Fast Fix Loans Pty Limited v Mladenko Samardzic and Anor [2011] NSWSC 19 (4 February 2011)

Last Updated: 14 March 2011

Supreme Court New South Wales

Case Title:	Fast Fix Loans Pty Limited v Mladenko Samardzic and Anor
Medium Neutral Citation:	[2011] NSWSC 19
Hearing Date(s):	22/11/2010, 23/11/2011, 6/12/2011
Decision Date:	04 February 2011
Jurisdiction:
Before:	Hoeben J
Decision:	Declaration that the deed of loan between Fast Fix Loans Pty Limited, TT's Management Group Pty Limited, Milan Samardic, Mladenko Samardzic and Dragica Samardzic, dated 22 February 2008 (deed of loan) is unjust within the meaning of s4 of the Contracts Review Act 1980 (CRA) insofar as it relates to Mladenko Samardzic and Dragica Samardzic. The deed of loan is varied to remove Mladenko Samardzic and Dragica Samardzic as parties. A declaration that the deed of variation of loan between Fast Fix Loans Pty Limited, TT's Management Group Pty Limited, Milan Samardic, Mladenko Samardzic and Dragica Samardzic (deed of variation of loan) is unjust within the meaning of s4 of the CRA insofar as it relates to Mladenko Samardzic and Dragica Samardzic. The deed of variation of loan is varied to remove Mladenko Samardzic and Dragica Samardzic as parties. Pursuant to s7(1)(d) of the CRA Fast Fix Loans Pty Limited is to do all things necessary, including the signing and filing of documents but not limited thereto, to discharge registered mortgage No AD789081 over the property located at 54 Boardman Road, Bowral being the land contained in Certificate of Title Folio Identifier 27/1052316. Fast Fix Loans Pty Limited is to pay the costs of Mladenko Samardzic and Dragica Samardzic incurred in these proceedings.
Catchwords:	Claim for possession of land by mortgagee/lender - elderly parents mortgage their home to secure borrowings by son and his company - defence of undue influence and cross-claim under Contracts Review Act 1980 - Application of Contracts Review Act - asset lending - improvident transaction from parents' point of view - failure by mortgagee to make any inquiries as to financial circumstances of parents - effect of explanation by solicitor of loan documents - loan agreement unjust as it affected parents - whether Court should exercise its discretion to apply Contracts Review Act in favour of parents.
Legislation Cited:	Contracts Review Act 1980 Conveyancing Act 1919 Real Property Act 1900
Cases Cited:	Baltic Shipping Co v Dillon ("The Mikhail Lermontov") (1991) 22 NSWLR 1 Beneficial Finance Corporation v Karavas (1991) NSWLR 256 per Meagher JA at 277 Elkofairi v Perpetual Trustee Co Ltd [2002] NSWCA 413; (2003) 11 BPR 20,841 at [57]-[59] Hraiki v Beljon [2008] NSWSC 775 per McDougall J at [35] Kowalczuk v Accom Finance [2008] NSWCA 343 Melverton v Commonwealth Development Bank of Australia (1989) NSW Conv R 55-484 National Australia Bank v Hall (1993) NSW Conv R 55-684 Pasternacki & Anor v Correy [2000] NSWCA 333, [2001] ANZ Conv R Cases 240 Patrick John Ford by his tutor Beatrice Anne Watkinson v Perpetual Trustees Vic Ltd [2009] NSW 186 Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41 Spina v Permanent Custodians Ltd [2009] NSWCA 206 Reisch v Commonwealth Bank of Australia & Ors (Simos J) (NSW Supreme Court, 13 March 1998, unreported)
Texts Cited:
Category:	Principal judgment
Parties:	Fast Fix Loans Pty Limited (Plaintiff) Mladenko Samarzic (First Defendant) Dragica Samadzic (Second Defendant) Mladenko Samarzic and Dragica Samardzic (Cross-Claimants)
Representation
- Counsel:	Counsel: Mr M Thompson (Plaintiff) Mr C Cassimatis (First and Second Defendants and Cross-Claimants)
- Solicitors:	Solicitors: Greenstein & Associates (Plaintiff)
File number(s):	2010/34211
Publication Restriction:

Judgment

1	HIS HONOUR:

Nature of Proceedings
The plaintiff seeks judgment for possession of the land in Certificate of Title Folio Identifier 27/1052316 and situate at 54 Boardman Road, Bowral in the State of New South Wales (hereafter called "the Bowral property").

2

The defendants/cross-claimants resist the claim on the basis that their signing of the deed of loan and the mortgage was procured as a result of the undue influence of their son, Milan Samardic. In the alternative, they rely upon the provisions of the Contracts Review Act 1980 (CRA) and seek to have those documents set aside.

Factual Background

3	Unless otherwise indicated, I find the facts to be as follows.
4	Milan Samardic is a son of the defendants. As of 2007/2008 he was a builder and property developer, having been in that industry for about 13 years. He was the sole director and shareholder of TT's Management Group Pty Limited (the company).
5	In November 2006 the company entered into a call option for nine months to purchase a property at 43 Head Street, Forster (the Forster property) for $1,330,000 plus GST. The company paid an option fee of $22,000. The intention of Milan Samardic and the company was to obtain development approval from the Great Lakes Council (the Council) for the construction of 22 apartments on the Forster property. On or about 30 March 2007 the company submitted a Development Application (DA) to the Council for that project.
6	In July 2007 Milan Samardic approached a finance broker, Acuity Funding Pty Limited (Acuity), to arrange finance for the purchase of the Forster property and the construction of the development. The company needed to borrow approximately $1,100,000. Milan Samardic believed that he could obtain that finance with only the Forster property as security.
7	On 8 October 2007 Milan Samardic was advised by his solicitors that his option to purchase the Forster property would expire on 16 November 2007. He was advised that unless he exercised the option, the option fee of $22,000 would be lost. After some negotiation, the vendor of the Forster property agreed to extend the date for the exercise of the option.
8	In December 2007 Milan Samardic was advised by the Council that a decision on the company's DA had been adjourned to a meeting of the Council in late February 2008. Also in December 2007 Milan Samardic was advised by Acuity that unless further security could be obtained, all that could be borrowed from a primary lender with the Forster property as security was $640,000.
9	Acuity advised Milan Samardic that it could arrange a second loan with a short-term lender, Fast Fix Loans Pty Limited (Fast Fix), but that this lender would require a second mortgage over the Forster property and further security. Acuity advised that the term of the loan would be for 3 months and that the interest rate would be 2 percent per month.
10	Milan Samardic believed that he would be unable to obtain funds from other sources within the time available. He said that if the purchase of the Forster property did not proceed, he stood to lose approximately $250,000. His expectation was that settlement of the purchase of the Forster property would occur in February 2008 and that the DA would be approved by the Council later that month. After approval of the DA, he expected to be able to refinance the Forster property and pay off the loan to Fast Fix.
11	Milan Samardic met with the principal of Fast Fix, Harry Calleja, and his solicitor, Mr Greenstein, in December 2007. Milan Samardic told Mr Calleja that he had no other property which was unencumbered except for his parents' house in Bowral. He gave Mr Calleja the address of the Bowral property and told him that it was worth approximately $550,000.
12	A few days after that conversation, Mr Calleja telephoned him to advise that Fast Fix would accept the Bowral property as security for a short-term loan in addition to a second mortgage over the Forster property. In his affidavit of 20 September 2010 Milan Samardic said that he then advised Mr Calleja "My parents do not work as they are on the pension."
13	I do not accept that Milan Samardic advised Mr Calleja that his parents did not work or that they were on the pension. It is clear from the circumstances in which Milan Samardic, and through him the company, agreed to enter into the loan agreement with Fast Fix Loans that he was desperate to persuade Mr Calleja to approve the loan. Consequently, it is unlikely that he would have provided Mr Calleja with information which may have prevented the loan being made.
14	I have reached that conclusion for a number of reasons. From his evidence under cross-examination, it is clear that if Mr Calleja did not approve this loan it would not have been possible for Milan Samardic to obtain a loan from any other source so that the project would have failed and he would have lost at least $250,000. His willingness to accept the onerous terms of the loan confirms that conclusion.
15	Finally and most persuasively it is clear that Milan Samardic told Mr Calleja that the Bowral property was worth $550,000 and that his parents were residing on it. Both those assertions were untrue. The Bowral property was worth approximately $225,000 and at that time nothing was built upon it. That fact and the value of the property at the time only emerged in the course of cross-examination. The motivation for providing this false information was to persuade Mr Calleja to agree to the loan.
16	I found Milan Samardic to be an unsatisfactory witness. There are matters in his affidavit of 20 September 2010 which were false to his knowledge when he swore it. I refer particularly to paras 31, 32, 40, 43 and 52. He was clearly feeling guilty about the predicament which he had brought about for his parents and wished to assist them as much as possible. Accordingly, on controversial issues I am not prepared to accept the evidence of Milan Samardic, except where it is corroborated by other evidence.
17	Mr Calleja was unable to give evidence in the proceedings. He had suffered a stroke in December 2008. As a result, he is confined to a wheelchair and requires the constant supervision of a personal carer. He is frequently incontinent and the large amount of medication which he is required to take impairs his concentration and alertness. His son gave evidence that his mental capacity varies from day to day and that on many occasions he can be incoherent.
18	Although I have found that Milan Samardic did not tell Mr Calleja that his parents were not working and that they were pensioners, I also find that Mr Calleja made no inquiries concerning the financial circumstances of Milan Samardic's parents, i.e. the defendants. No submissions to the contrary were made on behalf of Fast Fix.
19	In about December 2007 Milan Samardic telephoned his father and arranged to meet with his parents at their home. They were then living in rental accommodation in Burradoo. At this stage I should say something about the background of the defendants.
20	Mladenko Samardzic was born in 1934 in the former Yugoslavia and is now 76 years old. He was educated in the Serbian language. He left school at the age of 12 and commenced working on a farm. When he was 16, he started an apprenticeship as a fitter and turner. Apart from spending two years in the army when he was 20, he worked as a fitter and turner until he came to live in Australia in 1970. Until he came to Australia he had not had any experience with the English language.
21	After his arrival in Australia, he worked in manual jobs, mainly doing welding work. He always worked as an employee and retired in 1999 at the age of 65. He was never formally taught the English language. Having seen him give evidence, I am satisfied that he has a basic knowledge of ordinary English, sufficient to enable him to buy things in shops and communicate on a simple level. His English is not of a level which would enable him to talk about or understand commercial and financial matters.
22	In the course of his evidence, Mr Samardzic demonstrated an ability to read simple English. Nevertheless, I do not find that this capacity was sufficient to enable him to understand the deed of loan and mortgage upon which the plaintiff relies.
23	In about 1973 Mladenko and Dragica Samardzic purchased a house at Berala. In 1978 they purchased a second house in the same suburb. Each property was subject to a mortgage to a bank. The second house was rented out and the rent received was used to pay off its mortgage. I am satisfied that as of December 2007 Mladenko and Dragica Samardzic understood the basic concept of a mortgage, i.e. the borrowing of money secured by property in circumstances where that property would be lost if the borrowed moneys were not repaid in accordance with the loan agreement.
24	Dragica Samardzic was born in 1941 in the former Yugoslavia and is currently 69 years of age. She was educated in the Serbian language and attended school until she was 12. When she left school she went to work on a farm. She continued performing farm work until she married Mladenko in 1963. Before she came to Australia in 1970 with Mladenko and her two children, she had never spoken the English language.
25	Between 1970 and 1995 she worked in many different jobs in various factories. While in Australia she did not take English lessons, nor was she formally taught English. I have concluded that like her husband, Dragica has a sufficient knowledge of English to enable her to attend shops and converse with English speakers on a basic level. Like her husband, she understands what a mortgage is but would not be able to converse in English concerning financial matters of any complexity.
26	In about 2007 the defendants sold their property in Berala which by that time was free of any mortgage. They received $625,000. In that same year they purchased the Bowral property for $225,000. At the time of purchase, it comprised vacant land. They entered into a contract with a project builder, Beechwood Homes, for the construction of a house on the Bowral property. While the house was being constructed, they rented premises at Burradoo. At that time neither of them was working and both were in receipt of the aged pension.
27	Sometime in 2008 Beechwood Homes went into liquidation. Thereafter, with their son Milan co-ordinating contractors, they proceeded themselves to build a house on the Bowral property. The defendants were able to move into the Bowral property some time in mid 2009. As of the date of the hearing, there was still some work to be done, mainly relating to fences. The defendants were not able to say how much the house had cost to build, but the original contract with Beechwood Homes had been for $250,000. The house on the Bowral property has four bedrooms.
28	In his affidavit, Mladenko said that when Milan spoke to him on the telephone in December 2007, he said:

"MILAN: I have a big problem. I need money for a property in Forster. Can you help me? I'll come and see you. I need you to sign some documents."

29	Mladenko said that some two or three days later, Milan came to see him and his wife and said:

"I need to borrow money from the bank. But I need you to give the land in Bowral as security for the loan. We have an appointment to see a solicitor in Bowral today. We need to go there so we can sign the documents in front of him." (Affidavit 10 November 2010)

30	Dragica in her affidavit of 10 November 2010 set out the conversation as follows:

"MILAN: I need you to help me apply for a loan from the bank. I will lose the property at Forster if you don't help me. I only need your help for three months.

MLADENKO: Dragica, what do you think?

ME: What can we do? Three months ... it's not too long. We have no money, we get the pension, we cannot afford to borrow any money and repay it. But we can help you by putting our name on the bank document if it helps you get the loan, but only if our obligation ends in three months.

MILAN: Okay you'll need to sign some documents. I will take you to see a solicitor in Bowral who will explain the documents to you and then you can sign them in front of him."

31	It is apparent from other material that the defendants' recollection of these events occurring in December 2007 is incorrect. They appear to have occurred in February 2008. In relation to what next occurred, the affidavit of the solicitor in Bowral, Mr Jowett, provides the most accurate sequence of events. He refers to a conference with the defendants and Milan, which occurred at 10.30am on 19 February 2008.
32	Mr Jowett said that when he met Milan and his parents he explained to them that because Milan was a party to the loan, he was not able to provide the defendants with legal advice while Milan was present. Milan then left the room.
33	What next happened is described by Mr Jowett in his affidavit:

"10. Milan left the room but I said to Mr and Mrs Samardzic words to the effect, "Do you understand what it means to guarantee a loan?" Mr Samardzic said, "Yes." Mrs Samardzic just smiled and nodded.

11. I then said words to the effect, "Please tell me in your own words what you understand it to mean." Mr and Mrs Samardzic both smiled, but did not provide an answer to my question. I then said words to the effect, "Do you understand what I am saying?" Again, Mr Samardzic said, "Yes" and Mrs Samardzic just smiled and nodded. I do not know whether Mr and Mrs Samardzic understood what I said but I was not satisfied that they did.

12. I then stood up, walked to and opened the office door and said to Milan, "Please come back." Milan entered the room and sat back down.

13. I said to Milan words to the effect, "I am not satisfied that your parents' English is good enough to understand legal advice."

14. Milan replied with words to the effect, "I can translate for them."

15. I responded, "Remember, you can't be in the room so you can't translate."

16. After the initial conversation with Mr and Mrs Samardzic in the absence of Milan, I directed my speech towards all three persons, but do not know whether Mr and Mrs Samardzic understood any of what I said.

17. I then said, "What I can do is find you a lawyer who speaks your first language; Serbo-Croatian? Milan responded, "Serbian" and Mr Samardzic repeated, "Serbian."

18. Milan appeared very anxious and said words to the effect, "I need this today."

19. I replied in words to the effect, "I'll see what I can do."

...

21. I said to Milan words to the effect, "There is one named Marta V- in Fairfield." Milan replied in words to the effect, "That's who did mum and dad's conveyancing." I replied in words to the effect, "Great! Would you like me to try and make an appointment?" Milan replied, "Yes."

22. I telephoned Marta and made an appointment for Mr and Mrs Samardzic later that day, but I do not recall the details of the conversation or time of the appointment. I do recall there was a three-way conversation about how long it would take to drive from Bowral to Fairfield to establish the time of the appointment, but not the details of that conversation.

23. The Samardzics were in my office for about one hour. Throughout that time Milan appeared very anxious, hurried and focused on obtaining a signed Acknowledgement.

24. Mr and Mrs Samardzic appeared confused."

34	In their affidavits of 20 September 2010 the defendants said that Mladenko asked Milan whether they could see the solicitor on another occasion since it was "very late in the day after we saw the solicitor in Bowral" and he did not want to drive all the way from Bowral to Sydney and then back home again. Mladenko said that he was also feeling sick. Milan is said to have responded that the papers needed to be signed straight away, that it was very urgent and if the papers were not signed that day, he could lose a lot of money.
35	While I have no doubt that there was considerable urgency on the part of Milan to have his parents sign the documents, I do not fully accept the evidence of Mladenko and Dragica that they were unwilling to go to Fairfield and that Mladenko was not feeling well. Those statements are predicated on the proposition that it was "very late in the day" after they saw the solicitor in Bowral. It is clear from Mr Jowett's affidavit and diary note that the conference with him took place at 10.30am and lasted no more than an hour. Nevertheless, it is clear that Milan exerted pressure on his parents to ensure that the documents were signed that day.
36	The solicitor at Fairfield, with whom Mr Jowett made the appointment, was Marta V -. She is a sole practitioner whose practice is in Fairfield. Ms V- provided an affidavit and gave evidence in the proceedings. She recollected being contacted by a solicitor from Bowral but had only a very general recollection of a conference with the defendants. She could not remember who was present at the conference, nor could she remember any details of what was said. She could remember that the purpose of the conference was to explain legal documents because of her fluency in the Serbian language.
37	I am satisfied that on this occasion Milan was present when the deed of loan and mortgage were explained to the defendants by Ms V -. Ms V-'s oral evidence was based on her usual practice when explaining such documents rather than on any specific recollection. She said that had there been any sort of bullying or intimidation of the defendants by Milan, she would have been concerned about that, made a note of it and would have refused to witness the documents. She said that it was not her practice to translate the whole of a document but:

"A. No. I generally summarise. My Serbian, I tend to make it very simple for them to understand. I realise most of them aren't educated so I would summarise the document." (T.72.26

Ms V- said that what she sought to do was to provide the "basic concept" of the document.

38	When the loan agreement was placed in front of her and she was asked to explain what she would regard as the "basic concept" of the document, she said:

"A. I would explain who the lender is, who is borrowing the money, the principal amount, the interest rates I would explain, the security offered and the purpose of the loan and that they were guarantors, if who they were guaranteeing for defaults, then the bank would have the right to move in and take their property if the other party didn't pay." (T.74.46)

39	In their affidavits, the defendants described what occurred when they had this conference with Ms V -:

"27 We then drove with Milan to the other solicitor, whose office was in Fairfield. That solicitor, whose name I cannot remember, explained to me and my wife that our son was trying to borrow money, and that he needed us to sign papers because our property was needed as security for the loan.

28 I asked the solicitor if signing the documents meant that we are borrowing the money and she told us no. The solicitor spoke with us in Serbian, but spoke to Milan in English. She said that Milan and his company were borrowing the money and would have to pay it back, and the money would be paid back in three months.

29 That solicitor did not read the papers to us, either in English or translated into my native language.

30 I understood that by signing papers, Milan would be able to borrow money and would pay it back in three months. I did not think that my wife and I would have to pay any money back. Nobody told me that I would have to ever pay any money back because I was signing the papers. Because my wife and I only received a pension, I never would have signed a document if I knew I would possibly have to pay money back that Milan borrowed. I would never be able to have spare money to repay a loan for money that I did not borrow."

40	In a later affidavit, Mladenko expanded on what Ms V- had told him as follows:

"10 In paragraphs 27 and 28 of the first Mladenko affidavit I refer to a discussion I had with a solicitor in Fairfield. Before the conversation started, I saw Milan hand a bundle of documents to the solicitor. During the consultation, we had a conversation in the Serbian language where we said words to the effect:

"SOLICITOR: You need to repay the money loaned from the bank in three months."

11 I assumed the solicitor was talking to Milan when she said this. I made this assumption, because I saw her talking to him in English.

12 We then continued the conversation saying words to the following effect:

"SOLICITOR: Dragica and Mladenko, you are agreeing to guarantee your son's loan for three months by offering your land in Bowral as security. If Milan doesn't repay the money to the bank during the three month period, you could lose your property in Bowral."

41	The affidavits of Dragica were to similar effect.
42	In evidence, Mladenko explained his understanding of the documents as follows:

"Q. The reason why you had to sign papers was because you were guaranteeing the loan he was taking out?

A. INTERPRETER: Yes.

Q. And you understood that at the time you first spoke to Milan about that proposition?

A. INTERPRETER: He said to me that he would lose a lot of money if I didn't sign those papers.

Q. And did you ask him why he would lose a lot of money if he didn't sign the papers?

A. INTERPRETER: No.

Q. Did you ask him what the purpose of signing the papers was?

A. INTERPRETER: I don't remember.

Q. Were you curious as to the purpose behind the signing of the documents?

A. INTERPRETER: I believed in him and that's why I signed it.

...

Q. Sir what did Milan tell you about why he wanted the money?

A. INTERPRETER: I can't remember exactly but he said that if I don't sign that, those papers he would lose a lot of money.

...

Q. You understood didn't you that signing the documents was a particularly important thing particularly significant thing being done?

A. INTEPRETER: Yes.

WITNESS: That's my family, my son I believe him.

INTEPRETER: Yes, but I'm saying again, that is my family, my son and I believed him.

...

Q. The solicitor in Fairfield was also talking to you in Serbian, wasn't she?

A. INTERPRETER: She just said to me "Do you know what you are signing?" I said "Yes". Then she said "If you sign this you may lose your property" and I said "I believe in my son and I know he will return that money to me" that was said in Serbian.

Q. And you at that stage signed the papers?

A. INTERPRETER: Yes.

Q. When you signed them you knew didn't you that your property in Bowral was security for a loan taken by your son?

A. INTERPRETER: I knew that but for three months.

WITNESS: Yeah.

Q. And you knew didn't you that if your son did not repay the money you could lose the property in Bowral?

A. INTERPRETER: Yes that's what the solicitor said, that's what I believed.

Q. That is what you knew when you signed the papers on that day?

WITNESS: Yes.

INTERPRETER: Yes." (T.19-21)

43	Dragica's evidence was:

"Q. But you do know that the guarantee that you signed was in relation to Milan's project in Forster, don't you?

WITNESS: I don't know, maybe yes.

INTEPRETER: Maybe I don't know, I don't remember. We believed everything from Milan, Milan. We believed Milan. He worked. He was always good." (T.36.46)

"Q. Your son Milan took you and your husband to see the solicitor?

A. WITNESS: Yes.

Q. She explained this document to you?

A. INTERPRETER: She just said that it may be possible that we could, it could be that we may lose our house and we said, "But it's only for three months". (T.39.1)

44	There was evidence (T.31) that Mladenko (and probably Dragica) had on one previous occasion entered into a guarantee and mortgage on behalf of Milan. This had occurred when Milan was building his house. In relation to that issue, the evidence of Mladenko was:

"A. INTERPRETER: No. When he was building his house I signed from the bank for his money.

Q. I see. So you are familiar with the process involved when people borrow money and guarantee debts to other persons?

A. INTERPRETER: When Milan got the money from the bank for the house, a man from the bank came and we were all witnesses, all together, and we signed. The man from the bank who came there asked me a lot of questions as to what I possessed. But as far as their company is concerned, I don't know anyone from that company, I've never seen any one of them. No one asked me any questions. How could I have believed from a sole pensioner that he would be able to pay this money.

...

Q. Did you feel you needed an interpreter on that earlier occasion?

A. INTERPRETER: That was to do with my son and I believed my son.

WITNESS: Believed my son.

INTERPRETER: And everything went okay. He returned the loan to the bank and we got our deeds back." (T.31.23, 32.28)

45	I am satisfied that as a result of the explanation provided by Ms V -, the defendants were aware that by signing documents on 19 February they were placing the Bowral property at risk if Milan did not repay the loan. I am also satisfied that they thought their liability would cease at the end of three months. Although there is no evidence as to the amount of the loan being specifically mentioned, I am sure that it was. While I accept that Ms V- would have told the defendants about the interest rate, I am not persuaded that the defendants understood the significance of how high the interest rate was. There is no evidence that the defendants understood the part played by the Forster property in the transaction nor is there evidence that they had any knowledge about the financial position of Milan or the company.
46	In the deed of loan and mortgage the defendants' address is specified as the Bowral property. I am satisfied that this was done on the basis of information provided to Fast Fix by Milan. Ms V- would not have made any reference to that fact since on the basis of the documents before her, she would have believed that this was where the defendants lived and that there was a house on the property at the time. If the defendants noticed the address on the documents attributed to them, they did not appreciate its significance. I am satisfied that in signing the documents the defendants did not in any way seek to mislead Fast Fix as to the existence of a house on the Bowral property.
47	I am satisfied that their motivation in entering into the agreement was to help Milan. They were prepared to risk the Bowral property because they trusted Milan and believed that he would be able to repay the loan at the end of three months. They probably had in mind the previous occasion when they had guaranteed a loan for Milan and mortgaged a property to secure his loan.
48	Shortly after 19 February 2008 the following documents, signed by the defendants, were sent to the solicitors for Fast Fix:

(a) The Deed of Loan.
(b) The mortgage over the Bowral property.
(c) A Declaration signed by the defendants to the effect that they had received independent legal advice regarding the loan and security documents.
On 22 February 2008 the Deed of Loan was signed on behalf of Fast Fix. The mortgage in respect of the Bowral property was registered on 25 February 2008.

49	The parties to the Deed of Loan were Fast Fix, the company, Milan Samardic and the defendants. The borrower was the company. Pursuant to a guarantee, the defendants, together with Milan, jointly and severally guaranteed the repayment of the loan by the company.
50	The security for the loan was a first mortgage over the Bowral property and a second mortgage over the Forster property. The principal amount under the loan was $450,000. The term of the loan was to be three months and the interest rate was 2 percent per month. If there was default under the deed of loan, the interest rate was to increase to 4 percent per month.
51	Settlement of the purchase of the Forster property occurred on 22 February 2008. The moneys advanced under the deed of loan were applied as follows:

(a) $27,000 for 3 months prepaid interest on the loan at $9,000 per month.
(b) $3,500 for legal costs and disbursements, including stamp duty and registration fees.
(c) $419,500 towards the purchase of the Forster property.

52	In May 2008 the company sought from Fast Fix an extension of the loan period for one month with an option for a second month, if required. Fast Fix agreed to that proposal and sent to the company a Deed of Variation, giving effect to that arrangement.
53	Milan sent a copy of the Deed of Variation to the defendants. He asked them to sign the document and said that they only needed someone to witness their signatures but that they did not need to see a solicitor on this occasion. The defendants signed the Deed of Variation and mailed it back to Milan. I accept that the defendants did not seek any legal or other advice in relation to the Deed of Variation.
54	Mladenko set out what happened in his affidavit as follows:

"32 ... My wife Dragica and I did not hear anything further regarding the loan or documents until we received a phone call from Milan in about June 2008. In that phone call Milan told us we would be receiving some documents in the mail. He asked if we could sign these documents and mail them back to him.

33 I asked what the documents were and Milan told us that they were the same loan documents we had signed previously, which needed to be signed again. He said we would need to sign the documents urgently because he was in a rush to give the documents to other people.

34 When these documents arrived by post we signed them at home. There was no-one present at the time we signed them as we were told by Milan that a solicitor wasn't required. ...

35 I thought the papers were just more documents for the same loan. I did not know why Milan wanted us to sign them.

36 No-one read the documents to us. We did not read the documents because we could not understand what was written. We just signed next to our names and sent the documents back to Milan by post.

37 This was the last we heard from anyone regarding the documents. We were never asked for any additional information nor were we asked to speak with anyone from Fast Fix ..."

55	The signed copy of the Deed of Variation was received by the solicitors for Fast Fix on 30 May 2008. The period of the loan was subsequently extended by agreement between the company and Fast Fix to 22 September 2008.
56	The company made interest payments as follows:

(a) $9,000 in June 2008.
(b) $18,000 on 29 July 2008.
The company was unable to make the next payment of interest of $9,000 due on 23 August 2008. The company has not paid any further amounts of interest, nor has it repaid any of the principal. Because of the company's default in the payment of interest, the default interest rate was applied by Fast Fix and interest has been claimed at the rate of 4 percent per month from 23 August 2008.

57	The company and Milan attempted to obtain alternative finance to pay out the Fast Fix loan but were unsuccessful.
58	By letter dated 25 March 2009 addressed to the defendants at the Bowral property, the solicitor for Fast Fix set out a brief history of the matter and demanded payment of the principal, plus interest which by that date amounted to $127,183.56. That letter was sent by registered mail. By letter dated 23 July 2009, notices under s 57(2)(b) of the Real Property Act 1900 and s 92 of the Conveyancing Act 1919 were sent to the defendants.
59	There was no evidence as to what, if any, action had been taken by Fast Fix in respect of the second mortgage over the Forster property.

Consideration

60	The defendants took two procedural points which can be shortly dealt with. The first was that there was no evidence before the Court that the $450,000 had ever been advanced to the company. I do not agree. There was evidence of the settlement of the purchase of the Forster land and of the fact that apart from the pre-payment of interest and legal fees, the balance of the loan moneys was directed towards that purchase. This submission of the defendants is rejected.
61	The second submission was that no demand for payment had ever been served on the defendants in accordance with the deed of loan. The basis for this submission was that clause 11 of the deed of loan dealt with service and required that notice be given by delivery to the address of the party notified for the purposes of that clause, in which case it should be deemed to have been received. There was no evidence of any notification under clause 11 and it was common ground that as of March 2009 the defendants were not residing in the Bowral property.
62	I do not accept the submission. Clause 11.2.3 of the deed of loan provides for notice to be given "by certified mail ... in which case it shall be deemed to have been received on the third business day following mailing, if mailed post pre-paid and the notice is not posted to or from a place outside Australia". The letter of 25 March 2009 was sent by registered mail in accordance with that requirement. It was no fault of Fast Fix that an incorrect address for the defendants had been inserted in the deed of loan. The sending of that letter by registered mail also complied with the notice provisions in the mortgage (clause 20.1) which merely required that a notice be sent by pre-paid mail to the parties' address. The defendants' submission on this issue has not been made out.
63	It was common ground that subject to the defendants making out their defence and cross-claim, the plaintiff was entitled to an order for possession against them in respect of the Bowral property.

Defence/cross-claim under CRA

64	I propose to deal with the CRA issues first. As was said by Young JA in Spina v Permanent Custodians Ltd [2009] NSWCA 206 at [74]:

" ... it is always preferable to deal with the Contracts Review Act point first. Not only is the jurisdiction probably wider under that Act than when dealing with equitable principles of unconscionability, but where, as has happened time and time again through history, statute has been enacted to cover the same ground as an equitable principle, the equitable principle is usually put into abeyance. After all, equity only operates where the common law is inadequate."

65	The relevant provisions of the CRA are:

"7(1) 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 Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following:

(a) it may decide to refuse to enforce any or all of the provisions of the contract,

(b) it may make an order declaring the contract void, in whole or in part,

(c) it may make an order varying, in whole or in part, any provision of the contract,

(d) it may, in relation to a land instrument, make an order for or with respect to requiring the execution of an instrument that:

(i) varies, or has the effect of varying, the provisions of the land instrument, or

(ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the land instrument.

(2) Where the Court makes an order under subsection (1) (b) or (c), the declaration or variation shall have effect as from the time when the contract was made or (as to the whole or any part or parts of the contract) from some other time or times as specified in the order.

(3) The operation of this section is subject to the provisions of section 19."

66	Section 4(1) provides a non-exhaustive definition of "unjust".

" Unjust includes unconscionable, harsh or oppressive, and injustice shall be construed in a corresponding manner."

67	Assistance in ascertaining the intended content of "unjust" is derived from s 9:

"9 (1) In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of:

(a) compliance with any or all of the provisions of the contract, or

(b) non-compliance with, or contravention of, any or all of the provisions of the contract.

(2) Without in any way affecting the generality of subsection (1), the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following:

(a) whether or not there was any material inequality in bargaining power between the parties to the contract,

(b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation,

(c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract,

(d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract,

(e) whether or not:

(i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or

(ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented,

because of his or her age or the state of his or her physical or mental capacity,

(f) the relative economic circumstances, educational background and literacy of:

(i) the parties to the contract (other than a corporation), and

(ii) any person who represented any of the parties to the contract,

(g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed,

(h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act,

(i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect,

(j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act:

(i) by any other party to the contract,

(ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or

(iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract,

(k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and

(l) the commercial or other setting, purpose and effect of the contract.

(3) For the purposes of subsection (2), a person shall be deemed to have represented a party to a contract if the person represented the party, or assisted the party to a significant degree, in negotiations prior to or at the time the contract was made.

(4) In determining whether a contract or a provision of a contract is unjust, the Court shall not have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the contract was made.

(5) In determining whether it is just to grant relief in respect of a contract or a provision of a contract that is found to be unjust, the Court may have regard to the conduct of the parties to the proceedings in relation to the performance of the contract since it was made."

68	Section 19, to which s7(3) made reference, provides:

"19(1) An order made under section 7 (1) (b) or (c) has no effect in relation to a contract so far as the contract is constituted by a land instrument that is registered under the Real Property Act 1900 ..."

69

In the present case there were two contracts between the plaintiff and the defendants - the deed of loan and the registered mortgage. The registered mortgage is clearly a "land instrument" as contemplated by s19(1). The deed of loan is not. Accordingly, as a preliminary issue it is necessary to decide whether s19(1) could prevent the defendants from obtaining an order under s7(1)(b) or (c) if they were otherwise entitled to it.

70

Section 41 of the Real Property Act 1900 (RPA) provides:

"41(1) No dealing, until registered in the manner provided by this Act, shall be effectual to pass any estate or interest in any land under the provisions of this Act, or to render such land liable as security for the payment of money, but upon the registration of any dealing in the manner provided by this Act, the estate or interest specified in such dealing shall pass, or as the case may be the land shall become liable as security in manner and subject to the covenants, conditions, and contingencies set forth and specified in such dealing, or by this Act declared to be implied in instruments of a like nature. "

71	The mortgage provides that the memorandum annexed is incorporated. There is, however, no incorporation of the deed of loan in the mortgage. There is no payment obligation in the mortgage. The payment obligations are in the deed of loan. The relevant provisions of the mortgage are set out in the following paragraphs.
72	In the mortgage, "secured monies" are defined as:

""Secured monies" means all monies due and payable or from time to time to become due and payable by the Mortgagor or the Borrower or the Principal to the Mortgagee on any account whatsoever including without limitation under a loan agreement or this Mortgage, and whether such monies are owing absolutely or contingently and whether presently or in the future, and whether or not the Mortgagee is the original chargee in whose favour this mortgage was given, or an assignee of that original chargee, and whether or not the Mortgagor consented to or knew about any assignment, but excluding monies payable under a covenant or stipulation which would otherwise be (and to the extent that they would otherwise be) mandatorily rendered void by applicable statute;"

73	Included in the mortgagor's general undertakings is:

"2.1 The Mortgagor shall:

(a) (Payment of Secured Monies)

Pay the Secured Monies as and when they become due and payable in accordance with the terms of any agreement between the Mortgagor and Mortgagee or in the absence of any such agreement or after default under any such agreement, on demand;

(b) (Interest)

Pay interest on any part of the Secured Monies which has become due and payable and remains unpaid (including interest payable under this clause 2).

(i) In accordance with the terms of any agreement in writing between the Mortgagor and the Mortgagee; or

(ii) In the absence of any such agreement, on demand by the Mortgagee and without allowing for any credit balance in any account of the Mortgagor with the Mortgagee, such interest to be calculated at daily rests at whatever rate or rates the Mortgagee may from time to time determine without prior or other notice to the Mortgagor and to accrue both before and (as a separate and independent obligation) after any judgment; ..."

74	Under the mortgage an Enforcement Event and the consequences of an Enforcement Event occurring are set out:

"5.1 Each of the following, unless waived by a notice from the Mortgagee, is an Enforcement Event:

(a) (Non payment)

If all or any part of the secured monies, or any amount payable under this mortgage or any collateral document, is or are not paid for a period of five business days after the due date for payment thereof whether or not any formal or legal demand should have been made therefore ...

5.2 If any Enforcement Event occurs:

(a) The secured monies shall at the option of the Mortgagee and not withstanding any delay or previous waiver of the right to exercise such option become immediately payable without the necessity for any demand or notice; and

(b) This Mortgage shall at the option of the Mortgagee become enforceable (whether or not the secured monies have become so immediately payable)."

75

The mortgage effectively only contains a covenant to pay "secured monies", which is defined to mean "all money which the Mortgagor owes to the Mortgagee". If the deed of loan were set aside insofar as the defendants are concerned, the mortgage would secure nothing. Accordingly, the question of whether the deed of loan should be set aside under the CRA will determine success or failure for the defendants in their defence and cross-claim.

76

In Kowalczuk v Accom Finance [2008] NSWCA 343 Campbell JA, with whom Hodgson and McColl JJA agreed, summarised the principles concerning relief under the Contracts Review Act:

"85 Comparatively early in the life of the Contracts Review Act , McHugh JA in West v AGC (Advances) Ltd (1986) 5 NSWLR 610 recognised, at 621, that the Act

"... 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."

86 McHugh JA recognised, at 620, that a contract can be unjust "because of the way it operates in relation to the claimant or because of the way in which it was made or both." He recognised that a contract could be unjust because it contained "substantive injustice" - which arises "because its terms, consequences or effects are unjust" , or because of "procedural injustice" - which arises "because of the unfairness of the methods used to make it" - or both. He recognised, at 621, that a contract can be "unjust" even if it is not unconscionable, harsh or oppressive. Notwithstanding the traditional view that equity took about circumstances in which it would hold that enforcement of a contract was unconscionable, a contract may be unjust even though the circumstances that give rise to that injustice are not known to the other party: Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256 at 277; Nguyen v Taylor (1992) 27 NSWLR 48 at 71 per Sheller JA; Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41 at [94]- [96].

87 In applying the Contracts Review Act , two distinct steps are involved. As stated by Brereton J in Riz v Perpetual Trustee Australia Limited [2007] NSWSC 1153; (2008) NSW Conv R 56-198 at [51]:

"... The first is whether the contract was unjust in the circumstances in which it was made, having regard to the factors referred to in s 9. This is a conclusion of fact, albeit one of ultimate fact involving a broadly based value judgment [ Antonovic v Volker (1986) 7 NSWLR 151, 154-155 (Samuels JA, Kirby P agreeing); Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256, 270E (Samuels JA); Perpetual Trustee Company Ltd v Khoshaba [2006] NSWCA 41, [34]-[40] (Spigelman CJ), [106]-[111] (Basten JA)]. The second, which arises only if the first is resolved in the affirmative, is whether any and if so what relief should be granted; this involves the exercise of a judicial discretion [ Khoshaba , [34]-[36] (Spigelman CJ), [109] (Basten JA)]."

88 Thus, if the contract is found unjust by reason of circumstances not known to one of the contracting parties, it does not automatically follow that relief will be given to remedy that injustice."

77	It was not submitted by Fast Fix that the defendants were precluded from relief under the CRA by the operation of s6. It was common ground that they were private persons who did not benefit from the transaction and were not part of the company. They did not enter into the deed of loan for the purpose of trade or business carried on or proposed to be carried on by them.
78	When considering the question of unjustness, the CRA requires the Court to have regard to the public interest (s9(1)). In the present case it seems clear that as between the plaintiff and the defendants, what occurred amounted to asset lending. What the plaintiff was told about the defendants was that they were the parents of Milan and that they owned and lived in the Bowral property which was unencumbered. By reference to Milan's age, Mr Calleja should have inferred that his parents were in their mid to late sixties. While I have found that he did not have any detailed knowledge of their financial circumstances, it is significant that neither he nor Fast Fix made any inquiries as to that issue.
79	Accordingly, I infer that Mr Calleja and Fast Fix were not concerned with the ability of the defendants to fulfil their obligations under the deed of loan should Milan and the company default. All that Fast Fix and Mr Calleja were concerned about was whether there was adequate security available in the case of such default. Asset lending in those circumstances raises public interest considerations.
80	The current position under the CRA in relation to asset lending was summarised by Campbell JA in Kowalczuk as follows:

"96 It can be accepted that pure asset lending - described by Basten JA in Khoshaba at [128] as being "to lend money without regard to the ability of the borrower to repay by instalments under the contract, in the knowledge that adequate security is available in the event of default" - is in at least some circumstances unjust within the meaning of the Contracts Review Act, or unconscionable: Elkofairi v Perpetual Trustee Co Ltd [2002] NSWCA 413; (2003) 11 BPR 20,841 at [57]-[59], [79] per Beazley JA (with whom Santow JA and MW Campbell AJA agreed); Khoshaba at [92] per Spigelman CJ (with whom Handley JA agreed on this point), [128] per Basten JA. However whether lending on the basis that the loan can adequately be repaid from the security, is in the circumstances of any particular case unconscionable or unjust, depends on other matters as well. Thus, in Elkofairi the facts that neither the applicant nor her husband had any income, the loan in question was for five years, and the security was over the applicant's only asset (involving the proposition that the applicant had no other resources from which to service the loan) and that the secured property was the applicant's home, were all relevant matters in reaching the conclusion that the transaction was both unconscionable and unjust. In Khoshaba , other factors relevant to the conclusion of injustice were that the applicants were a husband and wife, one of whom earned $43,000 pa and the other of whom was a pensioner, the lender had no information at all about the purpose for which the loan was being sought, and the security was over their home."

81	Campbell JA, however, qualified that approach:

"99 I would accept that in some circumstances knowledge of a high degree of risk that there might be a default in payment of interest or principal so that a mortgagee sale would result, could be unjust lending, even though it could not be said that the lender knows that there will be default. However I do not accept that a lender is always bound to carry out a detailed investigation of the practicality of an intending borrower actually being able to carry through the plan the borrower says he or she has for repayment of the loan. In the present case, Kowalczuk stated to Accom that he proposed to pay the Berowra loan out through bank refinance, and the Haberfield loan through refinancing with FirstLoan (the same brokers through whom Kowalczuk was able successfully to refinance the Berowra loan) and there was no occasion for Accom to doubt that he would be able to do so. Thus, even if Mr Conti is right in saying that there can be pure asset lending if the lender knew that there was a high risk that the intended means of repayment might fail, in the present case Accom did not have knowledge of that type."

82	Further guidance on this issue is provided by the observations of Young JA (with whom Tobias and Campbell JJA agreed) in Spina v Permanent Custodians Ltd [2009] NSWCA 206:

"89 The second is failure to realise the injustice where, allegedly as here, there was indifference to the ability of the borrower to service the loan and the lender is content to proceed on the basis of enforcing the security.

90 This was one of the basic reasons for injustice in Khoshaba . The appellant recognises that this case is different from Khoshaba because here the lender was looking to a co-borrower to service the loan, but it was submitted that the fact remains that in assessing the injustice of the loan so far as Angelina was concerned, the lender was content to enforce the mortgage against Angelina if anything happened to Michael. Furthermore, Australian Lending Services showed in its documents its evident preparedness to rely on the market rental valuation of the Cherrybrook property without making any enquiries about the actual rental income. In Khoshaba this sort of attitude by the lender was regarded by the Chief Justice (see [82], [84] and [92]) as determinative of injustice. See also per Beazley JA in Elkofairi at [56]-[60]. The trial judge did not take this matter into account.

91 The third alleged error was the judge's failure to take into account that the transaction involved possible loss of Angelina's only significant asset.

92 Indeed, the judgment proceeds on the basis that the Cherrybrook property was not Angelina's home. It does not mention that in almost every document before the lender and its associates when the application for loan was made, the Cherrybrook property is described as Angelina's home. Indeed, this circumstance is said to negative any suggestion that the lender thought otherwise than Angelina was a whole and hearty person living in her own home. In my view, the transaction must be judged, so far as the lender is concerned, on its taking a security over an 86 year old lady's major asset and apparent home in circumstances where it only relied on the co-borrower's income to service the loan and had paid no attention at all, it would seem, to what would happen if the co-borrower ceased to produce income. The possibility of an 86 year old woman being deprived of her home given as sole security for a loan to her and her son where the latter, who is the only source of the interest repayments, defaults, is hardly a matter that can be blissfully ignored by a lender wishing to protect itself from an unjust contract claim."

83	Applying those statements of principle to the present case, what must have been clear to Fast Fix was that insofar as the defendants were concerned, the transaction was an improvident one. They gained no benefit from it. If Milan and the company failed to meet their obligations under the deed of loan then the defendants were liable to lose their home. The fact that the defendants were not living in the Bowral property at the time but were having a dwelling constructed thereon does not alter that proposition.
84	Fast Fix was well aware of the company's plans for the Forster property. It must have been aware of the precarious position in which the company found itself as a result of the delay in the DA being approved. The fact that a loan with such onerous interest provisions was entered into by the company demonstrated that. Fast Fix would also have been aware of the limited capacity of the company to meet its obligations under the deed of loan if there were further delay in the Council approving the DA. One can infer that this was one of the reasons why Fast Fix required an unencumbered property as security before it would advance the monies sought by the company.
85	It follows that Fast Fix must have been aware that there was a real likelihood that the company and Milan would default in meeting their obligations under the deed of loan. In such circumstances the authorities say that a lender should have made inquiries as to the capacity of the defendants to meet those obligations if the company and Milan were unable to do so. The fact that no such inquiry was made reinforces the inference that Fast Fix was not concerned about that eventuality provided it had adequate security for the loan.
86	The fact that Fast Fix took no steps to acquaint itself with the financial circumstances of the defendants ought not put it in a better position than a lender who does so and as occurred in such cases as Elkofairi and Khoshaba, becomes aware that the party putting forward the security has a very limited capacity to repay the loan. This is not the sort of situation which the Court of Appeal had in mind in Patrick John Ford by his tutor Beatrice Anne Watkinson v Perpetual Trustees Vic Ltd [2009] NSW 186 at [111] - [112]. In the present case there was no such commercial circumstance. It would seem Fast Fix made no such inquiries because it did not care about their capacity to pay.
87	It should have been well within the contemplation of Fast Fix that the defendants as the parents of Milan might have no assets other than the Bowral property and might no longer be working. The failure of Fast Fix to make any inquiry as to their financial position should not place it in a better position than a lender who on the same or similar facts did make inquiries but proceeded to make the loan.
88	These factors point strongly towards a conclusion that the deed of loan, insofar as it bound the defendants, was unjust for the purposes of s7(1) CRA.
89	As Khoshaba and Ford made clear, while the conduct and knowledge of the lender is important and can be decisive in determining the application of the CRA, it is not the only consideration. In K hoshaba Spigelman CJ said:

"76 Plainly, the conduct, whether by act or omission, of the party resisting a finding of unjustness under the Act is highly relevant, and will often be determinative. However, the scope of relevant circumstances is not confined to what the person resisting an order under s7(1) did or did not do and knew or ought to have known. The critical phrase in s7(1) - "the circumstances relating to the contract at the time it was made" cannot be so limited. Section 9(1) provides that when determining unjustness "the Court shall have regard to the public interest and to all the circumstances of the case". Furthermore, s9(2)(i) includes, as I have noted, amongst the relevant circumstances "the commercial or other setting, purpose and effect of the contract"."

90	An examination of the s9(2) considerations reinforces my conclusion as to the unjustness of the deed of loan insofar as it affects the defendants.
91	(a) Whether or not there was any material inequality in bargaining power between the parties to the contract.

The defendants had limited schooling to age 12. Their knowledge of English was limited. They had only modest experience with financial transactions such as loans, guarantees and mortgages. They were being pressured by Milan and were required to sign the loan documents as a matter of urgency. Except for the explanation of the loan documents provided by Ms V -, they were not represented by a solicitor. Fast Fix was an experienced lender which at all times was represented by Mr Greenstein as its solicitor. I am satisfied that there was material inequality between the defendants and Fast Fix.

92	(b) Whether or not prior to or at the time the contract was made its provisions were the subject of negotiation.

(c) Whether or not it was reasonably practicable for the parties seeking relief under the CRA to negotiate for the alteration of or to reject any of the provisions of the contract.
There was no opportunity afforded to the defendants to negotiate the terms of the deed of loan. They were not advised of such an option. They were being pressured by Milan to sign the loan documents as a matter of urgency because if they did not do so he was likely to suffer a significant financial loss. With that degree of urgency having been communicated to them, it was simply not practicable for the defendants to either negotiate the alteration of or to reject any of the provisions of the loan documents.

93	(d) Whether or not any provision of the contract imposed conditions which were unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract.

The company was obliged to repay the principal loan of $450,000 with interest calculated at 2 percent per month (24 percent p.a.) and in the event of default, at 4 percent per month (48 percent p.a.) compounded daily. Given the nature of the security provided by the Bowral property, these were very onerous interest rates, particularly that applying in the case of default.

94	(e) Whether or not any party to the contract was not reasonably able to protect his or her interests.

(f) The relative economic circumstances, educational background and literacy of the parties to the contract.
The defendants were disadvantaged by their limited education, experience and ability to speak and read English. They were not represented by a lawyer. The loan documents were explained to them and signed by them in circumstances of urgency and pressure being exerted by Milan. By contrast, the plaintiff was an experienced lender who was represented by a solicitor, Mr Greenstein.

95	(h) Whether or not and when independent legal and other expert advice was obtained by the party seeking relief under the CRA.

(i) The extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect.
While it is clear that Ms V- explained what she described as the "basic concept" of the loan documents, it is not clear how far that explanation went. Milan was present during that explanation and spoke to Ms V- from time to time using English which the defendants could not understand. It is not clear to what extent, if at all, the defendants understood the effect of the high rates of interest which applied. While the defendants were aware that they could lose the Bowral property if the company and Milan did not repay the loan, they appear to have been confused as to the significance of the three month duration of the loan.

96	Their evidence indicates a belief that at the expiration of three months their liability under the loan documents would cease. They do not appear to have been aware that their obligations under the deed of loan were continuing obligations extending beyond the three month period if the loan were not repaid. It is clear that they had no information concerning the development of the Forster property and the part played by this loan in that development. They were not given any information about how the loan was to be repaid, nor the capacity of the company and Milan to make such repayments. In signing the documents they seem to have relied entirely upon their trust in and affection for Milan as their son.
97	While I have no doubt that Ms V- provided an explanation of the loan documents to the defendants, I do not accept that the defendants fully understood the explanation. In particular, I do not accept that the defendants understood the continuing nature of the liability beyond three months, nor that they understood the significance of the high rate of interest and the effect that might have on Milan's and the company's ability to comply with their obligations under the deed of loan. I find that the defendants' knowledge of the transaction was limited to an understanding that they might lose the Bowral property if Milan did not pay off the loan but that they thought that their exposure would only last for three months. They clearly had no understanding of the commercial background to the loan in that Milan and the company's capacity to pay off the loan was contingent upon the Council approving the DA in respect of the Forster property within a short time.
98	(j) Whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under the Act.

Although I am not prepared to find that the defendants were subject to undue influence as that term is understood under the general law, they were certainly exposed to considerable pressure. They clearly had great affection for Milan, were proud of him and trusted him. As a result, when advised by him that he would lose a large amount of money unless the Bowral property was put forward as security for the loan, as his parents they felt a moral obligation to assist him. That pressure was increased when they were required to sign the loan documents as a matter of urgency in circumstances where they did not fully understand them.

99	(l) The commercial or other setting, purpose and effect of the contract.

The applicability of this consideration emerges from the matters already discussed in relation to s9(2).

100	In setting out the countervailing considerations, Fast Fix stressed the public interest in keeping parties to their bargains ( Baltic Shipping Co v Dillon ("The Mikhail Lermontov") (1991) 22 NSWLR 1 at 9 per Gleeson CJ:

"... The general policy of the law is that people should honour their contracts. That policy forms part of our idea of what is just."

101	Fast Fix drew the Court's attention to the following paragraphs in s9(2) CRA:

(h) Whether or not and when independent legal or other expert advice was obtained.
(j) Whether any undue influence, unfair pressure or unfair tactics were used.
(l) The commercial or other setting of the transaction.
Fast Fix submitted that these paragraphs favoured its position and pointed towards the deed of loan not being unjust insofar as the defendants were concerned.

102	It is accepted that independent legal advice was given to the defendants by a Serbian speaking solicitor. That advice went no further than an explanation of the loan documents. For the reasons already indicated, however, while an explanation may have been provided, I am not satisfied that the defendants fully understood the effect of the loan documents. This lack of understanding was a product not only of the failure by Milan to explain either to Ms V- or his parents the part played by the loan in the Forster development but also their limited education and experience with financial matters.
103	It is true that no pressure was exerted by Fast Fix on the defendants. All the pressure came from Milan. While that is relevant, subs 9(2)(j) is sufficiently wide to encompass the pressure exerted by Milan. Similarly, while Fast Fix had no involvement in the company's acquisition and development of the Forster property (which is in its favour), the execution of the loan documents for the purposes of s9(2)(l) needs to be considered in the context of the broader commercial setting which included the development of the Forster property.
104	Fast Fix argued against any factual finding as to the limited understanding of the defendants. It asked the Court to take into account that they had been resident in Australia for almost 40 years, had raised their children in Australia, had both been in the workforce for about 25 of those years, had a conversational ability with the English language and Mladenko could read English. Fast Fix submitted that the defendants were experienced in financial transactions. It asked the Court to take into account that the defendants over the years had bought three properties, two of which were subject to mortgages, had for a time leased one of those properties and had previously guaranteed a loan taken out by Milan.
105	I have already referred to those matters in my recital of the facts and my conclusions as to the defendants' education, knowledge and linguistic capacity are there set out. As is evident from my findings, my conclusions as to the defendants' ability to understand the loan documents differ from the submissions of Fast Fix.
106	Fast Fix submitted that the signing by the defendants of declarations that they had received independent legal advice regarding the loan documents and the fact that they were free to ask Ms V- questions about those documents should be given considerable weight. I have already accepted that the defendants had some understanding of the loan documents in that they were aware that by signing the loan documents they were running a risk of losing the Bowral property. For the reasons indicated, however, I am not satisfied that they fully understood the transaction. In significant respects, they misunderstood it. The right to ask questions is only useful if one has sufficient knowledge to know what questions to ask. Moreover, the presence of Milan may have inhibited the asking of questions.
107	For the above reasons, I have concluded that the deed of loan insofar as it imposed obligations on the defendants was unjust at the time it was entered into in the sense in which that term is used in s7(1) CRA. I am fortified in that conclusion by the observations of Young JA in Spina:

"105 The primary judge acknowledged that the circumstances described in section 9(2) of the Contracts Review Act are not exhaustive, and that each case must be determined on its own facts. That also is, of course, completely correct. However, how the courts have treated analogous situations is a useful guide to judges considering whether the contract in the case before them is unjust. One reason for this is that for certainty in the law, decisions on the Act should show consistency."

108

His Honour then set out some of the "analogous situations" to which he was referring. One of those was Pasternacki & Anor v Correy [2000] NSWCA 333, [2001] ANZ Conv R Cases 240. The court there (Sheller Stein and Fitzgerald JJA) considered circumstances very similar to these except that the lender had actual knowledge that an aged pensioner had mortgaged her principal asset (her family home) for her son to obtain funds for his business. Even though the mother had acknowledged she might lose her home if the loan were not repaid, she was given little guidance when making such a momentous decision. The court set aside the contract.

109

In the course of delivering the leading judgment Stein JA said:

"56 Cases under the Act must, of course, be determined on their own facts. However, there is a common thread which runs through authorities such as Wynne, Hall, Melverton and Reisch . This is the improvidence of the transaction to the plaintiff and the knowledge of the lender of this fact, or their failure to make inquiries having been put on notice."

110	It should be noted that the circumstances in National Australia Bank v Hall (1993) NSW Conv R 55-684 (Dunford J), Melverton v Commonwealth Development Bank of Australia (1989) NSW Conv R 55-484 (Hodgson J) and Reisch v Commonwealth Bank of Australia & Ors (Simos J) (NSW Supreme Court, 13 March 1998, unreported) involved similar factual situations to the present case, i.e. elderly women mortgaging their houses to secure the liability of their sons or son-in-law. In each case the contract was set aside.
111	The only distinction between those cases and the present case is that the lender had actual knowledge of the circumstances of the elderly women. For reasons previously indicated, I do not find that to be a sufficient point of distinction so as to preclude my finding that the deed of loan was unjust insofar as it affected the defendants.
112	This does not end the matter. The Court has to decide whether relief should be provided to the defendants under the CRA and if so, the nature of that relief.
113	Fast Fix submitted that if a contract is found to be unjust by reason of circumstances not known to one of the contracting parties, it does not automatically follow that relief will be given to remedy the injustice ( Kowalczuk at [88]). It submitted that ordinarily in applications under the CRA relief will not be granted against an innocent party ( Beneficial Finance Corporation v Karavas (1991) NSWLR 256 per Meagher JA at 277, Hraiki v Beljon [2008] NSWSC 775 per McDougall J at [35]).
114	While it is true that Fast Fix did not know the financial circumstances of the defendants, that was not because it was misled in some way (as happened in Kowalczuk and Ford ) but because it made no inquiry. It made no inquiry because it was not concerned about the defendant's ability to meet their obligations under the deed of loan should there be default by the company and Milan because it had the Bowral property as security.
115	In the circumstances of this case, I am not persuaded that Fast Fix should be regarded as "an innocent party". It knew that the deed of loan provided no benefit for the defendants. It was an improvident arrangement from their point of view. It was indifferent to their ability to make payments under the deed of loan because of the security which they were providing. Its ignorance of their financial affairs was of its own making, i.e. it made no inquiry. In Khoshaba it was this indifference on the part of the lender which Spigelman CJ regarded as determinative ([92] and [96]).
116	Basten JA put the matter somewhat more strongly:

" 128 To engage in pure asset lending, namely to lend money without regard to the ability of the borrower to repay by instalments under the contract, in the knowledge that adequate security is available in the event of default, is to engage in a potentially fruitless enterprise, simply because there is no risk of loss. At least where the security is the sole residence of the borrower, there is a public interest in treating such contracts as unjust, at least in circumstances where the borrowers can be said to have demonstrated an inability reasonably to protect their own interests, for the purposes of, for example, s 9(2)(e) or (f). That does not mean that the Act will permit intervention merely where the borrower has been foolish, gullible or greedy. Something more is required: see Esanda Finance Corp Ltd v Tong (1997) 41 NSWLR 482 at 491 (Handley JA) cited with approval in Elkofairi (supra) at [77] by Beazley JA."

117	I have concluded that the defendants are entitled to relief under the CRA. The balancing of their position against that of Fast Fix by reference to the criteria set out in the CRA decisively favours them. When Fast Fix entered into the deed of loan there was already a body of law in cases such as Pasternacki, Elkofairi and Khoshaba which pointed out the dangers for lenders where monies were advanced without regard to the ability of those persons who put forward the security, to meet repayment obligations.
118	In the circumstances of this case as between Fast Fix and the defendants, it is appropriate that the loss of the monies advanced pursuant to the deed of loan should be borne by Fast Fix and not the defendants.
119	In setting out these reasons, I have said little about the deed of variation of loan. It added nothing to the obligations already contained in the deed of loan. Nevertheless, as part of the relief to which the defendants are entitled, it will also need to be altered. The simplest way of effecting that relief is to remove the defendants as parties to the deed of loan and to the deed of variation of loan.
120	If that occurs, there is nothing secured by the mortgage. Accordingly, the mortgage should be discharged.

Defence of Undue Influence

121	As previously indicated, the availability of relief and the nature of the relief are wider under the CRA than under the principles applicable to undue influence. In view of the conclusions which I have reached in relation to the application of the CRA, it is not necessary to consider this defence.

Orders

122	The orders which I make are as follows:

(1) I make a declaration that the deed of loan between Fast Fix Loans Pty Limited, TT's Management Group Pty Limited, Milan Samardic, Mladenko Samardzic and Dragica Samardzic, dated 22 February 2008 (deed of loan) is unjust within the meaning of s4 of the Contracts Review Act 1980 (CRA) insofar as it relates to Mladenko Samardzic and Dragica Samardzic.

(2) I order that the deed of loan be varied to remove Mladenko Samardzic and Dragica Samardzic as parties.

(3) I make a declaration that the deed of variation of loan between Fast Fix Loans Pty Limited, TT's Management Group Pty Limited, Milan Samardic, Mladenko Samardzic and Dragica Samardzic (deed of variation of loan) is unjust within the meaning of s4 of the CRA insofar as it relates to Mladenko Samardzic and Dragica Samardzic.

(4) I order that the deed of variation of loan be varied to remove Mladenko Samardzic and Dragica Samardzic as parties.

(5) I order that pursuant to s7(1)(d) of the CRA that Fast Fix Loans Pty Limited do all things necessary, including the signing and filing of documents but not limited thereto, to discharge registered mortgage No AD789081 over the property located at 54 Boardman Road, Bowral being the land contained in Certificate of Title Folio Identifier 27/1052316.

(6) I order Fast Fix Loans Pty Limited to pay the costs of Mladenko Samardzic and Dragica Samardzic incurred in these proceedings.

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