The Law Handbook 2024

438 Section 5: Managing your money The majority of the court, Quinlan CJ and Tottle J, drew analogies to the facts of two other significant unjust transactions decisions, Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 and Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343. Their Honours held that the respondents had constructive knowledge of the intermediary’s fraud and must take significant responsibility for their actions (at 326). Their Honours drew attention to the respondents’ lending procedures and structures, which ‘effectively insulated it from any actual knowledge of the financial circumstances of the person to whom it was lending’ (at 324). Although the appellants were imprudent and careless in applying for an unaffordable loan, it was held that this ‘does not detract from the conclusion that procedural injustice resulted from the circumstances in which the Loan Agreement and the Mortgage were created’ (at 328). The court’s separate decision in relation to remedy is set out in Step 2 below. Step 2: If the transaction is reopened as unjust, what remedy should a court grant the debtor? Under section 77 of the NCC, a court has a discretionary power to make any one or more of the following orders upon reopening a transaction under section 76: a reopen an account already taken between the parties; b relieve the debtor and any guarantor from payment of any amount that the court considers to be excessive; c set aside either wholly or in part or revise or alter an agreement made or mortgage given in connection with the transaction; d order that the mortgagee takes such steps as are necessary to discharge the mortgage; e give judgment for or make an order in favour of a party of such amount as, having regard to the relief (if any) which the court thinks fit to grant, is justly due to that party under the contract, mortgage or guarantee; f give judgment or make an order against a person for delivery of goods to which the contract, mortgage or guarantee relates and which are in the possession of that person; or g make ancillary or consequential orders. An application under section 76 must be made within two years of the relevant credit contract being rescinded, discharged or otherwise brought to an end (s 80 NCC). A good example of the operation of the unjust transaction provisions of the old Uniform Credit Code can be found in the decision of the New South Wales Supreme Court in the case of Permanent Mortgages Pty Ltd v Cook [2006] NSWSC 1104, in which a credit contract was set aside against a debtor because it was unjust. In Violi v Commonwealth Bank of Australia [2015] NSWCA 152, the bank manager asked Violi to sign a guarantee on the bonnet of his car while he was spraying grapes. The bank manager failed to explain to Violi that he was signing a guarantee and failed to advise him to seek independent legal advice. Violi, who did not have a good comprehension of legal documents (English is his second language), believed he was signing papers because he was required to do so as a shareholder of the company. Violi succeeded in getting a judgment by default (obtained against him) set aside on the basis that the guarantee was unjust under the Contracts Review Act 1980 (NSW). In Perpetual Trustees Victoria Ltd v Burns [2015] WASC 234, the court set aside a number of loans that disability support pensioners entered into on the basis of unconscionable conduct as the borrowers could not afford the loans and there were serious doubts about whether they fully appreciated the nature and consequences of the transactions. In Australian Securities & Investments Commission (ASIC) v Channic Pty Ltd (No 4) [2016] FCA 1174, the Federal Court found that a Cairns-based lender entered into unjust transactions when it provided loans to vulnerable Indigenous consumers so they could purchase second-hand cars from a related car yard. Ultimately, the court ordered (in ASIC v Channic Pty Ltd [2017] FCA 363) that the relevant credit contracts be treated as invalid from the outset. In Shannon v Permanent Custodians Ltd [No 3] [2022] WASCA 112 (see the summary of the court’s separate liability decision in Step 1 above), Quinlan CJ and Tottle J considered how to restore the appellants to their pre-transaction position and effect practical justice between the parties (at 121). Their Honours decided that it was appropriate to compensate the appellants for all of their net losses flowing from