For the reasons that will follow, I am not satisfied that Lu made out his claim for statutory unconscionability.
It is not enough, in my view, for Lu to assert that he was suffering a special disadvantage simply by being a gambler. In Kakavas v Crown Melbourne Ltd,[97] the High Court held that:[98]
[2]
[a gambler's] pathological interest in gambling was [not] a special disadvantage which made him susceptible to exploitation by [the casino]. He was able to make rational decisions to refrain from gambling altogether had he chosen to do so.
[3]
Lu's evidence was that he admitted to gambling four to five times a week, or sometimes a couple of times a week. He also admitted he often stayed at the casino and, not having a job during this period, it can be seen that he was a frequent gambler. This was in the context that he was otherwise unemployed. His decisions to gamble were made voluntarily by him. As observed in Kakavas v Crown Melbourne Ltd, "in the absence of a relevant legislative provision, there is no general duty upon a casino to protect gamblers from themselves".[99]
This alleged factor alone, indeed without any medical evidence to show that Lu was suffering from an addiction to which he could no longer make rational decisions, is insufficient, in my view, to establish that Lu was under a special disadvantage by reason only of his gambling habits. There was no obligation upon Pan to protect Lu from himself should Lu voluntarily chose to gamble.
The fact that the parties were familiar with each other is not by itself a sufficient consideration in terms of establishing that Lu was under a special disadvantage. This case is unlike Commercial Bank of Australia Ltd v Amadio,[100] where the son used his special relationship with his parents to mislead them into signing a guarantee. The communications between the parties show that the request for loans was initiated by Lu, for example the WeChat message sent on 11 March 2018. There was no evidence to suggest that their relationship was other than a business one.
The allegation that Lu's isolation by reason of his wife leaving for China in 2018 contributed to his special disadvantage goes nowhere. Lu's former wife left in July 2018 after the loan agreement was signed in March 2018. Her subsequent departure played no role in him deciding to borrow funds pursuant to the loan agreement. In any event, the evidence that emerged at trial was that the Lu and his former wife had been unhappy and estranged for some time before March 2018. The other submission made that he could not procure alternative funds to finance his gambling habits, even if true, is not something for which Pan bears any responsibility. In my view, these alleged factors did not contribute to any alleged inability on the part of Lu to make judgments as to his own best interests.
As to the suggestion that Lu was unfamiliar with English, there was no evidence that Pan made any attempt to mislead Lu by exploiting this fact. Lu and Pan both spoke Mandarin and the WeChat messages in that language (which were translated into English) demonstrate an understanding of the contemplated loan agreement. The contemporaneous documents, including the WeChat messages sent in March 2018, reveal that it was Lu who was encouraging Pan to lend.
There is insufficient evidence to show that Pan exploited Lu on the basis that he was aware Lu was under a special disadvantage. Pan was willing to advance monies to Lu in circumstances where Pan had told him he had means because his successful business of supplying military equipment in China (albeit, the factory was registered to Zhu) and that he also had the property in Brighton which he did, and could, offer as security. Therefore, Pan did not enter into the loan agreement knowing that a default was inevitable or imminent. Pan did have regard to the means by which Lu could repay the loan and had engaged lawyers to draw up an agreement to protect his rights.
Lu conceded In evidence that one of the WeChat messages concerning a Chinese company was sent to Pan so as to encourage Pan to lend him more money.[101] Additionally, Lu did not challenge the proposition that the formal loan agreement was being discussed with Pan as early as January 2018.
Contrary to what was put in his counterclaim, Lu did not obtain independent advice, not because he did not have time to do so but because he made a conscious decision that he did not want to get any advice.[102]
In contrast to Lu's claim in this case, the appellant in Stubbins was clearly under a special disability due to his inability to understand the nature of the transaction because of his financial illiteracy. The primary judge in that case described the appellant as:
[4]
(a) "completely lost, totally unsophisticated, incompetent and vulnerable", referring to his demeanour at trial;[103]
(b) having an "obvious lack of understanding" of the details of the loans and his ability to finance them;[104] and
(c) easily manipulated, naïve, vulnerable and "lacking in financial nous".[105]
[5]
The primary judge said that having regard to the manner in which the appellant spoke in the witness box, it was clear that "he was precisely the sort of person who needed protection and was vulnerable to being exploited".[106] I do not regard Lu as being such a person having observed him as a witness.
Given the totality of the evidence led, I am not actually persuaded that Lu was suffering from a special disadvantage at the time of entering the loan agreement which seriously affected his ability to make judgments as to his own best interests. Even assuming Lu was suffering from a special disadvantage, the evidence led did not establish that Pan behaved in a predatory manner whereby he took unconscientious advantage of Lu's supposed special disadvantage. Further, the conduct of Pan did not fall outside societal norms of acceptable commercial behaviour so as to amount to conduct that is offensive to conscience.[107] Accordingly, this defence cannot succeed.
The answer to Issue 9 is no.
[6]
Issue 10: Does section 55 of the Code which includes section 81 of theNational Consumer Credit Protection Regulations 2010 ("Regulations") apply?
[7]
This issue raises a statutory defence on the part of Zhu. A guarantee which is subject to the Code must comply with Regulations made under s55(4) of the Code. Section 81 of the Regulations requires a warning in the form of a box to be placed above the place where the guarantor is required to sign. Zhu pleads that guarantee is not enforceable because the loan agreement did not contain the required warnings set out in Form 8 as prescribed under the Regulations.
As I have already found that Zhu did not sign the loan agreement, this issue does not need to be determined. Had it been necessary to do so, the loan agreement clearly did not contain the warnings set out in Form 8 and nor did it substantially comply with those requirements.
Pan relied upon s208(1) of the Code which provides that strict compliance with a prescribed or approved form is not necessary and substantial compliance is sufficient. There is no general requirement for strict compliance unless specific requirements are explicitly stated. However, s208(2) states that forms with specific requirements will not be properly completed unless they are complied with, including where specified information is to be included in the form.[108] As the strict requirements contained in s55 of the Code relating to specified warnings about guarantees were not complied with in the loan agreement, s208 does not assist Pan. The effect of this non-compliance means the guarantee is not enforceable against Zhu under s55(4) of the Code. The answer to Issue 10 is no.
[8]
Pan is entitled to judgment on his claim against Lu in the sum of $1,829,937.78. He is also entitled to interest on that amount at the rate of 4 per cent from the date of the loan agreement to 13 September 2018, and default interest at the rate of 10 per cent thereafter to the date of judgment.
Lu's defence succeeded in part, namely, he established that Pan was engaged in unlawful credit activity in breach of s29 of the NCCPA. Despite this contravention, for the reasons given above, I declined to make an order under s180 of the NCCPA. Lu's remaining statutory defences were not made out. Consequently, his counterclaim will be dismissed.
The claim against Zhu is dismissed with the result that her counterclaim did not fall to be determined. Zhu's counterclaim will be dismissed without an adjudication on the merits.
Subject to hearing from the parties, I propose ordering that Lu pays Pan's costs of the proceeding of and incidental to the proceeding, on the standard basis, to be taxed in default of agreement. I will also order that Pan pays Zhu's costs of and incidental to the proceeding, on the standard basis, to be taxed in default of agreement.
[9]
I certify that these 60 pages are a true copy of the Reasons for Judgment of Her Honour Judge A Ryan delivered on 25 March 2025.
[52] NSW Court of Appeal refers to s6(1)(b) to Schedule 1 of the Consumer Credit (New South Wales) Code 1995, now repealed, which adopts the same words as s5(1)(b)(i) of the Code
[58] This issue was not specifically pleaded but was raised and dealt with in the submissions filed by the parties as an alternative basis for finding that Pan was engaging in unlicensed credit activity