Ramadan v ACN 098 408 176 Pty Ltd
[2018] SASCFC 16
•9 March 2018
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
RAMADAN v ACN 098 408 176 PTY LTD
[2018] SASCFC 16
Judgment of The Full Court
(The Honourable Chief Justice Kourakis, The Honourable Justice Blue and The Honourable Justice Parker)
9 March 2018
CRIMINAL LAW - GENERAL MATTERS - ANCILLARY LIABILITY - COMPLICITY - AID, ABET, COUNSEL OR PROCURE
TRADE AND COMMERCE - TRADE PRACTICES AND RELATED MATTERS - CONSUMER PROTECTION - MISLEADING, DECEPTIVE OR UNCONSCIONABLE CONDUCT - CHARACTER AND ATTRIBUTES OF CONDUCT - KNOWLEDGE OR INTENTION
TRADE AND COMMERCE - TRADE PRACTICES AND RELATED MATTERS - CONSUMER PROTECTION - MISLEADING, DECEPTIVE OR UNCONSCIONABLE CONDUCT - PARTICULAR CLASSES OF CONDUCT - CONCERNING BANKS AND FINANCIAL INSTITUTIONS
Appeal against dismissal of claim for damages for being knowingly concerned in unconscionable conduct.
The appellant Mrs Ramadan sued the first respondent (originally called Unique Finance Pty Ltd) for unconscionable conduct in respect of the entry by Mr and Mrs Ramadan into a loan agreement with and grant of a mortgage over their home in favour of Unique Finance. Mrs Ramadan sued the second respondent, Mr Ventrice, for damages for being knowingly concerned in the unconscionable conduct. While the trial Judge found that Unique Finance had engaged in unconscionable conduct, the Judge dismissed the claim against Mr Ventrice because he was not satisfied that Mr Ventrice was intentionally involved in the contravention.
The species of unconscionable conduct engaged in by Unique Finance was based on the plaintiff acting as a surety in the transaction and obtaining no gain from it; the lender being taken to have understood that the plaintiff’s husband may not have fully explained the effect of the transaction; and the lender not itself taking steps to ensure that the effect was explained to the plaintiff in circumstances in which in reality the plaintiff did not fully understand the effect: Garcia vs National Australia Bank Ltd (1998) 194 CLR 395.
The appellant contends on appeal that the Judge erred in not finding that Mr Ventrice was accessorially liable under s. 12GF of the Australian Securities and Investments Commission Act 2001 (Cth) in respect of the contravention by Unique Finance of s. 12CB the Act.
Held by Blue J (Kourakis CJ and Parker J agreeing):
1. There are two components of a cause of action under section 12GF of the Act: a physical component of being involved or participating in the contravention and a mental component of intentional participation with the necessary intent being based upon knowledge of the essential elements of the contravention (at [53]).
2. The Judge erred in finding that Ventrice was not involved in the contravention in circumstances in which he was the sole guiding mind and will of Unique Finance and involved in every aspect of the dealings with Mr and Mrs Ramadan (at [68]).
3. On the uncontested evidence at trial and the factual findings made by the Judge, Mr Ventrice knew the essential elements of the contravention, namely that Mrs Ramadan acted as a surety in the transaction and obtained no gain from it, Mr Ramadan may not have fully explained the effect of the transaction to her and Unique Finance took no steps to ensure that the effect of the transaction was explained to Mrs Ramadan. It was not necessary for Mrs Ramadan to prove that Mr Ventrice positively knew that she did not fully understand the effect of the transaction (at [77]-[78]). In any event, Mrs Ramadan proved that Mr Ventrice knew that she probably did not understand the effect of the transaction (at [83]).
4. Appeal allowed. Judgment dismissing the action set aside. Declaration that Mr Ventrice was a person involved in the contravention by Unique Finance within the meaning of s. 12GF of the Act. Matter remitted for assessment of damages (at [84]).
Australian Securities and Investments Commission Act 2001 (Cth) ss 12CB, 12GD, 12GF and 12GM; Competition and Consumer Act 2010 (Cth) s. 75B; Trade Practices Act (Cth) 1974, referred to.
Barnes v Addy (1874) LR 9 Ch App 244; Kural v the Queen (1987) 162 CLR 502; Garcia v National Australia Bank Ltd [1998] HCA 48 (1998) 194 CLR 395; Pereira v Director of Public Prosecutions (1988) 35 A Crim R 382; R v Crabbe (1985) 156 CLR 464; Yorke v Lucas (1985) 158 CLR 661, considered.
RAMADAN v ACN 098 408 176 PTY LTD
[2018] SASCFC 16Full Court: Kourakis CJ, Blue and Parker JJ
KOURAKIS CJ:
I would allow the appeal and join in the orders proposed by Blue J for the reasons given by his Honour. I make the following additional observation on whether it is an element of being knowingly concerned in the unconscionable conduct of another that the participant know that the person suffering a relevant disadvantage does not, in fact, understand the purpose and effect of the transaction.
The elements of liability based on being knowingly concerned in a contravention of the Australian Securities and Investment Commission Act 2001 (Cth) (the Act) are to be ascertained from a construction of both s 12GD(1) of the Act and the provision of the Act which was contravened. That construction must be informed by the beneficial purpose of s 12GD of the Act. It is intended to empower the Court to make orders redressing the wrong against all parties who participated in it.
The particular question in this case is whether the word ‘knowingly’ extends the mental element of the derivative liability imposed by s 12GD(1)(e) of the Act to all of the facts and circumstances which must be established to obtain relief against the principal contravenor.
It is well established that to be knowingly concerned in a contravention, the participant must have knowledge of the conduct or proposed conduct, the factual matrix in which the conduct is performed and, if necessary to constitute a contravention, the intention of the principal contravenor.[1] However, as the decision in Rural Press Ltd v Australian Competition and Consumer Commission[2] demonstrates, there may be good reasons not to extend the requisite knowledge of the participant to the legal characterisation of the consequences of that conduct.
[1] Giorgianni v R (1985) 156 CLR 473 at 481, Yorke v Lucas (1985) 158 CLR 661 at 667 and 676.
[2] (2003) 216 CLR 53.
In Yorke v Lucas[3] Brennan J touched on the question of knowledge of the result which must be proved against the participant in the following passage:
In Giorgianni, Wilson, Deane and Dawson JJ held that intentional participation in a crime was necessary to make a person criminally liable for aiding, abetting, counselling or procuring its commission, and said (33):
“The necessary intent is absent if the person alleged to be a secondary participant does not know or believe that what he is assisting or encouraging is something which goes to make up the facts which constitute the commission of the relevant criminal offence. He need not recognize the criminal offence as such, but his participation must be intentionally aimed at the commission of the acts which constitute it.”
Their Honours confine the requirement of intention, and thus the requirement of knowledge, to “the commission of the acts which constitute” the offence. Another question, which their Honours considered earlier in their judgment, is the requirement of intention in a secondary participant with respect to the result of the acts which constitute the offence when the occurrence of the result is an element in the offence – e.g., death in the crime of involuntary manslaughter. Whether a secondary participant is criminally liable in all such cases without knowledge of the result if the offence is so defined that knowledge or foresight of the result is not required of the principal offender is a question which does not now arise: but see Reg. v. Creamer (34); Giorgianni (35).
[3] (1985) 158 CLR 661 at 676.
Unconscionable conduct in a case of this kind is the taking of the benefit by a promisee of the promise to repay made by a volunteer to a loan transaction, who did not understand the effect of the transaction when the promise was made because of his or her disadvantage, in circumstances in which even though the disadvantage was apparent, the promisee failed to afford the volunteer an opportunity to gain that understanding.
The ignorance of the volunteer, in fact, conditions the giving of relief but it is only an element of the contravention in that it is unconscionable of the principal contravener to insist on performance of the legal burden, having failed to give him or her an opportunity to be apprised of the effect of the transaction. The principal need not know that the volunteer did not in fact understand the effect of the transaction. Nor is it necessary to show that the principal knew he or she was denying the volunteer an opportunity to gain a better understanding of the effect of the transaction. It is not necessary to show that the principal caused or contributed to the volunteer assuming the imprudent obligation.
Indeed it is only at the point when a remedial order is sought relieving the volunteer of his or her burden, or seeking compensation, that an issue arises as to his or her understanding of the transaction.
An accessory need not know or believe that the conduct in which he or she participates, or facilitates, will have the consequence which is a necessary element of the contravention. It is not necessary to prove, for example, that the person who gives a thief house breaking implements believes that the thief will carry through with his intention to break into a premises, or to have any idea of the whereabouts of those premises.[4] As Cox J observed in R v Rich[5], in an appeal against a conviction for fraud, an accessory can never know ‘in an absolute sense’ that the principal will commit the offence. Nor can an accessory know in any absolute sense that the principal’s planned contravention will be successful, whether that plan be to break into premises or to deceive another. When an accessory has facilitated, or participated, in conduct which is not yet a contravention it is sufficient that he or she knows that that conduct will, if engaged in successfully, constitute an offence. If a participant has knowledge of the relevant facts and circumstances attending the principal’s conduct, it is sufficient if he or she foresees that it might result in a contravention.
[4] R v Bainbridge (1990) 1 QB 129.
[5] (1997) 68 SASR 390; (1997) 93 ACrimR 483 at 496-7.
To be knowingly concerned in the unconscionable conduct of the promisee in a contravention of this kind it must be proved, the volunteer’s disadvantage being apparent, that the participant:
·having legal authority to direct or otherwise cause the promisee to give the volunteer an opportunity to gain an understanding of the effect of the transaction failed to do so; or
·when acting for or on behalf of the promisee failed to give the volunteer an opportunity to gain an understanding of the effect of the transaction.
The evidence proved that Mr Ventrice fell within the first of those limbs. It is not necessary in a contravention of the Act of this kind that the participant know that the volunteer did not understand the effect of the transaction when he or she entered into it or that the principal would insist on the volunteer’s performance even after discovering the fact. It is sufficient that the participant appreciated that the principal may do so.
It can be inferred that Mr Ventrice appreciated that Ms Ramadan may not understand the effect of the transaction from the general circumstances in which she came to sign the loan documentation and from hearing her husband’s misleading description of its purpose. Indeed, if it were necessary to prove that Mr Ventrice believed that Ms Ramadan did not understand the effect of the documentation I would also so find for the reasons given by Blue J. It can also be inferred that Mr Ventrice contemplated that Unique Finance Pty Ltd would seek to enforce the loan transaction against her.
BLUE J:
This is an appeal against dismissal of a claim for damages for being knowingly concerned in unconscionable conduct.
The appellant Montaha Ramadan sued the first respondent ACN 098 408 176 Pty Ltd (called Unique Finance Pty Ltd at material times) (Unique Finance) in the Supreme Court for unconscionable conduct in respect of the entry by Mrs Ramadan (jointly with her husband Mustafa Merhi Ramadan) into a loan agreement with and grant of a mortgage in favour of Unique Finance. Mrs Ramadan sued the second respondent, Unique Finance’s director Vincent Ventrice, for damages for being knowingly concerned in the unconscionable conduct.
The trial Judge found that Unique Finance had engaged in unconscionable conduct and deferred the question of relief to a subsequent hearing.[6] The Judge dismissed the claim against Mr Ventrice because he was not satisfied that Mr Ventrice was intentionally involved in the contravention.
[6] Ramadan v ACN 098 408 176 Pty Ltd [2017] SASC 63.
Background
Mrs Ramadan was born in Palestine in 1940. She attended primary school in Jordan to grade 2, leaving at the age of 8. Her native tongue is Arabic. She was not taught and did not speak English. She married Mr Ramadan at the age of 14. They had four children before migrating to Australia in 1969. A fifth child was born after they migrated to Australia when they were living in Melbourne.
After moving to South Australia in 1975, the Ramadans purchased a house at Woodville. In 1977 the Ramadans commenced operating the Jerusalem Sheshkebab House (the Jerusalem restaurant) in Hindley Street Adelaide. The business was principally conducted by Mr Ramadan but Mrs Ramadan also worked part-time as a cook and a kitchen hand.
In 1979 Mr Ramadan incorporated Merhi Pty Ltd (later called Ballsam Pty Ltd) (Ballsam) to act as trustee of the Steve Merhi Family Trust. Ballsam acquired ownership of the property in Hindley Street at which the Jerusalem restaurant business was conducted. Mr Ramadan incorporated Haifa Pty Ltd to carry on the restaurant business. Ballsam rented the Hindley Street property to Haifa. Over the years, Ballsam acquired other property.
Mr and Mrs Ramadan were the directors of Ballsam from its incorporation in 1979 until 2002. Mr Ramadan generally made the business decisions. In 2002 Mrs Ramadan asked her husband if she could cease to be a director of Ballsam because she had no involvement in it and he agreed. Both Mr and Mrs Ramadan resigned as directors and their son Mohamad was appointed its sole director. Mr and Mrs Ramadan were the shareholders of Ballsam until 2006. In August 2006 Mr Ramadan caused their shares to be transferred to Mohamad.
In 2001 Mr Ventrice and Jason Di Lulio incorporated Unique Finance. In 2002 Mr Di Lulio resigned as a director and Mr Ventrice continued as sole director. Mr Ventrice was as at 2007 the person who stood to benefit from any profit made by Unique Finance.[7]
[7] This is the wording of the plaintiff’s pleading which was admitted by the defendants.
In 2007 Mr Ramadan and Yousef Jelil agreed to engage in a Middle East business venture involving the government of Iraq or Iran (the evidence was ambiguous as to which of these two countries it was).
Shortly before 24 July 2007 Mr Jelil told Mr Ventrice of the business venture. Mr Jelil introduced Mr Ventrice and Mr Ramadan at the Ramadan home at Woodville. Mr Ramadan and Mr Jelil asked Mr Ventrice for a loan of about $70,000 for the business venture. Mr Ramadan told Mr Ventrice that he could provide security over properties in his company’s name. Mr Ventrice said that it would be a lot cheaper to obtain finance from a bank. Mr Ramadan said that he needed the money quickly or he would miss out on the business opportunity.
Mr Ventrice obtained the certificate of title for the Hindley Street property and formulated an offer to Ballsam to lend $72,000 at an interest rate of five per cent per month (60 per cent per annum) secured by a mortgage over the Hindley Street property. The offer was accepted by Ballsam.
On 24 July 2007 Mr Ventrice instructed his solicitor, Allen Burtt, to prepare loan and mortgage documents. On 25 July Mr Burtt telephoned Mr Ramadan and told him that Mohamad as the sole director of Ballsam would need to sign the documents.
On 26 July 2007 Mr Ramadan purportedly dismissed Mohamad as a director and appointed himself as the sole director of Ballsam. He caused his accountant to lodge a Change to Company Details form at the Australian Securities and Investments Commission and to send a copy to Mr Burtt.
On 26 July 2007 Mr Ramadan and Mr Jelil attended at Mr Burtt’s office to execute the documentation. Mr Ramadan as purported sole director and secretary of Ballsam executed a loan agreement and mortgage in favour of Unique Finance in respect of a loan of $72,000 at five per cent per month interest. Mr Ramadan’s execution of the loan agreement was witnessed by Mr Jelil. Mr Burtt handed cheques made out to cash to Mr Jelil pursuant to authority given to him by Mr Ventrice.
In August 2007 Mr Ramadan asked Mr Ventrice for additional loans to Ballsam of $40,000 and $90,000. Similar documentation was prepared as in respect of the first loan and executed by Mr Ramadan witnessed by Mr Jelil.
Mrs Ramadan gave evidence that she had no knowledge of or involvement in these transactions. The Judge generally accepted her evidence and implicitly accepted her evidence in respect of these transactions.
In September 2007 Mr Ramadan negotiated with Mr Ventrice a further loan of $300,000 from Unique Finance to be taken in the name of Mr and Mrs Ramadan and secured over the Woodville property. That property was unencumbered.
On 7 September 2007 Mr Ramadan drove Mrs Ramadan to the offices of Mr Burtt. On the way, he told her that they were going to attend a meeting to sign some documents. He had not previously told her anything about the proposed loan of $300,000. Mrs Ramadan was wearing traditional Arab dress including a hijab. She had very little understanding of spoken English. She was illiterate in written English, Arabic and every other language. She was 67 years old.
Present at the meeting as well as Mr and Mrs Ramadan were Mr Ventrice, Mr Jelil and Mr Burtt. Mr Burtt generally conducted the meeting. Mr Burtt produced a loan agreement and mortgage. Mr Ramadan directed Mrs Ramadan to sign where he pointed. Mrs Ramadan asked him why she was signing. He replied that they were borrowing $300,000 for one month to assist Mr Jelil with a business proposition. The discussions between Mr and Mrs Ramadan were in Arabic.
Mrs Ramadan was unable to read the documents. She did not understand that one of the documents was a mortgage over the family home. No reference was made to a mortgage. No reference was made to interest. She gave evidence, which the Judge accepted, that in her culture she was required to comply with her husband’s requests in respect of business matters and she felt pressure to sign the documents when requested to do so.
In fact, the documents signed by Mrs Ramadan comprised a loan agreement for $300,000 at an interest rate of five per cent per month and a default interest rate of 15 per cent per month together with a mortgage over the family home at Woodville. The signatures of Mr and Mrs Ramadan on the loan agreement and mortgage were witnessed by Mr Jelil.
After execution of the documents, Unique Finance paid $257,983 to Balsam. The monies were used by Mr Ramadan and Mr Jelil for a business venture but it is not known what precisely became of them.
In April 2008 Mr and Mrs Ramadan borrowed $356,000 from another financier to pay out Unique Finance.
In early 2009 Mr Ramadan left Australia for the Middle East and has not returned.
In July 2009 Mohamad Ramadan instituted a derivative action on behalf of Ballsam in the Supreme Court against Unique Finance and Mr Ventrice in relation to loans made by Unique Finance to Ballsam under the control or purported control of Mr Ramadan (the Ballsam action). The defendants in that action filed affidavits by Mr Ventrice and Mr Burtt. The action was ultimately the subject of a compromise.
In September 2013 Mrs Ramadan instituted this action against Unique Finance and Mr Ventrice alleging unconscionable conduct under section 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) (the Act) or in equity.
The trial
Mrs Ramadan gave evidence. She called her son Mohamad, his son Mustafa and the Ramadan family accountant Van Stevens to give evidence but their evidence was of minor importance and no substantive reference was made to it by the Judge or during argument on appeal. Mr Ramadan did not give evidence.
Mrs Ramadan tendered an expert report by a banker, Brian Guild. Mr Guild said that first tier lenders such as banks would have charged an interest rate for a loan of $300,000 secured by a mortgage over real property worth $600,000 of 8.3 to 9 per cent per annum. He said that “low doc loans” were available in the market from non-bank lenders who would have charged interest between approximately 10 and 12 per cent per annum. He expressed the opinion that the interest rate of 60 per cent per annum charged by Unique Finance for the subject transaction was “extreme and beyond market expectation”. He was not cross-examined and his evidence was not challenged or contradicted.
Mrs Ramadan tendered the affidavits by Mr Ventrice and Mr Burtt that had been filed in the Ballsam action.
Mr Ventrice did not give evidence. The Judge was informed that he was ill and offered to adjourn the trial for two weeks to permit him to give evidence but he declined this offer. The defendants did not call any witnesses to give evidence.
The reasons for judgment
The Judge said that overall he accepted the evidence of Mrs Ramadan. In particular he accepted her evidence in respect of the critical meeting at the officeof Mr Burtt.
The Judge found that Unique Finance engaged in unconscionable conduct under the Act and in equity. The Judge said:
In the circumstances of this matter, I am satisfied the plaintiff is a volunteer. She is, in effect, a constructive guarantor of the transaction. Her signature was necessary to allow the family home to be used as security for the subject loan. Her husband and Jelil used the money for an unknown business proposition. I accept that the plaintiff does not know what the money was borrowed for and what became of the funds, other than the fact that she is aware the monies were paid to Ballsam. She has received no benefit from the transaction.
…
In summary then, the plaintiff was a volunteer. She was a person under a special disability, in that she is barely able to speak English, and is not able to read or write English. I accept that, at the signing meeting, her husband spoke to the plaintiff in Arabic. It should have been obvious, at least to the solicitor, that it was necessary to fully explain the transaction to the plaintiff. More so because the terms of the transaction were uncommercial. It should also have been obvious that the plaintiff was a person suffering from a special disability.
I accept the plaintiff’s evidence that no-one explained anything about the nature and effect of the transaction to her, other than her husband telling her they were borrowing $300,000 for one month, after which the money would be repaid. I also accept the plaintiff’s evidence that she was unaware that she was giving a mortgage over her property. There can be no other result than a finding that, in all the circumstances, the first defendant unconscientiously took advantage of the plaintiff’s special disability in procuring her signature. The result is the same, whether applying principles of equity or the provisions of s 12CB of the ASIC Act.
The Judge found that it was not proved that Mr Ventrice was intentionally involved in the contravention by Unique Finance. The Judge said:
The provisions of s 12GF and s 12GM of the ASIC Act permit the Court to make orders awarding compensation for a person who suffers loss or damage by reason of a contravention of, inter alia, section 12CB of that Act. The Court’s power extends to a person who is involved in a relevant contravention.
The question then becomes whether the second defendant was involved in the contravention in the relevant sense. In most cases that might be relatively straightforward. The difficulty here is that the evidence of the plaintiff about what occurred at the meeting is not clear. In particular, she gave no direct evidence about what, if anything, the second defendant did or said at the meeting.
…
It needs to be remembered that it is not the terms of the contract of loan and mortgage that make the transaction unconscionable. If the details of the proposal had been fully and properly explained to the plaintiff and she nonetheless agreed to enter into it, she would have no cause for complaint.
Thus, it is the circumstances by which she came to execute the documents which is the critical aspect of this claim. The meeting was conducted by the first defendant’s solicitor in his office. All we know about the second defendant is that he was a director of the first defendant and was present at the time the loan documents were signed. In the absence of any direct evidence in respect of the conduct of the second defendant at the meeting, I am not prepared to make a finding that he was intentionally involved in the contravention.
The statutory regime
Section 12CB of the Act as at 2007 provided:
(1) [Prohibition]
A person must not, in trade or commerce, in connection with the supply or possible supply of financial services to a person, engage in conduct that is, in all the circumstances, unconscionable.
(2) [Matters which court may consider]
Without limiting the matters to which the Court may have regard for the purpose of determining whether a person (the supplier) has contravened subsection (1) in connection with the supply or possible supply of services to a person (the consumer), the Court may have regard to:
(a) the relative strengths of the bargaining positions of the supplier and the consumer; and
(b) whether, as a result of conduct engaged in by the supplier, the consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and
(c) whether the consumer was able to understand any documents relating to the supply or possible supply of the services; and
(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the consumer or a person acting on behalf of the consumer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the services; and
(e) the amount for which, and the circumstances under which, the consumer could have acquired identical or equivalent services from a person other than the supplier.
Subsection 12GD(1) of the Act as at 2007 provided:
[Injunctions]
(1)If, on the application of the Minister, ASIC or any other person, the Court is satisfied that a person has engaged, or is proposing to engage, in conduct that constitutes or would constitute:
(a)a contravention of a provision of this Division; or
(b)attempting to contravene such a provision; or
(c)aiding, abetting, counselling or procuring a person to contravene such a provision; or
(d) inducing, or attempting to induce, whether by threats, promises or otherwise, a person to contravene such a provision; or
(e) being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of such a provision; or
(f) conspiring with others to contravene such a provision;
the Court may grant an injunction in such terms as the Court determines to be appropriate.
Subsection 12GF(1) of the Act as at 2007 provided:
[Compensation]
A person who suffers loss or damage by conduct of another person that contravenes a provision of Subdivision C (sections 12CA to 12CC) or Subdivision D (sections 12DA to 12DN) may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.
The Act does not define the term “any person involved in the contravention” used in section 12GF and elsewhere (including section 12GM). This stands in contrast to section 75B of the Trade Practices Act 1974 (Cth) as it was in 2007 (now the Competition and Consumer Act 2010 (Cth)) (the Trade Practices Act) which defined the term to mean a person who:
(a) has aided, abetted, counselled or procured the contravention;
(b) has induced, whether by threats or promises or otherwise, the contravention;
(c)has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or
(d) has conspired with others to effect the contravention.
Given the conjunction of section 12GD with sections 12GF and 12GM, it is clear that the reference in the Act to “any person involved in the contravention” is a reference to a person to whom reference is made in paragraphs (c) to (f) of subsection 12GD(1). This is common ground on appeal.
In Yorke v Lucas[8] the High Court considered accessorial liability under section 75B of the Trade Practices Act in respect of misleading conduct committed by Ross Lucas Pty Ltd in contravention of section 52. Mr Lucas was found to have known of the making of the representations but not of their falsity. The High Court held that he could not be accessorially liable because he did not have knowledge of each element of the contravention. Mason ACJ, Wilson, Deane and Dawson JJ said:
If par (a) of s 75B imports the requirements of the criminal law, it is clear in the light of Giorgianni v The Queen that Lucas could only be brought within that paragraph if he intentionally aided, abetted, counselled or procured a contravention by the Lucas company of s 52 of the Trade Practices Act. Upon the findings of the trial judge, however, Lucas lacked the knowledge necessary to form the required intent. A contravention of s 52 involves conduct which is misleading or deceptive or likely to mislead or deceive and the conduct relied upon in this case consisted of the making of false representations. Whilst Lucas was aware of the representations - indeed they were made by him - he had no knowledge of their falsity and could not for that reason be said to have intentionally participated in the contravention.
…
Notwithstanding that s 75B operates as an adjunct to the imposition of civil liability, its derivation is to be found in the criminal law and there is nothing to support the view that the concepts which it introduces should be given a new or special meaning.
…
So far we have dealt only with par (a) of s 75B which refers to involvement of persons who are accessories. The appellants also rely upon par (c) of the same section which extends the definition of a person involved to a person who has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention. There can be no question that a person cannot be knowingly concerned in a contravention unless he has knowledge of the essential facts constituting the contravention. It cannot, therefore, be suggested that Lucas falls within the first limb of par (c).
…In our view, the proper construction of par (c) requires a party to a contravention to be an intentional participant, the necessary intent being based upon knowledge of the essential elements of the contravention.[9][8] (1985) 158 CLR 661.
[9] At 667-668, 669, 669-670. (Footnotes omitted)
It is common ground on appeal that the approach by the High Court in Yorke v Lucas is equally applicable to the approach to deciding whether a defendant is a person involved in the contravention within the meaning of subsection 12GF(1) of the Act. This follows in any event from the construction of subsection 12GF(1) referred to at [50] above.[10]
[10] See also Medical Benefits Fund of Australia Limited v Cassidy [2003] FCAFC 289, (2003) 135 FCR 1 at [2] per Moore J and [67] per Stone J (with each of whom Mansfield J relevantly agreed).
It is common ground that there are two components of being knowingly concerned in a contravention:
1.a physical component –a deliberate act, omission or conduct whereby the accessory participates in, assists or encourages the contravention (participation);[11]
2.a mental component – intentional participation with the necessary intent being based upon knowledge of the essential elements of the contravention.[12]
[11] HIH Insurance Limited (in liquidation) v Adler [2007] NSWSC 633 at [33]-[37]; In the matter of HIH Insurance Limited (In Liquidation) (ACN 008 636 575) and others; Smith and Others v Anthony Gregory McGrath (in his capacity as Liquidator of HIH Insurance Limited (in liquidation)) [2016] NSWSC 482 at [21]-[25] per Brereton J.
[12] Yorke v Lucas (1985) 158 CLR 661 at 667-668, 669, 669-670 per Mason ACJ, Wilson, Deane and Dawson JJ (quoted above) and 676 per Brennan J.
Most of the authorities that have considered civil accessorial liability under “knowingly concerned” provisions involve misleading or deceptive conduct in respect of which the application of the mental component is relatively straightforward in the paradigm case of a false representation. In that case the person must know of the making of the representation and of the facts by reason of which it is false. It has been held that the person need not know that the representation is false (or misleading) as long as he or she knows of the facts by reason of which it is false.[13]
[13] Paper Products Pty Ltd v Tomlinsons (Rockdale) Pty Ltd (1994) ATPR 41-315 at 42,204 per French J; Heydon v NRMA (2001) Aust Torts Reports 81-588 at 66,390 per McPherson AJA; Adler v Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 46 ASCR 504 at [331]-[342] per Giles JA (with whom Mason P and Beazley JA agreed); Medical Benefits Fund of Australia Limited v Cassidy (2003) 135 FCR 1 at [15] per Moore J (with whom Mansfield J agreed) (cf Stone J); Keller v LED Technologies Pty Ltd [2010] FCAFC 55 at [336] per Besanko J (with whom Jessup J agreed).
In Rural Press Ltd v Australian Competition and Consumer Commission[14] the High Court considered the application of section 75B to contraventions of subsection 45(2) of the Trade Practices Act which prohibits making or giving effect to an arrangement that has the purpose or has or is likely to have the effect of substantially lessening competition. The High Court held that a person is accessorially liable for a contravention notwithstanding that the person does not know that the arrangement is likely to have the effect of substantially lessening competition. Rural Press Ltd published The Standard newspaper based in Murray Bridge but whose circulation included Mannum. Waikerie Printing House Pty Ltd published The River News based in Waikerie and whose circulation initially did not include Mannum. Waikerie Printing House started circulating The River News in Mannum supported by substantial marketing efforts. Rural Press responded by threatening Waikerie Printing House that it would start circulating The Standard in Waikerie and the Riverland unless Waikerie ceased circulating The River News in Mannum. Waikerie acceded to this threat. McAuliffe and Law were officers of Rural Press who decided on the strategy to deal with The River News. There was no evidence and no finding that they knew that the strategy was likely to have the effect of substantially lessening competition but the High Court held that this was not necessary for accessorial liability. Gummow, Hayne and Heydon JJ (with whom Gleeson CJ and Callinan J relevantly agreed) said:
The trial judge held that McAuliffe and Law were "involved in" the contraventions established against Rural Press and Bridge within the meaning of s 75B(1) of the Act.
The trial judge rightly held that it was necessary to find that McAuliffe and Law participated in, or assented to, the companies' contraventions with actual knowledge of the essential elements constituting the contraventions. The Rural Press parties complained that he failed to make particular findings, but they are in fact inherent in his reasoning. In the end the argument was only that McAuliffe and Law "did not know that the principal's conduct was engaged in for the purpose or had the likely effect of substantially lessening competition … in the market as defined." It is wholly unrealistic to seek to characterise knowledge of circumstances in that way. Only a handful of lawyers think or speak in that fashion, and then only at a late stage of analysis of any particular problem. In order to know the essential facts, and thus satisfy s 75B(1) of the Act and like provisions, it is not necessary to know that those facts are capable of characterisation in the language of the statute.[15].
[14] [2003] HCA 75, (2003) 216 CLR 53.
[15] At [47]-[48].
When the principal offence is unconscionable conduct, the position is more complex that in respect of misleading conduct. Unconscionable conduct may take many different forms. One such form, being the species relevant in the present case, is when the plaintiff (at least in the case of a wife)[16] enters into a transaction as surety as a volunteer for another with whom he or she is in a relationship (at least in the case of a husband) without fully understanding the effect of the transaction and the other party is on notice that this may be so but does not take steps to ensure that it is understood by the plaintiff.[17]
[16] In Garcia v National Australia Bank Ltd (1998) 194 CLR 395 the High Court left open the question whether the same doctrine applies to other relationships such as husband and wife or same-sex relationships. There appears to be no reason in principle why it should not so apply where the requisite elements are established but it is unnecessary to consider this in the present case because the present case involves the relationship of wife and husband.
[17] Garcia v National Australia Bank Ltd (1998) 194 CLR 395.
In Garcia v National Australia Bank Ltd[18] Gaudron, McHugh, Gummow and Hayne JJ said:
The principles applied in Yerkey v Jones do not depend upon the creditor having, at the time the guarantee is taken, notice of some unconscionable dealing between the husband as borrower and the wife as surety. Yerkey v Jones begins with the recognition that the surety is a volunteer: a person who obtained no financial benefit from the transaction, performance of the obligations of which she agreed to guarantee. It holds, in what we have called the first kind of case, that to enforce that voluntary transaction against her when in fact she did not bring a free will to its execution would be unconscionable. It holds further, in the second kind of case, that to enforce it against her if it later emerges that she did not understand the purport and effect of the transaction of suretyship would be unconscionable (even though she is a willing party to it) if the lender took no steps itself to explain its purport and effect to her or did not reasonably believe that its purport and effect had been explained to her by a competent, independent and disinterested stranger. And what makes it unconscionable to enforce it in the second kind of case is the combination of circumstances that:
(a) in fact the surety did not understand the purport and effect of the transaction;
(b)the transaction was voluntary (in the sense that the surety obtained no gain from the contract the performance of which was guaranteed);
(c)the lender is to be taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife; and yet
(d)the lender did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her.
To hold, as Yerkey v Jones did, that in those circumstances the enforcement of the guarantee would be unconscionable represents no departure from accepted principle. Rather, it "conforms to the fundamental principle according to which equity acts, namely that a party having a legal right shall not be permitted to exercise it in such a way that the exercise amounts to unconscionable conduct"[19].
[18] (1998) 194 CLR 395.
[19] At [133]-[134].
The disposition of this appeal turns primarily on the question what must be known by a defendant to be knowingly concerned in this particular species of unconscionable conduct.
Arguments on appeal
Mrs Ramadan contends that, as Mr Ventrice was the guiding mind and will of Unique Finance and involved in all aspects of the transactions involving Mr and Mrs Ramadan, his conduct and knowledge and Unique Finance’s conduct and knowledge are the same. The Judge found all of the elements of unconscionable conduct established against Unique Finance. The Judge should have found that Mr Ventrice participated in that conduct with the requisite knowledge. The Judge did not explain why he was not so satisfied.
Mrs Ramadan contends that on the evidence there could be no doubt that the participation component for accessorial liability was established. On the evidence it should be inferred that Mr Ventrice knew that the transaction was voluntary, that Mrs Ramadan may not have fully understood it and that Unique Finance had not taken steps to ensure that it had been explained to her. It was not necessary for her to establish that Mr Ventrice knew that in fact she did not understand the transaction. Alternatively, if this was necessary, on the evidence it should be inferred that Mr Ventrice knew that it was probable that she did not understand the transaction.
Mrs Ramadan did not contend before the Judge, and does not contend on appeal, that Mr Ventrice is accessorially liable for Unique Finance’s unconscionable conduct in equity. In this respect, the Judge found that Unique Finance had engaged in unconscionable conduct in equity. If the case against Mr Ventrice had been run on the basis of accessorial liability under the second limb of Barnes v Addy[20] (assisting with knowledge of the relevant design on the part of the principal wrongdoer), the requisite knowledge[21] of Mr Ventrice would have been established on the evidence. The issue would have been whether accessorial liability under the second limb of Barnes v Addy applies to unconscionable conduct by a non-fiduciary. However, these questions need not be addressed given the manner in which Mrs Ramadan conducted her case.
[20] (1874) LR 9 Ch App 244.
[21] Knowledge falling within the first four categories identified by Peter Gibson J in Baden v Societe Generale pour Favoriser le Developpement du Commerce et de L’Industrie en France SA [1993] 1 WLR 509 (“Baden”) at 575-576 and 582: see Farah Constructions Pty Limitedv Say-Dee Pty Limited [2007] HCA 22; (2007) 230 CLR 89 at [77] per Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ.
Mr Ventrice contends that on the evidence it could not be inferred that he knew that Mrs Ramadan did not understand the transaction or that it was probable that she did not understand the transaction. Likewise it could not be inferred that he knew that Mrs Ramadan was a volunteer or was under a special disability. He relies on the fact that he engaged a solicitor to draft the documentation and witness its execution.
Mr Ventrice does not contend that the participation component for accessorial liability was not established. His submissions are confined to the mental component.
Mr Ventrice does not contend that Unique Finance did not engage in unconscionable conduct or challenge any of the findings by the Judge as to the elements of that conduct.
Mr Ventrice does not challenge any of the primary findings of fact by the Judge.
The participation component
It appears that the Judge was not satisfied of the participation component (that Mr Ventrice was “involved” in the contravention) as opposed to the knowledge component. Thus, the Judge’s reasons included the following passages:
The question then becomes whether the second defendant was involved in the contravention in the relevant sense. In most cases that might be relatively straightforward. The difficulty here is that the evidence of the plaintiff about what occurred at the meeting is not clear. In particular, she gave no direct evidence about what, if anything, the second defendant did or said at the meeting.
…
The meeting was conducted by the first defendant’s solicitor in his office. All we know about the second defendant is that he was a director of the first defendant and was present at the time the loan documents were signed. In the absence of any direct evidence in respect of the conduct of the second defendant at the meeting, I am not prepared to make a finding that he was intentionally involved in the contravention.
Moreover, the Judge did not make any explicit findings about the knowledge of Mr Ventrice or say that the knowledge component was not established.
The Judge erred in not finding that Mr Ventrice was involved (participated) in the contravention. Mr Ventrice was the guiding mind and will of Unique Finance. He was involved in all aspects of the transaction. He negotiated the transaction with Mr Ramadan (without any involvement by Mrs Ramadan). He gave instructions to Mr Burtt to prepare the documentation. He was present when Mr and Mrs Ramadan attended to sign the documentation. Although this is not critical, he personally was the one who stood to benefit from the transaction. Mr Ventrice does not and cannot dispute that the participation component was established.
The mental component
The Judge’s conclusion is vitiated by the error identified in the previous paragraph. It is necessary for this Court to make its own assessment whether on the evidence the mental component was established. This Court is in any event in as good a position as the Judge to assess whether on the evidence the mental component was established because there are no credit or evidentiary issues on appeal.
For the purpose of considering the mental component, it is convenient to reformulate the elements of the species of unconscionable conduct cause of action articulated in Garcia v National Australia Bank Ltd as follows:
1.the plaintiff acts as a substantive surety in the transaction and obtains no gain from it;
2.the lender is to be taken to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife;
3.the lender does not itself take steps to ensure that the purport and effect of the transaction is explained to the wife;
4.in fact the wife did not fully understand the purport and effect of the transaction.
In relation to the first element, Mr Ventrice does not dispute that in fact Mrs Ramadan, in entering into the loan agreement and granting the mortgage over the family home, acted as a substantive surety in the transaction and obtained no gain from it. However he disputes that on the evidence it was established that he knew this.
Mr Ventrice knew that Mr Ramadan had previously borrowed money from Unique Finance on behalf of his company Ballsam for a business venture between Mr Ramadan and Mr Jelil. He knew that the security for those loans was property owned by Ballsam. He knew that all of his dealings (prior to execution of the documentation) in relation to the subject loan of $300,000 were with Mr Ramadan and did not involve Mrs Ramadan. He knew that the proceeds of the subject loan were to be used by Mr Ramadan and Mr Jelil and he authorised the payment by Unique Finance of the proceeds to Ballsam. He knew that the Woodville property, over which Mrs Ramadan was granting a mortgage, was the family home because he had visited Mr Ramadan at their Woodville home in July 2007. The inference is irresistible that Mr Ventrice knew that Mrs Ramadan was acting as a surety and volunteer in the transaction. Mr Ventrice did not give evidence[22] and hence there was nothing to rebut the inference.
[22] Mr Ventrice declined an offer by the Judge to adjourn the trial so as to permit him to give evidence.
In relation to the second element, Mr Ventrice does not dispute that Unique Finance is taken to have understood that Mr Ramadan may not fully and accurately have explained the purport and effect of the transaction to Mrs Ramadan. As Mr Ventrice was the guiding mind and will of Unique Finance, if this was understood by Unique Finance, it follows logically that it was understood by Mr Ventrice. However, even leaving this aside, the circumstances known to Mr Ventrice must inevitably have led him to have understand that Mr Ramadan may not have fully and accurately explained the purport and effect of the transaction to Mrs Ramadan. Mr Ventrice observed that Mrs Ramadan did not read the documents before signing them. He observed Mr Ramadan directing by pointing to Mrs Ramadan where to sign. He observed that Mrs Ramadan spoke only in Arabic to her husband. He observed that she was in her sixties and wearing traditional Arab dress. Although there is no evidence that he was told that Mrs Ramadan did not speak good English, it was clearly apparent that this was at the very least a real possibility. He knew that the interest rate of five per cent per month for a loan fully secured by mortgage was extreme and there was at the very least a real possibility that Mrs Ramadan would not have agreed to proceed if she had known this. He knew that he had previously told Mr Ramadan that it would be a lot cheaper to obtain finance from a bank. He knew from his experience in relation to the first Ballsam loan that Mr Ramadan controlled family affairs because he was able to replace Mohamad as the director of Ballsam at short notice. Mr Ventrice knew that Mrs Ramadan was acting as a surety in the transaction. The inference is irresistible that Mr Ventrice knew not only that Mr Ramadan may not fully and accurately have explained the purport and effect of the transaction to Mrs Ramadan but also that this was likely. Mr Ventrice did not give evidence and hence there was nothing to rebut the inference.
In relation to the third element, Mr Ventrice does not dispute that Unique Finance did not take any steps to ensure that the purport and effect of the transaction was explained to Mr Ramadan and Mr Ventrice knew this.
In relation to the fourth element, Mr Ventrice does not dispute that in fact Mrs Ramadan did not fully understand the purport and effect of the transaction. She did not understand that she was mortgaging her home nor did she understand that an interest rate of five per cent per month was payable on the loan. However, Mr Ventrice contends that, in order to be knowingly concerned in the contravention by Unique Finance, Mrs Ramadan was required to prove that he knew that she did not fully understand the purport and effect of the transaction and she failed to prove this.
The first premise of Mr Ventrice’s contention must be rejected. The fourth element of the cause of action for this species of unconscionable conduct differs fundamentally in nature from the first three elements. The other three elements involve or include the conduct and/or state of mind of the defendant. The fourth element involves only the plaintiff, ie whether the plaintiff in fact did not fully understand the purport and effect of the transaction. This element is broadly analogous to the element of causation in most causes of action. If the plaintiff in fact understood the purport and effect of the transaction, there can be no cause of action for unconscionable conduct. This is not because of the conduct or the state of mind of the defendant but purely because of the state of mind of the plaintiff.
In order to establish accessorial liability under section 12GF of the Act in respect of this species of unconscionable conduct, it is necessary for a plaintiff to prove that the accessory knew the first three elements. The second element contains its own requisite mental state, namely that the principal contravenor, and for accessorial liability the accessory, understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife. As the fourth element addresses only the state of mind of the plaintiff and not the conduct and state of mind of the principal contravenor, for accessorial liability there is no requirement that the accessory knew that the plaintiff did not fully understand the purport and effect of the transaction. The position is a fortiori the requirement for a contravention of subsection 45(2) of the Trade Practices Act that the conduct has the purpose or effect of substantially lessening competition, accessorial liability in respect of which the High Court has held does not require knowledge by the accessory of such purpose or effect.
It follows that on the evidence Mrs Ramadan established the requisite mental component as against Mr Ventrice. The Judge ought to have found that Mr Ventrice was accessorially liable in respect of Unique Finance’s unconscionable conduct pursuant to section 12GF of the Act.
Given this conclusion, it is not strictly necessary to consider the second premise of Mr Ventrice’s contention referred to at [75] above. However, that premise also must be rejected.
In R v Crabbe[23] the High Court held (in the context of murder) that, for the purposes of the criminal law, doing an act with knowledge of the probable consequence is tantamount to doing an act with the intention of that consequence eventuating. Gibbs C.J, Wilson, Brennan, Deane and Dawson JJ said:
The conduct of a person who does an act, knowing that death or grievous bodily harm is a probable consequence, can naturally be regarded for the purposes of the criminal law as just as blameworthy as the conduct of one who does an act intended to kill or to do grievous bodily harm... If an accused knows when he does an act that death or grievous bodily harm is a probable consequence, he does the act expecting that death or grievous bodily harm will be the likely result, for the word "probable" means likely to happen. That state of mind is comparable with an intention to kill or to do grievous bodily harm. There is a difference between the case in which a person acts knowing that death or serious injury is only a possible consequence, and where he knows that it is a likely result. The former is not a case of murder even if death ensues, unless death or grievous bodily harm is intended (or, perhaps - and it is unnecessary to consider this proposition - unless the act is done with the intention and for the sole purpose of creating a risk of death or grievous bodily harm).
It should now be regarded as settled law in Australia, if no statutory provision affects the position, that a person who, without lawful justification or excuse, does an act knowing that it is probable that death or grievous bodily harm will result, is guilty of murder if death in fact results.[24]
[23] (1985) 156 CLR 464.
[24] At 469.
In Kural v the Queen[25] the High Court took a similar approach to the offence of importing a narcotic drug in contravention of section 233B(1)(b) of the Customs Act 1901 (Cth). Mason CJ, Deane and Dawson JJ said:
Where, as here, it is necessary to show an intention on the part of the accused to import a narcotic drug, that intent is established if the accused knew or was aware that an article which he intentionally brought into Australia comprised or contained narcotic drugs. But that is not to say that actual knowledge or awareness is an essential element in the guilty mind required for the commission of the offence. It is only to say that knowledge or awareness is relevant to the existence of the necessary intent. Belief, falling short of actual knowledge, that the article comprised or contained narcotic drugs would obviously sustain an inference of intention. So also would proof that the forbidden act was done in circumstances where it appears beyond reasonable doubt that the accused was aware of the likelihood, in the sense that there was a significant or real chance, that his conduct involved that act and nevertheless persisted in that conduct. As a practical matter, the inference of mens rea or a guilty mind will ordinarily be irresistible in cases involving the importation of narcotic drugs if it is proved beyond reasonable doubt that the accused actually imported the drugs and that he was aware, at the time of the alleged commission of the offence, of the likelihood of the existence of the substance in question in what he was importing and of the likelihood that it was a narcotic drug. What we have said is designed to emphasize that the existence of the requisite intention is a question of fact and that in most cases the outcome will depend on an inference to be drawn from primary facts found by the tribunal of fact. In this, as in other areas of the law, it is important not to succumb to the temptation of transforming matters of fact into propositions of law. In that regard, we would emphasize that the foregoing comments are not designed as a direction or instruction to be read by trial judges to juries. They are intended to give guidance to trial judges in order to enable them to formulate such directions as may be appropriate to the facts and circumstances of particular cases.[26]
[25] (1987) 162 CLR 502.
[26] At 504-505. See also Toohey and Gaudron JJ (dissenting in the result but not on the principle) at 512. See also Saad v The Queen (1987) 61 ALJR 243 at 244 per Mason CJ, Deane and Dawson JJ; Smith v The Queen[2017] HCA 19, (2017) 91 ALJR 621.
In Pereira v Director of Public Prosecutions[27] the High Court addressed the offence of being knowingly concerned in the importation of cannabis resin. Mason CJ, Deane, Dawson, Toohey and Gaudron JJ said:
Each charge required proof of knowledge that cannabis resin was or was likely to be secreted in the parcel.[28]
[27] (1988) 35 A Crim R 382.
[28] At 384.
In the present case, even if Mrs Ramadan had been required to prove that Mr Ventrice knew that she did not fully understand the purport and effect of the transaction, this would have been proved because for the reasons given at [73] above Mr Ventrice knew that this was likely.
Conclusion
The appeal should be allowed. The judgment dismissing the action against Mr Ventrice should be set aside. A declaration should be granted that Mr Ventrice was a “person involved” in the contravention by Unique Finance within the meaning of section 12GF of the Act. The matter should be remitted for assessment of damages.
PARKER J:
I agree with the reasons of Blue J and the orders he proposes.
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