Hoyisun Pty Ltd v Corelli
[2021] VCC 1197
•25 August 2021
| IN THE COUNTY COURT OF VICTORIA AT Melbourne COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
BANKING AND FINANCE List
Case No. CI-17-04582
| Hoyisun Pty Ltd | Plaintiff |
| v | |
| Patricia Corelli and Martin Torimaru | Defendants |
---
JUDGE: | His Honour Judge Woodward | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 10 and 16 to 20 November 2020, final written submissions dated 2 February 2021 | |
DATE OF JUDGMENT: | 25 August 2021 | |
CASE MAY BE CITED AS: | Hoyisun Pty Ltd v Corelli & Anor | |
MEDIUM NEUTRAL CITATION: | [2021] VCC 1197 | |
REASONS FOR JUDGMENT
---
Subject: CONTRACTS
Catchwords: Loan contract – whether principal sum advanced – whether plaintiff engaged in statutory unconscionable conduct – whether Garcia defence applies
Legislation Cited: Australian Securities and Investments Commission Act 2001 (Cth) ss12CB and 12CC, Australian Consumer Law ss 21
Cases Cited:Garcia v National Australia Bank (1998) 194 CLR 495, Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37, Jams 2 Pty Ltd v Stubbings [2020] VSCA 200, Commercial Funds Pty Ltd v Fraval & Anor [2020] VCC 1787, Australian Securities and Investments Commission v Kobelt [2019] HCA 18, Baden v Société Générale pour Favouriser le Développment du Commerce et de l’Industrie en France SA [1993] WLR 509, State Bank of New South Wales v Chia (2000) 50 NSWLR 587, Barclays Bank Plc v O’Brien [1994] 1 AC 180
---
APPEARANCES: | Counsel | Solicitors |
| For the plaintiff | Mr M Garrett | JT Lawyers |
| For the second defendant | Ms L Collaris | YSL Law |
| For the third defendant | Mr S Jenkins | DSS Law |
HIS HONOUR:
Summary and outcome
1The plaintiff (“Hoyisun”) claims $485,842 from the second defendant (“Ms Corelli”) and the third defendant (“Mr Torimaru”) under guarantees given by them of two loans by Hoyisun to the first defendant (“Tricore Management”). Tricore Management is now in liquidation and did not take part in the proceeding. The first loan was agreed on 3 April 2017 and was for a principal sum of $242,967, for a term of three months (“first loan”). The second loan was agreed on 3 June 2017 and was for a principal sum of $140,120, for a term of two months (“second loan”).
2The alleged liability of Ms Corelli and Mr Torimaru under their guarantees of both loans was secured by unregistered second mortgages over their family home at 7 Dafield Court, Rosanna (“Rosanna property”) and an investment property at 4/147 Purinuan Road, Reservoir (“Reservoir property”). Mr Torimaru is the sole registered proprietor of the Rosanna property, and the first mortgage is held by AMP Bank Ltd (“AMP”). Ms Corelli and Mr Torimaru are joint proprietors of the Reservoir property and the first mortgagee is held by Westpac Banking Corporation (“Westpac”).
3Tricore Management and Ms Corelli were victims of a fraud, perpetrated in the circumstances described below by Fonda Arvanitis (“Fonda”) or Martin Purcell (“Purcell”) (or both). Most of the funds advanced by Hoyisun under the loans were diverted at the instigation of either Fonda or Purcell, apparently for their own benefit. However, there was no evidence of substance that Hoyisun or its director Mr Chong were involved in or knew of the fraud or were otherwise complicit in the conduct of Fonda and Purcell. Indeed, it seems likely that Hoyisun and Mr Chong were also misled and lied to by Fonda and Purcell. Perhaps unsurprisingly, an attempt by the defendants to serve third party proceedings on Purcell was unsuccessful and neither he nor Fonda took any part in the proceeding.
4Ms Corelli’s defences are, first, that the first loan was not advanced to Tricore Management as required by the terms of the first loan and, second, that Hoyisun engaged in unconscionable conduct contrary to statute. Mr Torimaru joins with Ms Corelli in the unconscionable conduct claim, but not the “no advance” argument. He also raises a defence based on the principles in Garcia v National Australia Bank (“Garcia”).[1] Ms Corelli expressly withdrew her defence that the interest claimed by Hoyisun was a penalty and Mr Torimaru did not press that part of his defence.
[1] (1998) 194 CLR 495.
5In my judgment, both Ms Corelli’s defences must fail. Mr Torimaru’s defence based on unconscionability must likewise fail. However, Mr Torimaru’s Garcia defence should succeed. I set out below my reasons, dealing in turn with:
(a) whether the first loan was advanced to Tricore Management;
(b) whether Hoyisun engaged in unconscionable conduct contrary to statute;
(c) Mr Torimaru’s Garcia defence.
6Based on those reasons, I will give judgment for Hoyisun against Ms Corelli in the sum of $485,482.30, plus interest pursuant to s60 of the Supreme Court Act 1986 (Vic) and I will dismiss Hoyisun’s claim against Mr Torimaru. I will dismiss Ms Corelli’s counterclaim. On Mr Torimaru’s counterclaim, I will declare that the first loan agreement, the second loan agreement (including, in each case, the guarantees) and the mortgages are unenforceable as against Mr Torimaru.
7I will invite the parties to submit draft orders giving effect to these reasons. If the parties are unable to agree orders for costs, I will invite further submissions on costs, noting that (in addition to any relevant offers that may have been made) clause 18 of the first loan and second loan may be relevant to the basis for assessing costs as between Hoyisun and Ms Corelli. Further, the very late addition of Mr Torimaru’s Garcia defence on which he has succeeded, may be relevant to any order for costs in respect of Hoyisun’s claim against him.
Factual background
Tricore’s cash flow difficulties
8Mr Torimaru and Ms Corelli are husband and wife. Ms Corelli is the sole director of both Tricore Management and Tricore Matrix Pty Ltd (“Tricore Matrix”) (together the “Tricore businesses”). Tricore Matrix was a registered training organisation that ran nationally accredited training courses across various industries such as construction, security and childcare. It received government funding from the Department of Education for that purpose. The funding was paid six to eight weeks after the relevant training had been provided. Tricore Management was the trustee of the Tricore Matrix Trust and had a service agreement with Tricore Matrix.
9In the period leading up to 27 October 2016, Tricore Matrix incurred debts to the Australian Taxation Office (“ATO”) totalling $262,890.62. The ATO sought to recover the debts by issuing a garnishee notice to the Department of Education in respect of the funding that it provided to Tricore Matrix. In response to the garnishee notice, the Department of Education put a hold on funding to Tricore Matrix. This led to Tricore Matrix being unable to pay debts to other creditors and in January 2017, one of those creditors (DNA Construction Pty Ltd) served a statutory demand on Tricore Matrix for $51,997.75 and later commenced winding up proceedings against Tricore Matrix. The winding up application was listed for hearing on 7 April 2017.
Initial meetings with Fonda and Purcell
10This combination of events placed Ms Corelli and her companies under considerable financial pressure. By early 2017, Ms Corelli was looking for funding to pay overdue creditors and provide some cashflow to Tricore Matrix until the Department of Education funding was restored. Through a contact of her son, Ms Corelli was introduced to Simon Khoury, who later introduced her to Fonda. She met with Fonda and Purcell in January or February 2017 to discuss funding options and had regular meetings and other communications with either or both of them over ensuing weeks.
11At that initial meeting, Fonda and Purcell said that they were developers and that they worked with overseas funders to fund their projects. They said that they had a pool of brokers and funders and that they would approach their contacts to obtain funding for the Tricore businesses. Ms Corelli took with her to that meeting a business portfolio, copies of which she gave to Fonda and Purcell.
12There is some dispute about precisely what documents were included in the business portfolio and, in particular, whether it included six months of bank statements for the AMP and Westpac loans for (respectively) the Rosanna and Reservoir properties. However, nothing of substance turns on this, because there is no suggestion that these were included in the documents passed on by Purcell to Mr Chong on behalf of Hoyisun. If it were necessary to decide, I would accept that they probably were included, for the reasons set out in the submissions of Ms Collaris, counsel for Ms Corelli.[2]
[2] At [16].
13By the time Tricore Management began the process of applying for the first loan, Tricore Matrix had repaid the ATO debt, the garnishee notice was removed and Tricore Matrix had entered a new funding contract with the Department of Education. However, since the government funding was paid in arrears, Tricore Matrix still required short-term funding to cover overdue debts and provide cash flow.
Hoyisun becomes involved
14At about the same time, Hoyisun had some money left over from a development project in Richmond and Mr Chong decided that Hoyisun should branch out from its long-standing business as a mortgage broker (under the name “Ace Capital”), into direct lending. Mr Chong’s son Aaron was also involved in the mortgage broking business. The prospect of a loan by Hoyisun to Tricore Management was introduced by Purcell to Mr Chong in around late March 2017. The first loan from Hoyisun to Tricore Management was Hoyisun’s first foray into direct commercial lending.
15In late March 2017, Mr Chong heard through his son Aaron that Purcell and Fonda were looking for some short-term funding. Aaron had heard about Purcell and Fonda’s interest in short-term funding from his friend Tuan Nguyen. Mr Nguyen was at the time engaged to Nancie Hu. Ms Hu is a solicitor who acted for Hoyisun in relation to the loans to Tricore Management in circumstances described below. Purcell and Fonda telephoned Mr Chong on 31 March 2017 and they agreed to meet the following morning (Saturday 1 April 2017) to discuss the funding. Mr Chong’s evidence was that the meeting was arranged for the Saturday rather than the following week, because Purcell and Fonda had said that their clients needed the funds urgently.
16The meeting was attended by Purcell, Fonda and Mr Chong (Mr Chong’s son Aaron was there only briefly). Mr Chong’s evidence was to the effect that Purcell and Fonda were involved in arranging investments in property developments and their clients were looking to borrow money to invest in a development at Thredbo. Purcell rang Ms Corelli during the meeting in front of Mr Chong. Ms Corelli mentioned during the phone call (among other things) that they had two properties with mortgages and provided Mr Chong with ballpark valuations and the amounts owing under the mortgages. Mr Chong said he asked Ms Corelli why they did not borrow the $200,000 they needed from a bank, and she explained that this would take too long and they would miss out.
17The meeting concluded at around 12.00noon. Later that day and on Sunday 2 April 2017, Mr Chong and Purcell exchanged a series of emails requesting and attaching various financial documents relevant to Ms Corelli and her companies, and Mr Torimaru. It seems likely that these were sourced from the business portfolio provided by Ms Corelli to Purcell and Fonda earlier that year.
18As noted above, it is not in dispute that the documents provided by Purcell to Mr Chong did not include a full sixth months of AMP and Westpac bank statements and, in particular, the AMP statement for January 2017 that showed a dishonour payment. Given the nefarious role apparently being played by Purcell and Fonda in these dealings, it is at least plausible that they deliberately withheld from Mr Chong any documents that may have jeopardised the making of the loans.
19At one point in that exchange, Mr Chong sent to Purcell (at Purcell’s request), a letter on Ace Capital letterhead dictated by Purcell and addressed to “KB Corporate Pty Ltd” confirming that “we will be providing funds for the Tricore Matrix Trust an amount of no less than $200,000” and stating:
“We understand the urgency of the matter and hope to be in a position to release funds to Tricore to be disbursed to KB Corporate under the instructions of the borrowers. If no such instructions are received from the borrowers, funds will be released directly to Tricore.”
20On the morning of Sunday 2 April 2017, Mr Chong emailed Purcell requesting Ms Corelli and Mr Torimaru’s personal tax returns. Purcell responded that he would organise them that afternoon, adding (errors in original):
“Joo on an urgent note. Kane is really gragging his feet,, then vendor of the contract made it very clear we need to do transfer no later than mir afternoon. I will keep working on kane please let me know if there is a way of fast tracking or signing a consent Or a caveat accepted for the funds”.
21Mr Chong’s evidence was that he had no idea what the purpose of the loan was, beyond it having something to do with Thredbo. He said he also had no idea who KB Corporate or Kane was and did not conduct any searches or make other enquiries to find out. He did not request a contract of sale or other information about the value of the Thredbo property. As to the letter about Kane dragging his feet, Mr Chong said he had no idea what the email was talking about. He did not know who Kane was, so he just ignored the email.
22During the afternoon of Sunday 2 April 2017, Purcell forwarded to Mr Chong an email from Ms Corelli to Purcell stating: “Please find attached all documents as requested. Please direct & disburse funds $200,000 on behalf of Tricore Matrix immediately to the following Seoud Solicitors Trust Account”, followed by bank account details for a CBA bank account. Mr Chong could not recall having discussions with Purcell about this instruction, but said there was nothing unusual about an instruction to disburse funds into a solicitor’s trust account. In cross-examination, Mr Chong said that he believed Seoud solicitors acted for Ms Corelli, but agreed that he did not make any inquires to confirm this.
23The attachments to the letter comprised current bank statements, a “Letter of Offer” signed and dated by Ms Corelli (both as director of Tricore Management and as guarantor) and by Mr Torimaru, as guarantor, and an Ace Capital “Finance Appointment Deed” signed by Ms Corelli as director of Tricore Management and witnessed by Mr Torimaru. Both documents identified the “Security” as comprising second unregistered mortgages supported by caveats over each of the Rosanna property and Reservoir property and personal guarantees from Ms Corelli and Mr Torimaru.
24It seems that duringthe weekend, Tuan Nguyen arranged for his fiancée Ms Hu to act for Hoyisun in relation to the proposed loan. At 10.22pm on Sunday 2 April 2017, Ms Hu emailed Chong confirming that she would prepare the loan documents that night, to be ready for signing the following morning. Her email included the following:
“Just a note – it would be good if they could also arrange for another lawyer to be present to give them advice on the documents and loan and confirm that they understand what they are signing as there have been cases where borrowers have tried to get out of loans by claiming that they didn’t understand what they were signing. If they cannot get a lawyer present then they need to sign an acknowledgment that they have been offered the opportunity to obtain independent legal advice and they have declined to do so.”
25A short time later, Ms Hu emailed Ms Corelli (copied to Mr Chong) to arrange a time for the meeting, stating: “Please ask your lawyer to come too and also provide your lawyer’s details”. Ms Corelli replied at 12.23am on 3 April as follows: “The only issue is we can not get a lawyer at such short notice, is there an alternative? Is it to be a witness for us?”.
26Ms Hu sent two further emails to Ms Corelli that night. The first seemed to cross with Ms Corelli’s at 12.23am, explaining that the earlier letter of offer contained an error and attaching a corrected version. The second was at 12.29am, apparently in response to Ms Corelli’s 12.23am email. This reply stated: “Sorry just saw your previous email. Let’s meet at Ace Capital tomorrow at 9 am and you can sign the letter of offer again tomorrow together with the loan documents”. Neither of Ms Hu’s emails responded to Ms Corelli’s questions about being unable to have a lawyer present at the meeting the following morning.
The 3 April meeting
27The meeting the following morning was held at the offices of Ace Capital at 843 Dandenong Road, Malvern East. It was attended by Mr Chong, Ms Hu, Ms Corelli and Mr Torimaru. Mr Chong’s son Aaron was also present intermittently, but was not involved in any of the relevant discussions. The meeting was scheduled for 9.00am, but there is a conflict in the evidence of Mr Chong and Ms Hu, on the one hand, and Ms Corelli and Mr Torimaru, on the other, about when the meeting started, how long it lasted and what was discussed.
28Mr Chong’s evidence was that the meeting commenced at 9.00am and lasted one to two hours. Ms Hu said it lasted “a few hours”. Both Ms Corelli and Mr Torimaru recalled that Mr Chong and Ms Hu were running late and there was a problem with the keys to the office. Mr Torimaru thought the meeting started at around 9.20am and lasted about 20 minutes. Ms Corelli’s evidence was that it lasted about half an hour, maybe a bit longer. On the question of timing, it is not in dispute that Ms Hu first attempted to print out the first loan agreement at 9.47am.
29It is also not in dispute that the meeting commenced with introductions and (as Mr Chong described it) the exchanging of pleasantries and general chit chat. In her submissions, Ms Collaris for Ms Corelli draws attention to the evidence by Mr Chong and Ms Hu about the purpose of the first loan. Mr Chong’s evidence was that Ms Corelli told him that “she runs a training centre”, but he could not recall or denied any discussion about the business or the purpose of the loan beyond that. He accepted that the Thredbo project was not discussed. Ms Hu’s evidence was more specific. She said:
“I recall there being discussions about the business, the Tricore business being a security training RTO and how they were government funded and I recall thinking that, you know, the business was doing really well. Patricia came across to me as someone that was quite, like a savvy businesswoman …
I believe they needed some urgent funding because of the cash flow delay in getting the grants from the government that they get paid for the RTO …
I thought there was mention of ATO and it was to pay, like an ATO debt but I’m not sure. Like I wasn’t really paying attention to the discussion.”
30The substance of the evidence of Mr Chong and Ms Hu about the rest of the meeting is that Mr Chong took Ms Corelli and Mr Torimaru through the terms of the letter of offer, referring to the amount of the first loan, the repayment amount and the term. Mr Chong said that he also explained that the loan was secured by second unregistered mortgages supported by caveats over the Rosanna and Reservoir properties and that Ms Corelli and Mr Torimaru would be providing personal guarantees. He also discussed refinancing the loan with a proposed ANZ “low doc” loan.
31Mr Chong’s evidence was that he then handed the meeting over to Ms Hu, who went through the first loan agreement summary and referred to the caveats and second unregistered mortgages. He said he recalled Ms Hu saying “If you don’t pay the loan, you’re going to lose your houses, you know? I hope you understand that”. Mr Chong said Ms Hu spoke about the loan agreement for 15 to 20 minutes, and then asked Corelli and Torimaru to read the loan agreement; which they did in his presence, taking 5 to 10 minutes. He said they then initialled and signed the loan agreement. He said that this occurred at least 45 minutes after the meeting started.
32Mr Chong accepted that he did not inform Ms Corelli or Mr Torimaru that they should obtain independent legal advice. He also accepted that he did not receive a signed acknowledgement from them that they had been offered the opportunity to obtain independent legal advice and had declined to do so. He said in substance that these were matters that he delegated to Ms Hu.
33Finally, on the manner of the advance of the funds, Mr Chong said that at the end of the meeting on 3 April 2017, he confirmed that he would “transfer the funds to the solicitor’s trust account”. He added that Ms Corelli and Mr Torimaru thanked Mr Chong and there was a general discussion about how happy they were with the service. Mr Chong sent an email that day to Ms Corelli (among others) attaching a photograph of an ANZ transfer receipt, confirming the funds had been transferred to the Seoud Solicitors trust account. Ms Corelli sent an email reply that day, thanking Mr Chong.
34Ms Hu’s evidence was broadly to the same effect as Mr Chong’s. She also said that after Mr Chong had been through the letter of offer, she completed details of the loan agreement on her laptop and sent emails to Aaron Chong at about 9.47am attaching the loan agreement and at 10.00am attaching the mortgages and the memorandum of common provisions, and that Aaron then printed out copies. Ms Hu said she then gave Ms Corelli and Mr Torimaru copies of the first loan agreement, and pointed out the parts of the schedule to show that it matched the letter of offer and said that the lender would lodge caveats and unregistered mortgages. Ms Hu said that she made sure that Ms Corelli and Mr Torimaru were aware that: “…they were personally guaranteeing the loan so the borrower doesn’t pay them, they personally get sued and their properties are on the line”.
35Ms Hu’s evidence was that she said to Ms Corelli and Mr Torimaru: “You need to make sure that you understand the agreement. You need to read it carefully and initial every page to indicate that you have read and understood each agreement”. She said that she went through the gist of the clauses and that Ms Corelli and Mr Torimaru read through the loan agreement in her presence. While they didn’t read it aloud, Ms Hu was confident that they read through the documents because she made sure that they initialled each page and read through each page. She thought this process took “at least I’d say half an hour or more…Probably even an hour or more, like we were there for a few hours”.
36On the issue of legal advice, Ms Hu gave evidence to the effect that she informed Ms Corelli and Mr Torimaru that they should obtain independent legal advice, but they indicated that they needed the loan urgently and wanted to proceed with signing without seeing their own solicitor. Ms Hu accepted that she did not prepare a separate acknowledgment, but that she considered that she did not need to do so, because the acknowledgement is contained in the first loan agreement at clause 19. Ms Collaris for Ms Corelli submits that Ms Hu’s evidence on this should not be accepted because clause 19 of the first loan agreement is in very different terms to the acknowledgement that she had advised Mr Chong to obtain just 12 hours earlier.
37Ms Corelli disagreed that Mr Chong took her through the terms of the letter of offer. She accepted that a future refinancing of the first loan was discussed, but disagreed with the suggestion that Mr Chong handed the meeting over to Ms Hu. She said: “We got all the documents at the same time”. Ms Corelli also disagreed with the proposition that Ms Hu discussed the first loan agreement for about 15 to 20 minutes. She said, “We initialled and signed as soon as it came to the table, that was it”.
38According to Mr Torimaru, the process of going through the documents was even more pre-emptory. He said: “I sat at the meeting and signed something. Flick, sign; flick, sign; flick, sign – paperwork done – that’s what I remember”. He too disagreed that Mr Chong handed the meeting over to Ms Hu after discussing the revised letter of offer. As to the suggestion that Ms Hu spoke with Ms Corelli and him for about 15 to 20 minutes, Torimaru said, “No … I don’t remember. That doesn’t sound right to me because I don’t remember being in there that long”.
39On the question of being offered the opportunity to obtain independent legal advice, Ms Corelli rejected the suggestion that anything was discussed about a lawyer or obtaining legal advice at the meeting.
40Similarly, Mr Torimaru said that he did not remember everything at the meeting, but there was “no way” that Ms Hu suggested that Ms Corelli and Mr Torimaru go and get legal advice. He said: “My wife [and I] came in; we sat down – it was very quick. So I don’t know how they could have said all that stuff”. He denied that Ms Hu directed Ms Corelli and him to clause 19 of the first loan agreement about independent legal and financial advice. He said: “I’ve never been told to get a solicitor. The first time I’d been told to get a solicitor, I would have done it”.
41Mr Torimaru was equally definitive about being told that the mortgage extended to the Rosanna property. His evidence was:
“Nancie told you about the loan being secured over your Rosanna and Reservoir properties, hadn’t she?‑‑‑No.
And she said ‑ ‑ ‑?‑‑‑I’ve never - I’ve never been under the impression that it was for my - my Rosanna property. I’d never ‑ ‑ ‑
You ‑ ‑ ‑?‑‑‑I would never have agreed to go and help Trish with that.
All right?‑‑‑No chance.
You’re saying that you understood, are you - is your evidence that you understood it was only secured over Reservoir?‑‑‑That’s what I’m saying.
…
And so ‑ ‑ ‑?‑‑‑This was my house. I would not - it had nothing to do with me, this loan. Trish has an investment property with me; we share it. So she needed help; I would volunteer to help her with that. But not on my personal thing, no.
Witness credit
42The issue of the reliability of the evidence of Ms Corelli, Mr Torimaru, Mr Chong and Ms Hu (including issues of credit) features prominently in the submissions on behalf of all the parties in this proceeding. It looms largest in resolving what occurred at the meeting on 3 April 2017, so it is appropriate to address it at this point in the factual narrative.
43Mr Garrett’s attack on the credit of both Ms Corelli and Mr Torimaru relies primarily on inconsistencies between affidavits sworn by them early in the proceeding and their oral evidence at trial. Hoyisun had obtained default judgments on 24 October 2017 against Mr Torimaru and on 5 June 2018 against Ms Corelli. On 20 August 2018, the defendants issued a summons seeking to set aside the default judgments. Ms Corelli’s affidavit in support of that summons is dated 6 September 2018 and Mr Torimaru’s is dated 11 September 2018. On 18 September 2018, orders were made setting aside the default judgments, on the basis of the summons and the supporting affidavits.
44In relation to Ms Corelli’s credit, Mr Garrett points to statements in Ms Corelli’s affidavit to the effect that she had not engaged Seoud Solicitors at any time before being told by Fonda on 2 April 2017 that Mr Chong had required that the first loan be advanced into Seoud Solicitor’s trust account. He submits that the affidavit “conveyed the impression that Corelli had had no dealings with Mr Seoud prior to the first loan”. However, discovery from Seoud Solicitors in the proceeding (the claim against them was resolved shortly before the trial), included an email sent by Ms Corelli to him on 17 March 2017 attaching a copy of a Tricore cheque for $29,727.24, made out to same trust account that Ms Corelli later nominated as the account to receive the first loan.
45Ms Corelli’s evidence about the cheque was that she gave it to Mr Seoud as a favour to Fonda. She said that she did not mention this in her affidavit because it did not seem relevant at the time to her application to set aside the default judgment. Mr Garrett submits in effect that this explanation was not credible, and that Ms Corelli’s evidence should not be accepted unless corroborated by contemporaneous documents. He later added that the affidavit (which, unlike Mr Torimaru, Ms Corelli did not seek to disavow) established that Ms Corelli clearly understood the terms of the loan agreement.
46Turning to Mr Torimaru, Mr Garrett refers to numerous instances where his oral evidence contradicted his affidavit or was otherwise not credible. These included:
(a) Mr Torimaru’s evidence that he did not recall Mr Chong saying anything about the loan during the 3 April meeting, contrasted with statements in his affidavit about what was discussed during the meeting, particularly concerning the refinancing of the first loan with a bank lender;
(b) the implausibility of Mr Torimaru’s evidence that he did not recognise the first loan agreement document, when they were central to a proceeding in which he has been a defendant since 2017;
(c) the statements in the affidavit showing that Mr Torimaru understood that the Tricore businesses had been suffering cash flow difficulties and thus needed the funding to support its business;
(d) references in the affidavit to Mr Torimaru being aware of the “countless telephone calls and emails” in the days before the 3 April meeting; and
(e) the absence of any complaint in the affidavit about Mr Torimaru being unaware of the purport and effect of the transactions.
47Mr Garrett next deals with the evidence of Mr Torimaru and Ms Corelli seeking to explain these contradictions and inconsistencies. He notes that Mr Torimaru first gave evidence to the effect that Ms Corelli prepared the affidavit and he did not read it before swearing it, but later accepted that he would not have sworn the affidavit on the bible at the Heidelberg Police Station had it not been the truth. Similarly, Ms Corelli gave evidence that she drafted Mr Torimaru’s affidavit and regarded it as accurate, and that she explained “the gist of it” to Mr Torimaru before he signed it. Mr Garrett submits that:
“In summary, the effect of the evidence of Torimaru and Corelli is that Corelli regarded Torimaru’s affidavit as truthful when she drafted it; that Corelli explained it to Torimaru before he swore it; and that Torimaru regarded the both the explanation, and the affidavit itself, as truthful when he swore it. In those circumstances, the affidavit should be regarded as accurately reflecting Torimaru’s understanding of the purport and effect of the loans, irrespective of whether Torimaru read the affidavit in its entirety before swearing it.
The affidavit is fundamentally inconsistent with Torimaru’s assertions that he did not understand the purport and effect of the loans. As he was prepared to rely on his affidavit to his benefit at an earlier stage of the Proceeding to obtain orders setting aside default judgment, it is submitted that as it reflects poorly on his credit that he sought to disavow the affidavit at trial; and that Torimaru’s evidence should not be accepted unless corroborated by contemporaneous documentary evidence
48In her reply submissions on behalf of Ms Corelli, Ms Collaris first sets out the circumstances of what she describes as “a two second encounter she had with Seoud” on 17 March 2017 and concludes:
“This short encounter is entirely irrelevant to the issues as between Hoyisun and Corelli. The affidavit Corelli swore on 6 September 2018 related to an application to set aside default judgment. One of the primary purposes of that affidavit was to set out Corelli’s defence on the merits. The encounter between Corelli and Seoud on 17 March 2017 is entirely irrelevant to Corelli’s defence to Hoyisun’s claim. Corelli’s evidence that she “didn’t even think about that single occasion which was two seconds” when preparing the affidavit 18 months after the encounter with Seoud ought to be accepted.”
49I agree. To my mind, it is unsurprising that at the time of swearing her affidavit in September 2018, Ms Corelli did not appreciate the potential relevance of her earlier brief dealings with Mr Seoud. I do not accept that this omission from her affidavit reflects adversely on her credit. More generally, I considered that Ms Corelli was frank and truthful in her evidence. On the other hand, I agree with Mr Garrett that Ms Corelli’s affidavit reinforces (and I accept) that she had a fairly good understanding of the key terms of the first and second loan agreements, the guarantees and mortgages.
50Mr Jenkins for Mr Torimaru notes in his submissions that Hoyisun placed “significant weight on Torimaru’s previous defences and an affidavit that Torimaru swore on 11 September 2018”. Mr Jenkins’ reply to those matters can be summarised as follows:
(a) at the time the affidavit was sworn, Mr Torimaru was self-represented and had left carriage of his and Ms Corelli’s joint defence (including, most notably, the drafting of his affidavit) to Ms Corelli;
(b) the reasons for the inconsistencies between his affidavit and Mr Torimaru’s evidence at trial was explained in the course of his evidence, which was clear and credible; and
(c) Hoyisun’s submission that Mr Torimaru agreed that Ms Corelli had explained the affidavit to him before he swore it, did not accurately reflect the totality of Mr Torimaru’s evidence on this matter.
51When a deponent makes an affidavit, they affirm or swear at the time of signing that the affidavit is “true and correct”. It is an affirmation or oath that should not be taken lightly, and it does not reflect well on Mr Torimaru that he was prepared to swear his affidavit without reading it. But I accept that this is what occurred. Indeed, it is entirely consistent with my findings below as to the trust and confidence that Mr Torimaru reposed in Ms Corelli that he would do so. I also accept that Ms Corelli may have told Mr Torimaru in broad terms what the affidavit was about, but did not descend into any of the detail about what it said concerning the meetings he had attended or the nature and extent of his understanding of the first and second loans or the proposed refinancing.
52In assessing Mr Torimaru’s credit more broadly, I do not overlook his willingness to swear an affidavit he had not read. However, in my judgment, that assessment must be informed primarily by my impression of his evidence at trial, including when confronted with the conflicting statements in his affidavit. That impression was overwhelmingly positive. His evidence was generally forthright and clear and without guile or dissembling. He struck me as someone who, while not unintelligent, was naïve in matters of finance and commerce, and trusted Ms Corelli to look after his interests in these areas.
53This is borne out not only by Mr Torimaru’s own frank admissions about his lack of attention and understanding in relation to these matters, but also by the observations of Mr Chong and Ms Hu. These were to the effect that Ms Corelli dominated the discussions at their meetings and that Mr Torimaru’s role was largely passive. For example, Ms Hu’s evidence was that: “Patricia spoke most of the time, but Martin was there and he was present and he was paying attention, so he wasn’t like not I guess – he wasn’t like not there if that makes sense and Patricia was speaking on behalf of both of them”.
54Turning to the credit of Mr Chong and Ms Hu, it was not submitted by the defendants, and I do not find, that the evidence of either was untruthful. However, Mr Chong’s recollection of some matters was admittedly vague or uncertain. While I accept this was the first time he had engaged in direct lending through one of his companies, the negotiations and documentation had features in common with his more routine mortgage broking business. Thus it is unsurprising that his recollection of some of the detail of his meetings and discussions had lost some of its clarity.
55In the case of Ms Hu, Mr Jenkins for Mr Torimaru submitted that her “claimed recollection is more likely reconstruction than recollection”. To my observation of Ms Hu, there is some force in this submission. I agree with Mr Garrett that Mr Jenkins’ assertion that Ms Hu “admitted to having no actual memory of the meeting” on 3 April 2017, is overstating the effect of her answers in cross-examination. However, I was left with the impression at the conclusion of her cross-examination that her recollection of the actual events was poor. More particularly, I am satisfied that Ms Hu’s evidence-in-chief about the detail of the process she went through at the meeting, reflected more what she believed (no doubt genuinely) she would have done (or would have liked to have done), rather than what actually occurred.
56Further, Ms Hu became involved in the matter at a very late stage and was up until very late the night before finalising documents for the meeting. And, like Mr Chong, there were some aspects of the meeting and her role that were more routine, and others that were less so. In my view, this explains why Ms Hu could recall specific details of the financial issues affecting the Tricore businesses outlined by Ms Corelli, whereas her answers about the process she went through to explain the financing documents seemed more formulaic. This is to be contrasted with the evidence of Ms Corelli and Mr Torimaru, for whom the meeting was anything but routine.
57Accordingly, my findings in relation to the meeting of 3 April 2017 are as follows:
(a) Mr Chong and Ms Hu arrived late and the meeting commenced at around 9.20am, with the exchange of pleasantries and some discussion of the Tricore businesses and their difficult financial circumstances;
(b) Mr Chong referred in general terms to the key aspects of the first loan probably using the letter of offer as an aide memoir, including the total amount of the loan, how much the advance would be, the term and some reference to the securities comprising unregistered second mortgages and caveats;
(c) in my view, it is likely that any discussion of the securities was limited to more generic references to “mortgages”, “caveats” and “your properties”, and did not descend to details of the properties concerned;
(d) notably, I do not accept that either Mr Chong or Ms Hu stated in clear terms to Mr Torimaru that the security for the loan included a mortgage over the Rosanna property and that if Tricore Management failed to repay the first loan, he would lose the Rosanna property;
(e) I accept Mr Torimaru’s evidence that had something to this effect been conveyed to him, he would have refused to sign the mortgage over the Rosanna property;
(f) there was no reference to any investment in Thredbo, but there was some discussion during the meeting about Mr Chong arranging to refinance the first loan;
(g) Ms Hu made some changes to the first loan agreement and mortgages on her laptop while this initial discussion was going on, and then emailed these to Aaron Chong for him to print out and bring in to the meeting – in the case of the first loan agreement this probably happened at around 9.50am;
(h) copies of the loan agreement were given to Ms Corelli and Mr Torimaru to sign and the process of signing probably began shortly after the documents were delivered by Aaron Chong into the meeting;
(i) Ms Hu may have been referring in general terms to some of the key provisions of the first loan agreement while they were being signed, but I do not accept that she went through it clause by clause or that Mr Chong and Ms Hu waited while both Ms Corelli and Mr Torimaru read each page;
(j) more generally, the process may not have been as cursory as Mr Torimaru described, but I accept that it was closer to his and Ms Corelli’s description than as described by Ms Hu;
(k) it is likely that the process of signing the first loan agreement had concluded by 10.00am (that is, in less than 10 minutes) when Ms Hu sent an email to Aaron Chong attaching the mortgages and MCP for printing;
(l) in relation to Mr Chong, he saw this part of the meeting as Ms Hu’s responsibility and was not paying close attention to what was being said and done;
(m) the mortgages and MCP were printed out and delivered into the meeting by Aaron Chong shortly after 10.00am and, again, were probably signed over the course of the next 10 or so minutes;
(n) it is possible that Ms Hu did refer to the desirability of legal advice at some point during the meeting, but I do not accept that this was done specifically by reference to clause 19 of the first loan agreement, or that she directed that recommendation expressly to Mr Torimaru, either in general terms or in a way that conveyed that he should have legal advice independently of Ms Corelli and the Tricore businesses;
(o) any reference to legal advice is unlikely to have gone beyond the high-level references in the emails between Ms Corelli and Ms Hu at around midnight the night before – indeed, having sent that email and received Ms Corelli’s response saying she could not arrange a lawyer at such short notice, it is equally possible that Ms Hu considered that no more needed to be said on the topic;
(p) I accept that Mr Chong is likely to have referred to arranging to remit the loan funds to Seoud Solicitor’s trust account as instructed, and (consistently with her email the night before) Ms Corelli indicated her agreement to that course; and
(q) the meeting is likely to have concluded not long after the mortgages were signed.
The first loan agreement and the advance
58The first loan agreement executed by the parties at the 3 April 2017 (“first loan agreement”) meeting relevantly provided that:
(a) the first loan was for a principal sum of $242,967 for a three-month term, with fixed interest at a higher rate of 10% per month and a lower rate of 6% per month;
(b) all fees and interest for the term of the loan (totalling $42,967) were to be deducted from the loan amount on first drawdown, with the result that the amount advanced by Hoyisun to Tricore Management was $200,000;
(c) the mortgaged property was the Rosanna and Reservoir properties;
(d) the guarantors (Ms Corelli and Mr Torimaru) were to grant second unregistered mortgages secured by caveats over the mortgaged properties;
(e) “At the request of the guarantor (if any) the mortgagee agrees to advance to the mortgagor the principal sum on the terms of this deed” (clause 1);
(f) “The guarantor warrants that before execution of this deed the guarantor sought advice as the guarantor considered necessary to fully understand the guarantee and in particular the financial consequences for the guarantor of default by the mortgagor” (clause 9); and
(g) “The mortgagor agrees that they have sought such financial and legal advice as they considered appropriate for an understanding of this deed before entering into it” (clause 19).
59On 3 April 2017 at 11.40am, Hoyisun arranged for $200,000 to be deposited into the trust account of Seoud Solicitors. This was as instructed by Ms Corelli by email late on 2 April 2017 and confirmed by Mr Chong during the meeting earlier that day. As noted above, it seems that Purcell had falsely represented to Ms Corelli that this was what Hoyisun had required. Mr Chong (who was unaware that this representation had been made) saw nothing unusual in the instruction to pay the funds into a solicitor’s trust account. At 12:07pm, Mr Chong sent an email to, among others, Purcell and Ms Corelli confirming that the funds transfer had been made.
60Over the course of the next few days, Ms Corelli sent increasingly frantic text messages and emails to Purcell about getting access to the funds, which largely went unanswered. On 4 April 2017 at 11:58 am, Corelli sent a text message to Omar Seoud of Seoud Solicitors about the funds. Mr Seoud returned Corelli’s call at the end of the day. According to Mr Seoud’s file note, he said to Ms Corelli words to the effect that the $200,000 was not for Corelli but were funds provided by Fonda for a debt owing by him to his client Simon Khoury. He said the funds belonged to Mr Khoury and would be disbursed only at Mr Khoury’s direction.
61Mr Seoud then called Fonda. Mr Seoud’s file note records that Fonda told him everything was okay and Ms Corelli was just confused. After further phone calls between Mr Seoud and Mr Khoury and between Fonda and Ms Corelli, on 5 April 2017, Ms Corelli sent an email to Mr Seoud apologising for the confusion the day before and stating that “there seems to have been a mix up in Solicitor’s and settlement. Our funds were directed accordingly”. Ms Corelli’s evidence was that she sent this email on instructions from Purcell and Fonda essentially because she felt threatened by them. None of the $200,000 was ever received by Ms Corelli or the Tricore businesses.
Second loan
62According to Ms Corelli, because the funds under the first loan agreement were never received, the Tricore businesses continued to suffer from serious cash flow shortages. She also gave evidence to the effect that she was being told by Fonda and Purcell not to ruffle any feathers, and that they would be in a position to raise more than sufficient funds to ensure that she received the proceeds of the first loan. It appears that Fonda managed to trick Ms Corelli into believing that he and Purcell had a substantial loan coming in from Hong Kong, but that they needed an insurance premium in the sum of $85,000 to be paid to release the funds.
63It is difficult to fathom why Ms Corelli continued to trust (or at least go along with) the assurances and instructions given to her by Fonda and Purcell, but I accept this is what occurred. It seems that they showed her some documents that appeared to her to substantiate the story about the loan and insurance premium. And no doubt she wanted to believe their explanations, both because of a natural reluctance to accept she had been tricked and because she had few (if any) alternatives.
64Ms Corelli’s evidence was that she understood Ms Hu had been having business dealings directly with Purcell and Fonda. Among other things, Fonda had told Ms Corelli that he had a buyer for the Rosanna property and Purcell contacted Ms Hu about preparing a s32 statement. After that sale fell through, Purcell and Fonda told Ms Corelli that Mr Chong was willing to advance the second loan, but first wanted to know the caveats over the Rosanna property had been removed.
65On Friday 2 June 2017 at 6:06pm, Mr Chong sent a text message to Ms Corelli stating, “Nancie gonna call you soon”. Mr Chong explained in evidence that he sent this text message because “… for me to, um, advance her the extra money, on the second loan, I would have to make sure that she’s removed the caveat, and I’m placed in a stronger position”. A short time later, Ms Corelli received a text message from Ms Hu stating, “I can meet you tomorrow afternoon to witness the withdrawal of caveats. Text me the address. I’ll be there around 5 pm”.
66As with the 3 April 2017 meeting, there was a divergence of evidence about what was said at the meeting in the evening of 3 June 2017, and the precise sequence of events. The meeting was attended by Ms Corelli, Mr Torimaru, Ms Hu and Ms Hu’s then partner, Tuan Nguyen. The main area of disagreement related to if and when those attending the meeting drove together in Mr Nguyen’s car to arrange for Ms Corelli’s brother and son to each sign a withdrawal of caveat.
67Ms Corelli and Ms Torimaru gave evidence that this happened that evening and Mr Nguyen referred to the driving together to get something signed, but could not recall whether it was that evening or at another time. However, when the driving together to get the caveat withdrawals was put to Ms Hu, she said: “I don’t think that’s correct”. The issue is further complicated by the fact that the caveat withdrawals in evidence were signed by Ms Hu and the forms authorising Ms Hu, signed by Ms Corelli’s brother and son were dated 4 June 2017.
68On balance, I am again inclined to accept the evidence of Ms Corelli and Mr Torimaru over that of Ms Hu about the driving around to arrange signatures, particularly because it has some support from Ms Hu’s then partner Mr Nguyen. It is also consistent with Ms Hu’s text that the purpose of the meeting was (in part) so she could witness the caveat withdrawals. However, little of substance turns on this issue. The caveats were duly withdrawn and are not in issue in this proceeding. Further, on the relevant aspect of the meeting (namely, what transpired concerning the discussion of the loan agreement and securities), Ms Hu’s evidence was largely consistent with that of Ms Corelli.
69In evidence-in-chief, Ms Hu recalled some discussion of the commercial terms of the second loan. Her evidence was that she told Ms Corelli and Mr Torimaru that, apart from the different amounts, the commercial terms were the same as the first loan. She also said that she made a comment to Mr Torimaru that: “if he doesn't want to sign the loan and Patricia is forcing him to then he shouldn't sign the loan, sort of jokingly. It was a very, like, friendly environment…”. She said she could not recall any discussion of legal advice, except that she said she was not their lawyer so she could not give them legal advice: “I’m just there to witness their signatures”.
70In cross-examination, it was put to Ms Hu she did not tell Mr Torimaru that he should seek independent legal advice separate from Ms Corelli or from Tricore. Her evidence was that: “I don’t have any recollection, so I accept what your say”. Mr Nguyen had no relevant recollection of any discussion at the meeting.
71Ms Corelli’s evidence was that there was no discussion with Ms Hu regarding the terms of the second loan beyond: “it was the same as the first one, the paperwork’s the same as the first one”. Ms Corelli said that nothing was discussed about a lawyer or obtaining independent legal advice. Mr Torimaru was unable to recall any of the discussion at the meeting or signing the documents.
72Thus, I am satisfied that apart from a general discussion which probably included reference to the amount of the loan, the term for repayment, interest and a statement to the effect that the terms were the same as the first loan, Ms Hu:
(a) did not otherwise take Ms Corelli and Mr Torimaru through the terms of the second loan;
(b) may have made a light-hearted reference to Mr Torimaru not being forced by Ms Corelli to sign, but it left no impression on Ms Corelli or Mr Torimaru; and
(c) did not say anything to Mr Torimaru about him obtaining independent legal advice.
73The second loan agreement was executed at the meeting on 3 June 2017 (“second loan agreement”). The principal sum of the second loan was $140,120, comprising the sum to be advanced ($130,000) plus fees. Interest was payable monthly during the term at the higher rate of 7% and the lower rate of 5%. The term was 2 months, repayable on 4 August 2017. The second loan agreement was otherwise on the same terms as the first loan including as to security.
74On 5 June 2017 at 9:57 am, Ms Corelli received a text message from Ms Hu which was a screen shot of a text message from Ms Hu to Mr Chong confirming that the caveats had been withdrawn, Ms Hu had the original signed loan agreement, and requested that the loan funds be disbursed. On 5 June 2017, Ms Corelli sent an email to Mr Chong providing details of four bank accounts into which the second loan was to be advanced, none of which were in Tricore Management’s name; and Hoyisun advanced the second loan into those accounts by transfers on 5 and 6 June 2017.
75On 6 June 2017, Ms Corelli transferred the sum of $85,000 to “Wadii” for the purported insurance payment. Ms Corelli’s evidence was that, as with the total amount of the first loan, this sum was never recovered by Tricore Management from Purcell and Fonda. Nor did it result in Purcell and Fonda reimbursing Tricore Management for any part of the funds from the first loan.
76Tricore Management defaulted on both the first and second loans. On 3 October 2017, Hoyisun commenced proceedings claiming the principal sum of $485,842.30, with interest pursuant to s 60 of the Supreme Court Act 1986 (Vic), and costs.
Was the principal sum of the first loan advanced?
77Ms Collaris for Ms Corelli argues that Hoyisun did not advance to Tricore Management the principal sum, as it was obliged to do under the terms of the first loan agreement. Clause 1 of the first loan agreement relevantly provides that: “At the request of the guarantor (if any) the mortgagee agrees to advance to the mortgagor the principal sum on the terms of this deed”. Ms Collaris relies essentially on the fact that the $200,000 paid by Hoyisun after allowing for interest (paid in advance) and fees, was deposited into the trust account of Seoud Solicitors, and not paid to the borrower Tricore Management. The circumstances in which this occurred are described above.
78Ms Collaris submits that:
“It is clear from the evidence that neither Tricore Management nor Tricore Matrix nor Corelli nor Torimaru obtained any benefit from the funds advanced under the First Loan Agreement. The language of the relevant term is clear and unambiguous and has a plain meaning. It is submitted that when Hoyisun advanced the principal sum other than in accordance with the terms of the First Loan Agreement – which it had prepared – it did so at its own peril. It is submitted that there has been a total failure of consideration with the consequence that Tricore Management does not owe any obligations to Hoyisun under the First Loan Agreement.”
79Mr Garrett for Hoyisun relies in reply on the well-established principle that the terms of a commercial contract are to be understood objectively, by what a reasonable businessperson would have understood them to mean.[3] Mr Garrett argues that a reasonable businessperson would understand clause 1 of the first loan agreement to mean that Hoyisun was to advance the funds in the manner requested by the guarantor, Ms Corelli. He points to the clear instructions given by Ms Corelli to Hoyisun to pay the $200,000 to the Seoud Solicitor’s trust account, first by email sent late on 2 April 2017 and then confirmed at the 3 April meeting, as discussed above. Mr Garrett also notes that the second loan was advanced in a manner materially identical to the first loan (that is, to various third party accounts as instructed by Ms Corelli), yet Ms Corelli does not complain about the advance of that loan.
[3]Citing Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 91 ALJR 486, Kiefel Bell and Gordon JJ at [16].
80In replying to Mr Garrett, Ms Collaris submits that the only piece of relevant and admissible evidence on the question of construction is the language of clause 1 of the first loan agreement itself. She argues that this is because the language of clause 1 is not ambiguous or susceptible of more than one meaning;[4] rather, it has a plain meaning: at the request of Corelli, Hoyisun agreed to advance to Tricore Management the principal sum. More particularly, Ms Collaris argues (in effect) that the expression in clause 1 “at the request of the guarantor” simply confirms that Ms Corelli as guarantor has requested that Hoyisun advance the principal sum to Tricore Management. She adds that if there is an ambiguity, the “contra proferentem” rule requires that the ambiguity be resolved against Hoyisun.
[4]Citing Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352.
81I agree with Ms Collaris that clause 1 of the first loan agreement does not suffer from any relevant ambiguity. However, the result of so finding is not as she contends. The well-established rule referred to in Mr Garrett’s submissions applies to all commercial contracts – it is not invoked only where ambiguity is present. The presence of ambiguity may invite consideration of relevant surrounding circumstances to aid construction, but that is not contended for or necessary in this case.
82The applicable principle is most conveniently and succinctly stated by the High Court in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd, [5] (“Mount Bruce”) as follows (citations omitted):
“Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption “that the parties … intended to produce a commercial result”. Put another way, a commercial contract should be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.
These observations are not intended to state any departure from the law as set out in Codelfa Construction and Electricity Generation.”
[5][2015] HCA 37, per French CJ, Nettle and Gordon JJ at [51] and [52].
83To my mind, applying a commercial common-sense construction to clause 1 of the first loan agreement yields a more straightforward result than that contended by Mr Garrett. It is simply that an agreement “to advance to the mortgagor” does not import a requirement that a compliant advance can only be achieved by depositing the funds into a bank account in the name of (in this case) Tricore Management. Such a strict literal interpretation of the provision is contrary to commercial common sense. In my judgment, a commercial construction of “advance to” encompasses where (as in this case) the funds are advanced on the clear written direction of Tricore Management, affirmed in a meeting at the time the first loan agreement was executed. It has not been suggested (nor could it be) that Ms Corelli as sole director of Tricore Management lacked the necessary authority to give that direction.
84Put another way (again in the language of Mount Bruce above), in my view the construction contended for by Ms Collaris would give rise to a commercial nonsense or work a commercial inconvenience. It would render unenforceable any agreement where a lender agreed “to advance to” a borrower, where the lender then pays the funds at the direction of the borrower to a third party. This could include, for example, where a lender pays the advance directly to the vendor under a contract of sale of land with a borrower. And as Mr Garrett noted, it would also render the second loan agreement largely unenforceable. I accept consistently with Mr Garrett’s submission that the expression “at the request of the guarantor” in clause 1 reinforces this construction, but I would have arrived at the same result regardless of those words.
Did Hoyisun engage in unconscionable conduct?
85Ms Corelli and Mr Torimaru submit that Hoyisun engaged in unconscionable conduct contrary to s12CB of the Australian Securities and Investments Commission Act 2001 (Cth) (“ASIC Act”), and s21 of the Australian Consumer Law (“ACL”).[6] Ms Corelli also relies upon unconscionable conduct in equity. Hoyisun submits that its conduct was not unconscionable and was consistent with societal norms. In advancing their submissions on these issues, unsurprisingly, all parties drew heavily on the analysis of the applicable principles in the recent decision of the Victorian Court of Appeal in Jams 2 Pty Ltd v Stubbings[7] (“Jams 2”). They also refer to my discussion of those principles in Commercial Funds Pty Ltd v Fraval & Anor[8] (“Fraval”). I will do likewise.
[6] As set out in Competition and Consumer Act 2010 (Cth), sch 2.
[7] [2020] VSCA 200.
[8] [2020] VCC 1787.
86The applicable provisions of the ASIC Act (and essentially replicated in the ACL) are set out in Jams 2, which are, in summary:
(a) “A person must not, in trade or commerce in connection with…the supply of…financial services to a person…engage in conduct that is, in all the circumstances, unconscionable” (s 12CB(1));
(b) is the intention of Parliament that (among other things) the section is not limited by the unwritten law of the States and Territories relating to unconscionable conduct (s 12CB(4));
(c) For the purposes of section 12CB, the court may consider various factors, including:
(i)the relative strengths of the bargaining position of the parties;
(ii)whether the person receiving the service was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier;
(iii)whether the person receiving the service was able to understand the documents;
(iv)whether any undue influence or pressure was exerted or unfair tactics used;
(v)whether the supplier of the services was willing to negotiate terms of the contract and what those terms comprised; and
(vi)whether the parties acted in good faith (s 12CC(1)).
87In Jams 2 the court referenced the decision of the High Court in Australian Securities and Investments Commission v Kobelt (“Kobelt”),[9] and distilled from the various judgments in that case the content of the statutory standard to be applied in assessing whether conduct is, in all the circumstances, unconscionable within the meaning of s 12CB(1), as follows (citations omitted):[10]
“[It] is that stated by Gageler, Nettle, Gordon and Edelman JJ. In summary, although only Gageler J was in the majority — and thus the consistent statements of the four judges represent obiter dicta — it is dicta which has obviously been seriously considered and should be followed and applied by this Court until the High Court says otherwise. The applicable standard is a normative one involving the evaluation of whether the conduct in question is ‘so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience’; in the sense that a court should only take the serious step of denouncing conduct as unconscionable when it is 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’. The evaluation exercise is informed by the non-exhaustive list of factors in s 12CC.
As previously noted, before the decision in Kobelt, intermediate appellate authority was to the effect that there could be no statutory unconscionable conduct within the meaning of legislation such as s 12CB unless a ‘high level of moral obloquy’ or other ‘moral taint’ was established. Further, before rejecting this terminology, Gageler J himself had accepted it as a governing criterion in Paciocco. This was the position when the trial judge decided this case and, as he was required to do, he considered whether the conduct at issue was infected with moral obloquy, and found that it was. In doing so, the judge considered earlier cases concerning allegations of unconscionable conduct where there was asset-based lending. There was no error in that approach. That said, we accept that the effect of Kobelt is that the previously accepted arcane terminology of ‘moral obloquy’ should no longer be used. But the requirement that the conduct in question be ‘so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience’ should still be understood as requiring an evaluative judgment as to the morality of the allegedly unconscionable behaviour.
It follows that, while searching for a differently expressed criterion of liability for unconscionable conduct, the earlier cases concerning unconscionable conduct under statute in the context of asset-based lending continue to be relevant. In substance, the requisite criterion of liability has been rebadged in terms of the normative standard expressed in Kobelt.
However, it is important to note the statement of this Court in Schmidt that:
‘little is to be gained by a close factual analysis of the myriad of cases that have considered whether particular conduct was unconscionable. Whilst there are sometimes factual similarities between the cases, inevitably there are differences. Similarly, we do not find it of assistance to consider whether conduct is unconscionable simply because of the type of lending that is involved, for example, asset based lending. Rather, the task requires a more synthesised approach which takes into account all of the facts relevant to the impugned conduct and determines whether, in all the circumstances, that particular conduct is unconscionable.’
That is not to say, however, that the fact that a loan involves asset-based lending is irrelevant to the inquiry as to whether, in all the circumstances of the case the lending was unconscionable. This is because, of its very nature, asset-based lending carries with it the structural risk that the focus on the loan to security value ratio may overwhelm other relevant circumstances known to the lender which may demonstrate that the borrower is under a special disadvantage or it is otherwise unconscientious to lend on the terms of a particular loan.”
[9] (2019) 368 ALR 1; [2019] HCA 18.
[10] Jams 2 at [90] to [94].
88It is unnecessary for me to deal separately with the question of whether the conduct complained of offends the principle of unconscionability under the unwritten law (that is, in equity). It is clear from the reasons of the High Court in Kobelt (and the distillation of those reasons in Jams 2) that the statutory sanction on unconscionable conduct “does something more” than the prohibition under the unwritten law. Thus, as the court in Kobelt held,[11] conduct that is unconscionable in equity will also be unconscionable under statute. In my view, it must follow that conduct that falls short of the test for unconscionability under statute, will not meet the arguably more stringent test under the unwritten law.[12]
[11] See the discussion in Jams 2 at [83].
[12] As summarised in Kobelt, per Nettle and Gordon JJ at [146]-[150].
89In support of a finding that Hoyisun acted unconscionably in breach of the statutory sanction, Ms Collaris begins by submitting that Hoyisun (through Mr Chong) possessed the third to fifth categories of knowledge of the “Baden Scale” (Baden v Société Générale pour Favouriser le Développment du Commerce et de l’Industrie en France SA[13] (“Baden”). She submits that Hoyisun:
(a) wilfully and recklessly failed to make inquiries than an honest and reasonable person would make;
(b) had knowledge of circumstances which would indicate the facts to an honest and reasonable person; and
(c) had knowledge of circumstances which would put an honest and reasonable person on inquiry.
[13][1993] WLR 509, 574-6 [250], cited in Farah Constructions Pty Ltdv Say-Dee Pty Ltd (2007) 230 CLR 89, 163-4 [171] – [178].
90The Court of Appeal in Jams 2 was not satisfied that the lender had knowledge consistent with any of the Baden categories.[14] In support of a contrary finding in this case, Ms Collaris relies on evidence that Mr Chong:
[14] Jams 2 at [130].
(a) knew or was on notice of the fact that the first loan agreement could not be repaid from income;
(b) considered that a Loan to Valuation Ratio (“LVR”) of anything over 65% to 70% was risky for private lending, yet the combined equity in the Rosanna and Reservoir properties was insufficient at an LVR of 70% to cover the loan amount of $200,000;
(c) did not conduct title searches in respect of either the Rosanna property or the Reservoir property and thus did not see the two caveats lodged by Patrick Capito and Rino Corelli on 8 May 2014 on the Reservoir property;
(d) considered that six months of bank statements would be required for the refinance, but did not request six months of bank statements – if he had, he would have seen a payment default in respect of the loan with AMP in January 2017;
(e) had no idea what the purpose of the loan was beyond it having something to do with Thredbo;
(f) did not request the contract of sale or any information about the LVR in respect of the Thredbo property;
(g) wrote a letter to KB Corporate regarding the loan under the instruction of Purcell, yet he had no idea who KB Corporate was and did not make any enquiries to ascertain who KB Corporate was;
(h) did not query why he was not instructed to deposit the funds into an account in the name of KB Corporate, nor did he make any enquiries to ascertain on whose behalf Seoud Solicitors acted;
(i) conducted credit checks on Ms Corelli and Mr Torimaru but he did not conduct a credit check on Tricore Matrix, which would have shown a pending application to wind-up Tricore Matrix on the grounds of insolvency;
(j) was on notice from the 3 April meeting that Ms Corelli thought that the purpose of the loan was to obtain cash flow funding for Tricore Matrix, yet he said nothing about his understanding that the purpose of the loan was for the Thredbo project;
(k) had been advised by his lawyer that Ms Corelli and Mr Torimaru should obtain independent legal advice or sign an acknowledgment that they had had declined to do so and did not ensure that Ms Corelli and Mr Torimaru obtained that independent legal advice or sign an acknowledgment.
91In relation to the second loan agreement, Ms Collaris in substance repeats (a), (b), (d) and (k) above, and also submits that Mr Chong:
(a) had no idea what the purpose of the second loan was beyond it being some kind of “project”;
(b) was put on notice of the previous ATO debt, yet did not make any enquiries about this despite the fact that he “didn’t even understand what [Ms Corelli] was talking about”; and
(c) did not conduct a credit check on Tricore Matrix, which would have shown a court judgment obtained by Joss Operations Pty Ltd.
92Ms Collaris submits that, in all these circumstances, Hoyisun “unconscionably abstained from making enquiries”. In her reply submissions, Ms Collaris adds that it is clear from the evidence that Mr Chong did not have a sufficient or proper understanding of either loan and that Mr Chong’s “failure to make any or any proper enquiries in relation to the purpose of either loan is a strong factor in support of the contention that Hoyisun’s assessment of the loans fell ‘outside societal norms of acceptable commercial behaviour’”. Ms Collaris further submits that a finding that a lender may lend money without making any or any proper enquiries regarding the purpose of the loan “would certainly offend the conscience of the modern Australian society” and that: “One of the many reasons such enquiries ought to be made by the lender is to guard against the risk of fraud”.
93Finally, Ms Collaris argues that a proper assessment of the LVRs alone would have put Hoyisun on notice that “the potential to refinance either loan (particularly the second loan) was a risky proposition. She concludes that: “it is important to note that the onus was always on Hoyisun as lender to make proper enquiries relevant to the assessment of the loan. Those enquiries included but were not limited to requesting six months of bank statements; conducting credit checks on Tricore Management and Tricore Matrix; and ascertaining on whose behalf Seoud acted”.
94In his submissions, Mr Jenkins for Mr Torimaru raises a number of the same arguments as those advanced by Ms Collaris, but also highlights that the loan agreements were an example of asset-based lending (while acknowledging that the presence of asset-based lending is not determinative on the question of unconscionability). Mr Jenkins next points to a number of differences between the facts in this case and those in Jams 2 and Fraval, where the court concluded that the lender had not engaged in unconscionable conduct. He argues that these differences support a contrary finding in this case. These differences included that Mr Torimaru:
(a) did not obtain independent legal or financial advice;
(b) was unaware that Tricore Management did not have the funds to repay the loans when they fell due; and
(c) was not a director or shareholder of the borrower and did not otherwise derive a direct benefit from the funds borrowed.
95The other matters Mr Jenkins relies on in support of a finding of unconscionability include:
(a) the haste with which the loan documents were prepared and the failure of Hoyisun to provide a copy of the documents to Mr Torimaru;
(b) Hoyisun’s failure to undertake any meaningful due diligence and wilfully disregarding both the purpose of the loans and Tricore Management’s capacity to repay the loans;
(c) Mr Chong’s anticipated role in procuring the refinancing that was, to his knowledge, “the only way they’re going to pay me back”;
(d) that the proposed refinancing was not included as a term of the loan agreements;
(e) that Mr Torimaru was a volunteer to the transactions and obtained no financial benefit from guaranteeing the loans;
(f) that the conduct of Hoyisun “disregarded the welfare of Mr Torimaru and devised a scheme that would ensure that it would be repaid from a refinance of Mr Torimaru’s personal home”; and
(g) comparisons with a number of authorities involving asset-based lending, where the court held that the lender had acted unconscionably.
96To some extent, the submissions on behalf of both Ms Corelli and Mr Torimaru on this issue seek to frame the responsibility of the lender as one which involves actively protecting the borrower and guarantors from their own poor judgment, lack of attention or misfortune. Indeed, Ms Collaris submitted in terms that “the onus was always on Hoyisun as lender to make proper enquiries relevant to the assessment of the loan”. In my view, the content of the statutory standard of unconscionability does not go this far.
97While I accept that a lender’s conduct will fall to be assessed having regard to the Baden categories of knowledge, to my mind this is not the same as imposing on the lender a positive obligation to “make proper enquiries” or to actively detect fraud. Rather, constructive knowledge under the Baden categories first requires that the lender be aware of circumstances that “would put an honest and reasonable person on inquiry”. Further, even if such circumstances exist, the nature and consequences of a lender’s failure to inquire, must be subjected to the “synthesised approach which takes into account all of the facts relevant to the impugned conduct and determines whether, in all the circumstances, that particular conduct is unconscionable”.[15]
[15] Jams 2 at [93].
98In this case, that synthesised approach must take into consideration a number of unusual features of this case. Key among these is the nefarious role played by Purcell and Fonda. As I have noted, it is clear that they were able to deceive Ms Corelli, and part of that deception involved her allowing to them to deal with Mr Chong and Ms Hu on her behalf. I am satisfied that they also beguiled Mr Chong and Ms Hu into believing Ms Corelli had a level of sophistication and assuredness in her commercial dealings that she did not in fact possess.
99In particular, it seems likely that Purcell and Fonda were purporting to speak for Ms Corelli and the Tricore businesses when they were discussing the Thredbo project and related matters with Mr Chong. Mr Chong might be criticised for being naïve in accepting their statements at face value and not questioning their authority or the veracity of their claims, but his naivety was no more surprising and concerning than Ms Corelli’s. Indeed, it is significantly less so. And as I have noted, there was no evidence of any substance that either party was in any way complicit in, or had knowledge of, Purcell and Fonda’s fraudulent activity.
100For that reason, I am not persuaded that any of the misinformation around the Thredbo project, the role of KB Corporate or other similar incongruous details apparently generated by Purcell and Fonda, provide a sustainable basis for a finding of unconscionable conduct against Hoyisun. It was a confusing smoke screen engendered and encouraged by Ms Corelli’s association with Purcell and Fonda. Thus, it does not sit well in her mouth to criticise Hoyisun for failing to see through something that had clearly obscured her own good sense and judgment.
101On the other matters raised on behalf of the defendants as supporting a finding of unconscionability, I broadly agree with Mr Garrett’s submissions. In particular:
(a) while it is true that Tricore Management could not repay the loans when due from its own assets or income, I agree with Mr Garrett that this is “not relevant given that the loans were provided on the basis that they would be refinanced”;
(b) although I accept that Mr Chong could have undertaken a more thorough assessment of the likelihood of securing that refinance before advancing the first and second loans, I am satisfied that he genuinely intended to assist with that refinance through his mortgage broking business and believed it could be arranged;
(c) again, it seems likely that Purcell and Fonda played a role in reinforcing that belief and no-one (apart from Purcell and Fonda) could have anticipated that the bulk of the funds advanced by Hoyisun would be diverted by fraud (and thus not available to support the Tricore businesses and subsequent refinancing);
(d) further, Mr Chong did take steps to examine the capacity of the borrower and guarantors to service the proposed refinancing, including by reviewing financial statements and tax returns and arranging credit checks of the guarantors;
(e) Mr Chong was aware that the LVRs on the loans pushed them into the risky category, but I accept his evidence that he was confident that he would be able to refinance the loans up to an LVR of 90% if needed, given that the information provided to him initially indicated that they had a clean credit record; and
(f) I also accept that it was only after the second loan was advanced that the mortgage defaults and poor credit history of Tricore Matrix came to light.
102On the particular issue of asset-based lending relied on by Mr Jenkins for Mr Torimaru, Jams 2 defines asset-based lending as follows:
“Asset-based lending involves lending on the value of the assets securing the loan, without any consideration of the borrower’s ability to repay the loan from their own income or other assets. No credit risk analysis other than the calculation of the loan amount to security value ratio is undertaken by the lender. Thus, the lender makes the loan ‘without regard to the ability of the borrower to repay buy instalments under the contract, in the knowledge that adequate security is available in the event of default’.”[16]
[16] Jams 2 at [1].
103The effect of Mr Jenkins’ submissions is that, because the borrower Tricore Management could not repay the first and second loans from its own assets and income, the loans were asset-based lending.
104Mr Garrett argues that Hoyisun did not engage in pure asset-based lending as:
(a) it gave significant consideration of the ability of the defendants to repay the loan by refinancing, satisfying itself that there was sufficient equity to refinance with a bank at lower interest rates;
(b) it undertook a credit risk analysis which was more detailed than merely calculating the LVR of the security; and
(c) it had regard not only to the defendants’ ability to repay the loans, but also their ability to repay (by instalments) a larger loan which would pay out Hoyisun’s loans, as well as the existing mortgages.
105I agree. In my view, the definition of asset-based lending in Jams 2 looks at the extent to which the lender assesses the capacity of the borrower to repay the loan by instalments. In this case, Hoyisun did not give consideration to the borrower’s ability to repay the first and second loans being advanced from its own income or other assets. However, it did actively consider the defendants’ ability to refinance the loans, together with the existing loans secured over the Rosanna and Reservoir properties. To my mind, this differentiates this case from those where the LVR is the only consideration guiding the lender’s assessment. Here, as I have found above, Hoyisun did assess (albeit incompletely) the capacity of the defendants to repay by instalments, in furtherance of its genuine intention to assist with the refinance through Mr Chong’s mortgage broking business.
106Further, it is not in dispute that the fact that a loan involves asset-based lending is not of itself determinative of whether the lender acted unconscionably, but may be relevant to the enquiry.[17]
[17] Jams 2 at [93]–[94] and [122]–[123].
107There is no doubt that Mr Chong’s due diligence in relation to the first and second loans left a lot to be desired. But to my mind, a degree of naivety and a deficient due diligence, would generally not amount to conduct that is “so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience”.[18] As the Court of Appeal in Jams 2 emphasised, for a court to pronounce conduct as unconscionable under s12CB of the ASIC Act involves a heavy onus. In my view, the factors relied on by Ms Corelli and Mr Torimaru are not sufficient in all the circumstances of this case to enable me to discharge that onus.
[18] Jams 2 at [86].
Has Mr Torimaru established all the elements of a Garcia defence?
108Although this issue is not raised by the parties’ submissions and would not affect the outcome, I should say something briefly about the possible intersection of statutory unconscionably and the elements of a defence based on the principles in Garcia. Both involve consideration of whether, and to what extent, the conscience of the lender is impeached. While there will often be cases where findings will coincide, in my view there will also be cases where they do not. To my mind, conduct can enliven the distinct and well-established elements of a Garcia defence without being “so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience”.
109Mr Torimaru will succeed on his defence based on the principles stated in Garcia if I am satisfied on the balance of probabilities that:[19]
(a) Mr Torimaru did not understand the purport and effect of the transactions constituted by the first and second loans;
(b) the transactions were voluntary, and that Mr Torimaru did not obtain any direct or immediate benefit from the loan agreements;
(c) Hoyisun knew that Mr Torimaru was Ms Corelli’s husband, and could be expected to repose trust and confidence in her in matters of business and therefore may have understood that Ms Corelli may not have fully and accurately explained the transactions to him; and
(d) Hoyisun nonetheless did not take steps to explain the transactions to Mr Torimaru or find out if a stranger had explained it to him.
[19] Garcia at [31].
110Hoyisun accepts that (c) above is made out. In his written submissions, Mr Garrett states that:
“Joo [Chong] was aware from at least the commencement of the 3 April 2017 meeting, that Torimaru and Corelli were married. Hoyisun concedes that in Victoria, the principles in Garcia are capable of application to husbands as well as wives, and that the third element is made out.”
111This is an appropriate concession. The emails and telephone conversations leading up to the meetings of 3 April and 3 June 2017, and the conduct of the meetings themselves, should have clearly demonstrated to Mr Chong and Ms Hu on behalf of Hoyisun that Ms Corelli was driving the transactions. Ms Hu described in her evidence how Ms Corelli came across as a “savvy business woman” and did the talking at the meetings. Further, they knew Mr Torimaru was Ms Corelli’s husband and I am satisfied that the trust and confidence he reposed in her was clearly on display at the meetings.
112In relation to (a), the burden of proof is squarely on Mr Torimaru.[20] The question of burden in respect of (b) and (d) is less certain. I deal with the question of burden in respect of (b) below. In relation to (d), the better view seems to be that this falls to Mr Torimaru to prove.[21]
[20]State Bank of New South Wales v Chia (2000) 50 NSWLR 587 (“Chia”) per Einstein J at [170] National Australia Bank v Savage [2013] NSWSC 1718 at [75] cf Chia at [169] citing Warburton v Whiteley (1989) NSW ConvR 55-453 (“Warburton”) per McHugh J at 58,288 and Bank of Western Australia Ltd v Abdul [2012] VSC 222 (“Abdul”) per Croft J at [58].
[21] Chia at [171] to [176]; National Australia Bank v Savage [2013] NSWSC 1718 at [75].
Did Mr Torimaru understand the purport and effect of the transactions?
113Mr Torimaru left school during year 9. Mr Torimaru then went onto “Newstart” which he described as a “job-seeking type of benefit with Centrelink”. He was on Newstart for six years, during which time he had occasional unskilled employment. He met Ms Corelli in 2003 while volunteering as a general labourer at the Banksia Community Centre. In around 2007, Mr Torimaru began working as a telecommunications technician with Telstra. As part of his role, he installs and maintains electrical cabling and parts. He earns approximately $90,000 per annum. English is Mr Torimaru’s first language and he can clearly read English, although he demonstrated both a lack of understanding of, and interest in, more technical documents.
114Mr Torimaru’s salary is paid directly into his bank account and both he and Ms Corelli have access to that account. Mr Torimaru’s evidence was that he did not check his own account, and relied on Ms Corelli to pay bills from his account and let him know if his salary had been under-paid. He also said that Ms Corelli ensured that the mortgages on the two properties were paid and that he never checked any statements on the mortgages. In relation to the Tricore businesses, Mr Torimaru understood that they did training of students in childcare, first aid and security guards. He and Ms Corelli did not ever really talk about Tricore or discuss its financial position.
115In support of his submissions that Mr Torimaru did not understand the purport or effect of the loan agreements, Mr Jenkins begins by citing Einstein J in Chia, where his Honour held:[22]
“An understanding of the ‘purport and effect’ of the transaction includes, at least, an understanding of the fact of liability, the general extent of liability and the possible consequences of default.”
[22] Chia at [169].
116Mr Jenkins points to several factors as establishing that Mr Torimaru lacked the necessary level of understanding of the loan agreements, to the effect as follows:
(a) not being provided with a copy of the loan agreements in advance of the meetings where they were signed, and not reading them at the meetings;
(b) not having the purport and effect of the loan agreements explained to him by anyone and not obtaining independent legal or financial advice in relation to the loan agreements;
(c) in particular, not being alerted to the fact that neither Tricore Management, nor the Tricore businesses more generally, did not have the capacity to repay either of the loans from their own resources;
(d) not being told or otherwise understanding that he could lose his family home if Tricore Management failed to repay the loans;
(e) his lack of education and business acumen and having no involvement in the Tricore businesses or understanding of their financial affairs; and
(f) the trust, confidence and reliance reposed in his wife in relation to matters of finance;
117Mr Jenkins argues that, at its highest, it could be said that Mr Torimaru understood that the documents he was signing related to “a loan for some funds for her [Ms Corelli’s] business”. But he did not understand the term of the loan or how the interest of the loan was to be calculated, the true purpose of the loan or how the loan funds were to be applied. Mr Jenkins concludes that it can be inferred with an appropriate degree of confidence and assurance that Mr Torimaru’s knowledge that the loan agreements was insufficient to give him an understanding of the purport and effect of the transactions.
118Mr Garrett for Hoyisun argues that Mr Torimaru’s ability to understand documents and general financial awareness was greater than that contended for by Mr Jenkins. However, Mr Garrett relies for this purpose primarily on Mr Torimaru’s affidavit sworn 11 September 2018. I have found above that Mr Torimaru swore this affidavit without reading it and that his oral evidence was both truthful and to be preferred. The effect of those findings therefore largely supports Mr Jenkins’ submissions on the question whether Mr Torimaru understood the purport and effect of the loans.
119In relation to the other matters relied on by Mr Garrett on this issue, it follows from my findings of fact above that I reject those submissions. In particular:
(a) I do not accept that Mr Torimaru read or was otherwise aware of the content or effect of the emails passing between Ms Corelli, Purcell and Fonda, Mr Chong and Ms Hu in the period leading up to the meetings on 3 April and 3 June 2017;
(b) beyond Mr Torimaru’s general understanding that the loans were to help Ms Corelli’s businesses, he did not read or otherwise pay any attention to the terms of the loans as to amount advanced, repayment terms or interest; and
(c) Ms Hu may have referred in general terms to some of the key provisions of the first loan agreement during the meeting on 3 April 2017, but she did not go through it clause by clause and wait while Mr Torimaru read each page;
(d) Mr Torimaru did accept that Reservoir property was given as security for the loans, but was not aware that the Rosanna property might be lost if the loans were not repaid.
120In the circumstances, I am satisfied that Mr Torimaru did not in fact understand the purport or effect of the loan agreements. This lack of understanding arose from a combination of Mr Torimaru’s limited education and business acumen, his lack of attention and interest in financial matters (and, in particular, the financial affairs of the Tricore businesses), his failure to read the loan agreements and the failure of Ms Corelli, Mr Chong, Ms Hu or any third party to adequately explain the purport and effect of the loan agreements to Mr Torimaru.
121That is not to say that Mr Torimaru was not capable of understanding the purport and effect of the loan agreements, had he taken the time to read them or had the effect of them been fully explained to him. But I am satisfied that neither of these things occurred. Further, in my view, being aware that the loans were to support the Tricore businesses and that the Reservoir property was being offered as security for the loans does not equate to understanding the fact of liability, the general extent of liability and the possible consequences of default in the sense discussed in cases like Chia.
Was Mr Torimaru a volunteer?
122Pursuant to the principles of Yerkey v Jones, upheld in Garcia, a volunteer is someone who has entered an agreement but obtains no financial benefit from the transaction.[23] In Chia, Einstein J held that:
““Where the transaction is not ex facie for the benefit of the wife, then the onus will lie on the party seeking to enforce the security to show that the wife was not, relevantly, a volunteer”[24].
[23] Garcia at 615.
[24] Chia at [169].
123While there is some doubt about whether this is a complete statement of the law on which party bears the onus on this issue,[25] I am satisfied that nothing turns on the onus question on the facts of this case. In my view, Mr Torimaru has comfortably established this element of his defence.
[25]See for example, my discussion of this issue in Taranto v Lopes & Anor [2017] VCC 1613 at [105] to [107].
124Hoyisun accepts that the loan agreements were not, on their face, for the benefit of Mr Torimaru and that an incidental benefit accruing to Mr Torimaru through Ms Corelli’s shareholding and directorship in the Tricore businesses is not sufficient in this context.[26] However, Mr Garrett submits that Mr Torimaru received a substantial benefit from the loans, in that his involvement in the loan agreements assisted Ms Corelli to earn her part of his family’s overall income.
[26] Chia at [169].
125Mr Jenkins for Mr Torimaru argues that this is precisely the type of incidental benefit discussed in the authorities as not being sufficient to displace the ex facie position. I agree. As Mr Jenkins pointed out, in considering whether a wife was a volunteer to a transaction to which she provided a guarantee for her husband’s business, Justice Croft held that “evidence that cash flows from the businesses were used to make interest payments on the family home which the defendants owned jointly is, in my view, irrelevant in this context as being no more than an ‘incidental benefit that accrues generally to the family’”.
126In my view, the fact that Ms Corelli’s income from the Tricore businesses may have been paid towards family expenses is likewise no more than an incidental benefit that accrues generally to the family. This is particularly so where, as here, any income derived from the entities receiving the direct benefit from the transaction was not the sole source of income for the family. Indeed, the tax returns for Ms Corelli and Mr Torimaru suggest that Ms Corelli’s income from the businesses was approximately $30,000 less per annum than Mr Torimaru’s, and that it was Mr Torimaru’s income that was used to meet the mortgage payments on the Rosanna property. Thus, to my mind, any direct benefit to Mr Torimaru from guaranteeing the loans is even more elusive than those cases where the husband’s business is the sole source of the family income.
Did Hoyisun take proper steps to explain the transactions to Mr Torimaru?
127In Garcia, the plurality in considering this element said:
“To enforce the transaction against a mistaken volunteer when the creditor, the party that seeks to take the benefit of the transaction, has not itself explained the transaction, and does not know that a third party has done so, would be unconscionable.”[27]
[27] Garcia at [33].
128Einstein J in Chia held:
“In Garcia, no actual misconduct on the part of the principal debtor need be proved; nor is it presumed. Rather, what impeaches the conscience of the creditor is its failure to properly explain or ensure that a guarantor properly understands a transaction, where it knows that the transaction is not substantially for the benefit of the guarantor but for the benefit of her husband.” [28]
[28]Chia at [175]-[176].
129In relation to who bears the onus in establishing this failure to explain, Mr Jenkins submits the onus is on the lender, relying principally the decision of the House of Lords in Barclays Bank Plc v O’Brien[29] (“Barclays”):
‘The bank will escape the consequences if it can show that it took reasonable steps to ensure that the consent of the wife to become a guarantor was properly obtained.’[30]
[29] [1994] 1 AC 180.
[30] Ibid at [196], see also Barclays Bank Plc v Boulter & Anor [1999] 1 WLR 1919 at [518-519].
130In Chia, Einstein J considered at some length the apparent divergence between the UK approach and the approach adopted by the High Court in Garcia.[31] While his Honour considered it unnecessary to decide the question on the facts before him, I would respectfully agree with him that the better view is that it is for the guarantor to show that the creditor’s conscience in relevantly impeached.[32] Thus, I accept Mr Garrett’s submission that the burden falls to Mr Torimaru to establish that Hoyisun failed to explain or otherwise ensure Mr Torimaru understood the loan agreements.
[31] Chia at [170-176].
[32] Chia at [175].
131It follows from my analysis of the evidence above that I am satisfied from Mr Torimaru’s evidence that this did not occur. It is possible that Mr Torimaru’s presence at the meeting and his obvious grasp of the English language and (perhaps) his gender, led Mr Chong and Ms Hu to make assumptions about the level of Mr Torimaru’s understanding and interest in Ms Corelli’s Tricore businesses and the terms of the first and second loans. But the authorities make clear, and Hoyisun has rightly conceded, that gender alone is not a basis for excluding the application of the Garcia defence.
132Further, Ms Hu’s evidence was that Ms Corelli was dominating the discussion in the meetings and “Patricia was speaking on behalf of both of them”. This should have reinforced to Mr Chong and Ms Hu the importance of taking positive steps to ensure Mr Torimaru was tuned into the nature and implications of the obligations he was assuming under the loan agreements. It was not enough that (according to Ms Hu) Mr Torimaru was “present and he was paying attention”.
133According to the High Court in Garcia, there is a relatively simple means by which a creditor can avoid the application of the equity (emphasis my own):
“As is apparent from what was said in Yerkey v Jones the creditor may readily avoid the possibility that the surety will later claim not to have understood the purport and effect of the transaction that is proposed. If the creditor itself explains the transaction sufficiently, or knows that the surety has received “competent, independent and disinterested” advice from a third party, it would not be unconscionable for the creditor to enforce it against the surety even though the surety is a volunteer and it later emerges at the surety claims to have been mistaken.”[33]
[33] Garcia (supra) at [41].
134Here, I am satisfied that the representatives Hoyisun did not actively confirm that Mr Torimaru had read and understood the purport and effect of the loan agreements, either by direct enquiry and explanation or (better still) by ensuring he was given independent advice. And their failure to do this is aggravated in circumstances where the evening before the meeting on 3 April 2017, Ms Hu notified Mr Chong by email that it “would be good” if the defendants had their own lawyer present. (Although it is notable that Ms Hu’s email appeared to show no appreciation of the importance of Mr Torimaru getting legal advice independently of Tricore Management and Ms Corelli). Mr Chong and Ms Hu went ahead with the meeting and the signing of the first loan agreement knowing this had not been done.
135Accordingly, and contrary to Mr Garrett’s submissions, Hoyisun’s conscience is not absolved by a sufficient explanation to Mr Torimaru of the meaning and effect the transactions constituted by the loan agreements. Mr Torimaru has therefore satisfied on the balance of probabilities all four elements of the Garcia defence in relation to both loan agreements. In my judgment, it would be unconscionable for Hoyisun to enforce the loan agreements (incorporating the guarantee and mortgages) as against Mr Torimaru, and I will order that it is precluded from doing so.
Conclusion and orders
136My conclusions and proposed judgment and orders are set out at the beginning of these reasons.
- - -
Certificate
I certify that these 49 pages are a true copy of the judgment of His Honour Judge Woodward delivered on 25 August 2021.
Dated: 25 August 2021
Claire Findlay
Associate to His Honour Judge Woodward
4
12
0