Direct Steel Traders Pty Ltd v Abdallah

Legislation Cited: Australian Securities and Investments Commission Act 2001 (Cth), ss 12CB, 12CC, 12GM

Cases Cited: Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1; [2019] HCA 18
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; [1983] HCA 14
Dalton and Schaeffer as Executors of the Estate of the Late John Herman Schaeffer v Naegeli [2024] NSWCA 51
King Investment Solutions Pty Ltd v Hussain (2005) 64 NSWLR 441; [2005] NSWSC 1076
Nitopi v Nitopi (2022) 109 NSWLR 390; [2022] NSWCA 162
Productivity Partners Pty Ltd (trading as Captain Cook College) v Australian Competition and Consumer Commission (2024) 419 ALR 30; [2024] HCA 27
Stubbings v Jams 2 Pty Ltd (2022) 276 CLR 1; [2022] HCA 6
Thorne v Kennedy (2017) 263 CLR 85; [2017] HCA 49
Wakim v Senworth Capital Pty Ltd [2024] NSWCA 102

Texts Cited: N/A

Category: Principal judgment

Parties: Direct Steel Traders Pty Ltd (ACN 147 835 443) (Plaintiff/First Cross-Defendant)
Wafa Abdallah (First Defendant/Cross-Claimant)
Ghassan Abdallah (Second Defendant/Cross-Claimant)
Vulcan Steel (Australia) Pty Ltd (ACN 100 061 283) (Third Defendant)
Steelcorp Engineering Pty Ltd (in liq) (ACN 611 197 179) (Second Cross-Defendant)

Representation: Counsel:
Mr J Pokoney (Plaintiff/First Cross-Defendant)
Mr D C Eardley (First and Second Defendants/Cross-Claimants)
Submitting appearance (Third Defendant)
No appearance (Second Cross-Defendant)
Solicitors:
Turks Legal (Plaintiff/First Cross-Defendant)
Anne + Benjamin Law (First and Second Defendants/Cross-Claimants)
White Cleland Lawyers & Consultants (Third Defendant)

File Number(s): 2023/332264

Publication restriction: Nil

Judgment

1. The central issue in these proceedings is whether or not the plaintiff engaged in conduct that was unconscionable contrary to equitable principle, or in contravention of s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth), in accepting a guarantee and mortgage from the first and second defendants as security for debts owing to the plaintiff by the second cross-defendant under an agreement pursuant to which the plaintiff supplied goods to the second cross-defendant on credit. For all of the reasons that follow, I have held that the plaintiff’s conduct was not unconscionable contrary to equitable principles, and did not contravene s 12CB, and that the plaintiff is therefore entitled to an enforce the guarantee and mortgage.

Salient facts

2. The relevant facts were not the subject of any dispute between the parties, save to the extent that I have expressly indicated below.

3. The plaintiff, Direct Steel Traders Pty Ltd (DST), is in the business of supplying steel. Mr John Church and Mr Craig Smith have been the directors of DST at all times relevant to these proceedings.

4. DST supplied steel products to the second cross-defendant, Steelcorp Engineering Pty Ltd (Steelcorp), on the terms set out in a credit account application completed by Steelcorp on 7 September 2020 and signed by Mr Jawdat El-Mir, who was then the sole director of Steelcorp. Since March 2022, amounts owing by Steelcorp to DST had been the subject of guarantees by Mr Jawdat El-Mir, Mr Tarek El-Mir, Elmir Investment Group Pty Limited and Elmir Pty Limited, and a mortgage over property owned by Mr Jawdat El-Mir.

5. There was a change in ownership of Steelcorp in about late October 2022, as a result of which Mr Shwan Ibrahim Kader became the sole director of the company on 20 October 2022. At that time, Steelcorp owed a total sum of $319,592.18 to DST for the supply of steel products.

6. Steelcorp submitted a new credit account application to DST signed by Mr Kader as the new sole director of Steelcorp on 7 November 2022. Steelcorp’s total indebtedness to DST, which had increased to as much as $429,944.83 by 27 October 2022, had been reduced to $209,240.90 by 7 November 2022 as a result of two large payments made by Steelcorp to DST on 4 and 7 November 2022. This level of indebtedness exceeded that for which DST had debtor insurance. In circumstances where the previous director and owner of Steelcorp was requesting DST to release the existing guarantees and mortgage, DST required substitute security in order to continue supplying steel products to Steelcorp on credit following the change in ownership of the company. During a telephone conversation in late October or early November 2022, Mr Church advised Mr Nour Farhat, the General Manager of Steelcorp, that DST would not release the existing security unless and until substitute security was provided.

7. Mr Farhat sent an email to Mr Church on 10 November 2022 attaching a letter from Mr Kader to DST dated 7 November 2022 and a further letter to DST dated 10 November 2022 that had been signed, or appeared to have been signed, by Mr Ghassan Abdallah and Mrs Wafa Abdallah on 9 November 2022. Mr and Mrs Abdallah are the first and second defendants and cross-claimants in these proceedings.

8. The letter from Mr Kader stated that that he had purchased Steelcorp and was now the sole director of the company, confirmed that the company was indebted to DST in the amount of $209,240.90, and stated that Mr Kader personally guaranteed the payment of that debt.

9. The letter from Mr and Mrs Abdallah stated:

“As requested this letter is to confirm that we Ghassan Abdallah and Wafa Abdallah agree to sign a guarantee and grant a charge against our property 15 Wills Rd, Long Point NSW 2564 to secure the credit request for Steelcorp Engineering Pty Ltd.

If you require anything else from our end please do not hesitate to contact us.”

10. The property known as 15 Wills Rd, Long Point is the land comprised in folio X/XXXXXX of the Register (the Property).

11. Mr Abdallah has made an affidavit in these proceedings in which he deposes that he had no formal education beyond year 7 in Lebanon, he migrated to Australia in April 1970 when he was 21 years of age, his first language is Arabic, and his oral and written English skills are “very limited”.

12. Mrs Abdallah has made an affidavit in these proceedings in which she deposes that she was born in Aleppo, Syria, where she lived until migrating to Australia at an unspecified time, and that she dropped out of school after year 6. Mrs Abdallah deposed that her first language is Arabic, and that her oral and written English skills are “very limited”.

13. Mr Abdallah deposed that Mr Kader is a friend of the Abdallah family, but he has never been in business with Mr Kader and he had no control or influence over the business of Steelcorp. Mr Kader approached Mr Abdallah on or about 9 November 2022 and told him that he was trying to secure credit for his business. Mr Kader asked Mr Abdallah if he could help by writing a reference for him. Mr Abdallah was then presented with a document to sign, and he did so. He cannot recall whether the document was the 10 November 2022 letter referred to above. Having considered that letter for the purpose of preparing his affidavit, Mr Abdallah deposed that he did not draft the letter, he did not receive any legal advice in relation to the letter, and he believed he was signing a reference which he understood would simply verify Mr Kader’s personal character.

14. Mrs Abdallah also deposed that Mr Kader is a friend of the Abdallah family, but she has never been in business with Mr Kader and she had no control or influence over the business of Steelcorp. Mrs Abdallah deposed that her husband approached her on about 9 November 2022 with a document, telling her: “Shwan needs a reference. Sign here.” Mrs Abdallah deposed that she signed where Mr Abdallah told her to sign, without knowing what the document was and without understanding what reference she was providing. She cannot recall whether the document that she signed was the 10 November 2022 letter referred to above. Having considered that letter for the purpose of preparing her affidavit, Mrs Abdallah deposed that she did not draft the letter, she did not receive any legal advice in relation to the letter, and that she did not know what a guarantee and charge was.

15. Mr and Mrs Abdallah were not cross-examined.

16. I find on the balance of probabilities that the document that each of them signed, which is the subject of their evidence referred to above, is the 10 November 2022 letter referred to at [9] above. There is no evidence that DST knew at the time they received that letter that Mr and Mrs Abdallah had “very limited” written and oral English, or that they had signed the letter having been misled by Mr Kader or labouring under any misunderstanding about of the content and meaning of the letter.

17. DST did not contact Mr and Mrs Abdallah after receiving Mr Farhat’s email on 10 November 2022. DST engaged solicitors to prepare guarantees and a mortgage over the Property to give effect to the security proposed by Steelcorp.

18. On or about 21 November 2022, Vulcan Steel Pty Limited lodged a caveat against the Property claiming a charge pursuant to a guarantee of the obligations of Steelcorp dated 17 November 2022.

19. On 23 November 2022, Mr Church sent an email to Mr Farhat attaching a draft deed of guarantee between DST, Steelcorp, Mr Kader’s company LB Cranes Pty Ltd, Mr Kader, Mr and Mrs Abdallah and Steel Corp Engineering Aus Pty Limited (the Guarantee), and a draft mortgage in respect of the Property in registrable form (the Mortgage). Mr Church’s email also requested a copy of photo identification for the guarantors. As at 23 November 2022, Steelcorp’s indebtedness to DST had been reduced from $209,240.90 to $159,240.90.

20. The Recitals to the Guarantee recorded:

“A. Steel Corp Aus in [sic] the sole shareholder of Steelcorp.

B. Shwan is the sole director/secretary of Steelcorp and Steel Corp Aus.

C. LB Cranes is a related entity of Shwan in which Shwan is the sole director/secretary and shareholder.

D. Ghassan and Wafa have advised DST that they are silent partners in Steelcorp and Steel Corp Aus.

E. Steelcorp is significantly indebted to DST.

F. LB Cranes, Steel Corp Aus, Shwan, Ghassan and Wafa (jointly and severally being the Guarantor) have offered to supply the guarantee, indemnity and charges and mortgage under this deed to secure Steelcopr’s obligations to DST.

G. In consideration of DST not calling in Steelcorp’s obligations to DST within the next 21 days, the Guarantor and Steelcorp supply the guarantees, indemnities and charges and mortgage under this deed.”

21. I interpolate to record that there is no evidence that Mr and Mrs Abdallah ever advised DST that they were “silent partners” in Steelcorp or its related company Steel Corp Engineering Aus Pty Limited. Nor is there any evidence of any reason for DST to have believed that they were silent partners, other than the absence of any complaint made by or on behalf of Mr and Mrs Abdallah prior to signing the Guarantee that Recital D was inaccurate. The high point of Mr Church’s evidence was that he had no way of knowing whether or not Mr and Mrs Abdallah were associated with Steelcorp at the time the Guarantee and Mortgage were executed, although he had probably looked at an ASIC extract for Steelcorp by that time and he would therefore have been aware that they were not shareholders or directors of Steelcorp. Mr Smith could not recall whether or when he looked at the ASIC extract, but Mr Church’s knowledge is attributable to DST.

22. Although Recital E recorded that Steelcorp was “significantly indebted” to DST, DST took no steps to inform Mr and Mrs Abdallah of the monetary amount owing by Steelcorp, or that the amount exceeded the debtor’s insurance limit that DST’s insurer had fixed for Steelcorp. As Mr Church acknowledged in cross-examination, DST considered that its provision of credit to Steelcorp in an amount exceeding the debtor’s insurance limit was “higher risk”. I understood Mr Church to be acknowledging that DST could not rely on the insurance cover alone and required security for repayment. The amount owing by Steelcorp fluctuated up and down over time. At the time the Mortgage and Guarantee were prepared, the amount was $159,240.90. There is no evidence that DST had investigated or formed any assessment about Steelcorp’s financial position and capacity to repay. Mr Church denied having “real concerns” about Steelcorp’s “financial viability” at the time the Guarantee and Mortgage were prepared and subsequently executed by Mr and Mrs Abdallah. I accept that evidence, which is consistent with the fact that the debt had been reduced by three payments totalling $270,000 made in the first few weeks of November 2022. DST made no inquiries about Mr and Mrs Abdallah’s capacity to pay in the event of default by Steelcorp, including any inquiries about their sources of income and the extent of their assets which might be realised in order to meet any demand for payment under the Guarantee. DST did make some inquiries about the value of the Property that was to be the subject of the Mortgage and satisfied itself that it would provide sufficient security.

23. Clause 2 of the Guarantee relevantly provides:

“Guarantee and Indemnity

(a) In consideration of DST not calling in Steelcorp’s liability to DST within 21 days of the date of this deed, the Guarantor gives the guarantee and indemnity in this deed (which is referred to in this deed as the guarantee and indemnity).

(b) The Guarantor confirms that it is on notice of Steelcorp’s obligations to DST and:-

(i) understands Steelcorp’s obligations to DST for payment of monies; and

(ii) has conducted all required due diligence on the financial viability of Steelcorp and Steelcorp’s ability to pay its liability to DST and enters into this deed on notice of the risk that Steelcorp may not be able to pay its obligations to DST.

(c) The Guarantor unconditionally and irrevocably guarantees to DST that Steelcorp will pay all amounts outstanding to DST, including Steelcorp’s liability to pay monies outstanding to DST.

(d) As a separate undertaking, the Guarantor unconditionally and irrevocably indemnifies DST against and agrees as principal debtor to pay to DST on demand a sum equal to DST’s damages and loss (assessed on a normal common law basis (including consequential damages)) and reasonable costs and expenses (including legal costs) arising from or incurred in connection with Steelcorp’s breach of its obligations to DST.”

24. Clause 3 of the Guarantee relevantly provides:

“Grant of charges

(a) In consideration of DST not calling on Steelcorp’s obligations to it for a period of 21 days from the date of this deed and to secure the guarantee supplied under this deed:-

(i) Shwan, Ghassan and Wafa, jointly and severally, charge all of their circulating and non-circulating, present and after acquired, personal and real property, including proceeds in favour of DST to secure their obligations under this deed;

(ii) LB Cranes and Steel Corp Aus charges all of its circulating and non-circulating, present and after acquired, personal and real property, including proceedings in favour of DST to secure its obligations under this deed;

(iii) Steelcorp charges all of its circulating and non-circulating, present and after acquired, personal and real property, including proceeds in favour of DST to secure its obligations to DST; and

(iv) Ghassan and Wafa supply the mortgage over lot X in DPXXXXXX as annexed to this deed.”

25. Clause 9 of the Guarantee provides:

“Notice in respect to legal advice

(a) The guarantor acknowledges and confirms that it has been advised that it should obtain legal advise [sic] in respect to its rights and obligations under this deed and that they have:-

(i) been supplied to obtain such legal advice; and

(ii) have obtained such legal advice or otherwise determine [sic] that they understand their obligations and have entered into this deed on full notice of the potential consequences of entering into this deed.”

26. As I have already mentioned, the Mortgage attached to the Guarantee was in registrable form and granted a mortgage over the Property in favour of DST securing “any and all of the mortgagor’s obligations to the mortgagee, including the mortgagor’s obligations to the mortgagee under any guarantee in favour of the mortgagee and/or indemnity of the mortgagee for loss, including the mortgagor’s guarantee of Steelcorp Engineering Pty Ltd’s obligations to the mortgagee”.

27. On 25 November 2022, Mr Farhat sent an email to Mr Church attaching the Guarantee signed by Steelcorp and by each of the guarantors together with the Mortgage signed by Mr and Mrs Abdallah. The documents had been signed in the form prepared by DST’s solicitors, without amendment and without Mr and Mrs Abdallah or the other guarantors having sought to negotiate any amendments. To the extent that counsel for Mr and Mrs Abdallah maintained the submission that this constitutes evidence of a material inequality of bargaining power, I reject that submission. There is no evidence that DST would not have been open to negotiation if Mr and Mrs Abdallah had sought to negotiate any of the terms of the Guarantee and the Mortgage. As counsel for DST submitted, and as counsel for Mr and Mrs Abdallah accepted, DST did not expressly or implicitly require or request that the Guarantee and Mortgage be signed promptly after Mr Church sent the draft documents to Mr Farhat on 23 November 2022. DST had the benefit of the existing security which it was under no obligation to release unless and until it was satisfied with the substitute security offered.

28. In their amended defence filed in these proceedings on 4 March 2024, Mr and Mrs Abdallah admit signing the Guarantee but plead that they do not know and cannot admit signing the Mortgage.

29. In his two affidavits made in these proceedings, Mr Abdallah deposed that he did not recall signing the Guarantee and Mortgage, that it was not explained to him when Mr Kader approached him on or about 9 November 2022 (or at any other time) that his home would be used as security for Mr Kader’s business dealings, that he has never had any contact with a person by the name of Mr Nour Farhat, and that he retired from work more than 20 years ago and has no involvement in the business of Steelcorp. Mr Abdallah also deposed that he is in poor health due to work injuries and constant migraines. The Property is his sole asset, except for a modest savings account held jointly with Mrs Abdallah. He has no income other than government benefits of $862.60 per fortnight.

30. In her two affidavits made in these proceedings, Mrs Abdallah deposed that she did not recall signing the Guarantee and Mortgage, that she was never informed of the consequences of the Guarantee and she did not seek legal advice, and that she has no involvement in the business of Steelcorp. Mrs Abdallah also deposed that she was diagnosed with diabetes 37 years ago and has been caring for Mr Abdallah since he retired. The Property is her sole asset, except for a modest savings account held jointly with Mr Abdallah. She has no income other than government benefits of $862.60 per fortnight.

31. As I have already mentioned, Mr and Mrs Abdallah were not cross-examined.

32. On 29 November 2022, Mr Church received a further email from Mr Farhat attaching a copy of Mr Abdallah’s passport (which showed that he was then 73 years of age and that he had been born in Tripoli, Lebanon, but had held his then-current Australian passport since December 2014) and a copy of Mrs Abdallah’s passport (which showed that she was then 63 years of age and had been born in Aleppo, Syria, but had held her then-current Australian passport since September 2015).

33. Mr Abdallah deposed that he does not know how Mr Farhat came to be in possession of his passport, but he (Mr Abdallah) may have shown it to Mr Kader when he asked him to sign what he thought was a reference letter.

34. Mrs Abdallah deposed that she does not know how Mr Farhat came to be in possession of her passport, although she acknowledges that she may have shown it to Mr Kader.

35. It was established in cross-examination of each of Mr Church and Mr Smith that they made no inquiries about Mr and Mrs Abdallah’s education, proficiency in the English language, state of health, income and assets, and had no knowledge about those matters. They took no steps to ensure that Mr and Mrs Abdallah had received financial and/or legal advice before executing the Guarantee and Mortgage. However, as I have already mentioned, DST imposed no time frame for the execution of the documents that would have interfered with Mr and Mrs Abdallah seeking such advice. Mr Church gave evidence that he had no reason to believe that Mr and Mrs Abdallah had any difficulty comprehending the Guarantee and Mortgage, or that they had been manipulated or tricked into signing them. In his experience, it is not unusual for DST to receive guarantees given by persons who are not directors of the company to whom DST is supplying steel products on credit.

36. Mr Church and Mr Smith executed the Guarantee and Mortgage on behalf of DST. The Mortgage was never registered.

37. On 9 December 2022, DST lodged a caveat over the Property claiming an interest in the Property pursuant to the unregistered Mortgage.

38. Between 14 December 2022 and 28 February 2023, DST continued to supply steel products to Steelcorp. Steelcorp failed to pay for those products, in breach of the terms of the credit application. The present amount of the debt is $156,485.95 plus interest. Steelcorp did not make any payments in response to DST’s demands for payment. DST has made demands for payment from Mr and Mrs Abdallah since 29 June 2023. Mr and Mrs Abdallah have not made any payment in response to those demands.

39. Steelcorp went into liquidation under a court-ordered winding up on 9 October 2023.

The claim and the cross-claim

40. DST claims:

41. judgment against Mr and Mrs Abdallah in the sum of $156,485.95, together with interest on that judgment sum from 16 December 2022 up to the date of judgment pursuant to s 100 of the Civil Procedure Act 2005 (NSW);

42. an order that Mr and Mrs Abdallah pay DST’s costs of and incidental to these proceedings on an indemnity basis; and

43. orders for judicial sale of the Property and ancillary orders, including for the payment into court of the net sale proceeds (after payment of selling costs and the amount due to DST in discharge of its claimed equitable charge or mortgage over the Property).

44. The caveat lodged by Vulcan Steel Pty Limited is still recorded on the title to the Property. [1] That company was joined as the third defendant to these proceedings on the first day of the final hearing, and filed a submitting appearance save as to costs that afternoon. The orders sought by DST do not seek to disturb that. DST accepts that, if Vulcan Steel does not agree to withdraw its caveat to facilitate a sale of the Property by DST under orders that require payment of net sale proceeds into court, then DST will need to apply to this Court for an order for the withdrawal of Vulcan Steel’s caveat. Any such application will be determined on its merits in the circumstances existing at that time. By providing for the payment of the net sale proceeds of the Property into court, DST intends that it would be open to Mr and Mrs Abdallah to immediately apply to the Court for payment of the whole or part of those net sale proceeds to them, and that Vulcan Steel will be entitled to be heard if it opposes such an order. It would be for Vulcan Steel on that occasion to demonstrate that this Court should continue to hold a specified amount of those net sale proceeds pending determination of its claim against Mr and Mrs Abdallah which is currently the subject of proceedings in the Victorian County Court.

45. Mr and Mrs Abdallah do not dispute that Steelcorp is indebted to DST in the total sum of $156,485.95 (plus interest), and that this is the principal sum that is payable by them under the Guarantee and secured by the Mortgage, unless the Guarantee and Mortgage are set aside on the grounds of unconscionability.

46. By their defence and cross- claim, Mr and Mrs Abdallah sought orders in equity or pursuant to the Australian Consumer Law that the Guarantee and Mortgage are void and unenforceable against them. In opening submissions, counsel for Mr and Mrs Abdallah reformulated the relief sought as an order setting aside the Guarantee and Mortgage on the grounds of unconscionability in equity, or pursuant to s 12GM of the Australian Securities and Investments Commission Act 2001 (Cth) on the grounds of unconscionable conduct with the meaning of s 12CB of that Act. The hearing was conducted on the basis of that reformulation of Mr and Mrs Abdallah’s claims for relief without objection from DST.

47. By their cross-claim, Mr and Mrs Abdallah also sought as against Steelcorp an order that it pay the debt to DST forthwith and a declaration that Mr and Mrs Abdallah were entitled to be discharged and exonerated from all liability under the Guarantee. That claim was abandoned in opening submissions.

48. If the Guarantee and Mortgage are not set aside on the grounds of the alleged unconscionability, Mr and Mrs Abdallah:

49. do not identify any reason why the Court should not award pre-judgment interest on that principal sum pursuant to s 100 of the Civil Procedure Act;

50. do not dispute that DST is also entitled to recover its costs of these proceedings from them on an indemnity basis pursuant to clause 22(d) of the Guarantee; [2] and

51. do not oppose an order for judicial sale of the Property, [3] and raise no material objection to terms of the orders proposed by DST, with the exception of the date by which they should be required to provide vacant possession of the Property.

52. The issues to be determined by this Court are therefore limited to Mr and Mrs Abdallah’s claims for orders setting aside the Guarantee and Mortgage as unconscionable in accordance with equitable principles or under ss 12CB and 12GM of the Australian Securities and Investments Act (the ASIC Act).

Consideration and determination

Unconscionability – the equitable principles

47. As Kiefel CJ, Bell, Gageler, Keane and Edelman JJ said in Thorne v Kennedy: [4]

“A conclusion of unconscionable conduct requires the innocent party to be subject to a special disadvantage ‘which seriously affects the ability of the innocent party to make a judgment as to [the innocent party’s] own best interests’. The other party must also unconscientiously take advantage of that special disadvantage. This has been variously described as requiring ‘victimisation’, ‘unconscientious conduct’, or ‘exploitation’. Before there can be a finding of unconscientious taking of advantage, it is also generally necessary that the other party knew or ought to have known of the existence and effect of the special disadvantage.”

48. These considerations are not to be applied as if they were separate elements of a cause of action. Each case calls for a precise examination of its particular facts, including the relationship between the parties, and the circumstances of the party who is said to have been vulnerable by reason of a special disadvantage. [5] There are no fixed or closed categories of circumstances that might constitute a special disadvantage but, in this context, “special disadvantage” means something that “seriously affects the ability of the innocent party to make a judgment as to his [or her] own best interests”. [6]

49. In determining whether one party has unconscientiously taken advantage of a special disadvantage of the other, it is necessary to consider whether the first party had actual knowledge of, or was wilfully ignorant of, the special disadvantage, or had constructive knowledge of that special disadvantage in the sense that they had knowledge of facts from which they ought to have known that the other party was suffering under the particular special disadvantage. Constructive notice – where the first party is on notice of facts that might lead on inquiry to discovery that the other party has a special disadvantage – will not suffice. [7]

50. Where a special disadvantage is established and shown to have been exploited, making it prima facie unconscientious for the stronger party to have procured or accepted the weaker party’s assent to the impugned transaction, an evidentiary onus falls on the stronger party to show that the transaction was fair, just and reasonable. [8]

51. In the present case, DST accepted that the evidence of Mr and Mrs Abdallah referred to at [11]-[14] and [29]-[30] above establishes that they were subject to a special disadvantage in the requisite sense at the time the Guarantee and Mortgage were executed by reason of their limited education, limited proficiency in the English language, having been directly (in the case of Mr Abdallah) or indirectly (in the case of Mrs Abdallah) misled by Mr Kader in relation to the contents of the letter they signed on 9 November 2022, not having received legal or financial advice in relation to the Guarantee and the Mortgage, and their inability to make any payment demanded of them under the Guarantee without selling the Property which is their home and their only asset of substance. However, DST submitted that it had no actual or constructive knowledge of the special disadvantage, and that it therefore could not have taken unconscientious advantage of the special disadvantage.

52. As counsel for Mr and Mrs Abdallah submitted, DST knew that they were not directors or shareholders of Steelcorp, and had no way of knowing whether or not they were associated with the business of Steelcorp, at the time the Guarantee and Mortgage were executed by Mr and Mrs Abdallah and accepted by DST. [9] Counsel for Mr and Mrs Abdallah emphasised that DST failed to make any inquiries about the matters referred to at [51] above. [10] By the time Mr Church and Mr Smith decided to accept the Guarantee and Mortgage proffered by Mr and Mrs Abdallah by executing those documents as directors of DST on 1 December 2022, [11] they knew the age and place of birth of each of Mr and Mrs Abdallah. [12]

53. It was not submitted on behalf of Mr and Mrs Abdallah that DST’s knowledge that they were not directors or shareholders of Steelcorp, that Mr Abdallah had been born in Lebanon and was 73 years of age, and that Mrs Abdallah had been born in Syria and was 63 years of age, amounted to constructive knowledge of the special disadvantage referred to at [51] above.

54. It was submitted on behalf of Mr and Mrs Abdallah that DST’s knowledge that they were not directors or shareholders of Steelcorp, that Mr Abdallah had been born in Lebanon and was 73 years of age, and that Mrs Abdallah had been born in Syria and was 63 years of age, should have caused DST to make further inquiries of them to ascertain their circumstances, the reasons why they had expressed willingness to provide a guarantee and charge, the reasons why they executed the Guarantee and Mortgage, and whether they had the means to pay the debt owed by Steelcorp if DST enforced the Guarantee. It was not submitted that DST’s failure to make those inquiries above amounted to wilful ignorance which support an inference of actual knowledge of the special disadvantage referred to at [51] above. Rather, it was submitted that DST’s failure to make the inquiries was unreasonable and contrary to “sound business practice”. Taken at its highest, the case put by counsel for Mr and Mrs Abdallah in cross-examining Mr Church and Mr Smith, and in closing submissions, was that DST had constructive notice of the special disadvantage. I reject the submission that DST engaged in conduct that was unconscionable by failing to make further inquiries in circumstances where it had no actual or constructive knowledge of the special disadvantage, and DST had not imposed any express or implied pressure on Steelcorp to procure the Guarantee and Mortgage from Mr and Mrs Abdallah within any particular timeframe, or at all. DST merely declined to release the existing security and unless and until some form of substitute security was provided. In doing so, DST did not exploit or take advantage of Mr and Mrs Abdallah’s special disadvantage of which DST had no actual or constructive knowledge.

55. It was also submitted on behalf of Mr and Mrs Abdallah that the conduct of DST in accepting, and now seeking to enforce, the Guarantee and Mortgage, constituted asset-based lending because DST was not interested in, and made no inquiries about, the financial capacity of Mr and Mrs Abdallah to pay any amount that may be demanded under the Guarantee without selling the Property secured by the Mortgage.

56. The High Court appears to have accepted as correct a concession made by the appellant guarantor in Stubbings v Jams 2 Pty Ltd [13] (Stubbings) that “there is nothing inherently unconscionable about asset-based lending insofar as it involves lending on the value of the assets that secure the loan without any reliance upon the borrower’s ability to repay the loan from his or her income or other assets.” Something more is required. [14]

57. In that case, the unconscionability arose from the circumstances that the appellant guarantor was unemployed, had no regular income, and was incapable of understanding the risks of the transaction he was entering into, which the plurality held would have the inevitable outcome that his equity in his properties would be taken by the respondent lender by way of interest payments, including at default interest rates – a danger that was obvious to the respondent lender, but not to the appellant. [15]

58. By contrast, the evidence in the present case falls a long way short of establishing an inevitability at the time the Guarantee and Mortgage were entered into that the Guarantee and Mortgage would be enforced. As I have explained earlier in these reasons, the evidence rises no higher than the amount of the debt exceeding the limit for which DST’s insurer was willing to provide debtor insurance cover in respect of Steelcorp, and DST therefore requiring some form of security for repayment. The amount of the debt owed by Steelcorp fluctuated from time to time, and was disclosed in Recital E to the Guarantee as being significant. DST did not have actual or constructive knowledge of any English language limitations or other circumstances that would impede Mr and Mrs Abdallah’s understanding of that disclosure, or of any of the terms of the Guarantee and Mortgage. I have accepted Mr Church’s evidence that he (and therefore DST) did not have any real concern about Steelcorp’s financial viability at the time the Guarantee and Mortgage were executed. [16]

59. For all of those reasons, I accept DST’s submission that it did not engage in unconscionable conduct contrary to equitable principles. Mr and Mrs Abdallah’s claim to set aside the Guarantee and Mortgage relying on the equitable doctrine of unconscionability must therefore be dismissed.

Unconscionability – the ASIC Act

60. It remains to consider Mr and Mrs Abdallah’s claim to set aside the Guarantee and Mortgage on grounds that DST engaged in conduct that was unconscionable within the meaning of s 12CB of the ASIC Act by obtaining or accepting the Guarantee and Mortgage, and by seeking to enforce those securities against Mr and Mrs Abdallah.

61. Section 12CB(1) of the ASIC Act relevantly provides that a person must not, in trade or commerce, in connection with the supply or possible supply of financial services to a person, engage in conduct that is, in all the circumstances, unconscionable.

62. The core principles applicable to determining Mr and Mrs Abdallah’s claim that DST contravened s 12CB may be summarised as follows:

63. s 12CB is not limited by the unwritten law relating to unconscionable conduct; [17]

64. the statutory language of “unconscionable” in s 12CB is more broad-ranging than the equitable principles, and is a normative standard of conscience that is permeated with accepted and acceptable community standards; [18]

65. conduct is not to be denounced by a court as unconscionable contrary to s 12CB unless it is “so far outside societal norm**s of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience”; [19]

66. s 12CC(1) sets out a non-exhaustive list of matters to which the Court must have regard for the purpose of determining whether a person has engaged in unconscionable conduct in contravention of s 12CB in connection with the supply or possible supply of financial services to a person to the extent that those matters are applicable in the circumstances of the particular case; [20]

67. those matters do not limit the scope of s 12CB, but provide guidance to the relevant societal norms and values that are relevant to and inform the meaning of “unconscionable” in s 12CB. The Court must consider the totality of the circumstances identified in the evidence and in the parties’ submissions as relevant to the impugned conduct; [21] and

68. the Court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention of s 12CB(1), but can have regard to any circumstances that were reasonably foreseeable at that time. [22]

69. A determination, made in accordance with those principles, as to whether particular conduct is unconscionable contrary to s 12CB, is an evaluative judgment. That judgment is not arrived at by merely balancing the applicable considerations in s 12CC. [23]

70. Because “unconscionable” in s 12CB is broader than the equitable principles governing unconscionability, conduct may be unconscionable within the meaning of s 12CB even if the alleged victim was not subject to a special disadvantage that seriously affected their ability to make a judgment as to their own best interests. However, if special disadvantage is relied on for the purpose of s 12CB, it is necessary to demonstrate not only the existence of the special disadvantage but also that the stronger party knew of it or had constructive knowledge of it, before the stronger party’s conduct will be held to be “outside societal norm**s of acceptable commercial behaviour [so] as to warrant condemnation as conduct that is offensive to conscience”. [24]

71. If the impugned transaction is improvident from the perspective of the party claiming unconscionability, this does not, without more, require the other party to prove that the transaction was fair, just and reasonable. [25] Oppressive and unreasonable terms may be evidence of specific vulnerability and unconscionability, depending on all the facts of the case. If the terms of the impugned transaction require the party claiming unconscionability to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the other party, that will be a relevant matter to consider in determining whether the conduct was unconscionable. [26]

72. Although the written submissions filed on behalf of Mr and Mrs Abdallah prior to the commencement of the hearing urged the Court to consider all of the factors in s 12CC(1) of the ASIC Act, neither those submissions nor the further submissions made at the conclusion of the hearing identified particular factors that were said to be relevant to this case on the basis of the evidence that had been adduced. The substance of the alleged contravention of s 12CB of the ASIC Act was the alleged taking advantage of the special disadvantage referred to at [51] above. That being so, it was necessary for Mr and Mrs Abdallah to demonstrate not only the existence of the special disadvantage but also that DST knew of it or had constructive knowledge of it so that its conduct should be held to be “outside societal norm**s of acceptable commercial behaviour [so] as to warrant condemnation as conduct that is offensive to conscience”. [27] Mr and Mrs Abdallah failed to demonstrate this for all of the reasons that I have explained at [51]-[58] above. It follows that their claim to set aside the Guarantee and Mortgage on the grounds of alleged unconscionable conduct contrary to s 12CB of the ASIC Act must also be dismissed.

Orders

67. For all of the foregoing reasons, the orders of the Court are as follows:

68. Judgment for the plaintiff against the first defendant and second defendant in the sum of $156,485.95.

69. Order that the first and second defendants pay interest upon the judgment sum in accordance with s 100 of the Civil Procedure Act 2005 (NSW).

70. Order that the first and second defendants pay the plaintiffs' costs of and incidental to the proceedings on an indemnity basis, as agreed or assessed.

71. Order that the plaintiff be appointed as the Court’s agent in order to effect the judicial sale of the property located at and known as 15 Wills Road, Long Point NSW (Folio Identifier X/XXXXXX) (the Property).

72. Order that first and second defendants deliver up vacant possession of the Property to the plaintiff within 42 days of the date of these orders.

73. Grant leave to the plaintiff to issue a Writ of Possession of the Property, such writ not to be executed earlier than 44 days after the date of these orders.

74. Order that the plaintiff be appointed to conduct the sale of the Property by public auction or, subject to order 10 below, by private treaty.

75. Order that the plaintiff be authorised to engage a qualified and independent real estate agent to market the Property for sale and to conduct any auction.

76. Order that the plaintiff must obtain advice from a qualified and independent real estate agent or valuer as to the market value of the Property before fixing a reserve price for the sale of the Property for the purpose of any auction.

77. Order that any sale of the Property by the plaintiff pursuant to these orders by private treaty is to be conditional upon the Court’s approval of the sale price.

78. Order that the plaintiff be appointed to transfer the Property to the purchaser(s) of the Property to complete any contract for sale of the Property entered into in accordance with orders 4 to 10 above and, in the case of a sale by private treaty, following approval by the Court in accordance with order 10 above.

79. Order that proceeds of the sale of the Property be applied as follows:

(a) First, in payment of all costs, charges and expenses properly incurred by the plaintiff as an incident of the sale, attempted sale or otherwise of the Property including any agent's commission, advertising expenses and reasonable legal fees and disbursements of and incidental to the conveyance of the Property; (b) Second, in payment of the amounts payable pursuant to orders 1 to 3 above and any other amount (if any) due to the plaintiff in discharge of its interest in the Property; (c) Third, the balance to be paid into Court pending further order of the Court.

13. Grant liberty to the parties to apply on three days’ notice with respect of any matter arising with respect to the sale of the Property, specifying the relief sought.

**********

Endnotes

See [18] above.

See [23] above.

That being the usual means of enforcement of an equitable charge or equitable mortgage: King Investment Solutions Pty Ltd v Hussain (2005) 64 NSWLR 441; [2005] NSWSC 1076 at [81] (Campbell J).

(2017) 263 CLR 85; [2017] HCA 49 at [38] (citations omitted) (Thorne v Kennedy).

Stubbings v Jams 2 Pty Ltd (2022) 276 CLR 1; [2022] HCA 6 at [39] (Kiefel CJ, Keane and Gleeson JJ) (Stubbings).

Ibid at [40] (Kiefel CJ, Keane and Gleeson JJ), referring to Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 (Amadio) at 462 (Mason J); [1983] HCA 14.

Nitopi v Nitopi (2022) 109 NSWLR 390; [2022] NSWCA 162 at [4]-[10] (Bell CJ) and [197]-[199] (White JA) (Nitopi). Whilst it may be arguable that constructive notice is sufficient, it would not be open to me as a trial judge to accept such arguments as I am bound by the Court of Appeal’s judgment in Nitopi: Wakim v Senworth Capital Pty Ltd [2024] NSWCA 102.

Amadio at 474 (Deane J); Nitopi at [35]-[41] (Bell CJ) and [140]-[147] (Ward P).

See [21] above.

See [22] and [35] above.

The evidence does not expressly identify the date of execution of the Guarantee, but it is inherently probable that it was executed by DST at the same as the Mortgage was executed on 1 December 2022.

See [32] above.

(2022) 276 CLR 1; [2022] HCA 6 at [4] (Kiefel CJ, Keane and Gleeson JJ).

Ibid at [4] and [34] (Kiefel CJ, Keane and Gleeson JJ).

Ibid at [43]-[47] (Kiefel CJ, Keane and Gleeson JJ).

See [22] above.

ASIC Act, s 12CB(4)(a).

Productivity Partners Pty Ltd (trading as Captain Cook College) v Australian Competition and Consumer Commission (2024) 419 ALR 30; [2024] HCA 27 at [60] (Gageler CJ and Jagot J), Gleeson J agreeing at [310], Beech-Jones J agreeing at [340]) (Productivity Partners).

Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1; [2019] HCA 18 at [92] (Gageler J) (ASIC v Kobelt); Stubbings v Jams at [58] (Gordon J); Productivity Partners at [60] (Gageler CJ and Jagot J, Gleeson J agreeing at [310], Beech-Jones J agreeing at [340]).

Productivity Partners at [55]-[60] (Gageler CJ and Jagot J, Gleeson J agreeing at [310], Beech-Jones J agreeing at [340]).

Productivity Partners at [50] (Gageler CJ and Jagot J, Gleeson J agreeing at [310], Beech-Jones J agreeing at [340]) and [100]-[105] (Gordon J).

ASIC Act, s 12CB(3); Productivity Partners at [51] (Gageler CJ and Jagot J, Gleeson J agreeing at [310], Beech-Jones J agreeing at [340]).

ASIC v Kobelt at [101] (Gageler J) and [153] (Nettle and Gordon JJ); Productivity Partners at [103]-[105] (Gordon J); Dalton and Schaeffer as Executors of the Estate of the Late John Herman Schaeffer v Naegeli [2024] NSWCA 51 at [131] and [151] (Stern JA, Ward P and Griffiths AJA agreeing) (Schaeffer).

Schaeffer at [132]-[135] (Stern JA, Ward P and Griffiths AJA agreeing).

Schaeffer at [138] (Stern JA, Ward P and Griffiths AJA agreeing).

ASIC Act, s 12CC(1)(b); Schaeffer at [153] and [166] (Stern JA, Ward P and Griffiths AJA agreeing).

Schaeffer at [132]-[135] (Stern JA, Ward P and Griffiths AJA agreeing).