MacDonald v Yakiti Pty Ltd & Ors

Court of Appeal (NSW)|2020-08-12|Before: Macfarlan JA, White JA, McCallum JA, Hamill J

Solicitors: KMD Law & Advisory (Appellant) Crumpton Lawyers (First and Second Respondents) CLH Lawyers (Third Respondent) File Number(s): 2020/4245 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Common Law Division Citation: [2019] NSWSC 1772 Date of Decision: 12 December 2019 Before: Hamill J File Number(s): 2017/163521

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

HEADNOTE [This headnote is not to be read as part of the judgment] The appellant, Ms MacDonald, borrowed substantial sums from the first respondent, Yakiti Pty Ltd through its sole director and shareholder, the second respondent, Mr Moini. Those monies were lent to several companies associated with a Mr Henley (the Henley Group), which operated a number of gymnasiums. Mr Moini and a Mr Prin had also lent substantial sums to these companies. By October 2016, the Henley Group was in financial difficulty. On 31 October 2016, negotiations took place between Ms MacDonald, Mr Moini, Mr Prin and Mr Henley with a view to incorporating a company which was to acquire the assets and businesses of the Henley Group. Ms MacDonald was to advance a further $330,000 to the group such that her contributions roughly equalled those of Mr Moini and Mr Prin combined. Ms MacDonald was admitted to hospital on 4 November 2016 and not discharged until 13 December 2016. She did not advance the $330,000 which she said that she would by 7 November 2016. In that time, Mr Moini, Mr Prin and Mr Henley continued their negotiations to the exclusion of Ms MacDonald. A number of corporate entities controlled by Mr Moini, Mr Prin and a Mr Huang were set up to carry on the business formerly carried on by the Henley Group. Ms MacDonald sought relief under s 12GM(7) of the Australian Securities and Investments Commission Act 2001 (Cth) for unconscionable conduct in trade or commerce relating to financial services (under s 12CA) and for unconscionable conduct in relation to the supply, or possible supply, or acquisition, or possible acquisition, of financial services (under s 12CB). The primary judge found that the appellant laboured under a special disadvantage but that the respondents had not engaged in unconscionable conduct. The principal issues on appeal were:

Whether the respondents took unconscientious advantage of the appellant's disabling condition; and
Whether the appellant had suffered any compensable loss. The Court held, dismissing the appeal (per White JA, Macfarlan JA and McCallum JA agreeing): In relation to the first issue: Per Macfarlan JA (McCallum JA agreeing): Mr Moini and Mr Prin took unconscientious advantage of the special disadvantage under which Ms MacDonald laboured during her admission to hospital by failing to inform her of their intention to exclude her from the proposed deal: at [11], [15]. Per White JA, contra: Mr Moini's uncontradicted evidence was that he was told by Mr Henley that Ms MacDonald did not wish to speak to him and that she was communicating through Mr Henley. He asked Mr Henley to tell Ms MacDonald that they were moving on without her. Mr Moini did not exploit Ms MacDonald's position of special disadvantage: at [199]-[205], [206]. In relation to the second issue: Per White JA (Macfarlan JA and McCallum JA agreeing): if it be assumed that Ms MacDonald would have been entitled to damages for the loss of a chance of obtaining an interest in the companies that succeeded to the businesses of the Henley Group, the evidence was incapable of establishing the quantum of such damages: at [219].

Judgment

MACFARLAN JA: I have had the advantage of reading the judgment of White JA in draft. I agree with his Honour that Ms MacDonald's appeal should be dismissed with costs because, like his Honour, I do not consider that Ms MacDonald established that she suffered loss as a result of the alleged contraventions of ss 12CA and 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act"). For the reasons that follow, I do not however, with respect, agree with his Honour that Ms MacDonald did not establish that such contraventions occurred.

Unconscionable conduct

I gratefully adopt White JA's description of the facts and circumstances of this appeal but particularly emphasise the following matters which are relevant to my conclusion that the respondents engaged in unconscionable conduct for the purposes of ss 12CA and 12CB of the ASIC Act. Except where otherwise indicated, references given are to paragraphs of White JA's judgment.
Ms MacDonald became seriously ill in October 2016 and was admitted to hospital on 19 October 2016 and discharged on 24 October 2016 (the primary judge gave somewhat different dates for that admission but that is of no present relevance). Ms MacDonald was readmitted on Friday 4 November 2016 and discharged on 13 December 2016 ([43]). She said that during the latter admission she had two surgeries and a series of complications ([149]).
The primary judge's unchallenged finding was to the effect that during the latter admission, as a result of her illness, Ms MacDonald laboured under a special disadvantage of the nature described in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; [1983] HCA 14 at [461]-[462] that "seriously affected her ability to make a judgment as to her own best interests" ([197]). The primary judge accepted that in these circumstances "the onus shifted to the respondents to show that they did not act unconscionably and that their subsequent conduct in proceeding with the takeover without Ms MacDonald and enforcing the mortgages was 'fair just and reasonable'" ([189]).
On Monday 31 October 2016, between Ms MacDonald's two hospital admissions, Ms MacDonald, Mr Moini, Mr Henley and, possibly, Mr Prin agreed (although, as it was subsequently held, not in a legally binding fashion) to establish a new entity to acquire the assets of the Henley Group, that shareholdings in the new company would reflect monetary contribution made by the venturers and that Ms MacDonald would provide a further $330,000 to keep the businesses afloat ([45], [46]). These matters were reflected in Ms MacDonald's email to Mr Moini of 31 October headed "Summary of Meeting", to which Mr Moini added his comments by an email in response that was copied to Mr Henley and Mr Prin ([71]). Further communications ensued between these venturers (who clearly included Mr Prin) over the following days, including a message from Ms MacDonald late on Thursday 3 November stating "300K hopefully tomorrow more likely Monday" ([92]).
A meeting between them was planned for 1pm on Friday 4 November but on that day Ms MacDonald emailed at 11.54am stating that she had been "held up at St Vincent's waiting for test results" ([95]). As it transpired, she was not able to attend the 1pm meeting and was admitted to hospital that day, where she remained for almost 6 weeks. In response to her email of Saturday 5 November advising that she had been admitted to hospital, Mr Moini replied on the same day as follows: "Kate - terrible to hear, but I know you are strong and will get through this. In Kon [Prin] and me, you have two new friends so reach out whenever you like. On a positive financial note, I believe we are sitting in the best position we ever have and we have a high likelihood of not just recovering out capital but an amount over and beyond. I will also be assisting Jake [Henley] with getting his equity out without leaving it exposed to creditors. Call me if you should need anything. Mwah! x".
Mr Moini's email reassured Ms MacDonald as to the strength of her relations with the other venturers and as to the enterprise's financial position. The impression given by his email that Ms MacDonald was securely ensconced in the enterprise was emphasised by the email's heading of "Summary of Meeting". This heading derived from the first email in the string, which summarised the meeting of 31 October at which the enterprise proposal had been formulated.
The reassurances to Ms MacDonald at the beginning of her second hospital admission were fortified by Mr Prin's response to Ms MacDonald (copied to Mr Moini and Mr Henley) sent about two hours after Mr Moini's email and adding to the string of which Mr Moini's email formed part. Mr Prin wished Ms MacDonald "all the best" and described Mr Moini as an "amazing business strategist". It implicitly adopted Mr Moini's reassurances.
In my view the conduct of three of the venturers (Messrs Moini, Prin and Henley) in agreeing in the following week, without Ms MacDonald's knowledge, to exclude her from participation in the enterprise was totally inconsistent with the impression Mr Moini's 5 November email created as to the relations between them. Ms MacDonald's evidence of her reaction to Mr Moini's 5 November email was in my view entirely rational: "I was relying on Babak [Moini]'s email saying my equity was the safest it had ever been. I was not told they were moving on without me; that text message does not say that. I thought that if they were moving on without me, he would write to me and tell me that, to give me an opportunity to do something about it if I was able to - I was well enough". ([194])
On Tuesday 8 November Mr Moini sent Ms MacDonald a text message expressing concern about the venturers' investment and saying that it was "urgent we have a chat" ([100]). Ms MacDonald did not reply because, according to her evidence, she was not in a position to do so in light of her health ([101]). Mr Henley, with whom Ms MacDonald had been associated in business for some time, appears to have told Mr Moini on 8 November that Ms MacDonald had "requested him (Mr Henley) to ask Mr Moini and Mr Prin not to contact her as she was in hospital and did not want to talk to anyone" ([105]). Ms MacDonald was in regular contact with Mr Henley by phone between 8 and 10 November but according to Ms MacDonald these calls concerned her health, not matters of business ([102]).
Mr Moini was thus aware that Mr Henley was in contact with Ms MacDonald. This would not have been surprising to Mr Moini as he knew that Ms MacDonald had for some time worked as the general counsel of the Henley Group of companies ([21]). There was in evidence an email sent on 13 November 2016 by Mr Moini to Mr Henley, and copied to Mr Prin, indicating that Mr Moini expected Mr Henley to "manage the Kate situation with respect to no shares being assigned to her" (see [114] below). In simply indicating that Mr Moini thought that Mr Henley would, in some undefined manner, "manage" Ms MacDonald, this email in my view fell well short of demonstrating that Mr Moini and Mr Prin did not take unconscientious advantage of Ms MacDonald's special disadvantage, as I conclude below in [15] that they did.
On Friday 11 November Mr Moini sent an email to Mr Henley (copied to Mr Prin), and not to Ms MacDonald, identifying a number of different possible courses of action for the venturers, none of which involved Ms MacDonald. Each of the options was inconsistent with the discussions previously had with Ms MacDonald ([106]-[111]).
Email communications on Sunday 13 November between Messrs Moini, Henley and Prin make it clear that by this time they had agreed that they would hold shares in the new company, to the exclusion of Ms MacDonald ([112]-[114]).
It was not until after Ms MacDonald's discharge from hospital on 13 December, a month later, that "she learned [through Mr Henley] that she had been cut out of the deal and that she would not be issued with shares in the new company" ([120]).
By the conduct that I have described, Mr Moini and Mr Prin in my view took unconscientious advantage of the special disadvantage under which Ms MacDonald laboured during her second admission to hospital. (As Mr Henley was not a party to the proceedings, it is unnecessary to express a view about his conduct.) Adopting Gageler J's description in Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1; [2019] HCA 18 at [92] of the conduct proscribed by s 12CB, the conduct of Mr Moini and Mr Prin was "so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience". For that reason that conduct in my view contravened both s 12CA and s 12CB of the ASIC Act. As that conclusion is not determinative of the present appeal, it is unnecessary to discuss other expositions of the required standards, such as those to which reference is made in Gooley v NSW Rural Assistance Authority [2020] NSWCA 156 at [36].
As I have already indicated, and regrettably for Ms MacDonald, she did not however prove that she suffered any loss as a result of the respondents' unconscionable conduct. I will not repeat what White JA has said in this regard save to emphasise that Ms MacDonald's case was, as his Honour indicates, that "had she been given an appropriate shareholding in the new companies that succeeded to the businesses of the Henley Group she could have used the profits to repay her loans to Yakiti" ([42]). For the reasons given by White JA, the proposition that Ms MacDonald suffered loss of this character was in essence merely speculative.
WHITE JA: In July 2016 the appellant, Ms Kate MacDonald, borrowed $353,000 from the first respondent, Yakiti Pty Ltd ("Yakiti") secured by an unregistered mortgage over properties owned by Ms MacDonald in Cowper Wharf Road, Woolloomooloo and Lincoln Crescent, Woolloomooloo. The loan was repayable by 1 January 2017 and carried interest at 15% per annum compounded daily.
In August 2016, Ms MacDonald borrowed a further sum of $103,300 from Yakiti that was also secured by an unregistered mortgage over the Cowper Wharf property.
Ms MacDonald used the money she had borrowed from Yakiti to provide unsecured loans to companies associated with a Mr Jake Henley.
Ms MacDonald had worked as a paralegal with a firm of solicitors called Baron Associates from 2004 and as a lawyer with that firm from 2009. She left that firm in March 2015. After some months working in her partner's real estate agency, she began working for Mr Henley and his company from September 2015. She worked as "General counsel of the Henley Group of Companies" ("the Henley Group"). Ms MacDonald deposed that when she first started working for Mr Henley in September 2015 companies in the Henley Group conducted eight gymnasiums (that traded under the name Snap Fitness Gyms), three cafes and a construction company.
From February 2016 to October 2016, at the request of Mr Henley she lent money to him or his companies to cover rent and operational costs including lease equipment fees and franchise fees for the Snap Fitness Gyms. The monies Ms MacDonald lent that were not borrowed from Yakiti were obtained from her mother.
As well as $350,000 she lent on 1 July 2016 and $100,000 she lent on 3 August 2016 from monies borrowed from Yakiti, Ms MacDonald lent Mr Henley or his companies a little under $500,000. She deposed that the total amount of the loans she made between 9 February and 11 October 2016 to Mr Henley was $944,380.
Mr Henley urged Ms MacDonald to borrow money from the second respondent, Mr Babak Moini. Mr Moini was the sole director of Yakiti. He had engaged one of the corporate entities controlled by Mr Henley to fit out a number of cafes which he and Yakiti controlled. Mr Moini was introduced to Ms MacDonald in about November 2015 and was told by Mr Henley that she was a solicitor and general counsel for the Henley Group. When Ms MacDonald asked Mr Henley why he did not borrow the money from Mr Moini, Mr Henley told her that Mr Moini would want security and that she had assets and equity.
Mr Henley told Ms MacDonald that if she could not borrow money from Mr Moini then the landlords would take possession and equipment would be repossessed and she would lose all her money.
Ms MacDonald does not allege that she was induced to enter into the loan agreements and mortgages with Yakiti by any pressure or misrepresentation on the part of Mr Moini. Nor does she complain that the terms of her loans from Yakiti were unfair.
Ms MacDonald was unable to recover her loans to Mr Henley or to the companies in the Henley Group. She defaulted on her loans from Yakiti.
In June 2017 Yakiti commenced proceedings against Ms MacDonald. It sought judgment for the debts owing under the loan agreements and orders for possession of the lands subject to the mortgages and leave to issue writs of possession.
Ms MacDonald defended the claim on the basis that on or about 31 October 2016, she, Mr Henley, Mr Moini and a Mr Kon Prin entered into an agreement, the terms of which were that she, Mr Moini and Mr Prin would together establish a new company that would purchase the assets and businesses of five companies in the Henley Group (Gym and Tonic Health Clubs Pty Ltd, Snap Fitness Zetland Pty Ltd, The Henley Group Pty Ltd, Snap Fitness Surry Hills Pty Ltd and Seedz Investments Pty Ltd).
Between 10 November 2015 and about 22 April 2016 Mr Prin had advanced $690,873 to companies in the Henley Group to acquire interests in the Zetland, Double Bay and Bondi Junction gyms. Mr Moini had also advanced monies to companies in the Henley Group.
Ms MacDonald alleged that it was a term of the agreement that she, Mr Moini and Mr Prin would be issued with shares in the new company as a proportion of the loans that each of them had made to Mr Henley and the Henley Group of companies, that the monies lent by Yakiti to her would be treated as a financial contribution by Mr Moini in his personal capacity and on behalf of Yakiti to the Henley Group of companies, and that Yakiti would release Ms MacDonald from all claims Yakiti had against her in respect of the monies lent by Yakiti to her. She alleged that it was a term of the agreement made on or about 31 October 2016 that a deed of extinguishment of debt would be entered into between her and Yakiti in respect to the monies lent to her and that a deed of extinguishment of debt would be entered in to by Mr Prin, Mr Moini, Yakiti and Ms MacDonald on the one hand and Mr Henley and the Henley Group companies on the other hand.
The primary Judge found that no concluded agreement as alleged by Ms MacDonald was made (J [104]). There is no appeal from that finding.
By cross-claim, Ms MacDonald also sought relief under s 12GM(7) of the Australian Securities and Investments Commission Act 2001 (Cth). Sub-sections 12GM(1), (2) and (7) provide for orders that may be made if it be found that a person has contravened a provision of Division 2 of Part 2 of that Act. Ms MacDonald alleged that Yakiti had contravened ss 12CA and 12CB (contained in Division 2 of Part 2 of the Act) relating to unconscionable conduct in trade or commerce relating to financial services (s 12CA), or the supply, or possible supply, or acquisition, or possible acquisition, of financial services to or from a person (s 12CB).
Section 12CA provides: 12CA Unconscionable conduct within the meaning of the unwritten law of the States and Territories (1) A person must not, in trade or commerce, engage in conduct in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories. (2) This section does not apply to conduct that is prohibited by section 12CB.
Section 12CB 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; or (b) the acquisition or possible acquisition of financial services from a person; engage in conduct that is, in all the circumstances, unconscionable. (2) This section does not apply to conduct that is engaged in only because the person engaging in the conduct: (a) institutes legal proceedings in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition; or (b) refers to arbitration a dispute or claim in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition. (3) For the purpose of determining whether a person has contravened subsection (1): (a) the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and (b) the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section. (4) It is the intention of the Parliament that: (a) this section is not limited by the unwritten law of the States and Territories relating to unconscionable conduct; and (b) this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and (c) in considering whether conduct to which a contract relates is unconscionable, a court's consideration of the contract may include consideration of: (i) the terms of the contract; and (ii) the manner in which and the extent to which the contract is carried out; and is not limited to consideration of the circumstances relating to formation of the contract.
Section 12CC specifies matters to which the court may have regard for the purpose of determining whether a person has contravened s 12CB in connection with the supply or possible supply of financial services to another person.
The primary judge found that the impugned conduct said to have been unconscionable was engaged in in connection with the supply of financial services in trade or commerce (J [115]-[119], [170]). That conclusion is not challenged.
Section 12CA does not extend the principles of unconscionable conduct beyond those recognised by a court of equity sitting in its equitable jurisdiction. The provision creates a statutory prohibition on such conduct which can be enforced by ASIC and makes available statutory remedies that are available in addition to equitable relief (Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1 at [82]; [2019] HCA 18). In Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51; [2003] HCA 18 Gummow and Hayne JJ said (at [55]) that in the case of a plaintiff seeking relief in respect of conduct claimed to be unconscionable within the meaning of the unwritten law, the special disadvantage under which the plaintiff laboured must seriously affect his or her ability to make a judgment as to his or her best interests. It is not enough that the plaintiff is in a greatly inferior bargaining position (at [55] and [56]) (see also per Gleeson CJ at [11]). The plaintiff must also demonstrate that the defendant took unconscientious advantage of the plaintiff's disabling condition (at [55], [14]).
Similarly in relation to s 12CB in Australian Securities and Investments Commission v Kobelt, Kiefel CJ and Bell J said: "14. The term 'unconscionable' is not defined in the ASIC Act and is to be understood as bearing its ordinary meaning. 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'. 15. It is the application of the last-mentioned value with which the appeal is concerned. In Kakavas v Crown Melbourne Ltd and Thorne v Kennedy it was said that a conclusion of unconscionable conduct requires not only that the innocent party be subject to special disadvantage, but that the other party must also unconscientiously take advantage of that special disadvantage. This has variously been described as requiring victimisation, unconscientious conduct or exploitation."
In that case Gageler J said that s 12CB proscribes "…conduct that is so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience." (at [92]).
Keane J said: "119. The legislative choice of 'unconscionability' as the key statutory concept, rather than less morally freighted terms such as 'unjust', 'unfair' or 'unreasonable', confirms that the moral obloquy involved in the exploitation or victimisation that is characteristic of unconscionable conduct is also required for a finding of unconscionability under s 12CB. Section 12CB(4)(a) of the ASIC Act does not require a contrary conclusion. The direction in s 12CB(4)(a) means that the application of s 12CB(1) is not limited to conduct that has been held to be 'unconscionable' under the general law, but it does not operate to give the term 'unconscionable' a meaning different from its ordinary meaning. Adherence to the ordinary meaning of the term 'unconscionable' is appropriate for two reasons rooted in the nature of the judicial function. First, the courts must give effect to what Parliament has enacted. Here, it must be acknowledged that the Parliament has deliberately chosen to use this expression as the focus of attention, and not a more open-textured or morally neutral expression that would be less certain in its scope. And secondly, the appellant did not propound a meaning for 'unconscionable' different from its ordinary meaning; and so the respondent had no occasion or opportunity to meet such a contention."
As explained in more detail below, in October 2016 there were discussions between Mr Henley, Ms MacDonald, Mr Moini and Mr Prin with a view to the establishment of a new company which would acquire the business and assets of companies in the Henley Group in which Ms MacDonald would have a shareholding. Although Ms MacDonald had alleged that an agreement had been reached in that regard and that it was a term of that agreement that her debt to Yakiti would be extinguished, it was conceded at trial that the evidence did not establish any agreement that her loans from Yakiti would be extinguished (J [101], [103]).
Ms MacDonald's case, as pressed on appeal, was that she, Mr Moini, Mr Prin and Mr Henley proposed that a company to be formed would acquire the assets and businesses of the companies in the Henley Group, that Mr Moini was instrumental in achieving that objective, that had she been given an appropriate shareholding in the new companies that succeeded to the businesses of the Henley Group she could have used the profits to repay her loans to Yakiti, but that, unconscionably, Mr Moini excluded her from participation in the new company.
Ms MacDonald became seriously ill in October 2016 which, she said, placed her in a position of special disadvantage. She was admitted to hospital on 19 October 2016 and was discharged on 24 October 2016. She was readmitted on 4 November 2016 and not discharged until 13 December. She was discharged to her parents' home and for at least a week was incapable still of looking after herself. Whilst she was in hospital during her second admission, and then unknown to her, Mr Moini cut her out of the proposed deal.
There was no dispute that by the end of October 2016 the operation of at least some of the gym businesses was on a knife's edge and that landlords were threatening to take possession.
On 31 October 2016 Ms MacDonald, Mr Henley and Mr Moini met to discuss the fate of the Henley Group. (Ms MacDonald deposed that Mr Prin also attended the meeting but he denied it. At trial it was conceded that Mr Prin did not attend (J [26])). The matters discussed at the meeting traversed three topics. The first was the need to establish a new entity to take on the assets of the Henley Group in order for Mr Prin, Mr Moini and Ms MacDonald to have an interest in all of the gyms or to take the assets out of the reach of creditors. The second was how much capital or loans each had contributed for the purpose of calculating equity interests in the new company. The third was how immediate debts of the Henley Group were to be satisfied.
Discussions at the meeting on 31 October 2016 included that Ms MacDonald would pay a further $330,000 to keep the businesses afloat. She did not make that payment.
It can be inferred from the events that happened and from his evidence that at least Mr Moini appreciated that the goodwill of the businesses could be acquired by dealing directly with the lessors of premises and equipment, and with the franchisor of the gymnasium businesses, to persuade them to terminate the leases and franchise agreements for non-payment of rent and franchise fees when the Henley Group companies ran out of cash, and by persuading them to execute leases and new franchise agreements in favour of the new company.
Ms MacDonald did not give evidence as to how she understood the business and assets of the Henley Group of companies would be acquired. Nor did she give evidence as to whether she expected that as a shareholder of the proposed new company she would be required to provide ongoing financial support proportionate to her shareholding.
In relation to Ms MacDonald's contention that Yakiti through Mr Moini, or Mr Moini, himself had breached s 12CA of the ASIC Act, the primary judge concluded: "167. The cross-defendants have established that they did not act unconscionably and that the conduct engaged in was 'fair, just and reasonable' in the circumstances of the case. Accordingly, the claim under s 12CA of the ASIC Act must fail. In reaching that conclusion, I have considered all of the circumstances but I am particularly persuaded by the urgency of the situation, the failure of Ms MacDonald to make the contribution of $330,000 in spite of repeated requests for her to do so, the urgent and unanswered text message of 8 November 2016, Ms MacDonald's communication with Mr Henley later that day, and her failure to make any contact with Mr Moini or Mr Prin for many weeks. The urgency of the situation required Mr Moini and Mr Prin to take action or they would have lost the money that each had invested. I have also taken into account the fact that the October Agreement was not finalised although that is not a determinative factor in relation to the claim under the provisions of the ASIC Act. 168. In all of the circumstances and taking into account all relevant considerations, the exclusion of Ms MacDonald from the takeover, and the enforcement of the mortgages despite having knowledge of her illness, was not unconscionable within the meaning of the unwritten law."
The primary judge relied on the same considerations in rejecting the claim under s 12CB. His Honour said: "177. … I am satisfied that Mr Prin and Mr Moini acted out of necessity and did not act unconscionably in doing so. I am not satisfied that the impugned conduct including the emails particularised in the pleadings were such that the plaintiff unconscionably excluded Ms MacDonald from the agreement or unconscionably enforced the mortgages. In coming to that conclusion I have taken into account circumstances including, but not limited to: Mr Moini's text message of 8 November 2016 advising that the investments of the parties were at risk of being lost, the fact that there was no concluded contract arising from the October negotiations, the precarious financial position of the Snap Fitness franchises, the failure of Ms MacDonald to contribute the $330,000 as promised, her failure to communicate with the others including through Mr Henley with whom she was in frequent contact, and the desire of Mr Moini and Mr Prin to protect their investments."
Before addressing primary judge's reasons and the grounds of appeal, it is necessary to outline in more detail the dealings between Ms MacDonald, Mr Henley, Mr Moini and Mr Prin from October 2016.
The background to those dealings was that Mr Prin, Mr Moini (through Yakiti) and Ms MacDonald had all provided monies to Mr Henley or his companies. Mr Prin deposed that he had agreed to "invest" money in the Henley Group of companies with a view to opening a Snap Gym franchise in Zetland. He transferred $370,830 to an account operated by a company in the Henley Group in November 2015. Snap Fitness Zetland Pty Ltd was incorporated on 18 January 2016. He paid a further $20,000 in February 2016 with a view to the setting up of another Snap Fitness Gym franchise in Rosebery and advanced $300,000 to Seedz Investments Pty Ltd on or about 22 April 2016. The total amounts paid by Mr Prin thus totalled $690,873. He said that in respect of what he called a payment of [Transcript says] $350,000 he was led to believe that he had bought a 50% share in the Zetland gym. He consulted Mr Moini about the investment. Mr Moini said Mr Prin also purchased an interest in the Snap Fitness Bondi Junction and Double Bay Gymnasiums).
Mr Moini deposed that by 26 May 2016 he had advanced loans totalling $400,000 to Mr Henley (presumably through Yakiti).
At noted above Ms MacDonald deposed that she lent Mr Henley $944,380 between 9 February and 11 October 2016. She deposed to having made loans as follows: 9 February 2016 $92,000 3 June 2016 $50,000 15 June 2016 $100,000 1 July 2016 $350,000 2 August 2016 $10,000 3 August 2016 $100,000 18 August 2016 $15,000 18 August 2016 $25,000 22 August 2016 $17,000 19 September 2016 $156,380 11 October 2016 $29,000

Although Ms MacDonald deposed that the monies set out above were lent to Mr Henley, in cross-examination she said that she considered that Gym and Tonic Health Clubs Pty Ltd was primarily the party who owed her the monies advanced because most of the money was paid on its behalf. She said that some payments were made on behalf of "various entities" and it would be hard to distinguish who owed precisely how much. In cross-examination she denied that she gave any money to Mr Henley personally.
Ms MacDonald said that it was obvious to her by June 2016 that she would have to continue to fund the operational costs of the gymnasiums. By late October 2016 she knew that the Henley Group of companies were in a very difficult financial position.
By email dated 17 October 2016, Ms MacDonald proposed that through a special purpose vehicle she would acquire Mr Prin's interest in the Zetland, Double Bay and Bondi Junction gymnasiums. That proposal did not proceed.
On 26 October 2016 Ms MacDonald, Mr Henley and Mr Moini met to discuss the future of the Henley Group. It was proposed that the contributions made by the various parties to the Henley Group would be reconciled and converted to equity (J [24]).
That evening Mr Moini sent an email to his solicitor, Ms Lambrini Dranganoudis and to Ms MacDonald, Mr Prin and Mr Henley saying: "Lambrini ... I had a meeting with Kate and Jake and the aim is to have Kon and I reduce our shareholdings at Zetland, Bondi and DB and to hold a smaller share across all gyms. I am working with Kate and Jake in the background and will update you as I have more information at hand. Kate ... Let's undertake all financial work / transactions ASAP so we can then proceed towards selling the gyms one at a time or in one line. Let's aim to chat daily."
On 28 October Ms Macdonald sent an email to Mr Moini copied to Mr Henley enclosing a schedule of expenses and debts for the various gyms. These totalled $533,469.39. Ms MacDonald stated that the: "Surry Hills rent is of course most pressing given it secures our position with the landlord and puts SNAP [the franchisor] in a very weak position to try to take the site, strengthening our position for mediation".
Ms MacDonald said the attached schedule was for discussion on that day with herself, Mr Henley and Mr Moini. It does not appear that there was a meeting that day. Ultimately the three met on 31 October 2016. As noted above Ms MacDonald deposed that Mr Prin was also in attendance at that meeting but the primary judge noted that it was ultimately implicitly conceded by Ms MacDonald's counsel that Mr Prin was not at the meeting (J [26]). Given that there is no appeal from the primary judge's finding that no concluded agreement was reached at this meeting, nothing turns on whether or not Mr Prin was present.
Ms MacDonald deposed that at the meeting on 31 October 2016 she proposed that everyone convert their loans to equity and that they take a more active approach in running the businesses with Mr Henley. She proposed that although Mr Henley could stay involved, she, Mr Moini and Mr Prin would need to take control of the decision-making. She proposed that Mr Henley sell the businesses to "our entity" which would hold "our equity". This would be done in consideration of the extinguishment of the debts owed to them. She deposed saying "if we are converting our loans to equity we need to do it now". This was at least in part because her debts to Yakiti matured in December. She deposed that Mr Moini agreed and said that once the gyms were transferred to a new entity "we can gear them up for a sale". Mr Moini said that a reconciliation was required to determine how much money the three of them had put in.
Mr Moini's version of what was said at the meeting about this was not substantially different. He deposed that Ms MacDonald said: "… the best method of trying to save the gyms and our investment is to establish a new company and to bring all the leases, both premises and equipment, across and Jake can deal with the debt. … If we don't do this we will all lose everything."
Mr Moini deposed that he said that the businesses were not worth anything and then continued: "We are going to need to put more money in, but before we do that we need to reconcile so that we are all equal and have the same percentage in any new company. I have learnt from my own business experience that for a business to really work, everybody has to have the same shareholding. Otherwise people have more or less and are less engaged. So everybody has to have parity, which means I need to know how much each of us have put into Jake's businesses so that additional money can be put in to equalise. The additional funds can be used to operate the new business. Jake, like I said the other day, you're not going to get anything, but if it is all successful, down the track you may get up to 25%. There is a lot of money due at the moment so if we are going to do this, we need to do it urgently. If we truly believe there is a future for the new company even if it is just to stabilise, clean up the balance sheets and prepare it for sale, we will need to act quickly and start approaching the landlords and equipment lessors to bring the assets across. I have Kon undertake reconciliations. He will need to speak with you Kate and get information."
There was further discussion as to what advances or payments each party had made for the benefit of the Henley Group which would be treated as a capital or loan contribution for the purposes of a conversion of debts to equity. There was a conflict in the evidence of Ms MacDonald and Mr Moini as to whether the loans Yakiti had made to Ms MacDonald should be treated as a contribution by her (as Mr Moini deposed was said) or whether they should be treated as a contribution by Mr Moini (as Ms MacDonald deposed).
Ms MacDonald deposed that Mr Moini's first proposal was that he preferred that each party (Moini, Prin and MacDonald) have an equal share in the new company and that if some parties needed to put in more money to even the contributions then that should be done. This is consistent with Mr Moini's evidence referred to at [64] above.
However according to Mr Moini later in the meeting, after Ms MacDonald had said that she had advanced about $1 million including the monies that Mr Moini had lent her, Mr Moini said: "Me: 'If Kate has put in $1 million then on a rough calculation, Kate will need to put in $330,000 and Kon and I will have to put in another $220,000. That way our contributions will be balanced equally as to Kate on one side and Kon and me on the other. Once Kon has done the calculations, the money needs to go in. Kate, as soon as you have put your money in, I will put in mine as I have the resources to do that easily and I want to know you have put your money in.' Kate: 'I'm ok with that'"
This is consistent with an email Ms MacDonald sent on the evening of 31 October quoted below, at [71].
A further issue discussed at the meeting was how the immediate debts the Henley Group owed were to be paid. Ms MacDonald deposed that Mr Henley said that the Surry Hills rent needed to be paid "now" and said that "if you three are taking over the businesses you need to pay this." Ms MacDonald deposed that Mr Moini said that "you need to put in the most money so you should pay the rent". She said it would take her a few days to get the money and that she could not pay it that day. Mr Henley said that if it were not paid that day the landlord might lock them out. Mr Moini offered to lend Ms MacDonald the rent on the same terms as before until she could get access to her funds.
Mr Moini's evidence of what was said on this topic was to the same effect..
At 4.20pm on 31 October 2016 Ms MacDonald sent an email to Mr Moini summarising her understanding of what had been agreed. Mr Moini replied by returning Ms MacDonald's email with his inserted comments. That email is set out below with the unhighlighted texts representing Ms MacDonald's email sent at 4.20pm. Mr Moini's reply of 4.35pm is in bold: "My understanding of what we agreed today is as follows: • I need to put in a further $330K and Kon and yourself need to put in a further $220K and in those circumstances our contributions will then be balanced This is roughly correct, and we need to balance it to the nearest dollar. I can have Kon go through the accounts with you to balance exactly. For the time being, let' s assume this is correct. • With our contributions balanced on any gym sale that distribution of the sale price should be Kon/Babak $1.00 / KM $1.00 to ensure that we are repaid at the same time in equal proportions Correct, we get paid first before Jake gets paid. Kon and you should sit across this. • You may loan me the $120K to pay Surry Hills rent (secured against the mortgage you already have) so this rent can be paid today/ASAP and I will reimburse you once my funds clear later in the week Correct. Please confirm that I can pay the $120k to the landlord at SH directly and you will sign any paperwork this week (if required) to effect this loan/security. This may not be necessary given you anticipate your funds to come in this week. I will start the process of obtaining my funds tomorrow morning so they should be cleared by the end of the week. Noted. The most critical payments are Potts point rent ($23k), Double Bay rent ($30K), Surry Hills rent ($121 K), Paddington rent ($18K), Bondi rent ($32K) and Bondi Equipment ($24k). Noted. Please advise if you require any corrections."
At this time Mr Moini and Ms MacDonald were in substantial agreement that she would advance a further $330,000 and that he and Mr Prin would need to contribute approximately $220,000 on the basis that when the contributions were balanced, Ms MacDonald would own 50% of the shares in the company to be established to acquire the assets and businesses of the gyms.
This was rational but not exact. Ms MacDonald had lent $944,380. A further $330,000 advance would bring her loans to $1,274,380. Mr Prin had advanced $690,873. Mr Moini had advanced $400,000. If Mr Prin and Mr Moini contributed $220,000 that would bring their combined advances to $1,310,873; a ratio to Ms MacDonald's advances of approximately 51:49.
Ms MacDonald's and Mr Moini's evidence differed on how the gyms' businesses and assets would be acquired. According to Ms MacDonald, she envisaged a sale of the businesses by Mr Henley to the new vehicle to be established. Mr Henley's motivation for effecting such a sale is not clear except for the possibility that he would in due course be offered an interest in the new purchaser. Mr Moini's evidence was that he said that they would need to "start approaching the landlords and equipment lessors to bring the assets across."
Ms MacDonald made an affidavit in response to Mr Moini's affidavit. She did not dispute that Mr Moini said those words.
On the afternoon of 31 October Mr Moini asked his solicitor to advise him of the total amount of the loans including interest that were outstanding as of that day from each of Mr Henley and Ms MacDonald. Ms Dranganoudis provided her calculation that evening. She calculated that the total amount due from Mr Henley was $425,849.32 and that the total amount then owed by Ms MacDonald was $479,351.04. This correspondence was copied to Mr Henley and Ms MacDonald.
Also on 31 October 2016 Mr Moini or Yakiti paid the Surry Hills rent of $121,000. On 31 October 2016 at 10.04pm Mr Moini advised Ms Dranganoudis that he had "transferred 121k on behalf of Kate today. If she does not repay within the week, she will sign the paperwork to add this to her loan."
On 1 November 2016 Ms MacDonald met with Mr Prin to carry out a "reconciliation of contributions".
Mr Moini deposed that on that day Ms MacDonald rang him and informed him that a further $51,000 was needed urgently to pay outstanding rent and legal fees from Mr Henley who was involved in Supreme Court proceedings with other persons including Mr Tri Nguyen and Mr Hong Jie Huang. He deposed that Ms MacDonald said: "I need you to lend me another $51,000 to meet outstanding rents and legal costs for Baron & Associates who you know are acting for Jake in Supreme Court proceedings. These are payments which need to be made now for rent or one of the landlords will lock us out and urgent work which needs to be done for Jake in the legal proceedings … if you lend this amount to me it can be added to the amounts I owe you under the mortgages."
On 1 November 2016 Ms MacDonald sent an email to Mr Moini saying: "Kon and I have been carrying out our reconciliation of contributions this afternoon. Subject to the reconciliation being completed I confirm that the $51,000 which you are paying this afternoon will be added to my all monies mortgage. If it is not reimbursed we can adjust the contributions." One minute later Ms MacDonald sent a further email saying: "I believe the amount is now $35,000."
Mr Moini arranged for the payment of $35,000 that day.
The Henley Group was facing litigation on more than one front. On 3 November 2016 Mr Henley sent an email to Mr Moini and Ms MacDonald and Mr Prin advising that: "We are making some really good progress, with the court matters and now protecting our position with Surry Hills. However we had a very short window to resolve a number of other matters and I want to bring them to a close this week as well if we can. [Kate] can you provide us with an update on where you are at with obtaining funds and when they will be accessible? [Other] priorities as I see it this week • HWL ebsworth conditioning SNAP and prepping for mediation on the 14th & 15th • HWL putting Ezi-debit on notice for Surry Hills ezi-debit • Getting Zetland Ezi-debit & Fitware activated • Paying urgent rents • Paying Equipment suppliers If you guys have any other priorities, please add this in the email. [illegible] to express the urgency here on informing me on what is going on as I am trying to keep in front of all the issues so we can close the sale with SNAP."
At 11.19am on 3 November 2016 Mr Moini replied to Mr Henley, Ms MacDonald and Mr Prin saying: "All … urgent matters: • Kon reconciling amounts we have put in • Agreeing on split of shares across all gyms (we had previously talked about 33% to each party), but to be finalised) • Kate advising of monies received from her aunty Happy to meet as soon as we have advice on items 1 and 3."
At 2.58pm on 3 November 2016 Mr Prin emailed Ms MacDonald, Mr Henley and Mr Moini with a purported reconciliation of contributions from each of himself, Ms MacDonald and Mr Moini. In his reconciliation the loans from Yakiti to Ms MacDonald were treated as contributions from both Mr Moini and Ms MacDonald.
Later that afternoon, at 3.34pm, Ms MacDonald replied to the same recipients with an amended reconciliation which removed Yakiti's loans to her as a contribution from Mr Moini. Her calculation was that she had contributed $944,380, Mr Moini had contributed $463,616 and Mr Prin had contributed $670,000. Thus their contributions were in proportions of 45.45% (MacDonald), 22.31% (Moini) and 32.24% (Prin).
Ms MacDonald said: "[my] cheque was deposited this afternoon with an express clearance". This was a reference to the cheque that Ms MacDonald had advised she was obtaining from her aunt. It was placed for clearance to her bank account, not into an account of any company in the Henley Group. At 3:59pm on 3 November Ms MacDonald advised Mr Moini, Mr Henley and Mr Prin that: "With the express clearance I think its (sic) more likely my monies will be clear Monday or over the weekend. I will however keep checking for cleared funds."
At 3.51pm on 3 November 2016 Mr Henley sent an email to each of Mr Moini, Ms MacDonald and Mr Prin saying: "Things that are urgent that I will need paid today Double Bay Rent $42,296.32 - Real commercial management … Bondi Junction Rent $29,000 - Treesol Holding P/L … Paddington Rent $19,000 - Real commercial management … Potts Point Rent $24,000 Burgess Rawson (NSW) Pty Limited … Macquarie equipment rentals $24,000 Macquarie Equipment Rentals … HWL Ebsworth $10,000 … Total: $148, 296.32 Once these are paid could I request that a remittance advise (sic) be sent through so I can inform the people above."
At 4:04pm on 3 November 2016 Mr Prin provided a third reconciliation attached to an email addressed to Mr Moini, Mr Henley and Ms MacDonald. The changes from Ms MacDonald's earlier reconciliation were to add as Mr Moini's contributions the payments he had made for legal fees of $35,000 and Surry Hills rent of $121,000 increasing Mr Moini's contributions to $619,616 and changing the parties' respective proportions of contributions to Macdonald 42.7%; Moini 27.74%; and Prin 29.99%.
Mr Moini appears to have accepted those figures. By an email of 4:16pm to Mr Henley, Ms MacDonald and Mr Prin he wrote: "Jake … My recommendation is to wait and see if Kate's money had been cleared by tomorrow am. As it stands Kon and I have deposited $345k more than Kate. Any issues with waiting till tomorrow?"
Mr Henley replied at 4:19pm: "3 big issues for me are Double Bay / Potts Point & HWL - The lawyers have been chasing me for money all week and I really don't want to get them offside with all that is happening and the land lords above have been putting a lot of pressure on and they are key sites for negotiations with SNAP"
At 4:29pm Mr Moini wrote: "Over to Kate to advise how much money she has clearing (hopefully by tomorrow) and then we can figure out [plan] of attack."
Ms MacDonald wrote at 4:33pm on 3 November: "$300K hopefully tomorrow more likely Monday."
On 4 November 2016 Ms MacDonald sent an email to Mr Moini, Mr Henley and Mr Prin stating: "Morning All I have Dr's appointments until about 12 today then am available."
Mr Moini replied: "Kate … in the meantime can you check as to whether you have cleared funds?"
Arrangements were made for the four individuals to meet at 1pm that day. But at 11:54am Ms MacDonald sent an email stating: "I've been held up at St Vincent's waiting for test results. Just flagging I may not be ready by 1pm."
Ms MacDonald was not able to attend the meeting on 4 November. She was admitted to hospital that day. On Saturday 5 November 2016 she sent an email advising that she had been readmitted into hospital and said "I should know more on Monday as to when I should be discharged".
Mr Moini replied: "Kate - terrible to hear, but I know you are strong and will get through this. In Kon and me, you have two new friends so reach out whenever you like. On a positive financial note, I believe we are sitting in the best position we ever have and we have a high likelihood of not just recovering out (sic) capital but an amount over and beyond. I will also be assisting Jake with getting his equity out without leaving it exposed to creditors. Call me if you should need anything. Mwah! x".
Ms MacDonald replied two minutes later thanking Mr Moini for his "kind words".
From 4 November 2016 Ms MacDonald was treated in hospital with infliximab infusions to which her body did not respond. She underwent major surgery on 12 November 2016 and was not discharged until 13 December 2016.
On 8 November 2016 at 2:47pm Mr Moini sent a text message to Ms MacDonald in these terms: "Kate … Can you talk? I'm worried the clubs will be closed very soon and we'll lose our entire investment. It's urgent we have a chat."
Ms MacDonald did not reply to this message. Ms MacDonald said that she was not in a position to respond to Mr Moini's text message or to respond to calls because she had had an infliximab infusion which was similar to chemotherapy.
The primary judge noted that Ms MacDonald was in regular contact by telephone with Mr Henley between 8 and 10 November 2016 including phone calls of 12 and 20 minutes. Ms MacDonald said that these calls were about her health and not about matters of business (J [46]-[47], [138]-[142]).
The primary judge found Ms MacDonald's (and Mr Henley's) evidence about these matters to be inconsistent, unconvincing and implausible (J [143]). Nonetheless the primary judge accepted that: " … in view of the seriousness of her medical condition, and the absence of any substantial submissions from the cross-defendants on the issue, I have proceeded on the basis that Ms MacDonald was suffering from, or under, a special disadvantage from the time she was admitted to hospital (that is, 4 November 2016)." (J [144]).
The respondents do not challenge that finding. Ms MacDonald says it does not go far enough.
Mr Moini deposed that on 8 November 2016 he was told by Mr Henley that Ms MacDonald had requested him (Mr Henley) to ask Mr Moini and Mr Prin not to contact her as she was in hospital and did not want to talk to anyone. Mr Henley made an affidavit in response to Mr Moini's affidavit but did not contradict this statement. The primary judge made no finding as to this evidence, but it was unchallenged.
On Friday 11 November 2016 Mr Moini sent an email to Mr Henley and Mr Prin the subject of which was "[p]ayments to be made over the weekend or Sunday". Mr Moini wrote: "Jake ... On Saturday could you please send anticipated payments for the next two to four weeks, net of expected income from all sources e.g Zetland, Surry Hills and CBD catchup and client income across all sites. Please be very careful on this, as I'd hate for you to be missing a big payment. You're better off being conservative. Please also advise whether the franchisee is likely to have any issues if your shares are transferred to Kon/me. Kon ... Apologies I had to rush, but I had to meet two friends and the discussions were quite circular. The options I see are: You buy Zetland in lieu of the $660k you have paid and arrange transfer of equipment lease, property lease and franchise agreement to your entity. That is 100% safe and you don't have Jie/Tri etc to worry about. According to Jake, you then need to pay the bond for the rental deposit, but this is something I'll leave with Jake and you to discuss/negotiate. If you want this option, the amount you transferred today will be repaid to you. You stay in for the 2/3rds with me and we match each other dollar for dollar in our investment. I don't want to be putting more money into this than you. Jake then transfers all shares to us early next week. We both walk away from our investment and this will likely make the whole thing collapse. I don't have any additional financial information than you have access to. My aim is to start cutting every additional expense from next week with the aim of being cashflow positive in a matter of weeks. My focus is not on accounts, but money in / money out. At the moment there is zero to be gained by having Shane/Terry look at the accounts, as they've been used as a cash cow for the other businesses and out of control costs. Could you please advise by 2pm, Sunday which of these options you prefer. If it is option 2, could you please update the spreadsheet. Once you advise, let's stick to that option and not go back/forth."
Although this email does not refer to Ms MacDonald, it suggests arrangements that are inconsistent with those that had previously been discussed with Ms MacDonald. It contemplates that Mr Henley's shares may be transferred to Mr Prin and Mr Moini, although the proposal discussed with Ms MacDonald did not contemplate the transfer of Mr Henley's shares but rather the transfer of assets.
The proposal that Mr Prin might acquire the Zetland gym in lieu of his contribution of $660,000 was inconsistent with the proposal discussed with Ms MacDonald.
The proposal that Mr Prin "stay in for the 2/3rds with me and we match each other dollar for dollar in our investment…Jake then transfers all shares to us early next week" is unclear. On one view it could be a proposal that Mr Moini and Mr Prin acquire "two thirds" of the new business with nothing being said as to who should own the other one third. This would be consistent with Mr Moini's not putting in more money than Mr Prin. On the other hand he contemplates that Mr Henley would transfer "all shares to us early next week" which leaves unanswered who would hold the other one-third share.
The third option was that both Mr Prin and Mr Moini walk away from their investment meaning that the whole thing would collapse.
Whatever might have been intended by this email, it excluded Ms MacDonald.
At this time Mr Moini was holding out to Mr Henley that Mr Henley might retain a one-third interest. At 1:23pm on Sunday 13 November 2016 Mr Moini sent an email to Mr Henley and Mr Prin stating "Jake … I believe Kon and I have an agreement re each of us holding 33% each, with me managing the overall strategy (over and above you as well)."
On 12 November 2016 Mr Moini sent an email to Mr Henley and Mr Prin stating: "Kon ... I just thought of a fourth option. Restrict the amount you have deposited to $660k and you end up with 16.67% (which is exactly the same deal as we had with Kate). I will pay the shortfalls up to the amount that Kate was going to put in to match us and I was going to put in to match you but I will pick up Kate's 33% share. If we go down this option, you are unlikely to have to put in more money. This is identical to what was going to happen with Kate a week ago in any case, so you are in the exact same position. If this option is of interest, please also update the Excel spreadsheet and I will then advise at what level you'd have to put additional money in. Jake/Kon … Under this option, I would want full control in managing cashflow and particularly removing all excess costs (including staff). In particular, I will actually ask that I make all decisions and may even ask that you have little to no involvement. My specialty is turning around businesses (e.g. TCI has gone from a loss of $6m to a profit of $1m in four months) and I will use all my endeavours to recoup our capital and hopefully much more."
On 13 November 2016 Mr Moini wrote to Mr Henley saying: "Jake … Just confirming that you will manage the Kate situation with respect to no shares being assigned to her? My preference is that I not have to deal with Kate directly, as our agreement is with you."
On 13 November 2016 Mr Prin sent a revised reconciliation to Mr Moini that referred only to their contributions to the Henley Group. The changes to Mr Prin's earlier reconciliation recorded an additional payment of $33,000 by Mr Prin on 11 November 2016 for Bondi Junction rent and additional payments totalling $102,475.94 from Mr Moini for rent, equipment, finance payments and legal fees.
Consistently with Mr Moini's email of 12 November 2016, Mr Moini sent an email on 14 November 2016 to Mr Henley stating: "Jake … As cruel as this may read, I believe we need to cease Kate's salary"
On 17 November 2017 Ms Dranganoudis reported to Mr Moini and Mr Prin on searches she had undertaken that revealed that there were winding up applications then pending against Gym and Tonic Health Clubs Pty Ltd. One had been commenced by Hoang Tri Nguyen and Hong Jie Huang on 16 May 2016. Another winding up application had been commenced by XTON Group P/L on 1 September 2016. A third had been commenced by a franchisor Lift Brands (Australia) Pty Ltd on 25 October 2016. She reported that there were six default judgments against Gym and Tonics Health Clubs Pty Ltd totalling approximately $95,022. A search of The Henley Group Pty Ltd revealed a pending winding up application by Hoang Tri Nguyen and Hong Jie Huang and six default judgments against that company totalling approximately $115,543.
Ms Dranganoudis cautioned Mr Moini and Mr Prin against any further advances to Mr Henley or payments to be made on his behalf.
By this time Ms MacDonald had been cut out of the deal. She did not know that. Mr Henley did not then tell her that she would not be issued with any shares in accordance with her proposal or her discussions with Mr Moini and Mr Prin and Mr Henley. She was in hospital recovering from major surgery. She had not paid the $330,000 she had said she would pay by Monday 7 November 2016.
It was not until after Ms MacDonald's discharge from hospital on 13 December 2016 that she learned that she had been cut out of the deal and that she would not be issued with shares in the new company. She was told this by Mr Henley.
On 25 November 2016 Ms MacDonald was provided by Mr Henley via email with a copy of a letter from a company called Quadrant Private Equity Pty Ltd ("Quadrant") dated 25 November 2016. The letter was addressed to Mr Henley and was described as a "Non-Binding Indicative Offer to acquire nine Snap Fitness Gyms". The letter was signed by a Mr Jonathon Pearce described as a "partner" of Quadrant and Director of "Fitness and Lifestyle Group". The letter stated that Quadrant had been established in 1996 and managed various funds. Mr Pearce stated that: "We have valued the Snap Fitness Gyms at A$6.5 million. This is based on our assessment of the value of the equipment and fit out, location and site leases, synergies with our group and earnings potential of the sites."
The Non-Binding Indicative Offer of $6.5 million was said to be based on assumptions that included a "cash and debt-free sale". He said any "debt-like liabilities, including tax liabilities or other debt-like items transferred in the transaction, will be reduced from the Enterprise Value". The offer was based upon Quadrant's having a four week period of exclusivity to complete due diligence and the provision of an undertaking that none of the Snap Fitness Gyms of any of its assets would be sold to any other party. The offer was said to be subject not only to transaction documents being approved but was also subject to FLG Board approval and "satisfaction and agreement of the items per 'valuation and assumptions'".
Mr Henley deposed that he was hoping the sale to Quadrant of the gym and café businesses would go through and that they would all, including Ms MacDonald, receive a share of the proceeds of sale of those businesses. Ms MacDonald deposed that Mr Henley telephoned her with reference to Quadrant's letter and said that she should be happy that she got involved as a third of what was being offered would be hers.
Quadrant's offer had come about because Mr Moini sent an email to Mr Henley and to Mr Pearce suggesting a meeting the following week as to whether the nine Snap gyms were of any interest to Quadrant. Mr Henley provided information about the businesses and the number of members of each gym to Quadrant. On 23 November 2016 Mr Moini sent an email to Mr Pearce stating that he needed to transfer ownership of Snap Gyms "into my entity (and one other entity) and need to gauge degree of interest from Quadrant re these sites. I won't proceed with the transfer if you believe there's a (good) chance you'll pick these up."
Quadrant's letter of 25 November 2016 was sent by email by Mr Pearce to Mr Henley and Mr Moini. Later that day, Mr Pearce advised Mr Moini and Mr Henley that he had received a telephone call from the headquarters of Snap Fitness in the United States advising that Snap would not consent to selling the business to a competitor (Quadrant) that did not intend to run as a Snap franchise. Mr Pearce said that he believed that Snap would seek to enforce whatever rights they had to block any such transaction or take legal action. The Quadrant offer did not proceed.
Mr Moini deposed that two entities were established for the purpose of entering into franchise agreements and to be the "trading entity". On 15 December 2016 All About Fitness Gym and Health Clubs Pty Ltd was incorporated. Its initial directors were Mr Prin and Mr Moini. According to the company search 50% of the shares were held by a company called 616470896 Bellevue Hill Holdings Pty Ltd and the remaining 50% by Yakiti. On 9 May 2017 a small shareholding (less than 0.01%) was transferred from Yakiti to Mr Hong Jie Huang. Mr Huang became a director on 19 December 2016.
On 16 December 2016 a company called Go For Gold Gyms and Fitness Centres Pty Ltd was incorporated. Mr Moini, Mr Prin and Mr Huang were its directors. Its shares were held by All About Fitness Gym and Health Clubs Pty Ltd. Subsequently, on 17 July 2017 a company called Saffron Services Pty Ltd was incorporated with its initial directors being Mr Prin and Mr Moini. The shares were equally held by Yakiti and by 616470896 Bellevue Hill Holdings Pty Ltd. I infer that the later company was a company owned or controlled by Mr Prin.
Mr Moini deposed that: "All About Fitness Gym and Health Clubs Pty Ltd is the Lessee of the four Snap Fitness Centres currently operating at Bondi Junction, Double Bay, George Street in Sydney and Zetland. The Go For Gold Gyms and Fitness Centres Pty Ltd entity was established to be the trading entity for the gyms. It is a wholly owned subsidiary and employs all the staff and engages the various contractors used by the four gyms including personal trainers and cleaners. The third company, Saffron Services Pty Ltd, was incorporated on 17 July 2017 and was established to receive the direct debit membership income from Ezidebit for the four gyms."
On 13 December 2016 Mr Moini sent an email to the chief legal officer of Life Brands Inc, Ms Alison McElroy (copied to Mr Henley) that he had an agreement with Mr Henley to purchase all of the gyms. He advised Ms McElroy that his aim was for a "swift turnaround in all matters" and he was prepared to transfer $210,000 on that day to a trust account with the monies to be released upon transfer of the gyms. Ms McElroy responded on 15 December 2016 asking for details of Mr Moini's proposed company that "is to become the franchisee" and provided details of the account into which the $210,000 could be paid. She advised that Lift Brands and Snap Fitness would not suspend pending legal actions in respect of their enforcement of franchise agreements or outstanding payments.
On 16 December 2016 Mr Moini was in email correspondence with a Mr Peter Taunton, the president and chief-executive officer of Lift Brands Inc (which controlled the franchisor). Mr Taunton advised him that he would provide Mr Moini's "group an opportunity to step in with relatively minimal dollars and slow our legal process allowing your Newco time to transition all of the clubs at a profit to other franchisees in our system."
On 15 December 2016 Mr Moini paid $210,000 for unpaid franchise fees.
On Monday 19 December 2016 Mr Moini sent an email to Mr Henley at 5:25pm (copied to Mr Prin) stating as follows: "As I have no faith in your intention or ability to transfer leases to our entity, this is what will occur tomorrow: Snap will be requested to withhold all Ezi-Debit deposits and I will provide them with an undertaking to stand in their shoes in case you peruse (sic) legal action. Snap will be requested to transfer all franchise agreements and I will provide them with an undertaking to stand in their shoes in case you peruse (sic) legal action. I will advise Sean or any other legal firm that you appoint that you are unable to pay legal fees and that they should only undertake work if they have monies held in trust. I will seek to buy a debt against Gym & Tonic and appoint a liquidator. As an aside, I now have agreement from three landlords to transfer leases to Kon's/my entity as soon as you are in default. CBD will also be in my corner if TVH falls into default. I shall then contact Jie to offer him 12 months' rent in advance on his Waterloo property or an outright offer to purchase. Kon and I are meeting a couple of interested parties at 1pm tomorrow at the cafe at the EY building (200 George St). It is in your interest to attend so that I may cut you in on a deal. If you are not there, any deals we have discussed before are off the table."
Mr Henley replied that evening complaining about the tone and content of the email. He said Mr Moini had no authority to sell his businesses without his authority. Mr Moini replied at 11:14pm: "Jake ... Watch how I'll tear the businesses down tomorrow afternoon if Gil has not written to landlords requesting transfer of leases. I am not going to be dragged out another day. The meeting time tomorrow is now 1.30pm at the same cafe. I'll work towards a reconciliation of our previous working relationship if I believe you are then acting in good faith and will work towards transfer of businesses to our entity."
In the early hours of 20 December 2016 Ms McElroy sent an email to, amongst others, Mr Henley, Mr Moini and Mr Prin stating as follows: "Following discussion with Babak over the weekend, we believe the next step in the transition of the clubs to Babak and Kon is to begin the process with the landlords to request assignment of the leases for the locations to the proposed new franchise entity. To move forward, you will need to instruct that your attorney request the consent to assignment of the leases, in each case subject to the franchisor's consent to the transfer of the franchise. In the meantime, we will be issuing the formal disclosure to the new entity with the view that the lease assignments and franchise transfers would occur simultaneously."
Later that morning Mr Moini replied stating that the only step required to complete the process was Mr Henley's consent to the assignment of leases and that he was meeting with Mr Henley at 1:30pm local time. He said that if, for any reason, Mr Henley chose not to assign leases he would speak to Ms McElroy about an alternative strategy.
Mr Henley deposed that he attended a meeting with Mr Moini at about 1pm on 20 December 2016 and that Mr Prin was in attendance. He deposed that Mr Moini said: "Jake there has been discussions over the past few days with a new potential purchaser. You will find out who he is shortly." Two or three minutes later Jie Huang arrived carrying resolutions and share transfers for the transfer of Mr Henley's shares in the Henley Group of companies to Jie Huang and Tri Nguyen. He deposed that that Jie handed the documents to him and words to the following effect were said: "Babak: 'You will be charged tonight. The Police have confirmed this. I have already had the leases come over to me, I have been speaking to the landlords. I am going to tear your businesses down Jake now I have Snap on board. Jake, your mother is going to be arrested too.' Kon: What are you going to do? What are you going to do? You are stuck?' Babak: 'Kon, lets not make this emotional. Jake, just sign the documents and this will all go away.'"
Mr Henley deposed that he picked up the documents and walked away without signing them but nonetheless his shares were purportedly transferred to Mr Jie Huang and Mr Tri Nguyen later that day.
On 20 December 2016 at 6:19pm Mr Moini wrote to Ms McElroy and to Mr Philip Colman at Lift Brands as follows: "Ali/Peter S (sic) I have included Jake and his lawyer (Sean O'Donnell) on this email, but will not do so on further correspondence. Please note that I have withdrawn my funding from Jake and all of his entities. In addition, it appears that Jake has now lost control of his companies and his bank accounts are frozen or shortly to be frozen. Jake has been engaging in deceptive behaviour not only in my dealings with him (over the last 18 months) but every one of his investors and business partners. Even if Jake had the financial means to pay the outstanding franchise fees and equipment leases, he has no intention of doing so. I am in direct discussions with all landlords to transfer all property leases and I am confident that these will be wrapped up shortly. Given that I do not have any dealings with Jake, I request a refund of the $210k being held in MST's Trust Account before end of week. I will provide bank details when requested."
Earlier on the same day Mr Moini wrote to Mr Henley's lawyer, Mr Sean O'Donnell of HWL Ebsworth as follows: "Sean S (sic) Please note that I have withdrawn my funding from Jake and his entities, which includes payment of any and all of his legal expenses. It is also my understanding that all of Jake's company accounts have or will shortly be frozen. Without my financial support or income from the gyms, Jake in all likelihood will be unable to meet your legal bills. I understand that this is an unusual email as Jake is your client. However, it would be in your financial interest to have payments for all legal expenses paid into trust before undertaking further work. I have included Jake on this email."
It was common ground that the gym membership fees were paid to the franchisor who remitted the franchisee's share of the fees to the franchisee.
On 22 December 2016 Mr Tri Nguyen sent an email to what can be inferred to be Gym and Tonic Health Clubs Pty Ltd's landlord of its gym at Double Bay. The email was copied to, amongst others, Mr Moini, Mr Prin, Mr Jie Huang and various persons associated with the franchisor. Mr Nguyen wrote: "I represent a group of investors who have recently taken control of Gym and Tonic Healthclubs Pty Ltd, which is the entity that holds the lease for 33 Cross St, Double Bay NSW 2028. On 21 December 2016, Jake Henley was removed from the company and associated buisnesses (sic). The new director of the company is my colleague, Hong Jie Huang (Jie), Please see attached a copy of the ASIC extract for Gym and Tonic Healthclubs Pty Ltd as at today. We understand that the rent for December 2016 for Snap Fitness Double Bay is currently outstanding. Our intention is to pay this outstanding amount, plus an additional two months' rent in advance. As discussed yesterday, we are regretful for investing with Jake Henley. Although we have removed him from the company and associated businesses, we would like to formally cut all ties with Jake Henley and his past decisions. Therefore we respectfully ask that you allow us to terminate the lease currently held by Gym and Tonic Healthclubs Pty Ltd, and reissue a new lease to our new company called All About Fitness Gym and Healthclubs Pty Ltd. This new arrangement will be more beneficial to you for the following reasons: … • To show good faith, we intend to pay the outstanding rent for December 2016, as well as an additional two months' rent in advance. • We intend to continue to operate the business as a Snap Fitness gym. We do not foresee any changes or disruption to the business or premises. • We do not require any changes to the current lease conditions. We are happy to honour the current lease conditions under a new lease to be held by All About Fitness Gym and Healthclubs PtyLltd. We only ask that the current lease that is being held by Gym and Tonic Healthclubs Pty Ltd be terminated. Jie, who is the current director of that company, will sign an agreement to that affect."
On 22 December 2016 Mr Henley brought proceedings in the Equity Division naming Huang Tri Nguyen and Hong Jie Huang and the companies in the Henley Group of companies as defendants. On 22 December 2016 Slattery J made an order up to 5pm on 23 December 2016 restraining the defendants from dealing with the assets of the companies in the group, appointing directors or removing directors, or authorising, directing or requesting Ezidebit Pty Ltd to change the payee or recipients of payments due to be made to the Henley Group of companies. On 23 December 2016 those orders were extended until further order. A detailed regime was laid down to enable Mr Henley to represent the companies to the exclusion of Mr Jie Huang for limited purposes.
On 22 December 2016 Mr Moini advised Ms McElroy that Mr Henley had made an urgent application to court to have himself reinstated as director and to have Mr Jie Huang removed. He reported that his preferred approach was to ask the court to appoint a liquidator and this could bring the matter to finality within a few weeks.
Gym and Tonic Health Clubs Pty Ltd was wound up and a liquidator appointed on 6 February 2017. On 24 February 2017 the Henley Group Pty Ltd was wound up and a liquidator appointed. TVH Enterprises (Australia) Pty Ltd was the lessee and franchisee of the Snap Fitness CBD premises. It was placed into liquidation on 24 May 2017. The various leases were not assigned to the new companies. The existing leases were terminated.
In cross-examination Mr Moini rejected the suggestion that by 19 December 2016 he had decided that he was no longer going to involve Mr Henley in the orderly transfer of assets from the Henley Group of companies to a new company because he no longer thought he needed Mr Henley's assistance. Mr Moini said that he never needed Mr Henley's assistance. He denied that he had arranged for Mr Henley to be removed as director without his consent. He said that he was advised by Tri Nguyen and Jie Huang that they were in the process of removing Mr Henley as director of his companies.
Mr Moini said that he was equal shareholders with Tri Nguyen in the company All About Fitness and his relationship with Tri was that they were in a relationship of equal stature. However Mr Moini also said that Jie Huang was a 25% shareholder for a period of time in the new entities setup, being All About Fitness and Go for Gold.
By 2 February 2017 the nine Snap Fitness franchise agreements issued to the Henley Group were terminated and new agreements were issued to All About Fitness (J [57]).
Meanwhile, on 12 December 2016 Ms Dranganoudis had written to Mr Moini asking whether it was in order for her to make contact with Ms MacDonald with a view to making arrangements for the repayment of the loans from Yakiti. She advised that whilst the loans were not yet due, given the time of year that they would fall due, it would be prudent to start those conversations.
Mr Moini asked Ms Dranganoudis to proceed. On the same day Ms Dranganoudis advised Mr Moini that she had left Ms MacDonald a voicemail message and had sent her a text. Later that day again Ms Dranganoudis sent an email to Mr Moini as follows: "Kate has now returned my call. This is an outline of our conversation as to where she is at: Kate said that she has had two surgeries and a series of complications which have seen her remain in hospital now coming into 5 weeks. She has lost a significant amount of weight and is now down to 38kg. She has been told by her doctors that she will need two more surgeries (one in 5 months and one 2 months after that) and that she should not think about returning to work for at least 6 months. She said that she is technically still employed by Jake and before her admission into hospital was in the process of refinancing her home with NAB so as to pay you back. She said that the bank has already done a valuation on her home however she still needs to provide them with some outstanding documents' such as payslips and credit card statements before her refinance can be finalised. She is presently waiting on the results following a recent pleurisy diagnosis and subject to those results may be discharged from hospital by the end of the week. She asked whether you would be prepared to meet with her following her discharge to discuss extending the time for repayment of her loans given her current circumstances. … Not sure if you want to meet with Kate directly otherwise please advise me your instructions on the grant of additional time for repayment and I will let her know."
Mr Moini replied: "Lambrini… In spite of Kate's terrible medical condition, I don't believe I should provide any additional time. What are your thoughts?"
Ms Dranganoudis deposed that in the course of her telephone conversation on 12 December 2016 Ms MacDonald, after describing her illness, loss of weight and the need for further surgery said the following in response to Ms Dranganoudis' inquiry as to what she was doing to repay the loans: "I am in the process of refinancing my home with NAB so that I can repay the loans. As soon as I refinance I will be able to repay Babak in full, The bank has already done a valuation on my home, however there is some other information and documents which are outstanding such as payslips and credit card statements, I was not able to get to these to the bank before I was admitted into hospital. However as soon as I get out of hospital I am going to give them that further information so that the refinance can be finalised. There is equity in my home so I will be able to repay Babak all that is due. However, I am presently waiting on test results after I was diagnosed a short time ago with pleurisy. If those results are ok I should be discharged from hospital by the end of this week. Can you ask Babak for me if he is prepared to meet with me after I am discharged so that l can discuss extending the time for repayment of his loans because of my current illness which has prevented me from completing the refinance with NAB."
That afternoon Ms Dranganoudis sent an email to Mr Moini reporting on her conversation with Ms MacDonald to similar effect to the conversation she deposed to (at [151] above).
Ms MacDonald did not accept that the conversation was in those terms. She deposed as follows: "I was in hospital on 12 December 2016 at the time Ms Dranganoudis alleges the conversation took place. Ms Dranganoudis and I had a telephone call and words to the following were said: Lambrini: 'How are you feeling? I've heard you have been in hospital.' Myself: 'Yes, I've had two operations and I seem to have had every complication possible.' Lambrini: 'I hope it's behind you.' Myself: 'No I have two more surgeries to go.' Lambrini: 'Are you returning to work?' Myself: 'Yes, I'll be going back to work with Jake when I'm well enough.' Lambrini: 'Where is your NAB refinance up to?' Myself: 'What are you talking about? That was a possibility ages ago. The valuation was done but I didn't finish supplying the information.' Lambrini: 'Babak needs an update regarding repayment of his loans.' Myself: 'I'm getting out hospital shortly. I'll meet up with him and discuss the matter with him myself.'"
The primary judge did not feel called upon to decide whose version of these events should be believed but Ms Dranganoudis' email to Mr Moini of 12 December 2016 is a contemporaneous corroboration of Ms Dranganoudis' version.
On 14 December 2016 Ms Dranganoudis wrote to Mr Moini advising as follows: "Hi Babak, I've been thinking about this matter, particularly with what appears to be a serious health condition for Kate, and as you would probably suspect, I'm a sucker for people suffering any form of hardship, however, in my view, you ought not to agree to vary the terms of your loan by the grant of additional time but you may wish to consider delaying the commencement of proceedings seeking the recovery of your loan. Kate sounds close to obtaining approval for her refinance (if what she says Is true) so if she is discharged from hospital this week, and makes it a priority to remit to NAB the balance of the outstanding documents that NAB requires then NAB should be in a position to complete the refinance by the end of the year (or very shortly thereafter). Banks usually send out emails to their borrowers with status updates on loan applications (including lists of outstanding documents, approval notices, expected completion dates etc, etc), which means that there is no reason why Kate cannot forward to me an email from NAB advising the status of her application. I know that you have already made arrangements to discuss the loan with Kate on Monday and in anticipation of that conversation, if you wish, I can write to Kate beforehand and ask her to forward me the latest update from NAB not that I'm trying to catch her in a lie but it has become difficult to know if what Is being said is the truth."
Mr Moini instructed Ms Dranganoudis to proceed accordingly.
It can be inferred that Ms Dranganoudis did write to Ms MacDonald as she foreshadowed she would do in her email to Mr Moini of 14 December 2016 asking Ms MacDonald to send an email from the NAB advising on the status of an application for refinance. Neither Ms Dranganoudis nor Ms MacDonald refer to such a letter in their affidavits but one of Ms MacDonald's allegations of unconscionable conduct was that on 14 December 2016 Yakiti: "commenced steps to recover the amounts lent to [Ms MacDonald] … in circumstances where there was no debt due and payable under the July agreement and the August agreement by reason of Yakiti having released Ms MacDonald from all claims in respect of monies lent by the agreement alleged to have been made on 31 October 2016 (third further amended first cross-claim paras 4(g) and 44;".
The cross-claim referred to this communication as having been sent in an email from Ms Dranganoudis to Ms MacDonald at 4:04pm on 14 December 2016. That email is not included in the appeal book.
Ms MacDonald submitted both below and on appeal that, having made the loans to Ms MacDonald knowing that she intended to and did on-lend the monies to the Henley Group, Mr Moini then moved to deprive the Henley Group of all of its assets and to interrupt its cashflow so as to procure the termination of the old franchise agreements and leases so that new ones could be granted to the new company All About Fitness.
However the "tearing down" of the businesses of the Henley Group (to use Mr Moini's words) was not part of the unconscionable conduct pleaded against him and Yakiti.

Grounds of appeal

Ms MacDonald appealed only from the primary judge's finding that the respondents did not engage in unconscionable conduct.
The substantive grounds of appeal were as follows: "1. The trial judge failed to give any or due weight to: (a) The manner in which the Respondent's removed to assets of the companies including but not limited to the removal (sic) of Mr Henley (sic) as director of those companies, so as to bring the Leases into default; (b) The consequence of the conduct of the Respondents referred to in Paragraph 1 (a), the resulting effect such conduct would have on the Applicant who was found to be suffering a special disadvantage, being that the Respondents received the assets of the gym business for little to no consideration, with Yakiti Pty Ltd effectively receiving satisfaction for a value greater that the amount owed to it and the actions of the Respondents removed the ability of the companies to repay the Applicant who was under a special disadvantage. 2. The trial judge erred in finding that the businesses had no value. 3. The trial judge erred in finding that the Respondents did not engage in unconscionable conduct. 3(a) His Honour should have found that the Appellant's period of special disadvantage commenced at latest on admission to hospital on 14 October 2016 rather than on 4 November 2016. 3(b) His Honour erred in considering irrelevant factors and failing to consider relevant factors in deciding that the Respondents had discharged their onus in relation to unconscionability. Particulars of irrelevant factors taken into account and relevant factors not considered are provided in the written submissions of the appellant dated 13 July 2020."
The remaining grounds of appeal were that the primary judge erred in granting leave for the issue of a writ for possession of the mortgaged properties, that his Honour erred in finding that Yakiti was entitled to succeed on its statement of claim, and erred in ordering that Ms MacDonald pay costs. Those alleged errors might follow if, but only if, the substantive grounds of appeal succeed.

Ground 1

It was not part of Ms MacDonald's pleaded case that Mr Moini removed Mr Henley as a director of the Henley companies, nor that his removal brought the leases into default (appeal ground 1(a)). The primary judge made no finding that Mr Moini caused Mr Henley to be purportedly removed as a director and he denied having done so (see para [145] above). In any event, the orders made on 23 December 2016 effectively restored Mr Henley to his position as a director of the companies.
On 14 December 2018 Ms MacDonald had sought leave to file a fourth further amended cross-claim to include an allegation that: "44A. From about 15 December 2016, while the cross-claimant was under the Disability, the cross defendants took all necessary steps to seize the assets of the Henley Group of Companied (sic), being the nine Snap Fitness gyms and have the assets including but not limited to, the leases and the franchise agreements for each Snap Fitness Gym vested in the New Company."
Ms MacDonald also sought leave to amend her cross-claim to add the following two sub-paragraphs to paragraph 45(c): "(iv) the first cross defendant is in effect seeking double satisfaction of the loans that it has made to the cross claimant in circumstances where the actions of the cross defendants referred to in paragraph 44A above means that the first cross defendant has already received satisfaction of the loans, that it has made to the cross claimant: and/or (v) the actions of the cross defendants deprived the cross claimant, an unsecured creditor of Jake Henley and the Henley Group of Companies of any chance of satisfaction of her unsecured loans to Jake Henley and the Henley Group of Companies."
On 18 December 2018 Davies J refused leave for those amendments (Yakiti Pty Ltd v MacDonald (No 2) [2018] NSWSC 1970 at 15 and [27]-[29]).
There is no appeal from that refusal.
Ground 1 of the notice of appeal seeks to advance the same grounds which Ms MacDonald had been refused leave to raise.
The primary judge dealt with the pleading issue (J [181]-[192]) and recorded that in correspondence on 21 December 2018, three days after Davies J's judgment of 18 December 2018, Ms MacDonald wrote to the solicitors for the other parties asserting that her argument that Yakiti received satisfaction for the loans that Yakiti made to her by reason of the manner in which All About Fitness Gym and Health Clubs Pty Ltd obtained the assets of the Henley Group of companies implicitly arose on the pleadings and there was no need for the amendment that had been proposed but rejected (J [185]).
That submission should have been rejected. Unconscionable conduct in the acquisition of the goodwill of the gym businesses was not pleaded.
The primary judge doubted that Ms MacDonald should be permitted to rely on the argument in light of the history of the litigation and accepted that there was some prejudice to the cross-defendants who had conducted their case on the basis that leave to amend to include the "double satisfaction" arguments had been refused (J [192]). Nonetheless the primary judge dealt with the argument on its merits. His Honour held that Yakiti or Mr Moini did not obtain double satisfaction. The money Ms MacDonald borrowed from Yakiti was used to pay expenses of the Henley Group of companies and there was no evidence that the money she borrowed from Yakiti formed part of the assets of the Henley Group of companies or the Snap Fitness Group of companies (J [194]).
The primary judge recorded that it was not until around 15 December 2016 that the new company, All About Fitness Gym and Health Clubs Pty Ltd was established. His Honour said that according to the cross-claim that company acquired the assets of the companies within the Henley Group but whether by that stage those assets included the loan money advanced by Ms MacDonald was unknown (J [195]).
The primary judge might have added that All About Fitness Gym and Health Clubs Pty Ltd did not acquire the assets of the Henley Group of companies except the goodwill attaching to the businesses of those companies. That goodwill was not purchased from the Henley Group of companies. On any view, Yakiti did not obtain repayment of its loan through All About Fitness Gym and Health Clubs Pty Ltd.
We were referred to no evidence that established that Yakiti effectively received "satisfaction for a value greater than the amount owed to it (by Ms MacDonald)". Mr Moini exhibited to his affidavit of 25 October 2018 a valuation report relating to the value of All About Fitness Gym and Health Clubs Pty Ltd, Go for Gold Gyms and Centres Pty Ltd and Saffron Services Pty Ltd. He deposed (and this was apparently not objected to) that the report valued the gym business at no value or at negligible value. The valuation was not included in the appeal book and was not referred to in submissions. Mr Moini deposed that in 2017 four of the gyms had been closed down.
Further, as to ground 1(a), there was no evidence that the respondents removed assets of the Henley companies, nor that Yakiti or Mr Moini removed Mr Henley as a director. Nor was there evidence that it was the removal of Mr Henley as director or removal of assets of the companies that brought the leases into default. The leases were in default because the companies did not have the cash to pay outstanding rent and Mr Moini withheld any further financial support.
As to appeal ground 1(b) for the reasons above Yakiti did not receive "double satisfaction". If the value of its interests in the new companies was greater than the amount owed by Ms MacDonald, that did not discharge Ms MacDonald's debt. As to the second part of ground 1(b) (that the primary judge failed to give weight to the actions of the respondents that removed the abilities of the companies to repay Ms MacDonald) that ground is not open to Ms MacDonald as it was not pleaded. In any event, Ms MacDonald has not established that any part of the unsecured loan would have been recoverable if Mr Moini had not involved himself.

Ground 2

Ground 2 is relevant to whether Ms MacDonald has established that she suffered any loss as a result of the respondents' alleged unconscionable conduct and is dealt with below after ground 3.

Ground 3(a)

Ground 3(a) is that the primary judge ought to have found that Ms MacDonald suffered under a special disadvantage by at least 14 October 2016 rather than, as his Honour found, from 4 November 2016.
There was no dispute at trial in relation to Ms MacDonald's evidence as to her medical condition and her admission to hospital in October. But that evidence did not establish that she was under a significant disadvantage at the relevant times by reason of her illness. As recorded at [57] above, Ms MacDonald had sent an email to Ms Dranganoudis on 17 October 2016 proposing a mechanism for the acquisition of Mr Prin's interest in the Zetland, Double Bay and Bondi Junction gyms. The email was articulate and inconsistent with Ms MacDonald's then having been under any special disadvantage. She wrote: "I refer to our telephone conversation last week and your email from Friday setting out the breakdown of Kon's payout figure. Firstly, in respect of quantum I have sought Jake's clarification in relation to the sums paid by Kon. It is Jake's understanding that $350,000 was initially paid by Kon when $325,000 ought to have been paid. The overpayment, by agreement, was transferred to a deposit for Rosebery however when the Rosebery site didn't proceed Jake's company undertook building works to Kon's residence to this value. Could you please seek instructions in this regard? In relation to the terms of the agreement, as discussed last week, I suggest a Deed be drafted which can be titled Deed of Agreement and Unit Sale Agreement, and in essence encapsulates terms including the following: Zetland 1.Kon's SPV sell to my SVP his units in Zetland at the subscription price and his loan is repaid; 2.Jake to procure from himself and Rebecca a waiver in relation to the first right of refusal for Zetland; 3.A deposit be paid into your trust account on the exchange of Deeds with completion to take place on x date which is credited towards Kon's Zetland loan on completion; 4.The balance of Kon's Zetland loan to be paid out on the Completion Date. Double Bay and Bondi Junction 1.Contemporaneously on the sale of Bondi Junction and Double Bay to my SPV, (settlement of all matters) I tender to Jake the sale price drawn in favour of Kon's nominee to be immediately handed over on settlement to Kon or his lawyer in the amount of $300,000 less any deposit previously paid. 2.The cheque is the loan repayment under the Deed of Charge registered over Seedz Investments Pty LTD. 3.The charge over Seedz to be released within 7 days. General Terms 1.On completion my SPV is to pay Kon's SPV 10% of the total acquisition price of Zetland, Bondi and Double Bay (Jake, please provide me with evidence of amount paid for Zetland) 2.On completion my SPV is to reimburse Kon for the rent paid to Meriton. 3.AII parties to release each other with respect to the obligations set out in the previous HOA and Unit Trust Deed. 4.Deposit of $200,000 to be paid on exchange of deeds with the balance payable on completion."
As noted above at [57] the proposal did not proceed. Instead Ms MacDonald attended meetings on 26 and 31 October 2016 referred to in detail above and corresponded with Mr Moini and others as set out above in terms that demonstrate that she was then under no relevant disadvantage.
In cross-examination Ms MacDonald said that at the meeting on 31 October 2016 she could not understand why Mr Moini and Mr Prin wanted her to put in more money when her contributions exceeded those of both Mr Prin and Mr Moini. She said that she was so unwell at the time she needed time to go away and think about it and she felt as if they were taking her for a ride. She felt she was being bamboozled.
In fact as appears from Mr Moini's evidence referred to at [67] above and Ms MacDonald's email of 31 October 2016 quoted at [71], the discussions that Ms MacDonald should contribute a further $330,000 and that Mr Prin and Moini should contribute a further $220,000 each in order to equalise their contributions was rational on the basis that Ms MacDonald, as she then proposed, should have a 50% interest in the new company to be established and that Mr Prin and Mr Moini between them should have the other 50% interest.
In any event, Ms MacDonald was able to protect her own interests. She did not make the further advance of $330,000. She said that she was relieved that from when she was admitted to hospital on 4 November 2016, none of Mr Henley, Mr Moini or Mr Prin mentioned that money because she was not certain that it was the correct amount of money that she should be putting in. She said that she needed time to work out why she should put in more money when she had already contributed more money than Mr Moini and Mr Prin, but did not get that opportunity because she was in hospital.
Ms MacDonald may well have been naïve in thinking that she could recover value for her loans. She may also have been naïve in agreeing with Mr Moini that his advances of $121,000 and $35,000 to the Henley companies should be added to her secured loans from Yakiti (paras [69], [70], [71], [76]-[80]).
Mr Moini had not sought to take advantage of that naïvety. He did not sue Ms Macdonald for the recovery of those advances and proffered an undertaking to the court that he would not do so. In any event, it was not submitted that any such naïvety as distinct from Ms MacDonald's medical issues, amounted to the suffering of a special disadvantage.
For these reasons I reject ground 3(a).

Ground 3(b)

Ground 3(b) of the notice of appeal states that the particular irrelevant factors that Ms Macdonald says the primary judge took into account, and the particular relevant factors which she contends the primary judge failed to take into account, were those identified in her written submissions.
Ms MacDonald submitted that although the primary judge found that the onus shifted to the respondents to show that they did not act unconscionably and that their subsequent conduct in proceeding with the takeover without Ms MacDonald and enforcing the mortgages was "fair just and reasonable" (J [145] citing Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, 474-479; [1983] HCA 14), his Honour erred by basing his judgment on his adverse view of Ms MacDonald's credit, rather than considering matters that affected Mr Moini's conscience.
Ms MacDonald submitted that the parties owed each other limited duties of a fiduciary or quasi-fiduciary kind in relation to the negotiations (citing United Dominions Corporation v Brian Pty Ltd (1984) 157 CLR 1 at 12 and Gibson Motorsport Merchandise Pty Ltd v Forbes (2006) 149 FCR 569 at [76];. She acknowledged that the question of whether the parties owed fiduciary duties to each other was not strictly relevant. Ms MacDonald did not plead or submit at trial that the relationship between Mr Moini, Mr Prin and her was fiduciary. Ms MacDonald acknowledged that the question was whether Mr Moini had discharged the onus put on him to show that the respondents had not acted unconscionably and that his conduct was "fair, just and reasonable" in the circumstances. Ms MacDonald submitted: "47. It is submitted that Mr Moini has not discharged the onus. The relevant matters, when the conscience of Mr Moini rather than Ms MacDonald is considered seem to be: (a) Ms MacDonald was under a special disadvantage (Judgment [144], Red 145EG). (b) Mr Moini was aware of that fact (Judgment [149], Red 146D-D) and should have been aware from the tenor of the texts from Ms MacDonald that she reposed confidence, trust and faith in him. (c) Ms MacDonald brought the proposed opportunity of saving the investments by extracting the assets of Henley Group by means of a debt for equity swap which was so constructed as to resist any future liquidator to Mr Moini (Transcript page 24 Lines 24 - 41) (d) Mr Moini sent the text message to Ms MacDonald on 4 November 2016 on which the judgment against her appears to hinge. (e) However Mr Moini sent a reassuring email to Ms MacDonald the next day on 5 November 2016 which referred to Ms MacDonald having two new friends (Mr Moini and Mr Prin) and to the three investors 'sitting in the best position we ever have and we have a high likelihood of not just recovering [our] capital but an amount over and beyond' (Judgment [40] Red 99J-K). Mr Moini went on to say 'I will also be assisting Jake with getting his equity out without leaving it exposed to creditors.' (Judgment [40] Red 99K-L). This could only be a reassurance that the proposed debt for equity swap was on track. (f) The trial Judge found that Mr Moini had an animosity towards Ms MacDonald and Mr Henley (Judgment [165], Red 150V-151B). This finding must be based on Mr Moini's view that Mr Henley had taken advantage of Mr Prin to obtain $350,000 and that Ms MacDonald, although not associated with Mr Henley at that time, had later assisted Mr Henley in adopting delaying tactics. (g) Mr Moini did not ask Ms MacDonald directly for the $330,000 at any time when she was in hospital. (h) The $330,000 demand for the purpose of 'balancing contributions' is peculiar in the extreme when Ms MacDonald had put in so much more money than Mr Moini or Mr Prin. It was made at a time when Ms MacDonald was under a special disadvantage to the knowledge of Mr Moini; (i) Mr Moini did not tell Ms MacDonald that he had changed his mind and was planning on taking the opportunity for himself, Mr Prin and Mr Henley. Instead, on 14 November 2016 he sent an email to Mr Henley, copied to Mr Prin, telling him to tell Ms MacDonald that she was not getting any shares assigned to her. (Transcript page 222 Line 10 - 27, court book 228). This referred to shares in the debt for swap entity. Predictably Mr Henley could not bear to inform Ms MacDonald she had been excluded. Her colon had been removed days earlier. The fact that Mr Moini was aware that Ms MacDonald should be told and wanted Mr Henley to do it suggests that Mr Moini's conscience was actually 'gripped' by the requirement to inform her but that in delegating this to Mr Henley he failed to discharge his obligation. j. On the same day Mr Moini sent an email to Mr Henley copied to Mr Prin stating 'As cruel as this may read, I believe we need to cease Kate's salary. Let's add this to our discussion when we next chat.' (Transcript page 222 Lines 28 - 35, court book 229). Mr Moini was obviously taking control of the new entity which was to receive the Henley assets. He was also cutting off Ms MacDonald's funds and making her even more vulnerable. k. The new company to take the assets was established the next day (15 November 2016) although it took somewhat longer for the assets to be taken by Mr Moini."
The primary judge's conclusions in relation to Ms MacDonald's contention that Yakiti through Mr Moini had breached s 12CA and 12CB of the ASIC Act are quoted above at paras [49] and [50].
The primary judge found that both Mr Prin and Mr Moini were aware that Ms MacDonald was very ill and hospitalised (J [149]). His Honour said it was not clear whether they believed or were aware if Ms MacDonald was able to communicate with them (J [150]).
As noted above there was uncontradicted evidence from Mr Moini that he had been told by Mr Henley that Ms MacDonald preferred to communicate with Mr Henley, which she clearly did.
The primary judge observed that neither while Ms MacDonald was at hospital, nor at any other time, did Mr Moini do anything to suggest or imply that Yakiti would forgive the loans to her or forgo his rights to enforce the mortgages (J [153]). As to Mr Moini's email of 5 November 2016 quoted at [97] above, and an email from Mr Prin on the same day in which he wished her a speedy recovery, the primary judge said: "156. Ms MacDonald gave evidence: 'I was relying on Babak's email saying my equity was the safest it had ever been. I was not told they were moving on without me; that text message does not say that. I thought that if they were moving on without me, he would write to me and tell me that, to give me an opportunity to do something about it if I was able to - I was well enough'. 157. However, and against that, it was only the day before that Mr Moini was asking whether the $330,000 that Ms MacDonald was required to contribute had cleared.[166] Further, three days later Mr Moini sent the message expressing his grave concern 'that the clubs will be closed very soon, and we'll lose our entire investment' and stressing that it was urgent that they chat.[167] He received no response and yet the evidence showed that Ms MacDonald was able to engage in a relatively lengthy conversation with Mr Henley later that night and was communicating with Mr Henley and others at length over the coming days."
In concluding that the respondents did not act unconscionably in their dealings with Ms MacDonald the primary judge said: "160. … I have not disregarded the fact that some of the evidence suggested that Mr Moini is a serious and perhaps somewhat predatory business man. As he put it: 'in many cases of business, one man's failures can be another man's gain.' He also gave evidence that he wanted to 'teach Mr Henley a lesson' and adhered to what he described as the 'Adam Smith School of Economics'. Once relations with Mr Henley had broken down, Mr Moini's correspondence was aggressive and threatening. Even so, at the time that the new deal and takeover was formulated the situation was urgent, the viability of the Snap Fitness gyms was on a 'knife edge' and steps were required to ensure that their investments (by way of loans to the Henley Group or particular gyms) were not lost. Mr Moini made Ms MacDonald aware of his concerns in his text message of 8 November 2016 at 2:47pm but received no response, in spite of Ms MacDonald's proven ability to communicate with others - including Mr Henley - until 23 December 2016. 161. This absence of communication must also be considered in the context of the repeated requests for Ms MacDonald to provide the $330,000 or to indicate when the funds would be cleared in the first few days of November 2016, as well as the absence of any final agreement as to when she would provide that money and how the share allocations and contributions would work. The cross-defendants' conduct is to be evaluated in light of the precarious financial position of the Henley Group and the fact that almost immediate action was required to save the business. 162. The submission now made, that the requirement that she contribute a further $330,000 was itself not fair, just and equitable cannot be sustained in view of her silence on that issue when the negotiations were taking place. It is doubtful that she was in a position of special disadvantage at that stage and was involved in the negotiations and made adjustments to the reconciliation schedule without mention of any question about the fairness of the proposal that she contribute the additional money. She made a number of representations at that time that the money was to clear in the next few days."
The primary judge considered that Mr Moini felt animosity towards Ms MacDonald. In his oral evidence he accused her of helping Mr Henley defraud investors by selling a single Snap Fitness franchise or an interest therein at multiple times to different people (J [163] and [164]). However his Honour said that whilst this may have provided motivation for Mr Moini to act unconscionably he did not so act (J [165]). The primary judge then reached the conclusions quoted earlier.
It may be taken from the primary judge's unchallenged finding that Ms MacDonald laboured under a special disadvantage within the meaning of Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; [1983] HCA 14 that during her hospitalisation in November and December her illness seriously affected her ability to make a judgement as to her own best interests. That is what "special disadvantage" means in this area of discourse. Nonetheless the primary judge also found that there was no suggestion that Ms MacDonald did not understand the situation in spite of her illness and no evidence that she was unable to understand any relevant documents (J [173]).
The primary judge found that Mr Moini did not employ unfair tactics but was forced to act promptly and attempted to stress the urgency of the situation to Ms MacDonald when she had failed to produce the $330,000 that she had agreed to provide before she was admitted to hospital (J [172]). His Honour found that Mr Moini acted out of business necessity in urgent circumstances (J [165]).
As to the particulars of ground 3(b), we were not referred to any cross examination of Mr Moini or any submission made on behalf of Ms MacDonald that Mr Moini should have been aware from the tenor of Ms MacDonald's communications that she reposed confidence, trust and faith in him. Assuming that to be so, it does not follow that Mr Moini was required in conscience to honour that confidence, trust or faith.
Ms MacDonald submitted that she brought to Mr Moini the proposed opportunity of saving their investments by extracting assets of the Henley Group by means of a debt to equity swap constructed so as to resist any future liquidator.
Mr Moini did not exploit that proposal. There was no debt for equity swap. Nor was that proposed by Ms MacDonald. She proposed a transfer of assets from the Henley companies to a new company to be established in return for forgiveness of unsecured debt. It might be doubted that that would be effective against a liquidator given the other unsecured liabilities of the Henley companies. Prima facie, the transaction would be liable to be avoided by a liquidator as a voidable preference or an uncommercial transaction. In any event, Mr Moini did not exploit Ms MacDonald's proposal.
Mr Moini's email of 5 November 2016 (at para [97] above) was reassuring in tone. But there is no evidence, and Ms MacDonald did not run a case on the basis, that she altered her position to her detriment in the expectation that she could rely on Mr Moini to save her from the consequences of her loans to the Henley Group of companies.
Ms MacDonald submitted that Mr Moini did not ask her directly for the $330,000 at any time that she was in hospital and did not tell her "… that he had changed his mind and was planning on taking the opportunity for himself, Mr Prin and Mr Henley". That is true. What would have happened had he done so? Ms MacDonald was in no position to take steps to recover her loan given her illness. In any event, the Henley companies were insolvent. Ms MacDonald does not submit that she could have swapped her loan for shares in the Henley companies (a debt for equity swap). That would have been a foolish step given the financial position of the Henley companies. She does not submit that she could have persuaded Mr Henley to transfer the assets or business of the companies to her in consideration of the extinguishment of her debt. Any such step would have been doomed to fail given the Henley companies' inability to pay rent and franchise fees or to repay other debts.
Had Mr Moini pressed her to pay the $330,000 she had agreed to pay, and had she done so, the likelihood is that she would have lost that money as well.
In any event, Mr Moini's uncontradicted evidence was that he was told by Mr Henley that Ms MacDonald did not wish to speak to him and that she was communicating through Mr Henley. He asked Mr Henley to tell Ms MacDonald that they were moving on without her. This was not unconscionable.
During the hearing of the appeal an issue was raised as to whether the primary judge's finding that the urgency of the situation required Mr Moini and Mr Prin to take action that did not include Ms MacDonald being involved in the new company was erroneous. In my view it was not. The correspondence in October and November referred to above demonstrates the urgency of the position. Mr Moini's affidavit perhaps gave a false impression that matters were not as urgent as suggested by the correspondence. He deposed that after 5 November 2016 the businesses required additional capital and he set out a list of payments he made through Yakiti commencing with a payment on 3 December 2016. In fact, in addition to the payments of $121,000 and $35,000 made on 31 October 2016, Mr Prin and Mr Moini made further payments of $33,000 and $102,475.94 referred to in Mr Prin's email of 13 November 2016 (at para [99] above). Urgency was clearly demonstrated. Ms MacDonald's illness as known to Mr Moini effectively precluded her from further involvement at a critical juncture.
For these reasons I also reject ground 3(b).

Ground 2

By her cross-claim Ms MacDonald sought the following relief for the alleged contraventions of ss 12CA and 12CB: "2A. An order that the first cross-defendant, the second cross-defendant and the third cross-defendant compensate the cross-claimant for her loss and damage pursuant to s 12GM(7) of the Australian Securities and Investment Commission Act 2001. 3 An order pursuant to s 12GM(7) of the Australian Securities and Investment Commission Act 2001 that the mortgage dated 3 August 2016 recording the cross claimant as mortgagor and the first cross-defendant as mortgagee, dealing number AM158458, be removed from the title of the property located at 526/6E Cowper Wharf Roadway, Woolloomooloo NSW 2011, folio identifier 193/SP61618. 4 An order pursuant to s 12GM(7) of the Australian Securities and investment Commission Act 2001 that the mortgage dated 1 July 2016 recording the cross claimant as mortgagor and the first cross-defendant as mortgagee, dealing number AM158473, be removed from the title of the property located at 526/6E Cowper Wharf Roadway, Woolloomooloo NSW 2011, folio identifier 193/SP61618 and 45116 Lincoln Crescent Woolloomooloo, NSW 2011, folio identifier 45/SP61766. 5 Declaration pursuant to s 12GM(7) of the Australian Securities and Investment Commission Act 2001 that the Agreements between the cross claimant and the first cross defendant dated July 2016 and August 2016 are void at all time on and after 31 October 2016."
Section 12GM(7) describes orders that may be made pursuant to s 12GM(1) or (2). Section 12GM relevantly provides: (1) … if, in a proceeding instituted under, or for an offence against, this Division, the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in in contravention of a provision of this Division, the Court may, whether or not it grants an injunction under section 12GD or makes an order under section 12GF, 12GLA or 12GLB, make such order or orders as it thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (7) of this section) if the Court considers that the order or orders concerned will compensate the first‑mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage.
Section 12GM(2) provides: … (a) a person who has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in in contravention of a provision of this Division; or (b) ASIC in accordance with subsection (3) on behalf of such a person or persons; make such order or orders as the Court thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (7)) if the Court considers that the order or orders concerned will: (c) compensate the person who made the application, or the person or any of the persons on whose behalf the application was made, in whole or in part for the loss or damage; or (d) prevent or reduce the loss or damage suffered, or likely to be suffered, by such a person or persons.
Orders may be made under s 12GM(7) if the plaintiff "has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in contravention of a provision of this Division". It was necessary for Ms MacDonald to show that she suffered loss of damage "by" the conduct of Yakiti and Mr Moini that was alleged to be unconscionable, and further, to quantify that loss or damage.
Ms MacDonald did not show that the loan or any part of it would have been recoverable if the conduct she impugned had not been engaged in (to employ the tort measure of damages: Gates v City Mutual Life Assurance Society Limited (1986) 160 CLR 1 at 13; [1986] HCA 3. She submitted that the unconscionable conduct was "… not dealing [her] into one third of the new company, All About Fitness, and the value of that company at the time that she should have been brought into it, which is shortly after 2 February 2017".
That would be an appropriate measure of damages in contract if there were an enforceable promise that Ms MacDonald would receive a one third interest in the company to be formed. There was no such contract. I doubt that that would be an appropriate measure of damages under s 12GM. But it is not necessary to decide that question. Assuming, without deciding, that if Ms MacDonald established that Mr Moini had contravened s 12CA or 12CB she would have been entitled to damages on the basis pressed on appeal, she did not establish that she would be entitled to any damages.
Ms MacDonald pleaded her claim to loss and damages as being the "loss of a chance to have a 33% share in New Company which had assets valued at $6.5 million dollars in November 2016 or the value of 22% of New Company as at 15 December 2016." (She claimed further damages for legal fees in resisting proceedings for enforcement of the loan agreements and for the amount of any judgment debt entered against her, but that claim depended upon her establishing an agreement for the release of her debt which was rejected and is not the subject of appeal).
I accept that the companies formed by Mr Moini and Mr Prin succeeded to, and in that sense acquired, the goodwill of the businesses formerly carried on by the Henley Group of companies. Ms MacDonald relied upon Quadrant's offer of 25 November 2016 to seek to establish that the business of the Henley companies had a value of $6.5 million dollars or net assets valued at approximately $4.65 million dollars. The primary judge said: "196. The cross-claimant relies on an offer dated 25 November 2016 to purchase the nine Snap Fitness gyms. This offer was made by Quadrant Private Equity and was in the sum of $6.5M. This provides some evidence that the contributions made by Mr Moini and Mr Prin were significantly less than the value of the assets they acquired. However, it was a 'Non-Binding Indicative Offer' and was conditional on a number of assumptions. One of those assumptions was that the assets were acquired on a cash and debt free sale. The cross-defendants relied on a list of debts and liabilities, contained in an email from Tri Nguyen dated 4 January 2017, that came to an amount in excess of $18M. I have treated that list with considerable scepticism. The cross-claimant submitted that this estimate of the debt was plainly erroneous and included, for example, rent that had since been paid and outstanding franchise fees that had been 'negotiated down to $250,000' from something like $400,000. The cross-claimant submitted that 'these gyms are worth at least in the order of $4 million'. 197. The dispute over the amount of the debts and liabilities is indicative of the difficulties in making a reasoned assessment of the value of the assets that All About Fitness acquired. Further, the conditional nature of the Non-Binding Indicative Offer made by Quadrant Private Equity means that it provides a valuation of the gyms that is of very little probative value. The cross-claimant referred to a decision of the New South Wales Court of Appeal that establishes an offer may provide some evidence of the value of an asset. However, the offer in that case was of a very different nature. The offer made by Quadrant was conditional on a number of imponderable and disputed circumstances. 198. Another glitch surrounding Quadrant's Non-Binding Indicative Offer was that they hoped to re-brand the gyms whereas the Snap Fitness parent company in the United States would not permit rebranding."
I see no error in that reasoning. Contrary to ground 2 in the amended notice of appeal the primary judge did not find that the businesses had no value. Rather he found that the value of those businesses had not been proved.
Mr McGrath who appeared for Ms MacDonald appeared to accept this. He submitted that the matter ought to be remitted for further hearing on the question of damages.
But no order had been made for issues of liability and damages to be determined separately. The trial was on all issues. It was incumbent on Ms MacDonald to establish what would have been the value of a one-third interest in the companies established by Mr Moini and Mr Prin (if that were the appropriate measure of damages) and then to establish what discount should be applied to determine the value of the loss of a chance of acquiring that interest. In the latter respect, there is a real issue as to whether Ms MacDonald needed to establish that she could have and would have been willing to contribute her share of future operational expenses.
If it be assumed that Ms MacDonald would have been entitled to damages for the loss of a chance of obtaining a one-third interest (or some other proportionate interest) in the new company or companies that succeeded to the businesses of the Henley Group, the evidence was incapable of establishing the quantum of such damages.
Accordingly, even if Ms MacDonald had established a contravention of ss 12CA or 12CB of the ASIC Act, her claim was rightly dismissed.
For these reasons I propose that the appeal be dismissed with costs.
McCALLUM JA: I have had the benefit of considering in draft the judgments of White JA and Macfarlan JA. I agree with Macfarlan JA, for the reasons his Honour has stated, that the respondents' conduct was unconscionable. As his Honour has explained, Ms MacDonald was given to believe at the time of her second admission to hospital that her position in the enterprise was secure. She gave evidence that she was very sick at that time. She said she was "grateful" that nobody asked her about the money while she was in hospital and that she "thought they were doing the right thing" because they were her "friends". Within a week, without warning or notice to her, her friend Mr Moini was proposing cutting her out of the deal. His email of 11 November 2016 was sent the day before Ms MacDonald underwent major emergency surgery following the failure of alternative treatment. However, I also agree with both White JA and Macfarlan JA, for the reasons stated by their Honours, that, unfortunately for Ms MacDonald, no loss was proved and the appeal must accordingly be dismissed.

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