Crowe v Commonwealth Bank of Australia [2005] NSWCA 41 (14 March 2005)

CITATION: Crowe v Commonwealth Bank of Australia [2005] NSWCA 41

FILE NUMBER(S):

40540/04

HEARING DATE(S): 8 February 2005

JUDGMENT DATE: 14/03/2005

PARTIES:

Anna Maria Crowe

Commonwealth Bank of Australia

JUDGMENT OF: Sheller JA Tobias JA Bryson JA

LOWER COURT JURISDICTION: Supreme Court - Common Law Division

LOWER COURT FILE NUMBER(S): SC 10136/03

LOWER COURT JUDICIAL OFFICER: James J

COUNSEL:

A: M J Kelly SC / G McNally

R: M B J Lee

SOLICITORS:

A: Cater & Plumber, Griffith

R: Corrs Chambers Westgarth, Sydney

CATCHWORDS:

CONTRACT - Unconscionability - Special disadvantage - Improvident transactions - Default on mortgage - Whether transaction should be set aside on the ground of unconscionable conduct - Whether mortgagor's lack of independent financial advice placed her in position of special disadvantage -

CONTRACT - Unjust contracts under Contracts Review Act 1980 - Whether unfair conduct in means employed to make contract - Whether material inequality of bargaining power between parties.

LEGISLATION CITED:

Contracts Review Act 1980

DECISION:

Appeal dismissed with costs

JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40540/04

SC 10136/03

SHELLER JA

TOBIAS JA

BRYSON JA

Monday 14 March 2005

ANNA MARIA CROWE v COMMONWEALTH BANK OF AUSTRALIA

Judgment

1 SHELLER JA: I agree with Tobias JA.

2 TOBIAS JA: The appellant (Mrs Crowe) is the owner of a residential property at 84 Noorilla Street, Griffith (the property). On 6 July 1993 she executed a mortgage over the property (the mortgage) in favour of the respondent (the Bank). The mortgage secured certain loan facilities made by the Bank in 1994 and 2000. The borrower defaulted under these facilities and the Bank instituted proceedings against Mrs Crowe, claiming possession of the property as a precursor to its sale. Mrs Crowe cross-claimed against the Bank on various bases seeking an order that the mortgage be set aside.

3 On 11 June 2004, James J upheld the Bank's claim, entered judgment in its favour against Mrs Crowe in the amount of $207,024.60, ordered Mrs Crowe to give it possession of the property and granted leave to it to issue a writ of possession with respect thereto. His Honour also dismissed Mrs Crowe's cross-claim. It is against these orders that Mrs Crowe now appeals to this Court.

The nature of the issues before the primary judge and on the appeal

4 As the primary judge noted (at [4]) there was no dispute that Mrs Crowe had granted the mortgage over the property, that there had been default under the mortgage and that the Bank had taken the appropriate steps so as to be entitled to possession of the property.

5 The live issues which occupied the hearing were those raised by Mrs Crowe's cross-claim under which she sought to resist the Bank's claims firstly, by reliance on the principles articulated by Dixon J in Yerkey v Jones [1939] HCA 3; (1939) 63 CLR 649 at 684-6; secondly, by reliance on the principles stated in Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447 at 462, 476-7 relating to unconscionable transactions; and thirdly, under the provisions of the Contracts Review Act 1980.

6 The primary judge made various findings of fact to which I will refer in more detail below. Critically for present purposes, his Honour found firstly, that Mrs Crowe understood the general nature and effect of the mortgage; secondly, that she knew that if she borrowed money from a bank she was liable to repay it; thirdly that she understood that if she gave the mortgage over the property to the Bank there was a risk of losing it if the borrower defaulted. But his Honour also found that she was prepared to take that risk because she trusted her husband's assurances that the payments under the loan facility would be made or, if they were not, the Bank would recover the full amount owing to it by enforcing a bill of sale over certain plant and equipment.

7 I mention these matters at this point of my reasons because upon the hearing of the appeal, Mrs Crowe abandoned her claim based upon Yerkey v Jones and confined her challenge to two aspects of the 1994 loan transaction which, so it was submitted, should be set aside upon the basis of the principles stated in Amadio and/or upon the ground that it was unjust within the meaning of the Contracts Review Act. In particular, Mrs Crowe submitted that firstly, the Bank's 1994 loan facility was an improvident transaction to the Bank's knowledge and, secondly, the Bank should have advised Mrs Crowe to obtain independent financial advice as to the providence of the transaction given that it was the opinion of three officers of the Bank that the facility should not have been approved in the first place because Mr and Mrs Crowe could not service the loan in the short term. It followed, so it was submitted, that Mrs Crowe was placed in a position of special disadvantage vis-à-vis the Bank in the sense in which that expression was used in Amadio and that consequently it would be unfair or unconscionable for the Bank to take advantage of her inability to make a judgment as to her own best interests in the absence of independent financial advice.

8 Furthermore, Mrs Crowe abandoned any challenge to the actual granting by her of the mortgage to the Bank in July 1993. Her challenge was confined to the 1994 loan transaction, details of which will be related below.

9 In addition, Mrs Crowe abandoned any independent challenge to the 2000 loan transaction submitting (and this was not contested by the Bank) that if the 1994 transaction were set aside then the same fate must befall the 2000 transaction.

The facts relevant to the issues in the appeal

10 Mrs Crowe was born in 1956. Mr Crowe was born in 1969 and is Mrs Crowe's second husband. They were married in 1990. Mrs Crowe had two children from her first marriage and two children from her second marriage. She had acquired the property with money saved out of her own earnings and from money received from her father.

11 In July 1993 Mr and Mrs Crowe borrowed $35,000 from the Bank for the purpose of purchasing and fitting out a truck so that Mr Crowe could conduct his own contracting business. At the time of this loan an amount of $18,000 was outstanding under an earlier loan made by the Bank in January 1993 to assist in the purchase of a motor vehicle. On 6 July 1993 Mrs Crowe granted the mortgage over the property to the Bank to secure all monies which would thereafter become owing by her and her husband to the Bank. It was thus an "all monies" mortgage.

12 Mr Lancaster, a solicitor in Griffith, had acted for Mrs Crowe in family law proceedings. He was aware that she did not want her first husband to succeed in any claim against that the property, which she wished and intended to keep for the benefit of the children. On 8 June 1993, Mrs Crowe telephoned Mr Lancaster and, in evidence accepted by the primary judge (at [51] and [235]), had a conversation with him relating to the proposed loan to purchase the truck. She informed Mr Lancaster that she had been asked by her husband to put up her home as security for the loan. Mr Lancaster advised her against this course saying that if Mr Crowe did not pay the loan, the Bank would be able to foreclose and sell her home to pay out the loan.

13 On 6 July 1993, being the date upon which the mortgage was executed by Mrs Crowe, Mr Lancaster had a conference with her and her husband in which the following conversation, as accepted his Honour, occurred:

"Mr Lancaster: Anna [speaking to Mrs Crowe], you realise that the Bank can foreclose and sell your house if payments are not made or if you sell the house that you will have to pay out the loan before you receive any of the sale proceeds?

Mrs Crowe: Yes, we've talked about that but Darren needs the money to buy the truck and this is the only way we can get it.

Mr Crowe: Don't worry I will make sure the payments are made.

Mr Lancaster: But it may be out of your hands, you may get hurt so you can't work, or you may be sued by somebody and end up going bankrupt, anything can go wrong. You might prang the truck or it could be stolen. If something like that happens Anna could lose the house.

Mrs Crowe: We are married now and Darren knows that the house is to be kept for the children. He's not borrowing the money for himself it is for the children and my benefit too. I have decided to go ahead with the mortgage. "

14 At that conference Mr Lancaster explained the Bank's documents, including the mortgage, which were then signed. He then signed a certificate of witness in which he certified, inter alia, that the parties understood the nature and effect of the documents they had executed.

15 On 21 June 1994, the company Darkcm Pty Limited (Darkcm) was registered with Mr and Mrs Crowe as its only directors and its only and equal shareholders. Mr Crowe proposed to use this company as a vehicle to expand his income producing opportunities by commencing a farming operation in the Yenda and Murrami districts involving the leasing of three rice farms and the purchase of a breeding pair of ostriches. He and Mrs Crowe then engaged their accountant, Mr Anderson, to prepare a funding proposal for Darkcm to borrow a total of $180,000 from the Bank being a $100,000 term loan to be repaid over 10 years in six-monthly instalments together with an overdraft facility of $80,000. The proposal asserted that Mr Crowe had extensive experience in rice farming, having worked in the area all his life and being heavily involved in the operation of his parents' property at Yenda for many years.

16 Annexed to the proposal was a cashflow for the first three years of the proposed venture. Year 1 (August 1994 to July 1995) contemplated a total income of $414,750; total costs of $318,417; interest payments of $6,844; principal repayments on the loan of $25,000; and acquisition costs for the ostriches of $60,000. At the end of the year there was to be a negative net cash flow of $14,167 and a negative closing bank balance in the same amount. Year 2 (August 1995 to July 1996) contemplated a positive net cash flow of $43,016 with a positive closing bank balance of $28,850. Year 3 (August 1996 to July 1997) contemplated a positive net cash flow of $146,653 and a positive closing bank balance of $175,503. The proposal also included a balance sheet of the partnership D N & A M Crowe as at 31 March 1994 showing total partners' equity of $18,106 and a net profit for the year of $23,068.

17 The Bank requested its valuer to report on the economics of the proposal in order to determine the accuracy of Mr Anderson's forecasts. The valuer, Mr B J Connolly, produced a report dated 17 August 1994. He valued the property at $120,000 and the plant and equipment at $193,000. He estimated that under forced sale conditions the value of the property would be reduced by 10% to $108,000and the plant and equipment by 25%, to about $144,000. His recommendation was that any loan facility should not exceed $143,000. This was in line with the Bank's policy with respect to the permissible maximum loan security ratio which was 80% of the value of real estate (in this case $96,000) and 25% of the value of the plant and equipment (in this case $48,250), thereby permitting a maximum loan of $144,250.

18 As to Mr Crowe's personal abilities, Mr Connolly commented as follows:

"Even though he has limited experience, Darren Crowe impresses as being capable of undertaking a large farming operation. He has been involved with the management of the farm for the past couple of years as well as undertaking contract farming. It is felt he has the ability and determination to make the project succeed. Financial control and management will need to be improved."

19 Under the heading "Adequacy Working Capital", Mr Connolly observed that the cashflows contained in his report varied significantly to those submitted by Mr Anderson. Mr Connolly's cashflow excluded the ostrich-breeding venture, as it would only aggravate what was a shortfall of working capital for the first 12 months of the operation. He continued in these terms:

"The cashflow for the first 12 months indicates that the ODL of $110,000 would be exceed by up to $40,000. Unless another source of funds can be obtained, such as Rice Board Orders, the Crowes will need to contain expenditure and/or generate more income to stay within the limit."

20 Under the heading "General Comments" the report said:

"The success of this proposal is largely dependent upon Darren Crowe's ability to generate income from the hay and contracting. There is no great potential to increase rice income above that contained within the budget.

...

The Crowes are presented with a very good opportunity to earn income off the two properties over the next five years. Their success is largely dependent upon their ability to generate income and contain expenses. Given the potential for the debt to increase significantly, it is suggested that the account be monitored quarterly to keep greater control over their spending and to help them develop better financial skills.

The revised cashflow should be discussed with customer to ensure that they are aware of the situation and their need to generate further income, or to obtain other sources of working capital."

21 Under the heading "Summary of Proposal", Mr Connolly stated:

"Strengths:

· Two properties are leased for five years at a concessional rent.

· They have the use of extensive farming plant.

· Personal factor appears strong.

Weaknesses:

· Dependence on second-class security.

· Dependant on lucerne, which can be badly affected in a wet summer.

· Maximum cashflow is not obtained until the second year and beyond.

· There is potential for the debt to increase significantly if not properly managed.

· High overheads, particularly wages.

Overall the proposal is considered strong enough to support."

22 Mr Connolly then recommended that an overdraft limit of $110,000 be approved taking the total loan to $143,000.

23 The revised cashflow for the first 12 months of the operation prepared by Mr Connolly and referred to in his report does not appear to have been tendered in evidence. However, it was summarised in a Facility Summary prepared by Mr Ray Weekley, the Manager of the Business Banking Office (BBO) of the Griffith branch of the Bank, on 29 August 1994. That document drew considerably on Mr Connolly's report. Under the heading "Servicing Capacity Summary", Mr Weekley noted Mr Connolly's comments that he believed that Mr and Mrs Crowe had the potential to generate significant income following the initial set up of operations, that the potential existed for the debt to increase well over the arranged limit if not managed properly, but that Mr Connolly believed that Mr and Mrs Crowe should achieve the budgeted income for 1994/95 "quite easily". Mr Weekley noted Mr Connolly's recommendation that the cashflow forecast for the first two years be fully discussed with Mr and Mrs Crowe to ensure that they were aware of the situation and their need to generate further income.

24 Mr Weekley's report had annexed to it a "Financial and Cash Flow Analysis". Mr Connolly's cashflow forecast for the first two years was then summarised as follows:

1994/95

1995/96

Gross Income:

$ 244,600

$ 425,780

Less Living/Personal costs:

$ 24,000

$ 24,000

$ 220,600

$ 401,780

Less Operating Costs:

$ 309,500

$ 346,500

($ 88,900)

$ 55,280

Less SEN/External Commitment:

$ 17,576

$ 24,489

Estimated Net Trading Result

($ 106,476)

$ 30,791

25 The report continued:

"As can been seen, valuer is anticipating a significant trading loss in the first 12 months, due to:

1. Expense to be outlayed to establish programmes &

2. Customers will not be taking possession of one property until February 1995, thus missing out on full cropping potential for a season."

26 Mr Weekley then commented in the following terms:

"Valuer stressed that proposed cashflow for the first 12 months indicated ODL would be exceeded by up to $40,000 unless another source of funds can be obtained (such as Rice Board Orders). Customers will need to contain expenditure and/or generate more income to stay within the proposed limited.

Valuer believes the success of this proposal is largely dependant upon Mr Crowe's ability to generate income from hay baling and contracting. Valuer stated budget of 20,000 bales of hay in coming season should be easily achieved. Customer conservatively estimated baling 30,000 bales this season which would result in approximately $30,000 more income, thus maintaining overdraft balance near arranged limit."

27 Given that the Bank's valuer believed that the overall proposal was strong enough to be supported for approval, Mr Weekley recommended that approval be given to a "Come and Go" overdraft in an amount of $110,000.

28 The Bank wrote to the directors of Darkcm by letter dated 1 September 1994 offering it a banking facility totalling $143,391 comprising an existing term loan of $33,391 and an overdraft facility of $110,000. The term of the overdraft was that it was repayable on demand. The letter of offer was conditional upon the Bank monitoring actual cashflow compared to budget on a quarterly basis and the overdraft being operated within the arranged limit at all times. The offer was open for acceptance for a period of 14 days from the date thereof following which the Bank reserved the right to withdraw it.

29 As suggested by the Bank's valuer, Mr Connolly, the revised cashflow was discussed with Mr and Mrs Crowe on 1 September 1994. A Client Contact Sheet dated 6 September 1994 noted that both the customers' and the BBO's cashflow was discussed in detail, in particular, the need to manage the account effectively as the Bank's valuer had anticipated likely excesses during the first year of operation. It further noted that Mr and Mrs Crowe advised that they were arranging Rice Board orders which, if approved (and they were confident they would be), would defer payment of major sowing expenses until the first pool payment in May 1995.

30 The report of the meeting further noted that Mr Bernie Maxwell, the Account Officer who conducted the meeting on behalf of the Bank, had had a further discussion with Mr Connolly who felt that if Mr and Mrs Crowe could obtain Rice Board orders, they would be able to sow extra land with little increase in expenses until May 1995. The report then recorded that Mr Crowe had telephoned Mr Maxwell on 6 September 1994 when it was stressed to him the need to secure Rice Board orders. Mr Crowe reported that he had discussed the matter with the Board which was considering its decision, but that he was very confident that the orders would be approved. Mr Crowe also advised that he had already entered into an agreement to sell his clover bales for the coming season (approximately 20,000 in all), which would meet Mr Connolly's estimates for the first year without including lucerne baling to come.

31 By letter dated 7 September 1994, Mr Maxwell wrote to Mr T Del Gigante, solicitor, of Lancaster & Del Gigante of Griffith, who was then acting for Mr and Mrs Crowe. According to this letter, Mr and Mrs Crowe had requested that the relevant bank documents be forwarded to Mr Del Gigante for an "independent explanation of documents and to witness customers execute same".

32 It would appear that it was the Bank's practice to conduct what was referred to as a "post-approval review” of any approval granted by the BBO of the Griffith branch of the Bank by its Credit Administrator, Southern. The administrator, Mr George, carried out this task and provided a memorandum of his findings dated 9 September 1994 to Mr Weekley, the Manager of BBO Griffith. That document and the BBO Griffith's response thereto were critical to Mrs Crowe's arguments on the appeal. The former was set out in full in [141] of the primary judge's judgment. It is convenient, however, to set out those parts of the memorandum particularly relied upon by Mrs Crowe on the appeal:

"In completing a post approval review of your decision of 31/8/94, I note the following:-

· Applicants are leasing country with 5 years negotiated on 2 of the properties. Funding is by way of O/D with no amortisation structure in place to ensure debts are liquidated within the term of the leases. Cash flow shows the debt still substantially drawn by 7/96. Can it be repaid before lease expiry?

· While approval is subject to no excesses, valuers cash flow and comments clearly indicate these are likely, in large amounts. Amount approved is within BVS but not in accord with cash flow. Paper rationalising cash flow in terms of Rice Board orders is written after the approval. This should have been addressed before approval and cash flow reworked, which should still be done if you are to monitor effectively. Further, if there is realistic potential for other income to minimise deficit/excesses then why not bring this into the cash flow?

· Decision is based on projections only, which for the first 12 months show a deficit of $106,476. Customers simply cannot service in the short term.

· Male applicant is only 25 and paper suggests his financial skills are weak. There is no financial history to suggest customers can manage a venture of this size.

...

I do not believe this is a loan that should have been approved. Two other officers within Business Credit have reviewed the file and agree with me. The loan may prove to be sound and we obviously hope it does. However, the above comments highlight deficiencies, the sum total of which suggest we are now committed to a higher level of risk than the Bank would normally seek.

With regard to your decision, the Bank is committed but I require:

a. RR 40.

b. Cash flow to be recast to reflect Rice Board orders and then to be monitored as proposed, subject to immediate review to Business Credit should unfavourable variances of 10% or more occur.

c. No excess.

...

I note approval was prior to two recent adverse post approval reviews. I strongly recommend that you now take more care in exercising your delegation."

33 Messrs Maxwell and Weekley prepared a response to Mr George's memorandum by way of an Office Minute dated 27 September 1994. The primary judge set it out in full in [142] of his judgment. Those parts of the Office Minute relevant for present purposes are as follows:

"Business Credit raised various questions in relation to ODL(1) facility of $110,000 recently approved at BBO.

Points raised and clarification are as follows:

1. Application does not allow for amortisation of ODL debt during lease period:

BBO is to carry out quarterly monitorings of facility, to ensure customers adhere to budget as best as possible plus achieve maximum annual limit reductions as possible. Diary to be noted to reduce/repay limit by expiry of lease.

2. Reworking of Budget to accommodate additional income and board orders.

Valuer's income estimates is the minimum customers can expect in the first 12 months of trading.

- Valuer believed customers should easily achieve stated volume of baling. Customer since advised has already been contacted to bale over 20,000 (as estimated in budget) and expects bale at least a further 10,000 to 15,000 bales during upcoming season.

- Valuer's budget allowed for sowing of two rice crops in the first year as customers were under the impression one property was not available. However, customer has advised third property is now available for sowing this year, thus adding significantly to budgeted yield and income.

BBO reworked budget, as requested. Budget allows for increased baling and rice activities. Expenses (such as Fertilizer, Seed and Sprays) have been removed from expenditure as these are to be paid out of 1st pool payment via Rice Board Order, therefore 1st payment now reflects 'net' payment expected based on valuer's price and yield estimates.

3. Cannot service in the short term:

As per two above estimated trading loss for first 12 months did not allow for increased baling and rice activity now expected. Customers will have own hay to sell in year 2, whereas due to timing of leasing miss out on this income in the first year.

4. Age of customer:

Agreed, customer is relatively young for role he is taking on, however has been doing similar work for his parents (and himself) for the past 10 years and has always met commitments when due.

...

11. Quality of Referral:

...

BBO and valuer believe customer has the technical lability and determination to generate sufficient income to service and reduce debt in given lease period and feel customers are worthy of support in this instance."

34 Annexed to the Office Minute was the reworked cashflow requested by Mr George. For the year August 1994 to July 1995 the trading deficit was reduced from $106,476 to $33,455. For the year August 1995 to July 1996, that deficit was turned into a trading profit of $29,341 as against Mr Connolly's estimate of $30,791.

35 On 7 October 1994 a further meeting took place between Mr Maxwell on behalf of the Bank and Mr and Mrs Crowe for the purpose of discussing various aspects of the Bank's letter of offer of 1 September 1994. In a Client Contact Sheet dated 12 October 1994, Mr Maxwell recorded that Mr and Mrs Crowe's main concern was with the clause of the offer letter stating that the overdraft was repayable on "on demand". He noted that he had advised Mr and Mrs Crowe that overdrafts

"... do not have a set repayment arrangement and are therefore subject to this clause should default of facility occur with no ability to service being evident. Customers were advised that call up of loan would be in the last resort."

The document further records that Mr Maxwell advised Mr and Mrs Crowe about the Bank's requirements regarding maximum possible limit reductions but that they were adamant that they would be reducing the facility substantially over the next two years. He further advised them that they were to operate within the agreed limit at all times to which Mr and Mrs Crowe responded that they were

"confident of maintaining account in order at all times."

36 On 7 October 1994 Mr and Mrs Crowe conferred with Mr Del Gigante and executed, amongst other documents, a joint and several guarantee in favour of the Bank guaranteeing payment of all monies then or thereafter payable to the Bank by Darkcm. A trader's bill of sale (which was to operate as a security over various items of plant and equipment and, in particular, a number of vehicles) securing payment of, inter alia, money due under the guarantee was also executed. The evidence of Mr Del Gigante, accepted by the primary judge (at [241]), was that he had advised Mrs Crowe that she could lose her house if Darkcm did not repay to the Bank the monies which were to be advanced under the 1994 loan facility. His Honour further found (at [286]) that as at 7 October 1994 when Mrs Crowe executed the guarantee, she understood the general nature and effect of the mortgage and understood that the mortgage she had given in 1993 would be security for the repayment of amounts to be borrowed under the concurrent facility.

37 The primary judge also found (at [287]) that the Bank was entitled to assume that, as requested by its letter of 7 September 1994 (see [31] above), Mr Del Gigante had given Mr and Mrs Crowe an explanation of the documents which it had forwarded under cover of that letter for their execution.

38 As at 20 October 1994, the overdraft of $110,000 provided by the Bank had been drawn down to $16,662. By 25 November 1994 it had been drawn down to $56,613. However by 9 January 1995 it was overdrawn by $10,039 and by 23 January 1995 by $8,687. As at 16 March 1995 the overdraft was under its limit having been drawn down to $103,780. As at 24 March 1995 it was still under its limit having been drawn down to $108,836. However, by 5 April 1995 the overdraft exceeded the limit by $1,584 but by 20 April 1995 the excess had been reduced to $645. By 2 May 1995 the limit had been exceeded by $1,290 but by 12 May 1995 the overdraft was only drawn down to $55,604. As at 8 June 1995 it was drawn down to $89,819 but by 23 June 1995 it exceeded its limit by $518. As at 30 June 1995 the overdraft exceeded its limit by $1,875. By 5 July 1995 it exceeded its limit by $8,120 which increased to $9,392 by 11 July 1995. By 8 August 1995 the overdraft limit was exceeded by $2,387. The foregoing history of the overdraft's final year of operation indicates that Mr Connolly's prognostication that the limit would be exceeded by up to $40,000 was not realised.

The decision of the primary judge

39 Before the primary judge as well as on the appeal, Mrs Crowe submitted that the 1994 loan facility was improvident not only insofar as Mrs Crowe was concerned but also Mr Crowe and Darkcm. It was contended that Mrs Crowe, because of her lack of education and business experience, was unable to judge for herself whether the transaction was improvident. The Bank, on the other hand, knew that it was because it was unlikely that the loan facility could be serviced in the short term. In this respect heavy reliance was placed upon Mr George's memorandum of 9 September 1994. It was further submitted that it should have been apparent to the Bank that Mrs Crowe was unable to judge for herself whether the transaction was improvident without receiving independent financial advice. It was therefore incumbent upon the Bank to ensure that she received such advice before entering into the transaction. It was submitted that any financial advice given by the accountant, Mr Anderson, who prepared the original funding proposal for Darkcm, was not given independently of Mr Crowe and was advice about a proposed farming operation which included the purchase of a breeding pair of ostriches, which part of the operation had been abandoned at the Bank's insistence. No financial advice had been suggested or received with respect to the amended farming operation which the Bank had agreed to fund.

40 It was further submitted by Mrs Crowe that the Bank had failed to inform her not only that it believed that it was unlikely that Darkcm would be able to repay its indebtedness but also that a senior officer of the Bank considered that the loan ought not to have been approved in the first place. It was thus submitted that if Mrs Crowe had been made aware of the risk of default and the facility never been approved, she would not have entered into the transaction notwithstanding that her husband had requested she do so.

41 I have already set out in [6] above the critical findings of the primary judge relevant to the issues on the appeal. In addition, I note that, notwithstanding that his Honour accepted (at [267]) that Mrs Crowe was a women of limited education, was unable to read legal documents for herself with any facility and lacked commercial or business experience and that the Bank was or ought to have been aware of these matters, nonetheless he found (at [256]) that Mrs Crowe had rather more knowledge of, and participated rather more in, the affairs of Darkcm than she was prepared to admit in her evidence.

42 Further, having rejected (at [260]) Mrs Crowe's evidence that at the time the mortgage was granted she did not understand what a mortgage was, his Honour (at [261]) also rejected her evidence that she entered into the 1994 transaction because she was afraid of her husband and considered that she had no choice but to do so.

43 Although Mr Lancaster did not advise Mrs Crowe that the mortgage was an "all monies" mortgage, his Honour considered (at [276]) that this omission on Mr Lancaster's part would not have affected Mrs Crowe's appreciation in October 1994 that the mortgage would secure repayment of the money which was then being borrowed.

44 As I have already observed, his Honour accepted (at [272]) that Mr Lancaster, knowing what the property meant to Mrs Crowe, advised her against mortgaging it and warned her that if she did, she might lose it. His Honour found that Mrs Crowe, while understanding Mr Lancaster's advice, declined to take it.

45 With respect to the 1994 transaction, his Honour found (at [283]) that the business to be carried on by Darkcm was regarded by both Mr and Mrs Crowe as a joint enterprise to be carried on for the benefit of not only Mr Crowe but also Mrs Crowe and her children. To the extent that Darkcm made any profits, Mrs Crowe would benefit therefrom. She was, after all, an equal shareholder with her husband. As to Mrs Crowe's argument that the 1994 loan facility was improvident and that the Bank knew that Darkcm would be unable to service the repayments under that facility, the primary judge made the following finding (at [289]):

"I accept that, when the Bank decided to give the facility and when the transactions were entered into, there was a risk that Darkcm would not be able to service repayments under the facility. However, in my opinion, it was by no means clear that Darkcm would be unable to service repayments under the facility and I would not make a finding that the Bank knew or ought to have known that it was likely that Darkcm would be unable to service repayments. ..."

I note at this point that Mrs Crowe submitted that his Honour was in error in not making the finding referred to in the last sentence of the above passage.

46 The primary judge sought in [290] to [299] of his reasons to support his refusal to find that the Bank knew or ought to have known that it was likely that Darkcm would be unable to service the repayments. In so doing, he referred to the proposal prepared by Mr Anderson and to Mr Connolly's assessment thereof including his conclusion that the amended proposal, which excluded the ostrich breeding operation, was "strong enough for the bank to support", recommending that an overdraft limit of $100,000 be approved. His Honour then referred to Mr George's post-approval review memorandum and to the response to it by the Bank's BBO at Griffith in which the opinion was expressed that

"customer has the technical ability and determination to generate sufficient income to service and reduce debt in given lease period and feel customers are worthy of support in this instance."

47 His Honour (at [296]) was satisfied that this opinion was genuinely held by the relevant bank officers in Griffith and that it was an opinion they could reasonably form. However, Mrs Crowe submitted that his Honour had posed the wrong question for himself: the correct question was whether Mrs Crowe had an equal opportunity to form a view based on the reworked cashflow figures attached to Mr Weekley and Mr Maxwell's Office Minute of 27 September 1994 in response to Mr George's memorandum of 9 September 1994. I shall return to this point below.

48 Having found (at [298]) that the fact that Darkcm's business operations ultimately failed did not show that they were doomed to fail from the outset, his Honour's conclusions with respect to the issue of Darkcm's ability to service repayments under the facility were expressed as follows (at [299]):

"Because I do not accept that it was clear that Darkcm would be unable to service repayments under the facility and because I do not accept that the Bank knew or ought to have known that Darkcm would be unable to service repayments, I do not accept that the Bank entered into the transactions, knowing that Darkcm would default but being content to rely on its mortgage, and I do not accept that it was necessary, in order that the advice Mrs Crowe received should have been adequate advice, that Mrs Crowe should have been advised to obtain financial advice."

49 So far as this last finding is concerned, the primary judge noted that the original funding proposal had been prepared with Mr Anderson's assistance, and held (at [300]) that

"[t]he Bank was entitled to infer from Mr Anderson's participation in the preparation of the Funding Proposal, that Mr Anderson had given Mr and Mrs Crowe some financial advice. It is true that the farming operation which was ultimately approved was different from the farming operation which was proposed in the Funding Proposal. However, it differed only in that the proposed purchase of the ostriches, which would have aggravated the short-fall of working capital for the first twelve months, was omitted."

50 Mrs Crowe challenged his Honour's finding that the Bank was entitled to infer that Mr Anderson had given Mr and Mrs Crowe "some financial advice". Certainly, I would accept the proposition that there was no evidence to suggest that Mr Anderson had given Mrs Crowe any financial advice other than that based upon the cashflows that he, himself, had prepared. It might be observed that that cashflow for the first year of operation revealed a deficit of $14,167 whereas the reworked cashflow prepared by BBO Griffith attached to the 27 September 1994 Office Minute estimated a deficit of $33,455. I would not regard the difference between these two figures as particularly significant in the overall scheme of things.

51 So far as the submission of Mrs Crowe to his Honour that had she been made aware of the risk of default and that the Bank officers were of the opinion that the facility should not have been approved in the first place, she would not have entered into the transaction notwithstanding that her husband had requested she do so, his Honour accepted the Bank's submission, which he regarded (at [301]) as "well supported by the evidence", that Mrs Crowe trusted the assurances given to her by her husband and that it was what her husband said to her that mattered when she was making a decision, "irrespective of what she was told by professional advisors or the Bank". This finding was not challenged on the appeal.

52 Accordingly, his Honour concluded (at [302]) that so far as the principle in Amadio was concerned, Mrs Crowe had not established that she was subject to any special disability of which the Bank was or ought to have been aware and which had not been removed by her receiving advice, or that the Bank acted unconscionably in lending the money and taking the guarantee secured by the mortgage. For the same reasons, his Honour considered that she was not entitled to relief under the Contracts Review Act.

The appellant's case on appeal

53 I have already outlined (in [7] above) the nature of Mrs Crowe's challenge to the primary judge's decision. Essentially, she submits that the transaction was improvident to the knowledge of the Bank given the following factors:

(a) The major security to be provided to the Bank was the property valued at $120,000 which was to be used to secure a loan facility of $144,000;

(b) Although the Bank had security by way of a bill of sale over the plant and equipment, then valued at $193,000, it regarded that security as "second class";

(c) The view of the most senior officer of the Bank who was involved in the transaction (Mr George) was that Mr and Mrs Crowe, or more accurately Darkcm, " simply cannot service [the facility] in the short term" as a consequence whereof the loan should never have been approved;

(d) The Bank did not draw to Mrs Crowe's attention the opinion of Mr George that the adjusted cashflow prepared by the Bank's valuer revealed a deficit of $106,476 at the end of the first 12 months of operation with the consequence that the debt could not be serviced in the short term;

(e) Mr George's view that the loan should not have been approved in the first place was, of itself, indicative of its improvidence.

54 Mrs Crowe further submitted that she was in a position of special disadvantage or subject to a special disability within the meaning of Amadio in that the Bank had in its possession a reworked cashflow which was significantly different to that the subject of the original proposal prepared with the assistance of Mr Anderson and which gave rise to risks different to those upon which Mr Anderson may have advised. Accordingly, it was incumbent upon the Bank to place Mrs Crowe in a position of equality by providing her with the Bank's reworked cashflow to enable her to obtain financial advice as to whether, in the light of that cashflow, Darkcm had the ability to service the loan in the short term. Without that advice it was not possible for Mrs Crowe readily to appreciate the risks associated with the transaction or to make a free and informed choice as to whether to proceed with the transaction given her knowledge that her liability under the guarantee was secured over the property.

Was the 1994 transaction unconscionable in the Amadio sense?

55 In Amadio both Mason and Deane JJ examined the principles which apply when a contract is sought to be set aside on the ground of unconscionable conduct. At 461 Mason J said:

"Historically, courts have exercised jurisdiction to set aside contracts and other dealings on a variety of equitable grounds. They include fraud, misrepresentation, breach of fiduciary duty, undue influence and unconscionable conduct. In one sense they all constitute species of unconscionable conduct on the part of a party who stands to receive a benefit under a transaction, which in the eye of equity, cannot be enforced because to do so would be inconsistent with equity and good conscience. But 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 special disability or is placed in some special situation of disadvantage ... Although unconscionable conduct in this narrow sense bears some resemblance to the doctrine of undue influence, there is a difference between the two. In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former 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."

56 Mason J then continued:

"There is no reason for thinking that the two remedies are mutually exclusive in the sense that only one of them is available in a particular situation to the exclusion of the other. 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."

57 His Honour further observed (at 462) that the principles relating to unconscionability may be invoked:

"... whenever one party by reason of some condition of (sic) 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 emphasise 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."

58 Mason J recognised that it was impossible to describe definitively all the situations in which relief would be granted on the ground of unconscionable conduct. He acknowledged Fullagar J's observation in Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362 at 405 that:

"[t]he 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 serious disadvantage vis-à-vis the other." (emphasis added)

59 Deane J referred to the jurisdiction of courts of equity to grant relief against unconscionable dealings in the following terms (at 474):

"The jurisdiction is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or 'unconscientious' that he procure, or accept, the weaker party's assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable:"

60 His Honour considered that the adverse circumstances which may constitute a relevant special disability could take

"a wide variety of forms and are not susceptible to being comprehensively catalogued"

although he accepted the statement of Fullagar J referred to above that the 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."

61 In Bridgewater v Leahy [1998] HCA 66; (1998) 194 CLR 457, Gleeson CJ and Callinan J (who dissented in the result) noted (at 470 [40]) that Deane J in Amadio, in identifying the weakness which attracts the jurisdiction, referred to the statement of McTiernan J in Blomley v Ryan that

"the essence of such weakness is that the party is unable to judge for himself".

Their Honour's continued:

"41. Absence of independent legal advice, like age or infirmity, or some other condition or circumstance of the kind referred to may, in a given case, be of factual importance in determining whether special disability or weakness, of the relevant kind, exists."

See also Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413 at [51]. In my opinion the facts of, and findings in, that case as expounded in [54]-[56] are a far cry from those in the present case.

62 The improvident transaction submission advanced by Mrs Crowe relied for its factual underpinning upon the assertion by Mr George in his memorandum of 9 September 1994, based on Mr Connolly's projection that the first 12 months of operation of the proposed venture would result in a deficit of $106,476, that Darkcm could not service the loan in the short term. It was submitted that on the face of the cashflow as reworked by Mr Connelly, the conduct of the operation could only lead to immediate insolvency of the borrower and the guarantors. Furthermore, it was submitted that this was reinforced by Mr George's opinion that the Bank was

"now committed to a higher level of risk than the Bank would normally seek".

63 Mr George was not correct in this last-mentioned comment, with respect to the Bank's commitment, unless the Bank's offer was accepted within 14 days of its date. As it was not so accepted, it was open to the Bank to withdraw the offer at any time thereafter. It did not do so and it is pertinent to note that Mr George did not suggest in his memorandum that if the offer was not accepted within 14 days then it ought to be withdrawn.

64 More importantly, at Mr George's insistence the cashflow was recast by BBO Griffith to reflect the Rice Board orders and the more up to date information which Messrs Weekley and Maxwell had received from Mr Crowe and which resulted in the reworked cashflow attached to their Office Minute of 27 September 1994. As I have already observed, this reduced the deficit in the first year of operation from $106,476 to $33,455. Furthermore, at no time did the closing balance for the year exceed $54,000. This is to be contrasted with Mr Connelly's comment in his valuation, picked up by Mr George in his memorandum of 9 September 1994, that the proposed cashflow for the first 12 months indicated that the overdraft would be exceeded by up to $40,000 unless another source of funds could be obtained, such as Rice Board orders. It is interesting to observe, albeit in hindsight, that at no time during the first year of operation of the venture did the overdraft exceed its limit by more than $10,039 (see [38] above). Throughout that year the overdraft was at times below its limit and, after January 1995, never exceeded its limit by more than $9,400.

65 Notwithstanding the opinion of Mr George, the final decision of the two Bank officers responsible for approving the facility was that, even though that there would be some trading loss at the end of the first 12 months of the venture, nevertheless both those officers as well as the Bank's valuer, Mr Connelly, considered that Darkcm would generate sufficient income to service and reduce the debt within the period of the proposed rice farm leases as a consequence whereof the venture was worthy of the Bank's support. Given that his Honour was satisfied that this opinion was genuinely held by the Bank's officers in Griffith and one they would reasonably form, I see no error on the part of his Honour in declining to find that the Bank knew or ought to have known that it was likely that Darkcm would be unable to service repayments whether in the short or the long term.

66 Furthermore, what may have been an improvident transaction as originally proposed (when it included the ostrich breeding venture) was rendered provident when that aspect of the venture was deleted from it and when allowance was made for the extra funds which were to be generated from Rice Board orders and the other sources of income referred to in Mr Maxwell's Client Contact Sheet dated 12 October 1994 relating to his discussion with Mr and Mrs Crowe on 7 October 1994.

67 Faced with what was obviously a more optimistic reworked cashflow than that the subject of Mr George's opinion, Mrs Crowe submitted that not only should she have been advised of Mr George's concern but also, in order to place Mrs Crowe in a position where there would be some reasonable degree of equality between her and the Bank, she should have been provided with a copy of the reworked cashflow attached to the Office Minute of 27 September 1994 and required to obtain independent financial advice thereon. Only by taking those steps would she be placed in a position not only to appreciate the risks associated with the transaction but also to exercise a free and informed choice as to whether to proceed with the transaction at all. It was submitted that the reworked cashflow involved a change of circumstances on which she had never received financial (as distinct from legal) advice. If she had received that advice, she would have realised, so it was contended, that there was a greater risk of her losing the property than she had originally appreciated.

68 To make the above propositions good it was, in my opinion, necessary for Mrs Crowe to establish that she lacked assistance and advice where assistance and advice were plainly necessary if there was to be any reasonable degree of equality between herself and the Bank: cf Amadio at 477. However, I am of the opinion that no such assistance or advice was required with respect to the reworked cashflow.

69 Firstly, the risks associated with the amended operation which deleted the ostrich breeding proposal were fewer than those which had attended the cashflow prepared by Mr Anderson and upon which she would have received advice. Secondly, to her knowledge, circumstances had changed in terms of the further funds or income that would be available to the venture given the anticipated Rice Board orders and other sources of income conveyed by Mr Crowe to the Bank on 1 and 6 September 1994 and subsequently. Thirdly, the deficit at the end of the first year of operation (as estimated by Mr Anderson) was $14,167 and, according to the reworked cashflow, $33,455. As I have already observed, I do not regard the difference between these two figures as particularly significant. What is clear is that a deficit of $33,459 is significantly less than the $106,476 deficit upon which Mr George based his critical comments. Of itself this does not negative a requirement for independent financial advice but the other factors to which I refer render it of less importance in terms of Mrs Crowe's stated attitude with respect to the proposed loan.

70 Fourthly, Mrs Crowe was aware of the reworked cashflow as it was discussed with her as well as with Mr Crowe by Mr Maxwell, at the meeting of 7 October 1994. In particular, notwithstanding that the letter of offer stated that the overdraft was repayable on demand, Mrs Crowe was informed that the loan would only be called up "in the last resort" or if there was a default of such a nature that "no ability to service [was] evident". Given that it was common ground that the venture would show a profit in the second and subsequent years of operation and that Mr George's concern was whether the debt could be repaid before the 5 year proposed rice farm lease terms expired, it is not surprising that in these circumstances, as turned out to be the case, no action would be taken by the Bank to declare default under the facility at the end of the first year of operation. Mr and Mrs Crowe, according to the Client Contact Sheet of 12 October 1994, were "adamant" that they would reduce the facility substantially over first two years of its operation. In these circumstances I do not consider that it was incumbent upon the Bank's officers to recommend that Mrs Crowe receive independent financial advice upon the reworked cashflow.

71 But even if one assumes that Mrs Crowe ought to have received such advice, its receipt would have made no difference to her proceeding with the transaction. In this regard, there are two matters that require noting. The first is his Honour's finding (at [301]) that Mrs Crowe trusted the assurances given by her husband as to the success of the farming operation and that she would have proceeded with the loan irrespective of what she was told by professional advisors. It is important to note that Mrs Crowe was not asked whether, had she received financial advice as now advocated by her, her decision to proceed with the 1994 transaction would have been any different to what it was. There is simply no evidentiary foundation to support Mrs Crowe's submission on the appeal that if she had seen the revised the cashflow (which she apparently had) and received advice as to the risks associated therewith, she would have pulled out of the transaction.

72 His Honour's findings that firstly, Mrs Crowe clearly understood the risks associated with the transaction and, in particular, that there was a risk that she could lose the property in the event that there was default in the repayment of the facility; secondly, she understood the purport and effect of the transaction which were explained to her by two solicitors (at [279]); thirdly, she never believed the risk of losing the property would eventuate; and fourthly, she did not enter into the 1994 transaction because she was afraid of her husband and considered that she had no choice but to do so, all point inevitably to the correctness of his Honour's conclusion that Mrs Crowe was not relevantly in a position of special disadvantage vis-à-vis the Bank.

73 The second noteworthy point is that Mrs Crowe was not (unlike Mr and Mrs Amadio) a third party guarantor having no interest in, nor entitled to receive any benefit from, the transaction that she guaranteed. On the contrary, she was both a director and equal shareholder with her husband in Darkcm, which was the borrower. The joint and several guarantee, which the Bank required her and Mr Crowe to execute, was a guarantee by the directors of the borrower company. As such, she and Mr Crowe were, in truth, the real borrowers.

74 In my opinion, the primary judge's conclusion that Mrs Crowe was not entitled to any relief in accordance with the principles in Amadio was correct and her challenge thereto should be rejected.

Is Mrs Crowe entitled to relief under the Contracts Review Act?

75 It is, in my opinion, unnecessary to assess this aspect of the matter against each of the sub-paragraphs of s 9(2) of the Contracts Review Act because Mrs Crowe submitted that her case was either on "all fours" or even stronger than that with which this Court was faced in St George Bank Limited v Trimarchi [2004] NSWCA 120.

76 In West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 622, McHugh JA emphasised that

"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."

77 Mrs Crowe did not put her claim under the Contracts Review Act upon the basis that the terms and conditions of the Bank's offer and/or the terms and conditions of the guarantee or the mortgage involved any unfair conduct on the part of the Bank. Rather, it was the means the Bank employed in entering into the contracts with Mrs Crowe that were relied upon. However, as McHugh JA pointed out in West at 621:

"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 the 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."

78 Many of the matters to which regard is to be had in the public interest pursuant to s 9(1) of the Contracts Review Act, are more relevant to a case asserting unreasonable terms and conditions of the contract than one based on unfair means employed to make the contract. Relevant to the manner in which Mrs Crowe advanced her case under the Act would be sub-paragraphs (a), (e), (f) and (h) of s 9(2). One can accept for present purposes that in terms of sub-paragraph (f), the economic circumstances and educational background and, to some degree, literacy, of Mrs Crowe were significantly different to those of the relevant Bank officers. Again, although it is clear in terms of sub-paragraph (h) that Mrs Crowe had independent legal advice, she did not receive financial advice from Mr Anderson with respect to the reworked cashflow.

79 Further, it could not be said in terms of sub-paragraph (e) that Mrs Crowe was not reasonably able to protect her interests because of her age or the state of her physical or mental capacity. The critical consideration, in my opinion, is that adumbrated by sub-paragraph (a), namely, whether or not there was any material inequality in bargaining power between Mrs Crowe and the Bank.

80 It is obvious that in one sense there was inequality in bargaining power insofar as the Bank made an offer on certain terms which Mrs Crowe could either accept or reject. More relevantly for present purposes is the fact that that inequality in bargaining power was not taken advantage of by the Bank in any relevant sense. The issue raised by Mrs Crowe on the appeal was that there was no degree of equality between herself and the Bank in relation to their respective knowledge and appreciation of the risks associated with entering into the 1994 transaction in terms of Darkcm's ability to service the loan (at least in the short term).

81 In view of his Honour's findings on the Amadio issue with which respectfully, I agree, it must follow that there was no relevant inequality in the bargaining position of Mrs Crowe on the one hand and the Bank on the other in terms of her ability to appreciate the risks involved in the transaction and to protect her own interests with respect thereto.

82 I have already noted that Mrs Crowe submitted that the present case was stronger than that with which this Court was faced in St George Bank. In that case, Mr and Mrs Tremarchi mortgaged their properties to secure the debt of their son Anthony and his wife. It was established that the transaction carried significant risks for Mr and Mr Tremarchi stemming from Anthony's financial difficulties, which, if they continued, would seriously impede his capacity to repay the loan at the expiry of its 12 month term. Dunford J found that the appellant bank had full knowledge of Anthony's financial position.

83 The findings on appeal relevant to the present matter are encapsulated in the following paragraphs from the judgment of Mason P, with whom Sheller JA and Cripps A-JA agreed:

"51. ... It is true that the documents show Mr Briggs' [the relevant bank officer] consideration that Anthony Tremarchi was a satisfactory risk (if supported by the mortgages from his parents). But the records also reveal his knowledge of a position worsening in late 1995, evidenced by Anthony's inability to repay the 'temporary ovedraft' of $25,000 granted in August 1995 that was intended to be repaid before draw down; and the later addition of the $75,000 overdraft arrangement that was made after various broken promises on Anthony Tremarchi's part. ...

52. At the end of the day, the appellant through Mr Briggs only approved the loan on the basis of obtaining the mortgages from the respondents. These mortgages made the risk acceptable to the appellant. Yet the appellant took inadequate steps to ensure that the respondent's received proper independent legal and financial advice. It follows that the appellant was on notice that the transaction was risky for the respondents because the security offered by Anthony Tremarchi was inadequate in its own right and that Anthony Tremarchi's capacity to repay the debt was problematic."

84 Mrs Crowe submitted that the present case was one whereby the risks associated with the transaction only became acceptable from the Bank's perspective because her guarantee was secured by the mortgage over the property. Further, the Bank took no steps to ensure that Mrs Crowe received proper financial advice as to those risks. Accordingly, the Bank was on notice that the transaction was risky for Mrs Crowe because the security offered by Darkcm, in terms of the vehicles the subject of the bill of sale, would in all probability be insufficient to meet the indebtedness with the consequence that the Bank would need to resort to the property for repayment of the debt. Importantly, like Anthony Tremarchi, Darkcm's capacity to repay the debt was said to be "problematic".

85 In my opinion, the facts of the present case involve a picture which is significantly different to that the subject of the St George Bank case. In particular, Anthony Tremarchi's capacity to repay the debt at the expiration of the 12 month term was quite different from the capacity, as understood by BBO Griffith, of Darkcm to repay the debt at the expiry of the five year term of the proposed rice farm leases. So far as the relevant officers of the Bank were concerned who were privy to the updated information supplied by Mr Crowe with respect to the Rice Board orders and other sources of income, no real question arose as to the capacity of Darkcm to service the debt and to repay it at the contemplated time of repayment.

86 Accordingly, I would reject Mrs Crowe's argument that her case is on "all fours" and even stronger than that of Mr and Mrs Tremarchi in the St George Bank case.

87 Finally, I regard as particularly relevant to any question of the exercise of the Court's discretion to grant relief to Mrs Crowe pursuant to s 7 of the Contracts Review Act that there was no evidence to support her submission that if she had seen the reworked cashflow and/or received financial advice with respect thereto, she would have regarded the transaction as too risky and would have declined to proceed with it. In the circumstances, I see no basis upon which it would be proper, given the primary judge's findings of fact to which I have referred and with which I agree, to exercise the Court's discretion in favour of Mrs Crowe to either set aside the guarantee or the mortgage.

Conclusion

88 For the foregoing reasons, I would propose that the appeal be dismissed with costs.

89 BRYSON JA: I agree with Tobias JA.

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LAST UPDATED: 14/03/2005