On 25 May 2021, the plaintiffs commenced these proceedings. On 28 May 2021, the Lender appointed a receiver to Hoho Property. On 4 June 2021, the quantity surveyor inspected the development site at the request of the Lender and observed that demolition and preliminary site clearance works had been undertaken but detailed excavation works had yet to commence. That is, the project had not progressed at all.
On 7 June 2021, the parties agreed to a consensual interim injunction regime. The Lender undertook not to take any steps to enforce its rights under the finance documents while Hoho Property agreed to sell the Liverpool properties and to pay the proceeds into Court. On 5 August 2021, the Liverpool property was passed in at auction. The consensual interim injunction regime was brought to an end in October 2021: Hoho Property Pty Ltd v Bass Finance No 37 [2021] NSWSC 1289 (per Williams J). In December 2021, the Liverpool properties were sold at auction. I was informed by the Lender's senior counsel that the principal was repaid, while interest and fees remained unpaid.
[2]
SUBMISSIONS
The plaintiffs contend that, by the Lender and Broker insisting that the transaction be completed on 22 December 2020, failing which the Lender threatened to withdraw the loan, they applied duress and illegitimate commercial pressure and engaged in unconscionable conduct, where they knew that the plaintiffs did not have any other viable option to refinance the Ajax loan or fund the development. The defendants also knew that the Ajax loan only had to be refinanced in January 2021 and not before the end of 2020. The timetable was driven by the Lender and Mr Ostin's desire to lock in their fees before the end of the year. The defendants were aware that the duration of the development was likely to exceed the period proposed in the finance documents.
By Mr Hammoudi's email sent at 1.05 am on 21 December 2020, the plaintiffs submitted that the defendants were on notice that additional time was required to review the documents and properly advise the plaintiffs, who required an interpreter. The defendants were on notice that Ms Ly and Mr Ho had a limited command of the English language, a basic level of education and were inexperienced in matters of finance and property development. Mr Ostin was desperate to meet the Lender's settlement date and so secure his fees. He pressured his clients incessantly to achieve those aims. Mr Ostin instilled in his client an inescapable fear of losing the "deal," the fear that such deal was their only option, the fear that they would lose the deal if Mr Hammoudi remained instructed. The Broker exerted unlawful commercial pressure on them to enter into the ruinous contracts which the Lender had proposed.
The plaintiffs submitted that the defendants used unfair tactics by coercing the plaintiffs into terminating Mr Hammoudi's retainer and causing Ms Ly and Mr Ho to meet with new solicitors, who they did not know, to execute the documents. The plaintiffs were said to be extremely fearful that if they did not terminate Mr Hammoudi's retainer and execute the finance documents on 22 December 2020, they would lose the loan and have no viable option to refinance the Ajax loan or fund the development. Ms Ly and Mr Ho executed the documents without the assistance of an interpreter and without receiving advice from Mr Solari and Mr Simon that they understood. Basic assistance was not afforded to them by the defendants, or the new solicitors, despite notice from their (former) solicitor that they required an interpreter. This left the plaintiffs in a position of serious disadvantage. Subject to the plaintiffs doing equity by repaying the Lender the amount that was paid to refinance the Ajax loan together with interest, each of the finance documents were said to be voidable and of no force by reason of duress and illegitimate commercial pressure placed on the plaintiffs, the unjust nature of the agreement and the unconscionable conduct of the Lender and Broker.
Further, the Broker was said to have aided and abetted, and been knowingly involved in, the Lender's contravention of the ACL and the ASIC Act and it would be unjust or against good conscience for the Broker to benefit from such conduct. If the finance documents were enforceable, then the Broker was said to be liable to the plaintiffs for damages that effectively indemnified them for their liability to the Lender by reason of the Broker's conduct. The plaintiffs also submitted that, if they succeed against the Lender then the obligation to pay the Services Fee did not arise as the condition for payment of the fee, being settlement of the advance of moneys pursuant to the Loan, was not satisfied. The caveats lodged by the Broker would have to be removed.
The Lender submitted that the plaintiffs were well-advised, commercially astute investors who understood the risks they faced and the options open to them, including because they were explicitly and repeatedly told by their own advisors that they did not have to proceed with the facilities. Any commercial pressure the plaintiffs were under was self-induced, being a function of their determination to proceed with a property development to which they had already committed significant funds. To the extent that the plaintiffs were placed under illegitimate pressure, the Lender was not party or privy to that conduct. Even if there had been misconduct, it was said to make no difference where the true cause of the plaintiffs' losses were the risks they took after taking advice and in full knowledge of their exposure, and their perseverance in the venture despite their apparent inability to generate the equity necessary to fund it through their butchery business. The commercial imperatives the plaintiffs had set for themselves determined their course.
The Lender submitted that there was no communication from the Lender to the borrowers directing or advising them to replace their lawyers, or threatening consequences if they did not. While Mr Goh sent direct communications to Mr Hammoudi, these were to the effect that Mr Hammoudi should get on with his job. There is no evidence that Bass Finance ever told Mr Ostin that they would not lend to the borrowers if the loan did not settle on 22 December 2020. Rather, the Lender simply could not or would not settle except upon confirmation that the borrower had received independent legal advice. The Lender only had Mr Ostin's version of events, such that its attitude to the question of proceeding with Circle Bridge Legal must be evaluated against the background that it had been told that Mr Hammoudi was not going to provide the independent legal advice. The Lender could not be criticised for insisting that such advice be given. The advice given could not be said to be "window dressing" or "precautionary artifice": Stubbings v Jams 2 Pty Ltd [2022] HCA 6; (2022) 399 ALR 300 at [18]-[19], [48]-[49] (per Kiefel CJ, Keane and Gleeson JJ).
The Lender submitted that the borrowers were capable of entering into a loan facility in full knowledge of the rights and obligations they acquired and the risks they ran in doing so without the need for an interpreter. The borrowers had had the terms of two similar commercial loan facilities explained to them in the previous twelve months, being the Ajax and La Trobe facilities. While Mr Hammoudi came to the view that his clients needed an interpreter, he had been advising the clients without an interpreter for some eight months, and it was therefore hardly surprising that Mr Ostin considered that Ms Ly did not need an interpreter, having dealt with her for a much shorter period of time. That was particularly so where Ms Ly told Mr Ostin by text message that she did not need an interpreter. Rather, Mr Solari and Mr Simon told Mr Ho and Ms Ly the same thing Circle Bridge Legal had told them, namely that they did not have to proceed with the loan. There is no reason on the evidence to conclude that the transaction would ultimately have proceeded any differently had Circle Bridge Legal continued to be retained.
The Lender submitted that Ms Ly and Mr Ho accepted that they understood the material terms of the facility agreement. Their situation bore no comparison to the circumstances in Commercial Bank of Australia v Amadio [1983] HCA 14; (1983) 151 CLR 447 or Blomley v Ryan (1956) 99 CLR 362. Rather, the borrowers were absolutely determined to pursue the project and eschew all exit strategies they knew they had, in circumstances where the offer of construction finance from the Lender was the only offer open to them. Mr Solari and Mr Simon explained the terms of the facility to them at great length and in detail. The development was said to be viable; the fact that the development did not proceed was referable to the borrowers' unwillingness or inability to progress the matter.
The Lender submitted that the borrowers understood that they had alternatives to entering into the facility, but these alternatives were unpalatable and involved the loss of the $800,000 already expended. Rather, the borrowers had decided not to sell the property to repay Ajax, or to refinance the Ajax loan only. As the Lender was the only one offering construction finance, they had no choice but to proceed with the Lender. That does not mean that the Lender forced them into a loan they did not want or understand. As such, the plaintiffs have not suffered any loss or damage. The plaintiffs were determined to proceed with the transaction rather than to cut their losses; this was the real cause of whatever pressure the borrowers found themselves under in December 2020. There was no basis for any conclusion that, but for the Lender's conduct, the borrowers would have done anything differently.
The Broker admitted that the plaintiffs were fearful that, if they did not terminate Mr Hammoudi's retainer and engage lawyers who could give them timely advice, they were at risk of not being able to obtain the loan and were at risk of not being able to refinance the Ajax loan before its expiry. However, the Broker submitted that the replacement of the clients' solicitor with Mr Solari and Mr Simon did not involve unfair tactics, illegitimate pressure or duress nor unconscionable conduct. Rather, Mr Ostin - rightly or wrongly - believed that Mr Hammoudi was delaying in his review and attempting to stymie the deal by not providing independent legal advice in a timely fashion. The contemporary records were said to provide a reasonable basis for Mr Ostin having that view. Mr Hammoudi was not in a position to provide advice in time for settlement to proceed on 22 December 2020. Mr Ostin sought to use his professional networks to source independent solicitors for the plaintiffs who were in a position to review the documents and give legal advice.
Further, so far as the claim for unconscionable conduct was concerned, the Broker submitted that there was no relevant "special disadvantage" which was knowingly exploited by the Broker. Mr Ostin only ever dealt with Ms Ly and Mr Ho in English; he did not understand that they required an interpreter. The first time it was suggested that an interpreter was required was in Mr Hammoudi's email of 1:05 am on 21 December 20202. That same morning, he was told by Ms Ly that when Circle Bridge advised the plaintiffs on the Ajax loan, no interpreter had been used. He was understandably perplexed as to why an interpreter was required for this loan but not the Ajax loan. Further, Ms Ly told Mr Ostin that she did not need an interpreter by text. During their conference with Mr Solari, both Ms Ly and Mr Ho advised they did not require the services of an interpreter.
The Broker submitted that the plaintiffs were experienced in the terms of commercial loans pertaining to the development, given their previous experience with the Ajax loan and the proposed La Trobe loan. Further, it was said that they had considerable experience in matters of finance from running a successful butchery business. It was said that the plaintiffs were surrounded by a wealth of professional advisers, while Mr Ostin was not their accountant, financial adviser, lender, project manager or lawyer. Rather, in circumstances where the plaintiffs' lawyer was not willing or able to provide advice in time, the Broker arranged for the plaintiffs to see competent lawyers who could provide that advice. This was said to be a world away Kakavas v Crown Melbourne Ltd [2013] HCA 25; (2013) 250 CLR 392 and Amadio.
[3]
DOBB'S CERTIFICATE
It is convenient to deal with the parties' claims out of the usual order. As ultimately submitted, the plaintiffs appeared to accept that, if their claims failed, then Hoho Property is in default under the Senior Finance Facility. As to how much is owing, the Lender tendered a document on the letterhead - somewhat confusingly - of Centuria Bass Credit Pty Ltd. The document is entitled "Secured Party's Certificate", said to be from the Lender, issued under clause 21.5 of the General Security Agreement, and certifying that the amount due and payable under the General Security Agreement as at 30 November 2022 was $2,568,527. The certificate was signed by Mr Goh as director of Bass Finance.
This type of clause is referred to as a "Dobbs" clause, after Dobbs v National Bank of Australasia Ltd [1935] HCA 49; (1935) 53 CLR 643. The purpose of such a clause is to "provide a ready means of establishing the existence and amount of the … debt and avoiding an inquiry upon legal evidence going to make up the indebtedness": Dobbs at 651 (per Rich, Dixon, Evatt and McTiernan JJ).
Whether a certificate issued under a Dobbs clause is valid depends on the proper construction of the contract: Beefeater Sales International Pty Ltd v MIS Funding No 1 Pty Ltd [2016] NSWCA 217 at [98] (per Bathurst CJ, Gleeson and Payne JJA agreeing); followed in Vannin Capital Operations Ltd v QNI Resources Pty Ltd [2023] QSC 001 at [55] (per Burns J). That is, does the certificate conform to what the parties have stipulated in the contract as to the manner and form of the document?: Australia and New Zealand Banking Group v Smith [2009] VSC 556 at [41] (per Mukhtar AsJ).
The plaintiffs submitted that the certificate was invalid as it is signed solely by Mr Goh, rather than in compliance with section 127(1) of the Corporations Act, which provides:
127 Execution of documents (including deeds) by the company itself
(1) A company may execute a document without using a common seal if the document is signed by:
(a) 2 directors of the company; or
(b) a director and a company secretary of the company; or
(c) for a proprietary company that has a sole director who is also the sole company secretary - that director.
The plaintiffs relied on Wily v Terra Cresta Business Solutions [2006] NSWSC 1042, where Young CJ in Eq considered that a party seeking to rely on a certificate issued under a Dobbs clause must comply strictly with the clause: at [65], citing Shomat Pty Ltd v Rubinstein (1995) 124 FLR 284 (per Young J (as his Honour then was)). As to why such clauses should be strictly construed, Young J explained in Shomat, "parties who have agreed to forego their rights to dispute the quantum claimed by the other party to the financial transaction expect that the certificate will be given fairly and in proper form": at 289.
In Wily, Young CJ in Eq did, however, accept the criticism made by Einstein J in State Bank of New South Wales Ltd v Chia [2000] NSWSC 522; (2000) 50 NSWLR 587, who lamented the triumph of form over substance. There, Einstein J remarked, "It is one thing to say that a Dobbs clause must be interpreted strictly. It is another to interpret a Dobbs clause in a fashion which frustrates its purpose of expeditiously and finally establishing the debt owed by the customer to the bank": at [252].
Whilst I consider that the correct approach to Dobbs certificates is now stated in Beefeater Sales, being to construe the contract rather than require strict compliance per se, the rejection of the Dobbs certificates in Shomat and Wily remains illustrative. In Shomat, the Dobbs clause called for "A statement in writing signed by the Mortgagee or by any Solicitor Conveyancer Manager or Accountant or other duly authorised officer of the Mortgagee." The statement was issued by a director of the Mortgagee. The statement did not say that the person giving the certificate was duly authorised to do so, or that the director fell within another category of person specified in the clause. The statement was held to be invalid.
In Wily, the Dobbs clause required the certificate be "signed by the Chargee or its solicitors": at [62]. A certificate was issued by a company director, who certified that he was authorised to give the certificate on behalf of the Chargee. Young CJ in Eq observed at [68]: (emphasis added)
… It is, of course, open for a corporation to sign something by a duly authorised officer and see s 127 of the Corporations Act. A director is not necessarily an authorised officer … However, there is no evidence of any such authorisation. Furthermore, the certificate is given by Mr Salmon personally, rather than a certificate by the company. The clause requires the certificate to be signed by the chargee, or its solicitors, which, to my mind, means that the certificate which is presented by Mr Salmon does not fall within cl 24.1 of the charge and, accordingly, is not a conclusive answer to the question as to how much is owing.
It does not follow from Wily that a Dobbs certificate must always be signed in compliance with section 127 of the Corporations Act; the validity of a certificate turns on the requirements specified in the contract in question.
Turning to the Dobbs clause here, clause 21.5 of the General Security Agreement provides:
The Secured Party may give the Grantor [Hoho Property] a certificate about an amount payable or other matter in connection with this Agreement. The certificate is sufficient evidence of the amount or matter, unless it is proved to be incorrect.
"Secured Party" is defined as Bass Finance. Beyond this, the General Security Agreement is silent as to precisely how the Secured Party may give the certificate or, in the event that the certificate is to be given by an officer or employee of the company, by whom the certificate may be given.
The General Security Agreement incorporates defined terms from the Senior Facility Agreement: clause 1.2 to 1.4. Clause 19 of the General Security Agreement provides:
19. Notices
Clause 24 of the Facility Agreement shall apply to this Agreement as if set out in full in the Agreement, with any necessary changes.
However, clause 24 of the Senior Facility Agreement concerns GST; presumably the reference was intended to be to clause 25, which provides:
25. Notices
25.1 Notice in writing
Any notice given under this document must be in writing and must be signed by the party giving the notice or any Authorised Representative of that party.
…
"Authorised Representative" is defined as (clause 1.1, Senior Facility Agreement): (emphasis added)
(c) in respect of the Lender, a director or secretary of the Lender, any attorney of that Lender or any other person appointed by that party to be an Authorised Representative for the purposes of the Finance Documents.
That is, when issuing a notice, it is sufficient for one director of the Lender to sign the document. Perhaps noteworthy, the address for service of notices on the Lender is Giles Borten, not Mr Goh.
Whether a "certificate" is the same as a "notice" is, however, questionable. The Senior Facility Agreement and General Security Agreement envisaged a variety of notices being served by the Lender. Some notices advised an intention to exercise rights, whilst other notices advise that a right has been exercised. The former category included notice of an intention to inspect the Borrower's assets and books (clauses 10.5 and 12.2, Senior Facility Agreement), to recover costs as a result of legislative changes (clause 16.1, Senior Facility Agreement), to assign the Lender's rights or obligations (clause 21.1, Senior Facility Agreement) and, in the event of default, to collect the Grantor's book debts or enter buildings comprising the Security Property (clauses 3.6 and 9.3, General Security Agreement). In the latter category, in the event of default the Lender was entitled to serve a notice declaring that the Secured Money was immediately due and payable (clause 15.2, Senior Facility Agreement) or requiring the Grantor to exercise rights in connection with Secured Property which was a Marketable Security (clause 3.7(b), General Security Agreement).
A certificate does more than warn the recipient that a party intends to exercise its right or to advise that a right has been exercised. A certificate is a document of some formality intended to do more than simply communicate information but to assure, make certain or attest a fact with authority: J Hutchinson Pty Ltd v Transcend Plumbing and Gasfitting Pty Ltd [2023] VSC 39 at [77]-[79] (per Stynes J); Assafiri v The Shell Co of Australia Ltd [2010] NSWSC 1058 at [147] (per McDougall J). Here, by clause 21.5, the certificate amounts to prima facie evidence of the amount payable or other matter so certified.
Clause 26.6 of the Senior Facility Agreement also provides: (emphasis added)
26.6 Notices or demands as evidence
A notice or certificate from or demand by the Lender stating:
(a) that a specified sum of money is owing or payable under a Finance Document;
(b) that an Event of Default has occurred; or
(c) any other fact or determination relevant to the rights or obligations of the Lender or an Obligor under a Finance Document, is taken to be correct unless the contrary is proved.
Sub-clause (a) refers to "a notice or certificate from or demand by the Lender," indicating that the contracting parties did not equate, but distinguished between, each type of communique. I conclude that the provisions concerning the execution of notices did not extend to the proper execution of a certificate. (I take the italicised portion of sub-clause (c) to have been intended to apply to sub-clause (a) and (b) as well. "Finance Document" was defined to include the Senior Facility Agreement, the General Security Agreement, the mortgages over the Liverpool and Cabramatta properties and the guarantee and indemnity given by Ms Ly and Mr Ho: clause 1.1; item 3, Schedule 1.)
The position remains that all that the parties have stipulated in the contract as to the manner and form of the Dobbs certificate is that the Lender gives the certificate. One way to prove that the certificate came from the Lender would be for the company to execute the document by two directors: section 127(1), Corporations Act. That, of course, is not the only way.
Whilst Mr Goh signed the "Secured Party's Certificate" as a director of the Lender, he is one of three directors of the company. Whether Mr Goh's fellow directors knew about or approved of the matters stated in the Dobbs certificate is unknown. The fact that the certificate is on the letterhead of another company is problematic. For the Grantor to conclude that the document was given by the Secured Party, presumptions would need to be made or inferences drawn, as to the authority of Mr Goh or the views of his fellow directors. Details would need to be overlooked, specifically, that the certificate is on the letterhead of another company. Where the subject of the certificate is a matter of significant import, the Grantor cannot be left in doubt as to whether the certificate is given by the Secured Party. I do not consider that the certificate conforms to what the parties stipulated in the General Security Agreement as to the manner and form of the document. Nor has the Lender adduced any other evidence to establish what it is owed. The Lender's cross-claim fails.
[4]
BREACH OF CONTRACT
Next it is convenient to deal with the plaintiffs' claim for breach of contract vis a vis the Broker. The plaintiffs contend that it was an implied term of the contract that the Broker, through Mr Ostin, would provide finance broking services with all reasonable care and skill and would not procure completion of the loan referred to in the term sheet by duress, illegitimate commercial pressure or unconscionable conduct. The Broker was said to be in breach of the express and implied terms of the contract. Procuring settlement of the loan by engaging in unconscionable conduct or by exerting illegitimate pressure or duress was said to be the antithesis of reasonable care and skill. The Broker's conduct was said to have caused the plaintiffs to execute the finance documents and to assume the financial obligations provided for in them. The Broker was therefore said to be liable for damages in the amount that would indemnify the plaintiffs for their liability to the Lender.
Looking first at the express terms of the contract, clause 3 provides:
3. Obligations of PFA
3.1 In consideration for the Service Fee and the other obligations provided by the Borrower under the terms of this Agreement:
3.1.1. PFA shall use its best endeavours in its provision of the Services …
An obligation to use best endeavours requires the obligor to do all they reasonably can do in the circumstances to achieve the contractual object, where 'best endeavours' are not second-best endeavours and the words require the obligor, within reasonable limits, to leave no stone unturned to achieve the object in view: Joseph Street Pty Ltd v Tan (2012) 38 VR 241 at [41] (per Warren CJ, Nettle JA and Cavanough AJA). In IBM United Kingdom v Rockware Glass Ltd (1980) FSR 335, Buckley LJ described the obligation as requiring a party to "take all the steps in their power which are capable of producing the desired result": at 343; followed in Joseph Street at [41].
The obligation to use "best endeavours" is more onerous than "reasonable endeavours": Stepping Stones Child Care Centre (ACT) Pty Ltd v Early Learning Services Ltd [2013] ACTSC 173 at [274]-[283] (Refshauge J). However, the obligation is still informed by notions of reasonableness. In Transfield Pty Ltd v Arlo International Ltd [1980] HCA 15; (1980) 144 CLR 83, Mason J considered that a "best endeavours" clause prescribes a standard of endeavour which is measured by what is reasonable in the circumstances, having regard to the nature, capacity and qualifications of the obligor viewed in the light of the particular contract: at 101. As McDougall J put it in OzEcom Ltd v Hudson Investment Group [2007] NSWSC 719, the content of the obligation must be measured having regard to the contract as a whole and to the factual context in which the best endeavours fall to be exerted: at [231].
Returning to the contract, the Broker was obliged to use its best endeavours to provide the "Services", which meant (clause 1.1):
the services provided by [the Broker] from the date of this Agreement in attending to all communications with the Lender and in preparing or assisting the Borrower in preparing or obtaining all documents and in preparing the application for the Loan.
The Loan was a loan from the Lender identified in the Indicative Terms, being the indicative terms of the loan offered by Bass Finance: recital D; clause 1.1; Item 3, Schedule 1.
The Broker's contractual obligation was narrowly defined, both temporally and as to subject matter. Temporally, the Broker's obligation to provide services began from the date of the agreement, being 30 November 2020, and onwards. Indeed, the Services had largely been performed before the date of the Agreement, where the Borrower's application for the Loan had already been submitted and accepted by the Lender.
As to subject matter, the Broker was obliged only to assist the Borrower to obtain the Loan from the Lender. The Broker was not obliged to continue its search for other, more suitable finance than that offered by the Lender. Nor was the Broker obliged to advise whether the Loan was suitable for the Borrower's requirements, or whether a better loan could be found. Whilst caselaw in this area is scant, I note that it has been held that the role of a finance broker is to obtain or negotiate credit for their client; a finance broker is not obliged to determine whether their client can afford to make the repayments on the loan or give advice on their ability to make those repayments: Dewar v Ollier [2018] WASC 212 at [224] (Tottle J). Certainly, the contract in this case did not oblige the Broker to give such advice.
Turning then to the implied terms for which the plaintiffs contend, the requirements for implication of terms are uncontroversial and conveniently set out in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [1977] HCA 23; (1977) 180 CLR 266 at 282-3. Where a contract is for the provision of professional services, there will generally be an implied term requiring the exercise of care expected of a person in the industry possessing the relevant skill: J W Carter, Contract Law in Australia (7th edition) at 11-14. Thus, for example, "as a starting point, any contract between [an insurance] broker and the client carries with it a term implied by law that the broker will exercise reasonable care and skill": PC Case Gear Pty Ltd v Instrat Insurance Brokers Pty Ltd (In Liq) [2020] FCA 137; (2020) 379 ALR 732 at [103] (per Anderson J).
On one view, it is not necessary to imply such a term where the Broker has expressly agreed to use its "best endeavours" in providing the Services. However, I consider that the implied term addresses a different matter. The express term is directed to the required degree of effort to be expended by the Broker, that is, what the Broker is obliged to do. The implied term is directed to the care and skill to be deployed when making such efforts, that is, how the Broker is obliged to do it. A broker could go to great lengths to ensure that its client secured a loan but, if those efforts caused the broker to perform their role in a manner that was reckless or dishonest, then I consider that the client would not have been provided with the performance which it was entitled to expect. I conclude that the contract included an implied term of reasonable care and skill.
The plaintiffs suggested a second implied term, being that the Broker would not procure completion of the loan by exerting duress or placing illegitimate commercial pressure on the plaintiffs or engage in unconscionable conduct. However, where the law provides remedies for duress and unconscionable conduct which do not depend on implied terms, there is no reason to imply a contractual term to achieve an equivalent result: Spira v Commonwealth Bank of Australia [2003] NSWCA 180; (2003) 57 NSWLR 544 at 552 (per Handley JA). It is unnecessary to imply such a term here.
I consider that the Broker used its "best endeavours", where the Broker went to great lengths to ensure that the Borrower obtained the Loan. On one view of it, Mr Ostin went 'above and beyond', inserting itself into the relationship between the Borrower and its solicitor, pressing the clients to terminate the solicitor's retainer, and arranging for new solicitors in order to complete the Loan on the date nominated by the Lender. Further, when it became apparent, shortly before completion, that the plaintiffs did not have the required $700,000 to be paid on completion to cover the Lender and Broker's fees, Mr Ostin negotiated the progressive reduction of this figure with Mr Goh down to $50,000, including by agreeing with the Lender to defer payment of both their fees until the following month. (I consider that the defendants' agreement to this course was born of necessity, in order to ensure that the loan transaction completed on the designated date, rather than a mutual act of benevolence.) In truth, the plaintiffs' complaint is that the Broker went too far and rode rough shod over their need for further assistance and explanation by others.
The next question is whether the Broker performed its obligation to the quality or standard required by the contract. In order to ensure that the transaction completed on the designated date - being a date set, essentially, for the convenience of the Lender - the Broker strayed well beyond providing Services under the contract. The mortgage broker pressed its client to get rid of their solicitor, when he thought that the solicitor was not moving fast enough. At one point, the mortgage broker asked the solicitor to have the clients execute the documents without any advice, with such advice to be provided later: see [185]-[187]. The mortgage broker made the bold assessment that the solicitor's written and oral advice that the clients needed an interpreter was a delaying tactic which could be ignored. The mortgage broker arranged new solicitors, undertook all preliminary communications with these solicitors and drafted communications from the client to terminate the retainer of their existing solicitor. Indeed, there is a significant contrast between the tasks which Mr Ostin did not consider formed part of a mortgage broker's role - such as passing onto his clients adverse information about the proposed loan - when compared with the tasks which he was prepared to undertake, in order to ensure that the transaction completed on 22 December 2020.
In doing so, I consider that the Broker's performance of its contractual obligations departed from the required standard of reasonable care and skill, where the Broker has acted beyond the Services to be provided under the contract and in areas where he had no place to be. While Mr Ostin was right to say that the transaction involved an "execution risk", the real risk was one created by Mr Ostin in pressing his clients to terminate the retainer of their solicitor and to receive advice, instead, from Mr Solari and Mr Simon in the absence of a Vietnamese interpreter, where the mortgage broker had been told by the clients' solicitor (twice) that an interpreter was needed. I will return to questions of causation and loss at [412].
[5]
DURESS
It is next convenient to consider the plaintiffs' claim for relief in respect of duress. The doctrine of duress was explained by McHugh JA in Crescendo Management Pty Ltd v Westpac Banking Corp (1988) 19 NSWLR 40 at 45:
… the law will not give effect to an apparent consent which was induced by pressure exercised upon one party by another party when the law regards that pressure as illegitimate …
A person who is the subject of duress usually knows only too well what he is doing. But he chooses to submit to the demand or pressure rather than take an alternative course of action. The proper approach in my opinion is to ask whether any applied pressure induced the victim to enter into the contract and then ask whether that pressure went beyond what the law is prepared to countenance as legitimate? Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct. But the categories are not closed. Even overwhelming pressure, not amounting to unconscionable or unlawful conduct, however, will not necessarily constitute economic duress.
That is, the relevant inquiry is two-fold: determining whether pressure was applied to induce entry into the contract, and whether that pressure was illegitimate in nature. In Australia and New Zealand Banking Group Ltd v Karam [2005] NSWCA 344; (2005) 64 NSWLR 149, the Court of Appeal considered that the vagueness inherent in the terms "economic duress" and "illegitimate pressure" can be avoided by treating the concept of "duress" as limited to threatened or actual unlawful conduct: at [66]. The pressure generated by lawful conduct can be dealt with by the principles of unconscionable conduct and undue influence. It is also necessary to determine whether the pressure which is complained of induced the party to enter into the contract; the pressure need not be the only reason for the party entering into the contract: Ford Motor Company of Australia Ltd v Arrowcrest Group Pty Ltd [2003] FCAFC 313; (2003) 134 FCR 522 at [149] (per Lander J).
An initial question arises as to whether Karam remains the law in New South Wales. The plaintiffs relied on Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd [2013] WASCA 36, where McLure P (with whom Newnes JA agreed) was concerned with unlawful conduct, being an actual or threatened breach of contract. Her Honour also referred to the possibility of lawful pressure supporting a claim for duress: at [25]. Her Honour did not refer to Karam. Where the matter at hand involved unlawful conduct, the observation was obiter. In dissent, Murphy JA agreed that the matter at hand involved unlawful conduct and also agreed with Karam that duress was confined to unlawful conduct: at [159].
Since Verve Energy, Karam was followed in Commercial Base Pty Ltd v Watson [2013] VSC 334 (per Almond J) and referred to without criticism in Owners - Strata Plan No 61288 v Brookfield Australia Investments Ltd [2013] NSWCA 317 at [507]; (2013) 85 NSWLR 479 at [45] (per Basten JA). However, the principles as stated by McLure P in Verve Energy were reproduced by Whelan JA in Doggett v Commonwealth Bank of Australia (2015) 47 VR 302, with whom McLeish JA and Garde AJA agreed on this issue: at [73]. However, Whelan JA concluded that the bank "did not threaten to take any illegal course of action" or, indeed, make any threat at all: at [81]. His Honour did not consider Karam or whether duress was confined to unlawful conduct.
More importantly, in Thorne v Kennedy [2017] HCA 49; (2017) 263 CLR 85, the majority of the High Court found it unnecessary to determine the correctness of Karam: at [29]. Whilst Nettle J expressed some reservations on this subject, his Honour noted that Karam has been followed without demur and "there would need to be detailed argument and deep consideration of the ramifications of departing from Karam before this Court would contemplate that course: at [70], [73]. Karam was recently followed in Re Dila Pty Ltd [2023] VSC 176 at [64] (per Barrett AsJ).
Karam remains the law. As such, duress is limited to threatened or actual unlawful conduct, which I note includes actual or threatened breach of contract: Verve Energy at [26], citing Furphy v Nixon [1925] HCA 34; (1925) 37 CLR 161; Smith v William Charlick Ltd [1924] HCA 13; (1924) 34 CLR 38; TA Sundell & Sons Pty Ltd v Memm Yannoulatos (Overseas) Pty Ltd [1956] SR (NSW) 323.
Here, the plaintiffs relied on the defendants' threat not to advance the loan if Mr Hammoudi continued to act as the plaintiffs' solicitor and if the finance documents were not executed on 22 December 2020. It was not suggested that any such threat was unlawful vis a vis the Lender. The letter of offer stated that it did not constitute a legally binding offer of finance but was subject to the approval of the Lender's investment committee. The investment committee met and approved the loan on 22 December 2020. As such, any threats by the Lender were made at a time when it was not obliged to complete the transaction. There was no threatened or actual unlawful conduct by the Lender.
To the extent that Mr Ostin's actions amounted to an actual or threatened breach of the Broker's contractual obligations, then the Broker may stand in a different position to the Lender. As already described, the Broker's contractual obligation was to use its "best endeavours" and to perform its work with reasonable care and skill. Mr Ostin made it perfectly plain to the plaintiffs that, unless they engaged a new solicitor and executed the documents on 22 December 2020, there would be no loan. However, I do not consider that the Broker was threatening not to perform its obligations. Rather, the Broker asserted that, unless the plaintiffs took a particular course, then the Lender would not provide the loan. Whilst I have found that the Broker's performance of its contractual obligations fell short of the standard required by the contract and in that sense, could be considered unlawful, it was not the relevant conduct that generated the pressure said to amount to duress. This claim fails.
[6]
UNCONSCIONABLE CONDUCT: GENERAL LAW
The plaintiffs seek remedies in respect of unconscionable conduct, both under the general law and statute. So far as the general law is concerned, unconscionable conduct occurs where "a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from special disability or is placed in some special situation of disadvantage … the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position: Amadio at 461 (per Mason J); followed in Louth v Diprose (1992) 175 CLR 621 at 626 (per Brennan J); Thorne v Kennedy at [38] (per Kiefel CJ, Bell, Gageler, Keane and Edelmann JJ); Stubbings at [39] and [45] (per Kiefel CJ, Keane and Gleeson JJ).
A party alleged to have engaged in unconscionable conduct must have actual or constructive knowledge of the special disadvantage, the latter arising from "knowledge of facts from which a person ought to have known that another person was suffering under the relevant special disadvantage": Nitopi v Nitopi [2023] NSWCA 162 (per Bell CJ at [6]). However, constructive notice is insufficient, being notice of facts that might lead on inquiry to the discovery of the existence of a special disadvantage: Nitopi v Nitopi [2022] NSWCA 162 (per Bell CJ at [9]; Ward P at [121]).
Equity will not intervene to relieve a plaintiff from the consequences of their own foolishness but, rather, to prevent their victimisation: Louth v Diprose at 638 (Deane J). Nor will equity intervene to relieve a plaintiff from the consequences of improvident transactions, where a plaintiff voluntarily engages in risky business, absent conduct on the part of the defendant which makes it just to require the defendant to restore the plaintiff to their previous position: Kakavas at [20]. For example, in Wu v Ling [2016] NSWCA 322, Ms Wu was initially found to be under a special disadvantage, when obtaining high-interest loans from Mr Ling, by reason of her dealings with a Nigerian fraudster. On appeal, the Court concluded that Ms Wu was not at a special disadvantage vis a vis Mr Ling, where he warned her that she may be being taken advantage of by the fraudsters and where the high-interest rate was explicable by Ms Wu's earlier defaults: see [89], [91], [109]-[116], [126] (per Bergin CJ in Eq, Leeming and Payne JJA. Leeming JA added at [16]:
Ms Wu's commercial sophistication, receipt of independent advice and the absence of any taking advantage by Mr Ling combine to place the present facts outside the scope of equitable intervention… it is necessary to have regard to an individual's privacy and autonomy. Ms Wu wanted short term finance, and was prepared to pay high interest rates, because she believed she could make a large amount of money. Some weight must be given to her choice. Many entrepreneurs are prepared to take large risks to achieve large rewards. The fact that many such ventures will fail does not make lending to them unconscionable. Nor does the fact that the lender more correctly appreciated the riskiness of the venture than the borrower.
[7]
Special disadvantage
The first question is whether the plaintiffs suffered from a special disability or were placed in some situation of disadvantage. As recently observed in Stubbings (per Kiefel CJ, Keane and Gleeson JJ) at [40]: (emphasis added)
In this field of discourse, "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". While the factors relevant to an assessment of special disadvantage have not been exhaustively listed, Fullagar J in Blomley v Ryan considered that special disadvantage may be inferred from "poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary". No particular factor is decisive, and it is usually a combination of circumstances that establishes an entitlement to equitable relief.
The fact that the party is at a serious disadvantage in negotiating a commercial transaction is unlikely to suffice in the case of an experienced business person. For example, in Australian Competition and Consumer Commission v Samton Holdings Pty Ltd [2002] FCAFC 4; (2002) 117 FCR 301, tenants negotiating for a new lease were in a difficult position as a result of "a combination of considered commercial judgement (the decision to borrow heavily in order to purchase the business) and Mr Ranaldi's oversight in neglecting to exercise the option in good time": at [64]. The Court held that these factors did not impair their ability to make a decision about the best course of action in the circumstances, "At least in the case of an experienced business person there must, in our opinion, be something more than commercial vulnerability (however extreme) to elevate disadvantage in to special disadvantage": at [64].
Lack of English proficiency will not mean that a party has a special disadvantage unless it seriously affects their ability to make a judgment as to their own best interests: Australia and New Zealand Banking Group Ltd v Couanis [2020] WASC 125 at [218] (per Archer J). There may, however, be situations in which the inability to speak or read English in the context of a transaction that involves executing documents, such as guarantees and the like may, in all the circumstances, constitute a situation of special disadvantage: Li v So [2019] VSC 515 at [60] (per Croft J).
For example, in Luong v Du [2013] VSC 723, Emerton J observed, "the fact that Hong and Hue had a limited capacity to read and understand documents written in English does not mean they were incapable of making a judgment about their best interests": at [123]. Whilst her Honour accepted that Mrs Hong had poor English and was not capable of reading the documents or understanding the documents without assistance, she and her husband were well capable of making further inquiries and consulting a solicitor when they felt the need: at [123]-[124]. Likewise, in Dinh v Commonwealth Bank of Australia [2021] WASCA 127, a party's poor English did not constitute a special disadvantage in circumstances where they were experienced in financial matters, had been given a simple explanation of the terms of an agreement in the presence of person who could translate, and they actually understood the essential terms of the agreement: at [251] (per Buss P, Murphy and Mitchell JJA). In Rozenbilt v Vainer [2019] VSC 316, whilst the plaintiff had a limited grasp of the English language, he had numerous individuals available who would act as his interpreter, whether in meetings or in relation to the transaction and business documents; the documents had been explained to him by one of these persons; he was not disadvantaged to the point that he was unable to make a judgment as to his own best interests: at [107] (per Sifris J).
[8]
Special disadvantage: corporations
The parties to the Senior Facility Agreement included the borrower, Hoho Property, and the third guarantor, Ho Ho Top Foods. It is possible for a corporation to suffer a "special disadvantage", perhaps if a corporation is in a desperate financial position and acting without advice: Commercial Bank of Australia v Ridout Nominees [2000] WASC 37 at [55]-[61] (per Wheeler J). However, the fact that the plaintiff is a company tells against a finding of special disadvantage: Joelco Pty Ltd v Balanced Security Ltd [2009] QSC 236 at [22] (per de Jersey CJ); Weston v Publishing and Broadcasting Ltd (2011) 83 ACSR 206; [2011] NSWSC 422 at [702]-[706] (per Ward J). It will be difficult for large, well advised commercial entities to establish such a disadvantage: Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 39 WAR 1; [2008] WASC 239 at 646-7, [4931] (per Owen J). In HECEC Australia Pty Ltd v Hydro-Electric Corporation [1999] FCA 822, Einfeld J suggested that the doctrine of unconscionability may extend to small corporations dealing with governments: at [43].
One cannot simply impute a "special disadvantage" suffered by a director to the corporation, as to do so would involve lifting the corporate veil: Weston at 705. For example, in Suncorp-Metway Ltd v Nam Property Holdings Pty Ltd (2010) 16 BPR 30,859; [2010] NSWSC 1078, the mere fact that the director of a company spoke only Vietnamese and not English "would not have led to any reasonable contemplation that there was a disadvantage of a kind for the company": at [77] (per Garling J).
At first instance in Ridout, Wheeler J considered that the characteristics of a director may be imputed to the corporation where an individual was advised to adopt a corporate structure by advisers who knew of their special disabilities and then proceeded to take advantage of those disabilities. Further, it may be sufficiently evident to those dealing with the corporation that those that are the effective decision makers suffer from a special disability or disadvantage which makes them unable to make a real judgment as to the best interest of the corporation. In those circumstances, it may be inappropriate that a third party, having notice of such a disability, be permitted to insist on a transaction by reason only of the fact that it was made with a corporate entity: at [59]. However, it will be more difficult to impute the special disability of a director to the corporation where there were multiple directors, or where the director with a special disability was not the guiding mind of the corporation: at [62]. As her Honour also observed, those dealing with a corporation are entitled to assume that the directors are properly performing their statutory duties, including applying themselves with reasonable diligence to the company's affairs: at [74].
[9]
Plaintiffs' disadvantage
Noting that "it is usually a combination of circumstances that establishes an entitlement to equitable relief" (Stubbings at [40]), the plaintiffs point to three circumstances giving rise to a special disadvantage: that Mr Ho and Ms Ly had a basic level of education; that they were inexperienced in property development; and that they lacked proficiency in written English.
The first factor, being Ms Ly and Mr Ho's level of education, can be put to one side. Both Ms Ly and Mr Ho completed high school, in Sydney and Vietnam respectively. I do not think this can be said to be a "basic level of education." In any case, there is no suggestion that the defendants had actual or constructive knowledge that Ms Ly and Mr Ho were disadvantaged in this regard, such that it could give rise to a claim of unconscionable conduct.
Second, Ms Ly and Mr Ho were inexperienced in matters of finance and property development. I agree that Ms Ho and Mr Ly were inexperienced in these matters. This was their first foray into property development. Whilst the couple had executed documents in respect of the Ajax facility and La Trobe facility, the Lender's documents were more numerous and complex, involving construction finance over the life of the project rather than, more simply, money to buy land.
I do not consider that, in isolation, the plaintiffs' inexperience was a special disadvantage such that they were unable to make a judgment as to their own best interests. Whilst the couple had no experience in property development and almost no experience in finance, they were not without experience in matters of business more generally. Having operated a business for some eight years from two retail shops together with a wholesale business, with a turnover of some $3.4 million in the 2020 financial year, as well as buying their own home and an investment property, the couple must have acquired some familiarity in matters of commerce. The fact that the couple ventured into property development at all, purchasing the Liverpool properties for $2.4 million, entering into a building contract for some $8 million and raising finance in these amounts, suggests a level of confidence in business matters.
The couple were not without advisors in this new endeavour. They appeared to rely on the advice of the builder, although this may itself demonstrate some naivety where, presumably, it was in the builder's interests for the project to go ahead. I note also that, on 4 December 2020, Ms Ly asked Mr Ostin to call her accountant, Mr Do, as he had some questions. Mr Ostin made a note regarding Mr Do, which I cannot decipher. Ms Ly said that Mr Do was not giving advice about the proposed loan. It is hard to see why else Mr Do would have wanted to speak to the Broker; presumably the accountant had some questions about the proposed transaction. Presumably also, Ms Ly and Mr Ho could have consulted with their accountant for advice in respect of the proposed loan if they saw the need. (Of course, that advice may have been more useful if the couple had been provided with the Lender's assessment of the feasibility of the project, which Mr Ostin received but did not pass on).
Notwithstanding his inexperience, Mr Ho did appreciate at least some of the problems with the proposed loan. Mr Ho did understand that the funds offered by the Lender was not enough money and they would have to look for additional funds, "Tony said that was not enough. … He promised to help me get additional loan." The couple also understood that the term of the proposed loan was too short: they instructed Mr Hammoudi - notwithstanding the termination of his retainer - to seek an extension of the loan term. During the meeting with Mr Solari, Mr Ho repeated this request.
According to Mr Simon's file note, Mr Ho also raised concerns about a lack of pre-sales. Discussion took place as to what might happen in various scenarios: if the loan did not go ahead, or if the loan went ahead but there were insufficient sales or construction did not complete on schedule. The couple asked about their ability to sell their home or the butchery business during the term of the loan: see [251]. Accordingly, the couple's inexperience does not itself give rise to a special disadvantage capable of giving rise to equitable relief; they were able to identify the relevant considerations and turn their mind to what was in their best interests.
As to the third component of special disadvantage, Ms Ly and Mr Ho are said to have had a limited command of English. I have referred to the documentary evidence, which corroborates the couple's lack of ability to write in English, at [36]-[37].
Turning to the witnesses' evidence, Ms Ly said she can converse in English but described these conversations as relatively short about day-to-day subjects; Ms Ly requires people with whom she is conversing to repeat themselves many times to attain a basic understanding. Ms Ly finds it easier to speak with people in English face-to-face, as she can see their faces and facial expressions, which helps her to understand what they are saying. Ms Ly relies on her children to read, translate and assist her to understand important or official emails to do with business. Where the emails are too complicated for her children, Ms Ly sends them to others, who call her back and explain the emails to her in basic terms or speak to her children, who then translate the message to her. Ms Ly said she has great difficulty writing in English. She can write short text messages, although prefers to use emojis to express herself. Ms Ly does not write her own emails but asks her children, in particular, her son to write them for her. Ms Ly said "I don't know how to type even."
Mr Ho can write in English and can also read English, "A little bit is okay." The language of his phone is Vietnamese. He can read and write numbers as Vietnam uses the same numbering system as the English language. Mr Ho agreed that he is pretty good with numbers and understood the concept of percentages.
Against this, Mr Ostin said that Ms Ly spoke very good English and the need for an interpreter never came into his mind. Mr Ostin said he believed that Ms Ly did not require an interpreter to communicate in, or to understand, verbal or written English. He spoke with her in person and on the telephone. She appeared to understand him. Ms Ly did not require him to repeat himself many times. Ms Ly read documents in his presence and asked questions and discussed the contents of the document in a manner which gave him the impression that she had a good grasp of written English. When Ms Ly later informed him that she did not need an interpreter, Mr Ostin did not doubt her response.
Likewise, Mr Ostin believed that Mr Ho understood English well. Mr Ostin agreed Mr Ho's English was more limited than his wife: although they both spoke, she spoke more than he did. When he met with both of them, he agreed that at various points in time Ms Ly spoke to her husband in Vietnamese.
Mr Hammoudi's evidence is important. It became obvious to Mr Hammoudi through his dealings with Ms Ly and Mr Ho that English was not their first language and they had difficulties with comprehension. Whilst acting for them on the purchase of the Liverpool properties, Mr Hammoudi did not receive any emails from the clients with instructions other than emails that they forwarded to him. Mr Hammoudi received instructions orally by telephone or in face to face conferences. Mr Hammoudi found that his clients preferred face to face conferences rather than teleconferences. While Ms Ly and Mr Ho always attended meetings together, Mr Hammoudi formed the view that Mr Ho was more at a disadvantage in his comprehension than Ms Ly. Mr Ho often had difficulties and, at times, would turn to his wife to seek clarity in their native tongue of Vietnamese. Mr Hammoudi said his clients asked him to repeat certain words and he did so until he was satisfied that they had understood him. Mr Hammoudi also used other tools to ensure his clients understood, like a whiteboard or drawing on pieces of paper. Mr Hammoudi did not accept that his clients understood "reasonably high level concepts" but agreed that they understood words in simple English.
I have treated Mr Solari's note - "Tested them both reading a couple of different clauses and they understood" - with some circumspection, where Mr Solari had only just met the couple and his ability to assess such matters is also unknown. Mr Simon's ability to test this matter, over a telephone call, was even less.
By the time of the events with which this case is concerned, Ms Ly was aged 49 and had lived in Australia for some 38 years. Mr Ho was aged 47 and had lived in Australia for 22 years. Both spoke English, although clearly Ms Ly spoke better English than her husband. At the time of these events, the couple's son and daughter were aged 20 and 17 years respectively. The children were available to translate emails and correspondence for their parents, although I do not accept the Lender's submissions that the children could be regarded as their parents' "advisers." Their children's ability to translate such documents was presumably limited by their own levels of education and life experience, as well as their fluency in Vietnamese, about which there is no evidence.
In the course of living and working in Australia over many years, the couple were clearly able to converse in English sufficiently to run a business, including two retail shops and a wholesale business. The business' tax returns indicate that it was a substantial business. In addition, the couple were able to deal with an agent in the course of purchasing the Liverpool properties, the builder in the course of executing a building contract and endeavouring to progress the project, and with a wide range of suppliers over a six month period in an endeavour to secure the materials needed to undertake construction. In addition, the couple were able to communicate with various brokers and, at least initially, with Mr Morris and Mr Hammoudi without the need for an interpreter. Ms Ly and Mr Ho both spoke English well enough to effectively participate in such conversations.
But the English ability which is said to have placed the couple at a special disadvantage was not their ability to engage in day-to-day conversation, or to read or write a straightforward email or text message, but to understand legal documents without the assistance of a Vietnamese interpreter. Whilst I consider Ms Ly under-stated her English-speaking ability, the absence of any emails written by her and the poor quality of her text messages support the conclusion that her ability to read and write in the English language was poor. Mr Ho's abilities were worse. I place considerable weight on Mr Hammoudi's evidence and observations, which led him to conclude that a Vietnamese interpreter was needed to ensure that Ms Ly and Mr Ho understood legal documents.
I do not accept the defendants' submissions that Mr Hammoudi used an interpreter when executing the La Trobe documents simply to protect his law firm, but rather as evidence of a genuine assessment by a conscientious solicitor that that was what his clients needed in order to understand the rights and obligations enshrined in the documents. I accept that Ms Ly and Mr Ho did, in fact, need a Vietnamese interpreter, where the documents to be executed were extensive and complex, as was recognised by the solicitors engaged to review and explain the material, being Mr Hammoudi followed by Mr Solari and Mr Simon: see [152], [202], [232]. Absent an interpreter, Ms Ly and Mr Ho might not properly understand an explanation provided only in the English language. Of course, the evidence may reveal that they did, in fact, understand a particular term of the agreement.
The question remains whether Ms Ly and Mr Ho's lack of English proficiency meant that, in the absence of a Vietnamese interpreter when the finance documents were explained to them, their ability to make a judgment as to their own best interests was seriously affected in all of the circumstances. Those circumstances included that the couple were inexperienced in matters of finance and property development. Those circumstances also included the fact that Mr Hammoudi did give Ms Ly and Mr Ho some general advice, in English, which I expect that they nonetheless understood without an interpreter as Mr Hammoudi's evidence as to the terms of those conversations was simply stated and Ms Ly appears to have engaged with the views expressed by her replies. Specifically, Mr Hammoudi challenged Mr Ostin's statement that failure to settle the loan on 22 December 2020 meant that the loan could not be completed at all. Contrary to Mr Ostin's advice, Mr Hammoudi said the couple did have options, including seeking to extend the Ajax loan or to find another lender. Mr Hammoudi warned the couple that the pressure being applied to them was not appropriate and they should be careful. Mr Solari and Mr Simon also said that the couple did not have to sign anything.
In addition, the couple did receive legal advice, albeit in English, from Mr Solari and Mr Simon. Without being critical of Mr Solari or Mr Simon, their file notes are not particularly informative as to the advice which they gave on particular terms or clauses of the documents. Mr Solari noted that he "particularly explained highlighted provisions." Whilst I have the highlighted provisions to hand, I do not know what the particular explanation was, that is, whether it was put simply enough that one would expect the couple to have understood the explanation. I have little to go on, but note that the emails which Mr Solari and Mr Simon each sent to the couple before their meeting made no allowance for any lack of English ability on the readers' part. If their verbal explanation was given in similar terms, it is likely that the couple did not understand some of the explanation given, where the documents in question were complex. Beyond this, I am unable to say with more precision which clauses the couple understood and which they did not, where I am reluctant to place much weight on the couples' evidence in this regard. Nor do I attach great weight to Mr Solari's file note - "Clients understood other clauses … Understood real property security with mortgages" - beyond accepting that the clients expressed that they understood, and Mr Solari self-evidently had no reason to think otherwise.
A further circumstance was the insistence that the plaintiffs execute the documents by the artificial deadline of 22 December 2020, coupled with the clear message that failure to do so would mean that this, and any, opportunity to refinance the Ajax loan would be lost. In this context, some jurists have grouped a plaintiff's attributes into 'constitutional' and 'situational' disadvantages, where 'constitutional' disadvantages arise from something peculiar to the plaintiff, such as age or illness, and 'situational' disadvantages are derived from the particular features of the relationship between the actors, such as emotional dependence of one on the other: ACCC v Samton at 318; Rozenbilt v Vainer at [106] (per Sifris J); Zhou v Kousal [2012] VSC 187; (2012) 35 VR 419 at 431 (per Vickery J). The categorisation of special disadvantages in this way does not supplant the established principles of unconscionable conduct: Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2003] HCA 18; (2003) 214 CLR 51 at 63 (per Gleeson CJ).
It may well be that someone inexperienced in property development, or who lacks a level of English to understand legal advice, may be able to work their way through new concepts and to understand where their interests lie, if given the time to do so. It may be a different proposition where that person is required to make a decision urgently and against the backdrop of suggested adverse consequences, should they fail to accede to the Lender's demands.
Overall, I consider that the combination of circumstances - inexperience in finance and property development together with inadequate English ability, an artificial deadline and suggested adverse implications for failing to agree - seriously affected the plaintiffs' ability to make a judgment as to their own interests. Ms Ly and Mr Ho possessed the necessary vulnerability, the exploitation of which may amount to unconscionable conduct.
As to whether the corporate plaintiffs suffered from the same special disadvantage, Mr Ho was the sole director of Hoho Property and, through Ho Ho Top Property, the sole shareholder. Mr Ho was the guiding mind of the company. By reason of information collated in the application form and during the course of the transaction, both defendants were aware of both Mr Ho's role. To the extent that Mr Ho suffered a special disability, of which the defendants had actual or constructive knowledge, then I consider that any special disability which he suffered can be imputed to the corporation. (The matter need not be considered in relation to Ho Ho Top Foods, where a liquidator was appointed to the company shortly before the commencement of the hearing, such that the proceedings brought by this company were stayed.)
[10]
Defendants' knowledge
Whether the defendants had actual or constructive knowledge of the plaintiffs' special disadvantage is itself problematic. The defendants certainly knew of the plaintiffs' inexperience in property development. Mr Ostin agreed that he knew almost from the first moment that he met Ms Ly and Mr Ho that they had never done a property development before, nor entered into a construction loan facility. It was obvious to him that the couple relied very heavily on the builder's involvement in the project. Their inexperience was made plain to the Lender in the submission brief. The Lender initially deferred its meeting with the borrower as it was undecided whether to make an offer due to the developer's lack of experience. Mr Goh quizzed Mr Ho on why he had decided to go into property development when they met on site.
The defendants were aware of the time pressure, having created it. The defendants were also aware of the threatened adverse consequences if the loan documents were not executed on this day, where Mr Goh made the threat and Mr Ostin repeated it.
However, whether the defendants had the requisite degree of knowledge as to the plaintiffs' lack of proficiency in English is questionable, where the defendants were receiving conflicting information on this score. There is no doubt that, by Mr Hammoudi's email sent after midnight on Sunday, 20 December 2020, both the Lender and the Broker were informed that the borrower's solicitor considered it "likely that the clients will require an Interpreter". Mr Hammoudi repeated the need for an interpreter to Mr Ostin in their telephone call later that morning. I have no doubt that Mr Ostin passed Mr Hammoudi's comments onto Mr Goh, where Mr Ostin and Mr Goh were in regular telephone contact and Mr Ostin freely shared his views on Mr Hammoudi with the Lender.
But that was not the only information to hand. Ms Ly told Mr Ostin that the Ajax documents were executed without the assistance of an interpreter, but not that Mr Hammoudi had arranged an interpreter when the clients signed the La Trobe documents. Ms Ly sent a text message, "Why I need interpreter they don't need interpreter" which, fairly read, indicated that Ms Ly did not consider that she needed an interpreter. According to Mr Solari and Mr Simon's file notes, Ms Ly and Mr Ho both confirmed to each solicitor that an interpreter was not required.
Mr Ostin and Mr Goh had also met Ms Ly and Mr Ho. While Mr Goh's assessment of the couple's ability to understand English is not known, Mr Ostin said the need for an interpreter never came into his mind. I find this a little difficult to believe, where Mr Ostin was in receipt of the emails (generally blank) and text messages (replete with grammatical and spelling errors) referred to at [36]-[37], which indicated that the author had poor proficiency in written English. The fact that Mr Ostin took it upon himself to retain new solicitors and provide those solicitors with their instructions indicates that Mr Ostin perceived that his clients were unable to do so, or at least with any degree of efficiency: see [202]. The fact that it fell to Mr Ostin to draft the email terminating Mr Hammoudi's retainer likely indicated to him that Ms Ly was not capable of preparing such a communique herself.
However, given Ms Ly and Mr Ho's instructions that they did not need an interpreter, I do not think it can be said that the defendants had actual knowledge of this disadvantage. As to whether they had constructive knowledge, both defendants were aware of the possibility that such a special disadvantage may exist by reason of Mr Hammoudi's email and telephone call with Mr Ostin, no doubt faithfully reported to Mr Goh. That possibility was enhanced, in the case of the Broker, by the poor quality of written communications received from Ms Ly and the almost complete absence of written communication from Mr Ho. That possibility was tempered by clear instructions by Ms Ly and Mr Ho to the contrary. But awareness of a possibility is not enough, where the defendants' knowledge must rise to the level of constructive knowledge, as defined by Bell CJ in Nitopi.
Given Mr Goh's limited dealings with Ms Ly and Mr Ho, I do not consider that the Lender had constructive knowledge. Mr Goh met the couple once and did not correspond with them. Mr Ostin's dealings with the couple were more extensive. Notwithstanding Ms Ly's instructions to the contrary - itself expressed in poor English and at the end of a long day in which she had been rung constantly by Mr Ostin - I consider that the Broker had enough knowledge of facts from which a reasonable person would have concluded that Mr Ho and Ms Ly needed an interpreter. Specifically, he had been told in writing and orally by their solicitor, who had acted for them for some time, that they did. I repeat what I have said at [367]. It is difficult to see how Ms Ly's self-assessment of their proficiency in English would have displaced, in the mind of a reasonable person, the conclusion that, absent an interpreter, they would not understand the documents they were signing. Where the Broker had actual knowledge of the couple's inexperience in property development, the time pressure and the threatened adverse consequences if the documents were not executed on the specified day, I conclude that the Broker had the requisite knowledge of the couple's special disadvantage.
[11]
Unconscientious use of superior position
Whether the Broker made unconscientious use of its superior position is the next matter to be considered. It has been said that unconscionability requires a high level of moral obloquy, although I note Gageler J's strong criticism of this terminology in ASIC v Kobelt [2019] HCA 18; (2019) 267 CLR 1 as arcane and potentially misleading, to the extent that it might be taken to suggest a requirement for conscious wrongdoing: at [91]-[92].
The Broker was extremely keen to settle the transaction on 22 December 2020 and receive its Services Fee of some $200,000. Whilst the Broker was entitled, under its contract, to be paid the Services Fee even if the loan did not complete, for practical purposes, the best chance of being paid in a timely manner, or at all, was on drawdown of the loan. I do note that, shortly before the plaintiffs executed the finance documents on 22 December 2020, the Broker agreed with the Lender not to get their fees on settlement but to be paid the following month, when it became apparent that the plaintiffs had only $50,000 to contribute to settlement: see [234]-[235]. However, as earlier mentioned, I do not regard this as an act of mutual benevolence but pragmatic acceptance of a credit risk for their fees, in order to complete the drawdown on the date which the Lender had insisted upon for some time.
On the limited evidence, the Services Fee appears to have been high. The Broker's rate was higher than that charged by the brokers in respect of the Ajax loan or proposed La Trobe loan. Perhaps obtaining a construction loan was more difficult and attracted a premium. The total fee was higher than the Lender was prepared to countenance as a deduction on drawdown, such that a portion of the fee was to be paid by the plaintiffs directly: see [95]. The fee does not appear to have been negotiated. For one month's work by a person without any professional qualifications, it was objectively offensive. Regrettably, I suspect this does not mean that such fees are uncommon in this industry.
Mr Ostin was clearly more interested in getting the Services Fee than protecting his clients' interests, as evidenced by his failure to pass on information to his clients which suggested that there were problems with the proposed loan: [105], [139], [148]-[149]. Mr Ostin saw Mr Hammoudi as an obstacle to settling the loan on 22 December 2020, where Mr Hammoudi said he needed more time to advise his clients, including with the assistance of an interpreter. Mr Ostin's conclusion that Mr Hammoudi was pointing to the need for an interpreter as a delaying tactic was bold. Nor is it at all clear why taking the time needed to arrange an interpreter would 'derail' the transaction. More likely, it was an unwanted retardant on Mr Ostin's wish to "deliver this deal" and bank the fee. Further, where Hoho Property was not obliged to repay the Ajax loan until 28 January 2021, and early repayment did not entitle the borrower to any rebate on interest accruing before that date, refinancing the facility in December 2020 might have had some advantages, but economy was not one of them.
Mr Ostin clearly wanted to get rid of Mr Hammoudi and made that clear to Mr Goh and Ms Ly. Mr Ostin's assurance to Ms Ly that she did not need an interpreter, in the face of an email from, and telephone call with, her solicitor advising that she did, was another bold assessment. I repeat what I have said at [318]-[320].
Overall, I view Mr Ostin's interactions with Ms Ly as predatory, where he applied overwhelming force through constant telephone calls to Ms Ly at all hours of the day and night, where he knew Ms Ly to be inexperienced and anxious, such that threats that the loan would not go ahead, statements that she had no other options, and demands that she fire her solicitor, could be expected to have a huge impact.
Does the fact the Broker arranged new solicitors change the overall quality of the conduct to something less than unethical or offensive? I think not, where Mr Ostin had constructive knowledge that legal advice given in English was unlikely to perform its intended function of giving Ms Ly and Mr Ho the information they needed to make a decision in their best interests, having regard to the other factors which came into play - of which he also had knowledge - being their lack of experience, being asked to make a decision urgently and being told that, absent this loan, there were no other options.
[12]
Remedy
The plaintiffs seek equitable relief rather than common law damages. Specifically, the plaintiffs seek declaratory relief that the finance documents executed on 22 December 2020 are void and of no effect. As the Lender did not engage in unconscionable conduct, the plaintiffs effectively seek that documents be set aside as a consequence of the unconscionable conduct of a third party to the contractual arrangements, being the Broker.
In the context of duress, it has been said that duress by a person unconnected with a party to the contract is no cause for impeaching the contractual bargain: Smith v William Charlick Ltd [1924] HCA 13; (1924) 34 CLR 38 at 56 (per Isaacs J). Where a contract is sought to be avoided on the grounds of duress exercised by some third person, the party seeking to avoid the contract must prove that the other party had actual or constructive notice of the duress or procured the contract through the agency of the third party who exercised the duress: Dunwoodie v Teachers Mutual Bank Ltd [2014] NSWCA 24 at [51]-[54] (per McColl JA), citing Chitty on Contracts (31st ed, 2012, Vol 1) at 7-053. I note the learned authors of Chitty on Contracts apply the same principle to undue influence and misrepresentation by a third party: (33rd ed, 2018, Vol 1) at 7-025, 8-053, 8-110. I consider that the same principles apply where a party seeks to invalid contracts as a consequence of the unconscionable conduct of a third party to those contracts.
This is no evidence that the Lender procured any unconscionable conduct by the Broker or had actual or constructive notice of any unconscionable conduct. Rather, Mr Ostin clearly wanted to get rid of Mr Hammoudi and favoured changing solicitors in order to complete the deal. Where the mortgage broker was the representative of the borrower, Mr Goh had no particular reason to think that Mr Ostin was not accurately conveying the borrower's position. Importantly, whatever misgivings Ms Ly and Mr Ho may have had in this regard, there is no evidence that Mr Goh was aware of this. The Lender was aware that Mr Hammoudi's retainer had been terminated but there is no evidence that the Lender was aware of the various telephone calls and emails that passed between the borrower, Mr Hammoudi and Mr Ostin in this regard. I do not consider that, in all of these circumstances, the Lender had actual or constructive notice of any unconscionable conduct by the Broker such that the Court would invalid the finance documents. This claim for relief fails.
The plaintiffs also sought a declaration that the Broker was not entitled to any fees for procuring and arranging the loan from the Lender on the basis of the Broker's unconscionable conduct, where it was said to be unjust and against good conscience for the Broker to benefit from such conduct. However, the Broker became entitled to the Services Fee on execution of its contract with the plaintiffs on 30 November 2020, whether the Loan was completed or not: at [111]. The plaintiffs sought no relief in respect of this contract. The unconscionable conduct occurred some weeks after the Broker became entitled to the Services Fee. Whilst I was not taken to any authority, I consider it would be wrong in principle to grant declaratory relief disentitling the Broker from fees accrued prior to and independently of the unconscionable conduct. Whilst the Courts have a very wide jurisdiction to grant declaratory relief, I do not consider that it is so broad: Forster v Jododex Australia Pty Ltd [1972] HCA 61; (1972) 127 CLR 421 at 435; Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564 at 581-582. This claim for relief also fails.
[13]
STATUTORY UNCONSCIONABLE CONDUCT
Section 20 of the ACL does not apply to contracts for the supply of financial services: section 131A of the Competition and Consumer Act 2010 (Cth). Instead, unconscionable conduct related to the supply of financial services is regulated by the ASIC Act.
Section 12CA of the ASIC Act prohibits unconscionable conduct, within the meaning of the unwritten law, in relation to the supply of financial services. My conclusions in respect of unconscionable conduct under the general law in respect of the Lender and the Broker apply to this claim, with the consequence that the claim against the Lender fails, while the claim against the Broker is made out.
Section 12CB(1)(a) of the ASIC Act provides:
12CB Unconscionable conduct in connection with financial services
(1) A person must not, in trade or commerce, in connection with:
(a) the supply or possible supply of financial services to a person …
engage in conduct that is, in all the circumstances, unconscionable.
Section 12CB(1) is not limited by the principles of unconscionable conduct under the general law: section 12CB(4)(a). Rather, the section "operates to prescribe a normative standard of conduct which the section itself marks out and makes applicable in connection with the supply or possible supply of financial services": ASIC v Kobelt (2019) 267 CLR 1 at [87] (per Gageler J), [154] (per Nettle and Gordon JJ). As Kiefel CJ and Bell J put it, in Kobelt, at [14]:
… The proscription in s 12CB(1) is of conduct in connection with the supply of financial services that objectively answers the description of being against conscience. The values that inform the standard of conscience fixed by s 12CB(1) include those identified by Allsop CJ in Paciocco v Australia and New Zealand Banking Group Ltd: certainty in commercial transactions, honesty, the absence of trickery or sharp practice, fairness when dealing with customers, the faithful performance of bargains and promises freely made, and:
the protection of those whose vulnerability as to the protection of their own interests places them in a position that calls for a just legal system to respond for their protection, especially from those who would victimise, predate or take advantage.
Unconscionability is a concept that is applied with considerable restraint, going beyond what is 'fair' or 'just' to circumstances which are highly unethical: Attorney General (NSW) v World Best Holdings Ltd [2005] NSWCA 261; (2005) 63 NSWLR 557 at [120]-[121] (per Spigelman CJ). Unconscionability is not the mere breach of accepted standards of commercial behaviour but is characterised by a substantial departure from such behaviour, which is so plainly or obviously contrary to the behaviour to be expected of those acting in good commercial conscience that it is offensive: Australian Competition and Consumer Commission v Geowash Pty Ltd (subject to a deed of company arrangement) (No 3) [2019] FCA 72; (2019) 360 ALR 441 at 662 (per Colvin J).
Section 12CC sets out a non-exhaustive list of factors to which the Court may have regard when determining whether a party has engaged in unconscionable conduct. Section 12CC has been said to provide "express guidance as to the norms and values that are relevant to inform the meaning of unconscionability [in section 12CB] and its practical application": Paciocco v Australia and New Zealand Banking Group Ltd [2015] FCAFC 50; (2015) 236 FCR 199 at [279] (per Allsop CJ). The section 12CC factors assist in "setting a framework for the values that lie behind the notion of conscience identified in s 12CB": Kobelt at [154] (per Nettle and Gordon JJ).
Having concluded that the Broker engaged in unconscionable conduct contrary to section 12CA, and given the already considerable length of this judgment, I will not separately consider the Broker's liability under section 12CB. Considering the claim against the Lender, the following matters referred to in section 12CC(1) appear relevant:
12CC Matters the court may have regard to for the purposes of section 12CB
(1) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 12CB in connection with the supply or possible supply of financial services to a person (the service recipient), the court may have regard to:
(a) the relative strengths of the bargaining positions of the supplier and the service recipient; and
(b) whether, as a result of conduct engaged in by the supplier, the service recipient was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and
(c) whether the service recipient was able to understand any documents relating to the supply or possible supply of the financial services; and
(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the service recipient or a person acting on behalf of the service recipient by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the financial services; and
(e) the amount for which, and the circumstances under which, the service recipient could have acquired identical or equivalent financial services from a person other than the supplier; and
…
(j) if there is a contract between the supplier and the service recipient for the supply of the financial services:
(i) the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the service recipient; and
(ii) the terms and conditions of the contract; and
(iii) the conduct of the supplier and the service recipient in complying with the terms and conditions of the contract; and
(iv) any conduct that the supplier or the service recipient engaged in, in connection with their commercial relationship, after they entered into the contract; and
(l) the extent to which the supplier and the service recipient acted in good faith.
Sections 12CB and 12CC do not expressly refer to knowledge of the service recipient's attributes or circumstances. In Re Takata Air Bags Class Action - Common Questions [2018] NSWSC 1868, Sackar J noted that different knowledge requirements may apply to the general law and statutory provisions: at [20]. In Owerhall v Bolton & Swan Pty Ltd [2016] VSC 91, Derham AsJ noted that the statutory formulation of unconscionable conduct in the ACL was "sufficiently flexible to provide relief for a party in the absence of actual or constructive knowledge of that party's special disadvantage": at [77]. Thus, while equitable relief for unconscionable conduct will depend on whether the defendant had actual or constructive knowledge of any special disability, the statutory claim may not be so limited. Presumably, however, if the supplier knew or ought to have known that the service recipient was vulnerable, then this may affect whether the supplier used "unfair tactics" (section 12CC(1)(d)) or "acted in good faith" (section 12CC(1)(l)).
So far as the Lender is concerned, there was nothing unconscionable about offering a loan which did not meet the borrower's requirements, was expensive or imprudent. Nor was it unconscionable for the Lender to press for completion of the transaction on a particular date. So far as the borrower's assets were substantially inflated shortly before completion, I accept the Lender's submission that there was no suggestion that the Lender participated in any fabrication of Vietnamese assets.
When put on notice by Mr Hammoudi that there was insufficient time to properly advise the borrower in respect of the proposed transaction, in part, given the late provision of the documents by the Lender's solicitors and, in part, because it was "likely that the clients will require an Interpreter," this information was diluted by the Broker and contradicted by Ms Ly. Specifically, Mr Goh was informed by Mr Ostin that "I have just spoken with the client, Cathy and … I can confirm" that the borrower did not have an interpreter when signing the Ajax documents. Mr Ostin advised the Lender that he regarded the suggestion that an interpreter was needed as a delaying tactic by Mr Hammoudi.
That is, the Lender was receiving conflicting information from the borrower's solicitor and their mortgage broker. The Lender clearly chose to accept the views expressed by the Broker. Acting on this information, Mr Goh warned Mr Hammoudi that if, he delayed in reviewing the document, then his clients faced the risk "of not settling the transaction at all." That is, the Lender applied pressure to the Borrower's solicitor to complete his review of the documents, and advise his clients, by the stipulated deadline.
Mr Goh's email was threatening: if Mr Hammoudi did not meet the timetable set by the Lender, then the plaintiffs may lose the loan altogether. Mr Goh's email was also an exaggeration. Mr Ostin did not accept that Mr Goh told him that if there were any further delays, Bass Finance would not lend, "I wouldn't say lend. There would be delays. … it wouldn't have settled til probably in February, or very late January, or February. … because everyone's on holidays." Mr Goh's email was also audacious, where the suggestion that the settlement date of 22 December 2020 was required by the borrowers was inaccurate. The pressure to settle on this date emanated from the Lender, as earlier described.
Mr Hammoudi's clear response to the Lender was to suggest that inappropriate pressure was being brought to bear on his clients, which may amount to duress: see [189]. The precise reason why duress was suggested by Mr Hammoudi was that he then perceived that his clients were being asked to sign the documents without legal advice. As I have found, that suggestion emanated from the Broker, not the Lender, which may explain Mr Goh's fiery replies, pressing Mr Hammoudi to "Just do your job", failing which, the transaction may not proceed to completion: see [191].
As earlier mentioned, Mr Ostin wanted to get rid of Mr Hammoudi and shared his view with Mr Goh. Mr Ostin favoured changing solicitors in order to complete the deal, being a suggestion embraced by the Lender. As to section 12CC(1)(b) - whether, as a result of conduct engaged in by the supplier, the service recipient was required to comply with conditions that were not reasonably necessary - the evidence is not entirely satisfactory, where Mr Goh did not give evidence. The Court has the evidence of Ms Ly and Mr Ostin: Mr Goh said the Lender would not lend if the plaintiffs continued to delay or to use Mr Hammoudi: see [197]. This is confirmed by the email terminating Mr Hammoudi's retainer, as drafted by Mr Ostin: "I conversed with the Bass Finance lenders telling them that I desire circlebridgelegal to handle my documents but they do not approve to provide the funds for us when you are my advisor as there is a possible execution risk which they are not willing to take."
That is, the Lender was not prepared to provide financial services if the plaintiffs continued to retain Mr Hammoudi. This became a condition of providing the loan. This was not reasonably necessary for the protection of the legitimate interests of the Lender. I do not accept the defendants' contention that Mr Goh took this step because he understood that Mr Hammoudi would only supervise execution of the documents if his clients gave him a waiver. Rather, Mr Goh (wrongly) concluded that Mr Hammoudi was engaged in delaying tactics by insisting on an interpreter. The Lender insisted on a new solicitor in order to settle the transaction on its chosen date. This was not reasonably necessary for the protection of the Lender's legitimate interests but rather a matter of convenience and put the plaintiffs in a vulnerable position, which must have been obvious to the Lender, or would have been obvious to a reasonable person in the Lender's position. The importance of this factor is reduced, but not eliminated, by the provision of advice by Mr Solari and Mr Simon.
Section 12CC(1)(c) is also significant: whether the plaintiffs were able to understand the documents relating to the supply of the financial services. I am satisfied that the plaintiffs were not able to understand the documents without a Vietnamese interpreter.
Section 12CC(1)(d) is potentially relevant, however, the focus here is on the conduct of the Lender, not the Broker. Beyond the matters already considered in respect of sub-section 12CC(1)(b), no further conduct comes to mind.
Section 12CC(1)(e) is potentially relevant, albeit there is little evidence of the charges which another lender may have proposed for such a loan. Ajax charged interest of 9.9% per annum or, on default, 19.9% per annum. In the event that the borrowers repaid the loan early, a minimum of 12 months' interest still had to be paid. The Broker fees were $23,760. In addition, an administration fee of $35,640 and an establishment fee of $12,285.35 would apply. By my calculations, these fees were 1.05%, 1.6% and 0.5% of the loan sum respectively. Although the La Trobe loan did not proceed, La Trobe proposed to charge an application fee of $13,920 on the loan for $696,000. Prime Capital proposed to charge interest of 9.95% per annum and an establishment fee of 2.2% of the facility limit.
What emerges from this limited material is that the interest rates proposed by the Lender were competitive but the fees were high. The "Intensive Loan Management Fee" of 5% of the Facility Limit, being $474,825 per annum, was large and unusual, although only paid in the event of default or potential default. Further, the "Minimum Earn Amount" of $860,620, less any interest and fees already paid, was also potentially extremely onerous. Where, as happened here, the plaintiffs only drew down an amount sufficient to repay Ajax but made no further drawdowns, the cost of finance proved exorbitant. I note, however, that Ajax also charged a minimum of 12 months interest, even if the loan was repaid early.
Section 12CC(1)(j)(iii) and (iv) are also relevant, and in the Lender's favour, where the Lender appears to have tried to work with the plaintiffs sometime after the initial drawdown to progress the project, including by considering providing further finance. The service recipient, on the other hand, did not comply with the terms and conditions of the contract and, indeed, does not appear to have done anything after completion.
As to sub-section 12CC(1)(a) and (j)(i), the Lender was clearly in a stronger bargaining position than the plaintiffs. Whilst the Lender did agree, shortly before settlement, to a reduced payment by the plaintiffs - from $700,000 to $50,000 - and to defer payment of its fees until the following month, this appears to have been born of necessity in order to ensure that the loan transaction completed on the designated date rather than by reason of any bargaining power of the plaintiffs.
A court should only take the serious step of denouncing conduct as unconscionable when "satisfied that the conduct is 'offensive to a conscience informed by a sense of what is right and proper according to values which can be recognised by the court to prevail within contemporary Australian society'": Stubbings at [58] (per Gordon J), citing ASIC v Kobelt at 40 [92] (per Gageler J). Having "one's conduct impugned as against or as offending conscience" is a "serious matter": Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd and Another [2021] FCAFC 40; (2021) 285 FCR 133 at 155 [91].
Having considered each of the matters referred to in section 12CC(1), the only significant factor which stands out is the Lender's insistence that the plaintiffs get rid of their solicitor, who advised that they needed an interpreter, and complete the transaction on the date set by the Lender after receiving advice from new solicitors. Whilst I consider that the Lender's conduct was impulsive and unprofessional, the Lender was 'saved' by Ms Ly. Where the service recipient had provided information which suggested that their solicitor's concern that they needed an interpreter was mis-placed, the Lender's intemperate insistence that they find a new lawyer did not contravene the section.
[14]
Remedy
Statutory unconscionable conduct has only been established against the Broker. Two remedies were sought: first, to disentitle the Broker from its Services Fee on the basis that the Broker aided and abetted, or was knowingly involved in, the Lender's contravention of section 12CB of the ASIC Act; second, compensation under section 12GF of the ASIC Act. Where the Lender did not contravene section 12CB, it is not necessary to consider the first matter.
The power to award damages under section 12GF depends on a finding that the plaintiff suffered loss or damage "by" reason of the unconscionable conduct. In cases considering analogous statutory provisions related to misleading and deceptive conduct, the Court has held that the provision should be understood as taking up the common law practical or common-sense concept of causation: Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 525 (per Mason CJ, Dawson, Gaudron and McHugh JJ). As long as the conduct materially contributed to the damage, a causal connection will ordinarily exist even though the conduct, without more, would not have brought about the damage: Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 at [106] (per McHugh J). That is, it is sufficient for the conduct to be a cause of the loss rather than the sole cause of the loss: at [14] (per Gleeson CJ). As the Chief Justice there observed, in the context of the misleading and deceptive conduct provision, "It will commonly be the case that a person who is induced by a misleading or deceptive representation to undertake a course of action will have acted carelessly, or will have been otherwise at fault, in responding to the inducement. The purpose of the legislation is not restricted to the protection of the careful or the astute. Negligence on the part of the victim … is not a bar to an action … unless the conduct of the victim is such as to destroy the causal connection between contravention and loss or damage": at [13].
The Lender has failed to prove that it is owed any amount under the Senior Facility Agreement. No relevant loss or damage has arisen as a consequence of execution of the finance documents. This is something of a happy accident for the plaintiffs. Had the Lender's cross-claim proceeded otherwise, then the issues concerning causation and loss traversed at [414]-[417] would pertain.
[15]
CONTRACTS REVIEW ACT
The terms of the finance documents were said to be unjust within the meaning of section 7 of the Contracts Review Act such that the Court would not enforce them. There was said to be a material inequality of bargaining power between the plaintiffs and the Lender, where the terms of the finance documents were unable to be negotiated, in particular, as to the duration of the loan. The Senior Facility Agreement was said to impose conditions that were harsh and oppressive, including as to interest, fees and the minimum earn amount. These terms were said to amount to a penalty. The plaintiffs were said to be unable to protect their interests in the circumstances.
As a corporation, Hoho Property is not entitled to relief under the Contracts Review Act: section 6(1).
Ms Ly and Mr Ho may not be granted relief in relation to a contract "so far as the contract was entered into in the course of or for the purpose of a trade, business or profession carried on by the person": section 6(2). This exception has been construed narrowly: N C Seddon and R A Bigwood, Cheshire & Fifoot Law of Contract (11th edition) at 15.27. Where the business is carried out by a company, it is the company and not its directors who carry out the business for the purpose of section 6(2): Toscano v Holland Securities Pty Ltd (1985) 1 NSWLR 145 at 149 (McLelland J); Quikfund (Australia) Pty Ltd v Airmark Consolidators Pty Ltd [2014] FCAFC 70; (2014) 222 FCR 13 at [134]-[137] (per Allsop CJ, White and Wigney JJ). The presence of a 'family element' in the transaction, such as a mortgage given by family members to secure a corporation's obligation, may bring the contract within the scope of the Act: see, for example, Australian Guarantee Corp Ltd v McClelland (1993) ATPR 41-254.
In this case, notwithstanding that the finance documents were entered into for the purpose of Hoho Property's property development business, the fact that Ms Ly - who was not a director or shareholder of that entity - and Mr Ho provided a guarantee as individuals and mortgage over their family home may bring the contract within the purview of the Contract Review Act.
The only finance documents to which Ms Ly and Mr Ho were a party was the Deed of Guarantee and Indemnity and the mortgage granted over their Cabramatta home. However, these documents, as executed by the plaintiffs, are not in evidence. I have draft documents provided to Mr Hammoudi on 16 December 2020 for review, and a highlighted copy of the memorandum of common provisions produced by Mr Solari on subpoena. I am unable to divine whether these documents were amended between 16 December 2020 and execution on 22 December 2020. I am not prepared in these circumstances to consider each of the matters listed in sub-section 9(2) and (5) of the Contracts Review Act, beyond noting that my observations in respect of similar considerations listed in section 12CC(1) of the ASIC Act remain apposite: see [389]-[401]. I also note that whether a contract is "unjust" is a lower bar than unconscionability. Beyond this, I cannot say without the contracts said to be unjust. [See now Hoho Property Pty Ltd v Bass Finance No 37 Pty Ltd (No 2) [2023] NSWSC 493.]
[16]
CONTRACTUAL DAMAGES
The general measure of damages for breach of contract is the amount, so far as money can provide, necessary to put the plaintiff in the position they would have been if the contract had been performed: Koufos v C Czarnikow Ltd ("The Heron II") [1969] 1 AC 350; Wenham v Ella [1972] HCA 43; (1972) 127 CLR 454; Burns v MAN Automotive (Aust) Pty Ltd [1986] HCA 81; (1986) 161 CLR 653. Any loss alleged to be suffered must have been caused by the breach of contract: Monarch SS Co Ltd v A/B Karlshamns Oljefabriker [1949] AC 196; Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd [1968] HCA 64; (1968) 120 CLR 516; Bennett v Minister for Community Welfare [1992] HCA 24; (1992) 176 CLR 408. Whilst damages are assessed at the date of breach, subsequent events may be taken into account so that the damages awarded are as accurate as possible: Wenham v Ella; Smith New Court Securities Ltd v Citibank NA [1997] AC 254; Golden Strait Corp v Nippon Yusen Kubishika Kaisha ("The Golden Victory") [2007] 2 AC 353; [2007] UKHL 12. See, generally, JW Carter, Contract Law in Australia (7th ed. LexisNexis, 2018) at 36-17.
In the event that the plaintiffs were liable to the Lender, then the plaintiffs contended that the Broker was liable for damages for breach of contract, being to indemnify them for any liability to the Lender. The Broker submitted that the plaintiffs had failed to prove causation, that is, what would they have done differently if the contract had been performed. Further, there was said to be no evidence that, if the plaintiffs had received advice from Mr Hammoudi with the services of an interpreter, they would not have proceeded with the loan in any event. To this, the plaintiffs replied that hindsight evidence was not generally admissible and was of little weight. Where the plaintiffs said that they did not understand key aspects of the finance documents, the clear inference was that, if they had understood these aspects, they would not have executed the documents.
In something of a happy accident for the plaintiffs, the Lender has failed to prove that it is owed any amount by the plaintiffs. But this ought not detract from the deficiencies in the plaintiffs' evidence in respect of causation and loss. True it is that hindsight evidence is regarded as inherently unreliable: Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434 at [16] (per Gleeson CJ); Chappel v Hart [1998] HCA 55; (1998) 195 CLR 232 at 246 (per McHugh J). For example, in Lym International Pty Limited v Marcolongo (2011) 15 BPR 29,465; [2011] NSWCA 303, a property developer was excavating an underground car park damaged the plaintiff's building. The plaintiff's evidence as to what they would have done had they been told of the developer's plans was admissible, however, "By comparison with his proved inaction in the face of real damage already sustained, evidence in hindsight from Mr Marcolongo about what he would have done had he known of those matters, would have been of such slight weight that its absence is also of very slight weight": at [229].
Much better evidence is what the plaintiffs, in fact, did when they became aware of the matters which were not explained to them at the time in a language they understood to the requisite level. The evidence in this regard is ambiguous. It is not known when the plaintiffs became aware of the terms of the finance which they did not understand at the time, going to interest, fees and minimum 'earn'. Nor is there evidence that the plaintiffs then protested in respect of these terms. What is known is that the plaintiffs did not progress the development at all after the initial drawdown of the loan. Once Ajax was paid out, the plaintiffs appear to have done nothing beyond endeavouring to raise money, from the butchery business' creditors or sale of their personal assets in Vietnam, to pay the defendants' fees and to fund construction to the extent that the construction costs exceeded the Loan.
Nor was there any evidence as to whether the plaintiffs could have obtained alternate finance on more favourable terms from another lender at the time. Nor was there evidence of the interest and fees generally charged in the market at the time for construction finance.
In McCrohon v Harith [2010] NSWCA 67 where McColl JA, with whom Campbell JA and Handley AJA agreed, noted at [122]-[123]:
[122] In Troulis v Vamvoukakis [1998] NSWCA 237 (at 13) Gleeson CJ (Mason P and Stein JA agreeing) … held … there were "limits to the lengths to which a court may properly go in 'doing the best it can' to assess damages". His Honour observed that the case did not involve damages which were "inherently difficult to quantify, or which involve[d] estimating a risk, or measuring a chance, or predicting future uncertain events." … his Honour said (at 13) that it was necessary for them "to provide some evidence upon which a rational assessment of value could be made."
[123] Gleeson CJ concluded (at 14) in substance, that where the damages were susceptible of evidentiary proof, and there was "an absence of the raw material to which good sense may be applied … [j]ustice does not dictate that … a figure should be plucked out of the air."
Here, all I know is that the plaintiffs stopped 'dead in their tracks' after drawdown of the Loan, but I do not know why, nor am I able to form a view as to what the plaintiffs would likely have done had the Broker provided the Services with reasonable care and skill.
Aside from the Lender's failure to prove its cross-claim, the plaintiffs failed to establish any substantive loss or damage as a consequence of the Broker's breach of contract. However, a plaintiff who proves breach of contract, but fails to prove that any loss or damage was caused by that breach is nevertheless entitled to nominal damages to vindicate the infringement of their legal rights: The Owners of the Steamship "Mediana" v The Owners, Master and Crew of the Lightship "Comet" ("The Mediana") [1900] AC 113 at 116; Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd [1938] HCA 66; (1938) 61 CLR 286; Chappel v Hart [1998] HCA 55; (1998) 195 CLR 232. While the amount to be ordered is discretionary, it is not unconfined, and the customary amount was recently decided to be $100: New South Wales v Stevens [2012] NSWCA 415; (2012) 82 NSWLR 106 at [36]-[37] (McColl JA); [79] (Sackville AJA) (Ward JA agreeing with both other judgments). I see no reason to depart from that sum in this case, and will so order.
[17]
BROKER'S FEE
The Broker remains entitled to its Services Fee of $208,923 plus interest.
[18]
RELIEF AND ORDERS
The plaintiffs have failed against the Lender. The Lender has failed against the plaintiffs. I make no order as to costs between these parties as to their respective claims and cross claim.
The plaintiffs have succeeded against the Broker in establishing a breach of contract and unconscionable conduct. The fruits of their victory are modest, being nominal damages only. The Broker has succeeded on its cross claim. The plaintiffs' claim was of significant complexity, both factually and legally. The Broker's cross claim was simple and did not occupy any significant portion of the pleadings, evidence or submissions. Weighing whatever portion of the plaintiffs' costs they may be entitled to recover from the Broker, having regard to their modest success, against the costs of the cross claim, I consider it appropriate to make no order as to costs between these parties as to their respective claims and cross claim.
For these reasons, I make the following orders:
1. Judgment for the plaintiffs against the second defendant for nominal damages in the amount of $100.
2. Otherwise dismiss the Amended Summons filed on 21 June 2022.
3. In respect of the Cross-Summons filed on 29 July 2021, judgment for the cross-claimant against the cross-defendants in the amount of $231,598.
4. Dismiss the Cross-Summons filed on 30 August 2021.
5. Make no order as to costs.
6. Direct the parties to notify any errors or omissions within seven days.
[19]
Amendments
11 May 2023 - 1. [99], line 6L Lender's "subsequent" credit paper.
2. [224], line 6: "Capital" deleted.
3. [231], line 5: "Mr" Goh.
4. [246], line 6: Minimum "Earn" Amount.
5. [257], line 9: Amount "said to be".
6. [399], line 5: amount amended.
7. [411]: Inclusion of citation for Hoho Property (No 2).
8. [423], Orders: (3) - cross-summons date amended; amount amended.
(4) - cross-summons date amended
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: 11 May 2023
441
Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd and Another [2021] FCAFC 40; (2021) 285 FCR 133
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Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 39 WAR 1; [2008] WASC 239
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BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [1977] HCA 23; (1977) 180 CLR 266
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Chappel v Hart [1998] HCA 55; (1998) 195 CLR 232
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Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286
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Lym International Pty Limited v Marcolongo (2011) 15 BPR 29,465; [2011] NSWCA 303
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Owners - Strata Plan No 61288 v Brookfield Australia Investments Ltd [2013] NSWCA 317 at [507]; (2013) 85 NSWLR 479
OzEcom Ltd v Hudson Investment Group [2007] NSWSC 719
Paciocco v Australia and New Zealand Banking Group Ltd [2015] FCAFC 50; (2015) 236 FCR 199
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Quikfund (Australia) Pty Ltd v Airmark Consolidators Pty Ltd [2014] FCAFC 70; (2014) 222 FCR 13
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Re Takata Air Bags Class Action - Common Questions [2018] NSWSC 1868
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Texts Cited: J W Carter, Contract Law in Australia (7th edition)
H Beale, Chitty on Contracts (33rd ed, 2018, Vol 1)
N C Seddon and R A Bigwood, Cheshire & Fifoot Law of Contract (11th edition)
Category: Principal judgment
Parties: Hoho Property Pty Ltd (First Plaintiff/Cross-Defendant)
Thu Duong Ly (Third Plaintiff/Cross-Defendant)
Trung Hieu Ho (Fourth Plaintiff/Cross-Defendant)
Bass Finance No 37 Pty Ltd (First Defendant/Cross-Claimant)
Premier Finance Australia Pty Ltd (Second Defendant/Cross-Claimant)
Representation: Counsel:
Mr T Alexis / P Afshar (First, Third and Fourth Plaintiffs/Cross-Defendants)
Mr CRC Newlinds SC / Mr TM Rogan (First Defendant/Cross-Claimant)
Ms FT Roughley (Second Defendant/Cross-Claimant)
WITNESSES AND DOCUMENTS
The plaintiffs relied on the evidence of Ms Ly, Mr Ho and their former solicitor, Firas Hammoudi. All were cross examined at length.
Ms Ly was a pleasant lady who was generally straightforward and made reasonable concessions. Ms Ly appeared keenly aware of the financial implications of these proceedings for herself and her family and was obviously worried and genuinely distressed. However, some of her evidence was unlikely, when Ms Ly denied that she was aware that the interest rates proposed by the Lender were less than the incumbent lender. Ms Ly denied providing details of properties in Vietnam to the Broker, where it was unlikely that the Broker would have been aware of such matters. Ms Ly's evidence of her meeting with solicitor, Kelvin Solari, was at odds with Mr Solari's contemporaneous file note and I prefer the latter.
Mr Ho was also generally straightforward but, on occasion, gave evidence which was at odds with contemporaneous documents. To that extent, I have preferred the documentary evidence as likely to be more accurate. Some of Mr Ho's evidence was also unlikely, for example, that he did not find out what the interest and fees were on the proposed loan, where - of the couple - he appears to have been responsible for financial matters: see [109].
Overall, the couple's evidence was not entirely satisfactory. Whilst I understand the couple's motivation for describing the circumstances which led to their present financial predicament in terms which were favourable to their case, obviously my role is to find out what happened as accurately as possible.
Mr Hammoudi was an impressive witness. He gave evidence in a precise and straightforward manner. No issues of credit arose. However, Mr Hammoudi does not appear to have kept file notes. As a consequence, his recollection of conversations with the clients, while honestly given, may not have been entirely accurate, either as to when a particular conversation occurred in the sequence of events or precisely what was said.
The Lender called no witnesses, although it had earlier served three affidavits by its director, Nicholas Goh. I infer that Mr Goh's evidence would not have assisted the lender: Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 at 320-321.
The Broker relied on the evidence of its director, Anthony Ostin, and solicitor, Natalee Venegas. Mr Ostin was cross examined at length. Mr Ostin was an intelligent, quick-thinking person. He gave answers which were extremely short, quick and brisk. He was a very defensive witness who tended to exaggerate, "I had hundreds of phone calls with Ms Ly." Mr Ostin volunteered self-serving statements; when asked whether he and Mr Goh perceived that Mr Hammoudi was engaged in delaying tactics, he added, "… So did the client." Mr Ostin did not recall conversations that he likely had with Mr Goh, which would have reflected poorly on him. Mr Ostin maintained that he did not recall critical conversations that occurred not long ago.
Mr Ostin vacillated on occasion in an endeavour to give an answer most advantageous to his case. For example, Mr Ostin said, "the clients wanted it settled before Christmas, okay, because they were frightful Ajax [the incumbent lender] could have sold them up." Mr Ostin then disavowed this evidence, then accepted it, then said he was not sure, then said he could not recall, then accepted it again.
Likewise, in his affidavit, Mr Ostin denied that Mr Ho requested that the term of the loan be extended as it was 15 months' too short. In cross-examination, Mr Ostin recalled Mr Ho saying this, then adhered to his denial, then agreed that it was discussed.
Mr Ostin initially said that he did not say anything to his clients about the Lender's advice that its analysis of the feasibility of the development showed zero profit. Then he said that one needed to put the data together and work out where the issue was. Then Mr Ostin said that he did not need to see this feasibility as the Lender would not have proceeded if it did not have profit. The point which Mr Ostin did not answer was why he did not pass the Lender's dim assessment onto his clients. I have approached his evidence with caution.
Mr Hammoudi and Mr Ostin's evidence as to what Ms Ly told them was often at odds. This may be referable to Ms Ly saying different things to different people, perhaps to appease the listener or to advance the couple's interests as she then perceived them to be. But in the event of conflict between the evidence of Mr Hammoudi and Mr Ostin as to what they said to each other, I prefer Mr Hammoudi's evidence without hesitation.
Given the causes of action pursued by the plaintiffs in these proceedings, I also observe that Mr Ostin's manner was flippant, dismissive and arrogant. Mr Ostin appeared to look down on his clients. He presented as a quick-tempered, forceful person. I expect he would have been quite overwhelming for someone like Ms Ly to deal with in the event of disagreement between them.