Commercial N Pty Limited v Huang & Ors

[2024] NSWSC 23

Supreme Court

New South Wales

Medium Neutral Citation:

Commercial N Pty Limited v Huang & Ors [2024] NSWSC 23

Hearing dates:

14, 15, 16 and 17 March, 24 August, 7 September, 27 October and 7 December 2022

Date of orders:

31 January 2024

Decision date:

31 January 2024

Jurisdiction:

Equity

Before:

Henry J

Decision:

See [364]–[377]

Catchwords:

CONTRACTS – penalty – relief against penalties – whether penalties doctrine engaged – differential interest rates – where loan agreement provided for “Lower Interest Rate” and “Higher Interest Rate” – where “Lower Interest Rate” operated as a concessional rate payable whilst there was no default – principle in Kellas-Sharpe v PSAL Ltd [2013] 2 Qd R 233 – penalties doctrine not engaged

CONTRACTS – unconscionable conduct – Australian Securities and Investments Commission Act 2001 (Cth), s 12CB – whether interest rates in loan agreement unconscionable – where Higher Interest Rate stated to be 70.02% per annum – where interest provisions in contract exceedingly complex – where outstanding interest capitalised – effective annual interest rate by date of hearing of 417% per annum – where borrowers had benefit of legal advice – interest “utterly crushing” – capitalisation provisions unconscionable – loan agreement void in part

CONTRACTS – unjust contracts – Contracts Review Act 1980 (NSW) – whether business contract – whether contract unjust

CONTRACT – construction – where literal application of formula for calculation of interest would result in very low rate of interest – whether literal construction absurd – provision construed in accordance with commercial common sense

NEGLIGENCE – legal practitioners – professional negligence – scope of oral retainer – whether solicitor adequately explained complex terms in loan agreement – whether breach causative of loss

Legislation Cited:

Australian Securities and Investments Commission Act 2001 (Cth), ss 12BB, 12CA, 12CB, 12CC, 12DA, 12GM

Civil Procedure Act 2005 (NSW), s 98

Contracts Review Act 1980 (NSW), ss 6, 7, 9

Competition and Consumer Act 2010 (Cth), s 139B, Sch 2 – Australian Consumer Law, ss 18, 20, 21, 22, 243

National Consumer Credit Protection Act 2009 (Cth), Sch 1 – National Credit Code, s 13

Civil Liability Act 2002 (NSW), Pt 4

Uniform Civil Procedure Rules 2005 (NSW), r 42.1

Cases Cited:

Abigroup Ltd v Sandtara Pty Ltd [2002] NSWCA 45

Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205; [2012] HCA 30

Arab Bank Australia Ltd v Sayde Developments Pty Ltd (2016) 93 NSWLR 231; [2016] NSWCA 328

Australia Capital Financial Management Pty Ltd v Linfield Developments Pty Ltd [2017] NSWCA 99; 18 BPR 36,683

Australian Competition and Consumer Commission v Geowash Pty Ltd (subject to a deed of company arrangement) (No 3) [2019] FCA 72; (2019) 360 ALR 441

Awad v Twin Creeks Properties Pty Limited [2012] NSWCA 200

Balagiannis v Balagiannis [2022] NSWCA 18

Bank of Western Australia Ltd v Luo [2010] NSWSC 733

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; [1982] HCA 24

Commercial Bank of Australia v Amadio (1983) 151 CLR 447; [1983] HCA 14

Commercial N Pty Ltd v Huang (Supreme Court (NSW), Henry J, 7 December 2022, unrep)

Custom Credit Corporation Ltd v Lynch [1993] 2 VR 469

David Securities Pty Ltd v Commonwealth Bank of Australia (1990) 23 FCR 1; [1990] FCA 186

Dodds v Kennedy(No 2) (2011) 42 WAR 16; [2011] WASCA 131

Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79

First Mortgage Capital Pty Ltd v Westpac Banking Corp Ltd [2021] NSWSC 1143

Fox v Percy (2003) 214 CLR 118; [2003] HCA 22

Guardian Mortgages Pty Ltd v Miller [2004] NSWSC 1236

HomeSec Finance Express Pty Ltd v Richardson [2012] NSWSC 1375

Jin Lian Group Pty Ltd (In Liq) v ACapital Finance Pty Ltd [2021] NSWSC 931

Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8

Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; [2013] HCA 25

Kellas-Sharpe v PSAL Ltd [2013] 2 Qd R 233; [2012] QCA 371

Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205; [2008] NSWCA 343

Lauvan Pty Ltd v Bega [2018] NSWSC 154; 330 FLR 1

Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSWCA 297

Morlend Finance Corporation (Vic) Pty Ltd v Westendorp [1993] 2 VR 284

N & M Investments/Properties Pty Ltd v Australian Property Enterprise Pty Ltd [2022] NSWSC 1370

Nitopi v Nitopi (2022) 109 NSWLR 390; [2022] NSWCA 162

O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359; [1983] HCA 3

Oak Capital Mortgage Fund Ltd v Dlakic [2019] NSWSC 1538

Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11

Oxygen Funding Solutions Pty Ltd v Dick-Telfar [2020] NSWSC 582

Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28

Perpetual Trustee Co Ltd v Burniston (No 2) [2012] WASC 383; 271 FLR 122

Perpetual Trustee Co Ltd v Khoshaba (2005) 14 BPR 26,639; [2006] NSWCA 41

Provident Capital Ltd v Papa (2013) 84 NSWLR 231; [2013] NSWCA 36

Quikfund (Australia) Pty Ltd v Airmark Consolidators Pty Ltd (2014) 222 FCR 13; [2014] FCAFC 70

Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656; [2005] HCA 71

Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) (2019) 99 NSWLR 317; [2019] NSWCA 11

Steele-Smith v Liberty Financial Pty Ltd [2005] NSWSC 398

Stubbings v Jams 2 Pty Ltd [2022] HCA 6; 96 ALJR 271

Studer v Boettcher [2000] NSWCA 263

Superannuation & Corporate Services Pty Ltd v Turner [2020] NSWCA 246

Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315; [2003] HCA 57

Taylor v Stav Investments Pty Ltd as trustee for the Stav Investments Family Trust (No 2) [2023] NSWCA 322

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52

Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389; 15 BPR 29,699

Watson v Foxman (1995) 49 NSWLR 315

Texts Cited:

NC Seddon & RA Bigwood, Cheshire & Fifoot Law of Contract (LexisNexis Butterworths, 11th ed, 2017)

Category:

Principal judgment

Parties:

Commercial N Pty Limited (Plaintiff/First Cross-Defendant)
Connie Hsing-Yi Huang (First Defendant/First Cross-Claimant)
Stephanie Wen-Jen Chien (Second Defendant/Second Cross-Claimant)
National Australia Bank Limited (Third Defendant)
Equity Lenders Pty Limited (Fourth Defendant)
Peter Ronis trading as Shanahans Butlers Solicitors (Second Cross-Defendant)

Representation:

Counsel:
HW Somerville (Plaintiff)
JR Young (First and Second Defendants/Cross-Claimants)
D Talintyre (Second Cross-Defendant)

Solicitors:
Summer Lawyers (Plaintiff)
Badarne Lawyer (First and Second Defendants/Cross-Claimants)
Yeldham Price O’Brien Lusk (Second/Cross-Defendant)
Bangroves Lawyers (Fourth Defendant)

File Number(s):

2020/00240815

Publication restriction:

Nil

Judgment

1. In these proceedings, the plaintiff, Commercial N Pty Ltd (Commercial N), seeks a monetary judgment against the first and second defendants, Connie Hsing-Yi Huang and her adult daughter, Stephanie Wei-Jen Chien, and orders for possession and the sale of a property that Ms Huang and Ms Chien own in Burwood Road, Burwood (Burwood Property).

2. Commercial N’s claim relies on an agreement made on 2 October 2019 as varied by Deed of Variation signed on 14 October 2019 that provided for Commercial N to advance the principal sum of $430,000 to T&C Excellent Pty Ltd (of which Ms Chien was the sole director), Ms Chien and Ms Huang (as the three borrowers) for a term of 26 weeks and to take a mortgage over the Burwood Property as security. The borrowers were required to make monthly interest payments over the term, with a lower interest rate of 0.35% per week (Lower Interest Rate) and a higher interest rate of 1.36% per week (Higher Interest Rate) specified in the mortgage schedule.

3. The money was advanced by Commercial N and used to discharge a short term loan from Detex Pty Ltd (Detex) that was secured by a caveat on the Burwood Property, and to pay mortgage arrears and outstanding water rates and fees to Commercial N. There were no surplus funds for the borrowers, who defaulted on their interest payments and have failed to repay the principal sum.

4. Ms Chien and Ms Huang accept that the principal sum of $430,000 needs to be repaid. However, they resist the relief sought by Commercial N.

5. In their defence and cross-claim, Ms Huang and Ms Chien allege that the interest claimed by Commercial N of 70.72% per annum compounding monthly is excessive and amounts to a penalty. They also allege that the agreement and Deed of Variation, which reduced the sum to be advanced from $588,000 to $430,000, are unenforceable and/or liable to be set aside by reason of Commercial N’s misleading or deceptive and/or unconscionable conduct, in contravention of ss 12DA, 12CA or 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) or ss 18, 20 or 21 of Sch 2 of the Competition and Consumer Act 2010 (Cth) (the Australian Consumer Law) (ACL), and/or as an unjust contract under the Contracts Review Act 1980 (NSW).

6. Ms Huang and Ms Chien have also brought a cross-claim against Peter Ronis (the second cross-defendant), the solicitor who advised them about the agreement. They allege breaches of Mr Ronis’ retainer and his duty of care by failing to protect their interests and adequately advise them about the agreement and Deed of Variation.

7. T&C Excellent is not a party to the proceedings; it was deregistered in January 2020. National Australia Bank Limited (NAB) and Equity Lenders Pty Ltd are the third and fourth defendants. They are the first mortgagee and a caveator of the Burwood Property respectively and have filed submitting appearances. In these reasons, I refer to Ms Huang and Ms Chien together as the Defendants.

8. The cases advanced by the parties changed somewhat over the course of the hearing and led to further hearing days and refinements of how the cases were put. Commercial N’s interest claim was the subject of various iterations and a number of the parties’ pleaded claims were not pressed.

Evidence and witnesses

9. Commercial N read affidavits from Hugo Ng and Morgan Ng, each of whom were cross-examined.

10. Hugo Ng is the director of Commercial N. Morgan Ng (Hugo Ng’s brother) is a director of Mutual Mortgage Services Pty Ltd (Mutual Mortgages) and works as a loan manager for that entity. Mutual Mortgages trades as Mutual Support and operates as Commercial N’s loan manager (T49, T63).

11. The Defendants read affidavits from Ms Huang and Ms Chien, who were cross-examined at some length. Ms Huang’s affidavit was translated to her by an accredited interpreter and she gave oral evidence through a Mandarin translator.

12. Mr Ronis read an affidavit which he swore and an affidavit from Jenny Oliveric. Mr Ronis and Ms Oliveric were also cross-examined.

13. Mr Ronis was the principal of Shanahans Butlers Solicitors (Shanahans) in 2019. He was admitted as a solicitor on 31 August 2001 and was a consultant in property law at Shanahans when he gave evidence, having sold the business in November 2020. Ms Oliveric is a conveyancer employed by Shanahans. She assisted Mr Ronis and dealt with Ms Chien in relation to the transaction.

14. As will appear, there are factual disputes about the Defendants’ knowledge and understanding of the Deed of Variation and mortgage and the events when they executed the documents at Shanahans’ offices on 2 and 14 October 2019. Submissions were made about the reliability and credibility of some of the witnesses. In assessing the evidence and making my findings, I have had regard to my notes taken during the hearing, the transcript and the submissions of the parties.  In view of the frailty of human memory and the parties’ self-interest, I have also placed more weight on the contemporaneous documents to the extent they are available, the objective surrounding facts and the inherent probabilities and improbabilities of events: Watson v Foxman (1995) 49 NSWLR 315 at 319; Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [28]–[31].

15. I generally accept the evidence of Hugo Ng and Morgan Ng. They were straightforward witnesses who made appropriate concessions. Hugo Ng acknowledged that he did not have any direct involvement or knowledge of the Defendants’ loan application, the agreement or the Deed of Variation. Morgan Ng had more involvement, including instructing Commercial N’s lawyers, Summer Lawyers, in relation to the transaction but had little recall of some of the events.

16. While accepting that memories fade and Ms Chien was understandably concerned about her and her mother’s financial predicament, overall, I formed the impression that Ms Chien was an unreliable and unsatisfactory witness.

17. Ms Chien failed to refer in her affidavit evidence to any of the emails and text messages she received and sent to Mutual Support and in cross-examination said she could not recall them. Her lack of recall about those communications and about other matters, such as what Mr Ronis said to her at the 2 October meeting about the items recorded in his file note (including Ms Chien’s request for a change to the payment arrangements) and not knowing that T&C Excellent had been deregistered, was at odds with her ability to recall new matters in cross-examination that assisted her case, such as her having told Mr Ronis that her mother did not speak, write or read English (T194), having discussed the reduction of the loan with “Fay” and having told Mutual Support that the loan amount had been reduced without her understanding (T125). Her evidence that she had a “few, not a lot” of communications with Mutual Support but lots of discussions with Fay (T125) was not supported by the contemporaneous documents and her suggestion during cross-examination that her ex-husband had “hack[ed] into my phone” was not believable (T112, T119).

18. Ms Chien’s evidence (and that of Ms Huang) about the meeting with Mr Ronis on 2 October 2019 lacked credibility for the reasons explained at [91]–[94] below, as did her evidence that she had no idea what she was signing when she executed the Deed of Variation on 14 October, she did not know that the amount under the loan had been reduced to $430,000 and that was the only sum to be advanced (as described at [121]–[130]).

19. Ms Chien also hesitated on occasion and came across as evasive and trying to answer in terms that were favourable to her case, rather than being frank and candid. For example, in her evidence about Ms Huang’s involvement in T&C Excellent, Ms Chien denied that she knew Ms Huang had been a director, suggested that her ex-husband may have lodged false documents in respect of the appointment, and explained that Ms Huang simply followed her to meetings with the company accountant and only fulfilled the role by looking after Ms Chien’s children. This evidence was unconvincing given Ms Huang had been a director for 2 years and signed minutes of a meeting of directors at which Ms Chien and her husband were also present.

20. As to Ms Huang, during cross-examination, she seemed genuinely distressed about the financial implications of the proceedings. However, Ms Huang’s evidence was also unsatisfactory in some material respects.

21. Ms Huang’s initial affidavit had been translated to her by Ms Chien and according to Ms Chien’s evidence, Ms Chien wrote it with Ms Huang and their solicitor (T167.32–48), giving rise to the suggestion that they had conferred about the details of Ms Huang’s evidence. This, together with Ms Huang’s evidence that she could not communicate with her solicitor and the fact that she signed documents written in English in Ms Chien’s presence, highlighted that Ms Huang relied on and was content to sign documents and attend to legal matters with Ms Chien as her translator.

22. I consider that Ms Huang was not entirely frank in giving evidence, including about what she understood when she signed the documents in this case. Her evidence that she did not know what a mortgage was before the commencement of these proceedings and did not believe the documents she signed would have consequences beyond a mere application for a loan to repay the loan to Detex was implausible having regard to her experience with loans and mortgages over properties, the fact that she signed the indicative letter of offer (which set out the main terms of the loan) and her evidence in cross-examination that she knew that the Burwood property would be security for the loan and if it was not paid back, the lender would have recourse to it to satisfy the debt and that interest would have to be paid (T254.30–36).

23. Ms Huang’s evidence that she had no business knowledge whatsoever also lacked credibility given that she was the sole director and company secretary of T&C Excellent for a period and helped her daughter financially (T222.27–45).

24. Like Ms Chien, Ms Huang answered questions in a non-responsive and seemingly self-serving manner on occasion, such as referring to her age, her lack of understanding and English-speaking ability and lack of business acumen when asked about the transaction (T223.5, T247.7–8, T228.46–47).

25. As to Mr Ronis, I generally accept his evidence. He came across as seeking to provide the best and most accurate recollection of what took place at the relevant meetings. He candidly acknowledged that he did not have an independent recollection of everything that was said when he met the Defendants, such as whether he explained the operation of particular clauses of the mortgage memorandum, such as cl 5.12.

26. There were aspects of Mr Ronis’ evidence that were inconsistent and not entirely satisfactory. Mr Ronis’ evidence that Ms Huang did not talk at the meeting (other than to exchange pleasantries) makes it hard to see the basis on which he could certify that Ms Huang told him she had read and understood the effect of the mortgage and its terms, a matter which was not to his credit. Mr Ronis’ evidence in cross-examination that he drew the Defendants’ attention to the lower amount that would be provided under the Deed of Variation (T315.22–42) was also inconsistent with his affidavit evidence that he did not specifically draw their attention to that matter (at [34]). He could not satisfactorily explain this and then said he could not recall what he said about the Deed of Variation.

27. However, where there is a conflict, I have preferred the evidence given by Mr Ronis and Ms Oliveric to that of Ms Chien and Ms Huang. Ms Oliveric came across as a truthful witness who endeavoured to give evidence to the best of her recollection.  She made concessions where appropriate about her lack of recall and notes and I accept her evidence. In my view, Mr Ronis and Ms Oliveric’s evidence was more consistent and inherently more plausible having regard to the contemporaneous documents, the logic of events and the issues with the Defendants’ evidence outlined above.

28. Two other matters are notable about the evidence.

29. The first is that “Fay” (no last name), an account manager at MaxFunding, and the person with whom Ms Chien says she spoke on various occasions and who the Defendants claim played an integral role in their loan application process did not give evidence. There were also very few documents in evidence from Fay or relating to MaxFunding, a business which describes itself as a “business fund facilitator and business finance fund provider”, and there were no call records to corroborate Ms Chien’s evidence of her many calls with Fay.

30. I do not draw an inference pursuant to Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 from the Defendants’ failure to call Fay in the context where they claim she behaved inappropriately by misleading Ms Chien, and by extension, Ms Huang. Commercial N could have called her, but I do not consider it was necessary for it to do so having regard to Commercial N’s case that MaxFunding operated as a mortgage broker for the Defendants and was not acting on behalf of Commercial N. However, Fay’s absence and the unreliability of Ms Chien’s evidence has led me to not accept Ms Chien’s testimony about what she and Fay discussed unless it is supported by the objective evidence or against the Defendants’ interest. The absence of Fay and documents relating to MaxFunding also raises issues for the Defendants, who have the onus of establishing, on the balance of probabilities, that Fay was Commercial N’s employee, agent or representative when she dealt with Ms Chien.

9. The second matter is that it was apparent that Ms Huang had little involvement in the transaction other than signing documents. All of the communications in relation to the loan, including emails and phone calls with Fay, Shanahans and Mutual Support, were with Ms Chien and not Ms Huang. It was also apparent that Ms Huang relied on what Ms Chien told her about the loan. Those matters, her appearance in the witness box and the evidence that another loan facility had been translated to Ms Huang in Mandarin, supports the Defendants’ contention that Ms Huang had a limited command of English. While there was some merit to the submission advanced by Commercial N and Mr Ronis that Ms Huang likely understood more English that her and Ms Chien’s evidence suggested, which was it did not exceed her “name, address etc” and if Ms Huang was asked a question in English she would not understand (T221.49), based on Ms Huang answering a question in cross-examination before the question was translated into Mandarin (T246.37–T247.17), overall, I am satisfied that Ms Huang lacked the ability to understand an explanation about or read legal documents without the assistance of an interpreter.

Facts

32. The following sets out a narrative of the facts, based on the affidavit, oral and documentary evidence and includes findings on factual disputes.  Unless otherwise indicated, I am satisfied of the following matters.

The Defendants’ background

33. Ms Huang and Ms Chien were born in Taiwan in 1954 and 1979 respectively. In 1994, they migrated to Australia. Ms Huang’s husband followed in 1997. He died in 2010.

34. Ms Huang deposes that she has very elementary education and her English language skills are limited. She gives evidence that she has always been a housewife, has never worked and has no business experience whatsoever.

35. Ms Chien’s evidence did not detail her educational or work background. In cross-examination, she gave evidence that she had experience in running a café business before T&C Excellent was established in August 2015.

36. Ms Chien described T&C Excellent as a company that provided information technology consultancy services, including to government entities such as to Transport NSW, that had been established by her and run with her former husband, Yensheng Lin.

37. What became clear from the evidence is that Ms Huang was not inexperienced in business or with loans and mortgages prior to executing the agreement with Commercial N.

38. Ms Huang had been appointed a director of T&C Excellent on 20 September 2016 and became the sole director and company secretary on 15 December 2016, upon Mr Lin ceasing as a director and the secretary. Ms Huang remained the sole director and company secretary until 17 December 2018, when Ms Chien was appointed to them.

39. Ms Huang’s evidence also referred to having purchased properties in Australia for 20 to 30 years and obtaining loans from the Commonwealth Bank, Westpac and ANZ. One of those properties was in Roseville and, according to Ms Chien, was subject to the mortgage to the Commonwealth Bank (T123.10–17). Ms Huang accepted that the bank loans had been secured by mortgages and she understood that a mortgage secured the obligation to repay the money loaned against a property, although she said that the loan and mortgage documents that she signed on those occasions had been explained to her in Mandarin (T230.25-T231.32).

40. On a date unknown, but I infer was on or around 8 March 2019, Ms Huang and Ms Chien, in their capacities as directors of T&C Excellent, signed minutes of a meeting of directors which record that: T&C Excellent requested a commercial loan from Detex for the purposes of working capital; the company accepted the terms of the finance documents tabled for the board’s discussion; and Ms Huang and Ms Chien were authorised to accept, sign and deliver the documents.

41. The Defendants each provided guarantees in respect of a Secured Loan Agreement between T&C Excellent and Detex dated 12 March 2019 (Detex Loan).

42. The Detex Loan provided for Detex to loan T&C Excellent the principal sum of $350,000 for a term of six months (extendable for a further six months if agreed in writing) at an interest rate of 15% per annum. The Detex Loan was secured against the Burwood Property and Detex lodged a caveat on title in respect of its interest.

43. On 8 March 2019, the Defendants were provided independent legal advice in relation to the Detex Loan and their role as guarantors by a solicitor, Sarah Gao of Summit Legal. The Independent Legal Advice Certificates signed by Ms Gao and both Defendants record that Ms Gao explained the loan documentation to the “Guarantors” in Mandarin, which included an explanation of the Secured Loan Agreement, a General Security Agreement, a Guarantee and Indemnity, and an Authority.

44. Ms Huang accepted that she understood the nature and terms of the Detex Loan, including that the Burwood Property was security for the loan, when she signed the documents (T251.32–T252.14).

45. Having regard to the above matters, I am satisfied and find that Ms Huang understood both what a mortgage was and the concept of real property security for a loan before entering the agreement with Commercial N, in the sense that she understood that a mortgage involved a loan (for the purchase of a property or to raise funds for other purposes, such as for a business) where the lender has the right to take and sell property owned by Ms Huang if the money borrowed plus interest was not repaid in accordance with the agreed terms.

September 2019: application for loan

46. In September 2019, Ms Chien made an online application for a business loan of $560,000 through a website run by MaxFunding (T146).

47. The loan application she made records the “Purpose of Loan” as “Business cash flow.” In the section headed “Business Details”, T&C Excellent is identified as the business entity, “Trading Over 6 Months” with “Average Total Sales” of “$20,000 Monthly” in “Consulting”, and the “Repayment Ability” as “$2000.00 Monthly” from “Business Income”. The Burwood Property is identified in the “Assets” section, as “residential” with a current value of $3,000,000 and $1,480,000 owing to NAB.

48. The Annexure to the loan application submitted by Ms Chien on 20 September 2019 identifies each of the Defendants and T&C Excellent as the three borrowers. It also records: that “Connie can communicate in basic English”; the “Loan Purpose” as being “To pay off the caveat due end of Sept 2019” (which I infer is a reference to the Detex Loan),“Pay of (sic) business ATO debt” and “Purchase equipment for company”; the “Exit Strategy” as “Refinance property after credit record restored”; and in relation to “Assets”, “Roseville property sold 3 years ago with no mortgage arrear at $3.6 m, and used the sale to purchase current Burwood Property”.

49. MaxFunding referred the loan application to Commercial N by sending it to Mutual Mortgages (T73.39–40).

50. Ms Chien told Ms Huang that the loan application was made as she needed to borrow money to pay back the Detex Loan (T149.9–15).

51. On 20 September 2019, Commercial N issued an Indicative Letter of Offer (ILO) to T&C Excellent and the Defendants in relation to a loan of $588,000 for a term of 26 weeks (approximately six months) from drawdown. Mutual Mortgages issued the ILO on behalf of Commercial N. The ILO stated that the application for finance had been approved subject to final verification and was indicative only, based on the documents and information that “you (or your Agent)” have provided. The Terms and Conditions included the following: a “Facility Table” that identified a range of payments, including to Detex of $350,000 and “Net to You” of $210,000 (cl 1); “Exit Strategy” as “Payout of the loan will be from Business Income and Property Refinance” (cl 4); “Purpose of Loan … must be predominantly for business and/or investment purposes” (cl 5); “Repayments” as a “weekly loan repayment” of interest of $2,052.37 and a balloon payment of $588,000 after 26 weeks (cl 6); “Interest Rate” as a “Lower Rate per week” of 0.35% and a “Higher Rate per week” of “1.36% (Upon event of default or missed payment)” (cl 7); and “Proposed Security” as a Registered second mortgage over the Burwood Property with a Maximum Loan Value Ratio (LVR) not to exceed 71% (cll 8 and 9).

52. Ms Chien accepted the ILO by signing on behalf of T&C Excellent and in her personal capacity. Ms Huang also accepted by signing her name as borrower in Chinese characters.

53. In cross-examination, Ms Huang did not deny it was her signature but said she did not know what the document is (T252.20–35). I find that Ms Huang signed the ILO having been told by Ms Chien that the document had to be signed by her as part of the application process for the loan to pay out the Detex Loan.

54. On around 23 September, a Declaration of Commercial Interest form dated 20 September 2019, which was addressed to Commercial N as lender, from Ms Huang as co-borrower, was signed by Ms Huang and witnessed by a Postal Manager of the Burwood Post Office. The Declaration of Commercial Interest form signed by Ms Huang states:

“I/We acknowledge that:

--   I/We acknowledge incurring obligations and giving rights under this Agreement for valuable consideration received from the Lender.

--   I/We have received independent legal advice regarding the loan offer.

--   I/We have received accountant’s advice regarding the loan offer.

--   I/We understand that I may lose security if the loan is in default.

--   I/We will receive part of the money from the loan and from the business.

--   My/Our role in the business is a (unregistered) silent working partner.

I/We acknowledge that Commercial N is relying on the correctness of the above representations and statements and that it is on the basis of those representations and statements that Commercial N has agreed to provide the credit to the Borrower.

I/We have signed this Declaration first before signing any other loan documents.

I/We hereby declare that the information given above is correct.”

55. Defendants’ Counsel submits that the Court should find that Ms Huang did not sign the Declaration based on her evidence in re-examination that she had never seen the Declaration of Commercial Interest form and it was not her signature (T260). I am not persuaded to make that finding having regard to: Ms Huang’s affidavit evidence that she signed documents that Ms Chien asked her to sign; her evidence in cross-examination that she signed the Declaration of Interest document, that she thought that her accountant asked her to and that she attended the Burwood Post Office to sign an “application, letter or form” (T235.13–T236.23); and the fact that Ms Huang’s driver’s licence number (which the Postal Manager witness examined) appears on the Declaration of Commercial Interest form. Ms Chien also gave evidence that she was present when her mother signed the document at Burwood Post Office and recognised the signature as her mother’s (T151.50–T152.6). That said, I cannot exclude the possibility that it was Ms Chien, and not Ms Huang, who signed the Declaration of Commercial Interest form (in Ms Huang’s name) given that Ms Chien was present when it was signed, as evidenced by Ms Chien’s driver’s licence number also appearing on the form.

56. Irrespective of whether Ms Huang or Ms Chien signed, the Declaration was false as Ms Huang had not received independent legal advice or accountant’s advice in relation to the ILO and, according to the Defendants’ own evidence, Ms Huang was not at that time, a silent partner in T&C Excellent’s business.

57. According to Ms Chien, she told Ms Huang that she needed to sign the Declaration as part of the process the application she had made online and she did not translate everything on the Declaration to Ms Huang (T151.16–48).

58. On 26 September 2019, Ms Chien received an email from Fay at MaxFunding which states that they were ready to proceed with the application, asks Ms Chien to advise whether she preferred a process that involved a valuation only (option 1) or a valuation and contract together (option 2) (which involved a faster process but if the valuation returned was short and they were no longer able to provide any funding, the borrowers would be liable for the “valuation, legal and any other associated cost”) and contact details for Ms Huang. Ms Chien responded to Fay by email advising that she preferred option 2 and providing a mobile contact number for Ms Huang.

59. Ms Chien had deposed that, shortly after, Fay called Ms Huang who passed the phone to Ms Chien, who told Fay that her mother did not speak English and they needed to communicate with Ms Chien about the loan. Ms Chien also said she had a further telephone conversation with Fay on 30 September 2019 in which Fay said that the loan documents were ready to be sent, Ms Chien asked them to be sent to her as she wanted them to be explained to her mother because she did not speak English and Fay said the documents could only be sent to the Defendants’ solicitor and Ms Chien needed to nominate a solicitor from a list that Fay would send her. I accept it is likely that Ms Chien and Fay had a discussion about the need for Ms Chien to execute the loan documents before a solicitor and that Fay said she would assist Ms Chien in identifying a solicitor in the area. However, I find Ms Chien’s evidence that she told Fay that her mother did not speak English and that Fay told her she had to choose a solicitor from the list that Fay provided to be unconvincing, particularly having regard to the terms of Fay’s email below, and I reject her evidence about those matters.

60. On 30 September 2019, at 10.46 am, Ms Chien received an email from Fay at MaxFunding stating they had completed research on available solicitors nearby and providing names and quotes for three solicitors, one of which was Shanahans, at $400 per hour plus GST, who were said to be located at a Strathfield address. The email asked Ms Chien to contact a solicitor “individually”, to complete their own due diligence and advise their choice to MaxFunding for contract execution.

61. Ms Chien deposes that, on 30 September, she nominated Shanahans as they had the cheapest rates and she telephoned Fay and told Fay of her nomination and Fay said the loan documents would be sent to Shanahans and Ms Chien and her mother needed to go to their office to sign them.

62. At 4.57pm that day, Mutual Support sent an email to Ms Chien advising that “our credit agreement papers are now ready”, their solicitor would email the paperwork to her nominated solicitor within 1–2 hours and stating that “To ensure you can receive the funds as soon as possible, please find attached the ‘Settlement Guide’ (which is not in evidence). This email and all other emails sent to Ms Chien by Mutual Support were sent from the “Settlement Team” (with no other name) to the same email address Ms Chien had used in the emails between her and Fay.

63. At 5.20pm, Mr Balaban, a solicitor from Summer Lawyers, acting on behalf of Commercial N, sent an email to Mr Ronis advising that they acted for the lender, Commercial N. The email stated that he understood that Mr Ronis was acting for the “borrower/guarantor” (referred to as the debtors), who were identified as T&C Excellent and the Defendants.

64. Summer Lawyers’ email to Mr Ronis attached security documents for execution and asked Mr Ronis to note that Commercial N had strict requirements that: each of the debtors receive legal advice on the security documents separate from any other debtors; satisfactory evidence must be provided that the legal advice had been given, in either the form included with the security documents schedules or an approved form from the relevant state law society; and a photograph must be provided of the debtors taken at the time of signing the security documents certified by the same solicitor providing the independent legal advice. The documents attached to the Summer Lawyers’ email were described as: a Mortgage Summer Lawyers Memorandum 2017; Schedule A; Schedule B; Cheque Directions; Authority and Direction; and Borrower’s and Guarantor’s ancillary documents.

65. At 5.47pm, Mutual Support sent a further email to Ms Chien that was addressed to “Stephanie and Connie”, which referred to the credit agreement being sent to their nominated solicitor, a range of things that “can be done”, which included asking them to complete forms in relation to the NAB Mortgage and noting that they would pay out the Detex caveat for “your security property” at Burwood, and asked them to prepare and take with them to their solicitor various documents (including original bank statements, 100 points of ID and Council rates) and to ask their solicitor to scan through copies of the executed mortgage and security documents to their lawyers, Summer Lawyers, for review.

66. Ms Chien deposes that she and her mother went to the Strathfield address of Shanahans on 1 October 2019 but there was no solicitor there. She says she telephoned Shanahans and had a conversation with the receptionist who informed her that their office was in Bankstown, and that Ms Chien could not come to the office at that time as Mr Ronis was away but that they could come the next morning. I consider that evidence likely based on the appointment in Mr Ronis’ calendar for him to meet with the Defendants at 8.30am the next day.

67. Ms Chien also says she asked whether the solicitor in the office spoke Mandarin and she was told “no, they did not”. Ms Chien says she then spoke to Fay and told her she had contacted Shanahans and Fay said that she did not need a solicitor that spoke Mandarin as they only needed to sign the documents before a solicitor, which had already been sent to Shanahans. For the reasons set out at [30] and in the absence of any corroborating evidence, I do not accept Ms Chien’s evidence about her inquiry with Shanahans and what Fay said in relation to a Mandarin speaker.

2 October 2019: Defendants meet Mr Ronis and execute loan and mortgage documents

68. On the morning of 2 October 2019, Ms Huang and Ms Chien attended the Bankstown office of Shanahans and met with Mr Ronis. The meeting was scheduled for 8.30am in Mr Ronis’ calendar.

69. At the meeting, the Defendants signed the documents that required execution by them personally as borrowers, Ms Chien signed on behalf of T&C Excellent, in her capacity as its director, and Mr Ronis signed them as the witness. Mr Ronis also signed Australian Legal Practitioner’s Certificates in respect of advice given to each of Ms Chien and Ms Huang and Identification Verifications Forms, and obtained copies of the Defendants’ passports and driver’s licences and certified them.

70. At 9.27am, Mr Ronis took a photograph on his iPad of Ms Chien and Ms Huang holding their passports. The meeting ended shortly after; Mr Ronis had another meeting at 9.30am.

71. At 10.43am that day, Mr Ronis prepared a file note of his attendance on the Defendants, which records that: Mr Ronis went through the documents emailed to him from Summer Lawyers; Ms Chien said it was urgent and wanted to settle as soon as possible; Ms Chien was the sole director of T&C Excellent; Mr Ronis explained to both of them the reason why Ms Huang was there; the lender was securing the debt by way of a caveat over the Burwood Property; there was discussion about the fees to ensure that there were enough funds required after fees were deducted and the caveat paid out; after finishing going through the documents, Mr Ronis told Ms Chien that he would give her a list of further documents required; and Mr Ronis took a photograph of the Defendants on his iPad.

Documents executed on 2 October

72. The documents that each of Ms Chien and Ms Huang executed and Mr Ronis witnessed on 2 October are, as follows:

1. Mortgage which identifies Ms Huang and Ms Chien as Mortgagor and Commercial N as Mortgagee, contains title reference 3/XXXX82 and states:

“The mortgagor mortgages the estate and/or interest in land specified in this mortgage to the mortgagee as security for the debt or liability described in the terms and conditions set out or referred to in this mortgage, and covenants with the mortgagee to comply with those terms and conditions.

Terms and Conditions of this Mortgage

(a) Document Reference    AM544278P

(b) Additional terms and conditions

Schedule A

Commencement Date

Final Repayment Date On the same day which is 26 weeks after the Commencement Date.

Parties

Lender 1 Name: Commercial N Pty Ltd ACN 627 478 997

Address: C/- Mutual Support ('Manager')

…

Borrower 1 Name: T & C Excellent Pty Ltd ACN 607 430 562

…

Borrower 2 Name: Stephanie Wei-Jen Chien

…

Borrower 3 Name: Connie Hsing-Yi Huang

…

Mortgage Details

Principal Amount $588,000.00

Line of Credit Amount $560,000.00 (at the Lender's discretion)

Lower Rate of Interest 0.35 % per week ($2,052.37)

Higher Rate of Interest 1.36 % per week

Date for the Payment of Interest On the same day of each month as the Commencement Date.

Specified Interest Regime

Interest Regime B (clause 5.12)”

2. Schedules A and B, both of which contain a footnote that they were a schedule to “Summer Lawyers 2017 Memorandum” and were to be interpreted as though all of the provisions set out in that memorandum are set out in the Schedule. Schedule A repeated much of what was set out in the Mortgage including the Lower Rate of Interest of 0.35% per week ($2,052.37), the Higher Rate of Interest of 1.36% per week, and the Specified Interest Regime as Interest Regime B (clause 5.12). Schedule B set out a list of various fees.

3. Declarations (identified as “Schedule C”) under s 13 of Sch 1 to the National Consumer Credit Protection Act 2009 (Cth) (National Credit Code) by which each of the Defendants declared that the credit to be provided to them is to be applied wholly or predominantly for business purposes or investment purposes other than investment in residential property, and states:

“The Principal Amount will be used for business operating cash flow purposes for a consulting business.”

4. Debtor’s Advice Declarations (identified as “Schedule D”) in which each of the Defendants declared and acknowledged that: they understood the terms of the Mortgage and their liability both financial and legal; the Mortgage had been freely and voluntarily executed by them; they had had the opportunity of obtaining and did obtain legal advice prior to executing the Mortgage as to its legal effect and their obligations under it; they were aware that the lender relies on the statements in the declaration; and they had considered and understood that the provisions of the Mortgage will have a financial impact upon them if enforced by the lender.

5. Cheque Directions that state that the Borrowers authorised Summer Lawyers to pay the Principal Amount to: Commercial N in relation to fees of $28,000; Detex for a caveat payout of $350,000; T&C Excellent of $126,000 and Ms Huang of $84,000.

6. Powers of Attorney appointing Paul Reese, Solicitor Director of Summer Lawyers, as attorney for the purpose of carrying out and giving force and effect to the “Summer Lawyers 2017 Memorandum”.

7. Direct Debit Request signed by Ms Chien in relation to T&C Excellent’s account that provided for weekly payments by way of a first debit of $2,057.87 and then regular debits of $2,053.33.

8. Authority and Direction forms, Client Authorisation forms and Politically Exposed Person Statements that declare they are not considered a politically exposed person and the source of their wealth/assets is business activities.

73. The Australian Legal Practitioner’s Certificates (identified as Schedule E) that Mr Ronis signed in respect of each of Ms Chien and Ms Huang, relevantly provide:

“I, the Australian Legal Practitioner named above do hereby certify:

1.   I am satisfied that the person named above and the person who has executed the Mortgage is the same person and my means of so identifying the signatory is contained within the attached Combined Appointment as Identified Certificate and Identification Certificate.

2.   I have explained to the signatory the nature and the effect of the Mortgage to be executed by him/her and each of its terms and the legal effect of the Mortgage and its terms.

3.   That the signatory told me he/she had:

(a)   read and understood the effect of the Mortgage and its terms; and

(b)   understood the financial risks to him/her of signing the Mortgage.

4.   That the signatory told me that he/she signed the Mortgage of his/her own free will.

5.   That following the steps in paragraphs 1 to 4 above, the Mortgage was then signed by the signatory in my presence and witnessed by me.”

Mortgage Memorandum

74. The “Summer Lawyers 2017 Memorandum” (Memorandum) contains the mortgage common provisions for NSW, Registration Number AM544278P. It relevantly provides that:

1. Schedules A, B, C, D and E constitute Schedules to the Memorandum and form part of the Mortgage: cl 1.1;

2. the Mortgagor grants to the Lender (Commercial N) a Mortgage of the Mortgaged Property to secure payment of the Secured Money, which is defined to include the Principal Amount and any interest and fees: cll 1.1 and 2.1; and

3. the Debtor (defined as Borrower or Mortgagor) covenants to pay the Secured Money to the Lender in accordance with the terms of this Mortgage and by the end of the Term or if no date is specified, immediately on demand: cl 3.1.

75. Term is defined to mean the period from the Commencement Date (which is defined to mean the earlier of the date specified in Schedule A or when the Principal Amount is advanced to the Lender) to the Final Repayment Date, which is 26 weeks from the Commencement Date: cl 1.1.

76. As no date was specified in Schedule A, the Commencement Date is the day that the Principal Sum is advanced which, as set out at [145], was on 18 October 2019.

77. Clause 5 deals with the payment of interest and fees and relevantly includes cl 5.12, which provides as follows:

“5.12   If the Specified Interest Regime applicable to this Mortgage is Interest Regime B:

(a) the Debtor shall pay Interest to the Lender monthly in arrears on the Date for the Payment of Interest until the Outstanding Interest is paid in full;

(b) and, the Debtor fails to pay Interest on the Date for the Payment of Interest, then:

(i) the Debtor shall be liable to pay Interest on the Outstanding Interest at the Higher Interest Rate compounding monthly on the Date for the Payment of Interest until the Outstanding Interest is paid in full; and

(ii) the Interest on the Outstanding Interest compounded on the basis specified in paragraph (i) above, shall become part of the Secured Money as soon as it compounds.”

78. Clause 5 also provides that:

1. Interest to be paid by the Debtor shall at all times be the Higher Interest Amount unless the Lender notifies that the Debtor that the Lower Interest Amount is payable by the Debtor for any Interest Period: cl 5.3;

2. the Higher Interest Amount and Lower Interest Amount are calculated by reference to formulae that both provide for outstanding interest to form part of the Secured Money on which interest is to be paid and by reference to the Higher Interest Rate and Lower Interest Rate respectively: cll 5.5 and 5.6;

3. the Higher Interest Amount is payable in circumstances where the Debtor has failed to pay any amount due under the Mortgage, failed to comply with any Obligations or an Event of Default has occurred: cll 5.7 and 5.9; and

4. the Specified Interest Regime governs the calculation and payment of any Interest: cl 5.10

79. Higher Interest Rate and Lower Interest Rate mean the higher rate of interest and lower rate of interest specified in Schedule A (cl 1.1) which, in this case, are 1.36% per week and 0.35% per week respectively.

80. Under cl 18.1 of the Memorandum, an Event of Default is deemed to have occurred on the occurrence of one or more of the events in cl 18.2, which include, the Debtor failing to pay any Secured Money in accordance with the Mortgage.

81. Where an Event of Default occurs, the Lender may: demand the immediate payment to it of the Secured Money which the Debtor is obliged to repay in full in accordance with that demand; exercise any right, power or privilege conferred as a Mortgagee by this Mortgage (whether under any legislation or at common law, or in equity); take possession of and eject any occupants from the Mortgaged Property; and sell, assign, transfer, dispose of, or exchange the Mortgaged Property: cl 18.3.

Further findings about the 2 October meeting

82. According to Ms Chien and Ms Huang, the meeting only lasted 15 minutes. They say that Mr Ronis told them he was busy and they needed to sign the documents very quickly, then he produced a large number of documents and asked them to sign them and only indicated where to sign. According to their evidence, Mr Ronis did not explain anything about the documents when they were signing and just said, “sign here[,] sign here”, and he did not ask them (and they did not tell him) whether they had read and understood the mortgage and its terms or the financial risk in signing it.

83. Ms Chien gave evidence in cross-examination that she told Mr Ronis that Ms Huang did not speak English and asked him to explain the contract but he said he was in a hurry and “you know that you’re borrowing money” (T174.31–32). She also said that he didn’t give them copies of the documents. Ms Huang says she did not ask any questions because she felt pressured about the documents they were signing and she did not know what she was signing although she understood that the documents were in relation to a loan application for the repayment of the Detex Loan.

84. According to Mr Ronis, the meeting started at 8.30am. He recalled that the Defendants arrived on time, noting that he does not usually take appointments that early in the morning. He says he went through his usual process that he had developed when delivering advice to borrowers or guarantors.

85. According to Mr Ronis’ process and his evidence, Mr Ronis printed out two copies of the documents he was emailed by Summer Lawyers and separated them into piles; he took one pile of the documents (the client copy) and went through them with the Defendants; he marked the documents by highlighting or making notes next to the important matters to which he had drawn their attention, such as the principal amount, interest rates and upfront fees, and marking an “x” next to items of concern, such as penalty clauses and parts which he thought they should remember, such as default procedures. He also says he sought to ensure the clients understood the advice they have been given by asking if they had any further questions; he took the Defendants through each place they had to sign and went through the documents and signed as a witness to each signature; and gave the copy on which he made various marks and notes to the Defendants to take away with them.

86. Mr Ronis says that: he pointed out the lower and higher interest rates in Schedule A, the term of 26 weeks and the advance of $588,000; he told them the lower rate of interest was payable and there was a discussion about repayments, noting that the documents provided for payments of around $2000 per week and he discussed a weekly and monthly scenario with Ms Chien; he explained what the security meant and they would have to make repayments even if the company was unable to; they discussed the fees and Cheque Direction to ensure there were enough funds for payment of fees and the caveat had been paid, and highlighted there would be funds over; he explained that both of them were also named as borrower and guarantor in the documents because they both owned the Burwood property which was security for the loan and he talked about Ms Huang’s name on the title and explained that if there was a problem with the loan, her share would be affected as the lender had security over the property.

87. Mr Ronis said he went through the mortgage Memorandum by going through the headings and identifying matters of importance and highlighted the default provisions. Mr Ronis could not recall discussing the Specified Interest Regime in cl 5.12, the formula in cl 5 or what made the interest rate go beyond the Higher Interest Rate of 70.72% per annum, but recalled explaining that the higher rate of interest would apply if they were in default and showed them the higher rate of 1.35% per week.

88. Mr Ronis said that Ms Chien asked questions and responded to English and although Ms Huang did not speak during the conference, she said hello and introduced and he believed that she understood because when he spoke to her, such as when he explained the interest rates, she nodded and smiled, and had no difficulty following instructions. He described Ms Huang as “a submissive participant… wasn’t mute… but she - she did not – like, she was a submissive person in - in - in the conference” and rejected that she did not understand.

89. I prefer Mr Ronis’ evidence to that of the Defendants and find that their meeting started at 8.30am, lasted until just after 9.27am and during the meeting, Mr Ronis explained the nature and effect of the documents and the transaction in the manner outlined at [84]–[88] above.

90. The Defendants’ evidence about the length of the meeting was not convincing in light of the scheduled 8.30am appointment with Mr Ronis and the photograph taken of them at 9.37am. Ms Chien’s attempted explanation in cross-examination that she could not attend a meeting at 8.30am because she had to take her children to school was also shown to be incorrect given it was accepted by her counsel to be a school holiday that day (T157.8–19, T159.26–47).

91. In my view, Mr Ronis’ evidence about what he discussed at the meeting by reference to his standard process was more plausible than the Defendants’ evidence and more consistent with the contemporaneous documents, particularly Mr Ronis file note and the circumstances at that time. The file note may not be very detailed, but it supports his evidence that he provided the Defendants with an explanation of the key terms of the loan and mortgage documents, including the periods for repayment (weekly and monthly) and the Burwood property being used as security for the loan, he explained there was financial exposure and risk to both Ms Chien and Ms Huang and told them that they would need to provide further documents for settlement, which Ms Chien had indicated was urgent.

92. The impression sought to be created by the Defendants’ evidence that they did not receive any explanation or have an understanding of what they signed is also at odds with the certifications they and Mr Ronis signed, with Mr Ronis’ obvious function being to provide advice and satisfy himself that the Defendants’ understood and agreed to what they were signing. Even accepting that Ms Huang did not expressly tell Mr Ronis in English that she had read the documents and understood them, I am persuaded that Mr Ronis explained the Mortgage and other documents to the Defendants. In particular, I am satisfied that Mr Ronis explained the requirement to pay interest during the 26 week term based on the Lower Interest Rate, that the Higher Interest Rate of 1.36% per week would be payable in the event of any default in payment and that Commercial N was taking a mortgage over the Burwood Property as security for repayment which could be enforced in the event of default. As it was identified as the Specified Interest Regime in the Mortgage and Schedule A and based on Mr Ronis’ evidence of his usual practice and his approach that day, I also find it likely that Mr Ronis referred the Defendants to cl 5.12 of the Memorandum and explained it to them, in the sense that he told them that it provided for the Higher Interest Rate to apply to outstanding interest compounding monthly if they defaulted on their interest payments, although I consider it unlikely that that he explained the capitalisation of outstanding interest in the formulae in cl 5.5 and 5.6 or the financial impact those matters would have on the amount of Interest payable under the agreement.

93. I accept Mr Ronis’ evidence that he genuinely believed that Ms Huang understood by nodding and communicating non-verbally as he was going through the documents, including by reference to the dollar amounts and the weekly interest rates, and he would not have proceeded if he believed she did not understand and needed a translator. I do not accept Ms Chien’s evidence that she told Mr Ronis that her mother could not speak or understand English and she expected to see a Mandarin translator (T256).

94. I also accept Mr Ronis’ evidence and find that Mr Ronis gave a copy of the documents he had taken them through, including the Memorandum, to the Defendants to take with them at the end of the meeting.

2 October: Shanahans confirm execution and request change to monthly repayments

95. At 11.27 am on 2 October, Mr Ronis sent an email to Summer Lawyers advising that he had seen the Defendants that morning, all loan documents were executed and he was waiting for further documents, including council rates for the secured property and a bank statement from the borrower. He also requested an amendment to the direct debit arrangements, to read as monthly repayments in lieu of weekly.

96. Summer Lawyers responded by email that day, advising that Commercial N was agreeable to amending the frequency of the interest payments from weekly to monthly.

4 October – 13 October: events leading to the execution of Deed of Variation

97. On the morning of 4 October, Mutual Support sent an email to Ms Chien asking that she and Ms Huang return documents to their solicitor (a mortgage balance confirmation form and a NAB authority) and to her solicitor (original bank statements, council rates and cheque direction) as soon as possible so that settlement could proceed. Ms Chien responded saying that the documents would be sent soon but she had to go to Melbourne for a short notice business trip.

98. An attendance note from Shanahans’ file records that Ms Chien called Shanahans that day and said that she was putting the outstanding paperwork together and was told that Shanahans would send off the loan documents once they were received.

99. Later that day, Summer Lawyers emailed Mr Ronis about the further documentation required and attached a copy of the payout figure for the Detex Loan (of $362,475.17), which Detex’s solicitors had sent to Summer Lawyers.

100. On 8 October, Mutual Support and Ms Chien exchanged emails; Mutual Support asked for documents to be returned to them and to her solicitor (in the same terms of their 4 October email); Ms Chien requested advice on the progress of paying out the Detex caveat, stating “really hope and need the fund today if possible”; and Mutual Support referred to a discussion earlier that day and stated that they understood Ms Chien was having difficulties completing the mortgage balance confirmation form with NAB Bank.

101. On 9 October, Mutual Support sent an email to Ms Chien in response to her request for a progress update, advising that they were waiting for their credit department to do a final review of the property valuation report and the completed mortgage balance confirmation forms.

102. The reference to a property valuation report was to a residential valuation report of the Burwood Property that had been prepared by Sydney Sothern Property Valuations, on instruction from Mutual Mortgages, which valued the property (as at 30 September 2019) at $2,600,000 (market value) and at $2,250,000 (a forced sale value).

103. Ms Chien was aware that a valuation had been obtained and it was less than the $3 million valuation she had provided as part of her loan application. The Additional loan application information submitted by Ms Chien on 30 September refers to a “valuer under value her property, her personally arranged valuation returned at 2.8m 2 month ago”. The Additional Information also records the exit strategy as, “plan to sell property eventually in the future” and the company bank account statement not yet available as “sorting out past issue with ex-partner”. In cross-examination, Ms Chien also gave evidence that she spoke to Fay and asked what the house value was and was told it was confidential (T165.26–29).

97. Hugo Ng deposes that, based on the valuation, Commercial N revised the principal amount to be advanced, which was calculated adopting the market value of $2,600,000 and a 75% LVR, which resulted in an approval amount of $415,440, after taking account of the existing first mortgage to NAB and 10% for costs and other. Mutual Mortgages instructed Summer Lawyers to prepare a Deed of Variation which provided for the principal amount to be reduced to $430,000 (T57.13).

98. On 9 October 2019, Shanahans sent to Summer Lawyers by express post the documents executed by the Defendants and Mr Ronis, as well as Bank Statements (in the name of T&C Excellent), a Burwood Council rates notice (which was overdue) and a photograph of the Defendants with identification. That afternoon, Shanahans sent an email to Ms Chien advising her they had sent the documents to the Lender’s solicitor and attaching their tax invoice for payment.

99. On 10 October 2019, at 12.46pm, Mutual Support sent an email to Ms Chien advising that the following item was still outstanding:

“1. Water Rate notice. As per our previous phone conversation, please kindly forward us the current SYDNEY WATER CORPORATION rate notice as we will pay off the Outstanding Rates… via email.”

107. On 10 October 2019, Summer Lawyers sent an email to Mr Ronis advising that the offered loan amount had been changed due to the valuation of the Burwood Property coming back lower than expected and that Commercial N was only willing to proceed on the condition that the Detex caveat would be paid off and withdrawn and the mortgage arrears to NAB and outstanding water rates were paid. The email enclosed a Deed of Variation for execution by the Borrower and to be returned in order to progress further with the facilities and also noted that proof of payment of outstanding council rates and certified photographs of each debtor were still outstanding. As set out below, the Deed of Variation provided that the principal amount of the loan was reduced to $430,000. Mr Ronis’ reply stated that he would obtain further instructions and respond in relation to the outstanding items.

108. On 11 October 2019, at 1.30pm, Mutual Support sent an email to Ms Chien headed “Progress Update: Await Docs/Others”, which states:

“Please be advised that these items are still out standing:

1. Water Rate notice: As per our previous phone conversation, please kindly forward us the current SYDNEY WATER CORPORATION rate notice via email as we will pay off the Outstanding Rates ….

2. Deed of Variation: At this stage, we only pay out the DETEX PTY LTD to Discharge Caveat Number AP165117, pay off AN43349 mortgage arrears NATIONAL AUSTRALIA BANK LIMITED and pay off the outstanding Rates Over 3/563482 for SYDNEY WATER CORPORATION. No surplus fund are avaiable (sic).

We understand that the deed of variation has been sent to your solicitor. Please kindly contact your solicitor as soon as possible to get this documents (sic) signed by you and Connie.

Thank you for your patience.”

109. Ms Chien deposes that sometime after signing the loan documents, she received a telephone call from Fay who told her she needed to take the water bill to Shanahans and go back there with Ms Huang because there were some documents that they had not signed. She also says that sometime in mid-October 2019, she received a telephone call from Shanahans from a person she referred to as “Jenny”, who told her that she and Ms Huang had to come back to the office and bring the water bill with her, and that Jenny made an appointment for them to attend the office, which Ms Chien believes was on 10 October 2019. I do not accept Ms Chien’s evidence about these matters.

110. As set out below, the meeting was on 14 October 2020. I consider it likely and find that someone from Mutual Support (not Fay) spoke with Ms Chien about sending the Sydney Water rate notice to Mutual Support (not to Shanahans) and that Ms Chien was aware that the purpose of the meeting at Shanahans was to sign a “Deed of Variation”. I also consider it likely and find that Ms Chien and Ms Oliveric spoke on the morning of 14 October and arranged for Ms Chien and Ms Huang to come to Shanahans to sign the Deed of Variation and that Ms Oliveric did not tell Ms Chien to bring the Sydney Water rates notice with her or that the document to be signed related to the water bill. This is based on the emails which refer to Ms Chien sending the water bill to Mutual Support, the references to a Deed of Variation that needed to be signed and Ms Oliveric’s evidence that her first day back from a period of leave was 14 October.

14 October: Defendants sign Deed of Variation at Shanahans

111. On the morning of 14 October there were various communications between Ms Chien, Mutual Support, Mr Ronis and Summer Lawyers, as follows:

1. at 8.40am on 14 October, Ms Chien sent an email to Mutual Support which attached a document for “the water fee”.

2. at 9.02am, Mutual Support sent an email to Ms Chien which asked her to send them the current Sydney Water Rate Corporation rate notice with the direction to pay in order for them to pay off the outstanding rates and to “Also, please kindly contact your solicitor as soon as possible to get the deed of variation signed by you and Connie”;

3. at 9.24am, Mr Ronis sent an email to Summer Lawyers advising that arrangements were being made for the Defendants to attend his office to execute the variation document;

4. at 10.07am, Ms Chien emailed Shanahans requesting they contact Detex’s lawyer so as to remove the caveat that day as a matter of urgency;

5. at 10.22am, Mr Ronis sent an email to Summer Lawyers in response to an email from Summer Lawyers (sent at 10.13am) asking for an update about meeting the clients, advising that an appointment had been made at 11.30am that morning. As events transpired, this was changed to 4.00pm that afternoon; and

6. at 11.44am, Ms Oliveric sent an email to Detex’s solicitor asking for an anticipated payout figure for the withdrawal of the caveat, noting that settlement was anticipated to take place later that week, to which Goodwin & Co replied and attached payout figures as at 14 October 2020.

112. At around 4.00pm, Ms Huang and Ms Chien attended the offices of Shanahans and executed the Deed of Variation and Cheque Directions. As before, the Defendants signed in their personal capacity as borrowers, Ms Chien signed on behalf of T&C Excellent in her capacity as its director, and Mr Ronis signed as the witness.

113. At 5.18pm, Shanahans sent an email to Summer Lawyers attaching the executed Deed of Variation. They also sent the originals by express post that day.

114. At 6.03pm on 14 October, Summer Lawyers sent an email to Shanahans noting that there were documents that remained outstanding, including the recent water rates notice for payment from settlement funds, and indicated that settlement was intended to occur on 16 October.

Deed of Variation and Cheque Directions

115. The Deed of Variation is dated 10 October 2019 and states, in the background section, that the Debtor and the Lender are parties to the Security Documents (defined as Schedules A and B dated 2 October 2019 and the Mortgage of the same date) and the Debtors and the Lender wish to vary the Security Documents so as to replace Schedules A and B and the Mortgage Schedule with the Substitute Schedules A and B and the Substitute Mortgage Schedules. The operative terms provide that the Security Documents are varied by substituting Schedules A and B and the Mortgage Schedules with the Substitute Schedules A and B and the Substitute Mortgage Schedule annexed to the Deed: cll 2 (a) and (b).

116. Annexed to the Deed are two schedules entitled “Substitute Schedule Schedule A” and “Substitute Schedule Schedule B” (Substitute Schedules A and B). There is no Substitute Mortgage Schedule annexed to the Deed.

117. Substitute Schedules A and B are in the same terms as Schedules A and B, other than the references to “Substitute Schedule” in the title and Substitute Schedule A, which provides for a reduction in the principal and line of credit amounts and the amount payable per week based on the Lower Rate of Interest, as follows:

“Mortgage Details

Principal Amount      $430,000.00

Line of Credit Amount      $402,000.00 (at the Lender’s discretion)

Lower Rate of Interest   0.35% per week ($1,643.82)

Higher Rate of Interest   1.36% per week

Date for Payment of Interest   On the same day of each month as the Commencement Date.”

118. The Cheque Directions signed by the Defendants:

1. state that the Borrowers (T&C Excellent and the Defendants) authorise Summer Lawyers to pay the Principal Amount to: Commercial N in relation to fees of $28,000; Detex for the withdrawal of the caveat of $364,700; NAB for mortgage arrears of $35,300; Sydney Water Corporation for outstanding rates of $2,000; and to Borrower “AMOUNT TO YOU…NIL”; and

2. in a section headed “Key Terms”, identify the Principal Amount as $430,000 and the Higher Rate and Lower Rate as 1.36% and 0.35% per month respectively. (The reference to “per month” interest rates was incorrect; it should have referred to 1.36% “per week”).

Further findings about 14 October

119. According to Ms Chien and Ms Huang, Mr Ronis was not present when they executed the Deed of Variation and Cheque Directions. They say the only person they met with was Ms Oliveric, who indicated to them where to sign, which they did as directed. They also say that Ms Oliveric did not explain the meaning or effect of the document other than it was in relation to the water bill which Ms Chien says Ms Oliveric collected from her.

120. According to Ms Chien, Ms Oliveric led them to her office and said, “these are some documents in relation to the water rates that you need to sign”. Ms Chien also deposes that she had no idea what the Deed of Variation was before it was explained to her by her solicitor after the commencement of these proceedings.

121. I do not accept the Defendants’ evidence about the events on 14 October and find that Mr Ronis was present and witnessed Ms Chien and Ms Huang signing the Deed of Variation and the Cheque Directions and he signed them as the witness in their presence. In my view, Mr Ronis’ evidence was more plausible than the Defendants given his signature appears as a witness. It was also corroborated by Ms Oliveric’s evidence that Mr Ronis was present when they signed and she had never known Mr Ronis to sign as a witness unless he saw the signatory place their signature.

122. Mr Ronis gave evidence that he had a meeting with another client at 4.00pm from which he excused himself when he saw the Defendants arrive. He says that he met them at the front reception desk and witnessed their execution of the Deed of Variation there, after which he went back to his other meeting. Ms Oliveric gave evidence that she met the Defendants at the front office and Mr Ronis came out of the other meeting and witnessed their signature on the Deed of Variation.

123. As to what he said to the Defendants, in his affidavit, Mr Ronis deposes that he understood that the Defendants had already been provided with a copy of the Deed of Variation (which was intended to reduce the amount that the Lender would advance to them) and he did not have an independent recollection of what he said to the Defendants. He said that he did not take them through the Deed of Variation in detail as he formed the view it was not necessary in the absence of specific questions because it did not increase their liability or obligations, and he did not specifically draw their attention to the lower amount because he thought that the change would already have been conveyed to them by Commercial N and any broker they used to secure the loan.

124. In cross-examination, Mr Ronis rejected that he did not provide any advice about the Deed of Variation. He said he explained what the variation was, namely a reduced amount because of the low valuation which he knew from Summer Lawyers, he showed them that the amount they were borrowing had been reduced and his advice concerned whether or not they had enough funds to settle the previous caveat. When challenged about his affidavit evidence, he gave evidence that he could not recall what he said about the Deed of Variation to the Defendants but he remembered focusing on the lower principal amount and referred to going through the Cheque Directions to ensure there was enough to settle but could not say specifically whether he went through it with the clients (T315–318).

125. I accept that there is an inconsistency in Mr Ronis’ evidence, but I consider it likely and find that Mr Ronis brought the reduced amount of the loan, namely the sum of $430,000, to the attention of the Defendants when they signed the Deed of Variation and the Cheque Directions and explained to them the general nature and effect of the documents they signed. This is for three reasons.

126. First, the very purpose of the Deed of Variation was to reduce the amount of the advance to $430,000. In my view, irrespective of whether Mr Ronis was of the view that the Defendants knew about the valuation, the reduced principal amount and the Deed of Variation, it is not unreasonable to conclude that a solicitor would ordinarily bring to the attention of their client the general nature and purpose of the documents they were signing and that the solicitor was witnessing, including the reason why it came about (in this case, the lower valuation).

127. Second, even if Mr Ronis did not take the Defendants to the Substituted Schedule A, the reduced principal amount of the loan, of $430,000, the payout to Detex of $364,700 and “Nil” to the borrower was apparent to a reader of the Cheque Directions which the Defendants signed and Mr Ronis witnessed. In that context, I consider it likely that Mr Ronis referred to the reduced amount of the loan and also likely explained that there would be sufficient funds available to settle the withdrawal of the Detex Loan caveat, a matter which was clearly the main focus of Ms Chien at that time.

128. Third, according to Ms Oliveric’s evidence, Mr Ronis spent about 10 minutes discussing the documents with the Defendants, a sufficient amount of time to discuss those matters.

129. Fourth, Ms Chien’s evidence that she had no idea what she was signing when she executed the Deed of Variation on 14 October and thought it related to the water rates notice that she delivered to Shanahans that day, which was maintained in cross-examination when she gave evidence that she was only told by Fay to attend Mr Ronis’ office to provide water bills, was implausible having regard to the emails Ms Chien received from and sent to Mutual Support and Ms Oliveric prior to the Deed of Variation which referred to needing to sign a Deed of Variation, and which stated that no surplus funds would be available and Ms Chien needed to send the water rates notice to Mutual Support and not Shanahans. Similarly, her evidence that she did not become aware that the amount available under the Loan offer had been reduced lacked credibility having regard to the Cheque Directions she signed and the subsequent emails with Ms Oliveric regarding the shortfall in funds and from Mutual Support that identified the amount of the advance as $430,000, about which there was no recorded complaint.

130. I accept that the Cheque Directions refer to Water rates and that that was the topic of emails at the time. However, for the reasons set out at [110], I do not accept Ms Chien’s evidence that she was told that the documents she had to sign on 14 October, or specifically the Deed of Variation, related to the water rates or water bill. Based on the emails below, I also do not accept Ms Chien’s evidence that she left the water bill or water rates with Ms Oliveric that day. Overall, the evidence satisfies me that Ms Chien was aware that the principal sum of the loan was to be reduced due to the lower valuation of the Burwood Property and, at the time she signed the Deed of Variation, it was for an amount of $430,000.

15–17 October: Events leading to settlement

131. On 15 October 2019, there were communications between the parties in relation to documents required for settlement, as follows:

1. at 8.30am, Ms Chien emailed Shanahans a copy of the Sydney Water rate bill and payment receipt for council rates and also requested that the caveat be removed that day;

2. at 10.55am, Shanahans emailed the documents received from Ms Chien to Summer Lawyers;

3. at 10.58am, Shanahans emailed Ms Chien regarding further outstanding documents required by Commercial N;

4. at 1.46pm, Ms Chien emailed Shanahans a certificate of Currency of Insurance in relation to the Burwood Property which Shanahans forwarded to Summer Lawyers at 1.52pm; and

5. at 4.34pm, Shanahans emailed Summer Lawyers copies of bank statements for Ms Huang, Ms Chien and T&C Excellent.

132. At 8.31am on 16 October 2019, Summer Lawyers sent an email to Shanahans seeking agreement from the borrowers to manually amend the original Deed of Variation on page 3 (Schedule A) to change the heading to “Substitute Schedule and Substitute Mortgage Schedule” in lieu of “Substitute Schedule” (as it had been erroneously titled) and asking for documents to be provided that evidenced the NAB mortgage arrears.

133. At 9.24am, Ms Oliveric forwarded Summer Lawyers’ email to Ms Chien, who responded at 10.51am, noting that the NAB documents had been provided and also stating:

“What is the contract part needing to change?

Can you do help to do that accordingly, please?

I really need the caveat to be removed today

Please help!!”

134. At 11.27am, Ms Oliveric sent an email to Summer Lawyers advising that they were authorised to make the amendments to the Deed, as noted in “your email below”. She then sent an email to Ms Chien (at 11.29am) advising that she had spoken to the Lender’s solicitor who had told her they were awaiting an updated payout figure from Detex’s solicitor. Ms Oliveric asked Ms Chien to provide the documentation evidencing the NAB Mortgage arrears and the original Sydney Water rate notice and original evidence of payment of council rate as a matter of urgency.

135. At 11.41am, Ms Chien replied by email advising that she had already provided the NAB information to the Lender, she would email the council rate payment and could deliver the original water rate if needed. Ms Chien sent a further email to Ms Oliveric that day indicating that she did not think she could deliver the original Sydney Water rate notice that afternoon but could do so first thing in the morning but she really needed help with the caveat and the arrears of NAB, that she needed them to be settled that day.

136. Ms Chien deposes that she was never consulted in relation to the amendment to the Deed of Variation and the handwritten amendment made was not authorised by her. Ms Huang also gives evidence to the same effect.

137. I find it likely that Ms Chien spoke to Ms Oliveric between 9.24 and 11.27am and gave her authority to agree to the amendment. This is based on Ms Oliveric’s evidence that she likely obtained the instructions via a telephone call to Ms Chien but was unable to locate a copy of any notes of such a call.

138. At 3.17pm on 16 October 2019, Ms Oliveric emailed Shanahans’ amended tax invoice to Ms Chien in the amount of $1,1000 (incl GST). The tax invoice is addressed to T&C Excellent and refers to “Attending to Review and Advice on Loan Advance from Commercial N” (with an incorrect date of 9 October) and to the perusal and arranging the execution of the Deed of Variation, dealings with the solicitors for the caveator and lender and arranging settlement and cheque directions to finalise the loan advance.

139. At 3.42pm on 16 October 2019, Ms Oliveric sent an email to Ms Chien advising that: settlement would not be taking place that day but had been scheduled for 17 October 2019; the Lender’s solicitor had advised that after receiving the payout figures, there would be a shortfall of funds of “approximately $19” (this was an error and should have read “approximately $190”); to finalise settlement Ms Chien would need to provide the extra funds; their fees would need to be paid as there was not sufficient funds from the loan advance to pay them.

317. Section 7(1) of the Contracts Review Act involves distinct inquiries; first, is the contract unjust, and second, if it is unjust, what if any orders should be made: Balagiannis v Balagiannis [2022] NSWCA 18 at [110] (Brereton JA) (Balagiannis).

318. The effect of ss 7 and 9 of the Contracts Review Act is that a contract may be unjust in the circumstances existing when it was made because of the way it operates in relation to the claimant (substantive unfairness) or because of the way in which it was made (procedural unfairness), or both: Balagiannis at [4], [67] and [111]–[112].

319. In Provident Capital at [7] (cited with approval in Superannuation & Corporate Services Pty Ltd v Turner [2020] NSWCA 246 at [51]), Allsop P (as his Honour then was) said:

“The broad evaluation of unjustness under the Contracts Review Act1980 (NSW) ss 4, 7 and 9 involves the normative evaluation of the totality of relevant circumstances. Inevitably minds may differ as to conclusions about such questions. Also, it is often not fruitful to compare other cases with the particular circumstances at hand, lest one be deflected from an appropriate overall assessment by focus on particular aspects relevant to any such comparison. Central to the normative evaluation is the recognition that there is a need for the protection of some people in some circumstances, who are not able fully to protect their own interests against factors that may cause injustice. That vulnerability may come from one or more of many circumstances, such as lack of education or of intelligence, from gullibility, from the predation of fraud and greed, and also sometimes from loyalty and love. The characterisation of a contract as unjust and the sheeting home to the other contracting party of the consequences of its unjustness may be a difficult evaluative exercise. At its heart, however, is the recognition of the inadequacy of one party to protect her or his interests in the circumstances. Here, there was no predation. There was no behaviour in which [the lender] sought to take advantage of [the borrower].”

320. The second inquiry involves a discretionary decision: Balagiannis at [110]; Perpetual Trustee Co Ltd v Khoshaba (2005) 14 BPR 26,639; [2006] NSWCA 41 at [34]–[40] (Spigelman CJ), [106]–[111] (Basten JA) (Khoshaba). Before the Court intervenes, it must consider that it is just to do so, and any intervention must be for the purpose of avoiding as far as practicable an unjust consequence or result: s 7(1) Contracts Review Act.

Contracts Review Act: consideration and determination

321. As Contracts Review Act relief is more broadly available that relief under general law and statutory unconscionability and similar issues arise, I deal with this claim in a more summary fashion.

322. My reasons in relation to unconscionable conduct show that many of the matters set out in s 9(2) to which the Court shall have regard were present at the time the Agreement and Deed of Variation were entered into. Those matters include:

1. an inequality of bargaining power as between Commercial N and the Defendants;

2. a lack of negotiations between the parties relating to the terms of the ILO, the 2 October Agreement and the Deed of Variation;

3. the imposition of capitalised interest conditions which are not reasonably necessary for the protection of Commercial N’s legitimate interests and the unreasonable difficulty in complying with those conditions;

4. it not being reasonably practicable for the Defendants to negotiate for the alternation or rejection of the provision, although the evidence indicates that Mr Ronis sought an amendment to the repayment period from weekly to monthly;

5. the relative economic circumstances, education and background of the Defendants and the lack of English speaking and literacy competency of Ms Huang;

6. the physical form of the contract, and the intelligibility of the language, with the Mortgage memorandum including detailed and somewhat complex and ambiguous capitalised interest regimes;

7. the obtaining of independent legal advice by the Defendants from Mr Ronis but no other expert;

8. the explanation given to the Defendants about the terms of the Agreement and Deed of Variation by Mr Ronis and their consequent level of understanding of them;

9. the absence of any unfair pressure or unfair influence by Commercial N but the inclusion of the capitalised interest provisions involving unconscionable conduct on the part of Commercial N; and

10. the commercial setting, namely that the Detex Loan was due to be repaid. The loan advance and Mortgage enabled that to happen and to payout other mortgage arrears. However, the effect of the contract was the impact of a very high rate of interest with capitalisation on default and the risk of losing the Burwood Property.

323. In relation to the other matters in s 9(2), I do not consider that the Defendants were unable to protect themselves because of their age of state of physical or mental capacity, nor did this apply to any person representing them. There was no evidence of similar contracts entered into by Commercial N. As for the Defendants, they had entered into other mortgages and well understood them, including the Detex Loan which provided for security over the Burwood Property.

324. Having considered the above matters, I am not satisfied that the operation of the contract or the manner in which it was made renders the Agreement and the Deed of Variation, in their entirety, unjust in all of the circumstances. In particular, I am not satisfied that the Defendants, as co-borrowers of the principal amount of $430,000, did not appreciate or understand that interest was payable at the Higher Interest Rate in the event of default, and that a failure to make interest payments and the principal sum at the end of the term led to a risk they would lose the Burwood Property. Commercial N was also entitled to rely on the receipt of legal advice by the Defendants and the certificates that were signed by them and Mr Ronis.

325. I am also not satisfied that the Deed of Variation is unjust. I do not consider it to have been unfair or unjust that Commercial N did not proceed on the basis articulated in the ILO and reduced the amount to be advanced having regard to the 30 September valuation and in light of the matters referred to at [298].

326. I am, however, satisfied that those parts of cl 5 of the Mortgage Memorandum that provide for Interest at the Higher Interest Rate to be capitalised and/or compounded, such as cl 5.5 and 5.12(b), are unconscionable, harsh and oppressive and operate unjustly.

327. In coming to that view, I take into account the public interest in holding parties to their contractual obligations when entered freely, even though the contract might have been an ill-advised transaction. However, there is also a public interest in treating contracts for asset lending, where the security provided is the sole residence of the borrower, as unjust where borrowers have demonstrated an inability to reasonably protect their own interests: Khoshaba at [128] (Basten JA).

328. While I do not consider that the Defendants were unable to protect their interests in entering into the Agreement and the Deed of Variation in all respects, the substantive burden placed on the Defendants from the application of the Higher Interest Rate on a capitalised basis satisfies me that it would be contrary to the public interest for Commercial N to be able to enforce against the Defendants the interest provisions in the Memorandum that provide for the Higher Interest Rate, other than when applied on a simple interest basis.

329. Given my findings on the unconscionable conduct claim, it is unnecessary to grant relief under the Contracts Review Act. However, if it were necessary to do, in my view, it would be sufficient to refuse to enforce the provisions in cl 5 of the Memorandum that provide for Interest at the Higher Interest Rate to be capitalised and/or compounded, or to require the execution of an instrument that varies the provisions of the Registered Mortgage to that extent, with the consequence that the Mortgage does not secure payment of monies due to the operation of those provisions beyond the application of simple interest only.

Defendants’ cross-claim against Mr Ronis

330. The Defendants plead that, pursuant to their oral contract with Mr Ronis (Retainer), he agreed to provide them with legal advice in relation to the Agreement, and the Retainer contained implied terms that Mr Ronis would:

1. provide to the Defendants all necessary legal advice to ensure that they understood their rights and obligations and the risks associated with the transaction;

2. ensure the respective interests of each of the Defendants were protected;

3. exercise all proper and reasonable care and skill in carrying out his duties pursuant to the retainer; and

4. he would charge a fee for his service.

331. The Defendants also allege that Mr Ronis knew or ought reasonably to have known that they were reliant on his advice and expertise and that Ms Huang had very limited English skills.

332. The Defendants claim that Mr Ronis breached the Retainer, in that he failed to act with reasonable care and skill to ensure that their interests were protected in the transaction, with a range of matters identified as particulars of breach, and, as a consequence, they have suffered loss and damage.

333. The particulars of loss and damage are alleged to be: exposure to liability to which they would not have otherwise been exposed; the inability to obtain finance from another source or otherwise deal with their property due to caveats that have been lodged by “Prime Capital” against the title of their properties; and legal costs and other expenses. The identity of Prime Capital is obscure; it appears to be an erroneous reference to Commercial N.

334. Mr Ronis admits that the Retainer provided for the matters at [330(a), (c) and (d)] above, denies that it extended to him ensuring that the respective interests of the Defendants were protected and says that the Retainer was to advise the Defendants as to the legal effect of the mortgage and their obligations under it.

335. Mr Ronis does not admit that the Defendants relied on his advice or that he ought to have been aware that they would do so or that Ms Huang has limited English skills. He also denies he has breached the Retainer and says that any such breach was not causative of any loss to the Defendants in any event.

336. Mr Ronis’ defence of proportionate liability under Pt 4 of the Civil Liability Act asserts that Commercial N is a concurrent wrongdoer, in respect of which Mr Ronis relies on the matters alleged in the Defendants’ cross-claim.

337. The issues raised by the cross-claim against Mr Ronis are:

1. did the retainer include an implied term that Mr Ronis would “ensure that the respective interests of each of the Defendants were protected”;

2. did Mr Ronis’ conduct breach the retainer or his duty of care;

3. did any breach cause the Defendants to suffer any loss or damage; and

4. if the answer to (c) if yes, what is the apportionment of that loss, Mr Ronis having raised a proportionate liability defence.

Legal principles

338. The parties’ submissions did not address the legal principles in relation to the duties owed by a solicitor to a client when advising on a loan or mortgage transaction.

339. In Lauvan Pty Ltd v Bega [2018] NSWSC 154; 330 FLR 1 at [421]–[426], Gleeson JA set out the legal principles in relation to a solicitor’s duty to advise, which I gratefully adopt, as follows:

“A solicitor’s duty to his or her client arises in both contract and tort. The terms of the retainer will usually set out the scope of the duty with respect to the latter: Badenach v Calvert (2016) 257 CLR 440; [2016] HCA 18 at [16] (French CJ, Kiefel and Keane JJ), citing Hawkins v Clayton (1988) 164 CLR 539 at 544-545; [1988] HCA 15.

It is uncontroversial that a solicitor must ensure that the client understands the documents he or she is to execute and the consequences of executing them, especially in relation to unusual provisions: Fox v Everingham (1983) 50 ALR 337 at 341-2; Henderson v Amadio (No 1) (1995) 140 ALR 391 at 518-9.

That a matter might fall beyond the ambit of the retainer does not necessarily militate against the existence of a duty owed by a solicitor to act in respect of it, though whether any such responsibility is enlivened will always depend upon the circumstances of the case: Provident Capital Ltd v Papa at [2] (Allsop P); Dominic v Riz [2009] NSWCA 216 at [89] and [91] (Allsop P). It is therefore unwise to be in any way dogmatic in general terms about what needs to be done in fulfilment of the retainer: Provident Capital Ltd v Papa at [2].

Solicitors are not ordinarily required to advise upon the wisdom of transactions in relation to which they act: Provident Capital at [75] (Macfarlan JA), citing Polkinghorne v Holland (1934) 51 CLR 143 at 158; [1934] HCA 28, and Citicorp Australia Ltd v O’Brien (1996) 40 NSWLR 398 at 418. However, depending on the circumstances known to the solicitor, the performance of the retainer may require more than an explanation of the legal effect of documents, but also the obvious practical implications of the client’s entry into the transaction the subject of advice: Provident Capital Ltd v Papa at [75], [80] (Macfarlan JA).

Thus, it is necessary to consider what material facts were known to the solicitor when the impugned conduct occurred in order to determine precisely the extent of the obligations attracted by his or her discharge of the retainer: Provident Capital Ltd v Papa at [68] and [78] (Macfarlan JA).

With respect to a retainer in relation to a mortgage transaction (whether certified or not), the provision of independent legal advice is not a mere formality and should involve proper and adequate advice about the consequences of entering into the contract. If, during the execution of a retainer, the solicitor is put on notice that the client’s interests are endangered unless further steps are carried out, a duty may arise to bring attention to that aspect of concern. The amount of emphasis that ought to be placed on any apparent risk will depend upon the circumstances (e.g. loyalty of blood or love), and may need to be expressed “with clarity and force” or “in strong terms”: Provident Capital Ltd v Papa at [2] (Allsop P) and [80] (Macfarlan JA); David v David [2009] NSWCA 8; (2009) Aust Torts Rep 91-993 at [76] (Allsop P).”

Consideration and determination

340. The first issue concerns the scope of Mr Ronis’ Retainer, which is mostly agreed. In my view, it is plain from the objective circumstances that the Retainer was to advise the Defendants in relation to the legal effect of the loan facility and mortgage and their obligations under it.

341. I accept Mr Ronis’ submission that the Defendants have not established that the Retainer included an implied term which required Mr Ronis to ensure that each of the Defendants’ respective interests were protected.

342. In my view, the evidence does not support the implication of such a term. Leaving to one side the fact that the formulation of the implied term is somewhat vague, it is highly unlikely that it was intended for Mr Ronis to act and provide advice to each the borrowers individually with the requirement that he would do so ensuring that their individual interests were protected, given the potential conflict of interests that could arise between the borrowers.

343. Summer Lawyers’ 30 September 2019 email may have noted that it was a strict requirement of Commercial N that each of the Debtors received legal advice on the security document separate from any others but that requirement does not dictate the terms of the Retainer between Mr Ronis and the Defendants. Nor does it suggest that it was intended by the parties to operate as a term of the Retainer.

344. In any event, the implied term is not, in my view, so obvious, necessary or reasonable for the effective operation of the Retainer in the circumstances of this case, which was characterised by the Defendants’ need for urgent advice on a suite of documents to enable them to receive funds to pay out the overdue Detex Loan, that its implication goes without saying. This is particularly as a solicitor may have a duty to warn of risks inherent in a transaction but it is not part of their job to protect a client’s interests by, for example, advising as to the wisdom of the transaction or whether or not a client should enter it: Provident Capital at [75]; Studer v Boettcher [2000] NSWCA 263 at [75].

345. In relation to the second issue, the particulars of breach alleged by the Defendants are that Mr Ronis:

1. failed to explain adequately or at all the terms, the meaning and/or the legal effect of the Agreement and the related documents associated with the Transaction;

2. allowed each of the Cross-Claimants to provide a declaration under s 13 of the National Credit Code to the effect that the advance by Commercial N was for business or investment purposes knowing that such document/declaration was not explained to them before they signed it;

3. allowed each of the Cross-Claimants to provide an acknowledgment that they understood the mortgage and that they had had the opportunity of obtaining and did obtain legal advice in relation to it when in fact no such advice was obtained by either of them;

4. provided a certificate of legal advice falsely or incorrectly stating that he had provided legal advice to the Cross-Claimants knowing that he did not do so and in circumstances where he could not have possibly done so in respect of Huang as she does not speak English and Mr Ronis does not speak Mandarin;

5. failed to advise the Cross-Claimants about the risks and consequences if they defaulted in any way under the Agreement and the related documents;

6. failed to inquire as to whether the Company or the Cross-Claimants had the capability to meet the interest payments due and fee obligation under the Agreement;

7. failed to advise the Cross-Claimants that the Deed of Variation has substantially reduced the amount which would have otherwise been available to them under the Loan Offer; and

8. failed to advise the Cross-claimants that the documents which they signed in early October (Deed of variation) was not in relation to any water bill.

346. Dealing with each of these in turn, I am not satisfied that particular (a) in the terms alleged has been established. As I have found, Mr Ronis provided an explanation to the Defendants of the meaning and legal effect of the Mortgage and its key terms and the related documents associated with the transaction, which advice was provided during the conference on 2 October 2020. Relevantly, that advice included an explanation of the key terms, including the application of the high interest default rate and the nature and effect of the Mortgage Security over the Burwood Property.

347. As Mr Ronis submits, a lawyer is not required to read every word of every clause of every document to a client in order to provide adequate legal advice. They are entitled to exercise their judgement as to what features of the transaction merit specific reference. In this case, I accept that a prudent and careful solicitor would focus on explaining and ensuring their client understood their legal obligations as to the timing, frequency and monetary amounts of repayments in respect of interest and the principal amount, of the loan, together with an understanding of the manner in which their real property would be encumbered and any default or penalty clauses. I am satisfied that Mr Ronis did so, subject to one matter, namely the operation and effect of the interest provisions that provided for the Higher Interest Rate to be capitalised or compounded which, as the worked examples show, have an increasingly large and disproportionate effect on the amount of interest to be paid under the Mortgage in the event of default. Mr Ronis referred the Defendants to cl 5.12 of the Memorandum and explained it to them, in the sense that he told them that it provided for the Higher Interest Rate to apply to outstanding interest compounding monthly if they defaulted on their interest payments, but I am not satisfied that he explained the capitalisation of outstanding interest in the formulae in cl 5.5 and 5.6 or the financial impact that those matters would have on the amount of Interest payable under the agreement.

346. To the extent that Mr Ronis’ contention (at [191] above) suggests that he should be excused for not identifying the basis on which interest was to be paid in the short time he had to review the documentation and to provide advice upon it, such that it does not involve a breach, I am not persuaded by that submission. It is an ordinary incident of a solicitor’s duty to explain the obvious potential pitfalls of legal transactions. While there may have been some ambiguity and complexity attending to the clauses in question, the operation of the capitalised Higher Rate Interest in the event of continuing default was an obvious pitfall that should, in my view, have been explained in more detail than referring to interest compounding monthly. That said, as I have found that those aspects of the Mortgage are not enforceable, to the extent there was any breach of Mr Ronis’ duty or the Retainer in that respect, I am satisfied that it could not be causative of any loss to the Defendants. In other words, the Defendants have not suffered any financial detriment due to the inadequacy of Mr Ronis’ advice in that respect.

347. As to the Deed of Variation, while Mr Ronis did not give detailed or formal advice to the Defendants, I am not satisfied that he failed to adequately explain its terms in circumstances where Mr Ronis did refer to the reduced amount and went through the Deed of Variation with the Defendants when he saw them on 14 October, and where the effect of the Deed of Variation was not to alter the Defendants’ legal obligations to Commercial N in any material sense, but rather to reduce their exposure due to the lower loan amount being offered. Further, and as Mr Ronis’ submissions point out, the Deed of Variation and revised Cheque Directions went to commercial matters as between Commercial N and the Borrowers, as distinct from legal obligations. In my view, the suitability of the amount borrowed is a financial matter that is more appropriately dealt with through an accountant or financial advisor, rather than their solicitor. I am also satisfied that Ms Chien, and by extension, Ms Huang, were aware of the reduced loan amount and the need for the Deed of Variation prior to and after execution and about which no complaint was made until these proceedings were commenced.

348. It follows, in my view, that the Defendants have not established the matters alleged in particular (b) and (c) as a matter of fact or as giving rise to a breach of the Retainer. In any event, and in relation to particular (c), it is difficult to accept that Mr Ronis breached the Retainer in that respect or that it could be causative of loss when Ms Huang had already signed the Declaration of Commercial Interest form and Ms Chien had provided information to a similar effect as the NCCP Act Declarations as part of her loan application process.

349. Particular (d) (see [345] above) assumes that the scope of the retainer extended to Mr Ronis’ own certifications and that he had not provided legal advice to the Defendants, contrary to my findings above.

350. As to whether Mr Ronis was aware or ought to have been aware that Ms Huang required a Mandarin translator, as I have found, nothing was said to anyone at Shanahans, including Mr Ronis, by Commercial N, Ms Chien or any other third party to indicate to Mr Ronis that a translator was required. Nor was any such request made by Ms Chien during the meeting. In circumstances where I have preferred Mr Ronis’ evidence to that of the Defendants, I have accepted that Mr Ronis genuinely believed that Ms Huang understood what was being discussed, Ms Chien was present and asked and answered questions in English and Ms Huang nodded during the course of the meeting to indicate her understanding and followed instructions in English as to where she should sign, I do not consider that this allegation has been established as to give rise to breach by Mr Ronis. In any event, even if I were satisfied that it did involve a breach, I do not consider that it was causative of loss in the context where Ms Chien acted as her translator in respect of legal documents.

351. Particular (e) is not established. As I have found, other than in respect of the operation and effect of the capitalisation/compounding of interest at the higher interest rate, Mr Ronis explained the risks and consequences to the Defendants if they defaulted and I have found that they understood those matters.

352. In my view, particular (f) assumes that the scope of the Retainer extended to providing advice on the wisdom of the transaction. In any event, I am satisfied on the evidence that Mr Ronis discussed with the Defendants the repayment obligation under the Agreement, including as to timing and there was no relevant failure or breach in that respect.

353. Particular (g) assumes that the $588,000 would have been otherwise available if the Defendants had not signed the Deed of Variation. I do not agree with that premise having regard to the terms of the ILO and the outcome of the valuation which led to the LVR being over 71%. In any event, Mr Ronis highlighted the reduced amount of the loan when the Deed of Variation was executed and Ms Chien was independently aware of that matter.

354. Particular (h) is not established in light of my finding that there was no representation made to the Defendants to the effect that the Deed of Variation was in relation to a water bill.

355. For these reasons, the Defendants have not established any breach of the Retainer by Mr Ronis that was causative of loss to them and their claim for damages based on a breach of Retainer or breach of duty of care fails.

356. I should record that even if I was persuaded that Mr Ronis had breached the Retainer or failed to exercise reasonable care in providing legal advice in the terms pleaded against him, I am not satisfied that the Defendants have established that they were causative of any loss or damage to them.

357. As Mr Ronis submits, it is plain from the whole of the evidence that the Defendants had a pressing financial imperative to enter into the loan agreement in order to pay the Detex Loan and have the caveat withdrawn from the Burwood Property. That sense of urgency was communicated by Ms Chien to Mr Ronis, Ms Oliveric and to others, including Mutual Support.

358. Ms Chien gave evidence that if had she known that the amount available to her under the loan offer had been varied and reduced she would not have agreed to it. However, neither her evidence, nor that from Ms Huang, identifies why or what she would have done to meet T&C Excellent’s financial obligations and her own obligations to NAB in the absence of taking a loan from Commercial N loan for $430,000. Given that time was of the essence and the Defendants needed sufficient funds to pay the Detex Loan which they obtained even with the reduction in the principal sum, it seems more likely that they would have proceeded with the reduced loan.

359. Further, if the Defendants had, on advice, declined or not signed the Deed of Variation, I do not consider that the amount of $588,000 would have been available from Commercial N based on the ILO terms and the Maximum LVR and there was no evidence before the Court from which to infer that finance from a third party would have been available and secured on more favourable terms, even with the Higher Interest Rate being 70.72% per annum.

360. As Mr Ronis submits, it is the difference between the Defendants’ obligations to Commercial N and what their obligations would have been to another financier that would be the measure of any loss they would have sustained if I had been satisfied that Mr Ronis had breached the Retainer in a material respect, which had caused the Defendants to enter into the Deed of Variation and suffer loss by reason of their lost opportunity to obtain finance elsewhere. Their loss would not be the entirety of the interest, fees and charges owed to Commercial N, excluding the Principal Amount. For the Court to award damages and place them in the position they would have been in, the Defendants would need to account for what obligations they would have incurred elsewhere, which they have not done.

361. It follows that the issue of proportionate liability does not arise.

Conclusion, costs and orders

364. It follows from my findings that Commercial N is entitled to judgment comprising the principal sum of $430,000 together with simple interest at the Higher Interest Rate of 1.36% per week (70.72% per annum). The statement of claim also included claims for outstanding fees ($12,402.78) and outstanding costs ($2,200). However, as there was no evidence in support of those claims, I am not satisfied that Commercial N is entitled to recover those sums as part of the judgment.

365. Commercial N would also be entitled to judgment for possession and judicial sale of the Burwood Property based on the unregistered mortgage granted by the Defendants which would have taken effect as an equitable charge. However, as it appears that Commercial N has a registered mortgage over the Burwood Property and the property may have been sold, I have assumed that orders of that nature are no longer sought by Commercial N.

366. Given their success, the Defendants are entitled to an order that declares void or varies (by removing) those parts of cl 5 of the Memorandum that provide for the payment of interest at the Higher Interest Rate to be capitalised and/or compounded, such as in cll 5.5 and 5.12(b), pursuant to s 243 of the ACL and/or s 12GM of the ASIC Act but are not otherwise entitled to relief setting aside the whole of the Agreement and/or Deed of Variation.

367. As the Defendants have failed in their cross-claim against Mr Ronis, an order should be made for that cross-claim to be dismissed.

368. As to costs, the Court has a broad discretion under the Civil Procedure Act 2005 (NSW) (CPA) and the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) to determine on what basis and to what extent costs should be awarded. This discretion is to be exercised judicially having regard to the circumstances of the case: CPA, s 98(1); Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [22] (Gaudron and Gummow JJ), [65] (McHugh J) and [134] (Kirby J).

369. The usual rule is that costs follow the event, unless it appears that some other order should be made: UCPR, r 42.1.

370. The event may be characterised in more than one way. Generally, the event refers to the event of the claim or counterclaim and is understood as the practical result of a particular claim. Where there is a mixed outcome in the proceedings, and it is appropriate to entertain the process of apportioning costs as between different issues in the proceedings, in general such an exercise will be carried out on a relatively broad brush basis, and largely as a matter of impression and evaluation by the court: Taylor v Stav Investments Pty Ltd as trustee for the Stav Investments Family Trust (No 2) [2023] NSWCA 322 at [7].

371. As between Commercial N and the Defendants, there was mixed success, with the Defendants succeeding in relation to that part of the Mortgage allowing for the capitalisation and compounding of interest at the Higher Interest rate and Commercial N otherwise succeeding with its claims.

372. Commercial N’s statement of claim seeks costs on an indemnity basis, in accordance with the terms of the Mortgage, and purports to rely on cll 1.1 and 3.1 of the Memorandum.

373. While the outcome as between Commercial N and the Defendants might suggest an order that costs should follow the event in my view, this is a case where it is appropriate not to apply the usual rule or to grant indemnity costs in favour of Commercial N in accordance with the contractual indemnity. This is primarily because there were delays and inevitably costs incurred by the Defendants (and Mr Ronis) arising from Commercial N’s failure to properly articulate its interest claim until well after the date for closing submissions, a matter which Commercial N’s counsel accepted would give rise to costs consequences in the proceedings: see [172] above. Further, a Court is not bound to give effect to the terms of a contract when exercising its discretion to award costs: Abigroup Ltd v Sandtara Pty Ltd [2002] NSWCA 45 at [9].

374. As recorded in the judgment, there were two main issues in this case; Commercial N’s claim for interest and the Deed of Variation. It is fair to say that there was a mixed outcome in relation to Commercial N’s interest claim but, as I have said, the manner in which that claim was framed led to delays and increased costs on the part of the other parties. Overall, the Defendants did not succeed with their claims in relation to the Deed of Variation. I also accept that the contractual indemnity in favour of Commercial N is a relevant matter to be taken into account in the exercise of the Court’s costs discretion.

375. Adopting a broad brush and impressionistic approach and bearing in mind the above matters, I consider that the appropriate costs order, as between Commercial N and the Defendants, is that the Defendants should pay 50% of Commercial N’s costs of the proceedings on an ordinary basis as agreed or assessed.

376. As between the Defendants and Mr Ronis, given the outcome, I see no reason why costs should not follow the event and will order the Defendants to pay Mr Ronis’ costs on an ordinary basis, as agreed or assessed. That is subject to one matter, that being the costs of the proceedings in relation to Commercial N’s interest claim during the period 24 August 2022 to 7 December 2022. In my view, it is more appropriate that Commercial N pays Mr Ronis’ costs (on an ordinary basis, as agreed or assessed) for that period rather than the Defendants given it was Commercial N who was the party most responsible for those costs.

377. I direct the parties to bring in agreed short minutes of order to reflect these reasons within 7 days.

Decision last updated: 01 February 2024