Huynh v Ledinh Sovereign Super Pty Ltd

Execution of documents

1. On 16 August 2018, both the Appellants attended the office of Mr Le to execute the mortgage and related documents.
2. Mr Quach gave evidence in cross-examination that, at the beginning of the Appellants' appointment with Mr Le, Ms Huynh physically provided the loan documentation to Mr Le.
3. Mr Quach's affidavit evidence, filed on 3 April 2023, asserted that their meeting with Mr Le was as brief as five minutes. The primary judge noted that this was the "only aspect" of Mr Quach's evidence that his Honour did not accept: PJ [24]. The primary judge positively assessed the Appellants' credibility as "frank and honest". In regard to Mr Quach's evidence as to the duration of the meeting with Mr Le, his Honour explained that he did "not think [Mr Quach] was being dishonest, but his recollection was faulty": PJ [24].
4. In the course of this meeting, both Appellants separately signed a document, entitled "Schedule 1A: Declaration by Borrower", which declared that: "1. I am • an officer of the borrower • an officer of the grantor of the security interest • a person involved in the management of the borrower • a person involved in the management of the grantor of a security interest named in certain loan and security documents in favour of: Ledinh Sovereign Super Pty Ltd (proposed lender) relating to property… XX Laurina Avenue, Fairfield East 2. I have received independent legal advice regarding the loan and security documents referred to in paragraph 1. 3. After receiving the advice as • an officer of the borrower • a person involved in the management of the borrower the borrower has signed the following documents: … (a) Mortgage with Ayoub Lawyers Memorandum 2018 [sic] (b) Schedule A & B; Borrower and Guarantor's ancillary documents
5. The Appellants also separately signed a document entitled "Schedule 2A: Declaration by Guarantor", which declared that: "1. I am • an officer of, or • an [sic] person involved in the management of - the Third Party Mortgagor - the Surety Mortgagor - the Indemnifier for the Borrower - the Grantor of a security interest - the Guarantor named in certain loan and security documents between CT Stone Pty Ltd borrower and Ledinh Sovereign Super Pty Ltd (proposed lender) relating to property… XX Laurina Avenue, Fairfield East 2. I have received independent legal advice regarding the loan and security documents referred to in paragraph 1. 3. After receiving that advice I have freely and voluntarily signed the following documents…: (a) Mortgage with Ayoub Lawyers Memorandum [2017] (b) Schedule[s] A & B (c) Borrower and Guarantor's ancillary documents"
6. The Appellants also signed a document entitled "Cheque Directions", which authorised Ayoub Lawyers to pay the "Principal Amount" of $140,000 to Mr Quach's Westpac bank account. Notably, the Cheque Directions document, which is one page in length, provides for certain "key terms", including that: the higher and lower interest rate is "6% pm" and "4% pm" respectively, and that the term of the loan is "4 months". It is noted that the true term of the loan was 3 months.
7. The Appellants also separately signed a document entitled "Schedule D: Debtor's Advice Declaration", which provided the following: "I am the Company Officer of the Debtor having agreed to enter into this Mortgage HEREBY ACKNOWLEDGE that:- 1. I understand the terms of this Mortgage (Mortgage) and my liability both financial and legal thereunder. 2. The Mortgage has been freely and voluntarily executed by me and without undue influence or pressure from any third party. 3. I have had the opportunity of obtaining and did obtain legal advice from an independent Australian Legal Practitioner prior to executing the Mortgage as to the legal effect of the Mortgage and my obligations under it. 4. It is on the basis of: (a) the statements contained: (i) [in] this Mortgage; and (ii) in this declaration; and (b) my entering into this Mortgage - that the Lender has agreed at my request and direction to enter into this Mortgage and to advance the Debtor the Principal Amount and that I am aware that the Lender relies on the truth of the statements contained in this declaration and in this Memorandum in entering into this Mortgage. 5. I have considered and understand that the provision of the Mortgage will have a financial impact upon me if the Mortgage is enforced by the Lender. 6. This declaration has been signed by me prior to executing this Mortgage."
8. Mr Le signed a document entitled "Schedule E: Australian Legal Practitioner's Certificate", which confirmed that: "I, the Australian Legal Practitioner named above do hereby certify: 1. I am satisfied that the person named as the Company Officer above and the person who has executed the Mortgage is the same person and my means of so identifying the signatory is contained within the attached Combined Appointment as Identifier Certificate and Identification Certificate[.] 2. I have explained to the signatory the nature and the effect of the Mortgage to be executed by him/her and each of its terms and the legal effect of the Mortgage and its terms. 3. That the signatory told me that he/she had: (a) read and understood the effect of the Mortgage and its terms; and (b) understood the financial risks to him/her of signing the Mortgage. 4. That the signatory told me that he/she signed the Mortgage of his/her own free will. 5. That following the steps in paragraphs 1 to 4 above, the Mortgage was then signed by the signatory in my presence and witnessed by me."
9. The Appellants also signed a document entitled "Schedule F: Guarantor's Advice Declaration", which provided that: "I am the Guarantor having agreed to guarantee the performance of the Debtor pursuant to the Mortgage HEREBY ACKNOWLEDGE that:- 1. I understand the terms of the Guarantee referred to in the Mortgage (Guarantee) and my liability both financial and legal thereunder. 2. The Guarantee has been freely and voluntarily executed by me and without undue influence or pressure from any third party. 3. I have had the opportunity of obtaining and did obtain legal advice from an Independent Australian Legal Practitioner prior to executing the Guarantee as to the legal effect of the Guarantee and my obligations under it. 4. It is on the basis of: (a) the statements contained: (i) [in] the Guarantee; and (ii) in this declaration; and (b) my entering into this Guarantee - that the Lender has agreed at my request and direction to enter into this Mortgage and to advance the Debtor the Principal Amount and that I am aware that the Lender relies on the truth of the statements contained in this declaration and in the Guarantee in entering into this Mortgage. 5. I have considered and understand that the provision of the Guarantee will have a financial impact upon me if the Guarantee is enforced by the Lender. 6. This declaration has been signed by me prior to executing this Guarantee."

Key mortgage provisions

1. The mortgage, with title reference 323/1038622, contained the following key terms: "The mortgagor mortgages the estate and/or interest in land specified in this mortgage to the mortgagee as security for the debt or liability described in the terms and conditions set out or referred to in this mortgage, and covenants with the mortgagee to comply with those terms and conditions. Terms and Conditions of this Mortgage (a) Document Reference (b) Additional terms and conditions Schedule A Borrower: CT Stone Pty Ltd ACN 602 558 903 Borrower's Address: XX Laurina Avenue, Fairfield East NSW 2165 Commencement Date: 16/08/2018 Date for the Payment of Interest: On the same day of each month as the Commencement Date. Debtor(s): CT Stone Pty Ltd ACN 602 558 903, Thuc Tran Huynh and Chau Quach. Early Payment Amount: The Debtors must pay to the Lender a minimum of 1 month's interest calculated on the Principal Amount over the course of the loan. Final Repayment Date: On the same day which is 3 Months after the Commencement Date. Guarantor: Thuc Tran Huynh and Chau Quach Guarantor's Address(es): XX Laurina Avenue, Fairfield East NSW 2165 Higher Rate of Interest: 6 % per month Land: XX Laurina Avenue, Fairfield East NSW 2165 Lender: Ledinh Sovereign Super Pty Ltd ACN 627 635 590 Lender's Address: C/l-Ayoub Lawyers, Shop XX Princes Highway, Kogarah NSW 2217 Loan Management Fee Percentage: 0.2% of the Principal Amount per month Lower Rate of Interest: 4 % per month Mortgagors: Means the Debtors. Prepaid Interest: 3 month's interest in the amount of $15,000.00 has been pre-paid and deducted from the Principal Amount. Principal Amount: $140,000.00 Specified Interest Regime: Interest Regime A (clause 5.11)"
2. Schedule A to the mortgage repeated many of the same details. One such important detail repeated was that the "Specified Interest Regime" is "Interest Regime A (clause 5.11)". A footnote to Schedule A of the mortgage provided that: "This is Schedule A to Ayoub Lawyers 2017 Memorandum (Memorandum) and shall be interpreted as though all of the provisions set out in the Memorandum are set out at length in this Schedule."
3. Schedule B to the mortgage provided various fees which could be incurred by the Appellants in certain events such as default. A footnote to Schedule B of the mortgage was also attached, which provided in almost identical phrasing that the schedule was to be interpreted as though all "provisions set out in the Memorandum are set out at length in this Schedule".
4. Neither the mortgage nor Schedules A or B specified which of the higher or lower rates of interest applied, nor whether the interest rates were on a simple or compounding basis. Furthermore, despite Schedule B's detailed breakdown as to the various costs that would be incurred in the case of the Appellants' default, no reference was made to the costs of interest accruing.
5. Turning to the Memorandum, as the primary judge noted at PJ [39]: "Under clause 3.1 of the Memorandum the debtor covenanted to pay the secured money to the lender. Similarly, under clause 28.5 the guarantors agreed to guarantee to the lender and indemnify the lender as to the payment by the debtor of the Secured Money. Secured Money was defined in clause 1.1 to include the principal amount and any interest and fees."
6. Clause 5.3 of the Memorandum provided that: "The Interest to be paid by the Debtor shall at all times be the Higher Interest Amount unless the Lender notifies the Debtor that the lower Interest Amount is payable by the Debtor for any Interest Period." The "Higher Interest Amount" was defined in cl 1.1 as the interest amount calculated according to the formula contained within cl 5.5, which provides the following expression for simple interest: "5.5. The Higher Interest Amount is to be calculated as follows: B × HIR ÷ 365 × N Where: B = the Balance HIR = the Higher Interest Rate; and N = the number of days for the relevant Interest Period."
7. As noted above, the mortgage, and Schedule A to the mortgage provided that the "Specified Interest Regime" was "Interest Regime A (clause 5.11)". Clause 5.11 of the Memorandum provided that: "5.11. If the Specified Interest Regime applicable to this Mortgage is Interest Regime A: (a) the Debtor shall pay Interest to the Lender monthly in advance on the Date for the Payment of Interest; (b) and, [if] the Debtor fails to pay Interest on the Date for the Payment of Interest, then: (i) the Debtor shall be liable to pay Interest on the Outstanding Interest at the Higher Interest Rate compounding monthly on the Date for the Payment of Interest until the Outstanding Interest is paid in full; and (ii) the Interest on the Outstanding Interest compounded on the basis specified in paragraph (i) above shall become part of the Secured Money as soon as it compounds. (c) Interest once accrued for a month shall be payable for the whole of the month and shall not be refundable or adjustable after the Date for the Payment of Interest." Both the terms of the mortgage and Schedule A to it provided that Interest Regime A was the Specified Interest Regime.

The Appellants' knowledge of key contractual terms

1. When Ms Huynh was questioned in cross-examination about whether she had read the loan documents prior to meeting with her solicitor, she provided the following response: "Q. You received paperwork for the loan that you obtained from the plaintiff from the broker; is that correct? A. Yes. Q. How did you receive that paperwork? A. Yeah, he give to me and I bring to the Mr Le. Q. Did Henry [Mr Tran] hand you paperwork from the plaintiff? A. Yes, yes. Q. Did he tell you what that paperwork was for? A. No, only sign document, sign the loan. Q. Did he tell you that you'd need to see a lawyer? A. Yes, "Looking to the lawyer and sign with your lawyer", he said like that."
2. In cross-examination, Mr Quach acknowledged that Mr Le did make him aware of certain key terms of the loan: "Q. He said to you the amount being borrowed was $140,000, didn't he? A. Yes. Q. He said that after deduction of some interest and some fees, you'd receive about $120,000, didn't he? A. Yes. Q. He said to you that there was a high interest rate that would be charged on the loan? A. Yes. Q. Did he tell you what that high interest rate was? A. Can't - not on top of my head, no. Q. He said it was between 4% and 6%-- A. Something about 3 - yeah-- Q. --he said, didn't he-- A. Something about 3, 4%, something like that. Q. He said 4% to 6%, didn't he? A. Something like that, yeah. Q. Did you ask him? A. No. Q. He told you it was between 4% and 6% per month, didn't he? A. Something like that. Q. He told you that you would need to repay the loan within three months, didn't he? A. Yes. Q. He said if you didn't repay the loan in three months, the lender could sell your house? A. Yes. Q. You realised that the house he was talking about was your and your wife's property at Laurina Avenue? A. Yes. Q. You knew that you were going to be signing a mortgage over that property to this lender in relation to the loan of $140,000? A. Yes."
3. Mr Quach also acknowledged in cross-examination that he had considered how he might repay the loan, despite the applicable interest rate: "Q. You at the time estimated that if you got the loan, which would give you $120,000, you would be able to complete the building at 129 Seville Street and then you would be able to refinance that against 129 Seville Street to pay back the lender the $140,000 within three months? A. Yes. Yes. Q. That's the calculation that you made at the time you went to see Mr Le; is that correct? A. Yes. Q. You realised from what Mr Le said that if you didn't repay the loan of $140,000 in three months you'd be paying interest at between four and 6% per month? A. Yes. Q. But you took a risk because you appreciated at the time that you went to see Mr Le that you would be able to refinance the $140,000 loan within three months and ensure that that loan was paid out? A. Yes." In cross-examination, Mr Quach candidly conceded that he did not read the documents before signing them, despite being aware that they were bound by the contractual terms.
4. Mr Quach also gave the following evidence, when questioned about "Schedule D: Debtor's Advice Declaration" (see [29] above): "Q. You understood that by signing this document, that if this document referred to provisions in another document, you would be bound by the other document regardless of whether you read it not, didn't you? A. Yes." Further, when questioned in cross-examination about Schedule B to the Memorandum, Mr Quach provided the following evidence: "Q. Do you see at the bottom of schedule B it refers to the 2017 memorandum? So the Ayoub Lawyers 2017 memorandum? A. Yes. … Q. It was your understanding that by signing this document you were committing to the terms and provisions of any document incorporated into this-- A. Yes. Q. --regardless of whether you read it or not? A. Yes."

Post-contractual conduct

1. On 11 December 2018, the Appellants made a payment of $11,000 which was credited against interest payable for December 2018.
2. By email sent at 5.23pm on 7 February 2019, Mr Ayoub advised Mr Le of the Respondent's intention to commence proceedings against the Appellants if they failed to make the full payment of the outstanding loan by 8 February 2019.
3. By email sent on 8 May 2019, Ms Penelope Cable of Hunt & Hunt Lawyers (the solicitors acting for Ledinh) informed Mr Quach of their intention to take action to recover the outstanding loan: "Please note that following the expiry of the section 57(2)(b) notices forwarded to you on 15 April 2019, our client will take such further and other action as it deems appropriate in relation to the recovery of the moneys outstanding to it."
4. By email on 9 May 2019, Mr Quach informed Ms Cable that he was attempting to obtain finance to repay the Respondent, and that if the Respondent sold the Laurina Avenue Property, the proceeds would be insufficient to discharge the debt owed.
5. By email on 12 June 2019, Mr Quach requested further time to repay the outstanding interest owed to Mr Dinh.
6. By email on 26 June 2019 at 12.25pm, Ms Cable emailed Mr Quach informing him of the Respondent's intention to immediately commence proceedings to recover the outstanding loan.
7. By email on the same day at 3.08pm, Mr Quach asked Ms Cable to wait until his solicitor could correspond with her. Ms Cable responded, informing Mr Quach of the Respondent's intention to commence proceedings by statement of claim unless Mr Quach made the interest payments referred to in an email dated 18 June 2019.
8. On 11 July 2019, CT Stone made a payment in the sum of $10,000 which was credited against interest due and payable to the Respondent.
9. Further demands for payment were made through to at least October 2020. They were unavailing and no further payments of interest or principal was made.
10. On 2 March 2022, Ms Cable addressed a notice to the Appellants, pursuant to s 57(2)(b) of the Real Property Act 1900 (NSW), demanding $494,160 (including $309,440 in interest) and advising that non-compliance would result in the commencement of legal proceedings, seeking judgment for this amount and possession of the mortgaged property. Proceedings were in fact commenced by statement of claim on 9 September 2022.

Registering the mortgage

1. As the primary judge noted at PJ [41], the mortgage as signed by the Appellants was registered on 13 September 2019, and given a dealing number AP532585. However, the day before the hearing was due to commence, the Respondent sought leave to amend its statement of claim, because, as the primary judge explained at PJ [44], the mortgage registered through the PEXA Exchange Online Lodgement Property and Settlement Platform: (i) misidentified the mortgagors; and (ii) purported to incorporate "memorandum Q860000", rather than Schedules A and B, and the Memorandum.
2. The discrepancy between the mortgage as signed and the mortgage as registered was rectified by the Respondent, who lodged for registration a mortgage which varied the mortgage that had previously been registered. On the second day of the hearing, the Respondent's counsel informed the primary judge that the newly lodged mortgage had been registered, with dealing number AT403743, and that the previously registered mortgage had been discharged: PJ [47].

Primary judgment

1. The primary judge rejected the Appellants' contention that the Memorandum did not form part of the documents sent to them before they met Mr Le; that the mortgage had no operative terms; and that the interest claimed at the higher rate was a penalty.
2. The primary judge also rejected the Appellants' contention that the Respondent acted unconscionably, contrary to the ASIC Act, by waiting until 19 September 2022 to seek possession of the Laurina Property, despite the mortgage falling into default on 16 November 2018.
3. It was put that the compounding interest rate at 6% per month was arbitrary, and not commensurate with the Respondent's risk under the loan. In this sense, the Appellants claimed that s 9(2)(d) of the CRA was engaged because the interest rate was "not reasonably necessary for the protection of the legitimate interests of the [Respondent]": PJ [55]. The Appellants further claimed that s 9(2)(g) and (i) of the CRA were engaged because the Respondent did not explicitly bring the interest clause in the Memorandum to the Appellants' attention, including details such as the rate and compounding nature of the interest: PJ [56].
4. The primary judge rejected the Appellants' contention that the loan's rate of interest in itself was relevantly unjust or unconscionable: see PJ [63]-[75]. His Honour noted that Mr Quach accepted that Mr Le had told the Appellants about the rate of interest: see [40] above.
5. The primary judge noted that a high interest rate was not, of itself, unconscionable or unjust: PJ [64]. In this regard, his Honour made reference to Guardian Mortgages Pty Ltd v Miller [2004] NSWSC 1236; (2004) 12 BPR 22,833 (Miller), where Wood CJ at CL held at [104] that an interest rate of 12% per month did not "of itself" constitute an unconscionable or unjust provision. His Honour also referred to: Mizzi v Reliance Financial Services Pty Ltd [2007] NSWSC 37 at [42] (Mizzi); Takemura v National Australia Bank Ltd [2003] NSWSC 339; (2003) 11 BPR 21,185 at [21]-[24] (Takemura); and Driat Pty Ltd v Thomas [2012] NSWSC 683 at [26] (Driat) as examples of other cases where similarly high monthly interest rates had not been found to be unjust in the circumstances of those particular cases.
6. His Honour continued: "[68] The complaint that the rate was arbitrary does not point to unconscionability or unjustness. Whilst it may be accepted that banks and mainline lenders ordinarily tether their rates to the rate set by the Reserve Bank, that is not the case with last resort lenders. Lenders of last resort almost always face considerably higher risks in lending, for the obvious reason that prospective borrowers have been refused loans from banks and other ordinary lenders. The price for the borrower of being a much higher risk, having less security or needing a speedy loan so that full investigations cannot be made by the lender, is that interest rates are set at a considerably higher level. [69] However, it is not the case that the lender must demonstrate that the interest rate charged is somehow commensurate with the risk to the lender. In any event, there is nothing but inference in this case to show that the interest rate was not commensurate with the risk. It may be accepted that the rates are very high but they are within the range of rates charged in the cases referred to above and in relation to very many other loans made by lenders of last resort as come before this Court, as Brereton J said in Mizzi."
7. The primary judge rejected the notion that the interest rate "was a punishment", accepting Mr Dinh's evidence that he believed the loan would be paid on time, and that he was not indifferent the Appellants' ability to refinance the loan: PJ [70]-[71]. In turn, his Honour explained at PJ [72] that he inferred from Mr Dinh's evidence: "…that he wanted the loan to be repaid within three months[,] that he had turned his mind to the defendants' exit strategy which involved there being sufficient equity in the property after taking into account the loan from Westpac, together with their ownership of another property, and he believed that they would be able to refinance in that time, as did they."
8. The primary judge noted that Ayoub Lawyers did not expressly notify the Appellants of the interest provisions in their communications: PJ [73]. However, his Honour explained that the Respondent was not obliged to provide specific reference to the interest provisions because the Respondent had insisted that the documents be executed before a solicitor, and required that certificates be signed by Mr Le which provided that he had: "explained to the signatory the nature and the effect of the Mortgage to be executed by him/her and each of its terms and the legal effect of the Mortgage and its terms…" His Honour stressed that the mere interposition of a solicitor did not preclude the contract from being unjust, however he noted that: (i) the Appellants were experienced mortgagors; (ii) clause 5.11 of the Memorandum was identified in two separate places in the mortgage; and (iii) the higher rate of interest was sufficiently drawn to the Appellants' attention, even if they did not have a solicitor representing them (which was not the case): PJ [74].
9. Despite the primary judge's finding that the high interest rate was not of itself unjust or unconscionable, his Honour held that the combination of the high interest rate and its compounding nature was unconscionable, referring in this regard to the decision of McDougall J in Haiqin Lu v Qindi Shen; Weiren Jin v Qindi Shen [2018] NSWSC 560 at [114]-[116]. At PJ [77], the primary judge said: "I accept that in Haiqin the interest was compounded daily whereas in the present case it is compounded monthly. That might have been acceptable if the rate itself had not been so high. It cannot be the case that such a provision is reasonably necessary for the protection of the legitimate interests of the plaintiff. The point is most clearly illustrated by the amount of the interest claimed in the lender's Certificate of $1,118,978.30 on a principal sum of $140,000, particularly when, after deduction of prepaid interest and fees, the defendants received $120,000."
10. In turn, his Honour held, pursuant to s 7 of the CRA, that the contract should be varied to remove the reference to compound interest: "[78] Accordingly, the contract constituted by the mortgage must be varied to the extent that those parts of it, particularly cl 5, which provide for the compounding or capitalising of interest should be deleted. [79] I note in passing, but without any reliance on it for the conclusion I have reached as to unjustness, that in various demands made by the plaintiff, only simple interest at the higher rate has been claimed." No cross-appeal has been filed in relation to this aspect of the primary judgment.
11. The primary judge held that the Respondent was entitled to judgment for possession of the Laurina Avenue Property and judgment for a sum comprising the principal sum of $140,000, simple interest at the default rate of 6% per month, and costs and expenses: PJ [117]. His Honour also held at PJ [118] that: "Although the cross-claimants were successful in relation to the part of the mortgage allowing the compounding of interest, the plaintiff was successful in its claim for possession and a substantial sum for interest. In those circumstances, the defendants should pay the plaintiff's costs of the proceedings."
12. In turn, on 26 September 2023, the following final orders were made: "1. Judgment for the plaintiff against each of the first, second and third defendants in the sum of $695,202.47. 2. The amended cross-claim filed 5 September 2023 is otherwise dismissed with no order as to costs."

Grounds of appeal

1. The six grounds of appeal which were pressed were as follows: "1 His Honour, having found that the provision for interest in the Contract was unjust within the meaning of Contracts Review Act 1980 (NSW), ought to have granted the appellants relief on that finding, which his Honour did not, and that relief ought to have been refusal to enforce the provision for interest. 2 Instead his Honour, bifurcated the provision in order to find that when part of the provision was put to one side and ignored, the provision was not unjust, when the correct approach was to make the evaluative judgment of injustice based on the provision read as a whole and without alteration and then to make orders which alleviated the injustice. 3 If his Honour's approach was correct, his Honour ought still to have found that the provision for interest, in so far it imposed interest of 6% per month upon failure to repay on time, to be unjust as the provision was not reasonably required for the protection of the legitimate interest of the first respondent when the first respondent could not explain why interest was set at 6% and was of the view that there was little risk in the loan being repaid on time because there was sufficient equity in the appellants' properties to permit a refinance. 4 His Honour erred at [68] in expressing findings and reasons which were not proven by evidence and influenced by his Honour's application of case law not on point and which deflected his Honour form [sic] dealing with the facts of the case. 5 His Honour erred in giving reasons at [68] inconsistent with the reasons at [72]. 6 His Honour ought to have refused to enforce the provision in the Contract for interest and ought to have awarded the first respondent interest at Court rates, if at all"

Applicable legislative requirements

1. Section 7 of the CRA provides that: 7 Principal relief (1) Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following - (a) it may decide to refuse to enforce any or all of the provisions of the contract, (b) it may make an order declaring the contract void, in whole or in part, (c) it may make an order varying, in whole or in part, any provision of the contract, (d) it may, in relation to a land instrument, make an order for or with respect to requiring the execution of an instrument that - (i) varies, or has the effect of varying, the provisions of the land instrument, or (ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the land instrument. (2) Where the Court makes an order under subsection (1) (b) or (c), the declaration or variation shall have effect as from the time when the contract was made or (as to the whole or any part or parts of the contract) from some other time or times as specified in the order. (3) The operation of this section is subject to the provisions of section 19. Section 4 of the CRA defines "unjust" to include "unconscionable, harsh or oppressive".
2. As acknowledged in Nemeth v Australian Litigation Funders Pty Ltd [2014] NSWCA 198 at [97], s 7 of the CRA involves a three-step analysis (see also Perpetual Trustee Company Limited v Albert and Rose Khoshaba [2006] NSWCA 41; (2006) 14 BPR 26,639 at [99], [106]): "The first stage is to make findings of primary fact. The second stage involves a finding that the contract is or is not unjust. The third stage is the exercise of the power to grant relief under the Act which may, but need not, follow from the conclusion that a contract is unjust."
3. Section 9 of the CRA details a non-exhaustive set of matters which the Court can consider when determining whether a contract is unjust pursuant to s 7: 9 Matters to be considered by Court (1) In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of - (a) compliance with any or all of the provisions of the contract, or (b) non-compliance with, or contravention of, any or all of the provisions of the contract. (2) Without in any way affecting the generality of subsection (1), the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following - (a) whether or not there was any material inequality in bargaining power between the parties to the contract, (b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation, (c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract, (d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract, … (f) the relative economic circumstances, educational background and literacy of - (i) the parties to the contract (other than a corporation), and (ii) any person who represented any of the parties to the contract, (g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed, (h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act, (i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect, (j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act - (i) by any other party to the contract, (ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or (iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract, (k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and (l) the commercial or other setting, purpose and effect of the contract. … (4) In determining whether a contract or a provision of a contract is unjust, the Court shall not have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the contract was made. (5) In determining whether it is just to grant relief in respect of a contract or a provision of a contract that is found to be unjust, the Court may have regard to the conduct of the parties to the proceedings in relation to the performance of the contract since it was made.

Grounds 1 to 6: The unjust contract appeal

1. The Appellants submitted that the appeal in relation to the CRA involved the following question: "Was the imposition of interest at 6% per month (72% per annum) compounding monthly upon failure to repay the Principle [sic] unjust within the meaning of the Contracts Review Act 1980 (NSW)?" This formulation ignores the fact that the primary judge found that cl 5.11 of the Memorandum was unjust within the meaning of the Act and varied the Memorandum to eliminate the compounding element of the interest component of the mortgage. The question on appeal must be whether his Honour erred in not going further. As will be seen, this is problematic given that at first instance, Mr Allen accepted that it was open to the primary judge to address the unjustness of the interest provision by varying it exactly as he did.
2. The Appellants raised 7 arguments to advance their claim that the primary judge erred in finding that the 6% interest rate was itself unjust within the meaning of the CRA.
3. First, they contended that there was an inconsistency between the primary judge's determination that "the combination of the very high default rate of interest and the monthly compounding of that interest makes the contract unjust" (the unjust contract finding) (PJ [76]), and his Honour's earlier finding that the 6% monthly interest rate was not unjust. There was no such inconsistency or tension in the reasoning. His Honour's judgment could not have been clearer in this regard. He made it plain that it was the combination of the rate and its compounding nature which was unjust and warranted the Court's intervention in varying the interest provisions in the Memorandum. Indeed, as the Respondent pointed out, at first instance, Mr Allen expressly put to the primary judge in closing submissions: "Your Honour also could find that the simple interest ought not be set aside by the term requiring it or having it compound ought to be set aside; and my calculation, which I think I've put in there, is the difference is significant."
4. Secondly, the Appellants contended that the primary judge misapplied the CRA by erroneously splitting the provision for the payment of interest (under cl 5.11 of the Memorandum) into two, treating rate and capitalisation separately. The Appellants submitted that such a bifurcated approach led to his Honour failing to act upon his unjust contract finding, thereby also failing to make appropriate orders to relieve against injustice. This contention suffers from a number of vices including that it was contrary to the very submission that was advanced at first instance, as set out above. The primary judge did not engage in any illegitimate bifurcation in his analysis or approach. He considered the impugned clause and assessed its operation as a whole. There was nothing impermissible or wrong in his Honour first making the observations he did about the headline rate of interest before considering it in combination within the compounding aspect of cl 5.11.
5. Thirdly, the Appellants contended that the primary judge made inconsistent findings as between PJ [68]-[69], and PJ [72] in respect of whether simple interest at 6% per month was unjust. The primary judge's reasoning at PJ [68]-[69] was as follows: "[68] The complaint that the rate was arbitrary does not point to unconscionability or unjustness. Whilst it may be accepted that banks and mainline lenders ordinarily tether their rates to the rate set by the Reserve Bank, that is not the case with last resort lenders. Lenders of last resort almost always face considerably higher risks in lending, for the obvious reason that prospective borrowers have been refused loans from banks and other ordinary lenders. The price for the borrower of being a much higher risk, having less security or needing a speedy loan so that full investigations cannot be made by the lender, is that interest rates are set at a considerably higher level. [69] However, it is not the case that the lender must demonstrate that the interest rate charged is somehow commensurate with the risk to the lender. In any event, there is nothing but inference in this case to show that the interest rate was not commensurate with the risk. It may be accepted that the rates are very high but they are within the range of rates charged in the cases referred to above and in relation to very many other loans made by lenders of last resort as come before this Court, as Brereton J said in Mizzi." The primary judge's reasoning at PJ [72], which was contended to be inconsistent with his Honour's reasoning at PJ [68]-[69], was that: "I infer from that evidence and Mr Dinh's other evidence that he wanted the loan to be repaid within three months that he had turned his mind to the defendants' exit strategy which involved there being sufficient equity in the property after taking into account the loan from Westpac, together with their ownership of another property, and he believed that they would be able to refinance in that time, as did they."
6. There is no inconsistency. As emerged in oral argument, this limb of the argument was based on Mr Allen's contention that the first sentence of PJ [68] - "[t]he complaint that the rate was arbitrary does not point to unconscionability or unjustness" - was a finding by the primary judge. That contention was utterly unfounded, and flies in the face of his Honour's language which plainly was describing the argument that had been advanced by the Appellants at first instance. The first sentence of PJ [68] was a reference back to PJ [55] when the primary judge summarised the Appellants' case, as advanced in their cross-claim.
7. Fourthly, the Appellants argue that the abovementioned "adverse findings" in PJ [68]-[69] were "improperly influenced" by distinguishable and outdated authorities, being: Mizzi; Takemura; Miller; and Driat. This aspect of the argument is partly answered by the fact, noted above, that the primary judge did not make any finding that the interest rate was arbitrary. Moreover, there was nothing illegitimate or improper in his Honour referring to the various cases noted above. His Honour's purpose in doing so was to note the fact that there were many examples in relatively recent case law where high interest rates were not per se treated as rendering an impugned contract as unjust within the meaning of the CRA.
8. Fifthly, the Appellants attacked the primary judge's reasoning at PJ [68] that the "complaint that the rate was arbitrary does not point to unconscionability or unjustness". Rather, the Appellants contend that the arbitrariness of the interest rate is relevant to s 9(2)(d) of the CRA, which includes as a relevant circumstance whether the contractual term is "not reasonably necessary for the protection of the legitimate interests of any party to the contract". The higher rates of interest only applied in the event that the loan was not repaid within its three month term. There was nothing arbitrary about the interest rate increasing in this eventuality, especially given the self-evident increased risk to the lender in this circumstance. The Respondent had a legitimate interest in protecting its capital, including a powerful inducement for repayment of the principal following default.
9. Sixthly, the Appellants contended that the primary judge erred when observing at PJ [68] that: "[l]enders of last resort almost always face considerably higher risks in lending, for the obvious reason that prospective borrowers have been refused loans from banks and other ordinary lenders." Such statements were said to be inconsistent with his Honour's later finding at PJ [72] that Mr Dinh had "turned his mind to the [Appellants'] exit strategy which involved there being sufficient equity in the property…and he believed that they would be able to refinance". The Appellants referred in this regard to Mr Dinh's evidence in cross-examination that he believed there was adequate security to ensure the Appellants could repay the principal owed within the three months. I do not see any inconsistency. The finding made by the primary judge in relation to Mr Dinh's belief that the Appellants would be able to repay the loan at its maturity was in the context of rejecting a submission that the Respondent was engaged in "asset lending". The rejection of that argument did not mean that the Respondent was not a lender of "last resort", noting that this is not a term of art.
10. The submission that the primary judge incorrectly assumed that the Respondent was a "lender of last resort" was not developed orally and it was not made plain how it infected the primary judge's reasoning. In any event, such a characterisation was more than open to the learned primary judge on the facts of the case.
11. Seventhly, the Appellants contended that the 6% interest rate was unjust because the rate was not reasonably necessary for the legitimate protection of the Respondent, and yet, was "unreasonably burdensome" on the Appellants, who did not appreciate the burden's severity.
12. The Respondent was correct to respond to the Appellants' submissions by pointing to "undisputed facts and unchallenged findings" by the primary judge, including:

• the Appellants' experience with mortgages and refinancing, in answer to the submission that they were inexperienced and naïve;
• the circumstances in which the Appellants required the impugned loan, namely to complete renovations on one of a number of properties in their property portfolio;
• the Respondent's requirement that the Appellants obtained independent legal advice, and that fact that they did; and
• Mr Quach's explicit understanding from Mr Le's advice that failure to repay the loan within 3 months would trigger interest rates between 4% and 6% per month.

1. In addition to these matters, as seen in the extract of Mr Quach's cross-examination at [41] above, Mr Quach knew that he was taking a risk in entering into the transaction but proceeded on the basis (incorrect as he found out) that, with the principal amount advanced, he would be able to complete outstanding renovations and refinance the loan. The fact that that outcome was not achieved did not render the contract unjust beyond the compounding aspect of the interest payment obligations.

Conclusion

1. For all of the above reasons, the appeal should be dismissed with costs.
2. PAYNE JA: I agree with the Chief Justice.
3. KIRK JA: I agree with Bell CJ.

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