at the negotiating table which I am certain she thought would enhance her prospects of getting a substantially increased offer. The delay between first obtaining the Agreement and her undoubted consideration of the size of the 25% and her request which led to the Addendum in my mind do not point in favour of a contract being unfair either substantially or procedurally consistent with the authorities.
I am unable for similar reasons, on the facts of this case, to describe what the defendants did in the circumstances as amounting to any wrongdoing.
Counsel for the plaintiff directed my attention to the facts of Aboody v Ryan [2012] NSWCA 395 and submitted that the factual circumstances of that case were of particular relevance to the present one. The relevant transaction in that case was a transfer of land by Mr Ryan to his daughter and her husband, Mrs and Mr Aboody, for no consideration. At the time of the relevant transaction Mr Ryan was about 90 years old and his wife had died. He suffered poor health due to a number of medical conditions. There was lay evidence of unusual behaviour by Mr Ryan, which may have indicated that his mental well-being was deteriorating. Medical records were tendered as evidence of Mr Ryan's poor health. Mr Ryan had seen active service in World War II and suffered from an obviously irrational obsession that if the Australian Labour Party were elected to Federal government in 2007 and the Liberal government defeated, he would lose both his pension and his home. Due to his poor health, he was dependant on carers, including Mr and Mrs Aboody, for his daily needs. Mr Ryan received advice from a solicitor in relation to the transaction, but that advice was not independent, and Mr and Mrs Aboody were aware of this. The home which Mr Ryan transferred to Mr and Mrs Aboody was his only significant asset and his place of residence. He transferred it for no consideration.
In the present case, counsel for the plaintiff submitted that Ms Nemeth suffered a relevant "special disability" because of her allegedly irrational obsession with Anthony Nemeth, her lack of trust in legal practitioners and her allegedly irrational belief that the proceedings against Mr Nemeth were worth about $30 million. Counsel for the plaintiff accepts that Mr Ryan suffered from additional impediments besides his irrational belief, and that these impediments are not shared by the plaintiff, but nonetheless submits that this difference is immaterial. I cannot accept that submission.
In Aboody v Ryan there was nothing to suggest that Mr Ryan had any significant experience in commerce. The plaintiff however had significant experience in the operation of the Hampton Court Hotel and held significant assets. In Aboody v Ryan, Mr Ryan was 90 years old and had poor health. The plaintiff, however, was described by almost all witnesses as being clever and intelligent and there was no relevant medical evidence to suggest she was suffering from poor health, nor was there any expert opinion to that effect. In Aboody v Ryan, it was plain that Mr Ryan's obsession was utterly irrational in the sense that it could not possibly have borne any connection whatsoever to reality. The plaintiff's "obsession" with or hatred of Anthony was not shown to be "irrational" in that sense. In Aboody v Ryan, the defendants knew that the legal advice given to Mr Ryan was not independent. The plaintiff signed a document (the Addendum) indicating implicitly that she had obtained professional advice, and it has not been shown that the defendants knew that any advice was inaccurate or inadequate. Importantly, unlike Mr Ryan, the plaintiff was not dependent on, nor did she have a relationship of trust or close affection with, the defendants. In Aboody v Ryan, Mr Ryan received no consideration for the transfer of his only significant asset, whereas the plaintiff was expecting to receive a significant sum in return for her entry into the Agreement. In my mind, there is a vast and material difference between the circumstances in the case of Aboody v Ryan and the present one.
Counsel for the plaintiff also submitted that the plaintiff's "rejection" of all legal advice and her consequent belief that her case was worth $30 million was demonstrative of irrationality, contributing to her alleged "special disability". There are difficulties with this submission. It is inaccurate to describe the plaintiff as having "rejected" the legal advice given to her. The basis on which her lawyers asserted that her case in the Family Court was worth no more than $18 million was that the judge would not like her as a witness. This is not a case in which the plaintiff rejected a lawyer's advice on a legal question. This indicates that the plaintiff 's rejection of the advice given by her lawyers was not a result of irrationality, but simply a result of her disagreement about an assessment of her character. At least that is the more likely conclusion.
The conduct the plaintiff relies on to establish her claim under the Trade Practices Act is the same conduct she relies on for the purpose of her claims under the Contracts Review Act and general law unconscionability. Having considered the authorities, I accept the defendants' submission that the relevant principles and the relevant factors to take into account for determining the plaintiff's claim are, for the purposes of the facts of this case, in substance the same under the Trade Practices Act and the Contracts Review Act. On the facts of this case, I think it is clear that plaintiff's claim that the contract is "unjust" within the meaning of the Contracts Review Act is stronger than her claim under the Trade Practices Act, as I have found that the defendants have not engaged in conduct which could amount to "wrongdoing" or which could in any way be described as "unconscionable".
I have found the plaintiff to be unsuccessful in her claim for relief under the Contracts Review Act and in her unconscionability claim under general law, and again, given my observations of the lack of moral obloquy on the part of the defendants, I do not see how her claim under ss 51AB and 51AA could succeed.
Further, given my finding that there has been no relevant wrongdoing on the part of the corporate defendants, there is no basis for entertaining the plaintiff's claim against Mr Byrnes of accessorial liability under the Trade Practices Act.
Conclusion
I would invite the parties to provide short minutes reflecting these reasons. I will hear the parties on costs and interest.
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Decision last updated: 09 May 2013
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