Pan v Lu
[2025] VCC 298
•25 March 2025
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-21-04117
| ZHAO YUAN PAN | Plaintiff / Defendant by First Counterclaim / Defendant by Second Counterclaim |
| V | |
| GUOTIAN LU | First Defendant / Plaintiff by First Counterclaim |
| And | |
| QIN ZHU | Second Defendant / Plaintiff by Second Counterclaim |
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JUDGE: | HER HONOUR JUDGE A RYAN | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 11-14 June 2024, written submissions filed 26 June 2024 and 12 July 2024 | |
DATE OF JUDGMENT: | 25 March 2025 | |
CASE MAY BE CITED AS: | Pan v Lu & Anor | |
MEDIUM NEUTRAL CITATION: | [2025] VCC 298 | |
REASONS FOR JUDGMENT
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Subject:CONTRACT, CONSUMER LAW, GUARANTEE
Catchwords: Loans advanced in gambling chips to the first defendant by the plaintiff under the terms of a written loan agreement – whether the plaintiff engaged in unlicensed credit activity in breach of the National Credit Code – whether transaction unjust and/or unconscionable - whether the second defendant signed the loan agreement as guarantor
Legislation Cited: National Consumer Credit Protection Act 2009 (Cth); Australian Securities and Investments Commission Act 2001 (Cth); National Consumer Credit Protection Regulations 2010 (Cth)
Cases Cited:Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd (2021) 285 FCR 133; Australian Securities and Investments Commission v BHF Solutions (2022) 410 ALR 390; Australian Securities and Investments Commissioner v BHF Solutions Pty Ltd (No 2) [2023] FCA 787; Australian Securities and Investment Commission v Fast Access Finance Pty Ltd [2015] FCA 1055; Avery v Saree Holdings Ltd; Lava Ltd v Avery [2012] NSWSC 463, citing R v Holmes; Ex parte Public Service Association (NSW) (1977) 140 CLR 63; [1977] HCA 70; Axis Bank v Gujarat NRE India Pty Ltd [2020] NSWSC; Bahadori and Others v Permanent Mortgages Pty Ltd and Others (2008) 72 NSWLR 44; Blomley v Ryan (1956) 99 CLR 362; Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; Integrated Securities No 3 Pty Ltd v Creatrix Web Development and Online Marketing Solutions Pty Ltd [2021] NSWSC 596; Kakavas v Crown Melbourne Ltd [2013] 250 CLR 392; Knowles v Victorian Mortgage Investments Ltd [2011] VSC 611; Lauvan Pty Ltd & Ors v Bega & Ors [2018] NSWSC 154; Louth v Diprose (1992) 175 CLR 621; Productivity Partners Pty Ltd v Australian Competition and Consumer Commission [2024] HCSA 27; 98 ALJR 1021; Stubbins v Jams 2 Pty Ltd [2022] HCA 6; Williams v ATM & CPA Projects Pty Ltd [2015] NSWSC 703
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr C Twidale | Cliffords Lawyers |
| For the First Defendant | Mr B Zhou, solicitor | Danaher Moulton |
| For the Second Defendant | Mr K Raghavan | Lincolns Lawyers & Consultants |
Table of Contents
(1).... Overview and summary
(2).... Factual background
(3).... Pleadings
(4).... Witnesses
(5).... Issues for consideration
Issue 1: Is the first defendant indebted to the plaintiff for the principal sum of AUD1,829,937.78 plus interest and costs?
Issue 2: Did the second defendant sign the loan agreement?
Issue 3: Is the loan agreement a sham and unenforceable by reason of the circumstances referred to in paragraph [30(o)] of the first defendant’s amended defence and counterclaim?
Issue 4: Does section 29 of the National Consumer Credit Protection Act 2009 (Cth) (“NCCPA”) apply?
Credit Contracts
Credit Service
Issue 5: Does section 180 of the NCCPA apply?
Issue 6: If the Court was to make any orders under section 180 of the NCCPA, should the Court exercise its discretion and not make any order declaring the Guarantee and loan agreement void or unenforceable?
Issue 7: Do sections 77 (a), (b) and/or (c) of the National Credit Code (being Schedule 1 of the NCCPA) (Code) apply?
Issue 8: Whether the second defendant at any time was a ‘debtor’ within the meaning of section 204 of the Code.
Issue 9: Do sections 12GND and/or 12GM Australian Securities and Investments Commission Act 2001 (Cth) apply?
Issue 10: Does section 55 of the Code which includes section 81 of the National Consumer Credit Protection Regulations 2010 (“Regulations”) apply?
(6).... Disposition and orders
HER HONOUR:
(1)Overview and summary
1The plaintiff (‘Pan’) is a representative of casino junket operators. Between 2017 and 2018, Pan advanced loans to the first defendant (‘Lu’) in the form of gambling chips. Lu used the chips to gamble at Star and Crown Casinos. Pan seeks to recover a debt of $1,829,937.78, plus interest, which comprises several loans he made to Lu. Pan’s claim is based upon a written loan agreement entered into with Lu dated 13 March 2018 (‘the loan agreement’).
2Whilst Lu accepts he signed the loan agreement and received loans by way of gambling chips from Pan, he disputes the quantum of the amount claimed. Further, Lu says he has no liability under the loan agreement because it is unenforceable, invoking a number of statutory defences, including the National Credit Code (‘Code’).[1] He seeks various relief by way of counterclaim, including an order that the loan agreement be set aside.
[1] The Code is Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth)
3The second defendant (‘Zhu’) is Lu’s former wife. She is sued in her capacity as guarantor under the loan agreement. Zhu denies she signed the loan agreement. She only became aware of its existence after these proceedings were served upon her in around November 2023. In the alternative, if the Court were to reject her evidence about not signing the loan agreement, Zhu argues the guarantee is unenforceable because Pan contravened the Code. Zhu seeks orders by counterclaim that the guarantee and/or loan agreement be declared void or unenforceable.
4For the reasons that follow, I find that:
(a) Lu is indebted to Pan in the principal sum of $1,829,937.78 under the terms of the loan agreement.
(b) Pan engaged in unlicensed credit activity in breach of s29 of the National Consumer Credit Protection Act 2009 (Cth) (‘NCCPA’). However, the circumstances surrounding the unlicensed credit activity do not warrant making an order under s180 of the NCCPA.
(c) The remaining statutory defences raised by Lu were not established.
(d) Zhu did not sign the loan agreement and, therefore, the claim against her as guarantor fails. Consequently, it is not necessary to determine the alternative statutory defences relied upon by her to deny liability.
5Pan is entitled to judgment against Lu in the sum of $1,829,937.78, together with interest to be assessed.
(2)Factual background
6Pan represents operators of gambling junkets at Star Casino, Sydney and Crown Casino, Melbourne. Whilst he does not receive commission from casinos or junket operators, Pan does get some benefits from them, such as free accommodation and meals.
7Pan first met Lu at the Crown Casino complex in around early 2016 when they were introduced by a mutual acquaintance.
8Lu is a Chinese national. He is a business owner and was educated to a junior secondary school level in China. Lu moved to Australia with Zhu in 2002. Lu does not speak English.
9Zhu is a permanent resident of Australia and has been since around 2006. She was born and raised in China and worked there as a primary school teacher. She does not understand English. Zhu said she and Lu separated in around August 2016, although this date was disputed at trial. Lu pleaded in his amended defence and counterclaim they had separated in about March 2017. Following their marital break-up, Zhu moved back to China where she has lived since July 2018. She commenced divorce proceedings against Lu in China in 2019. Zhu and Lu were divorced in China pursuant to a formal court order made in 2022.
10In mid-2017, Lu borrowed from Pan a series of loans totalling the sum of $1,020,000, paid in gambling chips. The purpose of the loans was to enable Lu to continue gambling, usually playing baccarat at Star Casino or Crown Casino.
11Lu admits he signed a receipt dated 22 November 2017 (‘loan receipt’) which Pan had asked him to sign. The loan receipt provides that Lu:
(a) acknowledged receipt of a loan of $1,020,000 AUD from Pan;
(b) agreed to repay that sum based on an exchange rate between AUD and Chinese RMB or yuan (¥) of 1:6, meaning the total to be repaid was ¥6,120,000; and
(c) agreed that ¥3,000,000 was to be repaid before 26 November 2017 and the balance of ¥3,120,000 was to be repaid before 31 December 2017.
12The loan receipt stated that all previous loans were included in this amount and that the signed document superseded all previous loan agreements.[2]
[2]Court Book (‘CB’) 113-114
13Sometime in February 2018, in the course of conversations with Lu at Crown Casino, Pan agreed to lend further sums to Lu. The purpose of these additional loans was to enable Lu to continue gambling at Crown Casino. Pan told Lu he would lend him more money but that he would need security. Pan asked Lu to give security over his home at 39 Grandview Road, Brighton, which he owned as tenants in common with Zhu. Pan also requested that Zhu act as a guarantor for the loans.
14On 13 March 2018, Lu as borrower, Pan as lender, and allegedly Zhu as guarantor, executed the loan agreement as a deed. Pan’s solicitors drafted the loan agreement. There is no dispute that Pan and Lu signed the loan agreement. There is a dispute about the signature that appears on the loan agreement which is supposedly Zhu’s signature. Zhu denies she signed the document and says the signature that appears on the document is not her signature. Lu said he forged Zhu’s signature on the loan agreement in the presence of a witness who worked for Pan. The conflicting evidence given by the witnesses regarding this topic is dealt with more fully under the heading of Issue 2 below.
15The recital to the loan agreement records, inter alia, that the loan agreement was to formalise and acknowledge the loan receipt signed by Lu on 22 November 2017.
16The terms of the loan agreement were that:
(a) Lu and Zhu acknowledged Pan lent Lu the AUD equivalent of RMB Six Million One Hundred and Twenty Thousand Chinese yuan (¥6,120,000.00) on 22 November 2017 (‘the first loan’) (item 1);
(b) Pan would lend Lu a further AUD equivalent sum of RMB Two Million Eight Hundred and Eighty Thousand Chinese yuan (¥2,880,000.00) (‘the second loan’), to be advanced on the signing date of the agreement (item 1);
(c) the total financial accommodation provision by Pan to Lu is the AUD’s equivalent sum of RMB Nine Million Chinese yuan (¥9,000,000.00) representing the total of the first and second loans (item 1);
(d) the total loan amount and interest would be repaid to Pan within six months from the signing date of the loan agreement (item 2);
(e) the total loan amount must be repaid in AUD (item 2);
(f) the interest rate was 4 per cent (item 3);
(g) default interest on overdue amounts would be charged at the rate fixed by section 2 of the Penalty Interest Rates Act 1983 (Vic) (item 4);
(h) if there was any default by Lu in payment of any monies due, Pan was at liberty to enter judgment for the full amount owing plus all costs associated with the entering of judgment (item 5);
(i) the borrowers (sic) and the guarantor declared and acknowledged this loan is for business and commercial purposes (item 6);
(j) the borrowers (sic) and the guarantor declared and acknowledged that they were jointly and severally liable for the loan (item 7);
(k) security in the form of a charge was given to Pan over Lu and Zhu’s home in Brighton and they agreed that Pan could lodge a caveat over the property (item 8);
(l) Pan, Lu and Zhu have had an opportunity to seek independent legal advice as to the nature, content and effect of the terms of the loan agreement (clause 1); and
(m) the loan agreement contained the entire agreement and understanding as between Pan and Lu (clause 6).
17In early 2021, Lu commenced divorce proceedings against Zhu in Australia in response to Zhu’s proceedings brought in China.
18On 10 September 2021, Pan’s lawyers sent letters of demand to Lu and separately to Zhu, care of their home address in Brighton. A demand for payment was made in the sum of $2,454,458.85, comprising the total sum of the loans of $1,889,239.73, together with interest calculated from 14 September 2018 to 10 September 2021 in the amount of $565,219.12.[3]
[3]CB 126-129
19Zhu said she first became aware in late October or early November 2023 of the claim made in this proceeding that she had guaranteed a loan made by Pan to Lu.
(3)Pleadings
20Pan’s claim is a straightforward debt claim relying upon the default in payment under the terms of the loan agreement.
21The claim made is for the principal owing of $1,829,937.78 as well as interest calculated to 13 September 2018 at 4 per cent per annum of $52,036.41. Default interest is claimed from 13 September 2018 onwards to 22 September 2021 at 10 per cent per annum, accruing at the rate of $515.61 per day, being a total of $569,749.05. Pan also claims interest since 22 September 2021 accruing at the rate of $515.61 per day.
22In his amended defence and counterclaim, Lu admits he signed the loan receipt and the loan agreement. In paragraph 27 of his amended defence, he alleges that the exchange rate referred to in the loan receipt was significantly inflated and represents a charge of approximately 20 per cent over and above the true amount advanced. Applying a lower exchange rate, Lu estimates the overcharge is $201,140.
23Lu pleads that he forged Zhu’s signature on the loan agreement in paragraph 30(m) of his amended defence.
24In paragraphs 31 to 32 of his defence, Lu admits borrowing three separate loan amounts from between 13 March 2018 and about July 2018. The total amount borrowed was approximately $250,000 to $300,000, which Lu pleads was less than the amount recorded in the loan agreement comprising the second loan. In paragraph 32, Lu alleges he has repaid some of those amounts and also provided winnings to Pan. Lu pleads in paragraph 36 that he made payments of principal from his winnings which served to reduce any debt under the first loan. No particulars of the alleged repayments were provided.
25Lu relies upon a number of statutory defences. The first being that Pan engaged in unlicensed consumer credit activity in breach of s29 of the NCCPA. As a consequence of that breach, Lu claims he is entitled to relief under s180 of that Act. Lu seeks an order that Pan be restrained from profiting and from recovering any amounts of interest or charges. He also seeks an order that Pan compensate Lu for his loss and damage by waiving the amount of the loan outstanding.
26The second statutory defence alleged is that the transaction was unjust within the meaning of s76 of the Code. Lu seeks orders under s77 of the Code that he be relieved of any obligation to pay Pan. Alternatively, that the documents and transactions relied upon by Pan be set aside or that the account be reopened under s77(a) of the Code in order to credit the amounts that Lu has repaid.
27The third and final statutory defence relied upon is that Pan engaged in unconscionable conduct in breach of ss12CB and/or 12CA of the Australian Securities and Investments Commission Act 2001 (Cth) (‘ASIC Act’). Lu claims he is entitled to damages under s12GND of the ASIC Act, and/or orders under 12GM of the ASIC Act setting aside the relevant documents and any individual advance made. In the alternative, he seeks an order that Pan be restrained from recovering any of the amounts claimed under those agreements.
28Zhu pleads she did not sign the loan agreement and says her signature was forged. She refers to the admission made by Lu in his defence that he forged her signature. If, however, the Court were to find she was liable under the loan agreement as guarantor, Zhu pleads that Pan engaged in unlicensed credit activity in breach of s29 of the NCCPA. She also pleads that Pan breached his obligations under s55(4) of the Code as the loan agreement did not contain a prescribed statutory form of warning. As a result of these breaches, Zhu counterclaims for orders under s180 of the NCCPA that the loan agreement and/or guarantee are void or unenforceable.
29Pan filed a reply and defence to counterclaim in response to each of the defendants’ pleadings joining issue. In summary, Pan denies the Code has any application but, if it did, the Court should exercise its discretion under s180 of the NCCPA and not make any order declaring the guarantee and loan agreement void or unenforceable.
(4)Witnesses
30Pan gave evidence in English. There were a number of inconsistencies regarding his evidence. For example, there were several inconsistencies between the account given by him about his dealings with Ms Zhang, compared with her evidence.[4] There was also a glaring inconsistency between his witness statement[5] in which he made no mention of having met Zhu at the time the loan agreement was signed, compared with his later oral evidence. For the first time at trial, Pan volunteered that Zhu had been present. I formed the view that Pan was tailoring his answers to best suit his case at times and was frequently evasive. I have therefore treated his evidence with some caution in the absence of any supporting documents.
[4] A list of which are set out in paragraph 28 of Lu’s Closing Submissions dated 26 June 2014
[5]Pan incorrectly entitled his statement as an ‘outline’
31Ms Dora Zhang, a former VIP host at Crown Casino, was called to give evidence on behalf of the plaintiff. Her evidence was limited to the interaction between Pan and Lu, and allegedly Ms Zhu, when the loan agreement was signed on 13 March 2018 in the Mahogany Room at the Crown Casino. Ms Zhang witnessed the signatures that appear on the loan agreement.
32Lu gave evidence through an interpreter. He had failed to comply with a number of earlier orders directing him to file a witness statement. As a result of his non-compliance, it was agreed at trial that Lu would give his evidence first so that the other parties were on notice of his evidence before responding. Lu accepted he owed money to Pan but said he did not know how much. Although Lu’s pleaded case alleged he had made several repayments to Pan, he gave no evidence at all about these supposed repayments at trial. A matter reflecting poorly on Lu’s credit was the fact he admitted forging his wife’s signature on the loan agreement. He had done so because he knew his wife would not have agreed to Pan taking security over their home to secure Lu’s gambling debts, and he could not obtain any further gambling chips unless security was provided.
33Zhu gave evidence through an interpreter by way of audio visual link from Shanghai. Despite the attacks made about her credit by the plaintiff and being subjected to a protracted cross-examination, I regarded her as being a witness of truth who was doing her best to assist the Court.
34The other witness called was Lu and Zhu’s son, Jack Lu. He gave evidence which supported his mother’s version of events. To the extent that he was relying upon matters that she had told him, his evidence did not greatly assist. I did, however, regard him as being a truthful witness.
(5)Issues for consideration
Issue 1: Is the first defendant indebted to the plaintiff for the principal sum of AUD1,829,937.78 plus interest and costs?
35The onus is on Pan to prove that Lu is indebted to Pan for the principal sum claimed of $1,829,937.78, being the sum claimed under the terms of the loan agreement.
36The loan agreement was prepared by lawyers acting for Pan, Tao Jiang Lawyers. The document refers to two loans. The first loan is the amount already advanced to Lu on 22 November 2017 and acknowledged in the loan receipt. The second loan is a further loan to be advanced by Pan on the signing date of the agreement, being the AUD equivalent sum of ¥2,880,000.00.
37There was really no controversy about the first loan having been advanced to Lu by Pan in the sum of $1,020,000. Lu gave evidence that he agreed with the figure in the loan receipt and he accepted the exchange rate set out in the receipt. Lu admits he signed the loan agreement as well as the loan receipt referred to in the loan agreement.
38Lu’s defence pleaded in paragraph 27 was that the exchange rate referred to in the loan receipt was significantly inflated and represented a 20 per cent overcharge above the true amount lent. He alleged the exchange rate as at 22 November 2017 was Y5.0106 and therefore, this resulted in an overcharge of some $201,149. The effect of this, as argued by Lu in closing submissions, was that figures in the loan receipt and, in turn, the loan agreement, are too high. Consequently, Lu submits that if the Court were to make an order that Lu repay Pan, the principal sum allowed should be $1,463,198.11 and not the principal sum claimed by Pan in the order of $1.8 million.
39Pan said in his witness statement the parties had agreed the exchange rate under the loan agreement was 1:6 (AUD:Yuan). Lu gave evidence that Pan had told him that the exchange rate for the loans would be 1.6, which he accepted. Lu acknowledged in a WeChat message with Pan on 11 March 2018 that he had borrowed AUD$1.05 million to be settled at the final exchange rate 1:6 (AUD:Yuan). In response to Pan asking him if needed to increase the borrowing amount, Lu replied that he “will borrow $450,000 more”.[6] This exchange reveals that $1.05 million had been lent by 11 March 2018, which included a further $30,000 in addition to the $1.2 million recorded in the loan receipt. The second loan recorded in item 1b of the loan agreement referred to the AUD equivalent of Chinese yuan of $2,880,000, which amounts to $480,000. As $30,000 of that amount had already been advanced, this explains the reference to the figure of $450,000 in Lu’s message.[7]
[6] CB 135
[7] Pan’s Closing Submissions, [20] – [22]
40Lu agreed to the exchange rate proposed by Pan of 1:6 for the two loans referred to in the loan agreement. The possibility that this rate may have been higher than the then going rate could potentially be relevant to other defences raised such as unconscionability, but it is not a defence to the breach of contract claim. The parties entered into an agreement pursuant to which they expressly agreed and recorded that Lu was liable to repay the stated amounts advanced under the first and second loans which were calculated applying the exchange rate of 1:6. The fact that a lower exchange rate could or might have been agreed upon when calculating those sums is irrelevant – the parties are bound by the terms of their written agreement.
41The loan agreement provides that the loan amount to be advanced by Pan to Lu will be in the Australian dollar equivalent of Chinese yuan. The quantum of the loan amount is not specified in Australian dollars, but in Chinese yuan. It requires the loan amount quantified in Chinese yuan to be repaid in Australian dollars within six months. The loan agreement does not specify the exchange rate that is to apply in calculating the amount of Australian dollars to be repaid. Zhu argued as a matter of construction that the exchange rate which should be applied is the rate applicable as at the date of the loan agreement, as opposed to the due date for repayment. However, this is not stated in the loan agreement which is silent on this issue.
42In paragraph 17 of his amended witness statement,[8] Pan said he advanced the second loan to Lu on or about 13 March 2018. At paragraph 33 of his statement, Pan states that Lu has not made any repayments of the first or second loans in accordance with the terms of the loan agreement.
[8]Pan incorrectly entitled his amended statement as an ‘outline’
43Lu was asked in cross-examination if he remembered getting $450,000 from Pan after he signed the loan agreement to which Lu replied “I can’t remember but ah, I did get chips”.[9] Lu admitted when giving evidence at trial that he owed money to Pan but did not know how much.[10] Although various repayments were set out in his amended defence, Lu did not give evidence at trial about making any repayments to Pan. Consequently, Lu’s pleaded case that he made some repayments to Pan, which reduced his indebtedness was simply not proved. The result is that there is no admissible evidence before the Court to contradict Pan’s evidence he advanced the first and second loans to Lu and that Lu has not repaid any amounts. For his part, Pan said in cross-examination that Lu had never repaid him with some of his winnings. Pan also gave evidence that Lu had not made any repayments of the first or second loans. Having regard to the evidence led, I am satisfied that Pan did advance the two loans referred to in the loan agreement and these loans remain due and payable by Lu.
[9] Transcript (‘T’) 182
[10] T182
44The sum claimed by Pan in this proceeding was calculated by applying the exchange rate applicable as at the date of repayment of the loan, namely 13 September 2018 to the principal sum due. The rate applied was 4.9182. The parties agree that as at 13 September 2018, being the date for repayment under the loan agreement, AUD$1 was equivalent to ¥4.9182. It is also agreed that ¥9,000,000 is the equivalent to AUD$1,829,937.78.
45Although the loan agreement did not specify a rate, in my view, it is appropriate to apply the prevailing exchange rate as at the date the loan fell due for repayment, which is what the plaintiff has done.[11] Therefore, I am satisfied that the principal sum repayable by Lu is $1,829,937.78.
[11] Annexure A to the Plaintiff’s Closing Submissions
46As for interest, calculations of the interest payable are attached to the plaintiff’s closing submissions. I accept Zhu’s submission that the interest sum claimed for the first loan is incorrect and should be calculated from the date of the loan agreement, rather than from the date of the loan receipt. The loan receipt did not impose an obligation to pay interest. The agreement to pay 4 per cent interest only arose in the loan agreement which does not specify that interest would be payable from an earlier date. In the absence of such a provision, in my view, interest is only claimable from the date of the loan agreement itself and not beforehand. Consequently, Pan will need to recalculate the amounts of interest to reflect my finding. Otherwise, default interest is payable at the rate of 10 per cent as stated in the loan agreement.
47The answer to Issue 1 is that Lu is indebted to Pan in the principal sum claimed of $1,828,937.78, together with interest to be assessed in accordance with the terms of the loan agreement.
Issue 2: Did the second defendant sign the loan agreement?
48There is conflicting evidence regarding the issue of whether Zhu signed the loan agreement naming her as guarantor. Pan, Lu, Ms Zhang and Zhu gave evidence relating to this issue.
49Zhu said she had never visited the gambling room at the casino,[12] although she later said she went to the VIP room a long time ago with friends.[13] Lu gave evidence that his former wife was never on the gambling floor with Pan.[14] Zhu said she did not know Ms Zhang.[15] Zhu said she was not in the Mahogany Room on 13 March 2018. She said in cross-examination that she did not know Pan and that he did not know her.[16]
[12] T345
[13] T366
[14] T133,11-13
[15] T369
[16] T381.17-24
50Zhu denies she signed the loan agreement. She maintains the signature on the loan agreement is not her signature. Attached to her witness statement were a number of documents evidencing her signature which were also reproduced on an aide memoire provided to the Court and marked Exhibit “D1”. It is clear from a comparison of the signatures on the exhibit that those signatures are very similar, but they are appreciably different to the signature on the loan agreement which purports to be Zhu’s signature.
51It is not in dispute that the purpose of the loans was to assist Lu to gamble and were significant in quantum. It is not suggested that Zhu obtained any financial benefit from the loans made. It was a term of the loan agreement that Zhu agreed to charge in favour of Pan all her present and future property, including the Brighton marital home, to secure repayment of the loans. Lu and Zhu owned the Brighton home in equal shares as tenants in common.[17] The effect of this was that Zhu apparently agreed to act as guarantor in circumstances when she was putting her own independently held share of the Brighton home at risk in the event that Lu did not repay the gambling debt.
[17]See title search for Brighton home attached to the loan agreement at CB 121
52Zhu gave evidence she was aware Lu had a gambling problem since 2000 and that his gambling had become more severe in recent years. Zhu and Lu had a number of fights about his gambling. Lu went to the casino almost every day and would often not return until the middle of the night. Zhu knew Lu had a gambling addiction at the time the loan agreement was signed.
53This evidence was supported by Jack Lu’s evidence. He gave evidence his father had had a gambling problem for as long as he could remember and that by around 2010, his gambling problem had become very bad. It involved Lu going to the casino early in the morning and not returning until 2.00am or 3.00am. This was occurring two or three times a week. Jack Lu witnessed his parents fighting about his father’s gambling on many occasions. He also heard his mother complain that his father had gambled away money. In around 2015, Jack, his mother and his sister had a discussion with their father about their father’s gambling, to which his father said words to the effect that he was unable to control his gambling. Lu had given evidence about his gambling activities and his desperation to obtain more chips. Given all these factors, it was highly unlikely, according to the submissions made on behalf of Zhu, that she would have agreed to such an obviously imprudent guarantee.
54The other evidence relied upon was the fact that by the time of the loan agreement Zhu and Lu were no longer happily married, with the result it would be unlikely she would have agreed to give the alleged guarantee. They had become estranged due to Lu’s gambling. This estrangement was corroborated by the evidence of Jack Lu, so that by the end of 2016 his parents had their own rooms and barely spoke to each other. Zhu gave evidence that her husband’s gambling had a devastating impact on the family both financially and emotionally. While she and Lu had continued to live in the Brighton home until about July 2018, they did not have much of a relationship, had lots of fights about his gambling and slept in separate rooms.
55The Shanghai Pudong New District People’s Court granted a divorce order on 8 July 2022. This order noted, among other things, that the applicant, Zhu, had filed a divorce application in 2019. This had been refused, but a further application was filed in January 2022, which was granted. The divorce order noted that Zhu and Lu had signed a divorce agreement in 2016, which reveals the parties were not getting on as at that time. The point of this evidence, according to Zhu’s case, is that the unhappy state of the marriage renders it extremely unlikely that she would have agreed to give a guarantee and make herself liable for Lu’s gambling debt. It was also noted that the signature that appears on the divorce order corresponds with Zhu’s true signature, examples of which appear in Exhibit “D1”.
56There was in evidence a recorded conversation between Lu and Pan in June 2021, almost three years after the loans were due and payable under the terms of the conversation. The conversation included Lu offering to repay amounts to Pan, and then he goes on to say:[18]
… I will put my property on auction and sell it to pay you back. Simon, please give me some time at this stage. At the end of the day, I will try every way to repay you, even if I need to steal or rob. Now you [Translator’s Note: speech inaudible], my wife will want to divorce me. Then there will be endless trouble. My wife will definitely be not happy with me faking. I commit a criminal offence and maybe will be put into jail.
[18]CB 139
57Pan responds as follows:[19]
… Then you said you also could use your house as mortgage. Based on that, I asked the lawyer to enter a loan agreement with you. I’m in the same situation, and I’m just a guarantor, you know. Now you put all the pressure on me. If you don’t pay for it, who would pay for this loan. I have to pay for it? It works the same for everyone but only you have delayed to pay this loan for three years. I’ve already given you a chance.
[19]ibid
58The observation that Lu said his wife would not be happy that he committed a criminal offence is said to be consistent, on Zhu’s case, with the admission he made in his pleading that he forged Zhu’s signature. It is also inconsistent with Pan’s case that he was present when Zhu signed the loan agreement. If it had been the case, then it would be extraordinary that Pan would not have responded to Lu when he said that he engaged in faking and had committed a criminal offence. Similarly, the reference to there being no-one else to pay suggested a consciousness on the part of Pan that he did not consider that Zhu was liable to pay, according to the submissions put on behalf of Zhu.
59Jack Lu gave evidence that he had spoken to his mother on or around 8 November 2023, after he learnt of the claims being made in this proceeding against her. He noted that she had been extremely upset, was crying and screaming, and said words to the effect of “how could he [being his dad] do this to her. It’s not possible that I signed this how could I have ever agreed to sign this document”. He also remembered her saying words to the effect that “as my son you should know that I’ve never gambled, I’ve never supported his [being his dad’s] gambling why should I be involved in this case”. Zhu argues it is inherently unlikely she would lie and deceive her own son, including feigning distress, if in fact she had signed the loan agreement.
60Having regard to all of these objectively stated facts, Zhu’s evidence that she did not sign the loan agreement must be accepted, according to Zhu. It is inherently unlikely on her case that she would have agreed to it. The other matter raised is that the signature on the document bears no resemblance to her real signature.
61Pan gave contradictory evidence. In his witness statement signed on 5 August 2022, he said he was not present when Zhu purportedly signed the loan agreement. His evidence was as follows:[20]
Mr. Lu signed the Loan Agreement before me and another witness who is an independent person who worked for Crown Casino. Mr Lu said his wife did not want to sign before me and he said that he will bring the Loan Agreement back to Ms Zhu to sign and will pass me his wife’s passport with the signed agreement. I did not ask Mr Lu to sign for his wife and that [sic] I did not say that I will pretend I didn’t know anything about it.
[20]CB 551
62This evidence conflicted with the evidence given by Pan for the first time during his evidence at trial. When questioned by me as to who was present when he signed the loan agreement, he replied:[21]
That was Lu Guotian and his wife … And ah, me and ah, the witness. The witness also know ah, Lu Guotian and ah, his wife. Both sign, the witness know us.
[21]T228.21-24
63Pan then went on to identify the witness present as Ms Zhang. It was the first time since the proceeding commenced that Pan had ever claimed to be present when Zhu purportedly signed the loan agreement. He does not refer to it in his pleading or in his witness statements. Pan could offer no rational explanation for the contradiction in his evidence.[22] He also made no mention of it when Lu referred to the fact he had faked and committed a criminal offence in the June 2021 conversation. The fact he said nothing supports the view that Zhu was not present when the document was signed, according to Zhu’s submissions.
[22]T230.2-9
64Pan did not observe the woman who was present actually sign the document. He said he:[23]
didn’t look at Mr Lu’s wife sign the documents because I’m an – I was an involving party. I wasn’t a witness and if I had looked at her, she would have been I think kind of shy and I didn’t think that was necessary.
[23] ibid
65Ms Zhang’s evidence was that she witnessed Zhu sign the loan agreement in March 2018. She said she had been called by the plaintiff to meet him in the Mahogany Room. She said that when she arrived at the Mahogany Room, Pan and Lu were present. She then went on to say:[24]
… During the discussion Mr Pan and Mr Lu introduced me to a woman who they identified as the second defendant [Mrs Lu] and the wife of Mr Lu. Mr Lu was standing next to them when she was introduced, and she did not object to being identified that way. We all communicated in Mandarin.
During the conversation Mr Pan said words to the effect that Mr Lu was borrowing money from him and I was asked by Mr Pan to witness Mr Pan, Mr Lu and Mrs Lu sign a document which Mr Pan described as a loan agreement. I agreed to do so, although at no stage was I given the opportunity to read all the contents of that document.
I then observed Mr Pan, Mr Lu and Mrs Lu sign the documents. I then signed the document.
I specifically recall Mrs Lu turning her back to me when it was her turn to sign the document. She did not seem at all friendly during our encounter.
[24]Dora Zhang’s Witness Statement dated 1 April 2024, [7]-[10]; Ms Zhang incorrectly entitled her statement as an ‘outline’
66When questioned, Ms Zhang said she had not met Mrs Lu (Zhu) either before or after the meeting in March 2018. By contrast, Pan claimed that Ms Zhang knew Lu and his wife.[25]
[25] T228.20-25
67Ms Zhang appeared as a credible witness. While there were some conflict between her evidence and Pan’s about the nature of their relationship and the circumstances in which the loan agreement came to be signed, there was no reason to find that she was knowingly giving untruthful evidence. However, her evidence alone is not enough to persuade me that the woman who purportedly signed the loan agreement on 18 March 2018 was in fact Zhu. The evidence of Ms Zhang is that there was a woman present who was introduced as Lu’s wife. She had not met Zhu previously and therefore could not recognise her. Significantly, Ms Zhang said the woman presented to her as Mrs Lu had her back to her when it was her turn to sign the documents and was unfriendly. When cross-examined, she denied she did not witness a woman identified to her as Mrs Lu sign the loan agreement. Not unsurprisingly, given the passage of time, Ms Zhang could not recall where the parties were standing, what they wore or the order in which they signed.
68The evidence of Lu, of course, is that he forged the signature of his wife.[26] It is possible he may have done so and signed on her behalf, even though a woman who was purporting to be Mrs Lu was present in the Mahogany Room at the same time. Lu also gave evidence that the witness who signed was a male who was Pan’s nephew, which contradicts Ms Zhang’s evidence.[27]
[26] T128.25-32; T129.1-2; T132.19-23
[27] T186
69Zhu said she did not sign the loan agreement and that the signature that appears on the document is not her signature. The latter is borne out by a comparison of the signature on the loan agreement compared with the other various signatures that appear on Exhibit “D1”. The signature on the loan agreement is noticeably different from those signatures, which are very similar to each other.
70Additionally, it is inherently improbable that Zhu would have agreed to act as a guarantor for her husband in circumstances where their relationship was under considerable strain and they frequently argued about his gambling. It also makes no sense then that Zhu would have agreed to give a guarantee and risk losing her half share of the marital home which she held as tenants in common. Lu gave evidence that he told Pan his former wife would not agree to give security over the home which is why he forged her signature. This is consistent with a finding that Zhu would not have agreed to give a guarantee and did not do so.
71For reasons given earlier relating to credit of the witnesses, I prefer and accept Zhu’s account that she was not present in the Mahogany Room when the loan agreement was signed in March 2018. I reject Pan’s evidence that she was present because of the concerns I have regarding his credit and the fact that this evidence was only introduced by him at trial for the first time. His earlier witness statements and pleadings made no mention of Zhu being present when the loan agreement was signed. In any event, even assuming she was there, Pan did not actually observe Zhu sign the loan agreement.
72The evidence of Ms Zhang does not go far enough, in my view, to warrant the rejection of Zhu’s clear and unequivocal evidence that she was not present when the loan agreement was signed. There still remains a doubt as to identity of the woman who was present was at the time of signing and whether Ms Zhang saw this woman physically sign the document. There is also the evidence of Lu to add to the mix. Lu said he forged Zhu’s signature on the loan agreement, which is consistent with his former wife’s case that she did not sign the document.
73Given the totality of the evidence on this issue, I am not actually persuaded on the balance of probabilities that Zhu did sign the loan agreement, with the result that she is not bound by its terms. The answer to Issue 2 is that Zhu did not sign the loan agreement. Accordingly, the claim against her as guarantor fails and will be dismissed.
Issue 3: Is the loan agreement a sham and unenforceable by reason of the circumstances referred to in paragraph [30(o)] of the first defendant’s amended defence and counterclaim?
74In paragraph 30 of his amended defence and counterclaim, Lu pleads he signed the loan agreement on 13 March 2018 in circumstances which are then listed. In sub-paragraph 30(n), it is alleged that Pan or his representatives inserted item 6 in the loan agreement pursuant to a dishonest and fraudulent design to avoid or conceal the application of the NCCPA. It is said this can be inferred by reference to s5(1)(b) of the Code and the fact that Pan was aware the money was to be used for gambling. Consequently, in sub-paragraph 30(o), it is pleaded that the loan agreement is a sham and unenforceable.
75This issue gives rise to consideration of the activities upon which Pan was engaging and whether he knew that the insertion of item 6 was contrary to the true state of affairs, and done deliberately to avoid the application of the NCCPA.
76The first point to make is that despite this topic being pleaded and identified as an issue for resolution, Lu made no reference to this issue in his closing submissions. Given this, and in keeping with my usual practice, I have assumed that this pleaded point is not pressed. The second point is that even if it had been pressed, the issue fell far short of establishing that Pan was engaging in a fraudulent and dishonest scheme to avoid the application of the NCCPA. He denied it was a deliberate and conscious act on his part and furthermore, the loan agreement was drawn by lawyers acting on his behalf. There was no evidence led or any basis whatsoever upon which the Court could find that those lawyers, being Pan’s representatives, were participants in such a sham, contrary to the allegation pleaded.
77Consequently, the answer to Issue 3 is no.
Issue 4: Does section 29 of the National Consumer Credit Protection Act 2009 (Cth) (“NCCPA”) apply?
78Lu and Zhu bring a claim against Pan that, in connection with the consolidated loan receipt, the loan agreement, and any other individual advance of funds, he had contravened s29(1) of the NCCPA by engaging in credit activity without an Australian credit licence. Section 29(1) relevantly provides:
A person must not engage in a credit activity if the person does not hold a licence authorising the person to engage in the credit activity.
79The issue for determination is whether Pan, a person who does not hold an Australian credit licence,[28] has engaged in conduct that constitutes ‘credit activity’ for the purposes of the NCCPA. Section 6(1) of the NCCPA sets out the circumstances in which a person engages in a credit activity (“Table”):
[28]Plaintiff’s Defence to First Defendant’s Amended Defence and Counterclaim; CB 35 [23]; Chronology of Agreed and Disputed Facts, 11
Meaning of credit activity Item Topic A person engages in a credit activity if: 1 credit contracts (a) …
(b) the person carries on a business of providing credit, being credit the provision of which the National Credit Code applies to; or
(c) …
2 credit service the person provides a credit service; or 3 … ...
4 … …
5 Guarantees (a) the person is the beneficiary of a guarantee; or
(b) the person performs the obligations, or exercises the rights, of another person who is a beneficiary of a guarantee or proposed guarantee, in relation to the guarantee or proposed guarantee (whether the person does so on the person’s own behalf or on behalf of the other person); or
6 … …
80The Code is located in Schedule 1 of the NCCPA. It provides definitions of terms used in s6 of the NCCPA and a statement of the circumstances involving the provision of credit to which the Code applies.
81Section 13 of the Code provides that where in any proceeding in which a party claims that a credit contract, mortgage or guarantee is one to which the Code applies, it is presumed to be such unless the contrary is established. However, this presumption does not apply where the debtor declares, before entering the contract, that the credit is not for a purpose that the Code applies. The declaration is ineffective for the purposes of this section unless it is substantially in the form (if any) required by the regulations.
Credit Contracts
82Lu’s primary submission is that by entering into the loan agreement, Pan was a person who carried on a business of providing credit to which the Code applies pursuant to Item 1(b) of the Table.
83‘Credit’ is defined by section 3(1) of the Code which relevantly provides:
(1) For the purposes of this Code, credit is provided if under a contract:
(a)payment of a debt owed by one person (the debtor) to another (the credit provider) is deferred; or
(b)one person (the debtor) incurs a deferred debt to another (the credit provider).
84‘Deferred debt’ is not defined in the Code nor the NCCPA. It has been held for the purposes of the Code that a ‘deferred debt’ is a present debt ‘payable in the future’.[29] Uncontroversially, Pan provided loans to Lu in the form of gambling chips which were repayable at a specified date in the future. Accordingly, this arrangement falls within the meaning of ‘credit’ under s3(1) of the Code.
[29]Integrated Securities No 3 Pty Ltd v Creatrix Web Development & Online Marketing Solutions Pty Ltd [2021] NSWSC 596, [89]
85For the Code to apply to this provision of credit, the circumstances must satisfy the terms set out in s5 of the Code which reads as follows:
(1)This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of precontractual obligations) is proposed to be entered into:
(a)the debtor is a natural person or a strata corporation; and
(b)the credit is provided or intended to be provided wholly or predominantly:
(i)for personal, domestic or household purposes; or
(ii)to purchase, renovate or improve residential property for investment purposes; or
(iii)to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes; and
(c)a charge is or may be made for providing the credit; and
(d)the credit provider provides the credit in the course of a business of providing credit carried on in this jurisdiction or as part of or incidentally to any other business of the credit provider carried on in this jurisdiction.
(2)If this Code applies to the provision of credit (and to the credit contract and related matters):
(a)this Code applies in relation to all transactions or acts under the contract whether or not they take place in this jurisdiction; and
(b)this Code continues to apply even though the credit provider ceases to carry on a business in this jurisdiction.
(3)For the purposes of this section, investment by the debtor is not a personal, domestic or household purpose.
(4)For the purposes of this section, the predominant purpose for which credit is provided is:
(a)the purpose for which more than half of the credit is intended to be used; or
(b)if the credit is intended to be used to obtain goods or services for use for different purposes, the purpose for which the goods or services are intended to be most used.
86Lu submits that the loan agreement satisfies the elements of section 5 of the Code, save for whether Pan provided credit in the course of business or as part of or incidental to any other business that the credit provider carried on in the jurisdiction under s5(1)(d).[30]
[30]First Defendant’s Closing Submissions, [107]
87Whether a business is “carried on in this jurisdiction” is defined by section 12 of the NCCPA which reads as follows:
(1)Division 3 of Part 1.2 of the Corporations Act 2001 applies for the purposes of working out whether a business is carried on in this jurisdiction.
(2)Without limiting subsection (1), a business is taken to be carried on in this jurisdiction by a person if, in the course of carrying on the business, the person engages in conduct that is:
(a)intended to induce people in this jurisdiction to use the goods or services the person provides; or
(b)is likely to have that effect;
whether or not the conduct is intended, or likely, to have that effect in other places as well.
88Lu argues that on the evidence, it is uncontroversial that Pan was conducting a business of providing credit. For example:
(a) Ms Zhang having given oral evidence that she has previously witnessed multiple documents similar to the loan agreement for Pan;[31]
(b) Pan frequently steps into the role of junket operator when the usual junket operators were unavailable;[32]
(c) Pan is listed on the Crown Table Games Junket Program Agreement as an agent of the Junket Operator, Jong Kim Ten. This agency authorised Pan to draw down credit facilities;[33] and
(d) Pan, in oral evidence, considers lending money to Lu as a ‘business’.[34]
[31]ibid [70]
[32]ibid [76]
[33]ibid [77]
[34]ibid [79]
89Pursuant to section 13 of the Code, the onus is on Pan to displace the presumption that the loan agreement is not a credit contract to which the Code applies.
90Pan submits that he did not provide credit in the course of, or incidental to, a business to which the Code applies. He argues that his oral evidence was unchallenged in that:[35]
(a) the majority of his business activities concerned attending to his other business, being a business run by his company, Triple 8 International Pty Ltd; and
(b) he was the director of that company and he was in charge of arranging employees working rosters and also daily administration task.
[35]Plaintiff’s Closing Submissions, [27]
91Further, Pan submits that there was no ‘charge’ within the meaning of s 5(1)(c) of the Code. He notes that the 1:6 exchange ratio would not be applicable had Lu elected to repay the loan in Chinese yuan and not Australian dollars.[36]
[36]T252-3
92In response to this, Lu argues that on proper construction of the loan receipt, Lu was contractually obliged to repay the loan in Chinese yuan and in doing so, the fixed exchange rate with the 1:6 ratio would apply. Therefore, Pan would obtain a profit from this repayment which amounts to a charge.[37]
[37]First Defendant’s Closing Submissions in Reply, [10]
93In my view, the presumption provided by s13 of the Code has not been displaced for the reasons that follow.
94Pan bears the onus of establishing that the Code does not apply to the provision of credit by him. He argues as follows:
(a) the provision of credit was not in the course of, or incidental to, a business carried on in this jurisdiction under s5(1)(d);
(b) the loan receipt did not include a charge within the meaning of s5(1)(c) of the Code; and
(c) the loan agreement provided that the loan was for business purposes under s5(1)(b) of the Code.
95I am not persuaded by the submission made in subparagraph 94(a) above. The expression “provides credit in the course of a business of providing credit carried on in this jurisdiction” under s 5(1)(d) should be given a similar meaning to the well-known expression “carrying on a business”.[38] The latter expression has been held to require “repetition, and continuity of activities which characterise the business”.[39] The words “incidentally to” may be taken to be an expression that there must be some connection between another business of the credit provider and the particular credit contract, the connection involves a question of degree.[40]
[38]Lauvan Pty Ltd & Ors v Bega & Ors [2018] NSWSC 154, [262]
[39]Williams v ATM & CPA Projects Pty Ltd [2015] NSWSC 703, [70] (Ball J) and the cases cited therein
[40]Avery v Saree Holdings Ltd; Lava Ltd v Avery [2012] NSWSC 463, [93], citing R v Holmes; Ex parte Public Service Association (NSW) (1977) 140 CLR 63, 77 (Gibbs J); [1977] HCA 70
96Pan, in his oral examination, gave evidence that the majority of his business activities relate to Triple 8 International Pty Ltd; he was the director and person in charge of arranging employee working rosters along with daily administration tasks. However, this submission does not assist the Court in its determination of this issue. The circumstances surrounding the provision of credit relates to the business of Pan being a junket operator and/or representative, not his other businesses. The fact that Pan might have been busy running his other businesses does not prevent him from providing credit elsewhere. This reason alone is insufficient to displace the presumption that Pan provided credit in the course of, or incidental to, a business.
97The evidence at trial indicates that the provision of credit to which the Code applies was at least incidental to Pan’s business as a junket operator representative for the following reasons:
(a) Pan, as a junket operator representative, has advanced monies to Lu as evidenced by the loan agreement. This was pursuant to the agreement with the junket operator, Yulan Pan, (Pan’s sister) whereby Pan could withdraw her funds to enter into a loan agreement with Lu.[41]
(b) Pan is listed as an agent of junket operator, Jong Kim Ten. This appointment as a junket operator representative authorised Pan to drawdown credit facilities, as well as buy ins, deposits and withdrawals, cash outs, and settlements.[42]
(c) Pan is in the business of being a junket operator representative. It is well-known that at common law, the meaning of ‘business’ encompasses elements of system and repetition to derive income. When asked how many hours per week, on average, Pan works as a junket operator representative, his evidence was “[u]m, in regards to the time, not much. I only do some arrangements, reason where someone goes to Crown and goes to Sydney, I will just make a phone call and um, make some arrangements”.[43] Further, Pan gave evidence he receives benefits from Crown such as complimentary parking,[44] accommodation,[45] and dining.[46] It is clear that his functions as a representative are repetitive, as it is completed on a weekly basis, in exchange for income in the form of goods and services instead of money.
[41]CB 369
[42]CB 130
[43]T219.24-28
[44]T220.1-3
[45]ibid
[46]T221.16-18
98The next ground relied upon by Pan under paragraph 94(b) above is that the loan receipt did not include a ‘charge’ within the meaning of s5(1)(c) of the Code. It is clear that that the loan receipt does not on its face specify a charge. For reasons already given on Issue 1, I was not satisfied that the exchange rate referred to in the loan receipt was significantly inflated and should be disallowed when calculating the debt payable. Consequently, there was no ‘charge’ as such under the loan receipt. But as Zhu correctly points out, Pan does not sue under the loan receipt and bases his cause of action solely on the loan agreement. Zhu identifies that the 4 per cent interest rate under the loan agreement is the charge in question.[47]
[47]Second Defendant’s Closing Submissions, [61]
99The issue then is whether the 4 per cent interest under the loan agreement is a ‘charge’ within the meaning of s5(1) of the Code. In Australian Securities and Investments Commission v BHF Solutions,[48] O’Bryan J (Besanko and Lee JJ, agreeing) stated:[49]
The expression “charge … made for providing credit” in s 5(1)(c) [of the Code] should be construed as a charge that is made in exchange for, on account of or by reason of the provision of credit… It is an evaluative task that requires that relevant charge to be characterised by reference to the statutory criterion. This construction requires a direct relationship between the charge and the provision of credit by looking to the circumstances in which, or conditions on which, the charge is made or imposed and the reason for the charge. It looks to the substance of the credit arrangements rather than their contractual form.
[48](2022) 410 ALR 390
[49]Ibid 391
100I am satisfied that the 4 per cent interest rate under the loan agreement was made in exchange for the provision of credit.[50] Therefore, it constitutes a ‘charge’ under the Code.
[50]See Knowles v Victorian Mortgage Investments Ltd [2011] VSC 611, [23]
101The third ground relied upon by Pan in subparagraph 94(c) above is that the loan agreement provided that the loan was for business purposes under s5(1)(b) of the Code. Pan disputed in cross-examination that the purpose of inserting item 6 in the loan agreement was to avoid or conceal the application of the NCCPA. However, his subjective view of the clause is irrelevant. The test as set out below is an objective one.
102In Bahadori and Others v Permanent Mortgages Pty Ltd and Others,[51] Tobias JA (Giles JA and Campbell JA, agreeing) observed the following in relation to the interpretation of “the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes”:[52]
184I accept for the purposes of this exercise that the test most favourable to Permanent and Conway is an objective one based upon what a reasonable person would, in all the circumstances, consider to be the purpose for which the loans were intended to be provided. Such a person would be entitled to take into account all the objective circumstances which would otherwise fall for consideration under s 11(3).
185 Conway submitted that the use of the expression “provided or intended to be provided” required the issue to be determined from the perspective of the credit provider. This was because a lender “provides” credit whereas a borrower “obtains” it. Accordingly, it was contended that the only objective circumstances which are relevant are those known to the credit provider.
186There is some force in this submission and for present purposes I am prepared to accept it. However, in my view it makes no difference to the outcome. For reasons which I have set out at 81 [180] supra, in my opinion a reasonable person in the position of Permanent and Conway would as a consequence of the knowledge of Kremnizers and/or La Trobe, have concluded that notwithstanding the assertions of the appellants that the loans were to be applied wholly or partly for business or investment purposes, in fact they were to be provided wholly or predominantly for personal or domestic purposes.
[51](2008) 72 NSWLR 44
[52]NSW Court of Appeal refers to s6(1)(b) to Schedule 1 of the Consumer Credit (New South Wales) Code 1995, now repealed, which adopts the same words as s5(1)(b)(i) of the Code
103The onus lies upon Pan to establish that the loans in the present case were intended to be provided wholly or predominantly for purposes other than personal, domestic or household purposes.[53] Pan relies on the express terms of recital 1 and item 6 of the loan agreement. Lu does not address this issue.
[53]Bahadori and Others v Permanent Mortgages Pty Ltd and Others (2008) 72 NSWLR 44, [191]
104In my view, Pan has not discharged his onus under s13 of the Code. Despite the clause in the loan agreement that the loan was for business purposes, I am satisfied that it was, in fact, provided for wholly or predominantly for personal purposes for the following reasons:
(a) Pan admitted to knowing that Lu wanted money to gamble;[54]
(b) Pan informed Lu that in accordance with the Australian anti-money laundering regulations, the chips advanced that remained unused must be returned as chips and cannot be cashed-in;[55]
(c) Pan admitted to lending money by way of gambling chips;[56]
(d) the loans were made for the purpose of enabling Lu to gamble at casinos, being loans plainly for a ‘personal’ purpose;
(e) prior to November 2017, Lu asked for short-term loan funds from Pan which was understood to be for gambling at casinos.[57]
[54]Plaintiff’s Amended Reply and Defence to the Counterclaim of the First Defendant, [14](a)
[55]ibid [17]
[56]T217.27
[57]Witness Statement of Zhao Yuan Pan, [7]
105Applying the test in Bahadori and Others v Permanent Mortgages Pty Ltd and Others, a reasonable person would, in all the circumstances, consider the loan to be for a personal purpose having regards to the objective circumstances known to Pan at the time of providing credit. Accordingly, I am satisfied that Pan has contravened s29(1) of the NCCPA by engaging in unlicensed credit activity under Item 1(b) of the Table.
Credit Service
106Lu, in the alternative, submits that Pan had provided a credit service pursuant to Item 2 of the Table.[58] Despite this allegation not being expressly pleaded, Lu addressed it in his closing submissions. For the sake of completion, I will address this point.
[58]This issue was not specifically pleaded but was raised and dealt with in the submissions filed by the parties as an alternative basis for finding that Pan was engaging in unlicensed credit activity
107Section 7 of the NCCPA relevantly provides:
A person provides a credit service if the person:
(a) provides credit assistance to a consumer; or
(b) acts as an intermediary.
108‘Credit assistance’ is defined by s8 of the NCCPA as follows:
A person provides credit assistance to a consumer if, by dealing directly with the consumer or the consumer’s agent in the course of, as part of, or incidentally to, a business carried on in this jurisdiction by the person or another person, the person:
(a)suggests that the consumer apply for a particular credit contract with a particular credit provider; or
(b)suggests that the consumer apply for an increase to the credit limit of a particular credit contract with a particular credit provider; or
(c)suggests that the consumer remain in a particular credit contract with a particular credit provider; or
(d)assists the consumer to apply for a particular credit contract with a particular credit provider; or
(e)assists the consumer to apply for an increase to the credit limit of a particular credit contract with a particular credit provider; or
(f)suggests that the consumer apply for a particular consumer lease with a particular lessor; or
(g)suggests that the consumer remain in a particular consumer lease with a particular lessor; or
(h)assists the consumer to apply for a particular consumer lease with a particular lessor.
It does not matter whether the person does so on the person’s own behalf or on behalf of another person.
109The words ‘suggests’ and ‘assists’, respectively, are not defined within the NCCPA. In Australian Securities and Investments Commissioner v BHF Solutions Pty Ltd (No 2),[59] Halley J observed that ‘suggests’ is given its ordinary and natural meaning:[60]
(a) an “attraction or allurement”; and
(b) placing or bringing an “idea or proposition or plan” to a person’s attention for “consideration or possible action” and to propose a thing as “suitable or possible”.
[59][2023] FCA 787
[60]Australian Securities and Investments Commission v BHF Solutions Pty Ltd (No 2) [2023] FCA 787, [28]-[29]
110Lu asserts that Pan, in his capacity as a junket operator representative, was providing credit assistance in the course of a business which he carried on in Victoria.[61] The range of evidence relied upon is as follows:
(a) Ms Zhang gave evidence that she has previously witnessed multiple documents similar to the loan agreement for Pan;[62]
(b) Lu was gambling using Pan’s Crown and/or junket account. Messages dated 6 November 2017 on WeChat from Macao Wynn Palace PR Manager relating to Lu as a guest on the Account number V631V1809, together with a summary of the amounts gambled and the number of chips withdrawn or deposited;
(c) Pan stated that he would step in when the usual junket operators were overseas or unavailable.[63] However, Pan is listed on the Crown Table Games Junket Program Agreement as an agent of the junket operator, Jong Kim Ten.[64] This agency authorised Pan to complete certain actions such as draw-down credit facilities;[65] and
(d) Pan confirmed in oral evidence that as part of his role as the junket operator representative, he would receive requests from customers which he would then communicate to the junket operators.[66]
[61]First Defendant’s Closing Submissions, [69]
[62]T198.14-19
[63]T219.25-27
[64]CB 130
[65]CB 131
[66]T222.2-7
111In response, Pan requests the Court to disregard the defendant’s submissions relating to his business insofar as they were not put to him in trial. By way of example, the Court is asked to:[67]
(a) make factual findings regarding the Crown Casino junket agreement and Pan’s interaction with Mr Teng;
(b) interpret the terms in the Crown Casino junket agreement in the absence of any evidence from either party as to those terms, and in the absence of any challenge on Pan as to its meaning; and
(c) refer to documents which were not put to Pan under cross-examination.
As such, Pan asserts that this Court should place little weight on those propositions regarding his business model and should prefer his evidence as to why he was not in the business of lending.
[67]Plaintiff’s Closing Submissions in Reply [9]-[13]
112Pan gave the following evidence at trial:[68]
… Mr Lu kept asking me to lend him money for gambling and he show me all his assets, including domestically and overseas… I sent this request to the junket operator… I said he had to use the Brighton property as the collateral otherwise the junket operator wouldn’t agree to that, and he just kept pushing me to lend him money.
[68]T231-2
113Following Halley J’s observations and using the Macquarie Online Dictionary, the definition of ‘assist’ includes “to give support, help, or aid to in some undertaking or effort, or in time of distress”.
114I am satisfied, particularly given the protective purpose of the NCCPA and the Code, that Pan provided credit assistance under s8(d) for the following reasons:[69]
(a) First, the communication of the loan request by Lu to the junket operator constitutes assisting a consumer to apply for a credit contract with a ‘particular credit provider’.
(b) Second, an application for a loan constituted ‘a particular credit contract’. This phrase is to be construed expansively and not limited to a credit contract in a specific amount for a specific purpose. The person providing credit assistance does not need to have specific knowledge of what amount is sought.
(c) Third, the application for a particular credit contract was with a ‘particular credit provider’. In his evidence, the communication with Lu involved advising that the junket operator would not agree to a loan unless the Brighton property was used as the collateral. This demonstrates that both parties were aware that the application for a loan was with the junket operator.
(d) Fourth, I am satisfied that providing credit is at least incidental to the business of being a junket operator representative.
[69]Australian Securities and Investments Commission v BHF Solutions Pty Ltd (No 2) [2023] FCA 787, [30]-[32]
115Lu, in the alternative, asserts that Pan was acting as an intermediary. Section 9 of the NCCPA relevantly provides:
A person acts as an intermediary if, in the course of, as part of, or incidentally to, a business carried on in this jurisdiction by the person or another person, the person:
(a)acts as an intermediary (whether directly or indirectly) between a credit provider and a consumer wholly or partly for the purposes of securing a provision of credit for the consumer under a credit contract for the consumer with the credit provider; or
(b)…
It does not matter whether the person does so on the person’s own behalf or on behalf of another person.
116The Explanatory Memorandum relevantly states that:[70]
1.27 The definition is intended to regulate every person who may be an intermediary between the consumer and the credit provider. Innovations in credit product design and delivery now mean that a consumer may pass through a number of hands between the first person they deal with and the lender, and may be uncertain as to the roles or functions of all these different parties. It is intended that the licensing requirements will apply to all these persons.
1.28 A person will act as an intermediary notwithstanding that the type of credit or the identity of the credit provider is not yet known. It differs from the definition of providing ‘credit assistance‘, as it does not require a person to engage in an activity in relation to a particular credit contract with a particular credit provider, or a particular lease with a particular lessor. It may be, for example, that it is only the intermediary who finally deals with the credit provider who determines or is aware of the particular credit contract to be arranged.
1.29 A person can act as an intermediary either directly or indirectly. The intention is to require a person to hold a licence even where they may have no direct or face-to-face contact with the consumer, but, nevertheless act as an intermediary by preparing or passing on information, and their role is wholly or partially to secure a provision of credit or a lease.
[70]Explanatory Memorandum, National Consumer Credit Protection Bill 2009 (Cth) [1.27]-[1.29]
117Given my analysis in paragraph 114 and relying upon paragraph 1.29 of the Explanatory Memorandum, I am satisfied that Pan was also acting as an intermediary under s9 of the NCCPA. The end result is that the answer to Issue 4 is yes.
Issue 5: Does section 180 of the NCCPA apply?
118Section 180(1) of the NCCPA provides that the Court may make orders in relation to unlawful credit activities. This includes where a party has contravened s29 which requires the holding a licence. The Court may make such order as the Court considers appropriate against the defendant (here Pan, defendant by counterclaim):
(c) to prevent the defendant from profiting from the plaintiff by engaging in that activity; or
(d) to compensate the plaintiff, in whole or in part, for any loss or damage suffered as a result of the defendant engaging in that activity; or
(e) to prevent or reduce the loss or damage suffered, or likely to be suffered, by the plaintiff as a result of the defendant engaging in that activity.
119Section 180(2) sets out examples of orders the Court may make. These include an order declaring a contract to be void, varying a contract, ordering the defendant to refund money or pay to the plaintiff the amount of loss or damage the plaintiff suffered.
120Given I had found that Pan has contravened s29 by engaging in unlicensed credit activities, then s180 does apply so that this issue is answered in the affirmative. This leads to the next issue as to what orders the Court might make, if appropriate to do so, noting the wide breadth of possible orders set out in s180(2), being a non-exhaustive list.
Issue 6: If the Court was to make any orders under section 180 of the NCCPA, should the Court exercise its discretion and not make any order declaring the Guarantee and loan agreement void or unenforceable?
121Lu seeks orders pursuant to s180 of the NCCPA that Pan be prevented from profiting from the unlicensed credit activity, including that he be restrained from recovering any amounts of interest or charges in respect of those loans. Alternatively, an order is sought that Pan compensate Lu for his loss and damage suffered as a result of the unlicensed credit activity or prevent him from suffering such a loss by waiving the amount of the loans outstanding.
122Zhu seeks an order under s180 declaring the guarantee and/or the alleged loan agreement void from the time it was entered into, alternatively void. Alternatively, an order is sought that the guarantee and/or the alleged agreement is unenforceable against Zhu. The submissions made on behalf of Zhu did not address the exercise of the discretion point under s180, other than to say the Court should declare the guarantee and/or the loan agreement are void.
123In Lu’s closing submissions, it was put that the Court could make orders that Lu be compensated for the loss or damage suffered as a result of the unlicensed credit activity on the part of Pan. It was submitted the loss and damage suffered by Lu is limited to the amount of indebtedness he incurred to Pan. To the extent that the Court may hold that Lu borrowed funds from Pan which remain unpaid, and any interest that accrues on those funds, Lu’s damage and suffering is limited to those amounts. Accordingly, it would be appropriate to order that to the extent a court may find that Lu owes a debt to Pan under either agreement, that identical sum should be ordered as a debt arising by Pan to Lu.
124It was submitted on behalf of Lu that both parties knew the purpose of the loans was for further gambling.
125Pan, it was said, attempted to manage the risk by seeking security over Lu’s property. It is then said that procuring Lu’s signature on the loan agreement, Pan acted in an unconscionable way. Pan took advantage of Lu and presented him with a loan agreement written entirely in English prepared by Pan’s lawyers. Lu did not seek independent legal or financial advice. The reason why he allegedly did not arose out of shame and guilt, which would have been obvious to Pan.
126It was also put on behalf of Lu that he was reliant on Pan in order to continue gambling. Lu was desperate for more chips in order to continue gambling and consequently did not review any of the documents signed by him.[71]
[71]T126.29-31 and T127.1-8
127Lu’s evidence was that Pan insisted on the loan agreement being signed before he would provide him with any further chips. Lu’s desperation to obtain a loan agreement to obtain further chips is evident by the flurry of WeChat messages on 10 March 2018, when Lu had, in the space of one night, sent three separate messages all requesting a copy and update of the loan agreement.
128Pan referred to some authorities dealing with the exercise of the discretion under s180. The first being a decision of the New South Wales Supreme Court in Lauvan Pty Ltd & Ors v Bega & Ors,[72] where Gleeson JA noted that the discretion conferred on the Court under s180 of the NCCPA is a broad one with respect to remedial legislation. Given the facts in that case, His Honour did not consider there was a sufficient basis to justify relief disallowing the charge for interest under a facility agreement and refuse repayment of the principal sum. His Honour’s comments regarding the application of s180 were made in the context of having already found that the credit in that case was not provided predominantly for personal, domestic or household purposes.
[72][2018] NSWSC 154
129His Honour noted at paragraphs 277-279:
Factors relevant to the exercise of the court’s power under s 180 include whether any loss or damage was suffered by the borrower as a result of the credit provider engaging in that activity, relevantly on the present assumption, unlicensed credit activity (s 180(1)(d)). No loss or damage was identified by the defendants.
In considering whether it is appropriate to disallow interest, of relevance is the fact that while the interest rates provided in the facility agreement are high, the loan was for a short term and importantly, the charges payable under the facility agreement were stated in writing in that agreement and had been specifically drawn to Mrs Bega’s attention by Mr Ciappara. Mrs Bega was content to proceed with borrowing the money on those terms.
Beyond the (assumed) contravention of s 29 of the NCCP Act, counsel for the defendants did not point to any other factor or circumstance why the Court should refuse to enforce the borrower’s obligation to pay interest under the facility agreement. If it were necessary to decide the question of relief, I would conclude that the defendants have failed to make out a case for relief under s 180 of the NCCP Act.
130In Australian Securities and Investment Commission v Fast Access Finance Pty Ltd,[73] Dowsett J noted the customers in question had benefitted from the advance they had received and that therefore they should pay the price to the extent that the law allowed.[74]
[73][2015] FCA 1055
[74]ibid [290]
131His Honour also rejected a submission that the customers should in effect not have to pay interest, and His Honour said:[75]
To allow a customer an interest free loan goes beyond the three objectives identified in s 180(1). It should be kept in mind that punishment is to be inflicted by the imposition of pecuniary penalties. Although s 180(1)(c) might suggest a punitive intention, (deprivation of any profit), it requires only that the Court prevent the credit provider from profiting from the customer. Like subss 180(1)(d) and (e), subs 180(1)(c) is concerned with compensation.
(c)whether the supplier was able to understand any documents relating to the acquisition or possible acquisition of the financial services; and
(d)whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the supplier or a person acting on behalf of the supplier by the acquirer or a person acting on behalf of the acquirer in relation to the acquisition or possible acquisition of the financial services; and
(e)the amount for which, and the circumstances in which, the supplier could have supplied identical or equivalent financial services to a person other than the acquirer; and
(f)the extent to which the acquirer’s conduct towards the supplier was consistent with the acquirer’s conduct in similar transactions between the acquirer and other like suppliers; and
(g)the requirements of any applicable industry code (see subsection (3)); and
(h)the requirements of any other industry code (see subsection (3)), if the supplier acted on the reasonable belief that the acquirer would comply with that code; and
(i)the extent to which the acquirer unreasonably failed to disclose to the supplier:
(i)any intended conduct of the acquirer that might affect the interests of the supplier; and
(ii)any risks to the supplier arising from the acquirer’s intended conduct (being risks that the acquirer should have foreseen would not be apparent to the supplier); and
(j)if there is a contract between the acquirer and the supplier for the acquisition of the financial services:
(i)the extent to which the acquirer was willing to negotiate the terms and conditions of the contract with the supplier; and
(ii)the terms and conditions of the contract; and
(iii)the conduct of the acquirer and the supplier in complying with the terms and conditions of the contract; and
(iv)any conduct that the acquirer or the supplier engaged in, in connection with their commercial relationship, after they entered into the contract; and
(k)without limiting paragraph (j), whether the acquirer has a contractual right to vary unilaterally a term or condition of a contract between the acquirer and the supplier for the acquisition of the financial services; and
(l)the extent to which the acquirer and the supplier acted in good faith.
(3)In this section:
applicable industry code, in relation to a corporation, has the same meaning as it has in subsection 51ACA(1) of the Competition and Consumer Act 2010.
industry code has the same meaning as it has in subsection 51ACA(1) of the Competition and Consumer Act 2010.
156The law of unconscionability requires the existence of a special disadvantage, something that seriously affects the ability of the innocent party to make a judgment as to his or her own best interests.[82] Each case is determined upon the facts – no particular factor is decisive and is usually a combination of circumstances that establishes the existence of a special disadvantage.[83] The qualification of ‘disadvantage’ by the adjective ‘special’ is to disavow any suggestion that the law of unconscionability applies whenever there is a mere difference in bargaining power.[84]
[82] Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, 462
[83] Dal Pont, Equity and Trusts in Australia, 7th ed (2019), 298 [9.30]
[84]Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, 462; Stubbins v Jams 2 Pty Ltd [2022] HCA 6, [159]
157Fullagar J in Blomley v Ryan[85] 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 education, lack of assistance or explanation where assistance or explanation is necessary. The common characteristic seems to be that they have the effect of placing one party at a serious disadvantage vis-à-vis the other".[86]
[85](1956) 99 CLR 362
[86]Blomley v Ryan (1956) 99 CLR 362, 405; see also Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, 462, 474-475; Louth v Diprose (1992) 175 CLR 621, 628-629, 637-638, 650
158In Axis Bank v Gujarat NRE India Pty Ltd,[87] Sackar J helpfully sets out the principles concerning the operation of section 12CB of the ASIC Act as established by case law:[88]
(a) Section 12CC provides the factors to which a court may have regard in determining whether section 12CB has been contravened. The courts are guided by these factors, not controlled by them.
(b) The court must consider all the circumstances of a case to determine the existence of unconscionability.
(c) The conduct of a credit provider in obtaining a guarantee supporting an advance of money falls within the supply or acquisition of financial services within section 12CB of the ASIC Act. Conduct relating to enforcing the guarantee is also caught by that Act.
(d) The statutory prohibition on unconscionable conduct is not confined to conduct regarded as unconscionable at general law. It is more broad ranging than the unwritten law.
(e) To be unconscionable within the ASIC Act, the conduct must be a clear departure from accepted community standards. It should be so far outside societal norms of acceptable communal behaviour that it deserves condemnation as conduct which is offensive to conscience.
[87][2020] NSWSC 1711
[88]ibid [280] – [294]
159In Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd,[89] the Full Federal Court confirmed that the correct approach to assessing statutory unconscionability is to focus on the conduct and assess whether there had been a sufficient departure from the norms of acceptable commercial behaviour so as to be against or offend conscience.[90]
Lu’s submissions
[89] (2021) 285 FCR 133
[90] ibid [89]-[93]
160In closing submissions, Lu argued he was at a special disadvantage because of his:
(a) gambling addiction;
(b) inability to access funds from alternative sources to finance his gambling;
(c) familiarity with Pan;
(d) limited English; and
(e) isolation/solitude by reason of his wife leaving for China in 2018.
161Lu’s closing submissions on this issue do not marry up with the allegations contained in paragraphs 46 and 47 of his amended defence. However, I rely upon the written final submissions as representing the basis upon which Lu sought to argue his defence of statutory unconscionability.
162Lu primarily relies on the decision in Stubbins v Jams 2 Pty Ltd (‘Stubbins’) which is contended to have “strikingly similar facts and circumstances”, where the High Court of Australia held that the lender engaged in unconscionable conduct through pure asset lending. Much like the appellant in Stubbins, Lu did not have regular income and was suffering from a special disadvantage because he did not speak any English and was a gambling addict.[91] Pan knew that the default of the loan agreement was the only likely outcome, resulting in the procurement of the Brighton property as security.
[91]First Defendant’s Closing Submissions, [119]
163The High Court indicated that a pure asset loan can be acceptable in circumstances where the borrower is asset-rich but income-poor, sought for the purposes of meeting a temporary liquidity problem.[92] Despite pointing towards unconscionable conduct, this of itself is not a determining factor as the Court must consider all the circumstances of the case.
[92]Stubbins v Jams 2 Pty Ltd [2022] HCA 6, [51]
164Another aspect relied upon as evidence of Pan’s unconscionable conduct was the declaration contained in item 6 of the loan agreement that the loan was for commercial and business purposes, in circumstances where it was clear to all parties that this was not so. It is argued this was done to avoid the operation of the Code. For the reasons given under Issue 3 above, I was not satisfied on the evidence led that Pan and or his representatives inserted this clause as a deliberate ruse to escape the operation of the NCCPA.
165It was put on Lu’s behalf that Pan had knowledge, or ought to have knowledge, of Lu’s gambling addiction, as well as the likely outcome of default on the loan. Therefore, it was submitted his conduct in procuring Lu’s signature was unconscientious. This was so in circumstances when he knew that further advances were a risky and dangerous undertaking for Lu, particularly, as they had been used to finance further gambling with no real prospect of success.
166It was then said that the prospect of obtaining a profit caused Pan to prey on Lu’s vulnerability and he continued to advance funds with little or no prospect of repayment in the knowledge that a security was available over the Brighton property.
167It was open to the Court to find that Pan had essentially provided Lu with pure asset lending, a key feature of which is the quality of the asset alleged along with an inability to service the loan. In this case, the Brighton property, which Pan alleged had been valued to him at $3 million, was used as security with no enquiries made about the borrower’s capacity to service the loan.
Pan’s submissions
168Pan denies the allegations made against him and further submits that:
(a) there is no evidence that Pan took advantage of Lu in any respect, or at least in the manner alleged in the counterclaim;
(b) the contemporaneous documents, including the WeChat messages sent in March 2017, shows that Lu was encouraging Pan to lend;[93]
(c) on 11 June 2024, Lu conceded that one of the WeChat messages concerning a Chinese company was sent to Pan so as to encourage him to lend more money;[94]
(d) Lu did not challenge the proposition that the loan agreement was discussed with Lu as early as January 2018;[95] and
(e) contrary to the matters alleged in Lu’s counterclaim, he made a conscious decision not to get independent legal advice as opposed to not being afforded sufficient time to do so.[96]
Analysis
[93]Exhibit “P4”
[94]T136.28-31
[95]T152
[96]T140.29 and T141.6
169For the reasons that will follow, I am not satisfied that Lu made out his claim for statutory unconscionability.
170It is not enough, in my view, for Lu to assert that he was suffering a special disadvantage simply by being a gambler. In Kakavas v Crown Melbourne Ltd,[97] the High Court held that:[98]
[a gambler’s] pathological interest in gambling was [not] a special disadvantage which made him susceptible to exploitation by [the casino]. He was able to make rational decisions to refrain from gambling altogether had he chosen to do so.
[97][2013] 250 CLR 392
[98]ibid [135]
171Lu’s evidence was that he admitted to gambling four to five times a week, or sometimes a couple of times a week. He also admitted he often stayed at the casino and, not having a job during this period, it can be seen that he was a frequent gambler. This was in the context that he was otherwise unemployed. His decisions to gamble were made voluntarily by him. As observed in Kakavas v Crown Melbourne Ltd, “in the absence of a relevant legislative provision, there is no general duty upon a casino to protect gamblers from themselves”.[99]
[99] (2013) 250 CLR 31, 403
172This alleged factor alone, indeed without any medical evidence to show that Lu was suffering from an addiction to which he could no longer make rational decisions, is insufficient, in my view, to establish that Lu was under a special disadvantage by reason only of his gambling habits. There was no obligation upon Pan to protect Lu from himself should Lu voluntarily chose to gamble.
173The fact that the parties were familiar with each other is not by itself a sufficient consideration in terms of establishing that Lu was under a special disadvantage. This case is unlike Commercial Bank of Australia Ltd v Amadio,[100] where the son used his special relationship with his parents to mislead them into signing a guarantee. The communications between the parties show that the request for loans was initiated by Lu, for example the WeChat message sent on 11 March 2018. There was no evidence to suggest that their relationship was other than a business one.
[100] (1983) 151 CLR 447, 459-460, 461, 474
174The allegation that Lu’s isolation by reason of his wife leaving for China in 2018 contributed to his special disadvantage goes nowhere. Lu’s former wife left in July 2018 after the loan agreement was signed in March 2018. Her subsequent departure played no role in him deciding to borrow funds pursuant to the loan agreement. In any event, the evidence that emerged at trial was that the Lu and his former wife had been unhappy and estranged for some time before March 2018. The other submission made that he could not procure alternative funds to finance his gambling habits, even if true, is not something for which Pan bears any responsibility. In my view, these alleged factors did not contribute to any alleged inability on the part of Lu to make judgments as to his own best interests.
175As to the suggestion that Lu was unfamiliar with English, there was no evidence that Pan made any attempt to mislead Lu by exploiting this fact. Lu and Pan both spoke Mandarin and the WeChat messages in that language (which were translated into English) demonstrate an understanding of the contemplated loan agreement. The contemporaneous documents, including the WeChat messages sent in March 2018, reveal that it was Lu who was encouraging Pan to lend.
176There is insufficient evidence to show that Pan exploited Lu on the basis that he was aware Lu was under a special disadvantage. Pan was willing to advance monies to Lu in circumstances where Pan had told him he had means because his successful business of supplying military equipment in China (albeit, the factory was registered to Zhu) and that he also had the property in Brighton which he did, and could, offer as security. Therefore, Pan did not enter into the loan agreement knowing that a default was inevitable or imminent. Pan did have regard to the means by which Lu could repay the loan and had engaged lawyers to draw up an agreement to protect his rights.
177Lu conceded In evidence that one of the WeChat messages concerning a Chinese company was sent to Pan so as to encourage Pan to lend him more money.[101] Additionally, Lu did not challenge the proposition that the formal loan agreement was being discussed with Pan as early as January 2018.
[101]T136.28-31
178Contrary to what was put in his counterclaim, Lu did not obtain independent advice, not because he did not have time to do so but because he made a conscious decision that he did not want to get any advice.[102]
[102]T140.29 – T141.6
179In contrast to Lu’s claim in this case, the appellant in Stubbins was clearly under a special disability due to his inability to understand the nature of the transaction because of his financial illiteracy. The primary judge in that case described the appellant as:
(a) “completely lost, totally unsophisticated, incompetent and vulnerable”, referring to his demeanour at trial;[103]
(b) having an “obvious lack of understanding” of the details of the loans and his ability to finance them;[104] and
(c) easily manipulated, naïve, vulnerable and “lacking in financial nous”.[105]
[103]Jams 2 Pty Ltd v Stubbings [No 3] [2019] VSC 150, [265]
[104]ibid [141]
[105]ibid [289]
180The primary judge said that having regard to the manner in which the appellant spoke in the witness box, it was clear that “he was precisely the sort of person who needed protection and was vulnerable to being exploited”.[106] I do not regard Lu as being such a person having observed him as a witness.
[106]ibid [270]
181Given the totality of the evidence led, I am not actually persuaded that Lu was suffering from a special disadvantage at the time of entering the loan agreement which seriously affected his ability to make judgments as to his own best interests. Even assuming Lu was suffering from a special disadvantage, the evidence led did not establish that Pan behaved in a predatory manner whereby he took unconscientious advantage of Lu’s supposed special disadvantage. Further, the conduct of Pan did not fall outside societal norms of acceptable commercial behaviour so as to amount to conduct that is offensive to conscience.[107] Accordingly, this defence cannot succeed.
[107]Productivity Partners Pty Ltd v Australian Competition and Consumer Commission [2024] HCA 27; 98 ALJR 1021
182The answer to Issue 9 is no.
Issue 10: Does section 55 of the Code which includes section 81 of the National Consumer Credit Protection Regulations 2010 (“Regulations”) apply?
183This issue raises a statutory defence on the part of Zhu. A guarantee which is subject to the Code must comply with Regulations made under s55(4) of the Code. Section 81 of the Regulations requires a warning in the form of a box to be placed above the place where the guarantor is required to sign. Zhu pleads that guarantee is not enforceable because the loan agreement did not contain the required warnings set out in Form 8 as prescribed under the Regulations.
184As I have already found that Zhu did not sign the loan agreement, this issue does not need to be determined. Had it been necessary to do so, the loan agreement clearly did not contain the warnings set out in Form 8 and nor did it substantially comply with those requirements.
185Pan relied upon s208(1) of the Code which provides that strict compliance with a prescribed or approved form is not necessary and substantial compliance is sufficient. There is no general requirement for strict compliance unless specific requirements are explicitly stated. However, s208(2) states that forms with specific requirements will not be properly completed unless they are complied with, including where specified information is to be included in the form.[108] As the strict requirements contained in s55 of the Code relating to specified warnings about guarantees were not complied with in the loan agreement, s208 does not assist Pan. The effect of this non-compliance means the guarantee is not enforceable against Zhu under s55(4) of the Code. The answer to Issue 10 is no.
(6)Disposition and orders
[108]Code s208(2)(b)
186Pan is entitled to judgment on his claim against Lu in the sum of $1,829,937.78. He is also entitled to interest on that amount at the rate of 4 per cent from the date of the loan agreement to 13 September 2018, and default interest at the rate of 10 per cent thereafter to the date of judgment.
187Lu’s defence succeeded in part, namely, he established that Pan was engaged in unlawful credit activity in breach of s29 of the NCCPA. Despite this contravention, for the reasons given above, I declined to make an order under s180 of the NCCPA. Lu’s remaining statutory defences were not made out. Consequently, his counterclaim will be dismissed.
188The claim against Zhu is dismissed with the result that her counterclaim did not fall to be determined. Zhu’s counterclaim will be dismissed without an adjudication on the merits.
189Subject to hearing from the parties, I propose ordering that Lu pays Pan’s costs of the proceeding of and incidental to the proceeding, on the standard basis, to be taxed in default of agreement. I will also order that Pan pays Zhu’s costs of and incidental to the proceeding, on the standard basis, to be taxed in default of agreement.
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Certificate
I certify that these 60 pages are a true copy of the Reasons for Judgment of Her Honour Judge A Ryan delivered on 25 March 2025.
Dated: 25 March 2025
Associate to Her Honour Judge A Ryan
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