A lending facility was set up for a company owned and managed by the oldest brother of the family (“the borrowing company”). The purpose of the facility was to assist the company in the importation of air conditions for sale in Australia. Guarantees and mortgages (“the securities”) were obtained from the other members of the family to secure the advance (“the plaintiffs”).
When the borrowing company later failed to repay the debt due under the facility, the bank issued notice pursuant to s 57(2)(b) of the Real Property Act 1900 (NSW) demanding payment of the due amount within one month, failing which the power of sale under one of the mortgages would be exercised.
The plaintiffs claim relief against enforcement of the securities on the following grounds:
1. the plaintiffs were induced to provide the securities by false and misleading representations made to them by an officer of the Bank, in breach of s 52 Trade Practices Act 1974 (Cth) thereby entitling them to relief under that Act; and
2. the circumstances in which the plaintiffs agreed to provide the securities were such as to render the transactions unconscionable and/or unjust so as to entitle the Plaintiffs to equitable relief in accordance with the principles in Commonwealth Bank of Australia v Amadio (1983) 151 CLR 447 and/or to relief under the Contracts Review Act 1980 (NSW).
Did the bank engage in misleading and deceptive conduct?
In relation to the first ground, the plaintiffs claim that the bank officer in various meetings with a member of the family (“the second brother”), made various false and misleading representations regarding the profitability of the borrowing company and the risks in executing the securities. These representations were alleged to have been relayed by the second brother to the other members of the family prior to their signing of the securities and thus in these circumstances, all members of the family should be relieved of their obligations by operation of the provisions of the Trade Practices Act.
In considering this claim, his Honour, Nicholas J applied the following the principles in Watson v Foxman  49 NSWLR 315, which he cited extensively at paragraph 97 of his judgment:
Where, in civil proceedings, a party alleges that the conduct of another was misleading or deceptive, or likely to mislead or deceive (which I will compendiously describe as “misleading”) within the meaning of s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act), it is ordinarily necessary for that party to prove to the reasonable satisfaction of the court: (1) what the alleged conduct was; and (2) circumstances which rendered the conduct misleading.
[H]uman memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.
[There are] serious difficulties of proof for a party relying upon spoken words as the foundation of a causes of action based on s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act), in the absence of some reliable contemporaneous record or other satisfactory corroboration.
His Honour found that the evidence given by the second brother in relation to the alleged misrepresentations should not be accepted because it is not corroborated nor recorded contemporaneously. He then proceeded to give examples of its unreliability. Accordingly, he found that the bank officer did not make the representations which were alleged by the plaintiffs and as such, their claims that the bank was in breach of section 52 of the Trade Practices Act must fall.
The claim that the security transactions were unconscionable
For the plaintiffs it was argued that the circumstances in which the securities were provided attracted the application of the principles in Commercial Bank of Australia v Amadio (1983) 151 CLR 447 with the consequence that the Court should intervene and set them aside.
At paragraph 192, Nicholas J cited the judgment of the Amadio case which held that a court of equity will set aside a transaction on the ground of unconscionable conduct
:”… whenever one party by reason of some condition of circumstance is placed at a special disadvantage vis-à-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created.
It was held in Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd  HCA 18, that a special disadvantage is one, which seriously affects the ability of the innocent party (that is the plaintiffs in this case) to make a judgment as to their own best interests.
In summary the plaintiffs submitted that they were not aware of the nature and the effect of the securities which they provided, as well as the risks of the company’s business. Accordingly, it was argued that the plaintiffs were unable to judge where their best interests lay.
Nicholas J did not accept the submissions of the plaintiffs. He found that because each plaintiff had previous experience in property dealings, they each aware of the nature and the effect of the securities which they were providing. Furthermore, his Honour found that on the evidence the plaintiffs were aware of the commercial operations of the borrowing company. The second brother was at all times, an active director of the company who was involved with its operations. Nicholas J found that in accordance with his usual practice, he must have informed the other members of the family, the commercial potential and risks of the company’s business.
In summary his Honour found that all members of the family understood the purport and effect of the securities provided by each of them including the fact of liability, the general extent of liability, and the possible consequences of default. As such, the evidence did not establish that it was, or would have been, unconscionable for the Bank to have exercised its rights pursuant to the securities.
The claim for relief under the Contracts Review Act 1980 (NSW)
Pursuant to section 7(1) of the Contracts Review Act, relief may be granted “where the court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made”.
The plaintiffs’ submissions as to entitlement to relief under s 7(1) were essentially the same as those made in support of the claim for relief on the basis that the transactions were unconscionable. It was put that the effect of the mortgage and guarantees was that they were improvident and/or exposed the parties to great risk without benefit to them so that relief could only be denied where it was shown that they had a proper understanding and appreciation of the obligations imposed. It was not put that there was anything unfair in the securities as between the Bank and themselves.
As his Honour had found that the plaintiffs understood and appreciated the obligations which the securities imposed, he found that the securities were not unjust and relief could not be given under the Act.