The Law Handbook 2024

Chapter 5.8: Mortgages, consumer leases and other finance products 437 The NCC provides similar relief to lessees in relation to unjust consumer leases (entered into from 1 March 2013) (see ‘Consumer leases’, below). The provisions set out a two-step test: • Step 1: Was the contract, mortgage or guarantee unjust at the time it was entered into or changed? • Step 2: If the transaction is reopened as unjust, what remedy should a court grant the debtor? Step 1: Was the contract, mortgage or guarantee unjust at the time it was entered into or changed? A definition of the term ‘unjust’ is provided in section 204(1) of the NCC, which states that ‘unjust includes unconscionable, harsh or oppressive’. This phrase, which has been adopted from the Contracts Review Act 1980 (NSW), has been dubbed the ‘tautological trinity’ (see West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 621 per McHugh JA). The definition of unjust is wider than that of unconscionable conduct at common law (see Maisano v Car&Home Finance Pty Ltd (Credit) [2005] VCAT 1755 (‘ Maisano case ’)). The concept includes both: • substantive unjustness (i.e. the idea that the terms of the document itself are unconscionable); and • procedural unjustness (i.e. the idea that the conduct of the parties at or prior to the time the transaction was entered into was unconscionable (see the Maisano case, above). Further, the fact that a contract favours one party’s rights over another will not, on their own, amount to unjust conduct (see McKenzie v Smith (1998) ASC 155–025). When deciding whether a transaction is unjust, a court must consider: • the public interest; and • all the circumstances of the case. Note the presence of two competing public interests of consumer protection and upholding bargains. In Giannopoulos v Rapid Funds Pty Ltd [2013] SADC 9 (per Cole J at 130), it was held that unfairness and poor decision making do not necessarily amount to injustice and that it is generally desirable for contracts to be honoured. In addition, a court may consider a lengthy list of factors contained in section 76 of the NCC. These considerations include: • whether the credit provider or any other person exerted or used unfair pressure, undue influence or unfair tactics on the debtor, mortgagor or guarantor and, if so, the nature and extent of that unfair pressure, undue influence or unfair tactics; • whether at the time the contract, mortgage or guarantee was entered into or changed, the credit provider knew, or could have ascertained by reasonable inquiry of the debtor at the time, that the debtor could not pay in accordance with its terms or not without substantial hardship; • the terms of other comparable transactions involving other credit providers and, if the injustice is alleged to result from excessive interest charges, the annual percentage rate or rates payable in comparable cases. Just because a transaction exhibits one of the above factors does not make that transaction unjust (see Bendigo & Adelaide Bank Ltd v Karamihos [2014] NSWCA 17 at 62 per Macfarlan J, which considered similar provisions of the Contracts Review Act) . A contract may be found to be unjust even though none of the section 76(2) criteria are present (see Barker v GE Mortgage Solutions Ltd [2013] QCA 137 at 64). If the court is satisfied that in the circumstances, at the time the relevant credit contract, mortgage or guarantee was entered into or changed, the credit contract, mortgage or guarantee was unjust, the court may ‘reopen’ the relevant transaction (s 76(1) NCC). To decide if a contract term is unjust, consideration must be given to the circumstances in which the term or arrangement was made (see Wolfe v Permanent Custodians [2013] VSCA 331 (22 November 2013)). However, the court cannot take into consideration any circumstances that were not reasonably fore- seeable when the credit contract, mortgage or guarantee was entered into or changed (s 76(4) NCC). In Shannon v Permanent Custodians Limited [2020] WASCA 198, the Court of Appeal of the Supreme Court of Western Australia declared that a mortgage granted by the respondents to the appellants to secure the purchase of their first home was an unjust transaction under section 76. The respondents commenced proceedings against the appellants for payment of sums owing under the loan following routine defaults. The evidence established that the loan was procured through the fraudulent actions of the intermediary in the transaction, who misrepresented the appellants’ capacity to afford the loan repayments.