Howe v Kwok - [2004] NSWSC 869

No judgment structure available for this case.

CITATION: Howe v Kwok [2004] NSWSC 869

HEARING DATE(S): 13 September 2004; 14 September 2004

JUDGMENT DATE:
28 September 2004

JURISDICTION:
Equity Division

JUDGMENT OF: Pearlman AJ at 1

DECISION: See par 81 of the judgment

CATCHWORDS: Deed of charge to secure loan - whether security limited in duration - whether operative clauses should be set aside - whether unconscionable to rely on deed - whether deed unjust in the circumstances

LEGISLATION CITED: Contracts Review Act 1980 s 7, s 9

PARTIES :
Paul Alexander Howe (Plaintiff)
Wood Yan Kwok (Defendant)

FILE NUMBER(S): SC 5040/03

COUNSEL: C Harris (Plaintiff)
D Sibtain (Defendant)

SOLICITORS: Willis & Bowring (Plaintiff)
Truman Hoyle (Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

PEARLMAN AJ

28 SEPTEMBER 2004

5040/03 - PAUL ALEXANDER HOWE v WOOD YAN KWOK

JUDGMENT

HER HONOUR:

Introduction

1 These proceedings concern a deed of charge over certain properties given by the defendant to the plaintiff to secure a loan made by the plaintiff to a third party.

2 The plaintiff seeks to enforce the security because the third party has failed to repay the loan. He seeks a declaration that the defendant has relinquished his right, title and interest in the properties in favour of the plaintiff, and a declaration that the plaintiff is entitled to be registered as the proprietor of the properties. The plaintiff seeks an order directing the mortgagee of the properties to produce the title deeds for the properties so that the plaintiff may register transfers of the properties in his favour. Alternatively, he seeks an order that the properties be sold by the Public Trustee and the proceeds accounted for in part by repayment to him of the loan and any other money to which he may be entitled.

3 The defendant seeks to meet the plaintiff’s claim in two ways. First, he asserts that, on the true construction of the deed, the defendant’s obligation to secure the repayment of the loan did not continue beyond 90 days after the date of the deed. Secondly, the defendant has instituted a cross-claim against the plaintiff, seeking an order that certain operative clauses of the deed be set aside, or declared void, or varied, on the grounds, first, that it would be unconscionable for the plaintiff to rely upon them in the circumstances, and, secondly that, in terms of the Contracts Review Act 1980, those clauses are unjust in the circumstances relating to the deed at the time it was made.

The factual background

4 The defendant, Wood Yan Kwok (“Kwok”), is a stockbroker who has carried on business in Hong Kong for over 30 years. He has, since about July 2000, conducted a stockbroking business in Box Hill in Victoria through a company known as Tiffit Securities (Australia) Ltd (“Tiffit”). Tiffit is a wholly owned subsidiary of Tai Fat Securities (Australia) Pty Ltd (“Tai Fat”), of which Kwok is the major shareholder.

5 One of the shareholders in Tai Fat was Rocky Kan Ming Cheung (“Cheung”) who from time to time introduced clients to Tiffit. One of the persons so introduced was William Belloc Tien (“Tien”).

6 On 22 November 2000, Tiffit, as stockbroker on behalf of Tien, entered into a transaction to purchase shares in Timemac Solutions Ltd (TML”) on terms that required the transaction to be completed on 5 January 2001. Kwok described this transaction in his evidence as a “pre-arranged purchase”, and I will refer to it as the “TML purchase”. However, it became apparent that Tien was not in a position to provide the funds to settle the TML purchase on the due date. In particular, one of the cheques that he had provided as a deposit had been dishonoured on presentation.

7 This state of affairs caused considerable concern to Kwok. He understood that, if Tiffit were to default in its obligations relating to the TML purchase, it would be subject to contractual and regulatory consequences. Importantly, from Kwok’s point of view, Tiffit would be under the threat of action by the Australian Stock Exchange, such as the imposition of penalties or suspension, and the result might be the collapse of Tiffit.

8 In late December 2000 or early January 2001, Kwok met with Tien, Cheung and a director of TML named Tak Seng Boey (“Boey”). According to Kwok’s evidence, the substance of the discussion at that meeting was an assertion by Tien that he was expecting the receipt from China of funds to cover the TML transaction, that those funds would arrive within one or two months, and that, in the meantime, he had organised a loan from the plaintiff, Paul Alexander Howe (“Howe”). The difficulty was the provision of security for the loan – Tien did not have any available assets that were acceptable to Howe as security, and Tiffit was not in a position to guarantee the loan. Kwok then agreed to furnish as security some property in Sydney that he owned. His evidence was that he made it clear to Tien and Cheung that the security was to be provided for not more than 90 days. Tien said that he would ask Teng Goh (“Goh”) a Melbourne solicitor of his acquaintance, to draw up some documents to record the transaction.

9 Howe was known to Tien. In November 2000, Howe had been introduced to Tien through a person called Michael Lee, and had entered into a previous dealing with Tien.

The sequence of events in early January 2001

10 On 5 January 2001, Howe had two meetings in Melbourne. The first was with Tien. According to Howe’s evidence, they discussed many things, including their previous dealing, as well as a project called Bendigo Innovations Park and a business plan relating to that project. The second meeting was with both Tien and Cheung. At that second meeting, discussions took place as to the loan of money in order to settle the TML transaction. Cheung produced some documents, and Howe stated that any documents would need to be reviewed by Howe’s solicitor, Brian Dean Alcorn (“Alcorn”).

11 At about 10:53 pm on the night of 5 January 2001, Goh sent an e-mail to Alcorn through Tien’s e-mail facility. It was substantially as follows:

Mr Dean Alcorn
Solicitor

I act for Mr Kwok Wood Yan and understand that you act for Paul Howe.

I refer to telephone discussions this evening and forward the following details:

1. I understand that Dean Howe (sic) will be instructing you to prepare a power of attorney to deal with NSW property. The proprietor of the properties is KWOK WOOD YAN of 1st Floor, 48 Main Street, Box Hill, Victoria. Mr Kwok appoints the following person as his attorney: ROCKY KAN MING CHEUNG of 1st Floor, 48 Main Street, Box Hill, Victoria.

2. The properties are:

(a) Unit 1309, Lot 64, Strata Plan No. 51487, No. 197-199 Castlereagh Street, Sydney, NSW.

(b) Unit 1606, Lot 64, Strata Plan No. 51487, No 197-199 Castlereagh Street, Sydney, NSW.

Mr Kwok will provide a copy of the title deeds to me tomorrow. I will forward them to you when I receive the same.

3. Deed to charge properties. The parties are still discussing the parameters of this matter. I will forward details to you when they are available.

...

Teng Goh

12 Some 11 minutes later, Goh sent another e-mail to Alcorn, again through Tien’s e-mail facility, stating that Kwok would not be appointing Cheung as his attorney, and instead would appoint Boey.

13 In cross-examination, Kwok said that he had not spoken at all to Goh but had provided to Cheung the details about the properties, about his proposed attorney, and about his first mortgage over the properties to Westpac Banking Corporation.

14 Alcorn responded to Goh’s e-mails on 7 January, asking for copies of the title deeds, and advising the contact details of his firm.

15 On the morning of 8 January 2001, Goh notified Alcorn by e-mail that Kwok was presently in Hong Kong, and said that, when Alcorn had prepared the power of attorney, he should e-mail it to Kwok in Hong Kong (providing an e-mail address for that purpose) and he sought a copy “for my file records”. Later on the same day, Goh e-mailed Alcorn saying that he had received details of the properties from Kwok and he set them out. He continued by stating: “I understand that Paul Howe is leaving Sydney for Singapore on Wednesday, 10 January 2001. Mr Kwok would appreciate if this matter can be finalised before Paul Howe departs Sydney”.

16 On the morning of the next day, 9 January 2001, Alcorn e-mailed a power of attorney to Kwok, asking him to print off the document, sign it and courier the original back to him. The attached power of attorney provided for the appointment of Boey as Kwok’s attorney for the purpose of signing and executing mortgages and transfers relating to real estate owned by Kwok.

17 At 5:20pm on 9 January 2001, Howe sent an e-mail to Alcorn in the following terms:

Hi Deano

The following key issues need to be catered for:

1. Take control over the 2 properties in Sydney.
2. The owner will fly to Australia tomorrow to sign the mortgage documents and anything else we need.
3. We want no restriction over the properties once they are transferred to me, ie. I can sell them Wednesday afternoon if I want.
4. I will release 150K AUD to William Belloc Tien, CEO Timemac Solution Limited, on Wednesday 10th January via T/T to Commonwealth Bank, 385 Bourke Street, Melbourne – a/c # 063,002 1005, 5346.
5. I will then make available a further 100K for the start up costs of the Bendigo Innovations Park when required.
6. I will give the owner/William the first option to buy back the properties after 30 days. Maybe this is a restriction, if so, please work out the most simple method of execution.
7. Timemac will hold open a board seat for me for 60 days as non-exec director.
8. William as CEO and the board of directors to agree that the Bendigo project will be 51% owned by me or my nominated companies.

That’s enough to start with. Add in the other crap required to make it official and I will call William now to confirm.

If we control the Bendigo project we should all stand to make some serious $$’s.

Cheers,

Paul.

18 Howe was cross-examined about the contents of this e-mail. He said that it contained matters that he had discussed with Tien, but that, at the time he sent it, it was a “wish list”. There were subsequent telephone conversations and the deal that eventuated was simply a loan of $300,000 to Tien, to be secured by a charge over Kwok’s two Sydney properties.

19 Alcorn gave evidence that he prepared documents in relation to the proposed loan on instructions from Howe late in the night of 9 January 2001, and he faxed them to Goh that evening. It is more likely, however, that Alcorn sent the documents that evening, not to Goh, but to Howe, because, at 11:35 pm that evening, Howe sent an e-mail to Goh, with a copy to Tien, forwarding the deed, and asking Goh to review it, forward comments to Alcorn and “confirm everything” before 8:30 am the next morning.

The loan documents

20 The loan documents prepared by Alcorn (and subsequently executed by the parties) comprised a deed (“the loan deed”) and a Real Property transfer in respect of each of the properties owned by Kwok (“the properties”).

21 The loan deed was expressed to be between Howe, Tien and Kwok. It recited Howe’s agreement to advance to Tien $300,000 (defined in the loan deed as “the Principal Sum”), and that Kwok was the registered proprietor of the properties. The material operative provisions were as follows:

1. Howe agrees to advance the Principal Sum to Tien as follows:-

(a) ONE HUNDRED AND FIFTY THOUSAND DOLLARS ($150,000.00) on the date hereof, and

(b) ONE HUNDRED AND FIFTY THOUSAND DOLLARS ($150,000) within seven (7) days of a request in writing by Tien.

2. Tien will repay the Principal Sum to Howe on or before the date which is ninety (90) days from the date hereof.

3. Tien will pay interest at the rate of ten percentum per annum (10%) accumulating on the outstanding balance of the Principal Sum from time to time until the Principal Sum is repaid in full PROVIDED HOWEVER that if the Principal Sum is repaid in accordance with the terms of this Deed then no interest will be payable by Tien to Howe.

4. Kwok agrees to charge the Properties in favour of Howe in order to secure the repayment of the Principal Sum by Tien to Howe on or before the date set out in Clause 2 hereof.

5. Kwok agrees to sign Land Titles Office standard form transfers for each of the Properties to be held in escrow by Howe to perfect the security referred to in Clause 4 hereof.

6. In the event that the Principal Sum is not repaid by Tien to Howe on or before the date set out in Clause 2 hereof then Kwok agrees to relinquish in favour of Howe all of his right, title and interest, whether legal or equitable, in the Properties.

The signing of the loan documents

22 Kwok decided not to execute the loan documents by way of the power of attorney given to Boey, and instead Kwok decided to fly to Sydney and execute them himself. Arrangements were accordingly made for him to meet with Howe and Alcorn at Sydney Airport on the morning of 10 January 2001. Howe was scheduled to fly out to Singapore later that day.

23 On his way to the airport, Alcorn telephoned Goh, presumably to confirm that the loan documents were in order for execution.

24 Howe arranged to meet with Alcorn at the airport, and also to meet with Michael Khan (“Khan”), a business acquaintance with whom Howe had a matter to discuss that was unrelated to his transaction with Kwok and Tien. Khan’s evidence was that Howe, Alcorn and he met at the airport. Howe had the mobile telephone number of Kwok and he called Kwok to arrange to meet Kwok when he had cleared customs. At about 9am, Kwok met up with Howe, Alcorn, and Khan, and all four persons went to a coffee lounge in the airport terminal. Howe, Alcorn and Kwok sat at one table, and Khan waited at a table nearby until they had finished their meeting.

25 Different versions were given to the Court of what occurred at the meeting between Howe, Alcorn and Kwok (“the airport meeting”). Kwok’s version was that Alcorn asked him if he was willing to guarantee Howe’s loan to Tien, and Kwok replied that he was willing, “but only for 3 months”. Alcorn then presented the documents to Kwok, who had not seen them previously. Kwok stated that he “read the documents roughly”. He said that Alcorn did not take him through them line by line, nor did he advise about them, nor did he suggest that Kwok obtain legal advice about their content or meaning. Kwok said that his focus was on two matters – the amount of $300,000 and that the security he was providing would be for a period of 90 days. He said that he did not call any person on the telephone (although he had answered a call from his wife, and spoke to her in Chinese). He signed the loan documents, and asked for copies.

26 Howe’s version was that, after Kwok had identified himself by producing his passport and Hong Kong identification card, Kwok read the documents and then said: “I need to call my solicitor in Melbourne to make sure that he has reviewed and approved these documents”. According to Howe, Kwok then made a telephone call and spoke in a language Howe could not understand. Kwok then said: “Everything is OK, I am ready to sign the documents”. Kwok then signed the loan documents.

27 Alcorn’s version is that, after Kwok had identified himself by producing of his passport, he, Alcorn, read the loan deed to Kwok, and then said to him: “I do not act for you and you will have to contact Mr Goh in Melbourne to get his final OK before you sign the documents”. According to Alcorn, Kwok agreed to do this, and had a conversation on the telephone in a Chinese language, which Alcorn could not understand. Kwok then said: “It’s OK to sign the documents”. He then signed the loan documents, and Alcorn witnessed his signature. Alcorn did not explain the content or the legal effect of the documents to him, and Kwok did not ask for copies of the documents at that time.

28 After the loan documents were signed by Kwok, all three persons went to a newsagency in the terminal and obtained the use of a fax machine. Alcorn faxed an unsigned copy of the deed to Tien. About half an hour later, Tien faxed a copy of the deed which he had signed and Goh had witnessed.

29 I defer for later in this judgment findings of fact as to whether, first, Kwok represented to Howe and Alcorn that he required the security to be limited to a period of 90 days, and, secondly, whether or not he made a telephone call and whether that telephone call was likely to have been to Goh seeking legal advice.

Subsequent events

30 A copy of a faxed letter dated 18 January 2001 from Goh to Kwok was produced in evidence. The letter stated: “We enclose draft agreement as requested by you”. Attached was a draft indemnity agreement proposed to be made between Tien and Kwok under which Tien covenanted to repay the loan within 90 days as provided in the loan deed, and to indemnify Kwok against all loss or damage arising from the loan deed. There is no evidence as to whether or not this indemnity agreement was ever signed. In cross-examination, Kwok explained that he had, subsequently to the airport meeting, received a copy of the loan documents and that he then read the loan deed carefully and understood it. He then asked Tien to provide this indemnity because he, Kwok, knew then that he might be called upon to meet his obligation to Howe. He stated: “I didn’t get any benefit from this transaction at all. That is why I need guarantee for myself. That is why I want William to make an undertaking to me”.

31 On 4 April 2001, Alcorn telephoned Kwok, and reminded him that the time for Tien to repay the loan was due to expire at the end of that week, and he asked Kwok to contact Tien to seek repayment of the loan before its term expired.

32 At 5:41pm on 4 April 2001, Kwok sent an e-mail to Tien. In substance, he reminded Tien that, if he failed to pay, the residual value of the properties would be likely to be insufficient to repay the loan in full, and the shortfall, plus costs and fees, would fall upon Tien. He concluded by stating: “Hence I suggest you should contact Dean immediately schedule for the loan repayment or give alternative proposal to solve the problem”.

33 Tien responded at 6:05 the same day by copying to Kwok an e-mail which he had sent to Howe and Alcorn in which Tien made some suggestion about transferring shares in TML to Howe as security for the loan, and he referred to arrangements he was making to obtain funds to repay the loan from investors in various companies.

34 Kwok stated that, between 4 April 2001 and 19 May 2002, he received no communication from Tien, or Howe, or Alcorn. However, on the morning of 19 May 2002, Alcorn sent the following e-mail to Kwok:

Re Paul Howe

As you will recall you provide security over your 2 (sic) Castlereagh St Sydney properties for a loan to William Tien early last year. This loan has never been repaid. Paul Howe now wishes to realise the security unless the loan plus interest is repaid. Please advise your intentions as soon as possible. If your decision is to relinquish the security properties to Paul Howe please advise the name of your personal banker and their details so that I can contact them. You will also need to advise them that I will be contacting them.

Please respond within 7 days.

D Alcorn

35 Kwok contacted Tien on 21 May 2002 as a consequence of the e-mail he had received from Alcorn. Tien replied on the same day stating that he had secured funds, and that they were subject to the re-listing of TML, which he expected to be resolved within two months.

36 Kwok pressed Tien again, on 5 June 2002 and on 10 June 2002, but had no further communication until he received a copy of a letter dated 25 August 2003 sent by Howe’s then current solicitors, Willis & Bowring, to Westpac Banking Corporation requesting production of the folio identifiers for the properties so that the transfers signed in favour of Howe could be registered. Kwok’s Hong Kong solicitors, Fung, Law & Ng, notified Westpac on 11 September 2003 that they objected to the registration of the transfers and Westpac did not produce the folio identifiers.

37 On 25 September 2003, Howe commenced these proceedings by filing a summons.

38 I turn now to consider the parties’ respective claims.

The construction claim

39 The first issue that arises is whether, properly construed, the loan deed provided, expressly or by implication, that Kwok’s obligation to secure the repayment of the loan did not continue beyond 90 days after the date of the loan deed.

40 There is no express provision in the loan deed to that effect. The only reference to 90 days is set out in clause 2 and that clause contains no more than Tien’s covenant to repay the loan on or before the date that is 90 days from the date of the deed. Kwok’s principal obligations under the loan deed are set out in clauses 4 and 6. Those clauses set out his agreement to charge the properties as security for repayment of the loan, and state that, in the event that the loan is not repaid by Tien to Howe before the date set out in clause 2, then Kwok “… agrees to relinquish in favour of Howe all of his right, title and interest …” in the properties.

41 I cannot discern in the loan deed some implied condition limiting the duration of the security to 90 days. Reading the loan deed as a whole and considering its object and purpose, it is apparent that there is no such limitation. To imply such a limitation into the loan deed as it has been drafted would have an absurd result and defeat one of the main purposes of the loan deed as a security document. Given that Tien would not be in breach of the terms of the loan deed unless he failed to repay the loan within 90 days, and given that the security could only be called upon if Tien breached his obligations, then, if there was such a 90 day limitation, the security could never be called upon whilst it was operative because Tien could not be in breach of the loan deed at any time during that operative period. That would be a result of no benefit whatsoever to a lender.

42 For these reasons, therefore, I reject the claim that the loan deed should be construed in the manner contended for by Kwok.

The cross-claim

43 There are two aspects to the cross-claim. The first is the assertion that it would be unconscionable to permit Howe to rely on the loan deed in circumstances where Kwok represented to Howe at the airport meeting that it was a condition of him providing security that its duration be limited to a period of 90 days. The second is the assertion that the loan deed is unjust in the circumstances relating to it at the time it was made (in terms of the Contracts Review Act).

44 The facts and circumstances that are said to underpin these aspects are inter-related, and it will be convenient to consider those facts and circumstances as a whole before turning to each aspect of the cross-claim. I do so in the following paragraphs:

45 The representation made by Kwok at the airport as to the 90 day limitation. The difficulty here is that, as I have earlier pointed out, there is a conflict in the evidence. Kwok’s evidence is that he made such a representation, but both Howe and Alcorn deny that it was made. It is not easy to resolve this conflict. On the one hand, such a representation is consistent with Kwok’s assertion that he gave such an instruction to Tien and Cheung. But Tien gave no evidence in the proceedings. Cheung swore an affidavit in which he set out his recollection of the matters discussed at the meeting early in January between himself, Tien and Kwok, and such recollection conforms to Kwok’s recollection, but Cheung was not available for cross-examination, and little weight can be put upon his evidence as corroboration of Kwok’s evidence. On the other hand, the negotiations were complete by the time Kwok arrived in Sydney. This is not to say that there was no time for further negotiation (as to which to see par 55), but merely to point out that Kwok was intending to meet with Howe and Alcorn simply for the purpose of signing loan documents which were intended to record the subject of previous concluded discussions between him and Tien and Cheung. It is not likely, in that circumstance, that he would consider it necessary to preface the meeting by making the representation that he alleges. Furthermore, to some extent Alcorn’s evidence on this aspect corroborates that of Howe. It is true that Alcorn was not strictly independent – he was not only Howe’s solicitor at the time, but they are personal friends. Nevertheless, Alcorn is a solicitor, and he gave evidence in a frank manner. Taking all these matters into account, I find as a fact that Kwok did not make any representation as to the 90 day limitation at the airport meeting.

46 Kwok’s command of English. It was asserted that Kwok was under a disadvantage in relation to the making of the loan deed at the airport meeting because English is not his native tongue. Nevertheless, whilst Kwok’s English may be less than perfect, his circumstances indicate that he speaks English sufficiently well for most if not all purposes. I draw this inference from a number of matters. Kwok had sworn his affidavit in the proceedings in English. He had written all his e-mails in the transaction in English. He acknowledged in cross-examination that he had had settlement discussions just prior to the hearing with his solicitor and counsel, without the benefit of an interpreter. He stated that his one academic qualification was a Master of Business Administration degree, obtained in English over two years by distance learning through the University of Western Sydney. He had established a business, Tiffit, in Victoria (although he did not participate in the day to day running of it), he held property in Sydney, and his children were residing in Sydney. Although he stated that he required the assistance of an interpreter to give oral evidence because he did not understand the complexities of the English language, giving evidence in a hearing in court is a quite different circumstance than meeting with business colleagues at the airport to sign documents. For these reasons, I find that Kwok was not under a disadvantage by reason of his less than perfect command of English.

47 Kwok’s lack of legal representation. Kwok asserted that Goh was not his solicitor, that he had not given any instructions to Goh, and had neither spoken to Goh nor received any advice from him. He said that he gave instructions in the negotiations leading to the loan documents solely to Cheung and that he had spoken with Tien. He had not seen the loan documents prior to the airport meeting, had received no advice about them from any solicitor, and was not accompanied by a solicitor at the airport meeting.

48 This evidence conflicts in some details with other evidence. In his e-mail sent to Alcorn on 5 January 2001 (see par 11), Goh stated that he acted for Kwok. Goh furnished information personal to Kwok in that e-mail, in the later one on that day (see par 12), and in a subsequent e-mail (see par 15). The clear implication from Goh was that he had received the information directly from Kwok. So, for example, Goh stated in his e-mail of 8 January 2001 to Alcorn (par 15) that : “I have received the following details from Mr Kwok Wood Yan …”. Furthermore, Goh’s covering letter forwarding the draft indemnity deed to Kwok (see par 30) stated that he enclosed the document “… as requested by you”.

49 It is also necessary to consider in this context whether or not Kwok spoke to Goh whilst at the airport meeting. Alcorn’s evidence was that he asked Kwok to do so, Kwok said he would, he telephoned somebody, spoke in Chinese, and then said: “It’s OK to sign the documents”. Howe said that Kwok had made a telephone call and spoken to someone (in a language Howe did not understand) before Kwok signed the loan documents. I find as a fact that Kwok made a telephone call whilst at the airport meeting, and spoke to some person in Chinese before he signed the documents. But this fact does not establish that Kwok called Goh, or any solicitor, or that he received legal advice during that telephone conversation.

50 Taking into account all the evidence, I find that Goh was not acting as Kwok’s solicitor. I find that Goh received information from Cheung and Tien in relation to details concerning Kwok, but that, although Goh held himself out in the e-mail of 5 January 2001 (par 11) to be acting for Kwok, the inference on the available evidence must be that Goh was proceeding simply on an assumption that instructions were being given to him by Cheung as agent for Kwok. There is no direct evidence, nor is there any evidence from which an inference could be safely drawn, that Kwok received any legal advice as to the content or effect of the loan documents from any lawyer prior to his signing them.

51 Kwok’s understanding of the loan documents when he signed them. Kwok said that he read the loan documents “roughly” when Alcorn presented them to him at the airport meeting. Alcorn stated in cross-examination that he read the operative provisions of the loan deed to Kwok at the airport meeting, but that he did not read the loan documents through line by line.

52 Kwok’s evidence was that he did not understand the full import of the loan deed when he signed it, and, in particular, did not understand that a 90 day limitation was absent from its provisions. He said that he simply focussed on the amount of the loan and on the 90 day period, which he had observed in clause 2.

53 However, this evidence must be evaluated with the evidence of all the surrounding circumstances. Kwok was concerned about the impact on Tiffit of Tien’s failure to provide funds for the TML transaction, and it may be inferred that his main purpose in signing the loan documents was to avert catastrophic consequences for Tiffit. He was also anxious to ensure that the loan documents were signed before Howe left Australia. I infer that these were his primary concerns at the time he signed the loan documents, and they were secondary to his requirement that the security be provided for only 90 days. He admitted in cross-examination that he considered the loan documents to be “important” but there is nothing to show that he obtained legal advice about them, and he chose to come to Sydney and sign them himself. Having regard to all these circumstances, it is unlikely that Kwok was concerned to read the loan documents in detail. He wanted the loan documents to be signed by himself and the other parties, he wanted Howe to make the loan to Tien, and he wanted Tien to provide funds so that Tiffit could meet its obligations.

54 I have not lost sight of the fact that Kwok had not previously seen the loan documents when he arrived at the airport, and that he had had no direct involvement in the negotiations concerning them. But I find that he knew what the loan documents were intended to achieve, and that, although he had been in Hong Kong for most of the relevant time, he had been in communication about the transaction intended to be recorded by the loan documents up to the time of the airport meeting, principally with Cheung but also with Tien.

55 Nor have I lost sight of the fact that the loan documents were prepared late on the evening preceding the airport meeting. Although it was critical from Kwok’s perspective to hold the meeting before Howe departed Australia, and although it was unusual to hold such a meeting in an airport coffee lounge, there is no evidence to establish that Kwok was prevented in the circumstances from negotiating alterations to the documents, or even rejecting them. Howe was not due to fly out till late on 10 January 2001 (he gave evidence that he returned to his home from the airport after his meetings with Kwok and Khan) and nothing in the evidence of Kwok, Alcorn, Howe or Khan suggests that the urgency was so great that any further negotiations were impossible. Support for this conclusion is the inference that Tien and Goh were waiting in Melbourne to execute the documents when Alcorn faxed them from the newsagency, and no doubt they could have been contacted if any further negotiation was required. Furthermore, there is nothing to suggest that Kwok could not have instructed a Sydney solicitor from Hong Kong and arranged for that solicitor to accompany him to the airport meeting. Indeed, Kwok said in cross-examination that one of the reasons that he had chosen to appoint Boey as his attorney was that Boey lived in Sydney “… and he would know some lawyers in Sydney so he could be help to me in this contact …”. Kwok’s choice of Boey as his attorney was made on 5 January 2001, so that there was time before the airport meeting on 10 January 2001 for Boey to introduce Kwok to a lawyer, for Kwok to tell Cheung, Tien or Alcorn that the loan documents should be submitted to that lawyer, or for a lawyer to represent him at the airport meeting.

56 I find it difficult to accept that Kwok did not understand the effect of the loan documents when he signed them or that he signed them under the mistaken belief that they contained a term limiting the duration of the security to 90 days. Such a finding does not accord with all the surrounding circumstances I have outlined. Furthermore, it would be inconsistent with Kwok’s later actions, namely, (a) his seeking of an indemnity from Tien within days of signing the loan documents; (b) his failure to mention the crucial nature of the 90 day limitation in his e-mails to Tien pressing for repayment of the loan or to complain in those e-mails about the absence of such a limitation in the loan documents; and (c) the absence of any mention of the 90 day limitation in the letter sent by his solicitors to Westpac. Kwok was cross-examined at some length about all these matters. His response was that he was focussing simply on getting the loan repaid, but this is an unsatisfactory explanation given his present assertion that the 90 day limitation was a crucial condition.

57 I am not prepared to infer, having regard to all the matters I have set out, that Kwok did not understand what he was signing.

The two aspects of the cross claim

58 In the light of the findings I have made, I turn to consider each aspect of the cross claim by Kwok against Howe.

59 Kwok’s claim that it is unconscionable for Howe to rely upon the loan deed must fail having regard to my finding that Kwok did not, at the airport meeting, make the representation that he asserted, namely, that he required the security to be limited to a period of 90 days. It was, therefore, not unconscionable for Howe, through Alcorn, to present Kwok with a loan deed that did not contain such a provision, nor was it unconscionable for Howe to request Kwok to sign the loan deed in those circumstances.

60 In the defence to the amended statement of claim, claims of waiver and estoppel were raised on behalf of Kwok. Those claims were not fully argued, but, as they each depended upon a finding that Kwok made the representation as to the 90 day limitation at the airport meeting, those claims must be rejected, given my finding that no such representation was then made.

61 The next aspect is the claim under the Contracts Review Act. Section 7 of that Act entitles the Court to grant relief (including refusing to enforce any of the provisions of a contract) where the Court finds that a contact or a provision of a contract has been unjust in the circumstances relating to the contract at the time it was made. Section 9(1) requires the Court, in determining whether a contract or a provision of a contract is unjust, to have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of compliance with the contract or in the event of non-compliance or contravention of its provisions. Section 9(2) contains a list of matters to which the Court shall have regard to the extent that they are relevant.

62 Mr Sibtain, counsel for Kwok, did not suggest that there was any public interest element in this case, and I think that is correct. However, he relied on some of the subsections of s 9(2) and I deal with each of those in turn.

63 Whether or not prior to or at the time the contract was made its provisions were the subject of negotiation:

64 Whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract:

65 Whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract:

66 No direct issue was raised concerning the construction of cl 6 of the loan deed, particularly in relation to the use of the word “relinquish”. The loan deed could have been better expressed. But I think that, read as a whole, the loan deed provided for a forfeiture of the properties so as to secure to Howe the sum of $300,000 and any interest to which he may have become entitled, if Tien defaulted in his obligations. This implies, I think, that if there was to be a residue after payment to Howe of the money to which he might be found to be entitled, and, presumably, after payment out of the first mortgages to Westpac, then that residue would accrue to Kwok.

67 Furthermore, as Mr Harris, counsel for Howe, pointed out, no evidence was adduced of the value of the properties at the time the loan documents were signed, and it cannot be assumed that their value would have exceeded then or now the amount of the loan and the amount owing on the first mortgages to Westpac.

68 For these reasons, I reject the claim that the loan deed contained provisions not reasonably necessary for the protection of the legitimate interests of Howe.

69 Where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed:

70 However, for the reasons I have set out in par 66, I think that the meaning of the loan deed is tolerably plain, and I do not think that its language is unintelligible.

71 Whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act:

72 The extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not the party understood the provisions and their effect:

73 Once again, I take this matter into account in Kwok’s favour, but it is not determinative having regard to all the circumstances. Kwok was anxious to sign the loan documents for the reasons I have set in par 53, and he was not prevented from seeking legal advice had he chosen to do so. Furthermore, Kwok’s command of English was such that he was able to read the loan documents and understand them. His own evidence establishes as much when he stated that, after he received copies of the loan documents subsequent to the airport meeting, he read them and understood their full import.

74 I conclude, taking into account all the matters that I have set out, that Kwok is not entitled to relief under the Contracts Review Act.

Conclusion and orders

75 For the reasons that I have set out, I have concluded that Howe has established his claim to enforce the security the subject of the loan documents, and that Kwok has not made out a defence to that claim nor has he established his cross-claim.

76 The orders sought by Howe were in the alternative (see par 2). I think it is appropriate, in all the circumstances of the case, to make those orders which contemplate a sale of the properties by the Public Trustee rather than orders resulting in the registration of Howe as registered proprietor of the properties.

77 However, it would be appropriate to give Kwok an opportunity to pay to Howe the loan and any other money to which Howe may be entitled prior to, and for the purpose of avoiding, the sale of the properties. I propose to allow a period of 28 days for that to occur.

78 Another issue relating to the orders is whether Howe is entitled to interest on the loan amount. Mr Harris has conceded that the loan deed provides security only for the amount of the loan, and does not secure any interest payable in respect of the loan. That is a concession properly made, in my opinion, having regard to the terms of cls 4 and 6 of the loan deed.

79 The question is, however, whether Howe is entitled to interest at the rates payable under the Supreme Court Act 1970. It seems plain that he is entitled to interest under s 94 of that Act. The issue is the date from which interest at the rates becomes payable. Mr Harris contended that the relevant date is 19 May 2002, being the date upon which Alcorn sent and e-mail to Kwok demanding payment (see par 34). Mr Sibtain contended that the e-mail of 19 May 2002 does not amount to a demand for repayment of the loan or the enforcement of the security. My conclusion is, however, that, despite its ambiguities, the e-mail of 19 May 2002 does constitute a demand under the loan deed, and that 19 May 2002 is the date upon which Howe’s cause of action arose. Accordingly, I propose to order interest from that date.

80 As to costs, the determinations that I have made are such that Howe is wholly successful in the proceedings, and he is entitled to an order for costs in his favour.

81 My orders, therefore, are as follows:

1. I declare that the defendant has relinquished, in favour of the plaintiff, all his right, title and interest, both legal and equitable, in the properties;

2. I order the defendant to pay to the plaintiff within 28 days of the date of this judgment the sum of $300,000 together with interest calculated on that sum from 19 May 2002 at the rates payable under the Supreme Court Act 1970;

3. I order the plaintiff within 14 days of receipt of the amounts referred to in order (2) to deliver to the defendant or his solicitors the signed transfers of the properties described in the schedule to these orders (“the properties”) presently held in escrow by the plaintiff.

(a) I order that the properties be sold by the Public Trustee out of Court either by public auction or private contract and either for cash or on such terms as the Public Trustee may think proper but subject to a reserve of 90% of the amount at which the properties are valued by the Valuer General at the date of this order;

(c) I order that the Public Trustee be and the Public Trustee is hereby appointed to transfer the properties to the purchaser or purchasers thereof upon any such sale;

5. I order the defendant to pay the costs of the plaintiff as agreed or as assessed.

6. I grant liberty to either party to apply on seven days notice in relation to further consideration of these orders.

7. The exhibits may be returned.

Schedule to orders:

1. The land described in folio identifier 64/SP 51487, being the strata unit known as unit 1309, 197-199 Castlereagh Street, Sydney.

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Last Modified: 09/29/2004

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Howe v Kwok [2004] NSWSC 869

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CITATION:	Howe v Kwok [2004] NSWSC 869
HEARING DATE(S):	13 September 2004; 14 September 2004
JUDGMENT DATE:	28 September 2004
JURISDICTION:	Equity Division
JUDGMENT OF:	Pearlman AJ at 1
DECISION:	See par 81 of the judgment
CATCHWORDS:	Deed of charge to secure loan - whether security limited in duration - whether operative clauses should be set aside - whether unconscionable to rely on deed - whether deed unjust in the circumstances
LEGISLATION CITED:	Contracts Review Act 1980 s 7, s 9
PARTIES :	Paul Alexander Howe (Plaintiff) Wood Yan Kwok (Defendant)
FILE NUMBER(S):	SC 5040/03
COUNSEL:	C Harris (Plaintiff) D Sibtain (Defendant)
SOLICITORS:	Willis & Bowring (Plaintiff) Truman Hoyle (Defendant)