Unjustness defences continue to erode the Rule of Law

Regular readers will know we have reported with the ever increasing uncertainty and burdens placed upon lenders and marginal borrowers by the elusive, but ever enticing (for borrowers), prospect of having the slate wiped clean, courtesy of the ill-conceived NSW Contracts Review Act.

The Contracts Review Act and National Credit Code invite judges to set aside loans and forgive lawful debts if required by “justness in all the circumstances”. This is not law in the sense known to Western jurisprudence since the time of the Ancient Greeks. Rather it is an abrogation of law, it is an legislative directive to judges requiring them to pronounce arbitrary decisions. A tall order but which has been enthusiastically embraced by the judiciary[1].

Judges are expressly told that the purpose of this slippery concept of “justness in all the circumstances” is to deliver justness when the ordinary fixed law would be fail due to its ‘restrictiveness’. However this naïve motive ignores thousands of years’ experience. Mankind has found, time and again, that the closest we can ever come to a just outcome for our disputes is through the application of the fixed and known law. Woeful and repeated experiments have shown decisions made according to “justness in all the circumstances” vary as widely as the individual’s personalities and tend to result in uncertainty that damages all parties. This is particularly so when it comes to commercial transactions. If lenders cannot be sure whether a loan that is perfectly legal today will be enforced tomorrow they will tend to lend less and less. Beginning with marginal borrowers they will tuck in their horns as far as they perceive necessary to avoid losing their capital.

A prescription of justness is not a prescription for a fixed and certain outcome. This is because just as millions of people open up the newspaper and form a million different views on the same articles so too will every judge hold different views on what is just and unjust in a legal case. Not being bound by law or precedent they naturally arrive at as many different outcomes as there are cases.

Thomas Jefferson warned of this when he wrote:

… Laws thus proportionate and mild should never be dispensed with. Let mercy be the character of the legislator, but let the judge be a mere machine. The mercies of the law will be dispensed equally and impartially to every description of men; those of the judge…will be the eccentric impulses of whimsical, capricious designing man … [2]

When a judge makes the absurd comment, as one judge recently did:

I consider that the public interest of preventing unjust dealings which offend against community standards of business morality militates in favour of a determination that the transaction was unjust [3].

They are playing the legislator by deciding for themselves what is:

  • Public interest,
  • Community standards,
  • Unjust,
  • What constitutes business morality.

However unlike a legislator:

  • Their decision is made after the event so there is no ability for the person harmed by the decision to avoid losing vast amounts of capital in advance by modifying their behaviour;
  • There is no public debate amongst dozens of legislators to expose flaws in the reasoning process;
  • There is no period of public consultation to truly reveal community standards;
  • There is no responsibility to the electorate, in other words no check or balance which tends to force the judge to truly consider the community’s wishes rather than subconsciously simply putting forward their own.

The spirit of the legislation is delusional because it is unrealistic to expect a judge to decide a case on the community’s standards rather than his own. The fact is most decent law abiding people instinctively believe that their opinion is the community standard and that those who differ in their view should be ignored. This is not a question of judges being dishonest but of them being human. As Thomas Jefferson said:

It is not enough that honest men are appointed judges. All know the influence of interest on the mind of man, and how unconsciously his judgment is warped by that influence. [4]

What has resulted under this ill-conceived legislation is that people who, for whatever reason, are facing losing their house to a mortgagee, are now putting on a Contracts Review Act defence.

They do this because when they go to see a lawyer, instead of being told “There is no hope and you need to move on with your lives and use your remaining money as a deposit for rental accommodation”, they are now being told the position they find themselves in is unjust. Unlike all other circumstances, where the lawyer has to have good grounds for advising their client to go to court, the concept of unjustness is so slippery (being in the eye of the beholder) they have a good argument for saying they were justified in advising their client the loan was unjust.

Meanwhile the lender, faced with the prospect of losing all their capital, goes to any lengths to avoid the loss. This includes counter-suing everyone involved with the transaction. Thus the broker, the originator, the previous lender, the borrower’s solicitor, are all likely to be ensnared in the morass. As a general rule of thumb, every additional party to proceedings will increase the length by one year and the cost by $100K. Even assuming that it is “just in all the circumstances” for those borrowers who ultimately obtain relief to obtain that relief, the fact is the amount of debt forgiven is miniscule compared to the legal fees incurred in all the cases (which form the majority) where relief is denied. Lenders who are forced to bear the costs respond by avoiding risks in the future and this includes avoiding lending to older people or those from non-English speaking backgrounds. Thus the legislation is false compassion because for every victim it helps it denies hundreds the right to pledge their security.


[1]West v AGC (Advances) Ltd (1986) 5 NSWLR 610, Kirby P at 611–12.

[2] Thomas Jefferson letter to Edmond Pendleton, Philadelphia, August 26, 1776

[4] Thomas Jefferson Autobiography

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