Guardian Mortgages v Miller [2004] NSWSC 1236

The Plaintiff has brought these proceedings for an order for possession in relation to property at Bardwell Park and for an order for the judicial sale of a separate property (“the charged property”).

The Defendant opposed the making of these orders, and by way of a cross-claim, sought relief against forfeiture.

The Defendant entered in a contract to purchase the mortgaged property for the sum of $530,000.The Defendant moved into the property under licence and paid a deposit of $20,000. A credit union agreed to lend to the Plaintiff $424,000 secured by first mortgage over the mortgaged property. The Defendant expected to provide the balance of the purchase price upon satisfaction of a judgment for approximately $125,000 which he had secured. That never materialized and the defendanrt had to try to secure a bridging loan. The vendor served a notice to complete, requiring completion on or before 11 July 2003. On 3 July 2003, the Defendant entered into a contract for the resale of the mortgaged property for the sum of $630,000 and to effect this organized a bridging loan from the plaintiff for $125,000. Before this loan was finalized, the plaintiff put a caveat on the property and the defendant claimed that he sought to arrange a bridging loan from another lender at better terms. He subsequently proceeded with the first bridging loan.

The Defendant submitted that the mortgage was by its terms, and/or in the circumstances in which it was made:

a. Unjust within the meaning of s7 of the Contracts Review Act 1980 NSW; and/or
b. Unjust within the meaning of s70 of the Consumer Credit (New South Wales) Code: and/or
c. Unconscionable within the meaning of s51AA and/or s51AB and/or 51AC of the Trade Practices Act 1974 (Cth); and/or
d. Unconscionable within the meaning of s12CA, s12CB, s12CC of the Australian Securities and Investments Commission Act 2001 (Cth); and/or
e. Unconscionable within the meaning of s43 of the Fair Trading Act 1987 (NSW) and/or
f. Obtained as a result of misleading or deceptive conduct within the meaning of s42 of the Fair Trading Act 1987 (NSW); and/or
g. Obtained as a result of misleading or deceptive conduct and/or false or misleading representations within the meaning of s52 and s53, respectively, of the Trade Practices Act 1974 (Cth); and/or
h. Unjust and/or unconscionable in equity; and/or
i. A clog on the equity of redemption; and/or
j. Obtained as a result of undue influence and/or pressure at general law.

The particulars given in support of these claims were to the following effect:

(1) At the time the Mortgage was entered into the Defendant was in a position of special vulnerability; to wit:

(i) The Defendant had been served with a Notice to Complete in respect of the Land;

(ii) The Defendant had encountered, at short notice, a shortfall in the funds he had expected to be available to complete the purchase of the Land;

(iii) On morning of 21 July 2003, the solicitor for the vendor had threatened that the vendor would rescind the contract in the event that settlement did not occur on the following day;

(iv) At that time the Defendant was resident in the property with his family pursuant to a licence agreement. On the morning 21 July 2003, the solicitor for the vendor indicated that, if the contract were rescinded, the Defendant and his family would have to vacate the property forthwith;

(v) On the morning of 21 July 2003, prior to the conclusion of any agreement between the parties, the Defendant became aware that a caveat had been placed on the Land by the Plaintiff;

(vi) The Defendant believed on reasonable grounds that he would be unable to obtain a bridging loan from a lender other than the Plaintiff while the Caveat remained on the title to the Land;

(vii) The Defendant further believed on reasonable grounds that there was insufficient time to have the Caveat removed from the title to the Land prior to the vendor’s rescinding the contract.

(2) At the time the Mortgage was entered into the Plaintiff was aware of the position of special disability that the Defendant was in; and

(3) The Plaintiff took advantage of the Defendant’s position of special disability.

The Court found that the defendant was untruthful, evasive and prepared to say almost anything that would suit his own case, no matter how preposterous it was, and no matter how inconsistent it was with the documentary evidence. Further, he deliberately lied when completing the loan application insofar as he described himself as a solicitor and supplied particulars of his employment. His claims, in the witness box, in an attempt to justify these particulars, did him no credit whatsoever, being patently evasive and untruthful.

The Defendant was not at any time misled in relation to the transaction, nor was any false or misleading representation made to him. Nothing was done by the Plaintiff to force him to enter into the mortgage. Such pressure that he felt himself under to secure the loan was entirely of his own making, and there was no basis whatsoever for a finding that the Plaintiff took advantage of him. If anyone was deceived by misleading conduct or by misrepresentation it was the Plaintiff, and not the Defendant, in that the former was presented with an entirely false impression of the Defendant’s occupation and employment. Moreover the Defendant by his conduct placed the Plaintiff in a position where it had precious little time to investigate the Defendant’s bona fides, and was left in the position where it did not receive the independent assurance which it sought from the agent and solicitor, who were recorded on the contract for onsale, as to its genuineness, as to the availability to the purchaser of any loan which he needed to complete the purchase, or as to his payment of the deposit.

The Defendant contended that the s 57 notice was defective. The concession that a failure to serve a s 57(2)(b) notice does not provide a defence to a claim for possession accords with authority: Silkdale Pty Ltd v Long Leys Co Pty Ltd (1995) 7 BPR 14, 414. It provides no answer to the Plaintiff’s claim in relation to the mortgaged property.

The Plaintiff’s claim in relation to the charged property, does not depend upon an exercise of a power of sale under s 58 of the Real Property Act, or indeed upon the exercise of any other power under that Act, since the charge is not registered on the title to the property. The Plaintiff’s claim is one for specific performance and for judicial sale. It does not depend upon the service of a valid s 57(2)(b) notice.

The relevant statutory provisions upon which the Defendant relies were to the following effect: The Consumer Credit Code did not apply to the transaction since its purpose was one related solely to business or investment purposes (see ss 6 and 11). The Australian Securities and Investments Act did not have any application. Although the Defendant initially placed reliance on the Fair Trading Act, this was abandoned during argument, although had it been available or pursued, the same result would have followed. The claims brought under ss 52 and 53 of the Trade Practices Act failed. The mortgage security was not obtained as a result of misleading or deceptive conduct, or as a result of misleading representations, within the meaning of the relevant provisions. There never was any representation made by the Plaintiff to the effect that the interest rate which it would charge would be 3% per month, that seemingly being the only misleading representation or misleading or deceptive conduct which was asserted.

The defendant said that the mortgage was unjust within the meaning of s 7 and 9 of the Contracts Review Act; or unconscionable under one or other of s 51AA, s 51AB and s 51AC of the Trade Practices Act.

As was held in West v AGC (Advances) Ltd (1986) 5 NSWLR 610 the matters listed in s 9 are not exhaustive in determining whether a contract is unjust. McHugh JA there said at 620-621:

Under s 7(1) a contract may be unjust in the circumstances existing when it was made because of the way it operates in relation to the claimant or because of the way in which it was made or both. Thus a contractual provision may be unjust simply because it imposes an unreasonable burden on the claimant when it was not reasonably necessary for the protection of the legitimate interests of the party seeking to enforce the provision: cf s 9(2)(d). In other cases the contract may not be unjust per se but may be unjust because in the circumstances the claimant did not have the capacity or opportunity to make an informed or real choice as to whether he should enter into the contract: cf s 9(2)(a), 9(2)(e), 9(2)(f), 9(2)(g), 9(2)(i), 9(2)(j). More often, it will be a combination of the operation of the contract and the manner in which it was made that renders the contract or one of its provisions unjust in the circumstances. Thus a contract may be unjust under the Act because its terms, consequences or effects are unjust. This is substantive injustice. Or a contract may be unjust because of the unfairness of the methods used to make it. This is procedural injustice. Most unjust contracts will be the product of both procedural and substantive injustice.

The definition of “unjust” in s 4 is not exclusive. It is in my opinion a mistake to think that a contract or one of its terms is only unjust when it is unconscionable, harsh or oppressive. Contracts which fall within any of those categories will be “unjust”. But the latter expression is not limited to the so-called “tautological trinity”. The Contracts Review Act 1980 is revolutionary legislation whose evident purpose is to overcome the common law’s failure to provide a comprehensive doctrinal framework to deal with “unjust” contracts. Very likely its provisions signal the end of much of classical contract theory in New South Wales. Any contract or contractual provision, not excluded from the operation of the Act and which the court considers is unjust in the circumstances existing at the time when it was made, may be the subject of relief under the Act. Moreover, the provisions of s 9(2) do not exhaustively indicate the criteria as to what can be taken into account in determining whether a contract or any of its provisions is unjust. The provisions of s 9(2) of the Act are concerned for the most part with matters of procedural injustice. But the court is entitled to have regard to all the circumstances of the case, subject to s 9(4), and the public interest …

It is important to bear in mind that it is the contract or its provisions which must be 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 …

… under this Act, 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 …

The Court held the Defendant was not an ingénue, who was taken advantage of by the Plaintiff, and it was not the Plaintiff’s fault that he had left it so late to seek the finance which he needed.

Moreover there can be nothing unjust in the continuation of interest at the contracted rate until the loan is repaid. The purpose of interest is to compensate the lender for making the monies advanced available to the borrower for his use, and it can hardly be asserted that there is anything unusual in such a term.
The taking of a further charge could not be regarded as unjust in the circumstances of a second mortgage, where the Defendant was effectively borrowing 100% of the purchase price, and where he acknowledged familiarity with the terms of the loan.

The interest rate, although high, did not constitute of itself an unconscionable or unjust provision, in a case such as this involving a commercial loan, where there was no unconscionable pressure, placed on the Defendant by the Plaintiff, to enter into the transaction.

In any event the Court was not in a position to determine whether the rate charged was, or was not, one which fell within the range for commercial bridging or short term loans, since no evidence was called by the Defendant in relation to this aspect of the case. While it may be possible, in a general way to take judicial notice of prevailing interest rates, for example from credit and store card interest charges, as was suggested in Cityland & Property (Holdings) v Dabrah [1967] 2 All ER 629 and in Asia Pacific International Pty Ltd v Dalrymple (2000) 2 Qd R 229, the Court was not in a position to determine the prevailing rate for short term bridging loans secured by second mortgage.

The one aspect of concern to the Court however, was one for Damages for Late Payment of $15,000 in the mortgage This clause was severed, although without otherwise affecting the Plaintiff’s rights to the relief claimed.

In summary, the Defendant was not a person placed in the kind of disadvantaged or vulnerable position of which others had taken advantage, and which had led the courts to set aside transactions on the basis of unconscionability or injustice.

As the Defendant submitted, the concept of clogging the equity of redemption has been subsumed by the general test of unconscionability, with the consequence that the considerations which apply in relation to the statutory defences are equally relevant for that claim.

Apart from the late payment damages clause, which can be severed, the Court was unpersuaded and this ground of defence and claim for relief failed.

In addition to the authorities previously referred to, it is to be noted that in Takemura v National Australia Bank [2003] NSWSC 339 Young CJ in Eq held that:

… short of unconscionability including what is sometimes comprehended in the defence of lack of clean hands, the mere fact that there is a high interest rate charged in trade and commerce between people of business does not of itself mean that equity would decline specific performance.

The Court held the Plaintiff was entitled to the relief claimed, including an order for possession of the mortgaged property, and for specific performance of clause 66 and judicial sale of the charged property.

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