Spina v Permanent Custodians Limited [2009] NSWCA 206

ON 22 JULY 2009, the NSW Court of Appeal delivered Spina v Permanent Custodians Limited [2009] NSWCA 206 (22 July 2009).

The late Angelina Spina and her late son Michael Spina entered into a Loan Agreement with Permanent Custodians Limited to borrow $400,000, for Michael’s benefit. The loan was secured with a mortgage over Angelina’s Cherrybrook property, her sole asset. Angelina was not given independent legal advice.

Angelina was born in Italy. At the time of the loan, she was 86 years of age and lived in a nursing home. Michael held a power of attorney with respect to Angelina’s affairs.

Angelina, through her tutor Sarina Spina (her daughter) brought proceedings in the Supreme Court of NSW against Permanent Custodians Limited seeking orders that the Loan Agreement be set aside on the grounds that it was either unconscionable or “unjust” under the Contracts Review Act 1980.

Hammerschalg J held in favour of Permanent Custodians, finding that Angelina was not at any special disadvantage or entitled to relief under the Contracts Review Act 1980.

Following Hammerschlag J’s decision, Angelina died.

The appellant, Joe Spina, was the executor of Angelina’s estate and sought an appeal of Hammerschlag J’s decision.

The Court of Appeal allowed the appeal, setting aside Hammerschlag J’s judgment and made orders that the Loan Agreement is void.

Per Young J at [119]:

“… the lender was not innocent. It was the master of the situation; it knew what to do in its operations manual and that was not complied with in a case where it was quite clear that an 86 year old lady was putting her only substantial asset on the line in a situation where she may lose the lot without herself receiving independent legal advice.”

Per Young J at [124]:

“Broadly speaking, the same sort of factors are relevant in a case based on unconscionability as those based to get relief under the statute. However, as the learned primary judge pointed out, to succeed in showing there is unconscionable conduct, a plaintiff must show that the defendant’s conduct fell short of the standards accepted by courts of equity and the focus is on the defendant. Under the Contracts Review Act, the focus is on the weaker party as to whether the contract operates unjustly towards the weaker party. Furthermore, under the Contracts Review Act relief may be given even if the relevant circumstances are not known to the other party when the contract was entered into, but this is not the case where the allegation is unconscientious conduct.”

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