Greentown Bellambi Pty Ltd v Wong

Background

1. The genesis of the Settlement Deed is not clear from the evidence. There had been an unsuccessful mediation of the proceedings on 6 June 2006. Following that mediation, there were further settlement discussions between Mr Wong and Ms Wei Wei (Wendy) Dong, a director of Greentown. It appears that a settlement figure of $10 million was agreed, which was to be paid in instalments over two years. It also appears to have been anticipated that Mr Wong and Mr Au‑Yeung would remain liable under their guarantees and that their liability under the guarantees would extend to amounts payable in accordance with the settlement.
2. Some time prior to 31 October 2006, there was a discussion between Mr Wong and Ms Dong in relation to the settlement. There is a dispute concerning what was said. According to Mr Wong, Ms Dong asked for a personal guarantee from his wife. Mr Wong originally rejected the idea and says that he told Ms Dong that his wife had no assets. However, according to Mr Wong, Ms Dong insisted on the guarantee, saying that it was required because he could transfer assets into her name in order to avoid his obligations under the Settlement Deed, and that ultimately he reluctantly agreed with Ms Dong's request.
3. Ms Dong gives an entirely different account of the conversation. According to her, Mr Wong said that Mr Au-Yeung was putting a lot of pressure on him (Mr Wong) to be released from his guarantee, and that Mr Wong said that he wanted to accommodate Mr Au-Yeung and asked whether he could provide a guarantee from Mrs Wong instead. Ms Dong says that she reluctantly agreed to the proposal on the basis that Mrs Wong obtained independent legal advice and agreed to provide the guarantee. Ms Dong denies that she was told that Mrs Wong had no assets.
4. Following that conversation, on 31 October 2006, Mr Christopher Teo sent Hunt & Hunt, who were acting for Greentown, an email which was copied to Ms Dong and Mr Wong. The email relevantly said: I act for Alfred Wong only in the attached settlement deed. I am not acting for Alfred Wong in the court proceedings. As you may be aware, Alfred has been in communications with your client on a settlement of this matter. I have never been involved in these communications. As requested by Alfred I attach a draft settlement deed. … According to Mr Wong, Mr Teo provided legal services to various companies controlled by Mr Wong as a contractor.
5. The draft Settlement Deed provided for the payment of a total amount of $10 million in instalments. Clause 4.1 was in the following terms: Automatic Release of Danny The Plaintiffs automatically release Danny from all claims and obligations which it may have already or may in the future have against the other, arising from or in any way related to the Transaction Documents on the occurrence of the following events: (a) Liza Noi Kiu Wong signing the New Guarantee; and (b) the repayment of A$5 million of the Settlement Sum. "New Guarantee" was defined to mean "the guarantee and indemnity between Liza Noi Kiu Wong (as guarantor) and the Plaintiffs (as chargee) (substantially in the form of annexure B)" (which was blank in the draft).
6. On 1 November 2006, Hunt & Hunt replied to that email making a number of comments on the draft deed. In relation to the proposed guarantee from Mrs Wong, they said: 3. New Guarantor - Who is Liza Noi Kiu Wong and can we please have a statement of assets & liabilities to enable us to advise our clients on the substance of her guarantee. Clearly we also would require confirmation that as third party guarantor she has been given independent legal advice regarding the obligation which under the Deed she is assuming.
7. Mr Teo responded to that email on 3 November 2006. Again, he copied his response to Mr Wong and Ms Dong. In relation to the questions about the new guarantor he said: 3. New Guarantor: Liza Wong is Alfred's wife. I am instructed that she has no assets or liabilities. Your clients required her to sign the guarantee. She can seek independent legal advice.
8. Hunt & Hunt responded the same day saying, among other things: It is vital the both Alfreds [sic] wife and Danny have independent advice
9. On 5 November 2006, Mr Teo sent Hunt & Hunt a draft guarantee. Again, the email was copied to Ms Dong and Mr Wong. The covering email said: This document is sent to you, subject to the guarantor's comments. The guarantor has not reviewed this document yet. I am instructed that the guarantor will seek independent representation.
10. Following further discussions between the parties, on 17 November 2006, Hunt & Hunt sent Mr Teo and Mr James Lee, who was acting for Mr Au‑Yeung, a further revised deed. There was then further correspondence between the parties. Greentown's position was that unless the deed was signed by 24 November 2006, it would proceed to obtain judgment against the parties who had not signed it by then.
11. On 23 November 2006, Mr Teo sent an email to Hunt & Hunt, which was copied to Ms Dong. The email relevantly said: Payment of the $500,000 will occur today if the settlement deed is signed today. Liza Wong's guarantee must be clearly limited to $5 million and can only come into effect after $5 million has been paid. Liza is not guaranteeing the "Additional Sum" or the "Default Sum". It will not be feasible for Liza to seek independent legal advice today as we still have not received the amended guarantee from you. If Liza Wong's guarantee contains the necessary safeguards, then she may sign it in the next few days after receiving independent advice. The signing of the Liza Wong guarantee should not delay the signing of the settlement deed today. If you attach the Liza Wong guarantee to the settlement deed, it should be made clear that her lawyer may have amendments.
12. In response to that email, Hunt & Hunt sent Mr Teo a copy of the guarantee which included changes sought by Greentown. Later that same day, Mr Teo sent an email to Hunt & Hunt attaching a copy of the guarantee with some marked-up changes. The covering email said: This is the guarantee (with amendments indicated). Note that Liza's lawyer may want changes.
13. Later that day, Greentown and its associated company and Mr Wong and the companies associated with him signed the Settlement Deed.
14. Clause 2.2 of the Settlement Deed provided: Enforcement (a) This document shall be binding on Alfred [Mr Wong] and Danny [Mr Au-Yeung] upon execution by each of them and upon execution they shall be jointly and severally liable for all obligations in this document and by their execution of this document they acknowledge that the Plaintiffs shall be entitled to enforce all rights of the Plaintiffs, all new registered charges and guarantees, all monies due and payable to the Plaintiffs under this document, and all rights of enforcement. (b) Any party that executes this document shall not be entitled to deny their obligations under this document or to object to the enforcement of rights under this document by reason of any party, named in this document, refusing or failing to sign this document.
15. Clause 3 of the Settlement Deed relevantly provided: 3.1 Settlement As part of the Settlement: (a) the Plaintiffs agreed to accept the Settlement Sum in satisfaction of all claims under the Existing Transaction Documents against the other parties to the Existing Transaction Documents; and (b) the Plaintiffs and the Defendant that signs this document shall consent to an order dismissing the proceedings with no order as to costs. 3.2 Repayment Terms (a) The Settlement Sum is repayable to Greentown Bellambi in the following manner: (i) a sum of A$500,000 shall be paid on or before each of the following dates: (A) 24 November 2006; and (B) 30 March 2007. (ii) a sum of A$1 million shall be paid on or before each of the following dates: (A) 29 June 2007; (B) 28 September 2007; (C) 14 December 2007; (D) 31 March 2008; (E) 30 June 2008; and (F) 30 September 2008; and (iii) the balance of A$3 million shall be paid on or before 17 December 2008. (b) … …
16. Clause 3.5 relevantly provided: Grace Period (a) If at least 70% of the sum payable on the dates referred to in clause 3.2 is paid on or before the due dates, the balance of that sum ("Shortfall") may be paid on or before a date that is 90 days from the relevant due date ("Grace Period") and shall bear interest until paid at the rate of 15% per annum until paid. …
17. Clause 4 relevantly provided: DEFAULT (a) The following shall constitute a default under this document and shall entitle the Plaintiffs to recover the Default amount and all costs incurred after the date of this document against any and all guarantors and/or securities provided to the Plaintiffs under this document: (i) failure to pay at least 70% of each sum in clause 3.2 on the due date; (ii) failure to pay the balance of 30% of each settlement sum in clause 3.2 together with interest thereon within ninety days of the due date in clause 3.5; (iii) … … (b) The guarantors and the providers of securities under this document agree to consent to judgment, if called upon by the Plaintiffs, for the Default amount together with costs incurred by the Plaintiffs from the date of this document and further agree that they will not dispute the Plaintiffs right to obtain judgment and further acknowledge the Plaintiffs shall be entitled to recover from any security the Default amount. The "Default amount" is defined to mean: [T]he sum of A$12,984,061.80 together with interest accruing at Supreme Court rates less any payments made under this document and a letter signed by a Director of Greentown Bellambi calculating the Default amount shall be final and conclusive evidence of the Default amount.
18. Clause 5.1 was in the same terms as cl 4.1 of the draft that had been circulated by Mr Teo on 31 October 2006.
19. Mr Au-Yeung refused to sign the Settlement Deed on 23 November 2006. Hunt & Hunt wrote to his solicitors on 23 November 2006 making it clear that if he did not sign the deed, Greentown would proceed to seek judgment against him for the total amount claimed - that is, the $12,984,061.80. Mr Au‑Yeung signed the Settlement Deed several days later.
20. Mr Wong made a number of payments required by the Settlement Deed. However, by June 2008 he was in arrears by an amount of $1.8 million plus interest.
21. On 27 June 2008, Mr Jeremy Lucas (the solicitor for Mr Au-Yeung) wrote to Hunt & Hunt stating that his client was now in the position to pay the balance of the overdue amount (which would take the total amount paid to $5 million). The email continued: However, before the monies are delivered and this can be done on Monday, we request a written acknowledgement from Hunt & Hunt that your clients will accept the payment and that it will discharge their liability Also, we understand that the New Guarantee required by clause 5.1(a) of the Settlement Deed has been provided; Can you confirm that this is the case?
22. Following receipt of that email, on 30 June 2008, Hunt & Hunt sent Mr Wong an email attaching the guarantee to be signed by Mrs Wong and an acknowledgement to be signed by Mr Wong that the payments due under cl 3.2(a)(ii) were not paid by the due date and that interest payable on the overdue amounts was $112,762.03 as at 30 June 2008. The guarantee was in the form that Mr Teo had sent to Hunt & Hunt on 23 November 2006 (including the marked-up changes made by Mr Teo). The covering email stated: 1. NEW GUARANTEE The Guarantee for Mrs Wong to sign. She needs to get independent advice regarding the document I would suggest your [sic] speak urgently to Mr. Christopher Teo whilst I understand he no longer acts for you he is familiar with all the documents your wife naturally can use another solicitor if she wishes. To make the guarantee effective it needs to be witnessed and we would require the witness to be the solicitor you [sic] explains the document to your wife.
23. Mr Wong responded to that email on the same day saying: I had signed [sic] the letter addressed to Greentown Bellambi regarding interest. With regard to my wife's execution of the guarantee document, I tried but failed to locate the solicitor I used to use. In view of the tight time frame, I had organised our in-house counsel Wai Kim to explain the implications of the guarantee to my wife and witnessed her signature. The documents should be back to you by courier soon.
24. Ms Wai Kim Kok did witness Mrs Wong's signature. Ms Kok was legally qualified and had practiced in Malaysia for a number of years. However, she did not have a current practicing certificate at the time she witnessed Mrs Wong's signature. Ms Kok says that she told Mrs Wong that the document she was being asked to sign was a "guarantee document". She also says that she said to Mrs Wong: You may need advice from a solicitor … I am not a practicing solicitor. I cannot advise you. According to Ms Kok, Mrs Wong replied: It's okay, I only need you to witness I signed this document.
25. I accept the evidence given by Ms Kok. She came across as a straightforward and frank witness. Her evidence is plausible. She now works as an independent solicitor and has no interest in the outcome of the case.
26. Mr Wong defaulted in making payments under the Settlement Deed and judgment has been entered against him. The amount claimed against Mrs Wong, is the "Default amount" of $12,984,061.80 less the amount that has been paid together with interest on the amount owing from time to time at court rates. The principal owing is $7,984,061.80. The interest up until 2 May 2016 is $6,555,221.17.

Relevant legal principles

1. Unconscionable conduct under the general law requires a person to knowingly exploit a "special disadvantage" or "special disability" of the other party: Blomley v Ryan (1956) 99 CLR 362; [1956] HCA 81; Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; [1983] HCA 14. As Deane J explained in Amadio (at 474), equity offers relief against unconscionable dealing in circumstances in which: (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or "unconscientious" that he procure, or accept, the weaker party's assent to the impugned transaction in the circumstances in which he procured or accepted it.
2. The threshold of "special" disability requires more than inequality of bargaining power: Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51; [2003] HCA 18 at [11] (Gleeson CJ). As Mason explained in Amadio (at 462): The disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his [or her] own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party.
3. In Garcia v National Bank of Australia Ltd (1998) 194 CLR 395; [1998] HCA 48 at [31], Gaudron, McHugh, Gummow and Hayne JJ explained, by reference to the earlier decision of Yerkey v Jones (1939) 63 CLR 649; [1939] HCA 3, the application of these general principles to cases where a wife guarantees a debt owed by her husband: Yerkey v Jones begins with the recognition that the surety is a volunteer: a person who obtained no financial benefit from the transaction, performance of the obligations of which she agreed to guarantee. It holds, in what we have called the first kind of case [that is "where there is actual undue influence by a husband over a wife" (at [23]), that to enforce that voluntary transaction against her when in fact she did not bring a free will to its execution would be unconscionable. It holds further, in the second kind of case [that is, where "there is no undue influence but there is a failure to explain adequately and accurately the suretyship transaction which the husband seeks to have the wife enter for the immediate economic benefit not of the wife but of the husband" (at [23]), that to enforce it against her if it later emerges that she did not understand the purport and effect of the transaction of suretyship would be unconscionable (even though she is a willing party to it) if the lender took no steps itself to explain its purport and effect to her or did not reasonably believe that its purport and effect had been explained to her by a competent, independent and disinterested stranger. And what makes it unconscionable to enforce it in the second kind of case is the combination of circumstances that: (a) in fact the surety did not understand the purport and effect of the transaction; (b) the transaction was voluntary (in the sense that the surety obtained no gain from the contract the performance of which was guaranteed); (c) the lender is to be taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife; and yet (d) the lender did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her.

Consideration

1. In the present case, Mrs Wong submits that the conditions for unconscionability identified by the plurality in Garcia were satisfied in this case. Although it is pleaded in Mrs Wong's Commercial List Response Statement that her signature on the guarantee was obtained as a result of the undue influence of Mr Wong, that case was not seriously advanced during the course of the hearing and there was no evidence to support it. Rather, Mrs Wong's case was that Mr Wong provided for all their financial needs, that she left all financial dealings to him, that she trusted him and that she was willing to sign whatever documents she was asked to in relation to his business dealings without reading them or knowing their nature or contents. She gave evidence that she did not read the guarantee or understand its effect. She obtained no gain from the guarantee. Greentown, in fact, appreciated that Mrs Wong may repose trust and confidence in her husband and that it was necessary that she obtain independent advice before signing the guarantee. However, Mrs Wong did not in fact do so and, on her case, Greentown took inadequate steps to satisfy itself that she had.
2. One issue that assumed some significance during the course of the hearing was whether Greentown had sought the guarantee. According to Mr Wong, it had and he reluctantly agreed. According to Ms Dong, it is Mr Wong who offered the guarantee from his wife.
3. There are difficulties with both Mr Wong's and Ms Dong's account of their conversation that led to Mr Teo's email dated 31 October 2006. I accept Ms Dong's evidence that Mr Wong asked that Mr Au-Yeung be released from his guarantee or that the liability under his guarantee be capped. There is no reason Ms Dong would have offered to do so unprompted. The likelihood is that Mr Wong raised the issue and Ms Dong asked Mr Wong what he could provide in return. There is some evidence (in an email dated 1 November 2006 from Ms Julia Li, an employee of Greentown, to Hunt & Hunt) that it was originally suggested that an alternative guarantee be provided by Mr Wong's brother, Mr Ivan Wong; and Greentown submits that it was not apparent that Mr Wong would propose that Mrs Wong would provide a guarantee until Mr Teo circulated the draft Settlement Deed on 31 October 2006. That conclusion is said to be supported by Hunt & Hunt's email dated 1 November 2006 asking who Liza Noi Kiu Wong was. However, the difficulty with that submission is that Ms Dong gives evidence that Mr Wong proposed that his wife give a guarantee at their meeting and that she agreed to that proposal provided Mrs Wong agreed and obtained independent legal advice. The likelihood is that Mr Wong's wife and brother were raised as possible guarantors during the conversation between Mr Wong and Ms Dong and that Mr Wong settled on his wife by the time Mr Teo prepared the draft deed. However, the precise details are not important. It is apparent that Greentown's position was that it was prepared to accommodate Mr Wong's request to cap Mr Au-Yeung's liability but only on the condition that Mr Wong provided a substitute guarantee. It was prepared to accept a substitute guarantee from Mrs Wong. None of that affects the question whether it was unconscionable for it to do so.
4. Some significance was also placed by Mrs Wong on the fact that, to Greentown's knowledge, she had no assets and that at the time that she signed the guarantee Greentown knew that Mr Wong had been in arrears in making payments under the Settlement Deed and that a further payment of $1 million was due the day the guarantee was signed.
5. Again, however, it is difficult to attach much significance to these matters. They are, of course, matters that Mrs Wong could be expected to have taken into account in deciding whether to give the guarantee if she had given proper consideration to that question. But they are not matters which themselves demonstrate that Mrs Wong had not obtained advice on whether she should give the guarantee or had not been given an adequate opportunity to do so. From Greentown's perspective, the guarantee was of value to it because it provided an additional incentive for Mr Wong to pay the amounts due under the Settlement Deed rather than seek to avoid those obligations. And from its perspective, Mrs Wong could have been willing to give the guarantee because she was confident that Mr Wong would be able to meet his payment obligations, notwithstanding his prior defaults, or that she had little to lose if he did not or that a release of Mr Au-Yeung from his obligations was a sufficient benefit to her husband to outweigh any disadvantage to her. Similarly, from Greentown's perspective the fact that Mr Wong had been guilty of prior defaults, with the result that he was liable to pay Greentown's interest, and was due to pay a further instalment the following day, says nothing about its knowledge of whether Mrs Wong had been given independent advice on whether to give the guarantee. Those matters may have made the transaction imprudent from her point of view. But Greentown did not owe Mrs Wong a duty to prevent her from entering into an imprudent transaction.
6. Greentown took issue with Mrs Wong's claim that she did not know what she was signing and that she knew nothing about her husband's business affairs. In support of that submission, it pointed to evidence that Mrs Wong had been a director or shareholder of a number of her husband's companies. But, in my opinion, that evidence does not undermine the evidence given by Mrs Wong. When giving evidence, Mrs Wong came across as someone who was unsophisticated in financial matters. There is no evidence that she participated in any of the business activities of her husband, or that she had any real knowledge of them. The fact that on occasion she may have consented to be a director or shareholder of companies controlled by her husband is entirely consistent with her evidence that she was willing to leave all financial matters to him and to sign whatever he asked her to sign. I accept that evidence.
7. There was no suggestion that the guarantee directly benefited Mrs Wong.
8. The real question in this case is whether Greentown took adequate steps to ensure that the significance of the guarantee was explained to Mrs Wong. In my opinion, it did. Mrs Wong's case on this point is that Greentown in effect relied entirely on what it was told by Mr Wong and that it took no steps to satisfy itself that what Mr Wong told it was correct, which, as a matter of fact, it was not. Mrs Wong also advanced a subsidiary argument that what was required in this case was independent legal and financial advice, which plainly she did not receive. There is also a question whether Ms Kok was in a position to give independent legal advice, particularly when Ms Kok concluded that she was not.
9. In my opinion, there was no reason in this case for Greentown to doubt what it was told by Mr Wong concerning the question of independent advice for his wife. From the start, Greentown had made it clear that it required Mrs Wong to obtain independent advice in relation to the guarantee. The correspondence between Mr Teo and Hunt & Hunt proceeded on that basis. Greentown was told that the reason that Mrs Wong did not sign the guarantee at the time the Settlement Deed was signed was because she had not obtained independent advice.
10. In June 2008, Greentown, through Hunt & Hunt, again made it clear that Mrs Wong's signature would need to be witnessed by an independent solicitor who explained the document to her. Mr Wong replied that, because of time constraints, Mrs Wong's signature would be witnessed and the explanation would be given by Ms Kok who was an in-house counsel with Mr Wong's companies. Ms Kok, in fact, witnessed Mrs Wong's signature. There was no reason in those circumstances and having regard to the history of the matter for Greentown to doubt that Ms Kok had also explained the guarantee to Mrs Wong.
11. In my opinion, it does not make a difference that Greentown knew that Ms Kok was an in-house counsel with companies associated with Mr Wong. Plainly, it would have been better for the advice to be given by someone who had no connection with Mr Wong. However, I do not think that Greentown should have concluded that Ms Kok was incapable of giving Mrs Wong a fair explanation of the effect of the guarantee. Ms Kok, of course, concluded that she could not give the advice sought because she was not admitted as a legal practitioner at the time. But, Greentown did not know that and had no reason to suspect that that was the case.
12. Nor do I think that it was necessary for Greentown to satisfy itself that Mrs Wong had obtained financial advice in relation to the guarantee. It is not clear in the circumstances of this case how that financial advice would have assisted Mrs Wong to reach a proper understanding of the effect of the guarantee.
13. It follows that Greentown did not engage in unconscionable conduct in obtaining the guarantee and that Greentown is entitled to judgment in its favour.

Orders

1. The total amount of principal payable under the Settlement Deed less payments made is $7,984,061.80. The total amount of interest calculated at court rates between 3 May 2016 and the date of judgment is $558,883.22. Consequently, the total amount of interest up until the date of judgment is $7,114,104.39. There is no reason why Mrs Wong should not pay costs.
2. The orders of the court therefore are: 1. Judgment for the plaintiff against the second defendant in the sum of $15,098,166.19; 2. The second defendant pay the plaintiff's costs of the proceedings against the second defendant.

Amendments 03 July 2017 - Date and interest in [46] changed from 2 May to 3 May and $560,192.08 amended to $558,883.22. 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: 03 July 2017