Hoho Property Pty Ltd v Bass Finance No 37 Pty Ltd

[2023] NSWSC 411

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Hoho Property Pty Ltd v Bass Finance No 37 Pty Ltd [2023] NSWSC 411

Hearing dates:

5-14 December 2022

Date of orders:

21 April 2023

Decision date:

21 April 2023

Jurisdiction:

Equity - Commercial List

Before:

Rees J

Decision:

See [422].

Catchwords:

BANKING AND FINANCE — Vietnamese couple venture into property development – acquire development site with one-year loan – retain mortgage broker to obtain refinance and construction loan – new lender fixes completion date before Christmas – existing loan yet to expire, with no discount for early repayment – borrower’s solicitor says clients need interpreter – broker and lender regard as delaying tactic – lender declines to provide loan if borrower’s solicitor continues to act – broker arranges new solicitor and termination of existing solicitor’s retainer – borrowers told they have no other option – borrowers say they don’t need an interpreter – borrowers advised by new solicitors without interpreter – borrowers default— site sold — principal repaid.

DOBBS’ CERTIFICATE — lender relied on certificate as evidence of amount owing — certificate signed by one of three directors —  on letterhead of different company – principles at [289]-[296] – whether certificate conformed to requirements of the contract.

MORTGAGE BROKER — obliged to use “best endeavours” — scope of contractual obligation at [310]-[314] – required standard of performance — implied duty of reasonable care and skill at [315]-[316] — whether implied term not to exert duress or engage in unconscionable conduct at [317].

DURESS — principles at [321]-[326] — duress is limited to actual or threatened unlawful conduct — lender’s threats were not unlawful – broker's unlawful conduct was not the relevant pressure inducing entry into the contract.

UNCONSCIONABLE CONDUCT — equity — special disadvantage – lack of English proficiency – principles at [329]-[335] — whether corporation can suffer special disability at [336]-[338] – combination of circumstances led to special disadvantage – whether contracts can be invalidated by unconscionable conduct of third party at [378] – whether declaratory relief will be granted disentitling broker of its fee accrued prior to and independently of unconscionable conduct at [380].

UNCONSCIONABLE CONDUCT — statutory unconscionability — relevance of knowledge at [388].

WORDS and PHRASES – “certificate” at [303] – “best endeavours” at [310]-[311].

Legislation Cited:

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

Competition and Consumer Act 2010 (Cth) s 131A, sch 2, s 243

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

Corporations Act 2001 (Cth) s 127

Cases Cited:

Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564

Assafiri v The Shell Co of Australia Ltd [2010] NSWSC 1058

Attorney General (NSW) v World Best Holdings Ltd [2005] NSWCA 261; (2005) 63 NSWLR 557

Australia and New Zealand Banking Group Ltd v Couanis [2020] WASC 125

Australia and New Zealand Banking Group Ltd v Karam [2005] NSWCA 344; (2005) 64 NSWLR 149

Australia and New Zealand Banking Group v Smith [2009] VSC 556

Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2003] HCA 18; (2003) 214 CLR 51

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

Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd and Another [2021] FCAFC 40; (2021) 285 FCR 133

Australian Competition and Consumer Commission v Samton Holdings Pty Ltd [2002] FCAFC 4; (2002) 117 FCR 301

Australian Guarantee Corp Ltd v McClelland (1993) ATPR 41-254

Australian Securities & Investments Commission v Cash King Pty Ltd [2005] FCA 1429

Australian Securities and Investments Commission v Kobelt [2019] HCA 18; (2019) 267 CLR 1

Beefeater Sales International Pty Ltd v MIS Funding No 1 Pty Ltd [2016] NSWCA 217

Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 39 WAR 1; [2008] WASC 239

Bennett v Minister for Community Welfare (1992) 176 CLR 408

BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [1977] HCA 23; (1977) 180 CLR 266

Burns v MAN Automotive (Aust) Pty Ltd [1986] HCA 81; (1986) 161 CLR 653

Chappel v Hart [1998] HCA 55; (1998) 195 CLR 232

Commercial Bank of Australia v Ridout Nominees [2000] WASC 37

Commercial Base Pty Ltd v Watson [2013] VSC 334

Crescendo Management Pty Ltd v Westpac Banking Corp (1988) 19 NSWLR 40

Dewar v Ollier [2018] WASC 212

Dinh v Commonwealth Bank of Australia [2021] WASCA 127

Dobbs v National Bank of Australasia Ltd [1935] HCA 49; (1935) 53 CLR 643

Doggett v Commonwealth Bank of Australia (2015) 47 VR 302

Dunwoodie v Teachers Mutual Bank Ltd [2014] NSWCA 24

Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd [2013] WASCA 36

Ford Motor Company of Australia Ltd v Arrowcrest Group Pty Ltd [2003] FCAFC 313; (2003) 134 FCR 522

Forster v Jododex Australia Pty Ltd [1972] HCA 61; (1972) 127 CLR 421

Furphy v Nixon (1925) 37 CLR 161

Golden Strait Corp v Nippon Yusen Kubishika Kaisha (“The Golden Victory”) [2007] 2 AC 353; [2007] UKHL 12

HECEC Australia Pty Ltd v Hydro-Electric Corporation [1999] FCA 822

Henville v Walker (2001) 206 CLR 459

IBM United Kingdom v Rockware Glass Ltd (1980) FSR 335

J Hutchinson Pty Ltd v Transcend Plumbing and Gasfitting Pty Ltd [2023] VSC 39

Joelco Pty Ltd v Balanced Security Ltd [2009] QSC 236

Joseph Street Pty Ltd v Tan (2012) 38 VR 241

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

Koufos v C Czarnikow Ltd (“The Heron II”) [1969] 1 AC 350

Louth v Diprose (1992) 175 CLR 621

Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286

Luong v Du [2013] VSC 723

Lym International Pty Limited v Marcolongo (2011) 15 BPR 29,465; [2011] NSWCA 303

McCrohon v Harith [2010] NSWCA 67

Monarch SS Co Ltd v A/B Karlshamns Oljefabriker [1949] AC 196

New South Wales v Stevens (2012) 82 NSWLR 106 ; [2012] NSWCA 415

Nitopi v Nitopi [2022] NSWCA 162

Owerhall v Bolton & Swan Pty Ltd [2016] VSC 91

Owners – Strata Plan No 61288 v Brookfield Australia Investments Ltd [2013] NSWCA 317 at [507]; (2013) 85 NSWLR 479

OzEcom Ltd v Hudson Investment Group [2007] NSWSC 719

Paciocco v Australia and New Zealand Banking Group Ltd [2015] FCAFC 50; (2015) 236 FCR 199

PC Case Gear Pty Ltd v Instrat Insurance Brokers Pty Ltd (In Liq) [2020] FCA 137; (2020) 379 ALR 732

Provident Capital Ltd v Papa [2013] NSWCA 36

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

Re Dila Pty Ltd [2023] VSC 176

Re Takata Air Bags Class Action – Common Questions [2018] NSWSC 1868

Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd (1968) 120 CLR 516

Rosenberg v Percival (2001) 205 CLR 434

Rozenbilt v Vainer [2019] VSC 316

Shomat Pty Ltd v Rubinstein (1995) 124 FLR 284

Smith New Court Securities Ltd v Citibank NA [1997] AC 254

Smith v William Charlick Ltd [1924] HCA 13; (1924) 34 CLR 38

Spira v Commonwealth Bank of Australia [2003] NSWCA 180; (2003) 57 NSWLR 544

State Bank of New South Wales Ltd v Chia [2000] NSWSC 522; (2000) 50 NSWLR 587

Stepping Stones Child Care Centre (ACT) Pty Ltd v Early Learning Services Ltd [2013] ACTSC 173

Stubbings v Jams 2 Pty Ltd [2022] HCA 6; (2022) 399 ALR 300

Suncorp-Metway Ltd v Nam Property Holdings Pty Ltd (2010) 16 BPR 30,859; [2010] NSWSC 1078

TA Sundell & Sons Pty Ltd v Memm Yannoulatos (Overseas) Pty Ltd [1956] SR (NSW) 323

The Owners of the Steamship “Mediana” v The Owners, Master and Crew of the Lightship “Comet” [1900] AC 113

Thorne v Kennedy [2017] HCA 49; (2017) 263 CLR 85

Toscano v Holland Securities Pty Ltd (1985) 1 NSWLR 145

Transfield Pty Ltd v Arlo International Ltd [1980] HCA 15; (1980) 144 CLR 83

Turner v Windever [2003] NSWSC 1447

Vannin Capital Operations Ltd v QNI Resources Pty Ltd [2023] QSC 001

Wardley Australia Ltd v Western Australia (1992) 175 CLR 514

Wenham v Ella (1972) 127 CLR 454

Weston v Publishing and Broadcasting Ltd (2011) 83 ACSR 206; [2011] NSWSC 422

Wily v Terra Cresta Business Solutions [2006] NSWSC 1042

Wu v Ling [2016] NSWCA 322

Zhou v Kousal [2012] VSC 187; (2012) 35 VR 419

Texts Cited:

J W Carter, Contract Law in Australia (7th edition)

H Beale, Chitty on Contracts (33rd ed, 2018, Vol 1)

N C Seddon and R A Bigwood, Cheshire & Fifoot Law of Contract (11th edition)

Category:

Principal judgment

Parties:

Hoho Property Pty Ltd (First Plaintiff/Cross-Defendant)
Thu Duong Ly (Third Plaintiff/Cross-Defendant)
Trung Hieu Ho (Fourth Plaintiff/Cross-Defendant)
Bass Finance No 37 Pty Ltd (First Defendant/Cross-Claimant)
Premier Finance Australia Pty Ltd (Second Defendant/Cross-Claimant)

Representation:

Counsel:
Mr T Alexis / P Afshar (First, Third and Fourth Plaintiffs/Cross-Defendants)
Mr CRC Newlinds SC / Mr TM Rogan (First Defendant/Cross-Claimant)
Ms FT Roughley (Second Defendant/Cross-Claimant)

Solicitors:
Circle Bridge Legal (First, Third and Fourth Plaintiffs/Cross-Defendants)
Maddocks (First Defendant/Cross-Claimant)
HWL Ebsworth (Second Defendant/Cross-Claimant)

File Number(s):

2021/147702

Judgment

1. HER HONOUR: The plaintiffs, borrower Hoho Property Pty Ltd and guarantors, Thu Duong (Cathy) Ly and husband Trung Hieu (Henry) Ho, seek to set aside loan and security agreements, mortgages and a guarantee. These finance documents were executed when refinancing a property development in Liverpool. The incoming lender was the first defendant, Bass Finance No 37 Pty Ltd (the Lender). The loan was arranged by the second defendant, Premier Finance Australia Pty Ltd (the Broker).

2. The plaintiffs contend that, when the finance documents were executed, Ms Ly and Mr Ho suffered from a special disadvantage: they had a limited command of English, a basic level of education and were inexperienced in matters of finance and property development. The finance documents were said to have been executed in circumstances involving duress, illegitimate commercial pressure and unconscionable conduct and ought be set aside pursuant to section 243 of Schedule 2 to the Competition and Consumer Act 2010 (Cth), section 12GM of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and the Contracts Review Act 1980 (NSW).

3. By cross-claims, the Lender sought to enforce its rights under the finance documents, while the Broker sued for its unpaid fee. The plaintiffs maintained that, in the circumstances, the Broker was not entitled to its fee and, in the event that the Lender was entitled to enforce its rights against them, the Broker was liable for damages for breach of contract, sufficient to indemnify them for any liability to the Lender.

SUMMARY

4. Ms Ly and Mr Ho hail from Vietnam, although they have lived in Australia for many years. While the couple speak English, their solicitor had learned from experience that it was necessary to have legal documents explained to them with a Vietnamese interpreter.

5. The couple ran a butchery business but decided to venture into property development, buying a development site with approval to construct apartments. Using the services of a mortgage broker, the couple obtained a 12 month loan to complete the purchase of the land. The loan was to be repaid in January 2021.

6. The Broker was retained to source finance to pay out the loan and to fund construction. The Lender offered to provide finance of $9.62 million, of which a sizeable portion would be used to pay interest and fees. The Broker charged some $200,000 for its services.

7. Hoho Property was not obliged to repay the existing loan until 28 January 2021. Early repayment did not entitle the borrower to any rebate on interest accruing before that date. However, the Lender was “very keen to get this done pre Xmas”. A completion date of Tuesday, 22 December 2020 was chosen; the plaintiffs’ solicitor was advised of the date on Wednesday, 16 December 2020, when he had been provided with one of the proposed transaction documents, in draft, and subject to change.

8. The defendants pressed the plaintiffs and their solicitor to execute the documents, at a time where a complete set of the documents was yet to be provided, and in final form. The plaintiffs’ solicitor resisted the suggested urgency, advising the defendants by email that it was impossible to review the documents in these circumstances by the requested deadline, in particular, where “It is also likely that the clients will require an Interpreter”.

9. The defendants regarding the plaintiffs’ solicitor as engaging in delaying tactics. The defendants sent a series of offensive and threatening emails, suggesting that the plaintiffs faced the risk “of not settling the transaction at all if you delay”. The plaintiffs’ solicitor told the Broker that his clients needed an interpreter. The Broker asked the solicitor to have the clients sign the documents and provide advice later; the plaintiffs’ solicitor refused and warned the Lender that pressuring his clients to sign without independent legal advice was considered duress.

10. Further unpleasant emails followed from the Lender, telling the plaintiffs’ solicitor not to waste his time sending such emails and to just do his job, failing which there was a risk that completion would not occur. Shortly after these communications, the plaintiffs’ solicitor was provided with a full suite of transaction documents in final form. However, the Lender was not prepared to continue if the plaintiffs continued to use their solicitor.

11. The Broker told the plaintiffs that, if they wanted to keep their solicitor, the Lender would not advance the loan, “You have no choice.” This ultimatum caused significant distress to the borrowers, who understood that if they did not execute the documents on the date nominated by the Lender, then there would be no loan at all. The Broker arranged new solicitors and assisted the plaintiffs to terminate the retainer of their existing solicitor by drafting the necessary communications. The Broker provided initial instructions to the new solicitors.

12. The plaintiffs did not help themselves. First, shortly before completion, the plaintiffs, with the assistance of the Broker, advised that their assets were significantly greater than initially disclosed in their application, including by reasons of properties in Vietnam worth $7.5 million. This appears to have been done in order to satisfy the Lender that the plaintiffs were able to fund the costs of construction in excess of the proposed loan amount. Second, and more importantly, Ms Ly gave the Broker inaccurate information as to her solicitor’s prior use of an interpreter for the couple and sent a text message – itself expressed in poor English and at the end of a long day in which she had been rung constantly by the Broker – that she did not need an interpreter.

13. On the designated day for completion, the plaintiffs met their new solicitors and were provided with legal advice. There was no interpreter; the plaintiffs again said they did not need one. Following completion, the plaintiffs soon went into default.

14. The Broker’s performance of its contract was in breach of its obligation to provide its services with reasonable care and skill. Where duress involves actual or threatened unlawful conduct, it was not suggested that the Lender’s threats were unlawful, where there was no legal obligation to provide the loan at all. While the Broker’s breach of contract could be considered unlawful for the purposes of duress, it was not the relevant conduct that generated the illegitimate pressure in question.

15. The plaintiffs did suffer from a special disadvantage affecting their ability to make a judgment as to their own best interests, from a combination of circumstances: lack of experience, lack of English proficiency, an artificial deadline and suggested adverse implications should they fail to accede to the Lender’s demands. Given the Lender’s relative non-involvement with the plaintiffs, it did not have actual or constructive knowledge of the special disadvantage. The Broker had actual knowledge of these circumstances save for the plaintiffs’ lack of English proficiency, where the Broker had constructive knowledge given his more extensive dealings with the couple.

16. The Broker made unconscientious use of its superior position and engaged in unconscionable conduct but no remedy ought be granted. The plaintiffs sought that the finance documents be declared void, where the unconscionable conduct in question was that of a third party to the contracts, in the absence of procurement by the Lender, or the Lender having actual or constructive notice of the unconscionable conduct. The plaintiffs also sought a declaration that the Broker was not entitled to its fee, where the Broker’s entitlement to the fee arose prior to and independently of the unconscionable conduct. Whilst the Courts have a very wide jurisdiction to grant declaratory relief, it is not so broad.

17. Notwithstanding all of this, the Lender failed to prove that it was owed any moneys by the plaintiffs, as the Dobbs certificate did not conform with the contract. It was thus unnecessary to resolve the plaintiffs’ claim for compensation from the Broker, which was premised on liability to the Lender. Similarly for the claim against the Broker for damages for breach of contract, no substantive damage was proved and nominal damages are awarded.

WITNESSES AND DOCUMENTS

18. The plaintiffs relied on the evidence of Ms Ly, Mr Ho and their former solicitor, Firas Hammoudi. All were cross examined at length.

19. Ms Ly was a pleasant lady who was generally straightforward and made reasonable concessions. Ms Ly appeared keenly aware of the financial implications of these proceedings for herself and her family and was obviously worried and genuinely distressed. However, some of her evidence was unlikely, when Ms Ly denied that she was aware that the interest rates proposed by the Lender were less than the incumbent lender. Ms Ly denied providing details of properties in Vietnam to the Broker, where it was unlikely that the Broker would have been aware of such matters. Ms Ly’s evidence of her meeting with solicitor, Kelvin Solari, was at odds with Mr Solari’s contemporaneous file note and I prefer the latter.

20. Mr Ho was also generally straightforward but, on occasion, gave evidence which was at odds with contemporaneous documents. To that extent, I have preferred the documentary evidence as likely to be more accurate. Some of Mr Ho’s evidence was also unlikely, for example, that he did not find out what the interest and fees were on the proposed loan, where – of the couple – he appears to have been responsible for financial matters: see [109].

21. Overall, the couple’s evidence was not entirely satisfactory. Whilst I understand the couple’s motivation for describing the circumstances which led to their present financial predicament in terms which were favourable to their case, obviously my role is to find out what happened as accurately as possible.

22. Mr Hammoudi was an impressive witness. He gave evidence in a precise and straightforward manner. No issues of credit arose. However, Mr Hammoudi does not appear to have kept file notes. As a consequence, his recollection of conversations with the clients, while honestly given, may not have been entirely accurate, either as to when a particular conversation occurred in the sequence of events or precisely what was said.

23. The Lender called no witnesses, although it had earlier served three affidavits by its director, Nicholas Goh. I infer that Mr Goh’s evidence would not have assisted the lender: Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 at 320-321.

24. The Broker relied on the evidence of its director, Anthony Ostin, and solicitor, Natalee Venegas. Mr Ostin was cross examined at length. Mr Ostin was an intelligent, quick-thinking person. He gave answers which were extremely short, quick and brisk. He was a very defensive witness who tended to exaggerate, “I had hundreds of phone calls with Ms Ly.” Mr Ostin volunteered self-serving statements; when asked whether he and Mr Goh perceived that Mr Hammoudi was engaged in delaying tactics, he added, “… So did the client.” Mr Ostin did not recall conversations that he likely had with Mr Goh, which would have reflected poorly on him. Mr Ostin maintained that he did not recall critical conversations that occurred not long ago.

18. Mr Ostin vacillated on occasion in an endeavour to give an answer most advantageous to his case. For example, Mr Ostin said, “the clients wanted it settled before Christmas, okay, because they were frightful Ajax [the incumbent lender] could have sold them up.” Mr Ostin then disavowed this evidence, then accepted it, then said he was not sure, then said he could not recall, then accepted it again.

19. Likewise, in his affidavit, Mr Ostin denied that Mr Ho requested that the term of the loan be extended as it was 15 months’ too short. In cross-examination, Mr Ostin recalled Mr Ho saying this, then adhered to his denial, then agreed that it was discussed.

20. Mr Ostin initially said that he did not say anything to his clients about the Lender’s advice that its analysis of the feasibility of the development showed zero profit. Then he said that one needed to put the data together and work out where the issue was. Then Mr Ostin said that he did not need to see this feasibility as the Lender would not have proceeded if it did not have profit. The point which Mr Ostin did not answer was why he did not pass the Lender’s dim assessment onto his clients. I have approached his evidence with caution.

21. Mr Hammoudi and Mr Ostin’s evidence as to what Ms Ly told them was often at odds. This may be referable to Ms Ly saying different things to different people, perhaps to appease the listener or to advance the couple’s interests as she then perceived them to be. But in the event of conflict between the evidence of Mr Hammoudi and Mr Ostin as to what they said to each other, I prefer Mr Hammoudi’s evidence without hesitation.

22. Given the causes of action pursued by the plaintiffs in these proceedings, I also observe that Mr Ostin’s manner was flippant, dismissive and arrogant. Mr Ostin appeared to look down on his clients. He presented as a quick-tempered, forceful person. I expect he would have been quite overwhelming for someone like Ms Ly to deal with in the event of disagreement between them.

Jones v Dunkel

30. The Lender and Broker submitted that an adverse inference should be drawn from the plaintiffs’ failure to call their builder or solicitor, Peter Morris. As to the builder, an initial question is whether he is a person who would be natural for the plaintiffs to call. That is, whether he may be regarded as being “in the camp” of the plaintiffs or “a witness likely to be friendly to the interests of the other party”: Payne v Parker [1976] 1 NSWLR 191 at 201-202 (per Glass JA); Ghazal v Government Insurance Office(NSW) (1992) 29 NSWLR 336 at 343 (per Kirby P, Mahoney and Clarke JJA agreeing).

31. The builder was most closely aligned with the plaintiffs, having worked with them in respect of the property development for some time. That said, it was the builder who introduced the plaintiffs to the Broker. The builder also dealt with the Lender and Broker, meeting with their representatives, taking numerous phone calls from the Broker and being copied on email communications throughout the transaction. Indeed, the Broker and the Lender appear to have looked to the builder, rather than Ms Ly and Mr Ho, to provide them with the information which they needed to progress the transaction. Presumably, the builder expected to make money from the property development as well, having entered into a building contract with Hoho Property. Overall, I consider that the only “camp” the builder was in was his own. I decline to draw the inference.

32. As to Mr Morris, he was the solicitor for the plaintiffs in these proceedings. As to what relevant evidence Mr Morris could have given, it was uncontroversial that he had previously given advice to Ms Ly and Mr Ho without the assistance of an interpreter, when executing loan documents with the incumbent lender. Presumably, Mr Morris formed the view at the time that an interpreter was not needed. I can, and do, readily infer this from these uncontested facts. What else Mr Morris could have added by giving evidence is not entirely unclear. It is not necessary for a party to call an unnecessary witness: Apand Pty Limited v The Kettle Chip Co (1994) 52 FCR 474 at 490 (per Lockhart, Gummow and Lee JJ). Further, whilst the plaintiffs clearly waived privilege over their communications with their solicitors in respect of the transaction, the plaintiffs would have been entitled to claim privilege in respect of Mr Morris' evidence to the extent that he was asked about more recent events. I decline to draw the inference.

33. The Lender also sought an adverse inference be drawn from the plaintiffs' failure to call evidence from family members concerning the ownership of property in Vietnam. I also consider such witnesses would fall in the category of unnecessary witnesses, where their evidence would have been of peripheral relevance to the issues in these proceedings. I decline to draw the inference.

Documents

34. Unfolding events were recorded in emails, text messages and correspondence. Two records are noteworthy. First, Mr Ostin kept a notebook, although entries in respect of the plaintiffs and other clients, notes made on different dates or notes made with respect of distinct events were not clearly delineated. Without explanation by Mr Ostin, the notes are not particularly informative.

35. Second, the mobile phone records of Ms Ly, Mr Ho, Mr Ostin and Mr Hammoudi assisted in ascertaining the likely sequence of critical conversations. Without this, it was not possible to reconcile the affidavit evidence as to who said what when. The differences between the witnesses in this regard was likely not indicative of dishonesty but a lack of contemporaneous records when their affidavits were prepared. I have set out conversations in the sequence in which they most likely occurred.

36. It is also worth noting at the outset that the documentary evidence supports the plaintiffs’ suggestion that Ms Ly and Mr Ho had a limited command of English in two respects. First, the couple had two email addresses: one for their business and one for the property development. The couple received emails from a range of people and, on occasion, forwarded these emails onto others. Almost without exception, no ‘cover’ email was sent with the forwarded email, for example, explaining the contents of the forwarded email or asking the recipient to take any particular action. Only two substantive emails were sent from the couple’s email addresses: the first was drafted by Mr Ostin (see [215]) and the second email was, I expect, drafted by someone other than Ms Ly or Mr Ho (see [272]). This bespeaks a lack of ability of either Ms Ly or Mr Ho to write in English.

37. Secondly, there are a number of text messages from Ms Ly in evidence, in English. The messages were simple and replete with grammatical and spelling errors, indicative of an imperfect grasp of written English. For example, “Please let I know you need more documents” and “He booking to do valuation on next Wednesday so the report can have on Friday do you think it to late.” When asking the broker to check his email for a letter which had been sent, “Please let I know it that right Tony”; see also [262], [266]. If Ms Ly texts as she speaks, it would be readily apparent to the listener that English is not her first language.

FACTS

38. In what follows, some of the factual material is directed to whether Ms Ly and Mr Ho suffered from the special disadvantages asserted, while other material concerns the refinance transaction.

39. Ms Ly was born in Vietnam and came to Australia as a refugee when she was 11 years old. Ms Ly had received no education in Vietnam; she cannot read or write in Vietnamese. On arriving in Australia, Ms Ly started school in Year 6 and proceeded to attend Bankstown Girls’ High School to Year 12. Ms Ly said her school results were not good. On finishing high school, Ms Ly sewed at two factories owned and staffed by people from the Vietnamese community. Ms Ly spoke Vietnamese at home and at work.

40. Mr Ho was born in Vietnam, where he attended school up to the equivalent of Year 12. On leaving school, Mr Ho worked at an electronics repair shop. In 1994, Ms Ly and Mr Ho married in Vietnam. Their marriage certificate records their occupations as dressmaker and electrician respectively. After their marriage, Mr Ho came to live in Australia. He was then 22 years old and spoke no English. Mr Ho did a “English for Living in Australia” course through Adult Multicultural Education Services. Mr Ho’s first job in Australia was as his brother’s full time carer. Mr Ho spoke Vietnamese at home and at work.

41. The couple purchased a family home in Cabramatta, with a loan from Westpac. In 2000, the couple welcomed the arrival of their son and, in 2003, a daughter. The home loan was duly paid off.

42. Ms Ly began to work at another factory, which employed both Vietnamese and Thai staff. Ms Ly conversed with her Thai colleagues in English, although their conversations were limited to discussions about clothes, shifts and the like. In 2010, Mr Ho began work at the same factory as his wife. Mr Ho conversed mostly in Vietnamese to his work colleagues but also in English with the workers who did not speak Vietnamese.

Establishing a business

43. In 2012, the factory where the couple worked began to close down. Mr Ho lost his job. He found a local butchery, which the owner wanted to close. Mr Ho worked with the butcher without salary for a year to learn how to run the business. The owner then gave Mr Ho the business; no money was paid nor contracts signed, but Mr Ho had to continue to pay the rent.

44. When the factory finally closed in 2013, Ms Ly joined her husband at the butcher shop. They employed two Vietnamese staff. Ms Ly worked out the front of the shop while Mr Ho worked out the back. Most of the shop’s customers were Vietnamese and Ms Ly spoke to them in that language. Ms Ly spoke some English with non-Vietnamese customers, but the conversations were limited to greetings and identifying the type and cut of meat that they wanted, quantities and price.

45. From humble beginnings, the couple grew the business by selling to local restaurants, most of which were Vietnamese restaurants; they did not have written contracts with the restaurants. Mr Ho was responsible for ordering meat and seafood. Most of his suppliers were Vietnamese and he spoke to them in that language. Mr Ho wrote all of his invoices to Vietnamese customers in Vietnamese. Mr Ho got his workers to write out invoices to non-Vietnamese customers in English, as his command of the English language was limited. Mr Ho spoke to his customers mostly in Vietnamese, although if the restaurants were not operated by Vietnamese people, he spoke to them in English about the cut of meat, the amount and the price. His ability to speak English improved over the years but remained “limited to day-to-day matters.”

46. In November 2017, Ho Ho Top Foods Pty Ltd was incorporated. The company operated the business of the butcher shop. The company was set up by the couple’s accountant, Minh Do from Fairfield, who is Vietnamese and explained everything to Ms Ly and Mr Ho in Vietnamese. Ms Ly is the sole director and shareholder of Ho Ho Top Foods. Ms Ly said she knew basically what a company is, but did not know the details of how it was supposed to operate formally. This was rather confirmed in cross-examination, when it was put to Ms Ly that she was the sole director and secretary of Ho Ho Top Foods, “I’m not a secretary. I only work there.”

47. The couple’s son set up an email address for the butcher shop: [email protected]. Ms Ly and Mr Ho used this email address for work. Mr Ho said he did not use email much in the course of the business; “Cathy deals with emails.”

48. Ho Ho Top Foods’ tax return for the 2018 financial year declared income of $1,357,129 and, after expenses, a profit of $865,378. For the 2019 financial year, Ho Ho Top Foods’ income had increased substantially to $3,158,082 but, after expenses, the company declared a profit of $22,951.

A foray into property development

49. At some point, Ms Ly purchased a property in Bankstown, worth some $820,000, with another loan from Westpac. The couple began looking for land on which to build a house with a granny flat. A real estate agent introduced the couple to two adjoining properties in Liverpool, which had development approval to construct 32 apartments. The agent offered to help them find a builder and an architect, and to sell the apartments in due course. A valuation obtained in January 2019 put the “GRV” (gross realisation value) of the proposed development at $14.8 million.

50. On 20 July 2019, the couple exchanged contracts to purchase the Liverpool properties for $2.4 million. The couple’s solicitor noted on the contract was a Vietnamese gentleman from Cabramatta. A deposit was paid. Settlement was to take place in six months' time, on 20 January 2020. After exchange, the agent suggested that the couple put the land in the name of a company “because if something goes wrong, then they can’t touch you.”

51. Ms Ly contacted the couple’s accountant, Mr Do, who set up two companies: Ho Ho Top Property Pty Ltd, of which Mr Ho is sole director and shareholder; and Hoho Property, of which Mr Ho is sole director and Ho Ho Top Property is the shareholder. The Jacknik Family Trust was established. The couple’s son set up an email address for Hoho Property: [email protected]. The couple used this email in relation to the Liverpool development.

52. The agent referred Ms Ly to a solicitor, Mr Hammoudi, in Liverpool. In September 2019, the contracts for purchase of the Liverpool properties were rescinded. New contracts were exchanged, where the purchaser was now Hoho Property and the purchaser’s solicitor was now Mr Hammoudi’s firm, Circle Bridge Legal.

53. The agent also referred the couple to a builder. In November 2019, Ms Ly signed a building contract with Carfi Property Services Pty Ltd. Ms Ly’s signature was witnessed by the agent. The contract price was $7.98 million. The contract included a handwritten special condition, “Any changes to detail that may arise from CC documents & final engineering.” I take this to mean that the contract price did not include such changes, although the special condition is so poorly worded that the opposite construction cannot be excluded. The construction period was 365 days. The couple paid the builder a $200,000 deposit.

54. The builder introduced the couple to people he knew and, almost every day for the next six months, Mr Ho and his wife obtained different quotes from wholesale building suppliers such as kitchen installers, timber suppliers, tiles suppliers and plumbing suppliers to get the best price for the cost of the development. Mr Ho looked after the finance in respect of the development, whilst his wife looked after meeting people.

55. The couple outlaid some $700,000 for costs and expenses in relation to the property development, including deposits and stamp duty. These funds came, in part, from the butchery business. Ms Ly said that $300,000 came from family members in Vietnam and she borrowed other monies from family and friends.

Finance to complete land purchase

56. Efforts began to raise finance to complete the purchase of the Liverpool properties. Ms Ly went to Westpac’s Cabramatta branch and spoke with a Vietnamese banker, but no loan was forthcoming when Ms Ly said that the couple had no experience in building houses. The couple’s accountant introduced them to a broker, Andrew Williams of “Finance Warehouse.”

57. In November 2019, Hoho Property sought finance from Ajax Capital Pty Ltd. The balance of the purchase price, being $2.16 million, was sought for a three year term. According to the loan application form, the proposed exit strategy was “Refinance into construction loan, develop & sell property.” The application was likely completed by Mr Williams, as it refers to Ms Ly and Mr Ho in the third person: “Ms Ly is Mr Ho’s wife.”

58. On 12 November 2019, Ajax issued an indicative letter of offer in the amount of $2,245,985.35 for 12 months. The interest rate was 9.9% per annum or, on default, 19.9% per annum. In the event that the borrowers repaid the loan early, a minimum of 12 months’ interest still had to be paid. On 15 November 2019, the couple accepted the offer; their signatures were not witnessed.

59. In December 2019, the agent began to sell apartments “off the plan.” Six lots were sold for a total of $3.15 million and deposits of $316,000 taken. In about January 2020, a quantity surveyor report was obtained, which estimated the cost of construction at $9,486,262 including contingencies (I take this report to be an earlier iteration of the “Project Cost & Time Verification Report”: see [64]). It will be immediately noted that this exceeded the figure in the building contract by some $1.5 million.

60. On 22 January 2020, Ajax’s solicitors provided the loan facility documents to Mr Hammoudi. Mr Hammoudi was then on annual leave. Ms Ly and Mr Ho executed the documents the same day, witnessed by Mr Hammoudi’s colleague, Mr Morris. Mr Morris explained the documents in English. Ms Ly said she understood some of the terms of the loan, but not others, and could not read the documents herself. Ms Ly said she did not fully understand what Mr Morris was saying but did not say anything to him about this at the time, “but I dare not ask the question because … he might have thought that I was stupid, you know. And I was ashamed of asking questions. … or might have upset him for asking many questions.” Mr Ho said he also had difficulty understanding everything that Mr Morris said but did not say anything at the time as he did not think that he needed to “because Mr Morris was temporary, acting on behalf of someone in the same legal firm at that moment.”

61. For whatever reason, it would appear that the couple did not say anything which suggested to Mr Morris that they did not understand the documents, such that Mr Morris was obviously comfortable to explain the documents to them without the assistance of a Vietnamese interpreter.

62. On 28 January 2020, the Ajax loan was drawn down. On 29 January 2020, purchase of the Liverpool properties was completed. The loan expiry date was 28 January 2021.

Confusion emerges

63. The couple’s broker, Mr Williams, immediately began seeking finance to fund construction and to refinance the Ajax loan at the end of its term. On 31 January 2020, Mr Williams sent an email to a potential financier, seeking finance of $11,767,138.

64. On 24 February 2020, a quantity surveyor’s report was issued, entitled “Project Cost & Time Verification Report.” The quantity surveyor considered that the cost of the build was likely higher than the contract price; total construction costs including contingencies was more like $9,667,420. Further, the estimated construction period was likely longer, thought to be 17 months allowing for contingencies.

65. On 24 February 2020, Ajax emailed a loan statement to [email protected]. Later that evening, Mr Williams emailed Ms Ly and Mr Ho:

As discussed this afternoon, I am going to seek clarification from [Ajax] about the minimum interest they need you to repay prior to exiting from their loan. In other words do you have to pay 12 months interest or for the interest accumulated at the time that you refinance the loan.

66. On 27 March 2020, Mr Williams sought to negotiate a reduced minimum interest payment with Ajax in the event that his clients refinanced, having regard to the recent economic situation, which I take to be a reference to the COVID-19 outbreak and lockdown measures. Ajax did not agree. Mr Williams forwarded Ajax’s response to Mr Ho at [email protected] and suggested that he send the email to Mr Ho’s new broker or lender. The couple were now using Billy Chok of “Lending Association.”

67. Mr Williams’ email was forwarded from [email protected] to Mr Chok a couple of hours later, with no explanatory message. Mr Chok then emailed Ajax directly, “I think there is a slight confusion with what has been communicated.” The borrowers would be paying their standard repayments under the contract but he wished to know whether there were any exit costs once they refinanced into a construction loan.

66. In early April 2020, Mr Hammoudi received a telephone call from Ms Ly, who needed to see him urgently as she did not know that she would have to pay interest for a full year in the event that she refinanced. In cross-examination, Ms Ly said, “Because I did not know, I wasn’t aware of that so I was shocked.” Ms Ly was cranky that Mr Morris had not explained it to her. Mr Hammoudi had difficulty understanding what Ms Ly was telling him over the phone and they arranged a meeting in his office later that day. At the meeting, Ms Ly complained that she was obliged to pay a minimum of 12 months interest to Ajax, “No one tell me that. If I knew, I not sign.” Mr Hammoudi insisted that this had been explained to them by Mr Morris, who spent a lot of time going through the documents with them. Ms Ly said she did not remember this and did not understand the documents very well.

67. Mr Hammoudi was very concerned that Ms Ly and Mr Ho did not properly understand the documents they had signed with Ajax in January 2020. Mr Hammoudi formed the view that they should have had the assistance of a Vietnamese interpreter and, from now on, legal documents should be explained to them with the assistance of an interpreter.

A default

70. On 28 April 2020, Mr Hammoudi wrote to Ajax’s solicitors, requesting a moratorium on interest payments for six months given the economic impact of COVID-19. The borrower also sought to extend the loan term for a further six months, with repayment of the loan to be revisited at a later date. Mr Williams responded to the borrowers directly at [email protected], strongly recommending that the required repayments be made and that they pursue their exit strategy with their new broker. Mr Williams forwarded his email to Ajax, advising “I have mentioned to them previously in several conversations and emails that they need to make their interest repayments or find an appropriate exit strategy in order to repay this loan or continue to service it.”

71. On 1 May 2020, Ajax’s solicitor sent a notice of default to Hoho Property, as interest had not been paid when due on 28 April 2020. Ajax exercised its right to accelerate repayment of the loan and made the due date for payment in three business days, being on 7 May 2020. On receipt of the notice of default, Ms Ly called Mr Williams. Mr Williams explained the letter to her, and his concern that Ajax may step in and try to sell the land. Ms Ly became very concerned, as they did not have funds to repay Ajax in three days’ time. Ms Ly was stressed that they would lose the property. Mr Ho said he was also very stressed and concerned that Ajax was going to come and take the property, and they would lose everything.

72. Interest was paid to Ajax, albeit late. For the next few months, Ms Ly remained worried about the situation with Ajax, as she thought that Ajax could come and take the Liverpool property at any moment. Ms Ly tried hard to take out another loan to pay Ajax.

Seeking refinance

73. In June 2020, Ms Ly and Mr Ho completed an application for mortgage finance with La Trobe Financial Services Pty Ltd; the form had been completed by the broker, Lending Association. A loan of $696,000 was sought to pay out Ajax, although it is not clear how a loan of that amount would achieve that end. Ms Ly signed the application form.

74. In August 2020, La Trobe approved a loan for $696,000. On 1 September 2020, Ms Ly and Mr Ho accepted the offer for finance and executed various documents, including statutory declarations confirming that they had received legal advice from Mr Hammoudi in respect of the loan.

75. Importantly, Mr Hammoudi engaged a Vietnamese interpreter to translate the La Trobe loan documents to Mr Ho and Ms Ly; the interpreter signed a certificate of translation. The fact that Mr Hammoudi took this step corroborates his evidence that he had earlier formed the view that his clients should have legal documents explained to them by an interpreter in order to properly understand the documents.

76. On 30 September 2020, Prime Capital approved a loan of $8.14 million to Hoho Property. On settlement, $1.155 million would be drawn down to refinance Ajax, with the balance available to complete construction in accordance with quantity surveyor reports. Presumably, the offer from Prime Capital was in conjunction with the La Trobe offer such that, together, Ajax would be paid out and funds provided for construction. The term of the loan was 18 months, with interest of 9.95% per annum.

77. The Prime Capital offer expired on 5 October 2020 and does not appear to have been accepted. Ms Ly said the couple paid Mr Chok some $90,000 in application fees but Mr Chok “all of a sudden … disappeared.” Although Ms Ly attempted to contact Mr Chok many times, she did not receive any paperwork in respect of the Prime Capital loan and lost the money paid in fees.

The Broker

78. The builder introduced the couple to the Broker, arranging for Ms Ly and Mr Ho to meet Mr Ostin at a restaurant in Cabramatta on 13 November 2020. Mr Ostin made notes at the meeting, including “Land loan expire 28 Jan 2021,” together with the [email protected] address.

79. According to Ms Ly, she told Mr Ostin that they wanted to find another lender. They had had bad experiences with the current lender and past brokers, who took money and did not get them a loan. They had borrowed close to $2.3 million from Ajax and had to pay the money back in 2021.

80. According to Mr Ostin, Ms Ly also asked how much he charged, to which Mr Ostin said, "If I can get you a letter of offer from a lender … our fee would be 2.2% of the loan amount as settled or as contained in the letter of offer if it doesn't settle plus our initial fee of $11,000.” However, to give them some certainty, he would not require them to sign an agreement until they had decided to proceed with the letter of offer. If he could not get a letter of offer, or they did not wish to proceed with an offer, they would not have to sign his agreement or pay any fees.

81. Ms Ly and Mr Ho deny that fees were discussed at this meeting. No note is made on this subject in Mr Ostin’s notebook. As the purpose of this meeting appears to have been to introduce the couple to the broker, where the couple had had a bad experience with their last broker, it may be that the subject of fees was left for later, once the couple were comfortable to work with Mr Ostin at all. Nor does it much matter, where Mr Ostin did discuss his fees before and at their next meeting: see [103], [115].

82. On 14 November 2020, Mr Ostin sent an email to [email protected], copied to the builder, attaching a loan application form. Mr Ostin asked Mr Ho and Ms Ly, “Please complete this form as best you can.” Further, “You mentioned that there was another security property as collateral security for the land loan. If the ownership of this property includes Cathy then she will need to also be a guarantor [and] Cathy’s details will be required on the application form as well.”

83. On 15 November 2020, an email was sent – presumably from [email protected] – to Mr Ostin, with no explanatory email, attaching the loan application form completed in handwriting. Mr Ho said the handwriting was his; his daughter helped him to fill out the form. The information provided was mostly straightforward: names, birthdays, contact details and the address of Mr Hammoudi. Some boxes were ticked, recording that Ms Ly and Mr Ho would each be a guarantor. Various “No” boxes were ticked in respect of their financial history: had they ever been bankrupt; had a mortgagee ever sold their property; had a receiver been appointed to a company of which they were a shareholder or officer. Other parts of the form were left blank. For example, while it appears that Hoho Property was the trustee of Jacknik Family Trust, a question calling for details in respect of a trust were left unanswered. So too was the page calling for their asset and liability position, and the page seeking employment details, including the income of the guarantors. Overall, the manner in which the form was completed sheds little light on the couple’s ability to understand English to any level of complexity.

84. On 16 November 2020, various pages from the La Trobe application were scanned and emailed to Mr Ostin, with no explanatory email. Presumably, the email was sent from [email protected], although it is not clear. Presumably also, the purpose of sending these pages of the application form was a convenient way to provide the new broker with the details of the couple’s income, employment, living expenses and assets and liabilities, given this information had already been set out in the La Trobe form. According to Mr Ostin’s notebook, he reviewed this information together with information concerning the proposed build. Presumably, Mr Ostin obtained this directly from the builder, as there is no evidence it was provided by the plaintiffs.

85. On 17 November 2020, Mr Ostin prepared a list of potential lenders to whom he began to send emails. Mr Ostin provided a submission brief, a valuation of the Liverpool properties, the quantity surveyor’s report, a loan statement for the Ajax loan, a sales brochure, development approval and the builder’s details. The submission brief sought a construction loan of $11.25 million for 18 months, to be settled in December 2020. Mr Ostin agreed that his proposal for 18 months was based on the quantity surveyor’s recommendation of 17 months plus an extra month for comfort.

86. The submission brief noted that a construction certificate would be available shortly. Mr Ostin understood that, whilst the development approval was to hand, there was no construction certificate. Mr Ostin agreed that he had looked at the conditions of the development consent, of which there were many. However, he believed that the builder was “able to get it out of the ground.”

87. When completed, the submission brief stated that the apartments would be worth some $16 million. Seven apartments had been pre-sold for $3.65 million. The development was expected to generate a profit of 15% on total development costs. The total development costs were $13,838,279, including the building contract price of $8 million and a contingency of $400,000. Mr Ostin understood that there was a difference between the construction contract price and the figure recommended by the quantity surveyor, “There’s always a difference.”

88. With equity of $2,584,603 (of which some appears to have been coming from the builder), the lender was asked to fund the remaining $11,253,676. The LVR was said to be 70.78% on Gross Realisation Value, which was said to be $14.8 million. The Broker proposed a fee of 1.65% (including GST) of the loan amount.

89. Details and photographs of the development site and the couple’s Cabramatta home were included; the latter was a modest 1960’s single storey three bedroom red brick home. As to the borrowers, the submission brief stated: (emphasis added)

[Mr Ho and Ms Ly] operate two retail shops located at Marrickville and Maroubra … Their wholesales operation caters to many restaurants throughout Greater Sydney.

During COVID they expanded their wholesale business to include home deliveries Sydney wide … this was well received by the market which resulted in another profitable income stream to the group operations …

This project will be the first for the sponsors and in order to manage and de-risk their lack of experience they have appointed a Project Manager [the builder]…

Existing facility

The existing facility … has been serviced by the applicants monthly from their own resources. …

The expiry date of this loan is 28^th January 2021. Therefore there is a desire to repay this loan prior to Christmas 2020.

90. Noteworthy, the suggestion that the refinance should take place before Christmas 2020 was made before Mr Ostin said the subject was discussed in a meeting with the clients: see [118]. Further, the request was put in less than emphatic terms. As with other aspects of the proposal in the submission brief – such as the amount and term of the loan – it appears to have been put as something of an ‘opening offer’, subject to what any lender may have been prepared to entertain.

91. On 18 November 2020, Mr Ostin emailed Mr Ho and Ms Ly, requesting their latest tax returns. In addition, Mr Ostin attached completed pages of the loan application form, setting out the assets and liabilities of Mr Ho, Ms Ly and their two companies. That is, Mr Ostin took the information earlier included in the La Trobe application form, as prepared by the former broker, and inserted the information into the Broker’s form. Mr Ho and Ms Ly were asked to review, amend if required and sign and return the forms as soon as possible.

92. The pages of the loan application form provided by Mr Ostin were signed by Mr Ho and Ms Ly the same day, scanned and returned by email to Mr Ostin, again, with no explanatory email. Presumably, tax returns were also provided. Ho Ho Top Foods’ tax return for the 2020 year reported gross income of $3,436,710 but, after expenses, a profit of $55,731.

93. By now it would appear that Ms Ly was becoming worried about the ability to find a new lender. On 19 November 2020, Mr Ly texted Mr Ostin, “Please let I know you need more documents. … please help me.”

The Lender

94. On 19 November 2020, Mr Ostin sent the submission brief to Mr Goh. Later that evening, Mr Ly sent a further plaintive text to Mr Ostin asking for his help and adding two prayer emojis and an emoji depicting a sad and tearful face. Mr Ostin replied, “I am working for you okay.” Fairly obviously, Mr Ostin had an anxious client.

95. Later that evening, Mr Goh replied to Mr Ostin, setting out the key elements of a finance offer. The Lender was interested in providing a loan up to 60% LVR on a new valuation at 8.25% interest. The Lender proposed to charge a 2.25% line fee and a 2% establishment fee. Further:

I am happy to pay your fees if you deliver this deal, but would be 1.25%+GST up front and 0.5% at the end of the deal. Alternatively you can have 1.6%+GST up front. These fees are added to the finance cost to [be] paid by the borrower.

96. Mr Ostin understood “up front” to mean payment on settlement of the facility. The Lender would either pay the Broker in full on completion or partly on completion with a trailer commission. Mr Ostin preferred the former. Either way, the Broker would ultimately be paid out of the facility, that is, by the borrowers.

97. On 20 November 2020, Mr Ostin organised a meeting with the Lender. Mr Ostin texted the Lender’s indicative rates to Ms Ly. Mr Ostin set out the portion of Mr Goh’s emails which included the interest rate, line fee and establishment fee but did not include the portion of the email concerning the Broker’s fees.

98. Shortly before the meeting with the Lender, however, Mr Goh emailed Mr Ostin, advising that the Lender was undecided on whether to make an offer due to the lack of experience of the developer, “This is part of reason for meeting them on Thursday [26 November 2020], and we will respond as soon as we have the information and [have] made a decision.” The meeting was re-scheduled to 26 November 2020, to be held on site with the builder in attendance. The Broker asked the builder, Mr Ho and Ms Ly to provide further information in advance of the meeting in respect of the expected sales prices and timeframe for the apartments. I apprehend that this request was addressed to the builder; there is certainly no evidence that this information was provided by Mr Ho or Ms Ly.

Site meeting

99. On 26 November 2020, Ms Ly, Mr Ho, the builder, Mr Ostin and Mr Goh met on site. Mr Goh asked Mr Ho how much income the butchery business generated for one year and Mr Ho said about $2 million. Ms Ly understood Mr Goh to be referring to the turnover of the business, which I consider was a reasonable inference, where the Lender appears to have taken the same approach. (In the Lender’s subsequent credit paper, it noted that Ho Ho Top Foods had total income of $3.5 million for the 2020 financial year. No mention was made of profit, which was $55,731.)

100. According to Ms Ly and Mr Ho, Mr Goh also asked, “Do you have $800,000?” and Ms Ly and Mr Ho said that they did. Ms Ly said that in her mind, the $800,000 covered everything in the shop including stock. In Mr Ho’s mind, the $800,000 referred to savings, moneys owed to him by friends, money which he could borrow from friends and some money from the shop.

101. Mr Ostin said that the figure being discussed by Mr Goh was the difference between the building contract price and what the quantity surveyor said it was likely to cost. Assuming that this was made clear to Ms Ly and Mr Ho during the meeting – it was not clear from Mr Goh’s question – then they gave an assurance that they would be able to come up with the funds if need be. Where the construction was expected to extend over 15 to 17 months, I do not accept the Lender’s submission that Mr Goh was seeking, and given, an assurance that the couple then had this amount available in cash.

102. According to Mr Ostin, Ms Ly also added that, although the financial documents said their turnover was $3.5 million for the 2020 financial year, the real figure was closer to $8 million. As to whether such a statement would have been true, $8 million turnover was more than double the figure recorded in Ho Ho Top Foods’ most recent tax return. It seems unlikely that someone running a business with $8 million turnover would be struggling to make monthly interest payments of some $19,000 to Ajax in a timely manner, or would have been – in Mr Ostin’s words – “frightful” of the imminent expiry of the Ajax loan. That is, it is unlikely to have been true. This makes it less likely that it was said. The contemporaneous documents make no mention of any suggestion that the butchery business provided any greater source of revenue than that reported in its tax return. Against this, I note that the couple later readily represented that they had assets of significant value, which they now say they did not have: see [157]-[161]. Overall, however, I consider it unlikely that this was said.

103. The next day, Ms Ly was clearly anxious to learn of any news; she sent various text messages to Mr Ostin, asking whether he had heard from the Lender. Later that day, on 27 November 2020, Mr Goh provided a term sheet to the Broker, which Mr Ostin forwarded to his clients, noting: (emphasis added)

As discussed, please find attached a copy of the terms sheet from Bass Capital. FYI, your home at Cabramatta is not included in these loan figures however we will use 100% of the value as equity in the project. I will explain this further when we speak next.

Later this afternoon, I will send you the PFA Service Agreement which will cover the PFA fees as also discussed earlier.

Mr Ostin’s statement that he had “discussed earlier” the Broker’s fees indicates that the topic was broached. Whether the Broker’s fees were “discussed earlier” in their first meeting on 13 November 2020, as suggested by Mr Ostin, or on a subsequent occasion does not much matter.

Offer of finance

104. The term sheet was a letter of offer from the Lender to Hoho Property, for a loan of $9.62 million (including capitalised interest and fees) or 65% of valuation. The proposed loan was obviously less than sought. The loan would be drawn down progressively each month by reference to the percentage of the project which had been completed, with “Any cost overruns [or] additional interest to be met by the Borrower.”

105. The term of the loan was 15 months. Mr Ostin appreciated very quickly that the offer was for a period which was three months’ shorter than what he had asked for and shorter than the recommended period of construction, with contingencies, provided for in the quantity surveyor’s report. When asked what he did about this, Mr Ostin said “Nothing … the clients did have other professionals as well, quantity surveyors, project managers, builders.”

104. The interest rate was 8.25% per annum or, in default, 12.25% per annum. Interest was capitalised. In addition, a “Risk Review Fee” of 5% per annum could be charged on the event of default or potential event of default, until rectified to the satisfaction of the Lender. Putting the nomenclature of the fee to one side, this meant that in the event of default interest/fees charged to the borrower more than doubled to a total of 17.25% per annum. The Lender’s fees included an Establishment Fee of 2% of the Facility Limit payable on signing the loan agreement, “A broker fee of 160bps is also payable.” A Line Fee of 2.25% per annum on the Facility Limit was payable monthly and capitalised. A loan application fee of $35,000 plus GST was payable on acceptance of the letter of offer.

105. The offer of finance was subject to various conditions, including:

1.   Execution of full loan, mortgage and supporting documentation as provided by the Lender’s solicitor. …

3.   The Lender is satisfied that 100% of the Borrower’s Initial Equity Contribution [undefined] has been invested prior to or at first drawdown of the Loan. …

8.   Copies of the Construction Certificates/Building Permits and Stamped Plans to be provided and found to be acceptable to the Lender. …

15   Payment of all legal costs, consultants costs and agreed brokerage fees. …

17   Final credit approval from the Lender’s investment committee.

108. Ms Ly and Mr Ho said that neither of them read the term sheet but relied on the builder to explain it to them. Ms Ly said she was not able to read the term sheet or understand it. Ms Ly understood the amount being borrowed. Ms Ly knew there was going to be interest and understood that they did not have to pay the interest up front. Ms Ly knew there were going to be fees but did not know what those fees were. Ms Ly did not know what “bps” was and said Mr Ostin never said how much his fees were going to be in dollars. Certainly, the Lender’s letter of offer did not make it clear.

109. Mr Ho said he did not enquire as to the interest rate or fees, although his wife said there were lots of fees. Mr Ho said he did not ask his wife how much the fees were, “because I did not know what that fee is for so that’s why I didn’t ask.” Mr Ho expected that the builder would explain it to him. Mr Ho understood that the interest was going to be a very significant cost in the development project, but understood that the interest rate would be 2% or 3%. I consider the evidence unlikely, both as to Mr Ho’s lack of enquiry as to the fees and interest and as to an understanding that the interest rate was so low.

Contract with Broker

110. Later that afternoon, the Broker emailed its proposed contract and an invoice for its initial fee of $11,000. The contract provided that the Broker was entitled to a “Service Fee”, being 2.2% including GST of the “Loan Amount”: clause 1.1, recital E, item 4 of Schedule 1. The Loan Amount was $9.26 million or 65% LVR: clause 1.1, item 3, Schedule 1. Obviously, the amount of the Service Fee depended on variables which were then unknown. The contract did not set out the Service Fee in either a specific, or estimated, amount.

111. According to the contract, the Borrower was obliged to pay the Services Fee by the Due Date (clause 4.1.1), which was defined as follows (clause .1):

●   In the event of the Borrower and the Lender proceeding with the Loan[,] Due Date means, unless otherwise agreed in writing, the earliest time of:

○   The settlement of the advance of moneys pursuant to the Loan; or

○   6 calendar months from the date of this Agreement; or

●   In the event that the Lender issues a Letter of Offer but the Borrower does not proceed with the Loan[,] Due Date means the date that the Borrower refuses or fails to proceed with the Loan and without being exhaustive, includes:

○   The date that the Borrower, or a person on the Borrowers behalf, advises PFA or the Lender that they do not wish to proceed with the Loan; and

○   The date immediately following the expiration of a written notice from PFA to the Borrower giving the Borrower 7 days to comply with a request of PFA in relation to the Loan and when the Borrower does not comply with the request; and

●   In any other event means the date 30 days following the issue of a Letter of Offer.

112. That is, on signing the contract, the plaintiffs were obliged to pay the Broker’s fee, whether they proceeded with the Loan or not. Ms Ly and Mr Ho were to sign the contract as guarantors of Hoho Property. The clients charged the Liverpool properties and the Cabramatta property as security for the payment of the Services Fee: clause 4.1.4; item 5, Schedule 1.

113. Ms Ly said she had one of her children read Mr Ostin’s email to her, but not the attached contract as it was too complicated. In evidence is a draft email from [email protected] to Mr Ostin on Saturday, 28 November 2020, simply stating “I accept the terms.” The email, as sent, is not in evidence and, presumably, was not actually sent. Nor does it much matter where the parties agree that the contract was entered into.

114. On 30 November 2020, Mr Ostin met Mr Ho, Ms Ly and the builder at a local restaurant. Mr Ostin took a photograph and made notes. Ms Ly’s spectacles can be seen resting on a piece, or pieces, of paper. Mr Ostin said he provided Ms Ly and Mr Ho with a further copy of the Lender’s letter of offer and the Broker’s contract. Mr Ostin told them that his initial fee was $11,000 payable now if they wished to proceed further with the letter of offer. In addition, a further fee of 2% plus GST was payable but not immediately. He said, “You have had the opportunity to review the Letter of Offer and our service agreement so if you don’t like the terms of either, you don’t have to sign or accept them. We can just walk away at no cost to you.”

115. According to Mr Ostin, he explained that the letter of offer referred to 1.6% plus GST for the Broker’s fees on settlement. In addition, they would need to pay a further 0.4% plus GST on settlement. To explain this, Mr Ostin wrote some figures in this notebook and showed them to Ms Ly and Mr Ho:

Loan = $10,000,000

PFA 2% = $200,000

Lender 1.6% = $160,000

Difference 0.4% = $40,000

116. According to Mr Ostin, he explained that, if the loan was $10 million, then the Broker’s service fee was 2%, that is, $200,000. The Lender had allocated 1.6%, being $160,000, so they would have to pay $40,000 themselves at settlement to the Broker. Ms Ly said she understood and Mr Ho said “No problem.” Mr Ostin pointed to further figures recorded in his notebook, which he said were made by Mr Ho. (Mr Ho denied that the handwriting was his). Mr Ostin’s notes also record that his clients were interested in making a complaint to the Australian Financial Complaints Authority (AFCA) in respect of Prime Capital or La Trobe.

117. Whilst Ms Ly and Mr Ho deny that Mr Ostin explained his fees to them, I accept that he explained the quantum of the fees for two reasons. First, the notes are consistent with giving a simple explanation of how the fees would be calculated and how payment would come from two sources, being from the Lender on completion and the balance from the clients. Second, as will become increasingly apparent, the Broker was absolutely focussed on getting its fee. Mr Ostin would likely have been at pains to make sure that the clients understood knew when and how the fee was to be paid, particularly where part of the fee was to come directly from Ms Ly and Mr Ho on settlement.

118. Mr Ostin also said that Ms Ly asked for his help to settle the loan before the end of the year, as they had wasted 12 months on the Ajax loan. Their profit was going down. They did not want to go into default with Ajax in January and needed to settle before then. Mr Ostin said he would do his best. Mr Ostin also volunteered, “Can I just say that I had hundreds of phone calls with Ms Ly and in those phone calls, there would have been many occasions when she said she wanted to settle this, that side of the year, which was Christmas.” Ms Ly and Mr Ho both deny this. I will consider this further at [129].

119. At the meeting, Mr Ho and Ms Ly signed the letter of offer from the Lender. The couple said that only the signature page of the letter of offer was at the meeting and signed. Certainly, the pieces of paper in the photograph taken by Mr Ostin appeared to be one or two pages only. In any event, after the meeting, Mr Ostin sent a complete copy of the signed letter of offer to [email protected].

120. Shortly afterwards, a scanned copy of the Broker’s service agreement, signed by Mr Ho and Ms Ly (and witnessed by their son) was sent from the [email protected] to the Broker, with no cover email. Mr Ostin countersigned the service agreement and emailed it back. Ms Ly said that she had not read the document and it was not explained to her before she signed it. She asked Mr Ostin what it was for and Mr Ostin said, “It’s nothing, just sign it.” I have found that Mr Ostin did explain the contract, at least insofar as it concerned the likely amount of the Broker’s fee and the fact that it was to be paid on settlement from the loan drawdown and also from the couple. There does not appear to have been any explanation that the Services Fee was payable by the couple even if they did not proceed to settlement.

121. On 1 December 2020, the Broker’s initial fee of $11,000 was paid, as was the Lender’s loan application fee of $38,500.

Christmas deadline

122. On 2 December 2020, a member of the Lender’s staff obtained a quotation from a valuer, which was provided to Mr Goh. Mr Goh replied, “that’s great. See if we can get it pre Xmas. I want to get the first piece funded before 31dec.” That is, the Lender was keen to finalise the loan by the end of the year. The Lender instructed the valuer to provide the valuation “at the earliest possible date but, in any event, no later than 23 December 2020.”

123. On 4 December 2020, Ms Ly sent a text message to Mr Ostin, advising that she had spoken to the valuer, “He booking to do valuation on next Wednesday [9 December] so the report can have on Friday [11 December] do you think it to late.” Mr Ostin replied, “The timing is okay.”

124. On 8 December 2020, Mr Ostin provided the Lender with the contact details for his clients’ lawyers, being Mr Hammoudi. Mr Goh replied:

You need to check whether Firas is available to settle the loan between xmas and new year. If not we risk the loan settling in January.

Bass is lined up to complete and finance this year, but we need the Valuation and QS done on time.

125. The Broker forwarded Mr Goh’s email to [email protected], requesting advice as to “your Lawyers’ working hours over the Xmas/New Year period and availability to settle the loan in this time.” Again, the impetus to settle the loan at that time of year emanated from the Lender. More specifically, the Lender was planning to settle the loan between Christmas and the New Year. Mr Ostin separately updated Mr Goh:

•   Legal: We are checking on the legal side as to their availability during the Christmas period and will advise shortly.

•   Q.S.: There is a conference call scheduled for tomorrow with the Q.S., PFA and the builder.

•   Valuation: The properties are being inspected tomorrow morning. We have been advised that the report should be available this Friday for review by Bass Capital.

126. Mr Goh replied, “We might just make it by Xmas!” To this, Mr Ostin replied:

We have been quietly working behind the scenes to keep things moving along.

If it can be done before Christmas it will be a well timed Christmas present for the clients.

127. I take Mr Ostin’s reference to “quietly working behind the scenes” to be some kind of assurance that Mr Ostin was working hard to “deliver this deal.” Beyond this, Mr Ostin’s response to Ms Ly and Mr Goh’s queries as to timing could fairly be described as relaxed. The suggestion that completion could occur before Christmas came from Mr Goh. Mr Ostin did not suggest that his clients required that the transaction be completed by then.

128. Mr Ostin forwarded Mr Goh’s email – “we might just make it by Xmas!” – to [email protected], referring to the Lender’s reply “about a possible settlement before Christmas.” Mr Ostin did not suggest in his email that settlement before Christmas was in accordance with his clients’ instructions but, rather, was a time frame proposed by the Lender. The email chain was forwarded to Mr Hammoudi and, apparently, Ms Ly replied to the Broker expressing her thanks. Mr Ostin did not forward to his clients or their solicitor his separate reply to Mr Goh advising “we have been quietly working the scenes.”

129. The next day, on 9 December 2020, Mr Ostin emailed Mr Goh, “I had had confirmation that the clients Lawyer will be away over the Christmas period. Anything we can do to ensure a pre Christmas settlement would be greatly appreciated by all.” Mr Goh replied, “Ok. Lets target the 22^nd to settle the initial loan.”

130. I note also that, on 15 December 2020, the Lender’s staff exchanged internal emails, in which Mr Goh apologised to Brett Corfield for “getting involved” in the proposed transaction: (emphasis added)

I would normally run all of this by you, however give the tightness of our schedule pre xmas it was easier to go direct to the lawyers etc. Obviously the partners have decided that we are very keen to get this done pre xmas.

Mr Corfield replied, “Better to overcompensate now given time of year, settling deal and refine approach later. Closing deals overcomes everything.” Again, the impetus for completing the transaction by Christmas came from the Lender.

131. That is, the selection of 22 December 2020 as the date for completion evolved from Mr Goh’s request to complete the transaction between Christmas and the New Year, to the possibility that due diligence could be completed by Christmas, to the selection of a pre-Christmas date by reason of the unavailability of the borrowers’ solicitor between Christmas and the New Year. It did not arise from the borrowers’ specific request for the transaction to be completed by then.

132. The defendants broadly maintained, however, that unless the transaction settled on 22 December 2020, it would not be possible to complete the transaction by 28 January 2021. Mr Ostin strongly resisted the suggestion that the refinance could have been completed in January 2021:

A.   Because it's Christmas holidays, the lawyers are away. The lenders are away. Valuers were away. It would be near impossible.

Q.   But once the general public returns to their offices and so on after the usual Christmas vacation--

A.   Yes.

Q.   --up to early January, then there would at least be three weeks, wouldn't there--

A.   No—

Q.   --the time arrived for the Ajax loan to be refinanced?

A.   No.

Q.    That year?

A.    Not - not for an asset like this, no. It takes a little bit longer.

Q.   Was there some particular difficulty, was there, that you knew about that meant that this was, in fact, urgent because it couldn't be done in January; is that what you are telling the Court?

A.    Other than the [facility] was expiring in January.

Q.   But was there any particular event or matter or thing that you knew would stop the refinance from settling at any time on a business day between the second week or the third week or the fourth week of January 2021?

A.   Things could have happened that way, yeah. It could have settled.

Q.   Of course, it could have settled, Mr Ostin?

A.   If - no. If everything lined up.

Q.   Can you answer my question, please--

A.   It could have settled on higher terms, too.

133. It was never entirely clear why this followed. Whilst Mr Hammoudi was away “over the Christmas period,” presumably he could have attended to completion of the transaction on his return to the office, as could the Lender’s staff. More importantly for this case, the defendants contended that their insistence on settlement on 22 December 2020 was to meet the borrower’s wishes. I do not accept this. The Lender was keen, for its own reasons, to complete the transaction by then. The Broker was happy to do so, to “deliver this deal” and receive payment of the Services Fee. Where Ms Ly appears to have been generally anxious to have the matter resolved, the clients likely went along with that timeframe.

Preparation of documents

134. On 9 December 2020, Mr Goh asked whether Mr Ostin was content for the Lender’s solicitors to start preparing the documents. The Lender also issued an “Initial Request for Information” to the borrower. Various items were struck out, including a construction certificate. Apparently, the Lender did not consider such a document to be necessary.

135. On 11 December 2020, Mr Hammoudi’s mobile records show that he called Ms Ly at 2.32pm for two minutes. Mr Hammoudi said Ms Ly told him that she had found a loan for the land and asked him to act on the matter “quickly” as “there is lot of pressure.” Mr Hammoudi asked why there was a lot of pressure and Ms Ly said, “I don’t know. I was told by Tony and Bass that we need to settle. As soon as possible Firas. Please.” Mr Hammoudi agreed. At 2.36 pm, Mr Hammoudi emailed the Lender’s solicitor, confirming that he acted for Hoho Property and attaching the front page of the contracts for apartments which had been sold “off the plan”.

136. I should also add here – given the defendants’ general criticism of Mr Hammoudi as being slow – that, in addition to the key communications between the respective solicitors on the transaction set out below, there were various other requests from the Lender’s solicitors to Mr Hammoudi for documents and information. These requests were answered promptly, by Mr Hammoudi or Mr Morris.

137. On 14 December 2020, Mr Goh pressed Mr Ostin to provide the Lender’s solicitor with all the information needed that day, including the building contract. Mr Ostin pressed Ajax’ solicitor for a payout figure and contact details “to be invited by our solicitor, KCL Law onto the PEXA workspace”, noting “We are trying to book settlement … on Tuesday 22 December 2020.” KCL Law was the Lender’s solicitor.

138. Mr Ostin forwarded Mr Goh’s request for outstanding information to [email protected], “We are trying to book settlement for next Tuesday 22 December 2020 but need to attend to their below request asap.” Mr Ostin emailed Ajax again, requesting the contact details for its solicitors “to enable them to be invited by our solicitor, KCL Law onto the PEXA workspace when loan settlement occurs.” Mr Ostin’s repeated reference to the Lender’s solicitors as “our solicitor” belies the close relationship with the Broker and the Lender.

139. Later that afternoon, Mr Corfield emailed Mr Ostin, noting that the building contract was $7.9 million, whilst the quantity surveyor was supporting construction costs of $8.6 million, “Hopefully we can pick this difference up via valuation otherwise we are looking at sub 10% return on cost which is low.” The Lender expected to have the draft project valuation the next day, “to better understand feasibility/project returns.” Mr Ostin understood from this email that the Lender was waiting for the valuation to come in at a higher figure to cover the difference between the building contract price and the likely construction cost. As to what Mr Ostin did with this information, Mr Ostin said, “Nothing. … I’m not credit. It’s not my money.” Mr Ostin did not send Mr Corfield’s email onto Ms Ly or Mr Ho.

140. On 15 December 2020, the Lender’s solicitor asked Mr Hammoudi to certify pre-sales, requesting certification and the sales schedule by 12.00 pm on 16 December 2020, “To ensure timely close of this facility as anticipated.” Ajax provided a payout figure, which Mr Ostin forwarded to Mr Hammoudi. The indicative payout figure was calculated for 24 December 2020. Likely, Mr Hammoudi would have understood from the payout figure that the refinance was to be completed on that date, being Christmas Eve.

Borrower’s solicitor learns of deadline

385. Having concluded that the Broker engaged in unconscionable conduct contrary to section 12CA, and given the already considerable length of this judgment, I will not separately consider the Broker’s liability under section 12CB. Considering the claim against the Lender, the following matters referred to in section 12CC(1) appear relevant:

12CC Matters the court may have regard to for the purposes of section 12CB

(1)   Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 12CB in connection with the supply or possible supply of financial services to a person (the service recipient), the court may have regard to:

(a)   the relative strengths of the bargaining positions of the supplier and the service recipient; and

(b)   whether, as a result of conduct engaged in by the supplier, the service recipient was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and

(c)   whether the service recipient was able to understand any documents relating to the supply or possible supply of the financial services; and

(d)   whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the service recipient or a person acting on behalf of the service recipient by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the financial services; and

(e)   the amount for which, and the circumstances under which, the service recipient could have acquired identical or equivalent financial services from a person other than the supplier; and

…

(j)   if there is a contract between the supplier and the service recipient for the supply of the financial services:

(i)   the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the service recipient; and

(ii)   the terms and conditions of the contract; and

(iii)   the conduct of the supplier and the service recipient in complying with the terms and conditions of the contract; and

(iv)   any conduct that the supplier or the service recipient engaged in, in connection with their commercial relationship, after they entered into the contract; and

(l)   the extent to which the supplier and the service recipient acted in good faith.

388. Sections 12CB and 12CC do not expressly refer to knowledge of the service recipient’s attributes or circumstances. In Re Takata Air Bags Class Action – Common Questions [2018] NSWSC 1868, Sackar J noted that different knowledge requirements may apply to the general law and statutory provisions: at [20]. In Owerhall v Bolton & Swan Pty Ltd [2016] VSC 91, Derham AsJ noted that the statutory formulation of unconscionable conduct in the ACL was “sufficiently flexible to provide relief for a party in the absence of actual or constructive knowledge of that party’s special disadvantage”: at [77]. Thus, while equitable relief for unconscionable conduct will depend on whether the defendant had actual or constructive knowledge of any special disability, the statutory claim may not be so limited. Presumably, however, if the supplier knew or ought to have known that the service recipient was vulnerable, then this may affect whether the supplier used “unfair tactics” (section 12CC(1)(d)) or “acted in good faith” (section 12CC(1)(l)).

389. So far as the Lender is concerned, there was nothing unconscionable about offering a loan which did not meet the borrower’s requirements, was expensive or imprudent. Nor was it unconscionable for the Lender to press for completion of the transaction on a particular date. So far as the borrower’s assets were substantially inflated shortly before completion, I accept the Lender’s submission that there was no suggestion that the Lender participated in any fabrication of Vietnamese assets.

390. When put on notice by Mr Hammoudi that there was insufficient time to properly advise the borrower in respect of the proposed transaction, in part, given the late provision of the documents by the Lender’s solicitors and, in part, because it was “likely that the clients will require an Interpreter,” this information was diluted by the Broker and contradicted by Ms Ly. Specifically, Mr Goh was informed by Mr Ostin that “I have just spoken with the client, Cathy and … I can confirm” that the borrower did not have an interpreter when signing the Ajax documents. Mr Ostin advised the Lender that he regarded the suggestion that an interpreter was needed as a delaying tactic by Mr Hammoudi.

391. That is, the Lender was receiving conflicting information from the borrower’s solicitor and their mortgage broker. The Lender clearly chose to accept the views expressed by the Broker. Acting on this information, Mr Goh warned Mr Hammoudi that if, he delayed in reviewing the document, then his clients faced the risk “of not settling the transaction at all.” That is, the Lender applied pressure to the Borrower’s solicitor to complete his review of the documents, and advise his clients, by the stipulated deadline.

392. Mr Goh’s email was threatening: if Mr Hammoudi did not meet the timetable set by the Lender, then the plaintiffs may lose the loan altogether. Mr Goh’s email was also an exaggeration. Mr Ostin did not accept that Mr Goh told him that if there were any further delays, Bass Finance would not lend, “I wouldn’t say lend. There would be delays. … it wouldn’t have settled til probably in February, or very late January, or February. … because everyone’s on holidays.” Mr Goh’s email was also audacious, where the suggestion that the settlement date of 22 December 2020 was required by the borrowers was inaccurate. The pressure to settle on this date emanated from the Lender, as earlier described.

393. Mr Hammoudi’s clear response to the Lender was to suggest that inappropriate pressure was being brought to bear on his clients, which may amount to duress: see [189]. The precise reason why duress was suggested by Mr Hammoudi was that he then perceived that his clients were being asked to sign the documents without legal advice. As I have found, that suggestion emanated from the Broker, not the Lender, which may explain Mr Goh’s fiery replies, pressing Mr Hammoudi to “Just do your job”, failing which, the transaction may not proceed to completion: see [191].

394. As earlier mentioned, Mr Ostin wanted to get rid of Mr Hammoudi and shared his view with Mr Goh. Mr Ostin favoured changing solicitors in order to complete the deal, being a suggestion embraced by the Lender. As to section 12CC(1)(b) – whether, as a result of conduct engaged in by the supplier, the service recipient was required to comply with conditions that were not reasonably necessary – the evidence is not entirely satisfactory, where Mr Goh did not give evidence. The Court has the evidence of Ms Ly and Mr Ostin: Mr Goh said the Lender would not lend if the plaintiffs continued to delay or to use Mr Hammoudi: see [197]. This is confirmed by the email terminating Mr Hammoudi’s retainer, as drafted by Mr Ostin: “I conversed with the Bass Finance lenders telling them that I desire circlebridgelegal to handle my documents but they do not approve to provide the funds for us when you are my advisor as there is a possible execution risk which they are not willing to take.”

395. That is, the Lender was not prepared to provide financial services if the plaintiffs continued to retain Mr Hammoudi. This became a condition of providing the loan. This was not reasonably necessary for the protection of the legitimate interests of the Lender. I do not accept the defendants’ contention that Mr Goh took this step because he understood that Mr Hammoudi would only supervise execution of the documents if his clients gave him a waiver. Rather, Mr Goh (wrongly) concluded that Mr Hammoudi was engaged in delaying tactics by insisting on an interpreter. The Lender insisted on a new solicitor in order to settle the transaction on its chosen date. This was not reasonably necessary for the protection of the Lender’s legitimate interests but rather a matter of convenience and put the plaintiffs in a vulnerable position, which must have been obvious to the Lender, or would have been obvious to a reasonable person in the Lender’s position. The importance of this factor is reduced, but not eliminated, by the provision of advice by Mr Solari and Mr Simon.

396. Section 12CC(1)(c) is also significant: whether the plaintiffs were able to understand the documents relating to the supply of the financial services. I am satisfied that the plaintiffs were not able to understand the documents without a Vietnamese interpreter.

397. Section 12CC(1)(d) is potentially relevant, however, the focus here is on the conduct of the Lender, not the Broker. Beyond the matters already considered in respect of sub-section 12CC(1)(b), no further conduct comes to mind.

398. Section 12CC(1)(e) is potentially relevant, albeit there is little evidence of the charges which another lender may have proposed for such a loan. Ajax charged interest of 9.9% per annum or, on default, 19.9% per annum. In the event that the borrowers repaid the loan early, a minimum of 12 months’ interest still had to be paid. The Broker fees were $23,760. In addition, an administration fee of $35,640 and an establishment fee of $12,285.35 would apply. By my calculations, these fees were 1.05%, 1.6% and 0.5% of the loan sum respectively. Although the La Trobe loan did not proceed, La Trobe proposed to charge an application fee of $13,920 on the loan for $696,000. Prime Capital proposed to charge interest of 9.95% per annum and an establishment fee of 2.2% of the facility limit.

399. What emerges from this limited material is that the interest rates proposed by the Lender were competitive but the fees were high. The “Intensive Loan Management Fee” of 5% of the Facility Limit, being $474,825 per annum, was large and unusual, although only paid in the event of default or potential default. Further, the “Minimum Earn Amount” of $860,620, less any interest and fees already paid, was also potentially extremely onerous. Where, as happened here, the plaintiffs only drew down an amount sufficient to repay Ajax but made no further drawdowns, the cost of finance proved exorbitant. I note, however, that Ajax also charged a minimum of 12 months interest, even if the loan was repaid early.

400. Section 12CC(1)(j)(iii) and (iv) are also relevant, and in the Lender’s favour, where the Lender appears to have tried to work with the plaintiffs sometime after the initial drawdown to progress the project, including by considering providing further finance. The service recipient, on the other hand, did not comply with the terms and conditions of the contract and, indeed, does not appear to have done anything after completion.

401. As to sub-section 12CC(1)(a) and (j)(i), the Lender was clearly in a stronger bargaining position than the plaintiffs. Whilst the Lender did agree, shortly before settlement, to a reduced payment by the plaintiffs – from $700,000 to $50,000 – and to defer payment of its fees until the following month, this appears to have been born of necessity in order to ensure that the loan transaction completed on the designated date rather than by reason of any bargaining power of the plaintiffs.

402. A court should only take the serious step of denouncing conduct as unconscionable when “satisfied that the conduct is ‘offensive to a conscience informed by a sense of what is right and proper according to values which can be recognised by the court to prevail within contemporary Australian society’”: Stubbings at [58] (per Gordon J), citing ASIC v Kobelt at 40 [92] (per Gageler J). Having “one’s conduct impugned as against or as offending conscience” is a “serious matter”: Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd and Another [2021] FCAFC 40; (2021) 285 FCR 133 at 155 [91].

403. Having considered each of the matters referred to in section 12CC(1), the only significant factor which stands out is the Lender’s insistence that the plaintiffs get rid of their solicitor, who advised that they needed an interpreter, and complete the transaction on the date set by the Lender after receiving advice from new solicitors. Whilst I consider that the Lender’s conduct was impulsive and unprofessional, the Lender was ‘saved’ by Ms Ly. Where the service recipient had provided information which suggested that their solicitor’s concern that they needed an interpreter was mis-placed, the Lender’s intemperate insistence that they find a new lawyer did not contravene the section.

Remedy

404. Statutory unconscionable conduct has only been established against the Broker. Two remedies were sought: first, to disentitle the Broker from its Services Fee on the basis that the Broker aided and abetted, or was knowingly involved in, the Lender’s contravention of section 12CB of the ASIC Act; second, compensation under section 12GF of the ASIC Act. Where the Lender did not contravene section 12CB, it is not necessary to consider the first matter.

405. The power to award damages under section 12GF depends on a finding that the plaintiff suffered loss or damage “by” reason of the unconscionable conduct. In cases considering analogous statutory provisions related to misleading and deceptive conduct, the Court has held that the provision should be understood as taking up the common law practical or common-sense concept of causation: Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 525 (per Mason CJ, Dawson, Gaudron and McHugh JJ). As long as the conduct materially contributed to the damage, a causal connection will ordinarily exist even though the conduct, without more, would not have brought about the damage: Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 at [106] (per McHugh J). That is, it is sufficient for the conduct to be a cause of the loss rather than the sole cause of the loss: at [14] (per Gleeson CJ). As the Chief Justice there observed, in the context of the misleading and deceptive conduct provision, “It will commonly be the case that a person who is induced by a misleading or deceptive representation to undertake a course of action will have acted carelessly, or will have been otherwise at fault, in responding to the inducement. The purpose of the legislation is not restricted to the protection of the careful or the astute. Negligence on the part of the victim … is not a bar to an action … unless the conduct of the victim is such as to destroy the causal connection between contravention and loss or damage”: at [13].

406. The Lender has failed to prove that it is owed any amount under the Senior Facility Agreement. No relevant loss or damage has arisen as a consequence of execution of the finance documents. This is something of a happy accident for the plaintiffs. Had the Lender’s cross-claim proceeded otherwise, then the issues concerning causation and loss traversed at [414]-[417] would pertain.

CONTRACTS REVIEW ACT

407. The terms of the finance documents were said to be unjust within the meaning of section 7 of the Contracts Review Act such that the Court would not enforce them. There was said to be a material inequality of bargaining power between the plaintiffs and the Lender, where the terms of the finance documents were unable to be negotiated, in particular, as to the duration of the loan. The Senior Facility Agreement was said to impose conditions that were harsh and oppressive, including as to interest, fees and the minimum earn amount. These terms were said to amount to a penalty. The plaintiffs were said to be unable to protect their interests in the circumstances.

408. As a corporation, Hoho Property is not entitled to relief under the Contracts Review Act: section 6(1).

409. Ms Ly and Mr Ho may not be granted relief in relation to a contract “so far as the contract was entered into in the course of or for the purpose of a trade, business or profession carried on by the person”: section 6(2). This exception has been construed narrowly: N C Seddon and R A Bigwood, Cheshire & Fifoot Law of Contract (11^th edition) at 15.27. Where the business is carried out by a company, it is the company and not its directors who carry out the business for the purpose of section 6(2): Toscano v Holland Securities Pty Ltd (1985) 1 NSWLR 145 at 149 (McLelland J); Quikfund (Australia) Pty Ltd v Airmark Consolidators Pty Ltd [2014] FCAFC 70; (2014) 222 FCR 13 at [134]-[137] (per Allsop CJ, White and Wigney JJ). The presence of a ‘family element’ in the transaction, such as a mortgage given by family members to secure a corporation’s obligation, may bring the contract within the scope of the Act: see, for example, Australian Guarantee Corp Ltd v McClelland (1993) ATPR 41-254.

410. In this case, notwithstanding that the finance documents were entered into for the purpose of Hoho Property’s property development business, the fact that Ms Ly – who was not a director or shareholder of that entity – and Mr Ho provided a guarantee as individuals and mortgage over their family home may bring the contract within the purview of the Contract Review Act.

411. The only finance documents to which Ms Ly and Mr Ho were a party was the Deed of Guarantee and Indemnity and the mortgage granted over their Cabramatta home. However, these documents, as executed by the plaintiffs, are not in evidence. I have draft documents provided to Mr Hammoudi on 16 December 2020 for review, and a highlighted copy of the memorandum of common provisions produced by Mr Solari on subpoena. I am unable to divine whether these documents were amended between 16 December 2020 and execution on 22 December 2020. I am not prepared in these circumstances to consider each of the matters listed in sub-section 9(2) and (5) of the Contracts Review Act, beyond noting that my observations in respect of similar considerations listed in section 12CC(1) of the ASIC Act remain apposite: see [389]-[401]. I also note that whether a contract is “unjust” is a lower bar than unconscionability. Beyond this, I cannot say without the contracts said to be unjust. [See now Hoho Property Pty Ltd v Bass Finance No 37 Pty Ltd (No 2) [2023] NSWSC 493.]

CONTRACTUAL DAMAGES

412. The general measure of damages for breach of contract is the amount, so far as money can provide, necessary to put the plaintiff in the position they would have been if the contract had been performed: Koufos v C Czarnikow Ltd (“The Heron II”) [1969] 1 AC 350; Wenham v Ella [1972] HCA 43; (1972) 127 CLR 454; Burns v MAN Automotive (Aust) Pty Ltd [1986] HCA 81; (1986) 161 CLR 653. Any loss alleged to be suffered must have been caused by the breach of contract: Monarch SS Co Ltd v A/B Karlshamns Oljefabriker [1949] AC 196; Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd [1968] HCA 64; (1968) 120 CLR 516; Bennett v Minister for Community Welfare [1992] HCA 24; (1992) 176 CLR 408. Whilst damages are assessed at the date of breach, subsequent events may be taken into account so that the damages awarded are as accurate as possible: Wenham v Ella; Smith New Court Securities Ltd v Citibank NA [1997] AC 254; Golden Strait Corp v Nippon Yusen Kubishika Kaisha (“The Golden Victory”) [2007] 2 AC 353; [2007] UKHL 12. See, generally, JW Carter, Contract Law in Australia (7^th ed. LexisNexis, 2018) at 36-17.

413. In the event that the plaintiffs were liable to the Lender, then the plaintiffs contended that the Broker was liable for damages for breach of contract, being to indemnify them for any liability to the Lender. The Broker submitted that the plaintiffs had failed to prove causation, that is, what would they have done differently if the contract had been performed. Further, there was said to be no evidence that, if the plaintiffs had received advice from Mr Hammoudi with the services of an interpreter, they would not have proceeded with the loan in any event.  To this, the plaintiffs replied that hindsight evidence was not generally admissible and was of little weight. Where the plaintiffs said that they did not understand key aspects of the finance documents, the clear inference was that, if they had understood these aspects, they would not have executed the documents.

412. In something of a happy accident for the plaintiffs, the Lender has failed to prove that it is owed any amount by the plaintiffs. But this ought not detract from the deficiencies in the plaintiffs’ evidence in respect of causation and loss. True it is that hindsight evidence is regarded as inherently unreliable: Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434 at [16] (per Gleeson CJ); Chappel v Hart [1998] HCA 55; (1998) 195 CLR 232 at 246 (per McHugh J). For example, in Lym International Pty Limited v Marcolongo (2011) 15 BPR 29,465; [2011] NSWCA 303, a property developer was excavating an underground car park damaged the plaintiff’s building. The plaintiff’s evidence as to what they would have done had they been told of the developer’s plans was admissible, however, “By comparison with his proved inaction in the face of real damage already sustained, evidence in hindsight from Mr Marcolongo about what he would have done had he known of those matters, would have been of such slight weight that its absence is also of very slight weight”: at [229].

413. Much better evidence is what the plaintiffs, in fact, did when they became aware of the matters which were not explained to them at the time in a language they understood to the requisite level. The evidence in this regard is ambiguous. It is not known when the plaintiffs became aware of the terms of the finance which they did not understand at the time, going to interest, fees and minimum ‘earn’. Nor is there evidence that the plaintiffs then protested in respect of these terms. What is known is that the plaintiffs did not progress the development at all after the initial drawdown of the loan. Once Ajax was paid out, the plaintiffs appear to have done nothing beyond endeavouring to raise money, from the butchery business’ creditors or sale of their personal assets in Vietnam, to pay the defendants’ fees and to fund construction to the extent that the construction costs exceeded the Loan.

414. Nor was there any evidence as to whether the plaintiffs could have obtained alternate finance on more favourable terms from another lender at the time. Nor was there evidence of the interest and fees generally charged in the market at the time for construction finance.

415. In McCrohon v Harith [2010] NSWCA 67 where McColl JA, with whom Campbell JA and Handley AJA agreed, noted at [122]–[123]:

[122]   In Troulis v Vamvoukakis [1998] NSWCA 237 (at 13) Gleeson CJ (Mason P and Stein JA agreeing) … held … there were “limits to the lengths to which a court may properly go in ‘doing the best it can’ to assess damages”. His Honour observed that the case did not involve damages which were “inherently difficult to quantify, or which involve[d] estimating a risk, or measuring a chance, or predicting future uncertain events.” … his Honour said (at 13) that it was necessary for them “to provide some evidence upon which a rational assessment of value could be made.”

[123]   Gleeson CJ concluded (at 14) in substance, that where the damages were susceptible of evidentiary proof, and there was “an absence of the raw material to which good sense may be applied … [j]ustice does not dictate that … a figure should be plucked out of the air.”

418. Here, all I know is that the plaintiffs stopped ‘dead in their tracks’ after drawdown of the Loan, but I do not know why, nor am I able to form a view as to what the plaintiffs would likely have done had the Broker provided the Services with reasonable care and skill.

419. Aside from the Lender’s failure to prove its cross-claim, the plaintiffs failed to establish any substantive loss or damage as a consequence of the Broker’s breach of contract. However, a plaintiff who proves breach of contract, but fails to prove that any loss or damage was caused by that breach is nevertheless entitled to nominal damages to vindicate the infringement of their legal rights: The Owners of the Steamship “Mediana” v The Owners, Master and Crew of the Lightship “Comet” (“The Mediana”) [1900] AC 113 at 116; Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd [1938] HCA 66; (1938) 61 CLR 286; Chappel v Hart [1998] HCA 55; (1998) 195 CLR 232. While the amount to be ordered is discretionary, it is not unconfined, and the customary amount was recently decided to be $100: New South Wales v Stevens [2012] NSWCA 415; (2012) 82 NSWLR 106 at [36]–[37] (McColl JA); [79] (Sackville AJA) (Ward JA agreeing with both other judgments). I see no reason to depart from that sum in this case, and will so order.

BROKER’S FEE

420. The Broker remains entitled to its Services Fee of $208,923 plus interest.

RELIEF AND ORDERS

421. The plaintiffs have failed against the Lender. The Lender has failed against the plaintiffs. I make no order as to costs between these parties as to their respective claims and cross claim.

422. The plaintiffs have succeeded against the Broker in establishing a breach of contract and unconscionable conduct. The fruits of their victory are modest, being nominal damages only. The Broker has succeeded on its cross claim. The plaintiffs’ claim was of significant complexity, both factually and legally. The Broker’s cross claim was simple and did not occupy any significant portion of the pleadings, evidence or submissions. Weighing whatever portion of the plaintiffs’ costs they may be entitled to recover from the Broker, having regard to their modest success, against the costs of the cross claim, I consider it appropriate to make no order as to costs between these parties as to their respective claims and cross claim.

423. For these reasons, I make the following orders:

1. Judgment for the plaintiffs against the second defendant for nominal damages in the amount of $100.

2. Otherwise dismiss the Amended Summons filed on 21 June 2022.

3. In respect of the Cross-Summons filed on 29 July 2021, judgment for the cross-claimant against the cross-defendants in the amount of $231,598.

4. Dismiss the Cross-Summons filed on 30 August 2021.

5. Make no order as to costs.

6. Direct the parties to notify any errors or omissions within seven days.

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Amendments

11 May 2023 - 1. [99], line 6L Lender’s “subsequent” credit paper.

2. [224], line 6: “Capital” deleted.

3. [231], line 5: “Mr” Goh.

4. [246], line 6: Minimum “Earn” Amount.

5. [257], line 9: Amount “said to be”.

6. [399], line 5: amount amended.

7. [411]: Inclusion of citation for Hoho Property (No 2).

8. [423], Orders: (3) – cross-summons date amended; amount amended.

(4) – cross-summons date amended

Decision last updated: 11 May 2023