Ramadan v ACN 098 408 176 Pty Ltd - [2017] SASC 63

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
RAMADAN v ACN 098 408 176 PTY LTD & ANOR
[2017] SASC 63
Judgment of Judge Dart a Master of the Supreme Court
28 April 2017
EQUITY - GENERAL PRINCIPLES - UNCONSCIONABILITY, UNCONSCIONABLE DEALINGS AND OTHER FORMS OF EQUITABLE FRAUD - SPECIAL DISABILITY
TRADE AND COMMERCE - TRADE PRACTICES ACT 1974 (CTH) AND RELATED LEGISLATION - CONSUMER PROTECTION - UNCONSCIONABLE CONDUCT - GENERALLY
Plaintiff entered into contract of loan and provided a mortgage - plaintiff says circumstances make the transaction unconscionable - the transaction was obtained in circumstances which were unconscionable, according to the principles of equity and also the provisions of s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) - in the circumstances, further consideration required as to the appropriate remedy.
Held:
1. The circumstances by which the first defendant procured the plaintiff to enter into the contract of loan and mortgage unconscionable.
2. The parties are to make further submissions in respect of the appropriate remedy.
Australian Securities and Investments Commission Act 2001 (Cth) s 12CA, s 12CB, s 12GF, s 12GM; Corporations Act 2001 (Cth) s 763A, s 764A, s 765A(1), s 766A(1), s 925A; Trade Practices Act 1974 (Cth) s 51AA, s 51AB, s 51AC,s 75B, referred to.
Blomley v Ryan (1956) 99 CLR 362; Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413, applied.
ACCC v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51; Alati v Kruger (1955) 94 CLR 216; Garcia v National Australia Bank Ltd (1998) 194 CLR 395; Investec Bank v Naude [2014] NSWSC 165; Khoury v Government Insurance Office of New South Wales (1984) 165 CLR 622; Lyons v Lyons [1967] VR 169; National Australia Bank Ltd v Savage [2013] NSWSC 1718; Wilton v Farnworth (1948) 76 CLR 646; Wingecarribee Shire Council v Lehman Brothers Australia Ltd (in liq) [2012] FCA 1028; Yorke v Lucas (1985) 158 CLR 661, considered.

RAMADAN v ACN 098 408 176 PTY LTD & ANOR
[2017] SASC 63
JUDGE DART:

On 7 September 2007 the plaintiff and her husband entered into a contract of loan with the first defendant, secured by a mortgage over their residential property (“the property”) at Woodville. At the time of the transaction the property was unencumbered. The first defendant was at the relevant time known as Unique Finance. The second defendant was the director of the first defendant.
By these proceedings the plaintiff seeks relief in respect to the transaction on a number of bases. The primary ground for relief is that the circumstances surrounding the transaction made it unconscionable for the first defendant to rely upon or seek to enforce the transaction.
The first defendant was a company that lent monies for short terms at higher rates than were available at the time from banks and other first tier lenders. The transaction was intended to be for a short term. Within about seven months the plaintiff and her husband obtained finance on much more favourable terms from another lender. The debt to the first defendant was repaid and its mortgage was discharged.
Background
To understand the nature and circumstances of this transaction, there is a lengthy family history that needs to be understood. The plaintiff was born in Palestine in 1940. She only attended school for approximately two years. She married her husband at the age of 14. She moved to Australia when in her early 20s, by which time she had four children.
She was, and remains, illiterate in all languages. She speaks very limited English. After residing in Victoria for a period the plaintiff and her husband moved to Adelaide. After operating a series of takeaway food businesses with her husband, they commenced a business known as the Jerusalem Sheshkebab House in Hindley Street, Adelaide (“Jerusalem Restaurant”). Family interests still conduct that business and for many years the plaintiff worked as a cook at the business. Her husband also worked in the business.
The plaintiff and her husband incorporated a company called Ballsam Pty Ltd (“Ballsam”) in 1979. The plaintiff was a director of that company from its incorporation until 2002. Ballsam is trustee for the Steve Merhi Family Trust (“the Trust”). That is the anglicised name of her husband. The Jerusalem Restaurant business itself was operated by a different company, Haifa Pty Ltd (“Haifa”).
Over the years the family prospered and was able to acquire a considerable amount of real property. Ballsam is registered proprietor of two buildings in Hindley Street, including the building from which the Jerusalem Restaurant is conducted. It owns a property at Coromandel East and was formerly the registered proprietor of the residential property at Woodville. The value of the three properties owned by Ballsam, together with the property at Woodville, is approximately $2.8 million.
The plaintiff and her husband are beneficiaries of the Trust. It is clear that the Trust has significant assets. Ballsam receives income by way of the rent paid by Haifa in respect of the properties in Hindley Street.
During the period that the plaintiff was a director of Ballsam it transacted quite a few financial transactions, including the acquisition of the abovementioned properties and the borrowing of monies and granting of mortgages on a number of occasions in respect to each of the properties.
On 21 May 2003 Ballsam transferred the Woodville property to the plaintiff and her husband. At that time, as mentioned, the property was unencumbered and it remained so until the transaction under consideration was entered into on 7 September 2007. In the months prior to the subject transaction the plaintiff’s husband entered into a number of smaller loans with the first defendant. Those loans were secured against property owned by Ballsam. There was separate litigation in respect of those transactions which settled. The loan under consideration was in the amount of $300,000, with a monthly interest payment equivalent to 5 per cent. Therefore, an annualised rate of 60 per cent.
One unusual aspect of the trial of this action is that most of the principal actors have not given evidence. The plaintiff's husband went overseas to Jordan in 2009. He has not returned to Australia since that time. There is no suggestion that the marriage has come to an end and it seems that the husband is, from time to time, in telephone contact with his wife and other family members. He was the person who sought the subject loan. The purposes of the loan and what became of the monies the subject of the loan are less than clear. He did not return to Australia to give evidence at the trial. There is no explanation in respect of that. The oral evidence was from the plaintiff, her son and grandson. An accountant was also called by the plaintiff.
The second defendant was the person who negotiated the transaction on behalf of the first defendant. At the time of the trial he was seriously ill and unable to give evidence. A medical certificate was provided. He was offered an adjournment by the Court to a time at which he would be able to give evidence. He declined the offer of an adjournment. In the result, the defendants called no oral evidence. Much about the circumstances of the negotiation of the loan, its purpose and details in respect to the fate of the funds, remains unclear. There is simply no evidence before the Court.
Circumstances of the transaction
On 7 September 2007 the plaintiff's husband requested that she attend a meeting with him to sign some documents. She had had no previous information about the facts and circumstances of the transaction. They drove together to the offices of a solicitor acting for the first defendant. Present at the meeting was the second defendant and the solicitor. Also present was a man called Yousef Jelil (“Jelil”) who was involved, it seems, in a business transaction with the plaintiff's husband. The plaintiff had met Jelil previously. She had not previously met the second defendant, nor the solicitor. It was contended by the defendants that there was no evidence that the second defendant was at the meeting. I find that he was.
At the meeting the plaintiff was dressed in traditional Arab dress. She was wearing a hijab. It seems the defendants’ solicitor conducted the meeting. He was not called to give evidence. No person other than the plaintiff has given evidence about the circumstances of entering into the transaction.
At the meeting the plaintiff says she was directed in Arabic by her husband to sign the documents. By that, she meant that her husband pointed out where she had to sign the documents. She says that she asked her husband why she was signing and her husband told her that they were borrowing $300,000 for one month in relation to assisting Jelil with a business proposition. The plaintiff says that is the only explanation of the transaction she ever received. None of the details of the loan agreement or mortgage were explained to her by anyone at the meeting. She was not able to read the documents, as she is unable to read English. She says she was unaware she was mortgaging the family home.
The terms of the transaction were that the plaintiff and her husband were borrowing the sum of $300,000 secured by a mortgage on the property. As mentioned above, the interest rate was 5 per cent per month. The minimum monthly payment was $15,000. The plaintiff gave evidence that she did not know what interest, if any, applied to the loan. The plaintiff felt pressure to sign documents when requested by her husband. Her evidence was that in her culture she is required to comply with her husband’s requests in respect of business matters.
The evidence shows that, after the loan and mortgage documents were executed, the sum of $257,983.20 was paid to Ballsam. Why that sum was paid, rather than the full sum of $300,000, is not immediately apparent from the evidence. Nor is it clear why the money was paid to Ballsam. What ultimately became of the monies advanced is not clear.
The plaintiff says she was given no explanation as to the nature and effect of the transaction on the occasion of signing the documents. As mentioned, the defendants have called no oral evidence.
In early 2008 the plaintiff and her husband refinanced the loan with a company known as Ezy Mortgage. A loan was taken out in the amount of $356,000 and a further mortgage was registered over the property to secure that loan. The Ezy Mortgage transaction is a much more standard transaction on terms more favourable to the borrowers. The Ezy Mortgage loan monies were used to discharge the debt owing to the first defendant.
The plaintiff is on the age pension. She, together with other family members, continue to make monthly payments in respect of the Ezy Mortgage loan.
The defendants submit that I should not accept much of the evidence given by the plaintiff. It is true that from time to time in her evidence she became confused about dates and the circumstances where she came to execute the loan in respect of Ezy Mortgage. Her recollection was not perfect. In part this is explained by the fact that the plaintiff had a stroke in 2014. She says that her memory is affected. Overall, however, I accept the evidence of the plaintiff. I think she was doing the best that she could to remember circumstances from a considerable time ago. I accept her evidence in respect of the critical meeting where the subject documents were signed and also her evidence about the circumstances prior to that meeting. No oral evidence was given to contradict anything said by the plaintiff in that respect.
Three other witnesses gave evidence for the plaintiff. I accept their evidence. Much of the evidence, however, was not directly relevant to the question of whether or not the circumstances of the transaction make it unconscionable for the first defendant to maintain it was entitled to rely on the contract of loan and the mortgage.
Legal issues raised by the plaintiff
The plaintiff seeks relief primarily on the ground of unconscionability. She asserts that a right to relief arises under the Trade Practices Act 1974 (Cth) (“the TPA”), the Australian Securities and Investments Commission Act 2001 (Cth) (“the ASIC Act”) and in equity. Separately, she says she had an entitlement to rescind the transaction under Chapter 7 of the Corporations Act 2001 (Cth) which deals with financial services.
Rescission of loan agreement
The plaintiff pleads that she rescinded the loan agreement with the defendant on 5 August 2013 by way of issuing a Notice of Rescission pursuant to s 925A of the Corporations Act. A declaration is sought to the effect that the loan agreement was lawfully rescinded. It is a little difficult to understand where this goes. First, the agreement on its terms was brought to an end in early 2008 when the loan was repaid and the mortgage discharged. The effect of a purported rescission five years later is not clear. At common law, at least, when rescinding an agreement it would ordinarily be necessary to make restitution.[1] When the loan has been repaid, it is hard to understand what is achieved by the purported rescission. Other than a declaration, no relief is sought in respect of the purported rescission.
[1] Alati v Kruger (1955) 94 CLR 216.
To understand s 925A of the Corporations Act it is necessary to have regard to Chapter 7 of the Corporations Act, which deals with financial services and markets. The legislation creates an obligation for persons who provide financial services to be licensed. A person provides a financial service if they deal in a financial product.[2] The plaintiff says that the first defendant was required to have a financial services licence in 2007 and was not so licensed. The first defendant accepts it did not have a licence, but said it did not need to be licensed.
[2] Section 766A(1) of the Corporations Act 2001.
At the relevant time the Corporations Act provided for specific things that were not financial products.[3] One thing that was not a financial product for the purposes of the Corporations Act was a credit facility within the meaning of the regulations. What the regulations provided was that a credit facility was not a financial product for the purpose of the Corporations Act unless it is specifically referred to in s 763A or s 764A.[4] Likewise, the taking of the mortgage that secures obligations under a credit contract was also not a financial product for the purpose of the Corporations Act.[5] The transaction in question here is not of a type referred to in s 763A or s 764A.
[3] Section 765A(1).
[4] Regulation 7.1.06(1)(a).
[5] Regulation 7.1.06(1)(f).
The position is that the credit facility offered by the first defendant to the plaintiff and her husband was not relevantly a financial product, as it falls within the specified transactions excluded by regulation from the definition of “financial product”. It follows, therefore, that the first defendant was not providing a financial service and, as such, did not require a financial services licence. The purported rescission is of no effect, as Chapter 7 of the Corporations Act had no application to the transaction in question.
Unconscionable conduct
The principal allegation of the plaintiff is that the circumstances surrounding the execution of the loan and mortgage make it unconscionable for the first defendant to rely on the transaction. The unconscionability is pleaded as arising both under statute and also in equity. To the extent that the claim is based in statute, it is said to arise pursuant to s 51AC of the TPA and also pursuant to ss 12CA and 12CB of the ASIC Act. It is not always simple to determine whether it is the TPA or the ASIC Act which is applicable to a particular transaction.
In Wingecarribee Shire Council v Lehman Brothers Australia Ltd (in liq)[6] Rares J was considering aspects of the TPA, the Corporations Act and the ASIC Act with respect to an allegation of misleading and deceptive conduct. His Honour said:
[6] [2012] FCA 1028.
947.The Councils relied on the various statutory provisions prohibiting corporations from engaging in misleading or deceptive conduct. For many years all one had to know was that the elegantly simple s 52(1) of the Trade Practices Act 1974 (Cth) prohibited a corporation from engaging in conduct, in trade or commerce, that was misleading or deceptive or likely to mislead or deceive. For some purpose that is not evident the Parliament decided to remove elegant simplicity in its statutory drafting some years ago. Now the community and the Courts must grapple with a labyrinth of statutes, all prohibiting such conduct, in relatively general fields (such as s 18 of Sch 2 of the Competition and Consumer Act 2010 (Cth) and see s 131A of that Act itself) and also in particular fields, such as s 1041H(1) of the Corporations Act and s 12DA(1) of the ASIC Act. The latter two provisions state:
“1041H(1)A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive.
12DA(1)A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.” (emphasis added)
948.Of course, each Act has a myriad of complex definitions of what is a financial product or a financial service or are financial services. Each Act gives a person, who suffers loss or damage by conduct of another in contravention of the prohibition, the right to compensation (e.g. s 1041I(1), s 12GF) coupled with substantively identical related exceptions and qualifications concerning proportionate liability. Since the end result of this legislative morass seems to be the same, it is difficult to discern why the public, their lawyers (if they can afford them) and the Courts must waste their time turning up and construing which of these statutes applies to the particular circumstance. Here, should it make any difference whether Grange was alleged to have engaged in conduct in relation to “financial services” (s 12DA(1)) or “a financial product or a financial service” (s 1041H(1))? Why is there a difference? Why does a court have to waste its time wading through this legislative porridge to work out which one or ones of these provisions apply even though it is likely that the end result will be the same? As Edmund Davies LJ lamented in The “Putbus” [1969] P 136 at 152:
“Were bewilderment the legitimate aim of statutes, the Merchant Shipping (Liability of Shipowners and Others) Act, 1958, would clearly be entitled to a high award. Indeed, the deep gloom which its tortuousities induced in me has been lifted only by the happy discovery that my attempt to construe them has led me to the same conclusion as my brethren.”
The same comments are applicable to attempts to determine which of the TPA or the ASIC Act apply on the facts of this matter.
However, in my opinion, it is the provisions of the ASIC Act that are the relevant statutory provisions in respect of this claim. In 1998 s 51AAB of the then TPA provided that ss 51AA and 51AB did not apply to conduct in relation to the supply or possible supply of financial services. The latter two sections were the provisions applicable at the time of the subject transaction that dealt with the topic of unconscionable conduct. It was the intention of Parliament that unconscionable conduct in respect of financial services would be subject to the provisions of the ASIC Act, which are substantially in the same form as the provisions in the TPA.

For present purposes I proceed on the basis that we are dealing with the relevant provisions of the ASIC Act. All parties accepted that the ASIC Act provision applied to the subject transaction.
The applicable statutory provision is s 12CB of the ASIC Act. Section 12CA is an alternative provision, but does not apply where s 12CB applies. It is the provision in s 12CB that is applicable, because we are dealing with the supply of financial services to a person at the time of the transaction. The section in 2007 provided as follows:
12CB               (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.
12CB        (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.
If a party establishes a contravention of s 12CB, the provisions of s 12 GF and s 12GM become applicable. Relevantly, they provide:
12GF        (1)     [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.
12GF        (1A) [Application]      Subsection (1) has effect subject to section 12GNA.
Note:               Section 12GNA may limit the amount that the person may recover for a contravention of section 12DA (Misleading or deceptive conduct) from the other person or from another person involved in the contravention.
12GF (1B) [Proportionate liability]               Despite subsection (1), if:
(a)    a person (the claimant) makes a claim under subsection (1) in relation to:
(i)economic loss; or
(ii)damage to property;
caused by conduct of another person (the defendant) that was done in contravention of section 12DA; and
(b)    the claimant suffered the loss or damage:
(i)as a result partly of the claimant’s failure to take reasonable care; and
(ii)as a result partly of the conduct referred to in paragraph (a); and
(c)    the defendant:
(i)did not intend to cause the loss or damage; and
(ii)did not fraudulently cause the loss or damage;
the damages that the claimant may recover in relation to the loss or damage are to be reduced to the extent to which the court thinks just and equitable having regard to the claimant’s share in the responsibility for the loss or damage.
…
12GM       (1)     [Compensation] Without limiting the generality of section 12GD, if, in a proceeding instituted under, or for an offence against, this Division, the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in in contravention of a provision of this Division, the Court may, whether or not it grants an injunction under section 12GD or makes an order under section 12GF, 12GLA or 12GLB, make such order or orders as it thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (7) of this section) if the Court considers that the order or orders concerned will compensate the first-mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage.
12GM       (2)     [Orders court may make]    Without limiting the generality of section 12GD, the Court may, on the application of:
(a)    a person who has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in in contravention of a provision of this Division; or
(b)    ASIC in accordance with subsection (3) on behalf of such a person or persons;
make such order or orders as the Court thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (7)) if the Court considers that the order or orders concerned will:
(c)    compensate the person who made the application, or the person or any of the persons on whose behalf the application was made, in whole or in part for the loss or damage; or
(d)    prevent or reduce the loss or damaged suffered, or likely to be suffered, by such a person or persons.
The correct approach to the application of s 12CB was considered in Investec Bank v Naude where McDougall J said: [7]
52.The approach to be taken, in relation to legislation that is not distinguishable in any significant way from s 12CB (namely, s 62B of the Retail Leases Act 1994(NSW)), has been described recently in a decision of the Court of Appeal, PT Ltd v Spuds Surf Chatswood Pty Ltd [2013] NSWCA 446. Sackville AJA, with whom McColl and Leeming JJA agreed, dealt with the statutory concept of unconscionability from [93] to [116]. I take from the way in which his Honour dealt with the question the following approach.
53.First, the court should apply the language of the statute rather than substitute for the statutory language some supposedly equivalent verbal formulation.
54.Secondly, the court should pay due regard to the remedial and beneficial objects of the legislation.
55.Thirdly, (and in this respect I do not accept the submission to the contrary put by Mr Bender), the court is not constrained by the general equitable concept of unconscionability: specifically, its focus on special disadvantage in one party and the actions of another in knowingly taking advantage of that special disability.
56.Fourthly, the court is to take into account the norms from time to time of the society in which the statutory prohibition operates, in deciding whether or not conduct is to be characterised as unconscionable.
57.Fifthly, the court must consider, to the extent that they are relevant, the non-exhaustive and non-prescriptive factors set out in s 12CC(1) of the ASIC Act.
[7] [2014] NSWSC 165.
Separately from the statutory provision, the plaintiff relies on the law of equity in respect to unconscionable conduct. In the submissions at the end of the trial the primary focus of the plaintiff was on equity and the relief available in equity.
The main proposition put by the plaintiff is that the first defendant unconscientiously took advantage of the situation, to obtain the relevant contract of loan. The starting point in respect of consideration of that issue is the case Blomley v Ryan, in particular the statement of Kitto J, when discussing the equity: [8]
It applies whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands.
In the same matter Fullagar J said:[9]
The circumstances adversely affecting a party, which may induce a court of equity either to refuse its aid or to set a transaction aside, are of great variety and can hardly be satisfactorily classified. Among them are poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary.
[8] (1956) 99 CLR 362 at 415.
[9] (1956) 99 CLR 362 at 405.
To like effect are the comments of Rich J in Wilton v Farnworth where he said: [10]
But the jurisdiction of courts of equity is based upon unconscientious dealing. It has always been considered unconscientious to retain the advantage of a voluntary disposition of a large amount of property improvidently made by an alleged donor who did not understand the nature of the transaction and lacked information of material facts such as the nature and extent of the property particularly if made in favour of a donee possessing greater information who nevertheless withheld the facts.
[10] (1948) 76 CLR 646 at 655.
A more contemporary consideration of the requisite elements in respect of unconscionable conduct is contained in ACCC v C G Berbatis Holdings Pty Ltd where Kirby J said:[11]
The elements of a party's disadvantage and its ability to assess its interests and options before entering into a transaction are not purely abstract notions. The foregoing characterisation provides a proper reference point by which the question of the weaker party's ability to make an appropriate judgment about its choices and the conservation of its own interests can be determined. It also explains three aspects of the equitable doctrine. First, the fact that the categories of "special disadvantage" could never be stated exhaustively. Secondly, that the mere presence of disadvantage is not sufficient to obtain relief. And thirdly, following from these, that in characterising the conduct of the stronger party, the circumstances in which the contract was made are relevant to determine whether the assent to any aspect of the bargain was obtained somehow "in the dark"[12]. As Deane J observed in Amadio[13]:
"Unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so."
[11] (2003) 214 CLR 51 at [99].
[12] Filmer v Gott (1774) 4 Brown 230 at 241 [2 ER 156 at 164].
[13] (1983) 151 CLR 447 at 474.
Plainly enough, and relevantly here, a party can avoid any suggestion of unconscientious taking of advantage quite simply. As was said by the High Court in Garcia v National Australia Bank Ltd:[14]
As is apparent from what was said in Yerkey v Jones the creditor may readily avoid the possibility that the surety will later claim not to have understood the purport and effect of the transaction that is proposed. If the creditor itself explains the transaction sufficiently, or knows that the surety has received "competent, independent and disinterested"[15] advice from a third party, it would not be unconscionable for the creditor to enforce it against the surety even though the surety is a volunteer and it later emerges that the surety claims to have been mistaken.
[14] (1998) 194 CLR 395.
[15] Yerkey v Jones (1939) 63 CLR 649 at 686, per Dixon J.
Two other issues seem to me to arise in the circumstances of this case. The first is whether the plaintiff can be said to be a volunteer. The question was considered in Elkofairi v Permanent Trustee Co Ltd where Santo JA said: [16]
Thus when it came to apply the principles articulated by Dixon J in Yerkey v Jones,[17] as applied by Garcia v National Australia Bank Ltd,[18] that doctrine (at 408) “begins with the recognition that the surety is a volunteer: A person who obtains no financial benefit from that transaction, performance of the obligations of which she agreed to guarantee”. In the present case, relief purely under Yerkey v Jones principles would therefore involve their extension in two respects. First to a transaction where the wife was a volunteer only as to part. Second, to a transaction not framed as a guarantee. The latter point seems in argument to have been subsumed in the first. It was not as such part of the reasoning of the trial judge. Because relief is available under the wider doctrine of unconscionability, for the reasons stated by Beazley JA, it has not been necessary to consider whether the form of the transaction should matter. Here the lender lends under a transaction where the money is intended to go to the husband, though framed in terms rendering husband and wife jointly liable as co-principals. Such a situation may, in the eye of equity, involve a transaction of guarantee or, as sometimes described, constructive suretyship.
[16] [2002] NSWCA 413 at [92].
[17] (1936) 63 CLR 649.
[18] (1998) 194 CLR 395.
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.
The second issue relates to the question of causation. There was some evidence given by the plaintiff that, for cultural reasons, she felt obliged to comply with her husband’s request to sign business documents when he required her to do so. The defendants rely on this proposition to say that nothing that they did or failed to do caused the plaintiff to enter into the transaction. They say there is simply no causal link.
Common law concepts of causation have a limited role to play in equity. What is being undertaken here is an inquiry into the conduct of the defendants, not the conduct of the plaintiff. In National Australia Bank Ltd v Savage Adamson J was dealing with the question of causation in equity. His Honour said: [19]
The Yerkey v Jones[20] equity is concerned with the conscience of the lender, not the reasonableness of the surety, or what the surety would have done had the lender not behaved unconscionably. Mrs Savage, as surety, is bound by a transaction in respect of which she is a volunteer if she understands its nature and effect or the Bank has taken steps to explain it to her or have a third party explain it to her. If she does not understand the transaction and the Bank has not taken steps to explain it to her or to have a third party do so, equity will relieve her of her obligations under the transaction by setting aside the transaction. Whether she would have entered into the transaction in any event is, in my view, immaterial to the equity. It is not to the point that she would have signed the Guarantee irrespective of what the Bank or Mr Niven had told her. Such matters are germane to the recovery of damages in tort or contract, but not to this form of equitable relief: see, by analogy, Maguire v Makaronis.[21]
[19] [2013] NSWSC 1718 at [101].
[20] (1936) 63 CLR 649.
[21] [1997] HCA 23; (1997) 188 CLR 449 at 467 per Brennan CJ, Gaudron, McHugh and Gummow Jelil.
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 claim against the second defendant
The second defendant was the director of the first defendant. The transaction in question was a contract of loan entered into between the plaintiff, her husband and the first defendant. It is that transaction which is impugned.
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.
There appears to be no definition of what is required for a person to be involved in a contravention of the relevant provisions of the ASIC Act. The Corporations Act provides no definition in respect of a person being involved in a contravention. There is such a definition in s 75B of the TPA. In respect of that provision, the High Court in Yorke v Lucas in the majority judgment said: [22]
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. … 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.
[22] (1985) 158 CLR 661 at 670.
In my opinion, the approach of the High Court in Yorke v Lucas would inform a decision as to whether a person was involved in a contravention for the purposes of the ASIC Act.
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.
Remedy
In the circumstances, the conduct of the first defendant was unconscionable, whether one has regard to the provisions in equity or pursuant to s 12CB of the ASIC Act. Accordingly, therefore, the plaintiff succeeds in respect of liability.
The position of remedy is not straightforward. Ordinarily, a person who complained that the enforcement of a contractual provision against them was unconscionable would seek an order or declaration that the transaction was unenforceable against them. The usual remedy in respect of an impugned contract would be to avoid it.

The complicating factor here is that the plaintiff entered into a further transaction with a different financier a number of months later and repaid to the first defendant the monies owing to it. At the trial some submissions were made about what remedy might be applicable. From the plaintiff’s point of view, a number of scenarios by which compensation in equity or damages pursuant to the ASIC Act should be calculated were proposed.
In my opinion, a number of issues in respect of remedy have not yet been considered by the parties.
The first is that there is no suggestion that, as between the first defendant and the plaintiff’s husband, the transaction was other than completely valid. A joint tenant may mortgage his interest in land. Such a mortgage in respect of Torrens Title land is no more than a charge on the land and does not affect a severance of the joint tenancy.[23] That logically means that, if the plaintiff’s husband pre-deceased her, the land would have become unencumbered. The mortgage registered by the first defendant over the property was properly registered and enforceable at least in respect of the husband’s interest in the property. The question of damages, therefore, must be limited by the plaintiff’s partial interest in the property.
[23] Lyons v Lyons [1967] VR 169.
The second issue is whether the act of the plaintiff in entering into a further transaction with a different financier and repaying to the first defendant the monies borrowed from it could be said to be an act of affirming the contract with the first defendant, thus eliminating any entitlement to avoid the contract.[24] If by the act of repaying the monies to the defendant the plaintiff has affirmed the contract, I wish to hear the parties on whether that has any effect in respect of what, if any, remedy is appropriate.
[24] Khoury v Government Insurance Office of New South Wales (1984) 165 CLR 622 at 633.
What has occurred is simply that the plaintiff was a joint borrower of money secured over her property. She and her husband repaid the money months later. About five years after the repayment of the loan these proceedings were commenced. It was apparent from the evidence that the reason the proceedings were commenced was because the family was not happy with the settlement terms reached in the other litigation between Ballsam and the first defendant. These proceedings are an attempt to recover monies paid to the first defendant to secure the release of mortgages over various Ballsam properties. Nonetheless, the contract of loan between the plaintiff and the first defendant was obtained in unconscionable circumstances and must provide some entitlement to the plaintiff. I wish to hear the parties further in respect of the principles applicable to assessing what compensation in equity or damages pursuant to the ASIC Act might be awarded to the plaintiff.
I will hear the parties further on the question of the appropriate orders to make in the circumstances.