Contract declared void for harshness, compensation ordered

The court declared void a contract that provided for the liability of a loan to be borne by certain parties, finding it harsh or unjust. Compensation and interest payments were ordered.

Supreme Court New South Wales

Medium Neutral Citation: [COMPANY] v [NAME] [2014] NSWSC 685 Hearing dates: 12-16 November 2012; 7-8,12 February 2013 Decision date: 30 May 2014 Jurisdiction: Common Law Before: Campbell J Decision: In the first cross-claim brought by [NAME] (1)I make an order under s 7(1)(b) Contracts Review Act 1980 declaring void ab initio the contract between [NAME] and [NAME] to the extent to which it provides for the liability of [NAME] for the loan from [COMPANY] to be borne by [NAME] and [NAME]. (2)I order that [NAME] pay compensation to [NAME] in the sum of $151,410.74 together with interest under s 100 Civil Procedure Act 2005 from 18th March 2011 until today. (3)I grant the parties liberty to apply if they are unable to agree upon the amount of interest due. (4)I order [NAME] to pay the costs of [NAME] on the ordinary basis forthwith after they have been agreed or assessed. The third cross-claim brought by [NAME] as Executor of the [NAME] (1)I make an order under s 7(1)(b) Contracts Review Act 1980 declaring void ab initio the contract between [NAME] and [NAME] to the extent to which it provides for the liability of [NAME] for the loan from [COMPANY] to be borne by [NAME] and [NAME]. (2)I order that [NAME] pay compensation to the Estate of the late [NAME] in the sum of $109,642.26 together with interest under s 100 Civil Procedure Act 2005 from 18th March 2011 until today. (3)I grant the parties liberty to apply if they are unable to agree upon the amount of interest due. (4)I order [NAME] to pay the costs of the Estate of the late [NAME] on the ordinary basis forthwith after they have been agreed or assessed. The second cross-claim brought by [NAME] (1)Declare that [NAME] is the party entitled to the funds held on trust by [NAME], lawyers in the sum of $58,596.31 and interest (if any). (2)Upon the solicitors first being satisfied that [NAME] has satisfied order (2) pronounced today in each of the first and third cross-claim I direct [NAME] to pay the funds referred to in order (1) to [NAME], whose receipt whereof will discharge North Rose's obligations under the orders made on 16th November 2010. (3)The second-cross claim is otherwise dismissed with [NAME] to pay the costs of the first and second cross-claimants on the ordinary basis forthwith after they have been agreed or assessed. Catchwords: CONTRACT - termination - harsh or unjust - contracts review act - where party entered into joint venture using borrowed funds guaranteed by other party Legislation Cited: Civil Procedure Act 2005 (NSW), s 100 Contracts Review Act 1980 (NSW), ss 7,9 Evidence Act 1995 (NSW), s 140 Family Provision Act 1982 (NSW) (repealed) Cases Cited: Allianz Australia Insurance Limited v GSF Australia Pty Ltd (2005) 221 CLR 568; Briginshaw v Briginshaw (1938) 60 CLR 336; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; Perpetual Trustee Co Limited v Khoshaba [2006] NSWCA 41; [NAME] v [NAME] (t/as [NAME]) [2005] HCA 69; (2004) 224 CLR 627; SH Lock Australia Limited v Kennedy (1988) 12 NSWLR 482 West v AGC (Advances) Limited (1986) 5 NSWLR 610 Category: Principal judgment Parties: [NAME] (First Cross-Claimant) [NAME] as executor of the Estate of the late [NAME] (Third Cross-Claimant) [NAME] (First Cross-Defendant) Representation: Counsel: [redacted] J Merkel (First Cross-Defendant) Solicitors: [redacted] [NAME] (First Cross-Defendant) File Number(s): 2010/28341

Judgment 1This judgment is given to resolve cross-claims which remain after the finalisation of a mortgagee's claim for possession. The remaining parties were registered proprietors of the mortgaged property as tenants in common in unequal shares. Their dispute concerns arrangements made by two brothers and a solicitor for the development of a property at [ADDRESS], North Parramatta. [NAME] and [NAME] were brothers. [NAME] died on 13th May 2009 and the case is brought by [NAME] in his own right and in his capacity as the Executor of [NAME]'s Estate. Probate of the Will of [NAME] was granted to [NAME] on 3rd November 2009, and he is the residual beneficiary under the Will. 2The solicitor is [NAME] (known as [NAME]) [NAME], who acted for [NAME] in proceedings under the former Family Provision Act 1982 (NSW) (repealed). [NAME] has been a solicitor since 1986. 3The property the subject of their arrangements was the family home of Mrs [NAME] and her husband, [NAME]. After her husband's death [NAME] continued to reside at the property with her son, [NAME] until her death on 5th July 2004. 4Shirley and [NAME] had 4 children, being the brothers, [NAME] and [NAME] and two sisters, [NAME], known as Anne. 5During his lifetime, the family home was in the name of [NAME] who died on 12th September 1983. Under his Will he gave his wife a life estate in the home and left the remainder to [NAME], and [NAME]. [NAME] received a small bequest. No dispute arose at that time about the father's Will. 6It is relevant to record that [NAME] had a history of drug and alcohol problems and lived on social security in the form of a disability support pension. 7In her Will, [NAME] left all of her Estate, including the property to [NAME] and [NAME] in equal shares. No provision was made for [NAME]. 8Following their mother's death, [NAME] and [NAME] brought proceedings under the Family Provision Act. [NAME] retained [NAME] in those proceedings. [NAME] was self-represented. 9Although probate of [NAME]'s Will was granted on 6th of February 1984, title to the property was not transmitted to [NAME], but remained undistributed in the Estate until [NAME]'s death. 10In preparation for the family provision litigation, the property was valued by certified practising valuers as having a market value of $660,000 in its then condition only if development approval was obtained to demolish the home and construct a block of 6 home units. Estimates of market value without development approval were in the range of $450,000 to $500,000. 11The family provision litigation went to mediation on 2nd December 2005 and was settled "in principle. After provision for the payment of costs "the total net balance" of the [NAME] were agreed to be distributed amongst their children in the following shares: [NAME] - 11 percent; [NAME] - 42 percent; [NAME] - 24 percent; and [NAME] - 23 percent. The home was the only substantial asset. It was agreed that attempts would be made to sell it over a four-month period. and if unsuccessful, it was to be sold by public auction. 12The auction was held on the 8th of July 2006 and the property was passed in at $410,000. I infer that the highest bid would have been acceptable to the other siblings, but was insufficient to provide [NAME] with the funds which would enable him to buy even a modest home of his own. 13This narrative of undisputed facts provides the background to the present dispute.

The formation of the arrangements amongst [NAME] and [NAME] 14There is no dispute between the parties that they entered into a tripartite arrangement whereby [NAME] agreed to purchase the combined 34 percent share of the property due to [NAME] under the terms of the settlement with a view to either developing the property, or at least obtaining development approval so that it could be sold at an enhanced value. There is an issue about whose idea this was. 15The contemporaneous documentary evidence demonstrates that the idea was certainly developing within a few days of the property being passed in at auction. On 12th July 2006 [NAME] signed a document entitled "Authority" prepared in [NAME]'s and addressed to her firm in these terms: We [NAME] agree to retain our share of the above property to the value of $500,000. We will consider a higher offer upon discussing the price with the above solicitors. We acknowledge that [NAME] has shown interest and may proceed to purchase the remainder shares of the above property. From what follows, it is worthy of notice that this "authority" says nothing about [NAME] borrowing any money to purchase the other shares in the property. 16Then on the 14th of July 2006, [NAME] signed an "acknowledgment" drafted in [NAME]'s office and addressed to her law firm, expressed as follows: We acknowledge that [NAME] has shown interest and may proceed to purchase the remainder shares of the above property. We agree for [NAME] to borrow money for the purchase and development cost for the above property and agree that the above property may be used for security. 17Robert [NAME] says it was [NAME] who first suggested the joint venture. His evidence is that she said, at a meeting on the 14th July 2006: I'll buy [NAME]'s share in the property and we can make money from developing the property. We'll have to borrow a bit extra to develop the property to build townhouses. I will pay $159,800 for their share. In his affidavit he said he was unaware that [NAME] was proposing to borrow that money against the property. In evidence, he said he believed that she was going to pay for it out of her own funds. In cross-examination he became a little uncertain about that matter. Given the terms of the first "authority" it is likely that no mention of that salient fact was mentioned initially, but it was something that had been made clear by [NAME] by 14th July 2006. 18Mrs [NAME]'s affidavit says nothing about the circumstances in which the arrangement amongst them was initiated. However, under cross-examination (375.40T) she said after the auction she encouraged [NAME] to buy the share of his sisters, but he refused because he couldn't afford it. She said she then offered to buy it "not to develop". Her only interest was to see "that [NAME], my client will have a roof over his head". When asked by me how she was going to get her money back she said "selling the property, the way it was" (376.10T). I interpolate that this cannot be correct. From the outset money was borrowed for the cost of getting development approval, whether or not a decision had been made at that time to actually proceed with the development. 19Mrs [NAME]'s evidence is somewhat inconsistent with her case as put to [NAME] in cross-examination. It was put to him that on the day of the auction there was a conversation amongst him, [NAME] and [NAME] about "how to deal with trying to get a good price" (187.25T). He was not sure about that. [NAME] gave the following evidence: Q. So is it possible that what happened first was that [NAME] said to you and [NAME], "You know, this property would be worth more if it had development approval"? A. Yeah. Q. And isn't it possible that she said to you and [NAME], "Why don't you two buy your sisters out?" A. I'm not sure. I'm not sure on that. Q. And isn't it possible that in fact what happened was that [NAME] said to [NAME], "Can't you buy it?" A. No, I'm not sure on that. I only remember her saying, "I buy the girls out". That's basically word for word that I remember. Q. Because you're doing your best to tell the truth but you can't remember everything, is that right? A. Obviously, yeah, I can't remember everything. Yeah. Q. So again is it possible that [NAME] said on the day, well, something like, "Yes, I can buy it out but I'll have to borrow to do it"? A. I'm, I'm not 100% if she mentioned about borrowing then and there. It was, I only remember, "How about I buy it out?" Q. And on that day you thought it was a good idea to hold on to the property, didn't you? A. Yes. Q. And hopefully get a better price? A. Yeah. Basically. Q. On that particular day if someone had said, "Look, why don't you buy your sisters out?" you would have had to say, "I don't know how I could do it," wouldn't you? A. At the time I was in debt with my house at [NAME] and I don't know how I would have paid it off. Q. I think you explained that. Did you explain to [NAME], "Look, I got a debt on the house at [NAME]. I don't know how I'd pay it off'? A. I may have. I'm not sure. 20Under cross-examination it became clear that [NAME] remembered that after the auction an offer of $470,000 was forthcoming from another prospective purchaser. His sisters, understandably, were keen to sell. From [NAME]'s point of view, his share of that price would have enabled him to pay off the mortgage on the property owned by him at [NAME]. However, he was concerned about his brother's position, that is: how he would live if the family home were sold. At that time it did not occur to him that he could sell [NAME] to [NAME] the purchase of his sisters' shares. 21In all probability, [NAME]'s equity in his [NAME] property, had it been sold, would have been sufficient to enable [NAME] to buy his sisters out, had he been prepared to sell it at that time, notwithstanding the attempts of the cross-examiner to prove otherwise (281 - 286T). To jump ahead, selling [NAME] enabled him to buy the property in 2011 when it was put up for sale after [NAME] defaulted on her mortgage, but I digress. 22Despite the evidence of [NAME] that she expected [NAME] would obtain independent legal advice, "because that was the requirement", she did nothing to see that they obtained that advice until September 2006 when her mortgagee required a certificate of independent legal advice to be provided for [NAME] and [NAME] in their capacity as guarantors of her indebtedness. And, in fact, they received neither legal nor financial advice independent of [NAME] before then. 23It needs to be borne in mind that [NAME] was [NAME]'s client. [NAME] acknowledged in her evidence that [NAME] "relied on me to protect him financially and otherwise ... he relied on me to advise him financially and otherwise and I did that" (367.5T). She agreed that he looked to her "as a sort of mother figure or protector". Although she initially denied it (368.40T) she eventually accepted that from 2005 she knew that [NAME] suffered from alcohol problems and had attended a drug and alcohol rehabilitation institute" (373.35T). 24She did not have a solicitor and client relationship with [NAME] and, as I have said, he represented himself in family provision litigation. However, with no disrespect, he is a person with no great scholastic achievement, who worked in an ordinary semi-skilled job which paid him only about $570 per week. I have had the advantage of seeing him in the witness box and he struck me as a person of natural intelligence, but he was unsophisticated and I accept as genuine his evidence to the effect that he trusted [NAME] because she was "smart"; she was a solicitor; she earned good money; and would honour her debts. He had a mortgage on his own property at [NAME], however, on his relatively modest income he did not feel he could afford to borrow more money and it did not occur to him in 2006 that he should sell that property to buy out his sisters from the family home. (Ref 402.10 - 403.20T) 25Mrs [NAME] was aware that [NAME] was leaving the property financing arrangements up to her. She said "both of the boys left it up to me to deal with this because I was told that I knew better, and they said "you deal with this". She accepted they left it to her because they trusted her (403.15 -.25T). 26At the time the property was passed in at auction and the family provision proceedings had not been completed by entry of final orders. That did not occur until 4th August 2006, the same date on which [NAME] signed a contract for the purchase of the sisters' shares in the property. Indeed the consent orders expressed that the reassignment of the interests of the siblings in the estate of each of their late parents, and the mutual releases "from any liability arising from any breach of the heads of agreement" reached at mediation "and from any failure to obtain ... the highest purchase price for the property" were "conditional upon the sale to [NAME], the solicitor acting for the second plaintiff, of a 34/100 share in the property for the sum of $159,800". Except for [NAME], all of the parties were legally represented. The other solicitors involved do not seem to have concerned themselves with the question why one of their profession acting for another party was buying out the sisters. 27However that may be, [NAME] accepted in general terms that her failure to see that [NAME] had received independent financial advice "was an instance of [her] putting [her] personal interests" ahead of theirs (382.40T; 383.20T). When they saw [NAME] in September, as the consent orders demonstrate, they were already committed to the venture with [NAME]. The sale of the sisters' interest to [NAME] occurred on exchange of contracts on 4th August 2006. 28I find that when the property was passed in at auction it was [NAME] who proposed to [NAME] that she purchase the sisters' shares for the purpose of enhancing the value of the property by obtaining development approval for the construction of home units, or townhouses, on the site, and possibly undertaking the development themselves. Properly understood the optimistic opinion as to value proffered by the valuers for the purpose of the family provision proceedings was based upon development approval first being obtained. Moreover, it was obvious, at least to [NAME], that the process of transforming [ADDRESS] from suburban houses to home units was already well underway. Initially there was no talk of [NAME] mortgaging the property to [NAME] her purchase of the shares. But this was spoken of at least by 14th July 2009 when the "acknowledgment" was signed. 29The acknowledgment signed on 14th July 2006 by its terms commits [NAME], rather than [NAME]. It says only, like the "authority" before it, that she has "shown interest and may proceed to purchase". But, as I have said by 4th August 2006 all were committed and the contract amongst [NAME] and [NAME] was formed no later than on that date. Then, [NAME], I emphasise, her client, had received neither independent legal advice nor any financial advice. [NAME], a self-represented litigant likewise had received advice of neither type.

Taking out the mortgage and guarantees 30The expectation of [NAME], and I infer his brother, [NAME] was that as a solicitor, [NAME] was a high income earner and she would pay any mortgage out. [NAME] was prepared to sign the guarantee, but he did not expect the obligation to pay out the mortgage would fall on him and his brother. His expectation was she would "pay back what she's borrowed" (205.15 - .30T). 31Mrs [NAME] was aware that [NAME] was leaving the property financing arrangements up to her. She said "both of the boys left it up to me to deal with this because I was told that I knew better, and they said "you deal with this". She accepted they left it to her because they trusted her (403.15 -.25T). 32Mrs [NAME] applied for a loan through a mortgage broker, [NAME]. The date on which inquiries were first made is unclear, but by a letter dated 22nd of August 2006 one of [NAME]'s employees stated "we understand that your client ... has approved finance for $200,000 to [NAME] to assist her with her purchase of the above property". At that time the proposal was that the sum of $165,000 would be necessary for the balance of the purchase price and stamp duty on the contract with "balance of the loan to be on the line of credit account". The loan application, bearing the same date and signed by [NAME] estimated her net worth after mortgages on some properties to be in the order of $2.3m (Court Book II p. 55). 33The loan was approved by letter dated 1st September 2006. It said its purpose was to assist in purchasing an investment property. The sole borrower was shown to be [NAME]. The principal was $250,000. The evidence does not disclose when the amount to be borrowed by [NAME] was increased to this amount. The lender required that [NAME] and [NAME] be mortgagors and required guarantees of [NAME]'s obligations by [NAME], a semi-skilled worker, and [NAME], a disability pensioner. 34As I have previously stated, the lender required a certificate of independent advice in respect of [NAME] and [NAME]. 35To satisfy the mortgagee's requirement of the certificate of independent advice, [NAME] referred [NAME] to [NAME]. Criticism is made of this because [NAME] is a former employee of [NAME] and remained an associate of her's, performing locum work from time to time. She was a person to whom [NAME] referred work on occasions. I will deal with these criticism later. The terms of [NAME]'s retainer are as follows: (CB 2 page 91): To taking your instructions and provide advice in relation to a deed of loan, mortgage, deed of guarantee, attending to witness documents, providing advice in relation to a joint venture to developing the property at North Parramatta and in relation to the sale of North Parramatta. All attendances, telephone calls and correspondence. 36Ms [NAME] gave evidence before me that she was admitted as a solicitor in 1999 and described what I take to be a fairly general suburban practice. She said that prior to 2006 she only occasionally advised clients in relation to proposed mortgages or guarantees. She had 3 conferences with [NAME] for the purpose of advising them, on 7th September 2006, 24th September 2006 and 4th October 2006. [NAME] advised them that the amount of the loan was $250,000 and that this was $90,000 over and above the purchase price paid by [NAME] for her share. She pointed out that they were guaranteeing that loan. She said that [NAME] said words to the effect "that's fine because we trust her". She also discussed with them the financial potential of the development. She mentioned it would cost $800,000 and if successful would yield a gross profit of $2.2 million. There would be a net profit of $1.4 million "if that happened with the whole development going to completion" (78.10T). Manifestly, these figures did not emanate from [NAME] or [NAME]. She said she "made sure that they realised that their property was going to be at risk if [[NAME]] defaulted on the loan" (79.45T). She made a detailed file note of the conference (CB 11 page 95). 37On the second conference, [NAME] took her clients through the various loan documents. She confirmed that she took them through the document headed "acknowledgment of legal advice by guarantor" (CB 2 pp 230 - 232A). Some aspects of this pro-forma had not been adapted for the circumstances. She made it very clear to them that there was a risk if anything went wrong with the repayment of the loan (83.35T). 38Ms [NAME] had been a locum for [NAME] when [NAME] first instructed her firm to act in the Family Provisions Act matter. However, she did not form the view that he abused alcohol or drugs or was under any disability. 39In cross-examination she said at the first conference that she also broke down the projected $1.4 million into shares for each of the participants, with [NAME] to receive $336,000; [NAME] $476,000; and [NAME] $588,000 (115.10T). She identified ( at CB 2 page 174 - 174A) her file note for the second conference. 40There was lengthy cross-examination of [NAME] about the adequacy of the advice she gave about the complexity of the mortgage guarantee. In particular it was put that she should have advised [NAME] "to enter into a separate indemnity agreement with [NAME] that would enable them to get back from [NAME] any money that they would have had to pay out under the guarantee to the bank". She agreed that she did not tender such advice. She wasn't sure whether she should have (244.5T). Neither am I, except to say an express indemnity may have facilitated recovery in the event of default by [NAME]. In any event, [NAME] is not a party to the proceedings, and she was not a party to the arrangement between [NAME] on the one hand, and [NAME] on the other. Moreover, and importantly, as I have already found, when they received the benefit of [NAME]'s advice they were already fully committed to the venture. It was too late for them to pull out. Although the consent orders were expressed to be conditional upon a sale to [NAME] that sale, as I have already found occurred when contracts were exchanged on 4th August 2006. The point for [NAME] and [NAME] is, really, independent financial and legal advice should have been given before 4th August 2006 when there was still time to pull out, if so advised. The real purpose of [NAME]'s involvement was to protect the mortgagee. Doubtless her primary duty was to her clients and I am satisfied that in broad terms she gave them advice as set out in the "acknowledgment of legal advice by guarantor", allowing for the lack of adaptation, to the effect of each of [NAME] will be liable to remedy any default by the borrower in respect of any of her obligations under the loan; that the lender could take possession of the property, sell it and in the event of a shortfall sue the guarantors for the difference; that the lender can sue the guarantor even if it has not sued the borrower; and, as she said, that the property might be at risk if [NAME] defaulted.

Settlement of [NAME]'s purchase 41It is important to find that the term of the loan was for 12 months only, expiring on 1st November 2007 and that its terms required payment of interest only. It was also a term of the loan that the lender retain the sum of $20,000 for deduction of interest payments (clause 33, Deed of Loan, CB 2 207; CB 2 68). Effectively interest was required in advance. 42Settlement took place on 5th October 2006. By direction to pay provided by [NAME]'s law practice, the loan monies of $250,000 were dispersed as follows: (a)The Estate of the late [NAME] $143,798.41. This was the balance due on settlement for the purchase of the sisters' shares; (b)Parramatta City Council $699. This was for rates apportioned on settlement; (c)[NAME] $24,814.55. This firm were the mortgagee's solicitors. This sum included the retained figure of $20,000 for interest, their fees and other charges in relation to the loan. (d)Office of State Revenue $4,087. This was for stamp duty; (e)[NAME] $15,980. [NAME] reimbursed herself for the deposit paid on exchange; (f)[NAME] $3,817.30. This was reimbursement of moneys paid by [NAME] in her application to borrow money to [NAME] her purchase of the sisters' shares; (g)[NAME] $33,310.24. This was part payment of the legal fees due to the firm for acting on behalf of [NAME] on the family provision litigation. This is in addition to the sum of $12,007.76, payable in respect of those costs out of the Estate in accordance with the consent orders (see Order 17, CB 2 page 22); (h)[NAME] $23,463.50, this amount was to cover the initial costs of the development. [NAME], issued a memorandum of professional fees relating to the development in the sum of $20,350 on 9th October 2006; (i)$30, bank cheque fees. 43It is apparent that [NAME] was not investing any of her own money in the project. In cross-examination she admitted that the features of her arrangement with [NAME] included the acquisition by her of a one-third share of the property, actually 34 per cent; she would borrow the whole of the money for the purchase and development application; and the property would be used as the sole security for her loan. (380.15 - .25T). She also agreed that she could have funded her part in the venture out of her own net assets as disclosed in the loan application. But she chose not to "because [she] did not want to risk assets that belong purely to [her], or to [her] and [her] family members" (381.25T).

The breakdown of the relationship amongst the parties. 44Mrs [NAME] said that [NAME] was not hostile at the start. He followed suggestions she made with respect to the development application and accepted her advice in relation to the loan. She agreed that she dealt with the brothers together and that when she recommended [NAME] as an appropriate independent adviser, she referred them both to [NAME] rather than suggesting they get separate advice (401.25 - 402.10T). 45Perhaps unsurprisingly, obtaining development approval, let alone undertaking the development, proved more difficult than the parties envisaged. It also took longer. Advisers were engaged and meetings held, but their efforts had not been crowned with success when the term of the loan expired in October 2007. The lender was prepared to extend it for another 12 months. 46In 2008 [NAME] was diagnosed with the cancer which later killed him. He became very ill and eventually was committed to a hospice. [NAME] became distracted by his brother's illness and by the end of 2008 was not facing up to the need to make decisions about the development application. This was partly because he became disenchanted of [NAME], and I think suspicious of her. 47The extended term of the loan fell due in October 2008. On 9th October 2008 there was a meeting with [NAME] and a mortgage broker. [NAME] was there with [NAME]. [NAME] was too sick to attend. At the meeting [NAME] said she no longer wished to proceed. On her case, this was because [NAME] would no longer benefit because of his illness. She said "I want to get out of this property" and she asked [NAME] whether he would buy out her share. [NAME] said he was not interested because he couldn't afford it. He was then asked to contribute to the mortgage payments, but on his then income of about $570 per week he could not afford it. It was suggested to him that he could borrow the money to pay six months' interest on the loan. I interpolate to say that these suggestions emanating from [NAME] contemplated a very bold and substantial variation in the existing arrangements. In fact, she was asking [NAME] to take over the mortgage which she had suggested and which she had raised to pay for her involvement in the venture so she could avoid the risk of losing any of her personal assets. 48At this meeting someone said that with building approval, the property would be worth about $780,000. 49Mr [NAME] knew by then that his brother was dying and that he would inherit his brother's share. But he was not willing to pay out "the loan" (327.15T). He regarded the loan as [NAME]'s debt (327.40T). He didn't want to sell the property while his brother was "dying or ill" (327.45T). He came away from the meeting knowing that there were difficulties with the development and that one of those difficulties was that [NAME] wanted out. In the upshot the lender extended the loan for a further period of six months until April 2009. Following the October 2008 meeting, the lender wrote to [NAME] advising that the loan would mature on 1st April 2009 and would not be renewed. It gave [NAME] notice that the loan must be repaid or refinanced by that date. 50Mr [NAME] accepted that because of the attitude of the lender, of which he was aware from November 2008, it had become urgent to make a decision about what to do about the mortgage. I interpolate one wonders why that was his problem, given that the money was borrowed by [NAME] to pay for her interest in the property, and for other purposes as she saw fit, including facilitating the payment of the balance of legal fees due to her She said she arranged this latter at the request of [NAME]. But the normal arrangement in such matters when solicitors act for people of no independent means would be to await the sale of the property, and for the solicitor to be reimbursed then. 51It appears that in 2009 [NAME] put forward a further development application, which she believed had some chance of being approved. She took steps to have this signed by the others and may have lodged it with the council in the early part of that year. [NAME] signed it before his death in March. 52The evidence of [NAME] was somewhat contradictory of the proposition that had been put to [NAME] in cross-examination. [NAME] maintained that her only reason for being involved in the venture was to provide a place of residence for [NAME]; she was protecting him. She knew that [NAME] was quite ill in late 2008 and it was difficult to get instructions from him, but contrary to the proposition that had been put to [NAME] in cross-examination, she denied, initially, that she wanted the property sold at that time so the loan could be paid out (427.50T). She reiterated that her only concern was about the welfare of [NAME] (425.35T) and she denied that she had ever, whilst he was sick gone to see him to get him to sign a development application or a real estate agency agreement for the sale of the property (425.40T). However, she accepted that the purpose of the venture was to make a profit, even if only for the purpose of providing enough to house [NAME] (426.15T) and that she was anxious, given all the circumstances pertaining at the end of 2008, to see that she did not suffer a very large financial loss as she did not wish to put her own assets at risk. 53She agreed with questions I asked to the effect as at the end of 2008 she was anxious about finalising the development application to sell the property at an enhanced value "so that everyone" including her "could get their share out of it" before the venture failed (427.35T). 54In the end, no development application was approved before the extended term of the loan expired in April 2009 and [NAME] defaulted on the loan. This was due to a number of factors including the illness of [NAME] and a degree of recalcitrance of [NAME] because of his disenchantment with [NAME] and his concern for his brother. In February 2009 [NAME] appointed his present solicitors to look after his interests in relation to the matter.

Issues of credit relating to [NAME] 55For reasons given in my judgment [2012] NSWSC 1415, I permitted evidence to be given and questions to be asked in cross-examination about the conduct of [NAME] in February 2009 concerning her attempts to have [NAME] sign a new will which gave her an advantage, her attempts to have the development application signed, and her attempts to have an agency agreement signed. I ruled that this evidence was relevant because it might tend to prove [NAME]'s motive in entering into the contract was not simply to facilitate [NAME] being able to keep the former family home, but more likely was to obtain for herself "a particular financial advantage or profit" (at [19]). 56I am satisfied that she did have [NAME] sign a development application whilst in was in the Hospice. She also unsuccessfully sought the execution of a new will from which she may profit, at least to the extent to which some outstanding legal fees would be covered. This conduct on her part supports the suggestion that her motives for entering into the venture with [NAME] was in substantial part to make a profit; even if initially she also wished to help her client [NAME], whom she knew was dependant upon her in many ways. 57By February 2009 [NAME]' condition was known to be critical and he succumbed to his illness on 13 March 2009. Her efforts at that time could only be explained by an attempt to secure her own position in relation to salvaging the venture and being paid for her legal services. There could no longer be any question of housing [NAME]. 58Other matters were raised concerning her credit. At 411.20 - .40T [NAME] said that she had explained the effect of a mortgage and a guarantee to [NAME] before they signed the acknowledgment of 14th July 2006. It was her clear evidence that she was not able to say whether they had received independent advice other than from [NAME], to whom she referred them. [NAME]'s evidence, which I accept, was that she first gave advice on 7th September 2006 and I have made findings about this topic above. It emerged that [NAME] had complained about some of [NAME]'s conduct to the Legal Services Commissioner and, as she is required to do, she answered queries from that body. She said that she considered the statements she made to the Legal Services Commissioner very carefully (456.50T). 59In fact, [NAME] wrote three letters to the Legal Services Commissioner dated 20th November 2009, 24th November 2009 and 3rd December 2009. In due course these letters were admitted as Exhibits A, B and C. [NAME] made some statements to the Legal Services Commissioner which clearly contradict evidence given before me. 60I will deal with them in the order on which they were cross-examined. In the letter of 3 December 2009 (Exhibit "A") [NAME] says that she visited [NAME] on 4th February 2009 to have the agency agreement and the development application signed, and that the agency agreement estimates the selling price of $750,000 to $800,000. This contradicts her evidence, of course, that she didn't "pursue" [NAME] to obtain his signature on the development application and real estate agency agreement. She said her evidence to me was wrong but the statement to the Commissioner was correct. 61In her letter of 24th November 2009 (Exhibit C) [NAME] asserted that she obtained independent legal advice including advice from Counsel "prior to taking any personal involvement in this matter". This contradicted evidence she had given in Court that she didn't at any time seek any legal advice for her own benefit before entering into the arrangement with [NAME] and [NAME]. She agreed that it was contradictory (461.40T). She explained that when giving evidence in Court she forgot about receiving independent legal advice (462.30T). She denied having given false evidence. She named the Counsel she had consulted. It is not necessary for me to name that barrister. The advice was given orally in conference. She forgot about that circumstance until she was reminded by being shown the letter she had sent to the Legal Services Commissioner. 62In her letter of 20th November 2009 (Exhibit B) she stated that before entering into the arrangement with [NAME] she advised them that they would both need to seek independent legal advice. The letter continues: After both [NAME] and [NAME] sought advice they both agreed to have the property as security. A copy of the acknowledgment of 14th July 2006 was annexed. 63Mrs [NAME] accepted that the contents of the letter were contradictory of the evidence that she had given in Court (468.5T). However, she explained that the "untruth" was not intentional. Rather it was due to a lapse of memory (468.5T). She insisted that the version she had given to the Legal Services Commissioner was correct (468.35T). It transpired (as I have found) that [NAME] obtained the signature of [NAME] to each of the development application and the agency agreement, but she denied that her purpose was to further her own ends in selling the property. Rather she said she wanted the property sold so [NAME] could buy a "cottage out of Sydney "(471.50 - 472.5T). I interpolate that this is difficult to accept given what was known about his terminal illness then. 64The question of advice from the barrister was re-visited by leave during cross-examination, learned Counsel taking the view it was a matter that ought to have been visited in chief. From this evidence, Counsel was consulted once, "right at the beginning of the whole series of events when the idea of buying out the sisters' share was first suggested"; and the only advice obtained was "whether it was proper for [NAME] to buy the sisters' share" (476.45 - 477.5T). There was further cross-examination on the issue especially about Exhibit C, the letter of 24th November 2009. That letter states, "I continued to reaffirm and seek further advice on all parts of my involvement, and I was satisfied with such advice". It was pointed out that that passage suggested ongoing advice, [NAME] said "it's not accurate, but it's not incorrect" (478.40T). She denied that what she told the Legal Services Commissioner was false. She denied that she was tailoring her evidence as she went. I felt it appropriate to ask questions about this topic at this juncture (479.25 - 480.50T) for the purpose of seeking an explanation about what I regarded as the obvious difference between the further evidence she had given by leave and the ordinary meaning of the language she had used in writing to the Legal Services Commissioner. I think it fair to say that [NAME] was unable to give an explanation of the difference. In the end, she said: I don't understand the difference, your Honour, I don't know (480.50T). 65Evidence was also taken from [NAME], a solicitor who at one time worked for [NAME] and at another for [NAME]'s current solicitor. His evidence was the principal subject of my ruling referred to above. [NAME] was made redundant by [NAME] on 25th June 2009. [NAME] gave evidence about concerns he had about the independence of [NAME] given her friendship with [NAME]. He said he raised these matters with [NAME]. In the end I was of the view that [NAME]'s evidence is of, at best, marginal relevance to the issues to be decided in this case. I also formed the distinct impression that he was not well disposed to [NAME]. He gave evidence about seeing a draft Will for execution by [NAME], which contained a gift of $50,000 for [NAME]. I am satisfied, however, that it is very highly likely that the $50,000 was a mis-transcription of $5,000. In the end, according to [NAME], the figure discussed with [NAME] was $7,000 for [NAME]'s trouble acting as Executrix. No further Will was ever executed. 66Mr [NAME] did confirm that [NAME] signed the development application and the agency agreement, but that he seemed disappointed with [NAME]'s advice about what the expectation would be if the development application was approved and the property was sold at an enhanced value. The figure discussed was around $1m, according to [NAME]. 67When [NAME] and [NAME] went back for a second visit, he believed that it was for the purpose of executing the Will which had been discussed on the first visit. [NAME] was there on that occasion and there was unpleasantness between him and [NAME]. No Will was signed. 68I would be very slow to conclude that [NAME] deliberately lied either to me or the Legal Services Commissioner. She is a solicitor of this Court and has been since 1986. A finding that a solicitor has told deliberate lies to a Court or a disciplinary authority would be tantamount to a finding of professional misconduct. I should only make such a finding if I was so satisfied by cogent proofs in accordance with the Briginshaw v Briginshaw (1938) 60 CLR 336 standard (see s 140(2) Evidence Act 1995 (NSW)) and I am not so satisfied. 69It is clear that the accounts are contradictory. And I am not satisfied that the apparent contradictions have been satisfactorily explained. This matter has been going on for a long time and a lot has happened. I formed the impression while she was giving her evidence that [NAME] had not prepared herself well for the process and seemed to be unfamiliar with matters that ought to have been recorded on her file. Moreover, English is not her first language and some subtleties and nuances of expression seemed lost on her. 70However, whilst the contradictions remain, I find it difficult to prefer her evidence where it conflicts with the evidence of others or where it appears to me to be inconsistent with the probabilities. 71Human motivation is complex. A person's purpose for engaging in conduct may be mixed, and subject to conflicting, even contradictory, motives. I accept that in part, [NAME] wanted to help her client [NAME] whom she knew depended upon her. However, I am also of the view that she was motivated by the opportunity to make a profit especially if she could structure the arrangement so the risk of failure fell on the [NAME] family home, rather than on any of her personal assets.

[NAME]'s default 72Mrs [NAME] defaulted on the mortgage on 1st April 2009 by reason of her failure to repay the principal. She continued to pay the previously agreed rate of interest by way of direct debit on a monthly basis, but not the higher rate payable during periods of default (CB III 158). [NAME], through his lawyers and [NAME] entered into negotiations in an attempt to settle their dispute. 73In September 2009, [NAME] offered to sell her 34 percent share in the property for $272,000. This suggested valuation in the sum of $800,000, which is the type of price suggested by the evidence, only if a development application had been approved. This demand is highly suggestive of a profit motive. Other terms were imposed including payment of legal costs. It may be that the third development application remained on foot, but there is no evidence it was ever approved. 74Mr [NAME] agreed to pay the price of $272,000 by his solicitor's letter dated 25th September 2009, but queried the other matters and requested further information. It seems that agreement about the sale was very nearly reached by the 21st November 2009. Indeed a transfer was prepared by [NAME]'s solicitors and forwarded to [NAME]'s solicitors on 3rd November 2009. However, there seemed to be a demand for reimbursement of interest payable on the $33,310.24 deducted from the loan for [NAME]'s legal costs and a demand for the payment of other legal costs, including what seemed to be a duplication of the amount of $33,310.24. The total of these additional demands was $65,419.11. Additional claims were made in relation to apportionment of the interest in respect of the loan raised by [NAME]. Despite some disagreements about matters, it seemed again that, as at 22nd December 2009 (CB III page 193), [NAME] was in a position to settle. As there was no response to their letter of that day, the solicitors wrote to the same effect on 20th January 2010. By letter dated 22nd January 2010, [NAME]'s firm (by an employed solicitor) sought adjustments totalling some $65,000. Once again, one of those adjustments related to the sum of $33,310 being the borrowed funds to pay the legal fees. Correspondence continued over the month of February in a similar vein with the parties being unable to reach agreement about the details. 75The mortgagee commenced proceedings for possession in January 2010 and because of a failure to engage with each other's point of view over the legal fees for the previous proceedings, the proposed purchase by [NAME] stalled and failed. In the end, the Court appointed trustees for sale of the property on 16th November 2010. [NAME] sold his [NAME] property and purchased the family home,effectively the value of [NAME]'s 34 percent share, which in accordance with valuations obtained by the Trustees was in the sum of $200,600 (CB I 116; CB IV 2-78). 76The date of settlement of the purchase by [NAME] was 18th March 2011. The settlement calculation sheet at CB 1V page 110-112 sets out the position of the parties as at settlement. From this it can be seen that the total valuation price was $590,000 and [NAME]'s 34 percent share was $200,600. As I have said, this was the price agreed to be paid to the Trustees. Clearly, as a tenant in common of a 24 percent share and as the Executor of [NAME]'s Estate, having a 42 percent share it was unnecessary for those interests to be re-transferred to him by the Trustees. 77 The amount paid on settlement by [NAME] was calculated as follows: Purchase price of [NAME]'s 34 percent share $200,600.00 [NAME]'s share of allowances $100,237.89 [NAME]'s share of allowances $175,416.32 Total: $476,254.21 78At the time of the settlement the total amount due to the mortgagee (included in the allowances figures I have mentioned) was $395,342.29 and the costs due to the trustees for sale were $21,145.51. There was also a small amount owing on rates, which may be ignored for present purposes. 7934 percent of the allowances at the time of settlement was $142,003.69, accordingly the surplus on sale referrable to [NAME]'s share was calculated as $58,596.31. Pursuant to the orders for sale made by the Court on 16th November 2010, that amount is held in trust by the solicitors for the mortgagee, [NAME], pending the resolution of these outstanding issues.

The claims of the various parties 80The First and Third Cross-Claimants seek relief in the form of an order pursuant to the Contracts Review Act 1980 (NSW) varying the Guarantee of 5 October 2006 by the inclusion of an express indemnity that encompasses all losses, expenses and liabilities, including legal costs incurred by the guarantors in relation to the guarantee. 81They also seek an order that the funds being held on trust are to be released to them in their respective shares. 82The Third Cross-Claimant (The [NAME]) also, in the alternative, seeks equitable compensation in relation to loss and damage arising from the alleged breach of fiduciary obligations owed by [NAME] to [NAME]. 83The cross-claim of [NAME] (Second Cross-Claimant) can be summarised as seeking relief in terms of a declaration discharging her from liability under the loan agreement "in such amount as may be just". This can be categorised as a claim to set-off the following debts/contributions: (a)The legal fees owed by [NAME] to [NAME] in relation to the Family Provision claim; (b)A claim for occupation rent from 5 October 2006 to 18 March 2011; (c)In the alternative to those claims, a claim that the first and third cross-claimants are liable to the second cross claimant for two thirds of the interest paid by her including the initial pre-paid interest, and such other amounts she has paid in respect of the property; (d)A claim for the first and second cross claimants to be liable for two thirds of the development approval application expenses; (e)A declaration that the costs of the litigation to defend the possession proceedings by the mortgagee be solely borne by the first cross-claimant; (f)An order for account;

Issues 84In broad terms [NAME], in his own right and his representative capacity asserts that the tripartite contract between him and his brother, on the one hand, and [NAME] is unjust. [NAME] strongly disputes this, but acknowledges that there needs to be a readjustment amongst the parties of the financial consequences flowing from the enforcement by the lender of its rights under the mortgage. As I understood the arguments advanced, essentially [NAME] says that [NAME] in both his capacities is entitled to be treated as a guarantor exercising his rights of indemnity arising out of the general law flowing from his observance of his obligations under the guarantee. 85It follows from this that the main contestants both accept that [NAME] is entitled to some remedy. At the end of the day, the dispute between them is about the nature and extent of it. Given the intervention of the rights of so many others, including [NAME]'s sisters and the lender, it is not possible to fashion remedies actually rewriting legal contracts, or setting them aside, capable of having any practical effect. Moreover, [NAME] is now the sole registered proprietor of the property, the subject of the dispute. No proprietary remedy will be appropriate. It follows that in essence the real nature of the dispute is about the amount of monetary compensation payable. The measure of compensation will depend substantially upon my decision as to whether the contract was unjust for the purpose of the Contracts Review Act 1980 and to a lessor extent upon the ancillary considerations which it may be necessary to take into account for the purpose of doing substantial justice between the parties.

The contracts review claim 86The starting point is s 7 Contracts Review Act which empowers the Court to grant specified relief "where the Court finds a contract or a provision in the contract to have been unjust in the circumstances relating to the contract at the time it was made". The powers conferred by s 7 may only be exercised "if the Court considers it just to do so and for the purpose of avoiding as far as practicable an unjust consequence or result." Section 8 confers power to grant ancillary relief where a decision or order of the type specified in s 7 is made. Ancillary relief extends to "the payment of money (whether or not by way of compensation) to a party to the contract". 87Section 9 of the Act sets out the matters to be considered by the Court. First amongst these is the public interest. [ADDRESS] is to have regard "to all the circumstances of the case, including such consequences or results as those arising in the event of" compliance with the contract or non compliance with the contract. Section 9(2) sets out mandatory considerations that must be taken into account "to the extent that they are relevant to the circumstances". 88It is well established that the application of the principal provision, s 7, "involves a two stage inquiry: first, was the contract unjust; secondly what if any orders should be made": Perpetual Trustee Co Limited v Khoshaba [2006] NSWCA 41 at [34] per Spigelman CJ (Handley and Basten JJA agreeing). The first step is a finding of fact "albeit one involving a broadly based value judgment" Khoshaba at [39]. The second question involves an exercise of discretion. Section 9(5) is instructive: In determining whether it is just to grant relief in respect of contract or provision of a contract which 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. 89Little guidance is likely to be provided by previous decisions. As Spigelman CJ said in Khoshaba at [73]: Where the Court has to apply a standard as general as what is "unjust", it cannot be confined by such reasons as if they were rules. Naturally the "value judgment" called for involves community standards. Another way of putting this is that the value judgment involved in the first question requires the application of a normative standard. 90Where a value judgment is called for, it should not be taken to be "at large". The normative standards or considerations involved "must be derived from legal principle". In a statutory regime like the present "the primary task of the Court is to apply the legislative norms to be found" in the legislation: [NAME] v [NAME] (t/as [NAME]) [2005] HCA 69; (2004) 224 CLR 627 at 639 [29]. 91To put this another way, the normative standards are to be ascertained "by reference to the statutory subject, scope and purpose" of the relevant legislation: Allianz Australia Insurance Limited v GSF Australia Pty Ltd (2005) 221 CLR 568 at 597 [99]; [NAME] at 644 [49] per Gummow and Hayne JJ. 92S 4 of the Act contains the following definition: Unjust includes unconscionable, harsh or oppressive, and injustice shall be construed in a corresponding manner. The definition is accordingly inclusive rather than exhaustive. The judgment of McHugh J in West v AGC (Advances) Limited (1986) 5 NSWLR 610 at 620 - 1 remains influential notwithstanding, perhaps, changing social and commercial conditions over the best part of 3 decades since it was decided. In part his Honour said: .....a contractual provision may be unjust simply because it imposes an unreasonable burden on the claimant when it was not reasonably necessary for the protection of the legitimate interests of the party seeking to enforce the provision: cf s 9(2)(d). In other cases the contract may not be unjust per se but may be unjust because in the circumstances the claimant did not have the capacity or opportunity to make an informed or real choice as to whether he should enter into the contract: cf s 9(2)(a), 9(2)(e), 9(2)(f), 9(2)(g), 9(2)(i), 9(2)(j). More often, it will be a combination of the operation of the contract and the manner in which it was made that renders the contract or one of its provisions unjust inthe circumstances. This statement is relevant in the present case. It is unnecessary to consider any distinction between "substantive injustice" and "procedural injustice". Obviously, the same contract may be seen to be unjust on a consideration of both elements.

Was the contract unjust at the time it was made 93The starting point, of course, is identifying the contract and when it was formed. With respect, to some extent those appearing for [NAME] in both his capacities focus on the wrong contract at the wrong time by considering the contract of guarantee actually signed by each of the [NAME] on 24th or 25th September 2006. As I have found this was but a step in putting into effect a contract that had been formed in July 2006, and certainly no later than 4th of August 2006 when [NAME] exchanged contracts to purchase the sisters' shares in the property. That is the relevant contract and the relevant time for considering the statutory question. What occurred in September and October culminating in settlement of [NAME]'s purchase on 5th October 2006 were steps in the implementation of an already formed agreement. Those matters are relevant because they form part of the circumstances of the case as consequences or results arising from compliance with the provisions of the contract, but they are not part of the relevant contract itself. 94The contract is partly evidenced by the acknowledgment of 14th July 2006, but doubtless also partly oral. Its essential terms are: (a)[NAME] would purchase the sisters' shares totally 34 percent, matching, as a proportion, the offer of $470,000 which had been made after the auction; (b)[NAME] and [NAME] would maintain and continue to hold their respective interests as adjusted pursuant to the settlement; (c)[NAME] would [NAME] her purchase by way of mortgage to which she, [NAME] would be mortgagors; (d)[NAME] and [NAME] would guarantee her indebtedness (under the mortgage) with the exception of some legal fees to which I will return, neither [NAME] nor [NAME] were to be borrowers, and had no need to borrow to acquire their respective shares in the property. That their promise to guarantee [NAME]'s indebtedness was a term of the contract was obvious from [NAME]'s evidence that she advised [NAME] and [NAME] of the effect of a mortgage and guarantee, and did not require them to obtain independent legal or financial advice; (e)It was a feature of the contract that [NAME] would have no exposure to any risk of the objects of the contract failing because her substantial personal assets (she had a net worth of $2.3m) would not be in any way put forward. Apart from paying the interest running on the monies she borrowed it was not possible for her to make any actual loss, over and above her acquired share, because she borrowed every dollar that she expended in implementing the contract right down to the 10 percent deposit and the interest payable for the agreed term of the mortgage of 12 months; (f)It was a feature of the agreement that [NAME] would be protected from the risk of loss by the consideration that the security of the property was more than adequate to cover her indebtedness, and the personal guarantees provided by [NAME] would provide another layer of security for the lender. 95The purpose of the contract, as found by me, was to enhance the value of the property by holding it until an application for the development of the site by the erection of townhouses or home units was approved by the local government council. When this primary objective was achieved a decision would be made about whether to sell then at an enhanced value because of the development approval, or proceed, as a secondary objective to undertake the development to make a greater profit by selling the individual townhouses or units. That the secondary objective was in contemplation from the outset can be inferred from the evidence of [NAME], and also from the type of financial advice that [NAME] gave to the brothers on 7th September 2014. She discussed in some detail the nature of the project, the likely costs and the hope for profit. This information could only have come from [NAME]. I reject her evidence that she was never interested in undertaking the development and that she was only concerned with putting a roof over the head of [NAME]. According to [NAME]'s evidence, which I accept in this regard, [NAME] secured the signature of [NAME] on a further development application and agency agreement just before his death. By then she had doubtless abandoned the second objective. Time had run out on the mortgage. But I find she still hoped to make a profit. 96As I have said before, human motivations are likely to be complex, moreover a profit motive is not a bad thing. It is not the profit motive of [NAME], or of [NAME] for that matter, which is unjust. But the objectives of each of the parties is relevant to the question of injustice. 97Adapting the language of McHugh J from West the provisions of the contract which, as a practical matter, imposed the whole of the risk of financial failure on the [NAME] was unjust because it imposed an unreasonable burden on them which was not reasonably necessary for the protection of the legitimate interests of [NAME]. She was better placed than any of them to bear the risk of the financial failure of the project. Yet she sought to quarantine her assets and personal wealth from it. 98The contract was also unjust because in the circumstances in which it was formed, the [NAME] did not have the capacity or opportunity to make an informed or real choice as to whether each of them should enter into the contract. 99It is this "combination of the operation of the contract and the manner in which it was made" that renders the provisions imposing that part of the financial risk that should have been borne by [NAME] upon [NAME] unjust in all the circumstances of the case. 100In reaching this conclusion I have had regard to the matters referred to in s 9(2) so far as they are relevant to this case. I am satisfied that there was material inequality in bargaining power between [NAME] on the one hand, and [NAME] on the other. In particular in relation to [NAME], he was extremely vulnerable. Not only was he a client whose rights [NAME] was professionally bound to protect, but she knew that he depended upon her for "protection" beyond the scope of the ordinary confidential relationship of solicitor and client, on the basis of the findings I have made above. [NAME] was not entirely in the same category. However, he was a relatively unsophisticated, ordinary working member of the community. He had modest means and modest assets, especially when compared to [NAME]. In many ways, although like the others he was happy to contemplate the possibility of a profit, his interest would have been better served, like his sisters, by insisting upon a sale. I find he acted mostly out of concern for his brother. He was also an unrepresented litigant in the family provision litigation. From this [NAME] knew he had had no legal advice. She appreciated that he trusted her. 101Mrs [NAME], as a legal professional did not refer her own client for legal and financial advice about the venture before entering into the contract. She may have had no ethical obligation towards [NAME], but it must have been obvious to her that at some stage the lender would require that each of them receive independent advice. The time for that to be done was before the contract was entered into and they all became committed, not just to each other, but also to the sisters, in the first instance, and then to the lender on settlement. 102There was no real opportunity for negotiation on the part of [NAME] and [NAME]. [NAME]' relied upon [NAME]. More generally, I have accepted that the venture was her idea; that she first suggested it to the brothers on the day of the auction; and that she followed it up with them over several days until 14th July 2006. In fact, from the authority of 12th July 2006 and the acknowledgment of 14th July 2006, I infer that she obtained their commitment to the proposal before committing herself. This is why the authority refers to them holding their interests at least up until an offer of $500,000 might be forthcoming and why she is identified only as an interested party. Similarly with the acknowledgment, [NAME] appear to commit themselves to the idea that if [NAME] commits herself, her participation will be funded entirely by a mortgage against the property. 103Once the interests of other persons became involved, like the sisters and the mortgagee, it was not reasonably practicable for [NAME] to renegotiate or to reject any of the provisions of the contract. As I have found, by the time the contract for the sale of the sisters' interest to [NAME] was exchanged on 4th August 2006, they were committed. In reality, they were in no position to reject any of the documents explained to them by [NAME]. It was already too late for that then. 104I have found this already, but I record that I have been influenced by the provisions of s 9(2)(d). The provisions of the contract making [NAME] personally liable for any default of [NAME] in respect of her borrowings was entirely unnecessary, given her assets and personal wealth, for the protection of her legitimate interests. 105I have made findings of the nature of the relationship between [NAME] and [NAME]. Given that relationship of dependency, [NAME] was not reasonably able to protect his own interests, and he was not afforded the opportunity of legal or financial advice at the relevant time, independent of [NAME]'s position was similar, but not the same. He trusted [NAME], and became a de facto client of hers in as much as she gave him, at least legal advice in relation to the proposed mortgage and guarantees. He was not equal to her. He considered her "smart", wealthy and an honourable person who would "pay her mortgage". It is also a factor that the relative economic circumstances, and educational background of [NAME] on the one hand, and [NAME] on the other, were uneven to the disadvantage of each of the [NAME]. 106I have referred repeatedly to the absence advice of a legal and financial type. I should interpolate that during the course of the Trial some criticism was levelled at [NAME]. Her competence to advise about the relatively complex language of the guarantee was impugned and her independence was questioned. The latter on the basis of her prior relationship with [NAME]. I have already found that, in any event, the involvement of [NAME] came too late. And it seems to me that her involvement neither lessens nor increases the injustice of the contract. I should say, however, that she struck me as a reasonable suburban solicitor of ordinary competence. I am of the view that she did her work conscientiously on behalf of [NAME]. Whether she had a thorough expertise in the law of guarantee is not to the point. The advice she gave was essentially accurate about the risk that signing the guarantee involved. 107Although I accept that [NAME] gave some advice to each of the brothers about the legal effect of the mortgage and the legal effect of the guarantee, the actual content of that advice prior to the formation of the contract is not in evidence. It certainly does not appear from [NAME]'s evidence that he had the expectation that she would not pay her debts, or that he had any real appreciation of the risk that she would default. I infer her advice was inadequate. 108From what I have said already about the nature of the relationship between [NAME] and [NAME], there is a flavour of a degree of undue influence of her over him. He was extremely vulnerable. I accept that she was well motivated towards him, but that is not the point. Her dominant purpose was to make a profit from the development without personal risk. 109The essential injustice here, is that [NAME] and [NAME] were put in a position where they could well be left "holding the can" for [NAME]'s debt if she defaulted and chose not to remedy her default. That is in fact what happened here. This was a reasonably foreseeable result at the time the contract was made. Indeed, the contract was structured so that if things went "pear-shaped", as they did, [NAME] would be largely unaffected. I accept that after she defaulted by failing to repay the principal at the end of the extended term, she continued to pay by way of direct debit the normal interest rate, but not the higher rate due on her default. But in substance that does not ameliorate the general feeling of injustice I have formed from my findings of primary fact. 110I also accept that had [NAME] received independent advice prior to entering into the contract with [NAME], they may well have been advised that any lender is very likely to require any mortgage over the property to be granted by all tenants in common and not just the borrower. The advice may well have been that at a practical level this was unavoidable. Moreover, they may also have been advised that in circumstances where a loan is advanced to one of three tenants in common, the lender very likely would seek a guarantee of the obligations of the borrower from the others. Again, to some extent at a practical level such an arrangement may have been difficult to avoid. 111Moreover, independent financial advice may well have been to the effect that the contract as proposed prior to its formation had obviously foreseeable consequences, should [NAME] default for any reason. The vagaries of the development game may also have been pointed out including the uncertainty of a profit being realised. 112Had advice of this nature been provided, it might also have been pointed out to [NAME] that he may have been able to achieve his dominant objective of looking after his brother by himself acquiring his sisters' share by selling [NAME]. Had he received the proper advice at the time, I infer he would have accepted it. Subsequent events demonstrate that he would have been in a position to proceed in this way. 113The finding that the contract was unjust that I have made is enhanced by the consideration that it is most unfair that a disability support pensioner with health and substance abuse issues, and an ordinary working member of the community, should underwrite the liabilities of a successful professional. 114I find that the contract unjust in the provisions which required [NAME] to bear the risk that [NAME] would default on her obligations on the loan she borrowed.

Should the Court make an order under s 7 Contracts Review Act 115The question is whether I consider it just to make an order of the kind referred to in s 7 for the purpose of avoiding as far as practicable the unjust consequences or result of those provisions of the contract imposing liability for default effectively on [NAME] and [NAME]. 116Having regard to the purposes of the Act, for the reasons I have already given, I am of the view that I should make an order declaring the contract void in part to the extent to which it required [NAME] and [NAME] to bear the financial risk of [NAME]'s default on her mortgage. 117In making this judgment I have had regard again to the circumstances of injustice as I have found them to be. 118I have also taken into account in accordance with s 9(5) the conduct of the parties to the proceedings in relation to the performance of the contract since it was made. In this regard there was nothing in the evidence about the conduct of [NAME] which would disentitle his Estate to any relief by what I will refer to as misconduct in relation to performance of the contract. 119So far as [NAME] is concerned, some complaint has been made about his recalcitrance from the end of 2008 until default in April 2009 and beyond. On the evidence I prefer as I have set it out above, it should be understood that it seems to have been [NAME] who "wanted out". She attempted to bring some pressure to bear on [NAME] to have him take over the mortgage. The only active obligation was the payment of interest. This is what she tried to have him agree to assume. I find his refusal to do this entirely understandable and reasonable. [NAME] borrowed the money. It was her loan, her debt, it was her primary responsibility to honour it. 120I confess to having had some misgivings about the difficulty in securing [NAME]'s signature to the final development application. However, I accept on balance his explanation that he was concerned about his brother's rapidly deteriorating state of health. This is consistent with my finding that concern for his brother was his primary motivating factor. It is unfortunate that he could not focus upon his own commercial interests at the time of his brother's final illness, but again, this is entirely understandable and I do not regard it as constituting any form of disentitling conduct. I have borne in mind that the project of securing at least development approval took much longer than anyone anticipated. Doubtless all parties were to a degree worn down by the process. 121To my mind, [NAME] acted reasonably after obtaining legal advice in February 2009. He quickly made offers to attempt to settle the matter and even accepted an offer by [NAME] to sell her interest at what, on any view was an inflated price, which took account of the enhanced value that the property might have had if a development application had been approved, which it had not. My impression of the correspondence is that if anyone acted in a highhanded manner during this period of time, it was [NAME]. As I will explain, she had a point about some matters. And, there seemed to be a misunderstanding about what she was saying in relation to that part of the loan which covered legal costs incurred by [NAME] in the family Provision proceedings. Even so, my impression is that she walked away and put pressure on [NAME] to accept her terms or suffer the consequences. 122Nor did [NAME] act unreasonably after the mortgagee commenced these proceedings. It was not unreasonable for him to attempt to maintain his interest in the property. It is understandable he saw the problem as being [NAME]'s. He was in no position to pay out the mortgagee immediately, and in fact, there was no evidence that any demand was made on the guarantee. The mortgagee elected to take possession. I infer that he negotiated an outcome which when orders were made on 16th November 2010, gave him the opportunity to effectively be a preferred purchaser of the property under the terms of judicial sale imposed by the Court. He took that opportunity, sold [NAME] and raised the money to pay the price set by the Trustees for sale in accordance with the valuation they had obtained. Nothing about this constitutes, in my judgment, any disentitling conduct.

Breach of fiduciary duty 123Were I wrong about the application of the Contracts Review Act, I would have been satisfied that [NAME] breached the fiduciary duty she owed to [NAME] by entering into the contract with him. It is suggested that [NAME] did not compete with [NAME] to acquire her interest in the property and she deprived him of nothing are not to the point. As I have identified the real vice was in making a contract from which the solicitor stood to gain from any profit made, but the client would carry the can as to losses incurred. 124There is no objection to a fiduciary relationship inhabiting a contract provided the fiduciary relationship accommodates itself to the terms of the contract so that it is consistent with and conforms to them: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at [97]. 125Mrs [NAME] obtained a benefit at the expense of her client. That benefit was the client assuming responsibility for her liability. The fiduciary relationship of solicitor and client was the most significant factor bringing about this result. Especially given the added aspects of a relationship of dependence between [NAME] and [NAME]. 126In my judgment [NAME] breached or fiduciary duty owed to [NAME]. 127This finding may have no practical ramifications as the measure of equitable compensation in the circumstances is likely, at least, to be broadly similar to compensation under s 8 Contracts Review Act 1980. 128I fully appreciate that the approach I have taken to the Contracts Review claim is different from the approach advanced by the claimants. However, their focus on the guarantee of 24th and 25th September 2006 is substantially because it imposed liability of [NAME]'s debt on [NAME] and [NAME]. The factors which persuade me that the contract was unjust are the factors that they advanced. The substance of my findings are based upon their claim, but as I have said by focusing on the contract of guarantee with the lender, they have addressed the wrong contract. But in substance, the argument they advanced is the argument I have accepted. 129Subject to the requirements of the natural justice rule 36.1 Uniform Civil Procedure Rules 2005 confers broad powers on the Court granting relief and I rely upon the rule in approaching the matter as I have done. I will make an order declaring the contract void in part as I have indicated. But as I have said, given what has occurred and the intervention of the rights of third parties, the practical relief available to the claimants is ancillary relief under s 8.

[NAME]'s cross-claim 130As I have said [NAME]'s cross-claim really amounts to a claim to set-off. As I have explained above, she seems to proceed on the basis that [NAME] have some right to claim against her. She would characterise this as a general law right to subrogation or indemnity of a surety who has discharged the debtor's obligations. 131As I have tried to explain, that is not what happened here. [NAME] in his twin capacities was not called upon to observe his obligations under the guarantee given to the lender, although he did pay out the balance of the debt over and above the contract price of $200,600 paid to acquire in substance [NAME]'s share. But he acquired title not by subrogation arising from a discharge of the debt by a surety; he acquired title as a purchaser from Trustees exercising power under a judicial sale. 132When I come to assess compensation payable under the Act, I will take into account some of the matters claimed [NAME] and reject others. The appropriate place to deal with this is in assessing quantum.

Assessment of compensation due 133I do not propose to go through the whole of every argument advanced by each party in relation to the assessment of compensation. The arguments of [NAME] and [NAME] are fully set out in MFI 10 relating to the calculation of the "[NAME] parties' loss". [NAME]'s position is fully summarised in MFI 14. 134In my judgment the starting point for the assessment of compensation is the amount paid by [NAME] to acquire the property from the Trustees for sale. The property was valued for sale at $590,000 and this value was agreed between the parties before me. However, the amount required to be paid by him, calculated as set out above, at [77] was $476,254.20. The legal title he acquired was restricted to [NAME]'s 34 percent share, but in a formula apparently agreed for the purpose of the sale, it was also necessary for him to discharge the proportion of the debt due to the lender of each of his share in his own right and the share of the Estate. 135This total amount, of course, included interest at the higher rate on default and the costs of enforcement due to the lender under the terms of the Deed of Loan and mortgage. 136Many complexities and complications were put forward on either side of the record as to how any compensation ought to be assessed. However, it seems to me that by buying from the Trustees in March 2011, [NAME] acquired full title to a property valued at $590,000. Before that purchase, he had legal title, subject to the order for judicial sale to two-thirds of the property. By payment of the sum of $476,254.21, he acquired an extra third. That third was valued at $200,600. That third belonged to [NAME]. Accordingly he paid an extra $275,654 beyond what he gained to recover the property from the Trustees for sale. Prima facie, the amount he is entitled to undo the injustice of the contract is that sum. 137I think it unnecessary to consider what his overall financial position might have been if the unjust contract had never been entered into. He had limited options as at July 2006. Either he could have agreed to sell at the highest offer of $474,000 or he could have bought his sisters' shares himself. If the former he would have recovered $112,800, less his proportion of the costs of sale. If the latter, he would have been required to buy out his sisters by paying $159,800 plus the costs of purchase. To exercise the latter option it would have been necessary for him to sell [NAME]. In the end, however, these unexercised options, although relevant, are too hypothetical to have any bearing upon the measure of compensation. Nor is it to the point that he received rent from [NAME]. It need not be brought to account in assessing compensation here. I am unpersuaded that any "occupation fee" should be taken into account. As [NAME] fairly conceded, generally tenants in common need not pay rent or an occupation fee to their co-tenants. Moreover, it was contemplated by the parties to the unjust contract that [NAME] would continue to resign at the property and use it as his home free of charge. It was never contemplated that [NAME] would live there and she had no desire to use it for any other purpose. She defaulted soon after [NAME]'s death, giving rise to the action by the borrower to recover possession and exercise its powers of sale. In my judgment, justice does not require any allowance by way of any occupation fee. 138Nor I do I think anything should be added to the figure to take account of any capital appreciation of the property between 5th October 2006 and 18th March 2011. The loss of [NAME] and to Estate of [NAME] crystallised when [NAME] paid over about $475,000 in March 2011. 139Some allowance should be made for the legal costs of [NAME] in relation to the Family Provision Act matter, and the amount earmarked for the initial costs of obtaining development approval. However, it should be borne in mind that the general approach I have adopted is not ungenerous to [NAME], given that she in fact never at any time had any actual equity over and above her indebtedness incurred for the purpose of acquisition of her 34 percent share. Costs for which she was personally liable to the mortgagee and the interest payable in advance for the term of the loan (initially expected to be 12 months only) were also paid. At no time did she reduce the principal. The interest she paid was the cost to her of purchasing the funds on the basis of her choosing. None of that in fairness should be sheeted home to [NAME] or [NAME]. 140Upon settlement on 5th October 2006, [NAME] received payment in excess of $45,000 from two separate sources in respect of the legal fees of [NAME]. $12,000 odd was paid out of the Estate in accordance with the Consent Orders to which I have already referred. And $32,310 was paid out of the loan. [NAME] authorised that payment. However, it was paid out of the loan for the convenience of [NAME]. Generally, one would expect that in a family provision matter for poor clients, the solicitor would be paid out of the sale of the Estate property. Here the property was not sold because of the formation of the unjust contract. The simple fact of the matter is, [NAME] has been paid those costs,except on assessment an additional amount of $4,000 has been found involving in part the costs of the assessment insisted upon by [NAME]. 141As [NAME] has been paid and as the arrangement for payment out of the loan was for her convenience, I am not satisfied that it is fair that she should be paid again. After all, [NAME] has fully paid the lender the indebtedness incurred by [NAME] and I will not allow a discount in respect of legal costs except for the sum of $4,000. I will also allow a discount of the sum of $1,170 paid on settlement in March 2011 for unpaid rates. 142The sum of $20,350 was earmarked for initial developments costs and some costs were incurred. I have referred to the invoice from the original consultants. It seems appropriate that some allowance should be paid for this and I will allow a 66 percent reduction in respect of that matter. 143I reiterate that approximately $45,000 of the loan represents [NAME]'s cost of borrowing the money. I have not added anything back in respect of that matter. 144I offer the following calculations: $476,254.21 $200,600.00 ______________ $275,654.00 $ 14,601.00 _____________ $261,053.00 This final figure of $261,053 should be apportioned amongst [NAME] and the [NAME] according to their interests. Since his acquisition of [NAME]'s interest, [NAME] has a 58 per cent interest in the property and the [NAME] maintains its 42 percent. On this basis I will award compensation to [NAME] in the sum of $151,410.74 and to the [NAME] in the sum of $109,642.26. 145I think it appropriate to allow interest on these amounts pursuant to s 100 Civil Procedure Act 2005 (NSW) at the maximum rate applicable from 18th March 2011 to the date of this judgment. 146It was not alleged that the unjust contract in this case was excluded by s 6(2) Contracts Review Act notwithstanding the profit involved. Notwithstanding the profit motive I would not regard the contract as one entered into or in the course of or for the purpose of a trade, business or profession carried on or proposed to be carried on by [NAME] or [NAME].

The monies held on trust by [NAME] 147The surplus notionally due to [NAME] is $58,596.31. And as I have said that money is held on trust by the solicitors for the mortgagee, [NAME], pending the resolution of these outstanding issues. I have referred to this surplus as notional because in truth, [NAME], as I have remarked already, never at any time had any equity over and above her indebtedness to the bank in the property. In truth, the whole of the $395,342.29 due to the mortgagee as at 18th March 2011 was referrable to her borrowings, however one looks at the matter. The amounts referrable to initial development costs and to legal costs to the Estate amount to a little over $50,000 or about one-fifth of the borrowings. One-fifth of the total amount of the indebtedness of [NAME] as at 18th March 2011 was about $80,000. This still left around $315,000 due to the mortgagee well and truly swamping the value of her one-third interest of $200,600. However, I have treated that money held on trust by [NAME] as having been paid by [NAME]. Were I to direct that it be paid out to him, I would be effectively double counting in his favour. 148I remind myself that "wide though the court's powers are to find a contract unjust, the remedies it may grant in respect of such injustice are strictly limited to avoiding an unjust consequence or result of the unjust contract": SH Lock Australia Limited v Kennedy (1988) 12 NSWLR 482 at 492. Ordering the monies held on trust be paid out to [NAME] would provide him with a windfall and to that extent undermine the basis upon which the settlement of 18th March 2011, by which he re-acquired the property, was achieved. Although the justice of [NAME]'s claim may be at best marginal, I am of the view that those monies should be paid to her but only on condition that she first provides evidence satisfactory to the Trustees that she has satisfied the judgments I will make against her in this case.

Orders 149My orders are: In the first cross-claim brought by [NAME] (1)I make an order under s 7(1)(b) Contracts Review Act 1980 declaring void ab initio the contract between [NAME] and [NAME] to the extent to which it provides for the liability of [NAME] for the loan from [COMPANY] to be borne by [NAME] and [NAME]. (2)I order that [NAME] pay compensation to [NAME] in the sum of $151,410.74 together with interest under s 100 Civil Procedure Act 2005 from 18th March 2011 until today. (3)I grant the parties liberty to apply if they are unable to agree upon the amount of interest due. (4)I order [NAME] to pay the costs of [NAME] on the ordinary basis forthwith after they have been agreed or assessed. The third cross-claim brought by [NAME] as Executor of the [NAME] (1)I make an order under s 7(1)(b) Contracts Review Act 1980 declaring void ab initio the contract between [NAME] and [NAME] to the extent to which it provides for the liability of [NAME] for the loan from [COMPANY] to be borne by [NAME] and [NAME]. (2)I order that [NAME] pay compensation to the Estate of the late [NAME] in the sum of $109,642.26 together with interest under s 100 Civil Procedure Act 2005 from 18th March 2011 until today. (3)I grant the parties liberty to apply if they are unable to agree upon the amount of interest due. (4)I order [NAME] to pay the costs of the Estate of the late [NAME] on the ordinary basis forthwith after they have been agreed or assessed. The second cross-claim brought by [NAME] (1)Declare that [NAME] is the party entitled to the funds held on trust by [NAME], lawyers in the sum of $58,596.31 and interest (if any). (2)Upon the solicitors first being satisfied that [NAME] has satisfied order (2) pronounced today in each of the first and third cross-claim I direct [NAME] to pay the funds referred to in order (1) to [NAME], whose receipt whereof will discharge North Rose's obligations under the orders made on 16th November 2010. (3)The second-cross claim is otherwise dismissed with [NAME] to pay the costs of the first and third cross-claimants on the ordinary basis forthwith after they have been agreed or assessed.

********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 May 2014