Ormond Supermarket Pty Ltd v Sarar Australia and NZ Pty Ltd
[2022] VSC 278
•27 May 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2019 05567
| ORMOND SUPERMARKET PTY LTD (ACN 163 510 512) | Plaintiff |
| v | |
| SARAR AUSTRALIA AND NZ PTY LTD (ACN 617 884 947) | First Defendant |
| and | |
| MOHAMED JAMA HASHI | Second Defendant |
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JUDGE: | Attiwill J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 24 June 2021, 23 August 2021 and 1 September 2021 |
DATE OF JUDGMENT: | 27 May 2022 |
CASE MAY BE CITED AS: | Ormond Supermarket Pty Ltd v Sarar Australia and NZ Pty Ltd & Anor |
MEDIUM NEUTRAL CITATION: | [2022] VSC 278 |
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PRACTICE AND PROCEDURE – Appeal from a decision of a judicial registrar granting summary judgment – Where the plaintiff has established the elements of its causes of action on its claims pursuant to a loan, a mortgage and a guarantee – Where the defendants have a proposed defence and counterclaim that has real prospects of success – Unconscionability – Where it is not in the interests of justice for the proceeding to be disposed of summarily and where the dispute between the parties is of such a nature that only a full hearing on the merits is appropriate – Civil Procedure Act 2010 (Vic), ss 61-64.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | I Hristovski | Ronayne Owens Lawyers |
| For the Defendants | J Stavris | Baraka Lawyers |
TABLE OF CONTENTS
INTRODUCTION.............................................................................................................................. 1
BACKGROUND TO THE APPEAL............................................................................................... 2
NATURE OF THE APPEAL............................................................................................................. 3
PARTIES’ MATERIAL...................................................................................................................... 4
BACKGROUND FACTS AND PARTIES..................................................................................... 7
Loan Agreement.......................................................................................................................... 19
Guarantee..................................................................................................................................... 23
Mortgage...................................................................................................................................... 25
Demands....................................................................................................................................... 29
THE PLEADINGS............................................................................................................................ 31
Statement of claim....................................................................................................................... 31
Proposed defences and counterclaim...................................................................................... 32
SUMMARY JUDGMENT - APPLICABLE LAW....................................................................... 35
HAS ORMOND ESTABLISHED THE ELEMENTS OF ITS CAUSES OF ACTION?....... 39
DO THE DEFENDANTS’ PROPOSED DEFENCES AND COUNTERCLAIMS BASED UPON UNCONSCIONABLE CONDUCT HAVE REAL PROSPECTS OF SUCCESS?........... 41
Submissions of Sarar and Hashi............................................................................................... 42
Submissions of Ormond............................................................................................................. 45
Applicable law............................................................................................................................. 49
Conduct contrary to equitable principle........................................................... 49
Conduct contrary to s 12CB of the ASIC Act................................................... 52
Analysis........................................................................................................................................ 54
Conduct alleged to be contrary to equitable principle................................... 54
Conduct alleged to be contrary to s 12CB of the ASIC Act............................ 59
Conclusion............................................................................................................. 59
IN ANY EVENT, SHOULD THE COURT ALLOW THE MATTER TO PROCEED TO TRIAL?........................................................................................................................................................ 60
CONCLUSION AND ORDERS.................................................................................................... 62
HIS HONOUR:
INTRODUCTION
The first defendant (Sarar) and second defendant (Hashi) appeal from orders made by a judicial registrar on 9 October 2020. The judicial registrar gave summary judgment in favour of the plaintiff (Ormond) against Sarar and Hashi. Summary judgment was granted based upon detailed reasons for judgment published on 16 September 2020 (Written Reasons)[1] and ex tempore oral reasons given on 9 October 2020 (Oral Reasons).[2] The judicial registrar found that Sarar and Hashi had no real prospect of defending Ormond’s claims.[3] The defendants made numerous claims on this appeal that were not the subject of any submissions or pleadings before the judicial registrar. The defendants’ claims of unconscionability concerning the interest and default administrative fee terms, that are determinative of this appeal, were not specifically the subject of submissions before the judicial registrar.
[1]Ormond Supermarket Pty Ltd v Sarar Australia and NZ Pty Ltd [2020] VSC 582 (Written Reasons).
[2]Transcript of Proceeding, Ormond Supermarket Pty Ltd v Sarar Australia and NZ Pty Ltd (Supreme Court of Victoria, S ECI 2019 05567, Matthews JR, 9 October 2020) (Oral Reasons).
[3]Written Reasons, [85]; Oral Reasons.
For the reasons which follow, I will:
(a)dismiss the appeal in relation to paragraph 1 of the orders made by the judicial registrar on 9 October 2020;
(b)allow the appeal in relation to paragraphs 2 to 6 of the orders made by the judicial registrar on 9 October 2020 and set aside those orders;
(c)dismiss the application in paragraph 1(a) of Ormond’s summons filed 2 June 2020 (Ormond’s summons);
(d)grant the application for summary judgment in paragraph 1(b) of Ormond’s summons, in part, and order the defendants pay Ormond the sum of $97,000 and otherwise dismiss that application;
(e)grant the application in paragraph 2 of Ormond’s summons and strike out the defendants’ defences filed 2 April 2020 with leave to replead;
(f)release to Ormond the amount paid into Court together with interest accrued on that sum (subject to any taxation liability on the interest accrued);
(g)set a timetable for the future conduct of this proceeding, including the filing by Sarar and Hashi of an amended defence and counterclaim; and
(h)otherwise direct the parties to confer and provide proposed orders to the Court by 4:00pm on 3 June 2022, addressing the matters raised in paragraphs 2(a)-(g) immediately above, and any other order addressing the determination of Sarar and Hashi’s appeal in accordance with these reasons, including the costs of Ormond’s summons.
BACKGROUND TO THE APPEAL
By summons filed 2 June 2020, Ormond applied for summary judgment and orders to recover possession of a property at 8 Rivette Street, Craigieburn in the State of Victoria (the Property) and for Sarar and Hashi to pay it the sum of $317,839.88 as at 4 December 2019, together with interest on that sum up to the date of judgment, at the rate specified in accordance with a loan agreement made 11 July 2017 between Ormond and Sarar (the Loan Agreement). Further, and alternatively, Ormond applied for an order that the defence dated 1 April 2020 be struck out.[4]
[4]Sarar and Hashi each separately filed a defence on 2 April 2020 (dated 1 April 2020). They are in identical terms. The defences were prepared by Hashi. Sarar and Hashi were not represented by solicitors at that time. Subsequently, Hashi filed, without leave, a defence and counterclaim on 9 July 2020.
In her Written Reasons, after a hearing on 31 July 2020 at which the defendants were not represented, the judicial registrar said that there will be summary judgment for Ormond entitling it to possession of the Property and payment of the sum of $97,000,[5] being the principal amount advanced by Ormond to Sarar pursuant to the Loan Agreement. The judicial registrar also said that she needed to hear further from the parties as to whether there should be summary judgment for the balance of the claim, the interest rate to be applied and the period for which it was to be applied.[6]
[5]Written Reasons, [135].
[6]Ibid [136].
On 9 October 2020, after a hearing that day at which the defendants were represented, the judicial registrar said in her Oral Reasons that there will be summary judgment for Ormond on the whole of the claim and ordered:
(a)the document entitled ‘defence and counterclaim’ filed by Hashi on 9 July 2020 be removed from the Court file;
(b)summary judgment be entered for Ormond on its claims made in the statement of claim filed 6 December 2019;
(c)Ormond recover possession of the Property;
(d)Sarar and Hashi pay Ormond the sum of $409,977.64 as at 29 May 2020;
(e)Sarar and Hashi pay Ormond interest on the sum of $409,977.64 in accordance with the Loan Agreement from 29 May 2020; and
(f)Sarar and Hashi pay Ormond’s cost of the proceeding on an indemnity basis.
On 23 October 2020, Sarar and Hashi filed a notice of appeal in which they appealed from the orders made by the judicial registrar.
On 11 May 2021, Lyons J ordered that the orders of the judicial registrar be stayed but the stay not continue beyond 4:00pm on 15 June 2021 unless Sarar and Hashi paid the sum of $97,000 into Court on or before that date. They did not pay the sum into Court by that time. On 24 June 2021, upon a further application by Sarar and Hashi, the Court ordered that the orders of the judicial registrar be stayed but that the stay not continue beyond 4:00pm on 7 July 2021 unless Sarar and Hashi paid the sum of $97,000 into Court on or before that date. They paid the sum of $97,000 into Court.
NATURE OF THE APPEAL
Rule 84.05(3) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (Rules) provides that an appeal lies to the Trial Division constituted by a Judge of the Court from any determination given or made by the Court constituted by a judicial registrar. Rule 84.05(4) provides that such appeal shall be conducted by way of hearing de novo.
In Bendigo and Adelaide Bank Ltd v Grahame,[7] Sloss J considered the nature of a hearing de novo upon an appeal pursuant to r 84.05:
16Generally speaking, a matter that is heard ‘de novo’ is one that is heard over again from the beginning, and the court or body conducting the hearing is not confined to the evidence or materials that were presented in the original hearing.
17An appeal conducted by way of ‘hearing de novo’ differs in an important respect from an appeal by way of ‘rehearing’. In Allesch v Maunz, the plurality in the High Court explained the ‘critical difference’ between the two modes of appeal as being that in the case of an appeal by way of rehearing ‘the powers of the appellate court are exercisable only where the appellant can demonstrate that, having regard to all the evidence now before the appellate court, the order that is the subject of the appeal is the result of some legal, factual or discretionary error’, whereas in the case of a hearing de novo ‘those powers may be exercise regardless of error.’ Further, in Coal and Allied Operations Pty Limited v Australian Industrial Relations Commission, Gleeson CJ, Gaudron and Hayne JJ, after observing that the nature of an appeal must ultimately depend on the terms of the statue conferring the appeal, confirmed that ‘[i]n the case of a hearing de novo, the matter is heard afresh and a decision is given on the evidence presented at that hearing.’
18Accordingly, as a matter of practice and procedure, what is contemplated by a hearing de novo is that on the hearing of the appeal, the party who was the applicant before the Judicial Registrar begins, and the appeal is determined on the evidence relied on before the judge and not that relied on before the Judicial Registrar, and the judge determines the appeal without being fettered by the decision of the Judicial Registrar, though giving such weight to that decision as appears proper.
[7][2020] VSC 86, [16]-[18] (citations omitted).
PARTIES’ MATERIAL
Upon the hearing of this appeal, Ormond relied upon affidavits of Mr Ricky Rigoni (Rigoni), the sole director of Ormond, sworn 1 June 2020 (First Rigoni affidavit) and 16 July 2020 (Second Rigoni affidavit) and affidavits of Mr Luke Owens (Owens), solicitor for Ormond, sworn 9 October 2020 (First Owens affidavit), 6 August 2021 (Second Owens affidavit) and 23 August 2021 (Third Owens affidavit) and submissions dated 22 June 2021, 6 August 2021 and 16 August 2021.
Sarar and Hashi relied upon an affidavit of Hashi affirmed 9 July 2020 (Hashi affidavit) and affidavits of Ms Nabila Baraka (Baraka), solicitor for Sarar and Hashi, sworn 23 March 2021 (First Baraka affidavit), 5 May 2021 (Second Baraka affidavit) and 11 August 2021 (Third Baraka affidavit) and submissions dated 23 June 2021, 13 August 2021, 23 August 2021 and 1 September 2021.
Hashi gave evidence that he had read the ‘proposed defence and counterclaim’ attached to his affidavit and that his then solicitor, a Mr McMonnies, had explained the contents to him and he agreed with the facts upon which it is founded.[8] There is no attachment to his affidavit. His affidavit was filed on 9 July 2020 at 3:05pm and a ‘defence and counterclaim’ dated 8 July 2020 was also filed, without leave, on 9 July 2020 at 3:05pm. I infer that this is the pleading that was explained to Hashi by Mr McMonnies and adopted by Hashi. The parties proceeded on that basis.[9]
[8]Hashi Affidavit, [7].
[9]See, eg, Transcript of Proceeding, Ormond Supermarket Pty Ltd v Sarar Australia and NZ Pty Ltd & Anor (Supreme Court of Victoria, S ECI 2019 05567, Attiwill J, 24 June 2021) 34.12-28, 52.19-23. (Transcript of Proceeding (24 June 2021)).
The First Baraka affidavit also exhibits a proposed amended defence and counterclaim. As set out below,[10] Sarar and Hashi subsequently relied upon a further version of a proposed amended defence and counterclaim at the hearing of this appeal.
[10]See below [79].
Ormond objected to parts of the First Baraka affidavit on the basis that they constitute inadmissible opinion evidence.[11] Mr Hristovski, counsel for Ormond, submitted:[12]
The paragraphs are obviously opinion evidence and it's just really the solicitor pontificating, if I can put it that way, about what her view on the world is in terms of this matter and there's no real evidence in any of those paragraphs or sections that I've identified.
[11]Ormond’s submissions dated 22 June 2021, [5]. The objected parts are identified with particularity.
[12]Transcript of Proceeding (24 June 2021), 14.18-23.
Mr Hristovski also submitted that ‘no weight should be placed’ on the objected parts of the First Baraka affidavit.[13] The appeal proceeded on the basis that I would rule on the admissibility of the objected parts of the First Baraka affidavit in my judgment on the appeal.[14] I make the following rulings on the First Baraka affidavit:
(a)Paragraph 8: Baraka states that if the appeal is not allowed, she fears this will be prejudicial to the administration of justice. Her fear is not relevant. She also does not set out the basis for it. The paragraph is inadmissible.
(b)Paragraphs 10 and 14: Baraka expresses her beliefs on the merits of the defendants’ defences. I infer that the beliefs are based upon the matters set out in the First Baraka affidavit. The paragraphs are admissible. However, the beliefs are expressed in very general terms. As a result, in determining this appeal, I have not given them any weight. I have, however, considered the merits of the defendants’ defences the subject of these paragraphs (i.e. in paragraph 14 of the First Baraka affidavit).
(c)Paragraph 17 (objected part), paragraph 22 (objected part), paragraph 26, paragraph 27 (objected part) and paragraph 28 (objected part): Baraka makes statements concerning the legal consequences of certain matters. She also states in paragraph 22 (objected part) that ‘the commercial lending rates at the time were a fraction of the 40% premium being charged by the plaintiff and endorsed by Mr Nicholls’ (Nicholls) but does not give the basis for this statement. The objected parts of these paragraphs are inadmissible. I have, however, considered the merits of the defendants’ defences the subject of the objected parts of these paragraphs, except for the statement in paragraph 22 (objected part) I have referred to immediately above.
(d)Paragraph 18 (objected part): Baraka makes a statement on Hashi’s state of knowledge. The statement is vague. Baraka does not identify in what respect Hashi signed the guarantee ‘without fully appreciating the obligations this would impose on him [Hashi] personally’. She also does not state that it is on instructions from Hashi. The objected part of the paragraph is inadmissible.
(e)Paragraph 19 (objected part): Baraka states that the advice given by Mr Cavoli (Cavoli), a legal practitioner, to Hashi in July 2017 was ‘defective, insubstantial and would not be regarded as sufficient legal advice in the opinion of other Australian legal practitioners.’ This is an opinion. She does not give the basis for her opinion. The objected part of the paragraph is inadmissible.
(f)Paragraph 21 (objected part): Baraka states that she does not believe that the advice provided by Cavoli was independent and caused severe detriment to Sarar and Hashi. Baraka gives the basis for this belief. She states that she is instructed that Cavoli is associated with Nicholls and Ormond by ‘professional and/or business affiliation’. I infer she was so instructed by Hashi. The statement of belief is admissible. However, she does not identify the professional or business affiliation. As a result, in determining this appeal, I have not given this statement any weight as it is expressed in very general terms.
(g)Paragraph 26: Baraka makes a statement concerning the conduct of Ormond. It is argumentative. The paragraph is inadmissible. I have, however, considered the merits of the defendants’ defences the subject of this paragraph.
(h)Paragraph 29 (objected part): Baraka states that Hashi was ‘not given adequate legal and financial advice’. She does not give the basis for these statements. She does not identify in what respect the legal and financial advice was inadequate. As a result, the objected parts of these paragraphs are inadmissible.
[13]Ibid 15.13-14.
[14]Ibid 15.5-9.
BACKGROUND FACTS AND PARTIES
Rigoni is the sole director of Short Term Lending Solutions Pty Ltd (Short Term Lending Solutions)[15] and the sole director of Ormond. Short Term Lending Solutions is a mortgage manager and manages the loan the subject of this proceeding (the Ormond Loan).[16] Rigoni is also a director of Rigoni Private Finance Pty Ltd (Rigoni Private Finance).[17] Rigoni Private Finance is a lender and lent monies, together with Harvey Nominees Superfund Pty Ltd (Harvey Nominees), to Sarar prior to the Ormond Loan (Earlier Rigoni and Harvey Loan).[18]
[15]First Rigoni affidavit, [2].
[16]Ibid.
[17]Exhibit ‘RR-2’ to the Second Rigoni affidavit, pg 5.
[18]Ibid pgs 8-35.
Hashi gave evidence that he migrated from Somalia and English is his second language.[19] Hashi is the registered proprietor of the Property.[20] Hashi gave evidence that he lives there with his family.[21]
[19]First Baraka affidavit, [13(c)].
[20]Exhibit ‘RR-1’ to the First Rigoni affidavit, pg 25.
[21]First Baraka affidavit, [13(a)].
Hashi is the sole director, secretary and shareholder of Sarar.[22] Sarar was incorporated on 10 March 2017 and its registered office and principal place of business is recorded as the address of the Property.[23]
[22]First Rigoni affidavit, [6]; exhibit ‘RR-1’ to the First Rigoni affidavit, pgs 1-3.
[23]Exhibit ‘RR-1’ to the First Rigoni affidavit, pg 1.
On 5 April 2017, Westpac Banking Corporation (Westpac) registered a mortgage over the Property.[24]
[24]Ibid pg 25.
In about May 2017, Hashi gave evidence that he was seeking to set up a clothing business in premises at Chadstone Shopping Centre (Chadstone business).[25] He contacted Nicholls, a finance broker at RAMS, to obtain finance for the fit-out of the Chadstone business.[26] Baraka gave evidence that Hashi entrusted Nicholls with his financial matters.[27]
[25]Hashi affidavit, (a) on pg 2.
[26]Ibid. Nicholls is referred to as ‘Gary Nicholson’ in the Hashi affidavit. I infer from the context of the affidavit that these are references to Nicholls.
[27]First Baraka affidavit, [12].
On 19 May 2017, Rigoni, on behalf of Rigoni Private Finance, forwarded a letter of offer to Nicholls, on the letterhead of Rigoni Private Finance, addressed to Sarar. It outlined the indicative basis on which Rigoni Private Finance and Harvey Nominees were prepared to provide a ‘Total Loan Facility’ in the amount of $130,000 to Sarar, constituted by an ‘Advance to Borrower’ in the sum of $123,983 and fees and prepaid interest.[28] The letter of offer provided, among other things: [29]
[28]Exhibit ‘RR-2’ to the Second Rigoni affidavit, pgs 1-7.
[29]Ibid.
(a)the loan is described as ‘mortgage funding’;
(b)the loan purpose is described as ‘Commercial Property Investment’;
(c)the borrower is Sarar and the guarantor is Hashi;
(d)the loan facility was in the sum of $130,000 with a term of 6 months, including ‘prepaid interest’ of $2,167 for one month;
(e)the lenders are Rigoni Private Finance and Harvey Nominees;
(f)the security is described as a second ranking registered mortgage over the Property;
(g)‘Based upon advice provided by the Borrower , the Lender must be satisfied in determining’, inter alia, the value of the Property at $600,000;
(h)interest applicable to the loan being ‘The Standard Rate of 24.00% per annum applies but while the Borrower is not in default under the Loan Facility, the Lender will accept interest at the Concessional rate of 20.00% per annum.’;
(i)the offer is conditional upon Sarar and Hashi entering into formal loan and security agreements with Rigoni Private Finance and Harvey Nominees; and
(j)a confirmation by Sarar and Hashi in the following terms:
I/We, the Borrower and Guarantor, hereby confirm this loan will provide no financial hardship to me/us and I/We fully understand the interest rate and fees applicable are related to the speed, the nature and risk of this type of short term transaction.
On 19 May 2017, Hashi signed the letter of offer.[30] Sarar and Hashi subsequently signed documents for the Earlier Rigoni and Harvey Loan. They are constituted by the following documents:
(a)a loan agreement between the Rigoni Private Finance, Harvey Nominees and Sarar;[31]
(b)a guarantee and indemnity by Hashi in favour of Rigoni Private Finance and Harvey Nominees;[32] and
(c)a mortgage of the Property by Hashi in favour of Rigoni Private Finance and Harvey Nominees.[33]
[30]Ibid pg 6.
[31]Ibid pgs 8-35.
[32]Ibid 36-59.
[33]Ibid 60-61.
Cavoli, a legal practitioner, provided a certificate in which he certified a number of matters on 23 May 2017. The certificate is addressed to Rigoni Private Finance and Harvey Nominees. The certificate stated that Cavoli had been asked to interview Hashi. It also stated that Cavoli had been provided, inter alia, with the loan agreement, guarantee and mortgage with respect to the Earlier Rigoni and Harvey Loan and then certified as follows:[34]
PART BEXPLANATIONS GIVEN BY THE AUSTRALIAN LEGAL PRACTITIONER
[34]Ibid 62.
I CERTIFY that in the absence of the Borrower and before the Guarantor signed the documents, I EXPLAINED to the Guarantor:
• the general nature and effects of the documents required to be signed by the Guarantor;
• that if the Borrower defaults in payment or in other obligations to you the Guarantor would be liable to make good that default which could involve all amounts owed by the Borrower to you and substantial arrears of interest; and
• that the giving of a guarantee involves considerable risk, including the risk of losing any security, property and other assets and requires very careful thought.
PART C EXCLUDED EXPLANATIONS
I INFORMED the Guarantor in very clear terms that I was not expressing any opinion nor advising on:
• the viability of the transaction which the Borrower was undertaking;
• the Borrower' s ability to make the required payments to you; and
• the Guarantor's ability to make payment to you.
I FURTHER INFORMED the Guarantor that if in any doubt on those aspects the Guarantor should obtain independent financial advice before signing the documents.
PART D STATEMENTS BY THE PERSONS SIGNING DOCUMENTS
FOLLOWING THE ABOVE EXPLANATIONS, the Guarantor stated to me:
• that he/she/they understood the general nature and effect of the documents and the obligations and risks involved in signing those documents. It appeared to me that they did have such understanding;
• that he/she/they was signing these documents freely, voluntarily and without pressure from the Borrower or any other person.
Hashi also certified, inter alia, that the information in the certificate is true.[35]
[35]Ibid 63.
The loan agreement is dated 26 May 2017 (not 23 May 2017).
The guarantee and indemnity is dated 26 May 2017 (not 23 May 2017) but it is stated as being witnessed by Cavoli on 23 May 2017.[36]
[36]Ibid pgs 36, 59.
The Earlier Rigoni and Harvey Loan commenced on or about 26 May 2017. Interest was payable monthly in advance.[37] Sarar prepaid interest of $2,167 for the period 26 May to 26 June 2017 by borrowing monies for that sum as part of the Earlier Rigoni and Harvey Loan.
[37]See loan agreement for the Earlier Rigoni and Harvey Loan, cl 4.2(e) and ‘Repayment method’ under the heading ‘Commercial Details’: exhibit ‘RR-2’ to the Second Rigoni affidavit, pgs 11, 33.
Rigoni gave evidence that the Earlier Rigoni and Harvey Loan was not in default as at the date of the advance pursuant to the Loan Agreement and that Ormond would not have approved or advanced the Ormond Loan if the Earlier Rigoni and Harvey Loan had been in default at that time.[38] At the hearing of the appeal, Mr Stavris, counsel for the defendants, accepted that the Earlier Rigoni and Harvey Loan was not in default at that time.[39] As a result, I find that Sarar made a payment of interest in the sum of $2,167 on or about 26 June 2017 for the period 26 June 2017 to 26 July 2017.
[38]Second Rigoni affidavit, [6(f)].
[39]Transcript of Proceeding (24 June 2021), 58.2-5; Transcript of Proceeding, Ormond Supermarket Pty Ltd v Sarar Australia and NZ Pty Ltd & Anor (Supreme Court of Victoria, S ECI 2019 05567, Attiwill J, 1 September 2021) 27.1-28.1 (Transcript of Proceeding, 1 September 2021). See also Second Rigoni affidavit, [6(f)].
Hashi gave evidence that he determined sometime after the Earlier Rigoni and Harvey Loan that he did not have sufficient funds to meet the rental bond[40] for the premises for the Chadstone business and contacted Nicholls to obtain a further loan.[41] Baraka gave evidence that she is instructed that Hashi advised Nicholls of his financial hardship.[42] Hashi gave evidence that at this time he had no substantial income, was supporting his wife and eight children by Centrelink benefit, had no assets of value other than the Property and was unsophisticated in matters of business and finance.[43] He gave evidence that he has difficulty understanding documents and that he did not understand the documents the subject of this proceeding.[44]
[40]This is also referred to in the evidence as a ‘landlord guarantee’ or ‘lease guarantee’: First Rigoni affidavit, [8].
[41]Hashi affidavit, (a) on pg 2.
[42]First Baraka affidavit, [13].
[43]Hashi affidavit, [7]; proposed amended defence and counterclaim filed 9 July 2020 (dated 8 July 2020), [24].
[44]Hashi affidavit, (d) on pg 2.
Hashi gave evidence that Nicholls was unable to increase the ‘existing facility’.[45] I find that this is a reference to the Earlier Rigoni and Harvey Loan as Hashi gave evidence concerning the circumstances of entry into the Earlier Rigoni and Harvey Loan and then gave evidence as follows: ‘He [Nicholls] was unable to increase the existing facility but arranged a short-term loan from the plaintiff [Ormond] for me.’[46]
[45]Ibid, (a) on pg 2.
[46]Ibid.
In or about late June or early July 2017, Nicholls, then at Australian Mortgage Managers Pty Ltd, contacted Rigoni and told him that Sarar and Hashi required an urgent short-term loan.[47] The purpose of the loan was to provide funding to Sarar for the payment of a landlord guarantee for a new lease which Sarar had entered into with respect to premises for the Chadstone business (Landlord Guarantee).[48] Rigoni gave evidence that Nicholls told him that the loan was required urgently and only on a short-term basis until Nicholls could arrange a short-term facility for Sarar with RAMS/Westpac.[49]
[47]First Rigoni affidavit, [8].
[48]Ibid.
[49]Ibid [9].
Hashi gave evidence that Nicholls told him that he would arrange to increase the home loan with the bank [i.e. with Westpac] during the period of the Ormond Loan[50] and that Hashi relied upon Nicholls’ advice that he could arrange this to enable the Ormond Loan to be repaid by the due date.[51]
[50]Hashi affidavit, (b) on pg 2.
[51]Ibid (i) on pg 3.
Baraka gave evidence that in or around July 2017, in a meeting with Nicholls and Hashi, Nicholls made representations that the Loan Agreement contained standard clauses typically included in loan agreements and that the terms of the Loan Agreement would not be financially detrimental to Hashi.[52] Baraka gave evidence that Nicholls outlined to Hashi that the Loan Agreement would be similar in nature to the loan agreement entered into for the Earlier Rigoni and Harvey Loan.[53]
[52]First Baraka affidavit, [16].
[53]Ibid.
Hashi gave evidence that he had no ability to make any repayments and the interest for the duration of the Ormond Loan was to be added to the amount borrowed.[54]
[54]Hashi affidavit, (c) on pg 2.
Initially, Sarar and Hashi requested a loan of $89,000, of which $68,500 was to paid towards the Landlord Guarantee and $13,350 was for prepaid interest on the Ormond Loan.[55] The balance of the Ormond Loan was to pay for fees and charges.[56]
[55]First Rigoni affidavit, [10].
[56]Ibid.
On 7 July 2017, Rigoni, on behalf of Ormond, forwarded to Nicholls, on behalf of Sarar and Hashi, a letter of offer, on the letterhead of Short Term Lending Solutions and addressed to Sarar. It outlined the indicative basis on which Ormond was prepared to provide a ‘Total Loan Facility’ in the amount of $89,000 to Sarar, constituted by an ‘Advance to Borrower’ in the sum of $68,500, as well as fees and prepaid interest.[57]
[57]Ibid [11]; exhibit ‘RR-1’ to the First Rigoni affidavit, pgs 4-10.
On 9 July 2017, Hashi sent an email to Nicholls which attached the letter of offer, initialled by Hashi on each page and signed by him, in which he amended the ‘Advance to Borrower’ from $68,500 to $75,000. He did not amend the amount of the Total Loan Facility.[58] He also stated in the email: ‘Pls note that the required funds is $75,000 due to not opening the shop on time.’[59]
[58]First Rigoni affidavit, [12]; exhibit ‘RR-1’ to the First Rigoni affidavit, pgs 11-18.
[59]Exhibit ‘RR-1’ to the First Rigoni affidavit, pg 11.
Later that day, Nicholls sent an email to Rigoni in which he forwarded the email that he had received from Hashi and the signed letter of offer.[60] Nicholls also stated in that email:
Signed Letter of Offer attached. He now needs $75000 as there was a discount by the landlord if he has have [sic] commenced trading by Monday, but this has now passed. Cost him $7000 by trying to save $2000. Talk in the morning.
[60]Ibid.
On 9 July 2017, Rigoni sent an amended letter of offer to Nicholls, on the letterhead of Short Term Lending Solutions, addressed to Sarar. It provided for a Total Loan Facility in the amount of $97,000, of which $75,300 was the ‘Advance to Borrower’, $14,550 was allocated to prepaid interest, with the balance allocated towards the payment of fees and charges.[61]
[61]First Rigoni affidavit, [13]; exhibit ‘RR-1’ to the First Rigoni affidavit, pgs 20-24.
On 10 July 2017, Hashi sent an email to Rigoni (copied to Nicholls) in which he attached the amended letter of offer signed by him.[62]
[62]First Rigoni affidavit, [14]; exhibit ‘RR-1’ to the First Rigoni affidavit, pgs 19-24.
Later that day, Rigoni sent an email to Owens to which he attached the initialled and signed amended letter of offer.[63] Rigoni also stated in the email, among other things:
New offer attached. This is identical to previous advance from Rigoni Private and Harvey except this will be a third mortgage. I will waive the need for legal advice. Client needs money for landlord guarantee at Chadstone. He was supposed to begin trading today but is unable until paid. If you can do docs today it would be appreciated.
[63]Exhibit ‘RR-1’ to the First Rigoni affidavit, pgs 19-24.
The amended letter of offer provided, among other things: [64]
[64]Ibid pgs 20-24.
(a)it described Nicholls as ‘your financial representative’;
(b)the loan was described as ‘mortgage funding’;
(c)the loan purpose was described as ‘Commercial Property Investment’;
(d)the borrower is Sarar and the guarantor is Hashi;
(e)the loan facility was in the sum of $97,000 with a term of 4.5 months being due in full on 26 November 2017, including an amount for ‘Prepaid Interest’ in the sum of $14,550 for the whole 4.5 months;
(f)the ‘Assessment Fee’ is identified as being the sum of $2,200 (inclusive of GST) and the brokerage is identified as being the sum of $1,100 (inclusive of GST);
(g)the lender is Ormond;
(h)the security is erroneously described as a ‘second’ ranking registered mortgage over the Property;
(i)‘Based upon advice provided by the Borrower , the Lender must be satisfied in determining’, inter alia, the value of the Property at $650,000. I note that the value of the Property is $50,000 more than stated in the letter of offer with respect to the Earlier Rigoni and Harvey Loan, being only two months prior. Further, as at 10 July 2017, upon the present evidence, Hashi had equity in the Property of not less than $275,000 (prior to the Ormond Loan in the amount of $97,000), calculated as follows: value of Property at $650,000 less the loan from Westpac in an amount not exceeding $245,000 (see special condition 1 of the amended letter of offer)[65] and less the Earlier Rigoni and Harvey Loan in the amount of $130,000;
[65]Ibid pg 23.
(j)interest applicable to the loan being ‘The Standard Rate of 44.00% per annum applies but while the Borrower is not in default under the Loan Facility, the Lender will accept interest at the Concessional Rate of 40.00% per annum.’;
(k)‘An administration fee of $550 will immediately apply should the loan fall into arrears or a default arise. An ongoing administration fee of $440 per week will apply until such time as the Loan Facility is repaid in full or the arrears/default situation rectified’;
(l)a number of ‘Special Conditions’, inter alia, as follows:
2. The Borrower confirming the exit (repayment) strategy and the Lender providing its consent.
…
4. The Borrower providing an accountant certified Balance Sheet.
5. The Guarantor providing a full Asset and Liability statement.
(m)the amended indicative offer is conditional upon Sarar and Hashi entering into formal loan and security agreements with Ormond; and
(n)a confirmation by Sarar and Hashi, inter alia, in the following terms:
I/We, the Borrower and Guarantor, hereby confirm this loan will provide no financial hardship to me/us and I/We fully understand the interest rate and fees applicable are related to the speed, the nature and risk of this type of short term transaction.
There is no evidence that Sarar confirmed the exit (repayment) strategy; that Sarar provided an accountant certified balance sheet or that Hashi provided a full asset and liability statement. There is also no evidence that Ormond asked for any of this information before entry into the Ormond Loan.
On 10 July 2017, Rigoni sent an email to Nicholls enclosing the loan agreement and security documents for execution by Sarar and Hashi.[66]
[66]First Rigoni affidavit, [16]; exhibit ‘RR-1’ to the First Rigoni affidavit, pg 27.
Baraka gave evidence that Nicholls advised Hashi that the terms of the Ormond Loan were fair in the circumstances as they mirrored the terms of the Earlier Rigoni and Harvey Loan.[67]
[67]First Baraka affidavit, [13].
Sarar and Hashi signed those documents on 11 July 2017 and returned them to Ronayne Owens Lawyers, Ormond’s solicitors.[68] They are constituted by the following documents:
(a)Loan Agreement between Ormond and Sarar;
(b)Guarantee and Indemnity by Hashi in favour of Ormond;
(c)General Security Agreement between Ormond and Sarar;
(d)Mortgage by Hashi in favour of Ormond of the Property (Mortgage);
(e)Settlement Instruction by Hashi;
(f)Agent Certification by Cavoli; and
(g)Representations by Mortgagor signed by Hashi.
[68]First Rigoni affidavit, [16]; exhibit ‘RR-1’ to the First Rigoni affidavit, pgs 28-180.
Hashi gave evidence that he was asked to see a lawyer as he needed to sign the documents before a lawyer.[69] There is no evidence as to who asked him to see a lawyer.
[69]Hashi affidavit, (f) at pg 2.
On 11 July 2017, Hashi attended the offices of Cavoli. As I have set out earlier in these reasons, [70] there is evidence that Cavoli gave advice to Hashi concerning the Earlier Rigoni and Harvey Loan. Cavoli witnessed Hashi signing a number of documents concerning the Ormond Loan, including the Mortgage and Guarantee. This is further addressed below.[71] Hashi gave evidence that prior to signing the documents, Cavoli said words to him to the effect ‘Do you agree to the terms and understand them’ to which Hashi replied ‘Yes’.[72] Hashi gave evidence that Cavoli told him he would be a guarantor but did not otherwise advise upon or explain the documents.[73] Hashi also gave evidence that he was ‘unaware that my family home would be affected if the loan was not repaid’.[74] Baraka gave evidence that no interpreter was present.[75]
[70]See above [23].
[71]See below [58]-[62].
[72]Hashi affidavit, (f) at pg 2.
[73]Ibid [7]; proposed amended defence and counterclaim filed 9 July 2020 (dated 8 July 2020), [25(f)]-[25(g)].
[74]Hashi affidavit, (g) at pg 2.
[75]First Baraka affidavit, [20].
Rigoni gave evidence that Sarar and Hashi were represented by Nicholls.[76]
[76]First Rigoni affidavit, [7].
Rigoni gave evidence that Ormond relied upon the fact that Sarar and Hashi had entered into the documents relating to the Earlier Rigoni and Harvey Loan, and had obtained legal advice on those documents, in assessing and approving the Ormond Loan.[77]
[77]Second Rigoni affidavit, [6(d)].
Hashi gave evidence that no enquiries were made of him by Ormond or Nicholls of his ability to service the interest rate and administration fee under the Loan Agreement and Guarantee or to repay the amount due without having to sell the Property.[78]
[78]Hashi affidavit, [7]; proposed amended defence and counterclaim filed 9 July 2020 (dated 8 July 2020), [26].
Hashi gave evidence that ‘[a]t the time of making the arrangements for what was to be a short-term loan I was under extreme financial pressure and did not understand the consequences.’[79]
[79]Hashi affidavit, [9].
Hashi also gave evidence that ‘I believe that the that plaintiff knew of my dire financial position at the time the loan was made’.[80] He did not give a basis for his belief.
[80]Ibid (h) at pg 2.
Hashi gave further evidence that he was never asked to seek financial advice and did not do so.[81]
[81]Hashi affidavit, (e) on pg 2.
Loan Agreement
The Loan Agreement provides for a loan by Ormond to Sarar.[82] Hashi signed the Loan Agreement as the sole director and secretary of Sarar.[83] Sarar and Hashi admit the Loan Agreement.[84] The ‘Commercial Details’ of the Loan Agreement, inter alia, provides as follows:
[82]Exhibit ‘RR-1’ to the First Rigoni affidavit, pgs 28-56.
[83]Ibid pg 56.
[84]Transcript of Proceeding (1 September 2021), 2.16-19.
COMMERCIAL DETAILS
Agreement Date: 11 July 2017
Advance Date: The date that the Lender makes the advance to the Borrower, which will not be before 10 July 2017.
Principal Sum: $97,000.00.
Interest Rate: The standard rate of 44.00% per annum, but while the Borrower is not in default under the Facility, the Lender will accept interest at the concessional rate of 40.00% per annum.
If the Borrower after the Advance Date fails within 3 Business Days to take all action requested of it by the Lender to facilitate the registration of the Lender’s interest in any Security, the interest rate payable by the Borrower will be 4.00% per annum higher than [the] interest rate which would otherwise prevail.
Repayment method: The Borrower must pay monthly interest in advance on the Debt at the Interest Rate, on the same day of each month as the Advance Date, the first of which payments must be on the Advance Date.
$14,550.00 interest must be pre-paid on the Advance Date. The Lender shall not be obliged under any circumstances to refund any interest pre-paid, paid in advance or payable in advance.
All further interest payments are to be made to the Lender’s nominated account.
The Borrower must repay the outstanding Debt on the Repayment Date.
The Borrower may repay the outstanding Debt prior to the Repayment Date provided that:
(a)The Borrower is not in default; and
(b)The Borrower has paid or pays a minimum of four and a half months interest at the Interest Rate; and
(c)The Borrower provides one months written notice to the Lender or pays further interest equivalent to one months interest at the Interest Rate if the repayment occurs after the Repayment Date.
If the Debt is not paid by the Repayment Date, the Borrower must thereafter pay interest at the Interest Rate on a monthly basis as directed by the Lender, but this sentence is not to be taken as a consent by the Lender to extend the term of the Facility.
Repayment Date: 26 November 2017
Authorised Purpose: Commercial Property Investment
Mortgaged Property: 8 Rivette Street Craigieburn VIC 3064 being the Land in Certificate of Title Volume 11243 Folio 540
Lender’s Notice: Address: Suite C2, 521 Toorak Road Toorak VIC 3142
Borrower’s Notice: Address: 8 Rivette Street Craigieburn VIC 3064
Transaction Documents: This Agreement.
The Securities
Securities:1. Third registered mortgage over 8 Rivette Street Craigieburn VIC 3064 being the Land in Certificate of Title Volume 11243 Folio 540
2. Unlimited Guarantee and Indemnity from Mohamed Jama Hashi
3. General Security Agreement granted by Sarar Australia And NZ Pty Ltd ACN 617 884 947
Business Day place: Melbourne
State:Victoria
Lender’s Solicitors: Ronayne Owens Lawyers
The Loan Agreement relevantly provides, inter-alia, as follows:
2.3Security
Each Security shall secure the Debt now or at any time secured or payable to the Lender under any of the Transaction Documents and/or any of the Securities.
…
3.1Repayment Date
The Borrower must, unless required under another provision of this Agreement to repay the Debt at an earlier date, repay the balance outstanding of the Debt to the Lender on the Repayment Date.
3.2On demand
If or to the extent that the time for repayment is not set out in this clause or if an Event of Default occurs under this Agreement, the Borrower must repay the Debt to the Lender on demand.
…
4.INTEREST
4.1Payment of Interest
The Borrower must pay interest to the Lender as specified as the repayment method in the Reference Schedule, at the Interest Rate on the outstanding balance of the Debt during the period from the Advance Date to the date when the Debt is repaid in full.
4.2Calculation
For the purposes of clause 4.1, interest shall be:
(a) payable at the Interest Rate;
(b)calculated monthly on the balance outstanding of the Debt at that time;
(c)charged to the Loan Account on the first day of each month;
(d) accrue from month to month in advance; and
(e)payable monthly in advance, at such times as may be agreed between the Lender and the Borrower in writing, or failing agreement, on demand.
4.3Capitalisation of interest
If any payment of interest to be paid under this Agreement or any part of it is not paid on the due date, the interest in arrears may, at the election of the Lender (without prejudice to other Rights of the Lender) be capitalised and be immediately added to the Debt and shall bear interest accordingly from the day when the interest is capitalised.
…
6FEES AND EXPENSES
Subject to this clause, the Borrower must pay:
(a)its own and the Lender’s legal costs (on a solicitor and own client basis), expenses and outgoings in respect of the negotiation, preparation and execution of this Agreement and the Securities, of any amendment or extension of them, or the granting of a waiver or consent under, this Agreement and any additional documents which the Lender may require the Borrower to give as a condition of the making of the Principal Sum and the Lender’s costs of enforcing its Rights under the Facility;
…
9.1Events occurring
Each of the following, unless waived by Notice from the Lender, is an Event of Default:
(a)(non-payment) if the Borrower fails to pay or repay on time the Debt which is due and payable to the Lender under this Agreement, a Security or the Transaction Documents;
…
9.2Consequences
If an Event of Default occurs under this Agreement:
(a) the Debt shall, at the option of the Lender, immediately become due and payable upon the Lender making written demand upon the Borrower;
(b)the Event of Default shall be deemed to be an event of default under the Transaction Documents; and
(c)the Lender shall be entitled to exercise all or any of its Rights or remedies under each of the Securities and the Transaction Documents.
…
11.1Security
The Borrower agrees with the Lender that to secure or collaterally secure performance of the Borrower’s Obligations under this Agreement, the Borrower must cause and procure the granting of each of the Securities.
…
17.6Fees payable on default
(a)The Borrower agrees to pay the Lender’s default administration fee of $550 upon the occurrence of an Event of Default, together with the Lender’s default administration fee of $440 per week or part thereof during which there is a subsisting Event of Default. The Borrower agrees that the Lender’s default administration fee is a genuine pre-estimate of the Lender’s expenses in respect of the administration of any default under this Agreement.
On 11 July 2017, the Loan Agreement settled and $74,832.50 was paid directly to Sarar on that date.[85] The remainder of the Ormond Loan was paid at the direction of Hashi for fees and disbursements.[86] Sarar and Hashi admit that the sum of $97,000 was advanced to Sarar under the Loan Agreement.[87] As I have set out earlier in my reasons,[88] the Earlier Rigoni and Harvey Loan was not in default when the Ormond Loan settled.
[85]First Rigoni affidavit, [25] refers to an amount of $75,000. However, the precise figure was $74,832.50, being the loan facility of $97,000 less the sums set out in the Settlement Instruction: exhibit ‘RR-1’ to the First Rigoni affidavit, pgs 154-155. Mr Stavris accepted that the sum of $74,832.50 was paid to the defendants and the ‘balance of the monies comprised fees, brokerage fees, establishment fees, assessment fees, and prepaid interest’: Transcript of Proceeding, Ormond Supermarket Pty Ltd v Sarar Australia and NZ Pty Ltd & Anor (Supreme Court of Victoria, S ECI 2019 05567, Attiwill J, 23 August 2021) 8.17-20 (Transcript of Proceeding (23 August 2021)).
[86]Exhibit ‘RR-1’ to the First Rigoni affidavit, pgs 154-155.
[87]Transcript of Proceeding (24 June 2021), 60.2-5, 100.12-18. See also Ormond’s statement of account with respect to the Loan Agreement that records that the sum of $97,000 was advanced to Sarar: exhibit ‘RR-1’ to the First Rigoni affidavit, pg 186.
[88]See above [28].
Guarantee
The Guarantee provides for a guarantee by Hashi to Ormond.[89] Hashi admits the Guarantee.[90] Hashi signed the Guarantee and his signature was witnessed by Cavoli.[91] The Guarantee relevantly provides, inter alia, as follows:
[89]Exhibit ‘RR-1’ to the First Rigoni affidavit, pgs 57-81.
[90]Transcript of Proceeding (1 September 2021), 2.22-23.
[91]Exhibit ‘RR-1’ to the First Rigoni affidavit, pg 81.
1.1Definitions
…
“Debt” has the meaning ascribed to it in the Loan Agreement;
“Debtor” means Sarar Australia and NZ Pty Ltd ACN 617 884 947 of 8 Rivette Street Craigieburn VIC 3064;
“Guaranteed Moneys” means:
(a)all present or future indebtedness of the Debtor to the Beneficiary either alone or in conjunction with any other person on any account whatever under the Transaction Documents;
(b)any loss or Claim suffered by the Beneficiary arising out of or in connection with a breach by the Debtor of any Obligation of the Debtor under the Transaction Documents;
(c)any interest awarded against the Debtor or payable by the Debtor in respect of any such Claim; and
(d) the Debt, as defined in the Loan Agreement.
“Loan Agreement” means the agreement between the Beneficiary and the Debtor providing for advances of the Principal Sum entered into contemporaneously (more or less) with this Agreement;
“Transaction Documents” has the same meaning as ascribed to it in the Loan Agreement;
…
2.1Obligations Guaranteed
In consideration of the Beneficiary, at the request of the Guarantor providing financial accommodation to the Debtor, the Guarantor unconditionally guarantees to the Beneficiary:
(a)the due and punctual payment by the Debtor of the Guaranteed Moneys; and
(b)the due and punctual performance by the Debtor of the Debtor’s Obligations.
2.2Result of non payment
If the Debtor defaults in the due and punctual payment of the Guaranteed Moneys, or any part of them, the Guarantor shall pay those moneys on demand to or as directed by the Beneficiary.
2.3Result of non-performance
If the Debtor defaults in the due and punctual performance of any of the Debtor’s Obligations, the Guarantor unconditionally indemnifies the Beneficiary against all consequential loss which the Beneficiary may suffer, and shall pay the amount of any such loss on demand to or as directed by the Beneficiary.
…
8.1Interest on Unpaid Amounts
The Guarantor shall pay interest at the rate prescribed in the Transaction Documents, calculated on a daily basis, on each Unpaid Amount, for the period from and including the date on which it fell due for payment to but excluding the date on which the Unpaid Amount is paid in full.
Mortgage
The Mortgage provides for a mortgage by Hashi to Ormond of the Property.[92] Hashi admits the Mortgage.[93] Hashi has been the registered proprietor of the Property since 5 April 2017.[94] Hashi signed the Mortgage and his signature was witnessed.[95] The name of the witness is not stated in the Mortgage. It was witnessed by Cavoli.[96] On 11 July 2017, Cavoli signed a document titled ‘Agent Certification’ in which he certified that he carried out an identification of Hashi on 23 May 2017 (ie in relation to the Earlier Rigoni and Harvey Loan).[97]
[92]Ibid pgs 152-153.
[93]Transcript of Proceeding (1 September 2021), 2.20-21.
[94] Exhibit ‘RR-1’ to the First Rigoni affidavit, pg 25.
[95]Ibid pg 152.
[96]Ibid (e) at pg 156.
[97]Ibid pg 156.
Hashi also signed a document titled ‘Representations by Mortgagors’ where his signature was witnessed by Cavoli, and which stated, inter alia:[98]
About Me (the persons signing the Mortgage)
1. I am over 18 years of age and I am not under any legal disability or incapacity.
2. I have never been bankrupt. I have never made an agreement or composition with creditors.
3. (To be answered only by non-Australian citizens) I have all necessary approvals required by law to purchase the Security Property and have attached true copies of the approval(s) to this document.
4. I have been advised to take independent legal advice before signing the mortgage and I have had an opportunity to do so.
5. I have read, and understood the nature and effect of, the mortgage.
6. I have signed the mortgage freely and voluntarily.
[98]Ibid pgs 158-159.
Reliance by Ormond Supermarket Pty Ltd ACN 163 510 512
I acknowledge that the Lender will rely on this document in making a loan to me. I agree to tell you if there is a change in any of these statements between now and settlement.
The Mortgage was registered on the title to the Land as dealing number AR688288P.[99] The Mortgage relevantly provides, inter alia, as follows:
[99]Ibid pg 25. See also First Rigoni affidavit, [26]. The Mortgage was not registered until 23 November 2018.
2.You acknowledge that this mortgage is collateral to the following agreement:
(a)Loan Agreement in respect of a loan advance of $97,000.00 between SARAR AUSTRALIA AND NZ PTY LTD ACN 617 884 947 and the Mortgagee on or about the date of this mortgage and any variation of that loan agreement (“the Loan Agreement”).
…
4.You acknowledge that, as at the date of this mortgage, we have agreed to lend $97,000.00 to you or at your request. This amount, together with any further advances and other amounts more fully described in the memorandum, is called the moneys hereby secured.
5.You acknowledge indebtedness to us for the moneys hereby secured and agree to pay us the moneys hereby secured, together with interest and all other money due to us at the times agreed with us, or failing agreement on demand. You agree that the covenants set out in the Loan Agreement of the moneys hereby secured are deemed to be covenants included in this mortgage.
The Mortgage expressly incorporates the Memorandum of Common Provisions For Real Property Mortgages First Party retained by the Registrar of Titles in NO. AA689.[100] The Memorandum of Common Provisions relevantly provides:[101]
[100]Exhibit ‘RR-1’ to the First Rigoni affidavit, pg 153.
[101]Ibid pgs 160-179.
1.(1)(a)The Mortgagor shall pay to the Mortgagee at the time or times agreed upon from time to time between the Mortgagor and the Mortgagee and if no time or times are agreed upon then upon demand the moneys hereby secured (which expression is defined in Clause 31).
(b)The Mortgagor shall pay to the Mortgagee on the due date described in the Schedule the amount outstanding of the principal moneys secured (which expression is defined in Clause 31).
…
(2)The moneys hereby secured shall, if not otherwise due and payable, at the option of the Mortgagee become immediately due and payable if the Mortgagor –
(a) defaults in making any of the payments referred to in Clause 2, 3, 4, or 5 (as the case may be) or in the payment of any other moneys payable hereunder and such default continues for a period of seven days;
…
11. The Mortgagor shall pay to the Mortgagee on demand all costs (and in the case of legal costs as between a solicitor and his own client) expenses duties taxes and other moneys –
…
(d)on account of any default by the Mortgagor in performance or observance of any covenant;
…
15. (1)If the Mortgagor defaults in performing or observing any covenant or agreement to be performed or observed by the Mortgagor the Mortgagee may without prejudice to any other right power authority or remedy of the Mortgagee do all things and pay all moneys necessary to make good such default to the satisfaction of the Mortgagee and any moneys so paid shall pursuant to Clause 11 form part of the principal moneys secured.
(2)(a) The period for which the default specified in Section 76 of the Act must continue before service of the notice referred to in that section is seven days.
(b)The period for which default must continue after service of the notice before the power of sale given by Section 77 of the Act can be exercised is seven days.
(3)Upon giving seven days notice (which may be contained in the same notice referred to in subclause (2)(a)) of its intention to exercise the power given by this sub-clause the Mortgagee may at any time after the expiration of the period referred to in sub-clause (2)(b) enter upon and take possession of the land or any part thereof and exercise and do all or any of the acts powers and authorities vested in or given to mortgagees by the Act or the Property Law Act 1958 or vested in landlords pursuant to the provisions of the Landlord and Tenant Act 1958 or the Residential Tenancies Act 1980 or the Retail Tenancies Act or by any other statutory provision or at common law or in equity and in addition thereto the Mortgagee may if it thinks fit
…
(4) Any moneys expended or advanced by the Mortgagee pursuant to this clause shall form part of the principal moneys secured.
…
31. (1) In this Mortgage, unless the contrary intention appears—
…
(f)"moneys hereby secured" means the principal moneys secured and each and all sums of money in which the Mortgagor may now or hereafter be indebted or liable or contingently indebted or liable to the Mortgagee in any manner or on any account whatever including interest, whether capitalised as provided in Clause 6(2) or not, except such moneys (if any) as the parties in writing agree do not form part of the moneys hereby secured;
…
(k) "principal moneys secured" means
(i) the Advance;
(ii) any further advances made by the Mortgagee to the Mortgagor (in the discretion of the Mortgagee) as part of the principal moneys secured;
(iii) all other moneys payable by the Mortgagor to the Mortgagee which pursuant to the terms of this Mortgage are to be part of the principal moneys secured;
…
(8)A party to this Mortgage may give any notice to any other party by posting the notice by prepaid post to the address of that party set out in the Schedule or such other address as may have been advised in writing by such party and such notice shall be deemed to have been received three days after the date on which it was posted.
…
(10)A certificate purporting to be signed by the Mortgagee or by any of its solicitors, directors, secretaries, managers or other duly authorised officers stating all or any of the following matters; facts or things--
(a) the moneys hereby secured or the principal moneys secured at any date;
(b)the date of making default in performing or observing any covenant or agreement to be observed by the Mortgagor;
(c) whether such default has continued between specified dates;
(d) anything else relevant to the establishment of any right or remedy of the Mortgagee or of the liability of the Mortgagor;
(e)as to any sum payable pursuant to the Guarantee contained in Clause 29 as at the date set out in such certificate
shall be prima facie evidence of such matter, fact or thing stated in such certificate.
Demands
Sarar did not pay the amounts due under the Loan Agreement, being the payment of the loan by 26 November 2017.[102] By letters dated 21 March 2018, Ormond’s solicitors made demands upon Sarar and Hashi for moneys owed under the Loan Agreement.[103]
[102]First Rigoni affidavit, [27].
[103]Exhibit ‘LKO-1’ to the Second Owens affidavit.
On 3 April 2018, Hashi sent an email to Owens in which he stated:[104]
Dear Luke
I refer to per our telephone conversation last week that I am currently trying to refinance the loan and waiting my accountant to fill required form. It took longer than I anticipated however now we are almost there. So the reason of this email is to inform you that we will have this last form filled by next Monday 9/03/2018.
As my accountant on holiday for Easter.
I am asking you to support me in this situation, by been patient little bit more, since I have received your letter caused me a lot of anxiety, stress as this is my family house. I have large family this is the only place I house them.
I will update you on Monday once I finalise with accountant.
Thanks
…
[104]Exhibit ‘LKO-2’ to the Second Owens affidavit.
On 24 September 2018, Hashi sent an email to Owens in which he stated:[105]
Dear Luke
I refer to per our telephone conversation last week I [sic] relation to the loan between me and your client, as I explained to you my situation I am trying to Seattle [sic] this as soon as possible but I faced some issues with my previous accountants , now we are talking to another accountant to sort out this cause delay and stress. As I told you Over [sic] the phone i [sic] have 8 children to house this property. My mortgage broker still trying sorting out the situation and now in contact with new lenders and accountant hopefully we will Seattle [sic] soon however I have looked alternatives in the event something goes wrong. The alternative is that I start repaying the second mortgage monthly repayment on October 26/10/2018 until 26/01//2019 [sic] and Seattle [sic] both second mortgage and third mortgage. My family are involved now I expecting them to help Seattle [sic] this debt in January since that is only time they can get a fund to help me, this is being very stressful and difficult for me and my family and I hope your client considers my situation , have more patience to resolve. I look forward receiving your cooperation.
Your Sincerely
Mohamed J Hashi
[105]Exhibit ‘LKO-3’ to the Second Owens affidavit.
On 10 October 2018, Rigoni Private Finance and Harvey Nominees commenced a proceeding in this Court in respect of the Earlier Rigoni and Harvey Loan.[106] They sought orders for possession of the Property by way of enforcing their rights under the security for the Earlier Rigoni and Harvey Loan.[107] On 15 August 2019, that proceeding was the subject of a decision in this Court by the judicial registrar in Rigoni Private Finance Pty Ltd & Anor v Sarar Australia and NZ Pty Ltd & Anor.[108] The proceeding was subsequently finalised by consent by order of this Court on 9 September 2019.[109]
[106]First Owens affidavit, [5].
[107]Ibid [5].
[108][2019] VSC 539. See also First Owens affidavit, [6].
[109]First Owens affidavit, [7].
On 23 November 2018, the Mortgage was registered on title.[110]
[110]Exhibit ‘RR-1’ to the First Rigoni affidavit, pgs 181-182.
By letter dated 9 September 2019, Ormond’s solicitors made a demand upon Sarar for moneys owed under the Ormond Loan.[111]
[111]Ibid pg 185.
By letter also dated 9 September 2019, Ormond’s solicitors served a notice upon Hashi under s 76 of the Transfer of Land Act 1958 (Vic) (Transfer of Land Act).[112] The notice stated that the total amount due as at 9 September 2019 was $279,868.08, with costs and expenses with respect to the notice of $457.75.
[112]Ibid pgs 183-184.
Owens gave evidence that Ormond did not pursue the loan advanced to Sarar under the Ormond Loan earlier as Rigoni was waiting for the outcome of the proceeding involving the Earlier Rigoni and Harvey Loan.[113] Owens gave evidence that given that the proceeding involving the Earlier Rigoni and Harvey Loan ultimately related to the Property, there would have been no reason to commence this proceeding if the Property was sold by Rigoni Private Finance and Harvey Nominees.[114]
[113]First Owens affidavit, [8].
[114]Ibid.
On 23 August 2021, Ormond provided a statement for the Ormond Loan showing a closing balance of $776, 158.94.[115] It is signed by Rigoni.
THE PLEADINGS
[115]Third Owens affidavit, [2]-[3]; exhibit ‘LKO-1’ to the Third Owens affidavit.
Statement of claim
By its statement of claim filed 6 December 2019, Ormond alleges, inter alia, that:
(a)it lent the sum of $97,000 to Sarar pursuant to the Loan Agreement;[116]
(b)Hashi guaranteed Sarar’s obligations under the Loan Agreement by giving the Guarantee;[117]
(c)Hashi mortgaged the Property to Ormond to secure the defendants’ obligations under the Loan Agreement and the Guarantee;[118]
(d)Sarar is in default under the Loan Agreement;[119]
(e)Hashi is in default under the Guarantee and Mortgage;[120]
(f)despite demand, Sarar and Hashi have not repaid the sum of $97,000, interest and costs;[121]
(g)Sarar and Hashi are indebted to Ormond in the sum of $317,839.88 as at 4 December 2019 together with interest on that sum at the rate specified in the Loan Agreement up to the date of judgment;[122] and
(h)Ormond is entitled to possession of the Property pursuant to the Mortgage and/or pursuant to s 78(1)(b) of the Transfer of Land Act.[123]
[116]Statement of claim filed 6 December 2019, [9].
[117]Ibid [7].
[118]Ibid [13].
[119]Ibid [15].
[120]Ibid [16].
[121]Ibid [19], [22].
[122]Ibid [22], prayer for relief.
[123]Ibid [24].
Ormond seeks an order for possession of the Property against Hashi and also seeks the following orders against both defendants:
A. Costs on a solicitor and own client basis.
B. The sum of $317,839.88 as at 4 December 2019.
C.Interest on the sum of $317,839.88 at the rate per annum specified by the Loan Agreement, such interest being calculated monthly and debited monthly in advance and capitalised on the balance outstanding from time to time.
D.Interest on the judgment sum calculated in accordance with Recital B and C at the rate per annum specified in the Loan Agreement, being 44.00% per annum.
E.Alternatively, interest pursuant to statute on the total amount owing.
F.Alternatively, complete restitution, including interest incurred by the Plaintiff in lending the sum of $97,000.00, alternatively, restitution in the sum of the principal outstanding.
G. Such further or other orders as the Court deems fit.
Proposed defences and counterclaim
By their defences filed 2 April 2020, Sarar and Hashi allege, inter alia, that they:
(a)admit a loan in the sum of around $75,000 and deny any loan in the sum of $97,000;[124]
(b)allege the loan was a business loan for Sarar;[125]
(c)allege that the Loan Agreement was forced on them and they were not given any opportunity to go through its terms;[126]
(d)allege in relation to the Guarantee: ‘deny the terms of the agreements and admit being responsible for the loan for the first defendants [sic]’;[127]
(e)deny that Hashi mortgaged the Property;[128]
(f)deny the ‘whole claim’;[129]
(g)allege that Hashi is under a special disability, including by reason of: being a migrant from Somalia; having English as his second language; supporting eight children and a wife; being unsophisticated in business and finance and having no assets other than the Property;[130]
(h)allege that they are filing a counterclaim against Ormond, Rigoni, Nicholls and Cavoli as ‘[t]hese people the team who planned to t sara and mr hashi [sic]’.[131] This allegation is incomplete and appears to have missing words; and
(i)otherwise deny the substantive allegations against them.
[124]Defences filed 2 April 2020, [5], [9].
[125]Ibid [12].
[126]Ibid [5].
[127]Ibid [7].
[128]Ibid [11].
[129]Ibid pg 3.
[130]Ibid.
[131]Ibid [5]. Rigoni is misdescribed as ‘ricky regoni, Nicholls is misdescribed as ‘garry Nicholson’, and Cavoli is misdescribed as ‘tony cavalia’.
Sarar and Hashi did not rely upon the defences filed 2 April 2020 upon the hearing of this appeal. As a result, it is appropriate that they be struck out with leave to replead.
On 24 April 2020, the judicial registrar ordered Sarar and Hashi provide to Ormond a draft amended defence and any counterclaim by 4:00pm on 15 May 2020.
On 9 July 2020, Hashi filed an amended defence and counterclaim. The judicial registrar ordered that the pleading be removed from the court file as the pleading was filed without leave and should not have been accepted by the Registry for filing.[132] The judicial registrar stated that Sarar and Hashi ought to have included the pleading as an exhibit to the affidavits relied upon in opposition to the application.[133] In my view, the order made by the judicial registrar was correct. The defendants did not submit to the contrary. The judicial registrar observed that it was common ground at the hearing of the application that the pleading would be considered as the pleading Sarar and Hashi would rely upon if summary judgment was not granted.[134]
[132]Written Reasons, [8]; paragraph 1 of the orders made by the judicial registrar on 9 October 2020.
[133]Ibid.
[134]Ibid.
On 23 March 2021, Sarar and Hashi provided a further version of a proposed amended defence and counterclaim.[135]
[135]Exhibit ‘NB-2’ to the First Baraka affidavit.
Upon the hearing of this appeal, Sarar and Hashi relied upon a further version of the proposed amended defence and counterclaim and this was provided to the Court during oral argument (Proposed Pleading).[136] By the Proposed Pleading it is sought to be alleged, inter alia, that:
(a)Ormond engaged in misleading and deceptive conduct pursuant to s 12DC of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act);[137]
(b)Ormond made false or misleading representations in contravention of s 12DB of the ASIC Act with respect to the Guarantee;[138]
(c)Ormond engaged in unconscionable conduct at ‘common law' and pursuant to s 12CB of the ASIC Act;[139]
(d)the terms of the Loan Agreement are unfair within the meaning of s 12BF of the ASIC Act;[140] and
(e)the first mortgagee did not consent to the Mortgage.[141]
[136]See Transcript of Proceeding (24 June 2021), 75.4-12, 77.21-78.5. The proposed pleading was subsequently exhibited in exhibit ‘NB-1’ to the Third Baraka affidavit.
[137]Proposed Pleading, [3(a)].
[138]Ibid [5(a)].
[139]Ibid [3(b)], [16], [33].
[140]Ibid [23].
[141]Ibid [9].
The Proposed Pleading sets out the following prayer for relief on the counterclaim:
A.A declaration that the terms of the documents are unfair and void.
B. Subject to the principal sum of $97,000 being paid to the Plaintiff, a declaration that it is unconscionable to enforce the guarantee and mortgage.
C. A declaration that the second defendant has validly avoided the counterclaim and mortgage and that he is discharged from further performance under the mortgage.
D. An order that the plaintiff discharge the mortgage AR688288P.
E. An Order that the Loan Agreement is voidable to the extent of the interest and management fees beyond 26 November 2017.
F. Costs.
G. Such further or other orders as the Court considers appropriate.
SUMMARY JUDGMENT - APPLICABLE LAW
Section 61 of the Civil Procedure Act2010 (Vic) (Civil Procedure Act) provides that a plaintiff may apply to the court for summary judgment in the proceeding on the ground that a defendant’s defence or part of that defence has no real prospect of success.
Section 62 of the Civil Procedure Act provides that a defendant may apply to the Court for summary judgment in the proceeding on the ground that a plaintiff’s claim or part of that claim has no real prospect of success.
Section 63(1) of the Civil Procedure Act relevantly provides that, subject to s 64, a court may give summary judgment if satisfied that a claim, defence or a counterclaim, or part of the claim, defence or counterclaim, has no real prospect of success. Section 64 of the Civil Procedure Act provides that:
Despite anything to the contrary in this Part or any rules of court, a court may order that a civil proceeding proceed to trial if the court is satisfied that, despite there being no real prospect of success the civil proceeding should not be disposed of summarily because –
(a) it is not in the interests of justice to do so; or
(b)the dispute is of such a nature that only a full hearing on the merits is appropriate.
Section 65 of the Civil Procedure Act provides that the powers of a court under Part 4.4 (including ss 61-64 of the Civil Procedure Act) are in addition to, and do not derogate from, any powers a court has under rules of court in relation to summary disposal of any civil proceeding.
In Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd,[142] the Court of Appeal set out the test to be applied when determining whether to give summary judgment in a civil proceeding pursuant to s 63 of the Civil Procedure Act as follows:
Upon the present state of authority:
(a)the test for summary judgement under s 63 of the Civil Procedure Act 2010 is whether the respondent to the application for summary judgment has a “real” as opposed to a “fanciful” chance of success;
(b)the test is to be applied by reference to its own language and without paraphrase or comparison with the “hopeless” or “bound to fail test” essayed in General Steel;
(c)it should be understood, however, that the test is to some degree a more liberal test than the “hopeless” or “bound to fail” test essayed in General Steel and, therefore, permits of the possibility that there might be cases, yet to be identified, in which it appears that, although the respondent’s case is not hopeless or bound to fail, it does not have a real prospect of success;
(d)at the same time, it must be borne in mind that the power to terminate proceedings summarily should be exercised with caution and thus should not be exercised unless it is clear that there is no real question to be tried; and that is so regardless of whether the application for summary judgment is made on the basis that the pleadings fail to disclose a reasonable cause of action (and the defect cannot be cured by amendment) or on the basis that the action is frivolous or vexatious or an abuse of process or where the application is supported by evidence.
[142](2013) 42 VR 27, 40 [35] (Warren CJ and Nettle JA). Neave JA agreed with the answer given by Warren CJ and Nettle JA at 40 [36] and further stated at 42 [41]: ‘Nevertheless I am concerned that undue emphasis on the caution with which a court must exercise the power of summary dismissal runs the risk of reinforcing the historical approach to summary dismissal and may result in the legislative liberalisation of the test in s 63 having little impact in practice.’
An application for summary judgment under s 61 of the Civil Procedure Act must be made in accordance with Order 22 Part 2 of the Rules, and an application for summary judgment under s 62 must be made in accordance with Order 22 Part 3 of the Rules.[143]
[143]Rules, rr 22.03, 22.16.
With respect to an application by a plaintiff under s 61 of the Civil Procedure Act, r 22.04 provides:
22.04 Summons and affidavit in support
(1) An application shall be made by summons supported by an affidavit—
(a)verifying the facts on which the claim or the part of the claim to which the application relates is based; and
(b)stating that in the belief of the deponent the defence to the claim or the defence to the relevant part of the claim—
(i) has no real prospect of success; or
(ii)has no real prospect of success except as to the amount of the claim or as to the amount of the relevant part of the claim.
(2) Where a statement in a document tends to establish a fact within paragraph (1) and at the trial of the proceeding the document would be admissible by or under the Evidence (Miscellaneous Provisions) Act 1958, the Evidence Act 2008 or any other Act to verify the fact, the affidavit under paragraph (1) may set forth the statement.
(3) An affidavit under paragraph (1) may contain a statement of fact based on information and belief if the grounds are set out and, having regard to all the circumstances, the Court considers that the statement ought to be permitted.
(4)The plaintiff shall serve the summons and a copy of the affidavit or affidavits and of any exhibit referred to in the affidavit or affidavits on the defendant not less than 14 days before the day for hearing named in the summons.
Rule 22.05 provides:
22.05 Defendant to show cause
(1) The defendant may show cause against the application by affidavit or otherwise to the satisfaction of the Court.
(2) An affidavit under paragraph (1) may contain a statement of fact based on information and belief if the grounds are set out.
(3) Unless the Court otherwise orders, the defendant shall serve a copy of any affidavit and of any exhibit referred to in the affidavit or affidavits on the plaintiff not less than three days before the day for hearing named in the summons.
In Israfoods (2006) Ltd v J & D Consortium Pty Ltd,[144] Sloss J said:
[144][2019] VSC 323, [49]-[51] (citations omitted).
49The requirements set out in rr 22.04 and 22.05 were considered by the Court of Appeal in Hausman v Abigroup Contractors Pty Ltd. In relation to an affidavit in support of an application for summary judgment, the Court of Appeal stated that what ‘must be verified are the facts necessary to establish a good cause of action’. Once the plaintiff has established the elements of its cause of action, there is ‘something akin’ to a shifting of the evidential burden to the defendant.
50With regard to the equivalent of what is now r 22.05, the Court of the Appeal stated as follows:
[62]… Assuming the plaintiff’s application is properly made, there will be judgment for the plaintiff unless the defendant shows cause against the application to the satisfaction of the court. The Rule provides that the defendant can show such cause ‘by affidavit or otherwise’.
[63]The defendant must satisfy the Court that, in respect of the claim to which the application for judgment relates, a question ought to be tried, or there ought for some other reason to be a trial of that claim. The Court, if so satisfied, will give the defendant leave to defend and the proceeding will continue to trial in the ordinary way. The Court will normally require an affidavit by, or on behalf of, the defendant before it will be satisfied that the defendant is entitled to leave to defend. The standard of diligence required of the defendant in preparing a case in opposition to the application, especially if under pressure of time, is perhaps not as high as that required in preparing for trial.
[64]Nonetheless, the defendant is required to use reasonable diligence to put before the Court, albeit in a summary form, all the evidence relied on in the defence. In that regard, it would generally be regarded as an injustice to the plaintiff to introduce for the first time, on appeal, evidence which was readily available for the hearing of the application, but was not produced. An affidavit filed by the defendant may contain a statement of fact based on information and belief.
[65]The authorities suggest that an affidavit in opposition to an application for summary judgment must provide sufficient particulars to enable the defence case to be properly understood. A bald denial that the defendant is indebted to the plaintiff will not suffice. The affidavit should, so far as practicable, deal specifically with the plaintiff’s claim and the facts set out in the supporting affidavit to establish that claim. It should state clearly and concisely what the defence is, and identify the facts relied upon in support of that defence.
51Those principles from Hausman v Abigroup extracted above remain good law since the advent of the CPA.
HAS ORMOND ESTABLISHED THE ELEMENTS OF ITS CAUSES OF ACTION?
In the recent decision of Stubbings v Jams 2 Pty Ltd (Stubbings),[228] Kiefel CJ, Keane and Gleeson JJ said:[229]
[228](2022) 96 ALJR 271 (Kiefel CJ, Keane, Gordon, Steward and Gleeson JJ).
[229]Ibid 280-281 [38]-[40] (Kiefel CJ, Keane and Gleeson JJ) (citations omitted).
38 In Kakavas v Crown Melbourne Ltd, this Court said:
"[E]quitable intervention does not relieve a plaintiff from the consequences of improvident transactions conducted in the ordinary and undistinguished course of a lawful business. A plaintiff who voluntarily engages in risky business has never been able to call upon equitable principles to be redeemed from the coming home of risks inherent in the business. The plaintiff must be able to point to conduct on the part of the defendant, beyond the ordinary conduct of the business, which makes it just to require the defendant to restore the plaintiff to his or her previous position."
39In Commercial Bank of Australia Ltd v Amadio, this Court held that unconscionability involves: a relationship that places one party at a "special disadvantage" vis-à-vis the other; knowledge of that special disadvantage by the stronger party; and unconscientious exploitation by the stronger party of the weaker party's disadvantage. But these considerations should not be understood as if they were to be addressed separately as if they were separate elements of a cause of action in tort. As Dixon CJ, McTiernan and Kitto JJ said in Jenyns v Public Curator (Qld), in a passage approved by this Court in Kakavas and Thorne v Kennedy, the application of the equitable principles relating to unconscionable conduct:
calls for a precise examination of the particular facts, a scrutiny of the exact relations established between the parties and a consideration of the mental capacities, processes and idiosyncrasies of the [vulnerable party]. Such cases do not depend upon legal categories susceptible of clear definition and giving rise to definite issues of fact readily formulated which, when found, automatically determine the validity of the disposition. Indeed no better illustration could be found of Lord Stowell's generalisation concerning the administration of equity: “A court of law works its way to short issues, and confines its views to them. A court of equity takes a more comprehensive view, and looks to every connected circumstance that ought to influence its determination upon the real justice of the case”. (citation omitted)
Special disadvantage
40In this field of discourse, "special disadvantage" means something that "seriously affects the ability of the innocent party to make a judgment as to his [or her] own best interests". While the factors relevant to an assessment of special disadvantage have not been exhaustively listed, Fullagar J in Blomley v Ryan considered that special disadvantage may be inferred from "poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary". No particular factor is decisive, and it is usually a combination of circumstances that establishes an entitlement to equitable relief.
The High Court disagreed with the Court of Appeal’s decision and found that the respondents’ agent had ‘sufficient appreciation of the appellant's vulnerability, and the disaster awaiting him under the mortgages, that his conduct in procuring the execution of the mortgages is justly described as unconscientious.’[230]
[230]Ibid 281 [46] (Kiefel CJ, Keane and Gleeson JJ).
Kiefel CJ, Keane and Gleeson JJ also said:[231]
The appellant's lack of commercial understanding coupled with his inability to repay the loans from his own income or other assets meant that default in repayment, and the consequent loss by the appellant of his equity in his properties by way of interest payments to the respondents, were inevitable as a matter of objective fact. The respondents, through their agent, sufficiently appreciated that reality that the exercise of their rights under the mortgages to turn the appellant's disadvantages to their own profit was unconscionable. Equitable intervention was justified in this case "not merely to relieve the [appellant] from the consequences of his own foolishness ... [but] to prevent his victimisation".
[231]Ibid 275 [5] (Kiefel CJ, Keane and Gleeson JJ) (citations omitted).
In Kakavasv Crown Melbourne Ltd,[232] the High Court said:
Equitable intervention to deprive a party of the benefit of its bargain on the basis that it was procured by unfair exploitation of the weakness of the other party requires proof of a predatory state of mind. Heedlessness of, or indifference to, the best interests of the other party is not sufficient for this purpose. The principle is not engaged by mere inadvertence, or even indifference, to the circumstances of the other party to an arm’s length commercial transaction. Inadvertence, or indifference, falls short of the victimisation or exploitation with which the principle is concerned.
[232](2013) 250 CLR 392, 439-440 [161] (French CJ, Hayne, Crennan, Kiefel, Bell, Gageler and Keane JJ).
In Asia Pacific International Pty Ltd v Dalrymple,[233] Shepherdson J declared provisions in a deed of loan and mortgage unconscionable insofar as those provisions required payment of interest at 20% per month and permitted capitalisation of unpaid interest and payment of interest on unpaid interest. Shepherdson J concluded that looking at ‘the end result objectively’, the insertion of these provisions had taken advantage of the defendants’ special vulnerability and was ‘unreasonable and oppressive to an extent that affronts ordinary minimum standards of fair dealing’.[234] Shepherdson J ordered, inter alia, that the relevant documents be read and construed as if they referred to a reduced interest rate of 15% and that the relevant documents did not refer to the capitalisation of unpaid interest and payment of interest on unpaid interest.[235] Shepherdson J said:[236]
There is an element of value judgment in this case. I realise that it is important that courts do not as a general rule interfere in transactions entered into at arm’s length between men of commerce. Nevertheless, in the circumstances of this particular case I feel very strongly that there has been unconscionable conduct on the part of the plaintiff by the insertion into the Deed of Loan of provisions enabling unpaid interest to be capitalised and then bear further interest at the rate of 20 per cent per month. This case shows that a lender can be extremely careful to ensure, as far as he can, that the borrower has competent independent advice and understands well the nature of the obligation entered into and its general consequences, yet the contract of loan may amount to an unconscionable dealing.
[233][2000] 2 Qd R 229 (Dalrymple). This case was referred to with approval by Barrett J in Multispan v Portland(No 2) [2001] NSWSC 1047, [9].
[234]Dalrymple, 240. Shepherdson J was quoting Deane J in Commonwealth v Verwayen (1990) 170 CLR 394, 441.
[235]Dalrymple, 243.
[236]Ibid 240-241.
In Bridgewater v Leahy,[237] Gaudron, Gummow and Kirby JJ said:
In some cases, the equity that arises by reason of an unconscientious or unconscionable dealing of the nature with which this appeal is concerned may be satisfied only by setting aside that dealing in its entirety. The dealing may be embodied in the one instrument which contains several provisions or in several instruments. In other circumstances, of which this case is an example, the equity may be satisfied by orders setting aside some but not all of these instruments or some but not all of the provisions thereof.
…
Once a court has determined upon the existence of a necessary equity to attract relief, the framing, or, as is often expressed, the moulding, of relief may produce a final result not exactly representing what either side would have wished. However, that is a consequence of the balancing of competing interests to which, in the particular circumstances, weight is to be given.
Conduct contrary to s 12CB of the ASIC Act
[237](1998) 194 CLR 457, 493 [124], 494 [127] (citations omitted). See also J D Heydon, Heydon on Contract (Lawbook Co., 2019), [18.460].
Section 12CB of the ASIC Act provides:[238]
[238]This was 12CB of the ASIC Act as at July 2017.
12CB Unconscionable conduct in connection with financial services
(1) A person must not, in trade or commerce, in connection with:
(a) the supply or possible supply of financial services to a person (other than a listed public company); or
(b)the acquisition or possible acquisition of financial services from a person (other than a listed public company);
engage in conduct that is, in all the circumstances, unconscionable.
(2)This section does not apply to conduct that is engaged in only because the person engaging in the conduct:
(a)institutes legal proceedings in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition; or
(b)refers to arbitration a dispute or claim in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition.
(3)For the purpose of determining whether a person has contravened subsection (1):
(a)the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and
(b)the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section.
(4) It is the intention of the Parliament that:
(a)this section is not limited by the unwritten law of the States and Territories relating to unconscionable conduct; and
(b)this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and
(c)in considering whether conduct to which a contract relates is unconscionable, a court’s consideration of the contract may include consideration of:
(i) the terms of the contract; and
(ii)the manner in which and the extent to which the contract is carried out;
and is not limited to consideration of the circumstances relating to formation of the contract.
(5) In this section:
listed public company has the same meaning as it has in the Income Tax Assessment Act 1997.
In Stubbings,[239] Gordon J said:
55 Section 12CB(1)(a) of the ASIC Act prohibits persons from engaging "in conduct that is, in all the circumstances, unconscionable", in connection with, relevantly, the supply of financial services in trade or commerce …
56 "Unconscionable" is not defined in the ASIC Act. Unconscionable conduct under s 12CB "is not limited by the unwritten law of the States and Territories relating to unconscionable conduct", a clear reference to the equitable doctrine of unconscionable conduct. The statutory conception of unconscionability is more broad-ranging than the equitable principles; it does something more.
57 Section 12CB of the ASIC Act, like equity, requires a focus on all the circumstances. The court must take into account each of the considerations identified in s 12CC if and to the extent that they apply in the circumstances. The considerations listed in s 12CC are non-exhaustive, but they provide "express guidance as to the norms and values that are relevant to inform the meaning of unconscionability and its practical application". They assist in "setting a framework for the values that lie behind the notion of conscience identified in s 12CB". "The assessment of whether conduct is unconscionable within the meaning of s 12CB involves the evaluation of facts by reference to the values and norms recognised by the statute, and thus, as it has been said, a normative standard of conscience which is permeated with accepted and acceptable community standards. It is by reference to those generally accepted standards and community values that each matter must be judged".
58 Put in different terms, the s 12CC considerations assist in evaluating whether the conduct in question is "outside societal norms of acceptable commercial behaviour [so] as to warrant condemnation as conduct that is offensive to conscience". A court should take the serious step of denouncing conduct as unconscionable only 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".
[239]283-284 [55]-[58] (citations omitted).
Analysis
Sarar and Hashi admit Ormond’s claim in the sum of $97,000, being the principal amount advanced to them under the Ormond Loan.[240]
Conduct alleged to be contrary to equitable principle
[240]See above [57]. See also Transcript of Proceeding (24 June 2021), 60.2-5, 100.12-18.
I am satisfied that Sarar and Hashi have real prospects of establishing the following matters at the time Ormond approved the Ormond Loan, and as a result, real prospects of establishing that they had a special disadvantage that seriously affected their ability to make judgments as to their best interests concerning the Ormond Loan, including on the Interest and Fee Terms:
(a)Hashi was in a ‘dire financial position’ and ‘under extreme financial pressure’.[241] Hashi had no substantial income and supported his wife and eight children with Centrelink benefits. Hashi had no assets of value except for the Property, being the family residence.[242] Hashi owned the shares in Sarar. Sarar had not commenced trading. Sarar had recently borrowed $130,000 to fit-out the Chadstone premises pursuant to the Earlier Rigoni and Harvey Loan. It had borrowed monies to pay the first month’s rent on the Earlier Rigoni and Harvey Loan.[243] It had recently paid the second month’s rent on the Earlier Rigoni and Harvey Loan.[244] It required urgent funding to pay the Landlord Guarantee. Sarar could not trade until it obtained this funding.[245] Nicholls was unable to obtain the funding by a further advance under the Earlier Rigoni and Harvey Loan.[246] Sarar and Hashi required funding to pay the interest under the term of the Ormond Loan, being a period of 4.5 months. Sarar had no assets apart from its interest as owner and lessee of the business to be conducted from the Chadstone premises. Sarar did not open the store on time and this cost an additional sum of $7,000.[247]
(b)Hashi was unsophisticated, naïve and had little financial nous. Hashi gave evidence that he is ‘unsophisticated in matters of business and finance’.[248] Hashi had caused Sarar to enter into a lease of the Chadstone premises without sufficient funds to fit-out, and pay the Landlord Guarantee with respect to the Chadstone premises, without resort to the short-term money market.[249] At the same time, Hashi was supporting his eight children and was in receipt of Centrelink benefits. Hashi did not seek to negotiate the interest rate or the administrative fees for the Ormond Loan.[250]
(c)The ability of Sarar to repay the monies owed under the Loan Agreement was dependent upon Hashi obtaining refinancing from Westpac prior to the due date of the Ormond Loan, being a period of 4.5 months.[251]
(d)Hashi believed that he could obtain refinancing of the Ormond Loan from Westpac prior to the due date of the Ormond Loan based upon what he had been told by Nicholls.[252] Hashi did not otherwise obtain any financial advice on the Ormond Loan.[253]
(e)Default by Sarar under the Loan Agreement and consequently by Hashi under the Guarantee and Mortgage was likely. It was unlikely that Sarar would obtain refinancing from Westpac prior to the due date of the Ormond Loan. I refer to the matters set out in paragraph (a) immediately above.[254] Mr Hristovski described the Ormond Loan as a ‘very, very risky loan’.[255]
(f)The Ormond Loan was to be secured over the only substantive asset of Hashi (ie the Property), being the place of residence of Hashi and his family.
(g)Cavoli’s legal advice to Sarar and Hashi on the terms of the Ormond Loan was limited to telling Hashi that he would be a guarantor.[256] Cavoli otherwise said words to Hashi to the effect ‘Do you agree to the terms and understand them’ to which Hashi replied ‘Yes’ and Cavoli then witnessed his signature.[257] Hashi was asked to see a lawyer as he would need to ‘sign the documents before a lawyer’.[258] There is no evidence who told Hashi to see a lawyer. Rigoni and Owens did not give evidence of any discussion with Hashi. Rigoni had expressly instructed Owens that he was waiving ‘the need for legal advice’ with respect to the Ormond Loan. The legal advice that was given by Cavoli to Sarar and Hashi on the Earlier Rigoni and Harvey Loan expressly excluded any advice on ‘the viability of the transaction’.[259]
(h)Nicholls had not provided any detailed advice to Sarar and Hashi on the exit strategy, including on its prospects. There is no evidence that they had any financial advice from any other person, including any accountant.
[241]See above [52]-[53].
[242]See above [29].
[243]See above [21]-[22].
[244]See above [28]
[245]See above [31].
[246]See above [30].
[247]Exhibit ‘RR-1’ to the First Rigoni affidavit, pg 11.
[248]See above [29].
[249]First Rigoni affidavit, [8].
[250]Hashi amended the ‘Advance to Borrower’ in the first letter of offer from $68,500 to $75,000. He did not amend the amount of the Total Loan Facility, the interest rate or the administrative fees: see above [37].
[251]See above [31]-[32].
[252]See above [32].
[253]See above [54].
[254]See above [112(a)].
[255]Transcript of Proceeding (24 June 2021), 48.3. See also at 16.18-19, 49.13.
[256]See above [23].
[257]Hashi affidavit, (f) at pg 2.
[258]Ibid.
[259]Exhibit ‘RR-2’ to the Second Rigoni affidavit, pg 62.
I am satisfied that Sarar and Hashi have real prospects of establishing the following matters at the time Ormond approved the Ormond Loan, and as a result, real prospects of establishing that at the time Ormond approved the Ormond Loan, Ormond had a sufficient appreciation of their special disadvantage such that Ormond’s conduct was unconscientious in procuring the execution of the Loan Agreement with the Interest and Fee Terms:
(a)Ormond knew that Sarar had recently borrowed $130,000 to fit-out the Chadstone premises pursuant to the Earlier Rigoni and Harvey Loan. Ormond knew that Sarar had borrowed monies to pay the first month’s rent on the Earlier Rigoni and Harvey Loan and had recently paid the second month’s interest on that loan. Ormond knew that Sarar now required urgent funding to pay the Landlord Guarantee and that it was now seeking to borrow all of the interest payable for the term of the Ormond Loan.
(b)Ormond knew that Sarar could not trade until it obtained this funding and that Sarar did not open the store on time and this cost an additional sum of $7,000.[260] As observed by Nicholls to Rigoni prior to the Ormond Loan: ‘Cost him $7000 by trying to save $2000.’[261]
[260]Exhibit ‘RR-1’ to the First Rigoni affidavit, pg 11.
[261]Ibid.
(c)Ormond knew that Sarar had not commenced trading.
(d)Ormond knew that Rigoni Private Finance and Harvey Nominees had been approached to lend the monies for the Landlord Guarantee by making a further advance under the Earlier Rigoni and Harvey Loan but had not done so.
(e)Ormond knew that it had instructed Owens to waive the need for Sarar and Hashi to obtain legal advice on the Ormond Loan.[262]
[262]See above [41].
(f)Ormond knew that the Ormond Loan was a risky loan. Mr Hristovski, counsel for Ormond, described it as a ‘very, very risky loan’.[263]
[263]See above [102(q)].
(g)Ormond knew that Nicholls was brokering the Ormond Loan and that the Ormond Loan was required on a short-term basis until Nicholls could arrange a longer-term facility with Westpac, but Ormond had no details of any advice provided by Nicholls to Sarar and Hashi on their capacity to obtain funding from Westpac.
(h)Further, as a result of the matters set out immediately above,[264] Ormond wilfully and recklessly failed to make such inquiries as an honest and reasonable person would have made, being the following inquiries:
[264]See above [113(a)-(g)].
(i)obtaining an asset and liability statement from Hashi (as provided for in the amended letter of offer), alternatively, making inquiries of Hashi’s assets and liabilities in addition to the value of the security;
(ii)obtaining an accountant certified balance sheet (as provided for in the amended letter of offer), or alternatively, making inquiries as to Sarar’s assets and liabilities; and
(iii)confirming the exit strategy with Nicholls and/or Hashi by obtaining details on how it would be implemented and its prospects of success.
(i)The statements in paragraph 4 of the document titled ‘Your acceptance of this offer’ in the amended letter of offer,[265] signed by Hashi in his own capacity and in his capacity as a director of Sarar, concerning financial hardship and the interest rates, do not negate that Ormond wilfully and recklessly failed to make such inquiries as an honest and reasonable person would have made.[266]
[265]See above [42(n)].
[266]See Stubbings, 282 [49] (Kiefel CJ, Keane and Gleeson JJ).
(j)As a result, Ormond should be treated as having ‘actual knowledge’[267] of the following matters:
[267]Farah ConstructionsPty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 163 [174] (Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ).
(i)Hashi was in a ‘dire financial position’ and ‘under extreme financial pressure’.[268] Hashi had no substantial income and supported his wife and eight children with Centrelink benefits. Hashi had no assets of value except for the Property, being the family residence.
(ii)Sarar had no assets apart from its interest as owner and lessee of the business to be conducted from the Chadstone premises.
(iii)The ability of Sarar to repay the monies owed under the Loan Agreement was dependent upon Hashi obtaining refinancing from Westpac prior to the due date of the Ormond Loan, being a period of 4.5 months and that Hashi believed that he could obtain this funding.
(iv)Nicholls had not provided any detailed advice to Sarar and Hashi on the exit strategy, including on its prospects.
(v)The likelihood that Sarar would default under the Loan Agreement and Hashi would default under the Guarantee and Mortgage.
(k)Ormond sought the Interest and Fee Terms;
(l)Ormond knew that the likely outcome of the Ormond Loan was that Hashi’s equity in the Property would be taken by Ormond enforcing interest at a standard rate of 44% per annum, with arrears in interest capitalised at its election, and default administration fees of $440 per week.
Conduct alleged to be contrary to s 12CB of the ASIC Act
[268]See above [52]-[53].
Given the matters I have set out earlier in these reasons,[269] I am also satisfied that Sarar and Hashi have real prospects of establishing that Ormond engaged in conduct that was, in all of the circumstances, unconscionable in contravention of s 12CB of the ASIC Act.
Conclusion
[269]See above [112]-[113].
In conclusion, I am satisfied that Sarar and Hashi have real prospects of success in defending Ormond’s claims based upon the Interest and Fee Terms. The precise form of the relief to which Sarar and Hashi may be entitled, if they are successful on these defences (including counterclaims), is a matter for trial.
As a result, is not necessary for me to consider Sarar and Hashi’s other potential defences and counterclaims, including other defences and counterclaims based upon unconscionability.
IN ANY EVENT, SHOULD THE COURT ALLOW THE MATTER TO PROCEED TO TRIAL?
In Stubbings v Jams 2 Pty Ltd,[270] Elliott J considered whether to exercise the Court’s discretion under s 64 of the Civil Procedure Act in the context of an appeal in relation to an application for summary judgment where the defendant relied, inter alia, upon unconscionability under s 12CB of the ASIC Act. His Honour found that ‘at the very least for the reasons stated by her Honour [Lansdowne AsJ], this is a (presumably quite rare) case where the Court’s discretion ought to be exercised under s 64 of the Civil Procedure Act 2010 in requiring a full hearing of the merits.’[271]
[270](2017) 53 VR 420.
[271]Ibid 437-438 [44] (citations omitted).
In Jams 2 Pty Ltd v Stubbings,[272] Lansdowne AsJ found that there were serious questions raised by some aspects of the evidence and then said:
111When coupled with the nature of the transaction itself, and the absence of financial information provided to the plaintiffs as to the capacity of the defendant or his company to make repayments, I consider that these matters raise real concerns as to the probity of the transaction. In my view, these concerns can only be satisfactorily put to rest by a trial on oral evidence and after interlocutory processes such as discovery and interrogatories if sought have been utilised.
112For these reasons I conclude that only a full hearing on the merits is appropriate and I will refuse the application pursuant to an exercise of that discretion under paragraph (b) of s 64 of the Civil Procedure Act.
[272][2016] VSC 711, [111]-[112].
In Stubbings v Jams 2 Pty Ltd,[273] Elliott J also said:
A final point on the exercise of the Court’s discretion. A court ought to act with particular caution when it is required, under the relevant statutory provisions, to consider ‘all the circumstances’, and where, despite a substantial body of affidavit evidence filed by the Mortgagees, there are serious issues that have remained unexplained, and where the application was made at a time when there had been no discovery in the proceeding.
[273](2017) 53 VR 420, 438 [45] (citations omitted).
In my view, this caution is also applicable where it is alleged that conduct was unconscionable contrary to equitable principle ‘as a court of equity…looks to every connected circumstance that ought to influence its determination upon the real justice of the case’.[274]
[274]See above [103].
In the event that I am incorrect that the defendants have real prospects of success in their defence based upon unconscionability, as set out earlier in these reasons, then I am satisfied that this is a rare case in which the Court should exercise its discretion under s 64 of the Civil Procedure Act. I am satisfied that the Court should not dispose of the proceeding summarily, to the extent that Ormond seeks to enforce the Interest and Fee Terms, because it is not in the interests of justice to do so and the dispute is of such a nature that only a full hearing on the merits is appropriate.
Ormond relied upon a total of five affidavits on this appeal.[275] There has been no discovery in this proceeding. In the context of the circumstances that are presently known to the Court, there are serious issues that remain unanswered by the evidence on this application:
(a)why Ormond did not request any financial information from Sarar and Hashi concerning their capacity to make repayments, including as to their capacity to obtain funding from Westpac, despite having the right to request this information;[276]
(b)whether, at the time Ormond procured the Ormond Loan, Ormond was satisfied that Sarar could service the Ormond Loan;[277]
(c)the assessment of the risks made by Ormond of the Ormond Loan[278] and the basis upon which it sought the Interest and Fee Terms, in particular interest at a standard rate of 44% per annum with arrears in interest capitalised at its election and default administration fees of $440 per week;
(d)whether, and if so, Rigoni’s instruction to Owens that he ‘will waive the need for legal advice’[279] was communicated to any other person, including to Nicholls, Cavoli or Hashi; and
(e)why, on the present evidence on this appeal, Rigoni Private Finance and Harvey Nominees did not advance the monies for the Landlord Guarantee under the Earlier Rigoni and Harvey Loan[280] and Rigoni’s knowledge of that matter.
[275]See above [10].
[276]See above [43].
[277]This was submitted by Ormond but there was no evidence of this belief: see above [51], [102(p)].
[278]This was submitted by Ormond, but there was no evidence of this belief: see above [101(d)], [102(m)].
[279]See above [41].
[280]See above [30].
As a result, in circumstances in which Ormond sought the Interest and Fee Terms, I have present concerns about the probity of this transaction to the extent that Ormond seeks to enforce the Interest and Fee Terms. Based upon the present material before the Court, these concerns can only be adequately addressed by the completion of interlocutory processes, including discovery and other interlocutory processes, such as the service of subpoenas, if that is sought, and a full hearing at a trial with oral evidence.
CONCLUSION AND ORDERS
In conclusion, I will:
(a)dismiss the appeal in relation to paragraph 1 of the orders made by the judicial registrar on 9 October 2020;
(b)allow the appeal in relation to paragraphs 2 to 6 of the orders made by the judicial registrar on 9 October 2020 and set aside those orders;
(c)dismiss the application in paragraph 1(a) of Ormond’s summons;
(d)grant the application for summary judgment in paragraph 1(b) of Ormond’s summons, in part, and order the defendants pay Ormond the sum of $97,000 and otherwise dismiss that application;
(e)grant the application in paragraph 2 of Ormond’s summons and strike out the defendants’ defences filed 2 April 2020 with leave to replead;
(f)release to Ormond the amount paid into Court together with interest accrued on that sum (subject to any taxation liability on the interest accrued); and
(g)set a timetable for the future conduct of this proceeding, including the filing by Sarar and Hashi of an amended defence and counterclaim.
The parties are directed to confer and provide proposed orders to the Court by 4:00pm on 3 June 2022, addressing the matters raised in paragraph [124] immediately above, and any other order addressing the determination of Sarar and Hashi’s appeal in accordance with these reasons, including the costs of Ormond’s summons.
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