Wakim v Senworth Capital Pty Ltd

Solicitors: Somerset Ryckmans (Applicant) Redchip Lawyers (Respondent) File Number(s): 2023/263694 Publication restriction: Nil. Decision under appeal Court or tribunal: Supreme Court Jurisdiction: Civil Citation: [2023] NSWSC 989 Date of Decision: 16 August 2023 Before: Campbell J File Number(s): 2021/353320

[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 applicant, Mrs Wakim, sought leave to appeal a decision that dismissed her application to set aside a default judgment entered on 10 November 2022. The respondent brought proceedings to enforce Mrs Wakim's guarantee of a short-term advance in the amount of $2,058,000, which the respondent made to two companies associated with her husband. Both Mrs Wakim and her husband were guarantors and signed the deed of guarantee on 5 March 2020. Their signatures were witnessed by an independent solicitor, who apparently gave Mrs Wakim and her husband legal advice at the same time. Mrs Wakim signed the guarantee in the presence of her husband. The proposed defence to the statement of claim raised two defences, namely equitable unconscionable conduct and relief under the Contracts Review Act 1980 (NSW). Mrs Wakim claimed that she was under the control and influence of her husband when she signed the guarantee and did not want to sign it but did so because he told her to do so. She gave evidence that because of her culture and upbringing, she had always understood that, to be a good Lebanese wife, she had to do everything that her husband told her to do, including signing documents. As to the delay in bringing the proceedings, Mrs Wakim said that she did not recall receiving any statement of claim but that if she did, the most likely scenario would be that she would have passed the documents on to her husband as he had told her that he would take care of such matters. She deposed that it was not until early May 2023 that she realised the respondent had obtained a default judgment against her. She learnt at that time that two creditors were seeking to have her made bankrupt, one of which was the respondent. Having realised her husband had not taken care of things as he had promised, Mrs Wakim said she borrowed money from her family to see a lawyer in June 2023 (without her husband). Based on the advice she received she claimed she had no confidence in settling or setting aside both judgments against her. In early July 2023, after finding out her husband had negotiated a deal with the other creditor, and appreciating the respondent's judgment against her was obtained by default, she instructed her lawyer to apply to have the default judgment set aside. On appeal, the principal issues were: (i) whether leave to appeal should be granted; (ii) whether the primary judge erred in finding Mrs Wakim did not have a reasonably arguable defence on the merits based on equitable unconscionability on the part of the respondent. (iii) whether the primary judge erred in finding that Mrs Wakim did not have a reasonably arguable defence pursuant to the Contracts Review Act 1980 (NSW). (iv) whether the primary judge erred in finding Mrs Wakim's explanation for the delay in seeking to set aside the default judgment was inadequate. The Court (Griffiths AJA, White JA and Basten AJA agreeing) held, granting leave to appeal and allowing the appeal: As to issue (i) (1) The proposed appeal raised issues of general principle relating to both causes of action relied upon by Mrs Wakim. As to her equitable unconscionability defence, there is tension in the authorities as to the relevance of the distinction between knowledge as opposed to "notice" of the weaker party's special disadvantage; whether mere inadvertence or indifference on the part of the stronger party is sufficient, as opposed to establishing exploitative or predatory conduct; and the relevance of the distinction between active and passive conduct on the part of the stronger party: at [45] per Griffiths AJA (White JA and Basten AJA agreeing). (2) Mrs Wakim's reliance on the Contracts Review Act 1980 (NSW), raised the issue of whether actual or constructive knowledge on the part of the stronger party is a necessary factor: at [45], [46] per Griffiths AJA (White JA and Basten AJA agreeing). (3) The exercise of the primary judge's discretion to set aside the default judgment had a determinative effect on Mrs Wakim's legal rights such that the restraints are less stringent than those adopted in matters of practice and procedure: at [47]-[48] per Griffiths AJA (White JA and Basten AJA agreeing). In re the Will of FB Gilbert (dec'd) (1946) 46 SR (NSW) 318 considered. (4) Finally, the proposed grounds are more than merely arguable, warranting a grant of leave to appeal: at [49] per Griffiths AJA (White JA and Basten AJA agreeing). As to issue (ii) (5) Whether Mrs Wakim had a reasonably arguable defence based on unconscionability primarily turned on whether proof of a "predatory state of mind" was required and "mere inadvertence" or "indifference" to her circumstances was insufficient. The circumstances involved a third party, and, which may require some modification of principles stated in relation to two parties only: at [51], [55], [62] per Griffiths AJA (White JA and Basten AJA agreeing). Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; [2013] HCA 25; Nitopi v Nitopi (2022) 109 NSWLR 390; [2022] NSWCA 162 ; Stubbings v Jams 2 Pty Ltd [2022] HCA 6; 96 ALJR 271; Thorne v Kennedy (2017) 263 CLR 85; [2017] HCA 49; Garcia v National Australia Bank Ltd (1998) 194 CLR 395; [1998] HCA 48 considered. (6) Contrary to the findings of the primary judge, Mrs Wakim may be entitled to relief under the principles in Yerkey v Jones and Garcia whether or not her guarantee was procured by unfair exploitation or predatory conduct on the part of the respondent, or the respondent had actual or constructive knowledge of her vulnerability and sought unfairly to exploit it. Mrs Wakim's evidence, if accepted at trial, could plausibly establish a relationship of actual undue influence and that there was no adequate independent advice: at [6], [7] per White JA (Basten AJA agreeing). Yerkey v Jones (1939) 63 CLR 649; [1939] HCA 3; Garcia v National Australia Bank Ltd referred to. (7) Whereas the trial judge was required to take Mrs Wakim's evidence at its highest, there is reason to doubt that he did so. The primary judge apparently did not consider it desirable to permit the matter to go to trial with the benefit of all relevant evidence. The reasons for judgment appear to overstate the need for Mrs Wakim to demonstrate predatory or exploitative conduct as an essential element of equitable unconscionability: at [64]-[68] per Griffiths AJA (White JA and Basten AJA agreeing). Bridgewater v Leahy (1998) 194 CLR 457; Lopwell Pty Ltd v Clarke [2009] NSWCA 165 and Nitopi considered. As to issue (iii) (8) There was one important difference between Mrs Wakim's unconscionability claim and the Contracts Review Act 1980 (NSW) claim, which needed to be explored at a full trial, namely whether the unjustness of a contract can be established for the purpose of the Contracts Review Act 1980 (NSW) by reference to matters of which the counterparty was ignorant when the contract was entered into: at [70] per Griffiths AJA (White JA and Basten AJA agreeing). St George Bank Ltd v Trimarchi [2004] NSWCA 120; Perpetual Trustee Company Ltd v Khoshaba [2006] NSWCA 41 considered. As to issue (iv) (9) Mrs Wakim's delay in seeking to set aside the default judgment after realising she could not rely on her husband, was relatively brief in the circumstances. The respondent was responsible for much longer delays in pursuing her under the guarantee and did not point to any hardship on its part, apart from the issue of costs: at [75], [76] per Griffiths AJA (White JA and Basten AJA agreeing).

JUDGMENT

1. WHITE JA: I have had the advantage of reading in draft the reasons for judgment of Griffiths AJA. I agree with his Honour's reasons and the orders his Honour proposes.
2. I would add the following observations. As Griffiths AJA states (at [30]), the primary judge noted that the defence raised principles governing unconscionability of the type discussed in Garcia v National Australia Bank Ltd (1998) 194 CLR 395; [1998] HCA 48; and in Yerkey v Jones (1939) 63 CLR 649; [1939] HCA 3.
3. As Griffiths AJA also notes (at [60]), Mrs Wakim's written outline of submissions claimed that her case involved claims of actual undue influence by her husband over her and cited Garcia v National Australia Bank Ltd, and Yerkey v Jones. In Garcia v National Australia Bank Ltd, the majority (Gaudron, McHugh, Gummow and Hayne JJA) held (at [17]) that the reasons of Dixon J in Yerkey v Jones were not significantly different from the reasons of the other members of the Court and were particular applications of accepted equitable principles which apply today as they did when Yerkey v Jones was decided (at [17]-[18]).
4. Dealing with a claim of actual undue influence of a husband over his wife (which is the claim advanced by the applicant), in Yerkey v Jones Dixon J said (at 684) that, in the case where the wife's undertaking to become her husband's surety is procured by the exertion by the husband on the wife of undue influence: "Nothing but independent advice or relief from the ascendancy of her husband over her judgment and will would suffice. If the creditor has left it to the husband to obtain his wife's consent to become surety and no more is done independently of the husband than to ascertain that she understands what she is doing, then, if it turns out that she is in fact acting under the undue influence of her husband, it seems that the transaction will be voidable at her instance as against the creditor."
5. In Garcia v National Australia Bank Ltd, the majority quoted that passage from Yerkey v Jones with evident approval (at [24]). Such a case was described by the majority (at [23]) as one in which "…the wife, lacking economic or other power, is overborne by her husband and goes surety for her husband's debts when she does not bring a free mind and will to that decision".
6. This was the case advanced in the defence. Mrs Wakim's evidence, if accepted at trial, could plausibly establish a relation of actual undue influence. There is a triable issue that there was no adequate independent advice. The same solicitor gave certificates of advice to Mrs Wakim and her husband. The certificates did not state that Mrs Wakim had been advised to receive separate advice. There is a triable issue as to whether the certificates were merely pro forma.
7. Contrary to the findings of the primary judge at [25]-[27], Mrs Wakim may be entitled to relief under the principles in Yerkey v Jones and Garcia v National Australia Bank Ltd, whether or not her guarantee was procured by unfair exploitation or predatory conduct on the part of the respondent, or the respondent had actual or constructive knowledge of her vulnerability and sought unfairly to exploit it.
8. BASTEN AJA: I agree with Griffiths AJA and with the further reasons of White JA.
9. GRIFFITHS AJA: The applicant (Mrs Wakim) seeks leave to appeal from an ex tempore judgment which is reported as Senworth Capital Pty Ltd as trustee for the Car Loan Security Trust v W & W Investment Group Pty Ltd [2023] NSWSC 989 (primary judgment or PJ). Campbell J dismissed Mrs Wakim's application to set aside a default judgment. The default judgment, which was entered on 10 November 2022, was in the amount of $3,627,343.97. It related to the respondent enforcing Mrs Wakim's guarantee of a short-term advance in the amount of $2,058,000 which the respondent made to two companies associated with Mrs Wakim's husband, Mr Simon Wakim.
10. Leave was given to argue the grounds in the draft notice of appeal concurrently with the application for leave to appeal.
11. For the following reasons, leave to appeal should be granted and the appeal allowed.
12. I shall summarise the relevant background facts before summarising the primary judge's reasons for judgment.

Summary of relevant background facts

1. Mr and Mrs Wakim have been married for approximately 17 years. Both are Lebanese. In support of her application below to set aside the default judgment, Mrs Wakim deposed in her first affidavit dated 21 July 2023 that, because of her culture and upbringing, she had always understood that, to be a good Lebanese wife, she had to do everything that her husband told her to do. She said that, over the course of her marriage, she "did whatever Simon told me to do, including signing documents. I did not have a choice. I did not feel like I had a choice". She described her husband as a "famous luxury car dealer in Sydney" and said that he is "very charming".
2. Mrs Wakim acknowledged that she had signed the deed of guarantee dated 18 March 2020. Both she and her husband were guarantors. They both signed the deed on 5 March 2020. Their signatures were witnessed by a solicitor (Mr Jianming Li). The solicitor signed a certificate dated 4 March 2020 in which he certified that he was instructed and employed by the "Guarantor" independently of the Lender. He was further satisfied that he had explained the effect of the guarantee and indemnity to the Guarantor "who appeared to be aware of and understand the nature and effect of the obligations of the Guarantor under this guarantee and indemnity, and executed it in my presence". The anomaly presented by the date of the solicitor's certification and the later date on which the Wakims signed the guarantee is unexplained. On 18 March 2020, the deed was signed by the Lender, being Senworth Capital Pty Ltd; Jia Lun Trading Pty Ltd and The Mode Enterprise Group Two Pty Ltd. The Borrower, being two companies associated with Mr Wakim, were Galleria SUV Pty Ltd and W&W Investment Group Pty Ltd.
3. Mrs Wakim's proposed defence to the statement of claim filed on 13 December 2021 raised two causes of action. The "unconscionable conduct defence" claimed, inter alia, that when she signed the deed of guarantee, the respondent knew or ought reasonably to have known that all relevant financial dealings were for her husband's businesses; that Mrs Wakim was under the control and influence of her husband; that she did not have an opportunity to seek professional advice from persons who were independent of her husband; that on its face, the deed of guarantee conferred no benefit on her; and that her husband communicated her habitual submission to his demands to the respondent's representatives. She claimed that by reason of these matters, she was under a special disadvantage and would not have signed the deed of guarantee otherwise.
4. Mrs Wakim's defence under the Contracts Review Act 1980 (NSW) (CR Act) simply "repeated" her unconscionable conduct defence.
5. In her first affidavit below, Mrs Wakim also said that she did not want to sign the deed of guarantee but that her husband had told her to do so, so she did. In her first affidavit, Mrs Wakim did not descend into any detail about the circumstances in which she signed the document. She did, however, seek to explain at some length why she delayed in seeking to have the default judgment set aside. She acknowledged that the proceedings to enforce the guarantee were commenced in December 2021 and that in January 2022, judgment was granted against her husband and his company W&W Investment Group Pty Ltd. She also acknowledged that, some three months later, a statement of claim naming her as a party was posted to her at her previous residential address but she said that she did not have a specific memory of receiving it. She said that if she did receive it, the most likely scenario would be that she would have passed the documents on to her husband as he told her that he would take care of such matters. She said that at the time she did not realise that she was being sued and she did not see a lawyer about the matter at any time during 2022. She said that she simply relied upon her husband to take care of things, as he had assured her he would.
6. Mrs Wakim deposed that it was not until early May 2023 that she realised for the first time that the respondent had obtained a default judgment against her. She said that on 11 May 2023 (the day after her husband told her that she had to dial into proceedings in the Federal Circuit and Family Court of Australia (FCFCA)), she realised that bankruptcy proceedings were being brought against her. She learned at that time that a creditor called "Bizcap" was seeking to have her made bankrupt and that the respondent was a supporting creditor. She said that it was only then that she learned that the respondent had a judgment against her.
7. Realising at that time that her husband had not taken care of things as he had promised, Mrs Wakim said that she borrowed money from her family and arranged to see a lawyer. She said that she saw the lawyer during June 2023, without her husband being involved.
8. Mrs Wakim said that at this time she learned about the following series of matters: that Bizcap must also have a judgment against her, on which it was relying to have her made bankrupt; that because both Bizcap and the respondent had separate judgments against her, even if she settled or had set aside one of those judgments, she could still be made bankrupt; and that if she failed to resist a bankruptcy order, there would be a costs order against her which itself could form the basis for a second bankruptcy. In those circumstances, she had no confidence in settling or setting aside both the judgments against her.
9. Mrs Wakim then deposed that in early July 2023, her husband suddenly told her that he had negotiated a deal with Bizcap and that it might no longer be pressing for her bankruptcy. She said that having also appreciated at that time that the respondent's judgment against her was a default judgment, she instructed her lawyer to apply to have the default judgment set aside.
10. Mr Simon Wakim swore an affidavit dated 9 August 2023, in which he deposed that he had an expectation over at least the previous ten years that his wife would simply do whatever he told her to do. He also deposed that he was in complete control of both the luxury car dealership business and that of the company W & W Investment Group Pty Ltd. He said that he asked his wife to sign the deed of guarantee and "she just signed it", without asking any questions. He said that he was in the room with her when the deed was signed. He also deposed to being in the room with his wife when the solicitor spoke to them both about the deed of guarantee and that he saw the solicitor sign both of the certificates.
11. In the proceeding below, the defendants relied upon an affidavit dated 10 August 2023 by Mr Jonathan Lee. Mr Lee is an executive director of Solomons Capital Australia Pty Ltd (Solomons), a financial advisory firm which introduced borrowers to private lenders, which included Senworth Capital Pty Ltd.
12. Mr Lee deposed to meetings that he had previously had with Mrs Wakim in August/September 2019 when she and a company called CJS Group Sydney Pty Ltd applied to Solomons to assist with acquiring a business loan (the 2019 loan). He gave evidence of meeting with Mrs Wakim at her residential home to discuss the loan and the business which he said she was operating. He said that during the visit Mrs Wakim told him that:

• she and her husband conducted a business of importing exotic cars to Australia for sale and lease;
• she undertook some of the vehicle acquisitions and sales;
• she was a certified car dealer in NSW and held a car dealer licence;
• she carried out the administration work in respect of the business; and
• she had previously worked in senior management in a large corporation.

1. Mr Lee did not give direct evidence of any meeting with Mr or Mrs Wakim which resulted in the execution of the 2020 loan or the deed of guarantee. Rather, he pointed to requirements in the 2020 loan documentation that Mrs Wakim obtain independent legal advice and that a solicitor give certification in respect of the deed. Mr Lee annexed to his affidavit copies of correspondence between Mrs Wakim and himself during the period September 2019 and 17 September 2020. Some of the correspondence related to the 2019 loan but some also post-dated that transaction.
2. Mrs Wakim provided an affidavit in reply dated 11 August 2023. In brief, she deposed that:

• Mr Lee's evidence concerning his meeting with her preceding the 2019 loan were "lies";
• at that meeting it was her husband who said he was a luxury car dealer and that he was using Mrs Wakim's name on company records because his own history was not very good;
• her husband said to Mr Lee in front of Mrs Wakim (and while Mr Lee was looking at her) that "yeah just tell Anna what to sign and she'll sign it"; and
• she recalled that there were a number of other occasions when her husband said similar things to Mr Lee in front of her.

1. Mrs Wakim commented on some of the emails between her and Mr Lee which were attached to Mr Lee's affidavit, including a relatively detailed email dated 30 July 2020. In brief, she said that because her husband hated doing paperwork, including typing emails, he would tell her what to say and she would paraphrase the matter in an email.

Primary judgment summarised

1. In summarising the background to Mrs Wakim's application to set aside the default judgment, the primary judge noted that no witness had been cross-examined and that he would approach the matter on the basis of taking Mrs Wakim's evidence at its highest.
2. His Honour summarised the principles concerning the setting aside of a default judgment as requiring an adequate explanation for the failure of the party to appear and the demonstration of an "arguable case on the merits". On that latter requirement, his Honour referred to Hodgson JA's description of what is an arguable case in Magnate Projects Pty Ltd v Youma Constructions Pty Ltd (No 2) [2005] NSWCA 331 at [52]: In my opinion, an applicant seeking to set aside a judgment obtained after an undefended hearing does not have to show that a different result is likely should the judgment be set aside and a new trial ordered. However, the circumstances may be such, as Jordan CJ says, as to require "a reasonably clear case of merits to be shown"; that is, that it appear reasonably clearly that there is a defence capable of producing a different result. If that defence depends on facts, then there should be some evidence of those facts; and the circumstances may be relevant to the quality of the evidence that is required to show a defence on the merits in particular cases. Among such circumstances could be the degree of the applicant's default, and hardship to the respondent.
3. His Honour then addressed Mrs Wakim's explanation for the delay in making her application. He noted at PJ[14] that there is "a very significant crossover between that explanation, and the basis of the defence that she wishes to propound". His Honour identified that defence as resting upon (a) "equitable principles governing unconscionability of the type discussed" in Garcia v National Australia Bank Ltd (1998) 194 CLR 395; [1998] HCA 48 and in Yerkey v Jones (1939) 63 CLR 649; [1939] HCA 3; and (b) alternatively, statutory relief under the CR Act.
4. His Honour noted Ms Wakim's evidence that she not only deferred to her husband, but was submissive to him in all respects, as was set out in more detail at [4] of the proposed defence. His Honour then summarised Mrs Wakim's evidence concerning events which resulted in her belatedly applying to have the default judgment set aside, events which I have outlined above.
5. As to Mrs Wakim's explanation for the delay, the primary judge made the following observations at PJ[23]: However, it seems, one must infer, that given that she was now in the position where she may only have to fight on one front, she decided to bring this application to set aside the default judgment. I have to say that, on many levels, that explanation is not satisfactory. It is, with respect, taking it at its highest, and it has not been challenged, Mrs Wakim's evidence that when she received legal advice in June, she made her own decision, not under the influence of her husband or anyone else, having received at that time entirely independent legal advice from a lawyer consulted independently of her husband, to let matters lie where they fell, legally speaking. And I must say, given the amount of the debt here, and I know nothing of Mrs Wakim's financial circumstances, I am unaware of whether the home I have referred to is encumbered or not, it seems more than a little hard to understand why Bizcap dropping out gave her confidence to fight a debt in excess of $3 million from the plaintiff.
6. At PJ[24]ff, the primary judge turned to the merits of Mrs Wakim's case. His Honour noted at PJ[24] that "…it is certainly an essential factual aspect of her case that there was actual undue influence by her husband over her, and that it was for that reason that she entered into the loan transaction with the plaintiff, both by proffering her real property as security and by entering into the guarantee".
7. His Honour then noted at PJ[25] that Mrs Wakim had to "go well beyond proving undue influence by her husband". Essentially, "she has to prove that the plaintiff had actual or constructive knowledge of her vulnerability in that regard…and that the plaintiff sought to take advantage of that special vulnerability".
8. The primary judge referred to Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; [2013] HCA 25, which he said required that there be "evidence that the plaintiff's benefit of the bargain was procured by an unfair exploitation of the weakness of the vulnerable defendant which may require proof of a predatory state of mind". It may be interpolated at this point that the primary judge did not refer to other relevant authorities on equitable unconscionability post Kakavas, particularly Thorne v Kennedy (2017) 263 CLR 85; [2017] HCA 49, Stubbings v Jams 2 Pty Ltd [2022] HCA 6; 96 ALJR 271 and Nitopi v Nitopi (2022) 109 NSWLR 390; [2022] NSWCA 162. This omission underlies grounds 1-3 of the draft notice of appeal.
9. The primary judge acknowledged that cases engaging equitable principles "are fact-sensitive" and depend upon a careful review of all of the circumstances proved by the evidence as to the nature and content of the parties' relationship. His Honour then added at PJ[27] that "neither the allegation nor the evidence proffered in support of it in this case is capable of rising to that level". His Honour noted that there was no allegation or averment that the plaintiff sought unfairly to exploit Mrs Wakim's vulnerability and that her evidence about the plaintiff's actual or constructive knowledge of her vulnerability arose only in her affidavit in reply. His Honour then referred to Mr Lee's affidavit dated 10 August 2023 and his evidence that his impression of Mrs Wakim was that she was a "savvy person, familiar with business matters" with whom he had had previous dealings. His Honour then immediately added that he would put this evidence to one side, "other than as context for Mrs Wakim's evidence".
10. It is well to set out PJ[28] in full because it figured prominently in the appeal: Mrs Wakim asserts that what Mr Lee says "are lies". Putting that to one side, because it is not for me to seek to determine whose evidence is the more acceptable in this limited application, the only evidence she gives is in her second affidavit, which is in the following terms (at [52]): "I remember vividly also that [Mr Wakim] said to [Mr Lee] in front of me that, 'Yeah, just tell Anna what to sign, and she'll sign it.' And Jonathan was looking at me when Simon said this." She also recalled other occasions when similar things were said. I think there is force in Mr Kidston's argument that that representation falls a long way short of the sort of special vulnerability, even accepting it at its highest, which is an essential aspect of the cause of action for unconscionability.
11. At PJ[29], the primary judge made reference to "other objective evidence in the case", which "does suggest that she was a person who had a good familiarity with the nature of the business in which the company was engaged". His Honour drew attention to the detailed and technical email dated 30 July 2020, and then acknowledged that Mrs Wakim effectively said in her affidavit in reply that she was "a mere typist". His Honour then added at the end of PJ[29] that "the email is certainly a contrary circumstance established by the objective evidence".
12. After referring to the principles stated by Hodgson JA in Magnate (see at [29] above), the primary judge concluded that having regard to the evidence he had referred to, and leaving aside the technical deficiencies in the proposed defence which he acknowledged could be cured by amendment, the evidence fell short of the standard that the proposed defence is capable of producing a different result.
13. The primary judge then turned his attention to the alternative claim under the CR Act. He noted that it depended essentially upon the same facts, matters and circumstances as the unconscionability defence. After stating that he fully appreciated that the legal elements were different, his Honour noted at PJ[32] that no other factual basis was put forward apart from Mrs Wakim's financial subservience to her husband. He said that this evidence, viewed at its highest, "really falls somewhat short of establishing that, at a trial, if her evidence is accepted, there is a good prospect that - and I do not mean it is likely - she would obtain relief" under the CR Act.
14. After referring to the legal advice which was given to Mr and Mrs Wakim (apparently to them both at the same time), the primary judge observed at PJ[33] that there was force in the defendant's submission that the legal advice was independent of it and that, apart from what was said to Mr Lee, "there is nothing to suggest that the plaintiff knew or should have known that her will was likely to be overborne by that of her husband in the circumstances".
15. His Honour's conclusion was then stated at PJ[35]: Looking at the evidence both as to explanation and as to the merits, I am not satisfied that a case has been established for setting aside the default judgment.

Proposed grounds of appeal

1. The following five grounds of appeal are proposed: 1. The Primary Judge erred in concluding that the standard of conduct of a third party lender must be proven to be exploitative or predatory in order to set aside a guarantee given in favour of the lender on the basis of the lender's unconscionable dealing resulting from [the] lender's knowledge of the undue influence of the guarantor's husband on the guarantor. 2. The Primary Judge erred in finding that the Appellant did not have a reasonably clear defence on the merits based on the unconscionable dealing of the Respondent in obtaining and retaining the guarantee from her in circumstances where she was subject to the special disadvantage of being habitually subservient to her husband, which the Respondent had some knowledge of. 3. The Primary Judge erred at Judgment [29] by apparently deciding that the Appellant was incapable of being unduly influenced by her husband when she was able to type and send a complicated business email for her husband. 4. The Primary Judge erred in finding that the Appellant did not have a reasonably clear defence on the merits based on sections 7 and 9 of the Contracts Review Act 1980 based on the list of factors set out in paragraphs 4 and 7 of the draft defence. 5. The Primary Judge erred in not considering the reasons given by the Appellant for failing to file her defence (and accepting those reasons as sufficient) in the process of considering the defence sought to be propounded by her, especially as they were closely factually connected.

(a) Leave to appeal

1. The respondent submitted that leave to appeal should be refused because: 1. any point in law raised by proposed grounds 1-3, including the applicant's claim that there was a need to address apparently conflicting High Court authority and several decisions of the intermediate appellate court in Western Australia, had already been addressed by this Court in Nitopi; 2. no error of principle is demonstrated; 3. alternatively, if any error be demonstrated, taking the facts at their highest, the result would not change; and 4. in any event, the primary judgment involved an exercise of discretion on a point of practice and procedure and an appellate court should be reluctant to interfere, citing In re the Will of FB Gilbert (dec'd) (1946) 46 SR (NSW) 318 at 323 per Sir Frederick Jordan CJ.
2. For the following reasons, those submissions should not be accepted and leave to appeal should be granted. First, the proposed appeal raises issues of general principle relating to both causes of action relied upon by Mrs Wakim. As to her action based on equitable unconscionability, it is notable that the primary judge proceeded on the basis that the relevant principles were contained in Kakavas alone. His Honour made no reference to relevant subsequent High Court authorities, namely Thorne and Stubbings, which arguably put a gloss on some of those principles as is highlighted by this Court's decision in Nitopi. There is some tension in the authorities on issues such as the relevance of the distinction between knowledge and "notice" of the weaker party's disadvantage (see Nitopi at [5] and [10] per Bell CJ); whether mere inadvertence or indifference on the part of the stronger party is sufficient, as opposed to establishing exploitative or predatory conduct; and the relevance of the distinction between active and passive conduct on the part of the stronger party. This tension needs to be acknowledged, particularly in an application to set aside a default judgment, where it is necessary to determine whether Mrs Wakim had an arguable defence.
3. Secondly, as to Mrs Wakim's reliance on the CR Act, her proposed appeal raises an issue of general principle, namely whether (unlike the position with equitable unconscionability) actual or constructive knowledge on the part of the stronger party is a necessary relevant factor, having regard to this Court's decisions in St George Bank Ltd v Trimarchi [2004] NSWCA 120 at [36] per Mason P (Sheller JA and Cripps AJA agreeing); and Perpetual Trustee Company Ltd v Khoshaba [2006] NSWCA 41 at [119] per Basten JA. This casts doubt on the correctness of the primary judge's view that essentially the same facts, matters and circumstances underpin both causes of action.
4. Thirdly, the respondent has oversimplified what Sir Frederick Jordan CJ said in FB Gilbert. Decisions on matters of practice or procedure are discretionary and are generally accorded a significant degree of deference. That is not to say, however, that such appellate deference is unqualified, as is evident from the final part of the following passage from the Chief Justice's judgment in FB Gilbert at 322-323 (footnotes omitted, emphasis added): …it is only in the most exceptional circumstances that a Court of Appeal could regard itself as justified in interfering with the exercise of a discretion by a judge of first instance-only where he has misapplied the law, or his order is likely to lead to a miscarriage of justice: Evans v Bartlam. In this connection, however, I am of opinion that, as was pointed out by this Court in In re Ryan, there is a material difference between an exercise of discretion on a point of practice or procedure and an exercise of discretion which determines substantive rights. In the former class of case, if a tight rein were not kept upon interference with the orders of Judges of first instance, the result would be disastrous to the proper administration of justice. The disposal of cases could be delayed interminably, and costs heaped up indefinitely, if a litigant with a long purse or a litigious disposition could, at will, in effect transfer all exercises of discretion in interlocutory applications from a Judge in Chambers to a Court of Appeal. But an appeal from an exercise of a so-called discretion which is determinative of legal rights stands in a somewhat different position. In this class of case, too, a Court of Appeal submits itself to self-imposed restraints, but restraints which, though strict, are somewhat less stringent than those adopted in matters of practice or procedure.
5. These qualifying sentences are apposite here given the determinative effect on Mrs Wakim's legal rights presented by the primary judge's refusal to set aside the default judgment (see Hassoun v Wesfarmers General Insurance Limited t/a Lumley General [2016] NSWCA 76 at [22] per Ward JA, Sackville and Barrett AJJA; and Sargeant v HE & FG Campbell Agricultural Machinery Repairs [2016] NSWSC 544 at [28] per Adamson J).
6. Fourthly, as discussed below, the proposed grounds are more than merely arguable: cf Secretary, Department of Family and Community Services v Smith (2017) 95 NSWLR 597; [2017] NSWCA 206 at [28] (Gleeson JA, Macfarlan and Payne JJA agreeing); Choi v University of Technology Sydney (No 2) [2020] NSWCA 342 at [40] (Bell P and Emmett AJA). See also Gibson v Drumm [2016] NSWCA 206 at [19] (Beazley P and Simpson JA).

(b) The appeal

1. It is convenient to deal with grounds 1 to 3 of the notice of appeal together. They all relate to that part of Mrs Wakim's case concerning equitable unconscionability. As noted above, the primary judge was content to rely upon Kakavas for the proposition that "what was required was evidence that the plaintiff's benefit of the bargain was procured by an unfair exploitation of the weakness of the vulnerable defendant which may require proof of a predatory state of mind", and also for the related proposition that "the principle is not engaged by mere inadvertence or even indifference to the circumstances of the defendant". It appears that these propositions were drawn from Kakavas at [161]: Equitable intervention to deprive a party of the benefit of its bargain on the basis that it was procured by unfair exploitation of the weakness of the other party requires proof of a predatory state of mind. Heedlessness of, or indifference to, the best interests of the other party is not sufficient for this purpose. The principle is not engaged by mere inadvertence, or even indifference, to the circumstances of the other party to an arm's length commercial transaction. Inadvertence, or indifference, falls short of the victimisation or exploitation with which the principle is concerned.
2. There are, however, several difficulties with the primary judge's reliance on Kakavas alone. First, the propositions in Kakavas reflect the particular circumstances of that case, being dealings between a pathological or problem gambler and a casino company which was said to have acted unconscientiously in taking advantage of the gambler's special disadvantage. As Mrs Wakim pointed out, Kakavas did not involve a third party, such as the financier in this appeal. Here there are three relevant parties, namely Mrs Wakim, Mr Wakim and the financier (including its agent).
3. Secondly, both Thorne and Stubbings suggest that the propositions stated in Kakavas at [161] may require some modification. Thus in Thorne, the plurality said at [38] (emphasis added): …before there can be a finding of unconscientious taking of advantage, it is also generally necessary that the other party knew or ought to have known of the existence and effect of the special disadvantage [citing Amadio at 462].
4. In Stubbings, the plurality made the point even more directly at [44] (emphasis added): … It may be accepted that his Honour's findings as to Mr Jeruzalski's state of mind did not rise to an unequivocal finding of actual knowledge on the part of Mr Jeruzalski that the appellant would inevitably lose his equity in his properties by taking these loans; but a finding in such terms was not essential to the appellant's case for relief. For a court of equity, the question is whether Mr Jeruzalski's appreciation of the appellant's special disadvantage was such as to amount to an exploitation of that disadvantage.
5. In Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; [1983] HCA 14, both Mason J and Deane J acknowledged that equitable unconscionability may be established even where the stronger party does not have actual knowledge of the weaker party's special disadvantage, as long as the circumstances are such that the stronger party should have made appropriate inquiries as to whether the weaker party was capable of making a judgment as to their own best interests (see at 467 and 479 respectively).
6. The evident tension between these High Court authorities was discussed in Nitopi. Bell CJ concluded at [9]: In my view, the only way to reconcile Kakavas and Thorne in relation to questions of knowledge is that Kakavas must be understood as standing as authority only for the negative proposition that constructive notice is insufficient but not as standing for the additional proposition that constructive knowledge of a special disadvantage in the sense I have explained is also insufficient. This reading has recently been proffered by Y K Liew and D Yu in their article, "The Unconscionable Bargains Doctrine in England and Australia: Cousins or Siblings?" (2021) 45(1) Melbourne University Law Review 206 at 223. On this basis, the trilogy of decisions of the Western Australian Court of Appeal referred to at [6] above may be in error but, if error there be, the unqualified language of Kakavas may have contributed to that position.
7. The reference to "the trilogy of decisions of the Western Australian Court of Appeal" is a reference to Mavaddat v HSBC Bank Australia Ltd [No 2] [2016] WASCA 94 at [79]; Serventy v Commonwealth Bank of Australia [No 2] [2016] WASCA 223 at [18] and Dewar v Ollier [2020] WASCA 25 at [178].
8. In Nitopi, Ward P made the following observations at [121] regarding Stubbings: I do not consider that the reasoning in Stubbings can be so confined as the appellant suggests. The plurality endorsed the statement of Mason J in Amadio …, in which his Honour spoke in the language of constructive knowledge both as to the existence of the disabling condition or circumstance and of its effect on the innocent party. Similarly, Steward J at [155] implicitly endorsed the principles as stated by the plurality in Thorne, which also encompassed constructive knowledge of the existence and effect of the special disadvantage. …
9. Also in Nitopi at [199], White JA commented that the plurality's language in Stubbings did not address distinctions between constructive knowledge and constructive notice, but did not support the notion that constructive notice would suffice in this area.
10. As has been emphasised, the primary judge placed heavy reliance on [161] of Kakavas. Although neither party provided a copy of the transcript at the hearing below, it appears from their respective outlines of written submissions that neither party drew his Honour's attention to Kakavas or, indeed, to additional authorities in Thorne, Stubbings or Nitopi (the latter decision having been published approximately 12 months before the hearing below). In those circumstances, his Honour's decision to proceed to deliver an ex tempore judgment without reference to any of these additional authorities is perhaps understandable, but led his Honour into error because he failed to appreciate that the law was not as settled by Kakavas as he believed.
11. It is evident, however, from Mrs Wakim's written outline of submissions below that she expressly claimed that her case involved claims of actual undue influence by her husband over her and the plaintiff's knowledge of such undue influence, citing Garcia and Yerkey. His Honour's attention was drawn to the following passage of the plurality in Garcia at [23] (footnotes omitted): In his reasons for decision in Yerkey v Jones, Dixon J dealt with at least two kinds of circumstances: the first in which there is actual undue influence by a husband over a wife and the second, that dealt with in Mueller, in which there is no undue influence but there is a failure to explain adequately and accurately the suretyship transaction which the husband seeks to have the wife enter for the immediate economic benefit not of the wife but of the husband, or the circumstances in which her liability may arise. The former kind of case is one concerning what today is seen as an imbalance of power. In point of legal principle, however, it is actual undue influence in that the wife, lacking economic or other power, is overborne by her husband and goes surety for her husband's debts when she does not bring a free mind and will to that decision. The latter case is not so much concerned with imbalances of power as with lack of proper information about the purport and effect of the transaction. The present appeal concerns circumstances of the latter kind rather than the former.
12. Mrs Wakim also relied upon the following passages from Heydon, Leeming and Turner, Meagher, Gummow and Lehane's Equity Doctrines and Remedies (5th ed, 2015, LexisNexis Butterworths Australia) (emphasis added): [15-150] The equitable doctrine extends to cases where the party exerting the undue influence was not the direct recipient of the disponor's property. It extends to set aside transactions involving third parties in the following capacities:…where Y under the influence of X enters into obligations to Z which will be to the benefit of X, for example, where Y guarantees the bank overdraft of X…; it would appear that Y's rights will persist against all but a bona fide purchaser for value without notice… There has been much litigation concerning the position of financiers who take a guarantee [or] other security from a third party… If the financier had actual knowledge of what was happening between the debtor and the surety (in a case of "actual" undue influence)…or ought to have been put upon inquiry that impropriety might occur, then the creditor is subject to the equitable rights of the surety. [15-155] In Australia, it will be unconscionable for the financier to enforce the security if it has not itself explained the situation to the third party, and does not know that an independent person has done so if the financier knows that there was a relationship of trust and confidence between debtor and third party.
13. Those principles, as stated in both Garcia and a leading text, suggest that the correct legal position may not be as clear or absolute as his Honour believed, based upon his reliance on Kakavas at [161]. The tension in the authorities as to the correct legal principles is an important consideration in determining an application to set aside a default judgment. One of the central issues is whether Mrs Wakim has at least a reasonably arguable defence to have the default judgment set aside and permit the substantive dispute to go to trial (see Pham v Gall (2020) 102 NSWLR 269; [2020] NSWCA 116 at [99]-[102] per Payne JA, Leeming and McCallum JJA agreeing).
14. This point is accurately encapsulated in Mrs Wakim's submission that if the "law of unconscionable conduct is in a state of development, it is all the more reason as to why a determination as to whether there was unconscionable conduct should be made on the basis of the totality of the evidence that would be available at a final hearing".
15. It is no answer to say that it was sufficient for the primary judge to take Mrs Wakim's evidence at its highest before concluding that she had failed to demonstrate "a reasonably clear case of merits" in the sense that she had a defence which was "capable of producing a different result". With respect, this reasoning presents the following difficulties. First, there is reason to doubt that Mrs Wakim's evidence was in fact taken at its highest. For example, his Honour attached particular significance at PJ[27] to the fact that Mrs Wakim's evidence about the plaintiff's knowledge of her vulnerability only arose in her affidavit in reply. Moreover, reference was made at PJ[29] to "other objective evidence", particularly the 30 July 2020 email, as suggesting that Mrs Wakim had "a good familiarity" with the borrowing company.
16. Secondly, it appears from the reasons for judgment that his Honour did not give consideration to a relevant matter in an interlocutory proceeding such as this, namely that where the state of mind of a defendant is relevant, it may be desirable to permit the matter to go to trial, which will allow the plaintiff to take advantage of court processes, such as discovery, subpoenas and notices to produce, with a view to uncovering all relevant evidence. On an application to set aside a default judgment, there is no requirement or expectation that the applicant's entire evidence which would be presented at trial be made available at the interlocutory stage. The general principle is well expressed in J & M McNamee Holdings Pty Ltd v Mungerie Vale Pty Ltd trading as Greenwood Group Realtors [2019] NSWCA 283 at [51]-[52] per Gleeson JA (Brereton JA and Simpson AJA agreeing).
17. Thirdly, there is some ambiguity in the primary judge's assessment of Mrs Wakim's evidence in her second affidavit of 11 August 2023. His Honour's statements at PJ[27] appear to indicate that he saw this evidence as relevant to Mrs Wakim's claim that the plaintiff had actual or constructive knowledge of her vulnerability. The ambiguity is highlighted by the contents of PJ[28] (which are set out at [37] above). The final sentence of that paragraph suggests that his Honour considered Mrs Wakim's second affidavit (even accepting it at its highest) fell "a long way short of the sort of special vulnerability… which is an essential aspect of the cause of action for unconscionability". Thus his Honour seemed to be saying that he was not persuaded by Mrs Wakim's evidence, even when taken at its highest, that it arguably demonstrated that she laboured under a special disadvantage or that the plaintiff had actual or constructive knowledge of that special disadvantage and sought to take advantage of it.
18. Fourthly, for the following reasons, I do not accept the respondent's contention that the "'predatory conduct' requirement is a distraction and was not central" to the primary judge's decision. Fairly read, and having regard to the following passages, the reasons for judgment suggest that his Honour viewed predatory conduct (in the sense of active exploitation) as an essential element of equitable unconscionability: 1. the statement at PJ[25] that Mrs Wakim had to prove that the respondent "sought to take advantage of [her] special vulnerability" (emphasis added); 2. the statement at PJ[26] that what was required was that the "benefit of the bargain was procured by an unfair exploitation of the weakness of the vulnerable defendant" (emphasis added); 3. after noting that there was no pleaded allegation of exploitation, but adding that this could be cured by an amendment, his Honour stated at PJ[27] that neither any such allegation nor the evidence proffered in support of it was "capable of rising to that level", presumably referring to the need to demonstrate an arguable case regarding predatory or exploitative conduct; and 4. his Honour's statement at PJ[30] that the evidence fell short of "that standard", presumably referring again to the standard of predatory or exploitative conduct.
19. With respect, these statements appear to overstate the need for the applicant to demonstrate predatory or exploitative conduct having regard to the following matters: 1. The statement of the plurality in Thorne at [38], to the effect that unconscionable conduct involves the unconscientious taking of advantage by a stronger party of a weaker party's special disadvantage, which may be described as requiring "victimisation", "unconscientious conduct" or "exploitation". The cases cited in support of the term "victimisation" include a reference in footnote 79 to Bridgewater v Leahy (1998) 194 CLR 457; [1998] HCA 66 at [76]. 2. The plurality's reference in Bridgewater at [76] to the Privy Council's decision in Hart v O'Connor [1985] AC 1000, where unconscionable conduct attracting equitable relief was described as "victimisation, which can consist either of the active extortion of a benefit or the passive acceptance of a benefit in unconscionable circumstances" (emphasis added). To similar effect see Lopwell Pty Ltd v Clarke [2009] NSWCA 165 at [52] per Macfarlan JA (Ipp and Campbell JJA agreeing). 3. Bell CJ's statement in Nitopi at [28], where he described the concept of "victimisation" in this context as not being a narrow concept and as potentially taking the form of the "passive acceptance or retention of a benefit". The Chief Justice said at [32] (to similar effect, see Ward P at [101]) (emphasis added): It may be that the unqualified observations in Kakavas as to the requirements of proof of a predatory state of mind and that the transaction in question be caused or procured by unconscientious conduct are properly to be confined to a circumstance involving apparently arms' length commercial transactions and not gifts. Of course, where a gift is so procured, equity may also intervene, as was the case in Louth. However, the converse does not follow, that is to say, a gift or transaction may still or also be impeached where unconscionability lies not in the predatory procuring of the gift but in its retention in all the circumstances of the particular case. Bridgewater was a case in point. The majority in that case stated that "[t]he equity to set aside the deed [of forgiveness] may be enlivened not only by the active pursuit of the benefit it conferred but by the passive acceptance of that benefit": at [122].
20. For these reasons, I would uphold each of grounds 1-3.
21. Ground 4 relates to Mrs Wakim's CR Act claim. As noted above, the primary judge acknowledged at PJ[31] that the legal elements of this claim are different from the unconscionability claim, but he added that both claims relied essentially on the same facts, matters and circumstances. That additional observation is literally correct having regard to the terms of the proposed defence (see at [16] above). While it may be accepted that there is some overlap in the matters underpinning both causes of action, there is one important difference which needed to be explored at a full trial. It relates to the question whether the unjustness of a contract can be established for the purpose of the CR Act by reference to matters of which the counterparty was ignorant when the contract was entered into. In particular, knowledge of the other party's special disadvantage may not be an essential factor in establishing unjustness even though such lack of knowledge may be relevant to relief (see the authorities referred to at [46] above).
22. For these reasons, ground 4 should be upheld.
23. The effect of upholding grounds 1-4 is that Mrs Wakim's proposed defence should be permitted to go to trial. A full trial, which will include whatever relevant evidence may be obtained through pre-trial processes, will enable a full consideration of the strength of Mrs Wakim's defences based on equitable unconscionability and the CR Act. The former cause of action will also presumably include her reliance upon the principles stated by Dixon J in Yerkey, as approved in Garcia.
24. Ground 5 claims that the primary judge erred in not considering Mrs Wakim's reasons for failing to file her defence in the course of his Honour considering the merits of the proposed defence, "especially as they were closely factually connected".
25. Mrs Wakim explained in her first affidavit of 21 July 2023 why she failed to file a defence in May 2022. The explanation is closely tied to the claims which underpinned her reliance on equitable unconscionability and the CR Act. In brief, the explanation related to the submissive role she played in her marriage and her trust in her husband's assurances that he would take care of matters for her. On her unchallenged evidence, it was not until the bankruptcy hearing in the FCAFC on 11 May 2023 that she realised that her husband had not lived up to these assurances. Her evidence was, that, in those circumstances, she raised money from her family, retained her own legal advisors in June 2023, and then proceeded in July 2023 to seek to have the default judgment set aside after learning that one of the two creditors was no longer pressing for her bankruptcy.
26. Mrs Wakim's submission that her delay, and in particular after realising she could not rely on her husband, was relatively brief in the overall scheme of things should be accepted. This is particularly so where the Lenders were responsible for much longer delays in pursuing her under the deed of guarantee (there was a 17-month delay after the borrowers defaulted; there was a further 11-month delay in obtaining default judgment; and an additional three-month delay by the Lenders in enforcing the default judgment in February 2023). As Hodgson JA noted in Magnate at [52] (which is set out at [29] above), relevant considerations include the degree of the applicant's default and hardship to the respondent. The respondent did not point to any hardship on its part, apart from the question of costs.
27. It should be noted that ground 5 focuses upon the connection between Mrs Wakim's explanation for the delay in filing her defence and the primary judge's consideration of whether the proposed defence had arguable merits. Mr Kidston (who appeared for the respondent) conceded that if this Court were to conclude that there was an arguable defence, although there was "some dissatisfaction" with Mrs Wakim's explanation for the delay, such dissatisfaction "couldn't hold out the applicant being let back in". That concession was properly made.
28. For these reasons, ground 5 should also be upheld.

Costs

1. On the issue of costs, the respondent submitted that, if the orders below were set aside, it should not have to pay the applicant's costs of the notice of motion because those costs would be incurred in any event.
2. In closing address, Mrs Wakim acknowledged that it was appropriate for her to bear her own costs of the notice of motion filed below, but submitted that otherwise there should be no order as to the costs of hearing that motion.
3. I consider that the appropriate order is that the second defendant bear her own costs of the notice of motion filed in the proceedings below on 21 July 2023 and otherwise the costs of the hearing of that notice of motion be the plaintiff's costs in the cause on the remitted trial.

Conclusion

1. For all these reasons, I propose the following orders: 1. The applicant have leave to appeal the judgment and orders dated 16 August 2023. 2. Within three business days hereof, the applicant file and serve a notice of appeal in the terms of the draft notice of appeal which was filed as part of the White Book. 3. The appeal be upheld. 4. Orders 1 and 2 in the proceedings below dated 16 August 2023 be set aside. 5. In lieu thereof, the judgment entered against the second defendant on 10 November 2022 be set aside. 6. The second defendant bear her own costs of the notice of motion filed in the proceedings below on 21 July 2023 and otherwise the costs of the hearing of the notice of motion be the plaintiff's costs in the cause on the remitted trial. 7. Remit the matter to the Common Law Division. 8. The respondent pay the applicant's costs in this Court.

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