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Legislation Cited: Family Law Act 1975 (Cth)
Real Property Act 1900 (NSW) s 43A

Cases Cited: Ashton v Pratt (2015) 88 NSWLR 281; [2015] NSWCA 12
Australia Capital Financial Management Pty Ltd v Linfield Developments Pty Ltd; Guan v Linfield Developments Pty Ltd [2017] NSWCA 99
Australian Health & Nutrition Association Ltd v Hive Marketing Group Pty Ltd (2019) 99 NSWLR 419; [2019] NSWCA 61
Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission (2000) 203 CLR 194; [2000] HCA 47
Foakes v Beer (1884) 9 App Cas 605; [1884] UKHL 1
Fox v Percy (2003) 214 CLR 118; [2003] HCA 22
Koovousis v Tony, trustee in bankruptcy of the Estate of Vrkic [2014] NSWSC 218
Latec Investment Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265; [1965] HCA 17
Lee v Lee (2019) 266 CLR 129; [2019] HCA 28
Morris Finance Ltd v Free [2017] NSWSC 1417
Nabeth Taleb v National Australia Bank Ltd (2011) 82 NSWLR 489; [2011] NSWSC 1562
PPK Willoughby Pty Ltd v Baird [2019] NSWCA 48
Rice v Rice (1854) 61 ER 646
Stern v McArthur (1998) 165 CLR 489; [1988] HCA 51

Category: Principal judgment

Parties: Option Holdings Pty Ltd (First Appellant)
Howard Hao Ting Cao (Second Appellant)
Ni Du (Third Appellant)
Songshan Guo (Respondent)

Representation: Counsel:
T Tzovaras (Solicitor Advocate)
J Foley (Respondent)
Solicitors:
Tzovaras Legal (Australia) Pty Ltd (Appellants)
Longton Legal (Respondent)

File Number(s): 2024/478232

Publication restriction: N/A

HEADNOTE

[This headnote is not to be read as part of the judgment]

On 3 February 2021, Mr Guo (the Respondent) entered into a Commercial Loan Agreement (the Loan Agreement) with Option Holdings Pty Ltd (Option Holdings or the First Appellant) under which Option Holdings was liable to repay Mr Guo $1,100,000 plus outstanding interest by 31 December 2021.

As security for the Loan Agreement, Mr Cao, the Second Appellant and the owner of Option Holdings, granted Mr Guo a Guarantee (the Guarantee) secured by a charge over two properties located on Pitt Street and Sussex Street in Sydney (the Sydney Properties). Mr Cao had a 50% interest in the Sydney Properties as tenant in common with his former wife, the Third Appellant, Ms Du. Mr Cao would later, on 31 August 2023, promise to transfer his interest in the Sydney Properties to Ms Du under a binding financial agreement (BFA) pursuant to the Family Law Act 1975 (Cth).

On 12 August 2022, some seven months after repayment under the Loan Agreement was due, Option Holdings paid $500,000 to the Respondent. The Appellants claimed that this payment formed part of an accord and satisfaction, alleged to have been supported by an oral agreement, pursuant to which the First and Second Appellants were released from liability under the Loan Agreement and the Guarantee.

On 6 February 2024, the Respondent commenced proceedings against the Appellants in relation to the outstanding balance due under the Loan Agreement and sought orders for the judicial sale of the Sydney Properties, to recover the $759,183.60 then owed under the Loan Agreement, plus outstanding interest.

The primary judge held that: (i) there was no accord and satisfaction both because there was no genuine dispute between the parties at the time of an alleged oral agreement, and insufficient evidence to indicate the requisite intention to form an agreement; and (ii) judicial sale of the Sydney Properties should be ordered with Mr Guo appointed trustee for sale. A number of issues not raised at first instance were sought to be introduced by the Appellants on appeal.

The Court (Bell CJ, Payne JA and McHugh JA agreeing) held, dismissing the appeal:

1. The primary judge did not err in finding that there was no accord and satisfaction and that there was no extant and genuine dispute between the parties at the time of entering into the purported oral agreement, and there was no cause to depart from the primary judge’s findings in relation to the contended for oral agreement**:** [18]-[32] (Bell CJ); [54] (Payne JA); [55] (McHugh JA).

Ashton v Pratt (2015) 88 NSWLR 281; [2015] NSWCA 12, applied.

Lee v Lee (2019) 266 CLR 129; [2019] HCA 28; Fox v Percy (2003) 214 CLR 118; [2003] HCA 22, cited.

2. Even if an oral agreement had been reached, it was not supported by consideration, and part payment of the Loan Agreement could not be good consideration: [33] (Bell CJ); [54] (Payne JA); [55] (McHugh JA).

Foakes v Beer (1884) 9 App Cas 605; [1884] UKHL 1, cited.

3. The primary judge did not err in finding that Mr Guo’s equitable charge over Mr Cao’s interest in the Sydney Properties took priority over Ms Du’s equitable interest acquired pursuant to the BFA because: (i) Mr Guo’s charge was the earlier equity; (ii) there was no “registrable dealing” such that the Appellants could not rely on s 43A of the Real Property Act 1900 (NSW); and (iii) there was no cause to depart from the primary judge’s factual finding that Ms Du had actual or constructive notice of Mr Guo’s earlier charge: [36]-[42] (Bell CJ); [54] (Payne JA); [55] (McHugh JA).

Nabeth Taleb v National Australia Bank Ltd (2011) 82 NSWLR 489; [2011] NSWSC 1562; Stern v McArthur (1998) 165 CLR 489, applied.

Rice v Rice (1854) 61 ER 646; Latec Investment Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265; [1965] HCA 17; Stern v McArthur (1998) 165 CLR 489; [1988] HCA 51, cited.

Australia Capital Financial Management Pty Ltd v Linfield Developments Pty Ltd; Guan v Linfield Developments Pty Ltd [2017] NSWCA 99, distinguished.

4. The primary judge did not err in exercising her Honour’s discretion to order judicial sale of the Sydney Properties: [43]-[52] (Bell CJ); [54] (Payne JA); [55] (McHugh JA).
5. (5) Consideration of appellate challenges to discretionary decisions on the basis of weight attributed to relevant factors by a primary judge: [44]-[48] (Bell CJ); [54] (Payne JA); [55] (McHugh JA).

PPK Willoughby Pty Ltd v Baird [2019] NSWCA 48; Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission (2000) 203 CLR 194; [2000] HCA 47; Australian Health & Nutrition Association Ltd v Hive Marketing Group Pty Ltd (2019) 99 NSWLR 419; [2019] NSWCA 61, considered.

JUDGMENT

1. BELL CJ: This is an appeal from a decision of Peden J (the primary judge) sitting in the Real Property List of the Equity Division of the Supreme Court of New South Wales: Songshan Guo v Option Holdings Pty Ltd [2024] NSWSC 1506 (PJ or primary judgment).

2. The appeal arises out of a Commercial Loan Agreement (t****he Loan Agreement) entered into on 3 February 2021 by the Respondent, Mr Guo, with the First Appellant, Option Holdings Pty Ltd (Option Holdings), and a Guarantee (the Guarantee) provided by the Second Appellant, Mr Cao. The Guarantee included a charge over two properties located on Pitt Street and Sussex Street (the Sydney Properties) in which Mr Cao had a 50% interest as tenant in common. His then wife, the Third Appellant, Ms Du, held the other 50% interest.

3. Under the Loan Agreement, Option Holdings agreed to pay Mr Guo a sum of $1,100,000 plus outstanding interest, to repay funds borrowed under two previous loans entered into in 2016**.** Repayment was due under the Loan Agreement by 31 December 2021.

4. On 12 April 2021, Mr Guo registered a caveat over the Sydney Properties (the Caveat). The interest recorded was as follows:

“According to the Commercial Loan Agreement and Deed of Guarantee dated 3 February 2021, the proprietor on the title Howard Hao Ting Cao agreed to provide personal guarantee to the caveator and to charge the properties as security for all payment under the commercial loan agreement.”

5. The Sydney Properties were also subject to a first ranking mortgage in favour of Westpac Banking Corporation.

6. On 7 July 2022, Yingke Law Firm issued letters of demand both to Option Holdings and Mr Cao, demanding repayment of the entirety of the loan amount plus interest as well as a demand under the Guarantee.

7. On 12 August 2022, Option Holdings paid Mr Guo $500,000 of the funds owing under the Loan Agreement. At that point, $759,183.60 was still owed. Discussions and electronic exchanges between representatives of the parties occurred both before and on 12 August 2022, and they are the subject of the principal issue in dispute, namely whether a binding oral agreement was reached on that date which had the effect of releasing Option Holdings and Mr Cao from the balance of their obligations under the Loan Agreement and the Guarantee.

8. On 31 August 2023, as part of their separation, Ms Du and Mr Cao entered into a binding financial agreement (BFA) under the Family Law Act 1975 (Cth) pursuant to which Ms Du “became, and remains, the beneficial owner of all [of Mr Cao’s] right, title and interest” in the Sydney Properties: PJ [6]. The Loan Agreement was listed under Mr Cao’s schedule of liabilities annexed to the BFA under the description “Disputed loan claim of $1,000,000 and interest of $80,000”.

9. In October 2023, Daniel Man, Mr Guo’s son in law, chased up Mr Cao as to when he was intending to make the balance of the loan repayments. In a series of WeChat voice messages sent on 13 October 2023, Mr Cao did not deny any indebtedness, indicating only that he was trying to obtain funds and that repayment of the balance of the loan agreement was his highest priority.

10. A further letter of demand was sent on 19 October 2023 and proceedings were commenced in this Court on 6 February 2024. An issue was sought to be raised for the first time on appeal as to whether the 19 October 2023 letter was a demand only issued to Option Holdings or also issued to Mr Cao as guarantor. The letter was addressed to Mr Cao who was the sole director and shareholder of Option Holdings.

11. The issues at first instance were in narrow compass as are the issues sought to be agitated in this appeal although, as shall be seen, a number of issues which were not argued below were sought to be introduced into the case for the first time on appeal.

12. Focussing on the two issues argued at first instance, first, it was contended that the payment of the sum of $500,000 on 12 August 2022 was accompanied by an oral agreement made between Mr Cao and Ms Man on behalf of her father, Mr Guo, that the payment of $500,000 would discharge Option Holdings’ and Mr Cao’s liability under the Loan Agreement and Guarantee, and that Mr Cao would endeavour to pay what would have been the balance under a non-binding “gentleman’s agreement” at some point in the future if and when he was able to do so. As will be seen, this contention was only introduced into the case shortly before the hearing before the primary judge and required the withdrawal of prior admissions that monies remained owing under the Loan Agreement.

13. The second issue related to the exercise of the primary judge’s discretion to order a judicial sale of the Sydney Properties in circumstances where this was not opposed by the first mortgagee. In addition to Ms Du’s 50% interest in the Sydney Properties as tenant in common in her own right, she asserted that she was the beneficial owner of Mr Cao’s 50% interest by reason of the BFA. The primary judge rejected Ms Du’s resistance to a judicial sale on the basis that her 50% equitable interest in the Sydney Properties under the BFA post-dated that of Mr Guo under the charge, and in any event was obtained with notice of that prior charge. Accordingly, Mr Guo’s charge took priority.

14. The original Notice of Appeal challenged only the primary judge’s finding (i) as to the alleged oral agreement which was said to represent an accord and satisfaction of any liability under the Loan Agreement and Guarantee, and (ii) the exercise of her Honour’s discretion to order a judicial sale.

15. By its Amended Notice of Appeal, the Appellants sought to introduce two additional grounds of appeal:

“1A The primary judge erred in not finding that Mr Cao was liable to pay to Mr Guo on or after 12 August 2022 any amount under the Guarantee by reason of Mr Guo did not any time thereafter make a demand on Mr Cao for the payment of Option Holdings’ liabilities pursuant to the Guarantee.

1B The primary judge erred in finding that Mr Guo’s equitable charge over Mr Cao’s interest in the Properties which arose in February 2021 takes priority over Ms Du’s equitable interest in the Properties acquired from Mr Cao pursuant to the Binding Financial Agreement entered into between Ms Du and Mr Cao on 31 August 2023.”

16. The issue sought to be raised by proposed ground 1A was not raised at first instance and should not be permitted to be agitated on appeal. Had a technical argument of this kind been raised, it could have effectively been met by the issue of a demand out of an abundance of caution, or by further evidence. In any event, there were other insurmountable difficulties with the argument including at least the following:

17. the fact that a demand was made of Mr Cao in his capacity as guarantor by the letter of 7 July 2022 (see [6] above), it being accepted that this was an effective demand on the hypothesis that the challenge to the accord and satisfaction aspect of the primary judgment failed which, for reasons explained below, it does;

18. the argument was founded on an extremely strained construction of the letter of demand of 19 October 2023 referred to at [10] above. On its proper construction, this letter was a demand both to Option Holdings and Mr Cao as guarantor. There would have been no point of the reference in the letter to the Guarantee and Mr Cao’s liability under it were it otherwise.

19. It is convenient to structure the balance of these reasons by reference to the two issues identified in [12] and [13] above, noting that ground 1B of the Amended Notice of Appeal falls for consideration in the context of the second issue.

Accord and satisfaction/oral agreement

18. There was no dispute that, unless an accord and satisfaction were established, Option Holdings and Mr Cao were in default of the Loan Agreement and the Guarantee.

19. The first ground of appeal is a bare challenge to the primary judge’s holding that Mr Cao was unable to establish either element required for an accord and satisfaction, namely:

20. an agreement to resolve a genuine dispute between the parties, otherwise it fails for want of consideration; and

21. a clear intention by Mr Guo to release Option Holdings and Mr Cao from his claims in consideration of the payment agreed.

22. Her Honour made reference in this context to Ashton v Pratt (2015) 88 NSWLR 281; [2015] NSWCA 12 (Ashton v Pratt). At [172]-[173] of that decision, Bathurst CJ said:

“… there are a number of pre-conditions for an agreement to constitute an accord and satisfaction. First, the agreement must resolve a genuine dispute between the parties, otherwise it fails for want of consideration: Ballantyne at 398-399 and see also Wigan v Edwards (1973) 47 ALJR 586 at 594-595.

Second, the agreement in question must clearly demonstrate that Ms Ashton intended to release Mr Pratt from her claims in consideration of the payment to be made. As Dixon J pointed out in McDermott at 185, it is necessary to be sure of the intention to take the payments offered in satisfaction of the rights and claims Ms Ashton had against Mr Pratt. Contrary to what was submitted by senior counsel for Ms Ashton, the reference to being sure does not involve some standard of proof over and above the usual civil standard, but that the acceptance must be clear and unequivocal: Ballas v Theophilos (No 2) [1957] HCA 90; (1957) 98 CLR 193 at 196.”

21. As to the first element, the primary judge observed that “[t]here was no dispute between the parties as at August 2022. Instead, the loan was simply in default. There was no challenge to its existence or validity” (emphasis added). The only answer proffered to this aspect of the primary judge’s reasoning was a submission that “at the time of entering into the BFA, [Mr Cao] and Mr Guo were in dispute” (emphasis added). This is to entirely miss the point. For there to be accord and satisfaction, there must be an extant dispute at the time of the alleged accord. This was the point of her Honour’s reference to “as at August 2022” in her reasons. The BFA was not entered into until August 2023.

22. In the course of the hearing of the appeal, Mr Tzovaras, who appeared for the Appellants, was unable to point to any extant and genuine dispute that existed between the parties as at the date of the supposed accord and satisfaction. This alone is sufficient to dispose of the first ground of appeal but, as will be seen, the attack on her Honour’s rejection of the existence of any oral agreement was equally weak.

23. In rejecting the existence of any oral agreement, the primary judge had the benefit of observing the participants in the 12 August 2022 conversation in which the asserted agreement was said to have been made give evidence, and had before her a translation of the “WeChat” voice to text exchange which followed the conversation between Mr Cao and Ms Man (and which did not support his account). Her Honour further tested Mr Cao’s account by reference to his conduct after the alleged agreement was said to have been struck. As will be seen, that conduct was quite inconsistent with Mr Cao’s case.

24. It is convenient to reproduce the essence of the primary judge’s reasoning on this issue, bearing in mind the requirement noted in Ashton v Pratt for the need for there to be a clear and unequivocal demonstration of an intention to release claims in consideration of the payment to be made:

[13] Mr Guo had no intention to release Option Holdings and Mr Cao for the following reasons.

[14] The various versions of events by witnesses can be summarised as follows. It is not in dispute that Mr Guo and Mr Cao did not communicate directly in relation to the loan agreement and its payment. Instead, Ms Man and her former husband, Mr Lin (Daniel) Man, conveyed communications to and from Mr Guo and Mr Cao.

[15] Originally in 2016, Ms Man approached Mr Guo for Mr Cao who was seeking a loan of $1 million. However, Mr Guo engaged solicitors for the 2021 loan agreement, without the assistance of Ms Man. The loan agreement was negotiated by Mr Guo and Mr Cao’s lawyers, and Ms Man had never seen that agreement before giving evidence.

[16] On 7 July 2022, Mr Guo’s solicitors demanded repayment of the outstanding loan amount that was due on 31 December 2021, and threatened that Mr Guo may give them instructions to enforce his securities.

[17] On 29 July 2022, Mr Cao sent Mr Man some WeChat messages, including:

... I could make available some 500,000 to repay you ... and for more you really need to wait for me...

... the other thing is if the 500,000 is repaid to you, can I ask, if it is possible that you just retain the caveat on the two properties in town, the mortgage that is? And is it possible that the unit of ours at ... could be transferred back to us or what. Because these two properties would be enough for the several hundred thousand in any case.

[18] These messages appear consistent with Mr Cao accepting that he was liable for the full debt, but asking to pay $500,000 first, while also allowing Mr Guo to retain the caveats over the properties to protect his entitlement to a further $600,000 due.

[19] Mr Man’s response to Mr Cao was, “No. I could not agree with each of the comments you made”.

[20] Mr Man’s evidence was that, because he did not agree with Mr Cao, Mr Cao then approached Ms Man, with whom he now claims he reached an agreement to settle the debt in a conversation on 12 August 2022. His version of the conversation is as follows:

Ms Man: My family really need you to return some capital now.

Mr Cao: My cashflow is really tight right now since none of my development projects are running as good as expected and the market conditions are also not good. If we can close off the deal right now, I can arrange for $500,000 to be paid to your father straight away. If we can close of the deal now, based on our friendship, I will make it up to your father when any of my future projects are fruitful.

Ms Man: I understand where your position, but I will have to discuss your proposal with my family first.

[21] Shortly thereafter he received from Ms Man a WeChat voice message:

Hey, I’ve discussed with [Daniel Man], that’s not a problem for the 50. Everyone knows that no one is easy, including him and you, well, then how much for the rest and what time ... you two can communicate separately…

[22] The highest Mr Cao’s alleged agreement rises is his alleged statement that he wanted to “close off the deal”, which was then allegedly agreed by Ms Man with Mr Guo’s authority. However, I do not accept that Mr Cao said those words, in circumstances where his evidence is inconsistent with all the other evidence. Ms Man was not asked whether Mr Cao said those words. I also prefer her evidence, which consistently referenced further payments after payment of the $500,000, which is also consistent with Mr Man and Mr Guo’s evidence.

[23] However, even if Mr Cao did say those words, I do not accept that the proper construction of the communications proves an agreement as alleged. Ms Man was not agreeing to Option Holdings and Mr Cao having no further liability. She clearly refers to “the rest”, which is inconsistent with the whole debt having been forgiven.

[24] Further, Mr Guo denies he agreed to extinguish the whole debt for $500,000. His evidence is that his conversation in about July or August 2022 with his daughter was:

Ms Man: Father, I spoke to Hao Cao recently about the money owed to you. He said that he is going to repay $500,000 to you first. After that he will try his best to repay the balance as soon as possible. Is that ok with you?

Mr Guo: Yes, let him pay $500,000 now. And ask him to pay the balance quickly.

Ms Man: Ok, I will let Hao Cao know.

[25] He was not relevantly challenged on his evidence, and I accept it. He had no intention to forgive the debt or to authorise Ms Man to do so. There is no reason to think that Ms Man communicated something different to Mr Cao.

[26] Ms Man did not resile from her statement in the WeChat message when giving evidence in cross-examination. Her evidence was that during the July or August 2022 discussions with Mr Cao, she relayed to him that Mr Guo said that Mr Cao “need[ed] to return at least some of the amount first”. Ms Man further asserted that Mr Cao “promised ... that he will pay ... the left amount”, and that she “replied to [Mr Cao that] we accept the first amount, and then for the others we have further discussion”.

[27] Further, if Mr Guo had intended to extinguish the whole liability pursuant to the loan agreement and guarantee, I consider he would have documented it. All of the dealings Mr Guo had with Mr Cao were formally documented and signed: see Pavlovic v Universal Music Australia Pty Ltd [2015] NSWCA 313; (2015) 90 NSWLR 605 at [18] (Bathurst CJ), [78]-[79], [84], [87] (Beazley P), [160]-[161] (Meagher JA). Mr Cao’s own evidence was that he would not “just simply pay someone half a million dollars without asking for anything in [return]”. However, the more logical reason for the lack of any written agreement was that Mr Cao was simply paying down the loan sum and asking for further time to pay the remainder. This is also consistent with the express terms in the loan agreement, that indicated that if Mr Guo granted Option Holdings an extension of time to perform its obligations, that did not impact on Mr Cao’s obligations as guarantor, and that any variation or termination of the loan agreement was required to be in writing.

[28] I do not accept, in those circumstances, that Mr Guo agreed to some oral, non-binding “gentleman’s agreement” to forgive the outstanding debt. Mr Guo did not understand that phrase and was not asked about whether he agreed to that sort of arrangement with Mr Cao.” (emphasis added)

25. This was exemplary fact-finding. The primary judge also described Mr Cao as an unimpressive witness, “loquacious and non-responsive”, also appearing “deliberately argumentative and dishonest with his answers, or at least careless”: PJ [29]-[30].

26. Her Honour’s analysis and reasoning were reinforced by a number of further matters that were inconsistent with the alleged oral agreement including the reference to a continuing liability in the schedule to the BFA, as noted at [8] above, as well as in a voice message Mr Cao left for Mr Man on 13 October 2023 which was tantamount to an admission of liability:

“... with respect to the several hundred thousand you have left, in fact you do not need to rush, and with the Caveat on the two properties of mine, it would make just enough for your matter of five to six hundred thousand right. Then you just give me some time, I can only start again by make money from ... okay. I will salvage the project if it can be salvaged and if not I could just continue, continue working, and continue making money.” (emphasis added)

27. The primary judge could also have referred to the fact that both Option Holdings and Mr Cao admitted in paragraph 24 of their original defences in the proceedings that Option Holdings was “liable to the plaintiff for the amounts owing under the 2021 Loan Agreement” but did “not admit the correctness of amounts specified”. Although the primary judge generously gave leave to withdraw this admission in November 2024, this plea was entirely inconsistent with the argument based upon accord and satisfaction which was only introduced into the proceedings on 8 November 2024, shortly prior to the hearing, when Mr Cao filed an affidavit containing his account of the conversation with Ms Man and annexed proposed amended defences.

28. Mr Cao had opportunities to introduce his argument based upon an oral agreement prior to commencement of proceedings in answer to the 19 October 2023 letter of demand, in his and Option Holdings’ original defences and in his evidence filed on 22 May 2024 in answer to the evidence of Mr Guo. That he did not do so was forensically telling, a point which Mr Foley made effectively through his cross examination of Mr Cao at first instance.

29. The principal argument raised in written submissions (in reply) in respect of the first ground of appeal was that some of the conversations relied upon by the primary judge in her analysis included hearsay evidence which, although not objected to, were said to have “little if any probative value”. This argument is unavailing, even if the characterisation of the accounts of conversations as hearsay were sound, which they were not. As to the critical exchanges between Ms Man and Mr Cao, both participants in the 12 August 2022 conversation gave their accounts and her Honour had before her a certified translation of an exchange that followed the conversation which had been recorded on the “WeChat” platform and which was inconsistent with Mr Cao’s account.

30. The Appellant’s arguments failed to address, let alone criticise other elements of the primary judge’s reasoning, including the fact that (even on Mr Cao’s account) there was insufficient clarity to satisfy the test for an accord and satisfaction. Moreover, the Appellants did not seek to challenge her Honour’s factual findings as “glaringly improbable” as is required with credit-based findings of fact: Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [29] and confirmed in Lee v Lee (2019) 266 CLR 129; [2019] HCA 28 at [55].

31. The primary judge’s finding, far from being “glaringly improbable”, was sound. It was the Appellants’ arguments that were glaringly improbable. They entailed the highly unlikely proposition that a lender, who had taken care to document his lending and obtained security for it, would simply give that up and reduce himself to an unsecured position with no legal entitlement to recover a significant sum of money, replacing that security with a mere hope that a gratuitous payment would be made in the amount that remained owing under the Loan Agreement at some time in the future, if at all.

32. In oral submissions in reply, Mr Tzovaras sought to make much of Mr Guo’s agreement in cross examination that the proposal put by Mr Cao as relayed to him and which he found “acceptable” was that “Mr Cao would repay $500,000 to you in August 2022 and would repay the balance of the loan funds when he himself had sufficient funds to do so”. The language “would repay the balance of the loan funds” is inconsistent with any release or forgiveness. If the agreement claimed to have been reached had the effect for which Mr Cao contended, there would be nothing to “repay”, no outstanding “balance” or “loan funds” and no obligation (“would”).

33. As the primary judge pointed out, even if any oral agreement had been reached, to release Option Holdings and Mr Cao from their obligations in order to found an argument based on accord and satisfaction, the agreement would not have been supported by consideration; the payment of $500,000 on 12 August 2022 would not amount to consideration, it being hornbook law that part payment of a debt is not good consideration: Foakes v Beer (1884) 9 App Cas 605; [1884] UKHL 1.

34. The Appellants also contended that the fact that the second letter of demand was not issued until 19 October 2023 in some way assisted their argument. It did not. The Loan Agreement unsurprisingly contained a familiar “no waiver” clause (14.8(a)) which provided that “no failure or delay by the Lender to exercise any power, right or remedy under this Agreement will operate as a waiver of that power, right or remedy.”

35. The first ground of appeal must be dismissed.

Judicial sale

36. The second aspect of the appeal relates to the primary judge’s discretionary decision to order a judicial sale of the Sydney Properties (ground 2) and, by ground 1B, a contention that the primary judge erred in finding that Mr Guo’s equitable charge over Mr Cao’s interest in the Sydney Properties which arose in February 2021 took priority over Ms Du’s equitable interest in the Sydney Properties acquired from Mr Cao pursuant to the Binding Financial Agreement entered into between Ms Du and Mr Cao on 31 August 2023.

37. As to the challenge raised by ground 1B, it is immediately apparent that Mr Guo’s equitable interest as chargee was anterior in time to the creation of any interest Ms Du obtained under the BFA. Absent any disentitling conduct (see, for example, Australia Capital Financial Management Pty Ltd v Linfield Developments Pty Ltd; Guan v Linfield Developments Pty Ltd [2017] NSWCA 99), equity accords priority by reference to the timing of the creation of the equitable interests: Rice v Rice (1854) 61 ER 646; Latec Investment Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265; [1965] HCA 17.

38. In the written submissions, this obvious obstacle to the matter raised by ground 1B of the appeal was sought to be circumvented by invocation of s 43A of the Real Property Act 1900 (NSW) which relevantly provides:

**“**Protection as to notice of person contracting or dealing in respect of land under this Act before registration

(1) For the purpose only of protection against notice, the estate or interest in land under the provisions of this Act, taken by a person under a dealing registrable, or which when appropriately signed by or on behalf of that person would be registrable under this Act shall, before registration of that dealing, be deemed to be a legal estate.” (emphasis added)

39. As explained by Bryson AJ in Nabeth Taleb v National Australia Bank Ltd (2011) 82 NSWLR 489; [2011] NSWSC 1562 at [40]:

“That section relates to protection against notice. Under the general law a bona fide purchaser who took the legal estate in land without notice of a competing equitable interest was protected against that equitable interest. Under the general law the purchaser's title was complete when he received the vendor's conveyance and paid the purchase money. Under the Torrens System the legal title is not complete until the transfer is registered. With registration the effect of sections 43 and 42 is that the transferee is in the same position as was achieved on delivery of the conveyance under the Old System. Section 43A ameliorates the disadvantage which this interval produces, and it does so by enhancing, to a small degree, the defence available to the bona fide purchaser of the legal estate who does not have notice of a competing equitable interest. The effect of section 43A is to advance the time when the purchaser has protection against notice to a time earlier than obtaining legal title by registration under the Real Property Act. When the mortgage was stamped, perhaps several days before lodgment for registration on 7 December, NAB was in all respects except for the existence of the caveat in the position indicated by section 43A(1), that its interest was deemed to be a legal estate; with the consequence that it was protected against the notice which it received slightly later as a result of the Registrar General's requisition.”

40. Section 43A was not raised or relied upon by any of the Appellants in the proceedings at first instance and, unsurprisingly, the Respondent objects to it being raised for the first time on appeal. Apart from considerations of unfairness and prejudice in seeking to raise the argument for the first time on appeal, Mr Tzovaras was unable to point to any “registrable dealing” under which Ms Du had taken any interest in the Sydney Properties. Mr Cao’s contractual obligations recorded in the BFA themselves were not such a registrable dealing. So much is fatal to the argument.

41. A further obstacle, and an answer to ground 1B of the Amended Notice of Appeal, is the primary judge’s factual finding that Ms Du had actual or constructive notice of Mr Guo’s charge over Mr Cao’s 50% interest in the Sydney Properties prior to entry into the BFA: PJ [39]. In this context, Ms Du gave evidence that she had asked her solicitors to do searches and make inquiries in respect of the Sydney Properties, and she recalled that they did a title search and that she discussed the title search with them. The title search, which was in evidence, clearly recorded the Caveat that Mr Guo had lodged over the Sydney Properties. Ms Du said that she could not recall whether the solicitors told her about the Caveat in the course of discussing the title search. This was not a denial that they did so and it was perfectly open to the primary judge to proceed on the basis that they did. As her Honour said, “[t]here is no reason to believe that her lawyers would not have discussed Mr Guo’s caveat”: PJ [39]. As a matter of necessary inference, this was almost irresistible. It would have been extraordinarily negligent of them if they did not, a proposition Mr Tzovaras accepted in the course of argument in the Court of Appeal.

42. It follows that, contrary to ground 1B, there was no error in the primary judge’s finding that Mr Guo’s equitable charge over Mr Cao’s interest in the Sydney Properties which arose in February 2021 took priority over Ms Du’s equitable interest in the Sydney Properties acquired from Mr Cao pursuant to the BFA in late 2023. That interest was properly characterised, consistent with the decision of Gaudron J in Stern v McArthur (1998) 165 CLR 489 at 537; [1988] HCA 51, as “merely an equitable interest commensurate with the ability to protect the interest under the contract by obtaining specific performance”.

43. It is convenient at this point to reproduce ground 2 of the Amended Notice of Appeal:

“2 In the exercise of the Court’s discretion to make an order for the judicial sale of each of the properties (Properties) the subject the charges granted by Mr Cao over this 50% interest in the Properties to the Mr Guo, the primary judge erred:

a. in failing to give due weight to the circumstances of the third defendant/appellant (Ms Du), including that:

i. Ms Du’s 50% interest in the Properties over which Mr Guo had no charge;

ii. Ms Du was not a party to the loan agreement, nor was she a guarantor of Option Holdings’ obligations under the loan agreement; and

iii. an order for the judicial sale of each of the Properties would be unfairly prejudicial to Ms Du thereby deprive Ms Du from her continued ownership of the Properties, as a registered proprietor as to 50% and her equitable interest as to the other 50%, having regard to the unique character of the Properties on the one hand, and the fact that damages would be an adequate remedy;

b. in not finding that there were no special or exceptional circumstances would justify the making an order for the judicial sale of each of the Properties.”

44. The burdens on an appellant challenging a discretionary decision are too well known to need repetition. There may be a question whether her Honour’s ordering of a judicial sale was a matter of practice and procedure in which case the burden confronting the Appellants would have been even greater: see PPK Willoughby Pty Ltd v Baird [2019] NSWCA 48.

45. A ground of appeal which is formulated or partially formulated in the language of “failing to give due weight” to various factors provides an unpropitious base for attacking a discretionary decision. As the High Court has said, ‘discretion’ refers to a decision-making process in which “the decision-maker is allowed some latitude as to the choice of the decision to be made”: Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission (2000) 203 CLR 194; [2000] HCA 47 at [19].

46. In light of the way in which ground 2 was formulated, it is worth repeating the observations of Bathurst CJ and Leeming JA in Australian Health & Nutrition Association Ltd v Hive Marketing Group Pty Ltd (2019) 99 NSWLR 419; [2019] NSWCA 61 at [12]-[20] in relation to appellate challenges of exercises of discretion by reference to matters of weight:

“[12] It was said that it was sufficient to establish appellable error if it be shown that the primary judge failed to take into account or gave insufficient weight to some relevant matter. True it is that that is how this Court expressed the necessary requirements of establishing House v The King error in Micallef v ICI Australia Operations Pty Ltd [2001] NSWCA 274 at [45] and [78]-[83], which was restated in identical terms in Young v Hones (No 2) [2014] NSWCA 338 at [15]. Those were the two decisions to which senior counsel referred, although the same statements may be found in a number of other decisions of this Court. Quite commonly, although not invariably, the proposition that there may be appellate review of a discretionary decision where there has been a “failure to give sufficient weight to some relevant matter” is juxtaposed with the proposition that it is insufficient that the appellate court concludes that it would have exercised the discretion differently: see for example Certain Lloyds Underwriters v Kathy Giannopoulos; Certain Lloyds Underwriters v Marlene Giannopoulos [2009] NSWCA 56 at [89]-[90]; Duong v Tran [2010] NSWCA 280 at [31]. Indeed, Heydon JA, with whom Sheller JA and Studdert AJA agreed, himself restated that qualification in Micallef v ICI Australia immediately after identifying the various bases on which appellate intervention might occur.

[13] The language employed in Micallef and other cases on which the oral submissions made on behalf of Sanitarium and Rebel were based needs to be recognised for what it is. On the one hand, appellate intervention in the exercise of a discretion may be available where insufficient weight has been given to something relevant. On the other hand, it is fundamental that deference is to be given by an appellate court to the discretionary decisions of judges at first instance, insofar as it is insufficient for the appellant merely to persuade the appellate court that it would have decided the matter differently. Statute has given a right of appeal to a disappointed litigant, and committed a process known as an appeal to the appellate court. Statute has not conferred a right to a hearing de novo. This is the point made by Heydon JA in Micallef immediately following his Honour’s observation that it is insufficient that the appellate court might itself exercise the discretion differently: “The law committed the exercise of the discretion to Garling DCJ.”

[14] It is always important to read the words in reasons for judgment in context, and as a whole. It is wrong to take part of the formulation of when an appellate court will intervene in the exercise of a discretion in isolation, as if it were sufficient in every case merely to establish that insufficient weight had been given to a matter. It is necessary to apply the nuanced formulation of principle as a whole.

[15] It was in that context that Aickin J said in Gronow v Gronow (1979) 144 CLR 513 at 537; [1979] HCA 63 that:

“Statements of the general principles to be applied by an appellate court when asked to set aside an order made in the exercise of a judicial discretion generally include a reference to the trial judge giving inadequate weight to some factors and excessive weight to others. It is however a mistake to suppose that a conclusion that the trial judge has given inadequate or excessive weight to some factors is in itself a sufficient basis for an appellate court to substitute its own discretion for that of the trial judge.”

[16] This has long been clear law. In sentencing appeals, it is well established that merely claiming that insufficient weight, or excessive weight, was given to one factor is normally not a proper ground. As Spigelman CJ said in R v Baker [2000] NSWCCA 85 at [11], the circumstances in which matters of “weight” will justify intervention by an appellate court are narrowly confined. That was a Crown appeal, but the same principle has regularly been applied in other appeals against sentence: see for example Vaiusu v R [2017] NSWCCA 71 at [29] and the cases there cited.

[17] In civil appeals, it was made clear by Mason P, with whom Stein and Giles JJA agreed, in Idoport Pty Ltd v National Australia Bank Ltd & Ors; Idoport Pty Ltd v Argus; Idoport Pty Ltd v National Australia Bank Ltd & Ors [2002] NSWCA 271 at [30]:

“The later decisions recognise that failure to give ‘sufficient weight’ to a relevant consideration may betoken error. However, as Kitto J pointed out in Lovell (at 533):

The proposition that the appeal court will consider whether ‘no sufficient weight’ has been given to relevant considerations is not inconsistent with the principle that the appeal court does not deal with the appeal as if it were exercising the original jurisdiction; even if it considers that insufficient weight has been given to some relevant consideration, it will still not substitute its judgment for that of the primary judge unless it comes clearly to the conclusion for that reason that the discretion has been exercised wrongfully.”

[18] Kitto J returned to the matter in Australian Coal and Shale Employees’ Federation v The Commonwealth (1953) 94 CLR 621 at 627; [1953] HCA 25, saying:

“[T]he true principle limiting the manner in which appellate jurisdiction is exercised in respect of decisions involving discretionary judgment is that there is a strong presumption in favour of the correctness of the decision appealed from, and that that decision should therefore be affirmed unless the court of appeal is satisfied that it is clearly wrong. A degree of satisfaction sufficient to overcome the strength of the presumption may exist where there has been an error which consists in acting upon a wrong principle, or giving weight to extraneous or irrelevant matters, or failing to give weight or sufficient weight to relevant considerations, or making a mistake as to the facts.”

[19] What was said by Kitto J in Lovell v Lovell (1950) 81 CLR 513; [1950] HCA 52 and Australian Coal and Shale Employees’ Federation v The Commonwealth has been followed in this Court in Vines v Australian Securities and Investment Commission [2007] NSWCA 126 at [12]-[13] (Spigelman CJ), Gillfillan v Australian Securities & Investments Commission [2012] NSWCA 370 at [176] (Sackville AJA, Beazley and Barrett JJA agreeing); M v Director General, Department of Family and Community Services [2013] NSWCA 118 at [9] (Basten, Barrett JJA and Bergin CJ in Eq) and Secretary, Department of Family and Community Services v Smith (2017) 95 NSWLR 597; [2017] NSWCA 206 at [29] (Gleeson JA, Macfarlan and Payne JJA agreeing).

[20] The point of the foregoing is to reiterate that error will be avoided if the statements of principle (which concededly are sometimes, when nothing turns on it, referred to elliptically) are read as a whole and in their context, and it is steadily borne in mind that it is insufficient merely to establish that insufficient weight has been given to a relevant matter. The nature of the process is that of an appeal, one element of which is deference to the tribunal at first instance.”

47. This valuable elucidation of principle provides the context for the consideration of subparagraph (a)(i)-(iii) of ground 2 of the Amended Notice of Appeal, which, as I have earlier observed, is expressed in terms of “failing to give due weight” to certain matters.

48. A complaint of giving “undue” or “insufficient” weight to a matter in the context of the exercise of a discretion accepts both that the matter in question is relevant and that some weight has been given to it. The amount of weight to be accorded to those factors was pre-eminently for the primary judge.

49. In any event, I can see no reason for a conclusion that each of the three matters identified in subparagraph (a)(i)-(iii) of ground 2 was given insufficient weight. The first two matters simply reflected the fact of Ms Du’s interest in the Sydney Properties and the fact that she was neither party to the Loan Agreement nor a guarantor. To identify these two matters was simply to identify the context in which the discretion whether to make orders for judicial sale of the Sydney Properties fell to be exercised. As to the third matter, in one sense many orders for judicial sale will be prejudicial to a tenant in common but not necessarily “unfairly” so. The position is a fortiori where the later interest holder knows of the former equitable interest. The nature of a tenancy in common, moreover, is that the other tenant will generally be free to deal with his or her interest as they see fit, including by using it as security. Were Ms Du’s recourse to the mantra that Mr Guo could always sue Mr Cao in damages a sufficient answer to an application for judicial sale, the value of holding a security interest would be rendered nugatory.

50. There was no error in the primary judge’s exercise of discretion.

51. Nor was her Honour required to identify “special or exceptional circumstances” (cf. ground 2(b) of the Amended Notice of Appeal) at least in circumstances where no objection of the prior mortgagee was raised to the proposed sale: Morris Finance Ltd v Free [2017] NSWSC 1417; see also Koovousis v Tony*,* trustee in bankruptcy of the Estate of Vrkic [2014] NSWSC 218.

52. Ground 2 must be dismissed.

Conclusion

53. For the foregoing reasons, the appeal should be dismissed with costs.

54. PAYNE JA: I agree with the Chief Justice.

55. McHUGH JA: I agree with the Chief Justice.