Yakiti Pty Ltd v MacDonald

1. [1]

   In the latter half of 2015, a group of companies known as the Henley Group were operating nine Snap Fitness gyms across Sydney in various locations. Kate MacDonald (“the defendant” or “cross-claimant”) was a lawyer who commenced working for the Henley Group in about September 2015. The Henley Group and the nine Snap Fitness gyms were at that stage being managed, or perhaps more correctly mismanaged, by Jake Henley.

2. [2]

   The businesses were losing money and Ms MacDonald lent Mr Henley something in the order of $242,000 between January and June 2016. [1] In June 2016, Mr Henley requested a further sum of $400,000 from Ms MacDonald. [2] It was in that context that Ms MacDonald came to borrow a sum of $353,300 from Yakiti Pty Ltd (“Yakiti” or “the Plaintiff” or “the first cross-defendant”), a company owned and operated by Babak Moini (“the second cross-defendant”). A further amount of $103,300 was borrowed in August 2016. Those loans, unlike the loans between Ms MacDonald and Mr Henley or the Henley Group, were secured by registered mortgages. There were two registered mortgages. [3]

3. [3]

   By the time of the loans between the plaintiff and Ms MacDonald, the Henley Group was in serious financial trouble and losing money hand over fist. Whilst some of the gyms were more profitable, or less unprofitable, than others, as a group the company was accumulating debt rapidly. The debt was particularly in the form of rent on its various premises, equipment hire and a variety of other expenses including staff.

4. [4]

   Mr Moini was – and, as he volunteered in evidence, is - a highly successful businessman and he came into contact with Mr Henley in the course of their doing business together. Mr Moini had engaged one of the corporate entities controlled by Mr Henley to fit out a number of Cloud 9 Chocolate Cafés. [4]

5. [5]

   Mr Moini also became involved, along with other associates, in the attempt to resurrect the Snap Fitness business and franchises. Unlike Ms MacDonald, Mr Moini did not leave himself particularly exposed.

6. [6]

   Over the coming months an attempt was made by Mr Moini, Ms MacDonald and others to take over the Snap Fitness franchises. It was obviously their individual and mutual hope that by saving the franchises they would recover their investments, and ultimately turn a profit and make a great deal of money.

7. [7]

   The money Ms MacDonald borrowed from Yakiti has never been repaid. As a result, in June 2017, Yakiti commenced proceedings against Ms MacDonald. [5] It sought possession of the two parcels of land subject of the mortgages and leave to issue writs of possession. It also sought repayment of the sums borrowed on the two loan agreements ($353,300 in July 2016 and $103,300 in August 2016) [6] together with interest.

8. [8]

   Ms MacDonald accepts that she has not repaid the money and ordinarily could not resist judgment in favour of the plaintiff. However, by her defence and cross-claim she asserts that in the period after the money was advanced by Yakiti, Ms MacDonald, Mr Moini, Kon Prin (“the third cross-defendant”) and Mr Henley came to a legally binding agreement by which they were to take over the Snap Fitness gyms and the debt she owed Yakiti was subsumed within that agreement. She asserts that Mr Moini and the others breached that contract and deliberately cut her out of the deal. In addition to the alleged breach of contract she asserts that the cross-defendants acted unconscionably, relying on the provisions of the Australian Securities and Investment Commission Act 2001 (Cth) (“ASIC Act”) and the unwritten (common) law. The basis of the claim of unconscionable conduct is that the cross-defendants cut Ms MacDonald out of the deal, and acted to enforce the mortgages against her, at the time when she was hospitalised and particularly vulnerable and thereby at a special disadvantage.

9. [9]

   Yakiti, Mr Moini and Mr Prin deny the existence of any such agreement and the asserted breach of contract. They also deny the allegation that they acted unconscionably in the course of the provision of a financial service (or, otherwise). They say that, while there were discussions and correspondence in an attempt to reach agreement between Mr Moini, Ms MacDonald and Mr Prin, the negotiations did not reach the stage where legally binding contractual relations were formed. In short, they say the final details of that agreement were never reached and no binding contract was formed. In so far as any “in principle” agreement was reached, it involved Ms MacDonald advancing a further sum of around $330,000, something that she never did in spite of her promises to do so. They say it was necessary to act quickly as the companies and the gyms were rapidly getting to the point where they would be beyond saving. Accordingly, they submit that the cross-claim brought by Ms MacDonald should be dismissed and seek judgment in their favour for the amount of the loans plus interest and an order for possession of the land subject of the mortgages.

10. [10]

    The plaintiff and cross-defendants position is correct and they are entitled to judgment on the statement of claim and cross-claim. There will be judgment in the sum of the loan together with interest in the plaintiff’s favour and an order for possession of the land subject of the mortgages.

11. [11]

    The pleadings are in something of a mess. There have been multiple amendments to the defence and cross-claim.

Proposed fourth amended cross-claim

1. [12]

   Prior to the hearing, the most recent amendment to the pleadings was made on 14 December 2018. On that date, by notice of motion handed up in Court, Ms MacDonald sought leave to file a “fourth further amended cross-claim”. [7] The application was dealt with by Davies J who summarised the history of the cross-claim at [25]:

2. [13]

   Davies J set out the proposed amendments to the fourth amended cross-claim at [14]-[16]:

3. [14]

   Davies J noted at [17] that “no objection was taken to the proposed amendments referred to in (a) and (c) above” (italicised in [13] above). His Honour refused leave to make most of these amendments, describing Ms MacDonald (at [34]) as being “almost completely unsuccessful in seeking to amend”. The following orders were made:

4. [15]

   His Honour made the following observations as to the cross-claimant’s conduct of the litigation to that point at [31]-[34]:

A further proposed amendment

1. [16]

   After the evidence and cross-examination had concluded, and part way through the hearing of submissions, Ms MacDonald made yet another application to amend the cross-claim. The evidence concluded on 18 February 2019 and counsel for the cross-claimant made their submissions on 19 February 2019. The matter was adjourned until 9 April 2019. This was partway through the cross-defendants’ submissions. It was then that Ms MacDonald sought to make further amendments to the cross-claim.

2. [17]

   On 5 April 2019 counsel for the cross-claimant sent an email to my Associate enclosing a “notice of motion filed on 28 March 2019”. If that document was filed in the Registry, it did not find its way onto the file. Further, I was told by counsel that the wrong version of the proposed “FOURTH FURTHER AMENDED FIRST CROSS-CLAIM STATEMENT OF CROSS CLAIM” was filed with the notice of motion, but the correct version was included with the email. [8]

3. [18]

   The further amendment was opposed and submissions on the issue were heard on the final day of the hearing. The amendment sought to include the words “regardless of whether the October Agreement had been formed” in two places in the pleadings, as follows:

4. [19]

   The amendment would allow the argument that, regardless of whether a legally binding contract was formed between the parties, the cross-defendants acted unconscionably in not including Ms MacDonald in the takeover and by enforcing the mortgages. It was submitted: [9]

5. [20]

   It was also submitted that the amendment to the pleading did little more than bring the pleadings in line with the way the case was conducted. [10] This was disputed. [11] Counsel for the cross-defendants provided a number of examples of the way in which he might have conducted the case differently had the cross-claim plainly stated the unconscionability claim was not predicated on the existence of a binding agreement in October or November.

6. [21]

   I am not convinced that the proposed amendment to the pleading is critical to the viability and success of the unconscionability claim. In other words, in spite of the earnest and spirited debate about whether the amendment should be allowed, I do not think the amendment would affect the outcome of the case. That is because the cross-claim, as it stood after the decision of Davies J, in December 2018 was not predicated in terms on the existence of a binding and final agreement. The October 2016 agreement is referred to on several occasions, and the cross-claimant’s case on unconscionability relies on the negotiations in late October and early November 2016 and on representations made by the cross-defendants which were said to “affirm the October 2016 agreement”. But, in my view, the unconscionability claim would not fail merely on the basis that the Court found there was no final and legally binding contract. If the parties were close to agreement, and the cross-defendants cut Ms MacDonald out of the deal and enforced the mortgages against her while she was in hospital – and if such conduct was unconscionable in the circumstances – Ms MacDonald would be entitled to succeed in her claim under the ASIC Act based on the pleadings as they stand.

7. [22]

   On one view, that means that the amendment to the cross-claim merely brings the pleadings in line with the case as it was argued and that there is no real prejudice to the cross-defendants. However, the dilatory conduct of this litigation and the delay in raising this proposed amendment is so extreme, coming as it does part way through the closing submissions and after four days of evidence, that I would refuse leave to rely on the amendment. As I say, this refusal would not impact the outcome of the case as I have analysed the evidence. However, another Court may take a different view and it would be unfair, in light of the history of this case, to prevent the cross-defendants from conducting their case in the way that counsel indicated he would have had he been aware of the proposed amendment.

8. [23]

   The application for leave to amend is refused.

9. [24]

   On 26 October 2016, Ms MacDonald, Mr Henley and Mr Moini met at the Ovolo Hotel in Woolloomooloo to discuss the Henley Group. In an effort to save the gym businesses and to preserve the monies they had invested, it was proposed that the contributions made by the various parties to the Henley Group would be reconciled and converted to equity. [12]

10. [25]

    Following the meeting, Mr Moini sent an email to his solicitor and Ms MacDonald which indicated that the parties had engaged in preliminary discussions about the proposed take-over and subsequent sale of the nine Snap Fitness gyms:

11. [26]

    Ms MacDonald says that she met with Mr Moini, Mr Henley and Mr Prin on 31 October 2016 to continue discussing the proposed takeover of the gyms. Mr Prin and Mr Moini disputed Mr Prin’s attendance at this meeting. [14] Whether he was or was not in attendance is not a matter of great moment in reaching the conclusions that I have. Initially, counsel for Ms MacDonald maintained that her client’s version should be accepted but she later submitted “Mr Prin wasn’t at the meeting.” [15] Further, she implicitly conceded in closing submissions that Mr Prin may not have been at the meeting by submitting “after that meeting, Mr Moini reported to Mr Prin what had happened”. [16]

12. [27]

    Ms MacDonald’s case is that, while the agreement may not have “crystallised exactly” on 31 October 2016, [17] on or around that date she entered into a legally binding agreement with Mr Moini, Mr Henley and Mr Prin relating to the acquisition of the Henley Group’s gyms and related assets. This was referred to throughout the proceedings as the “October Agreement”. The terms of the October Agreement were said to be contained in an email sent by Ms MacDonald at 4:20pm on 31 October 2016 and, in most respects, form the basis of the pleadings. At 4:35pm, Mr Moini forwarded Ms Macdonald’s email to the other parties with his own underlined observations:

13. [28]

    In accordance with the first paragraph of the email, Ms MacDonald’s understanding was that she was to contribute a further $330,000 and the other partners were to contribute a further $220,000. [19] However, at 4:36pm, Mr Moini emailed his solicitor in the following terms:

14. [29]

    At 4:39pm, Ms MacDonald advised that she would “tally up my contributions to the nearest dollar so we know how much precisely is required to balance with yourself and Kon”. [21]

15. [30]

    Ms MacDonald said that around this time her “health was deteriorating” and she “started to come up with ways to protect my loans and restructure my investment”. [22] She acknowledged that the operation of the Henley Group (certainly the Snap Fitness franchises) was on a “knife edge” because, in all likelihood, landlords were hours or days away from locking out the Henley companies from some sites. [23]

16. [31]

    On 1 November 2016 Ms MacDonald provided details of her contributions to Mr Prin and Mr Moini, which amounted to $944,380. [24] Mr Prin was delegated the responsibility of reconciling each party’s contributions to the Henley Group and running Mr Moini through the final calculations once they had been completed. [25] Ms MacDonald said that she met Mr Prin on the same day and they were “undertaking the reconciliation”. [26]

17. [32]

    On 3 November 2016 at 11:16am Mr Henley sent an email to Mr Moini and Ms MacDonald, with Mr Prin copied in, which referred to the further funds required of Ms MacDonald, and provided an update as to the status of the nine Snap Fitness gyms:

18. [33]

    At 11:19am, Mr Moini replied (to all) by email and identified various “urgent” matters to be attended to, finalised and agreed upon by the parties:

19. [34]

    Later that afternoon, at 3:01pm, Mr Prin circulated a reconciliation spreadsheet (“reconciliation 1”). [29] Reconciliation 1 treated the loans from Yakiti to Ms MacDonald as contributions by both her and Mr Moini to the Henley Group. Those contributions, the source of which were the loans from Yakiti secured by registered mortgages over Ms MacDonald’s Woolloomooloo properties were included in both ledgers. Mr Prin gave evidence that reconciliation 1:

20. [35]

    Ms MacDonald gave evidence that she met with Mr Prin that day to discuss the reconciliations. She said Mr Prin told her that the loans from Yakiti were to be treated as her contributions to the Henley Group. [31] At around 3:34pm, Ms MacDonald circulated an updated reconciliation spreadsheet (“reconciliation 2”) which removed reference to these contributions from Mr Moini’s ledger. [32] Ms MacDonald did not raise any concerns with the other parties regarding the suggestion that she was required to provide further funds. Further, the placement of these contributions in Ms MacDonald’s column of the reconciliation suggests that the loan arrangement between her and Yakiti remained extant.

21. [36]

    At 3:51pm, Mr Henley sent an email to the parties requesting $148,296.32 to pay “urgent” outstanding invoices. [33] At 3:52pm, Mr Moini asked Ms MacDonald if she could “pay these once your money is cleared tomorrow” and asked Mr Prin to update the reconciliation schedule. [34] At 3:59pm Ms MacDonald advised that it was more likely that “my monies” would “clear Monday or over the weekend” and that she would “keep checking for cleared funds”. [35] Ms MacDonald gave evidence that the monies were in a bank account controlled by her aunt and that she had asked her aunt to obtain “special clearance” for the $300,000. [36]

22. [37]

    At 4:04pm, Mr Prin circulated a third reconciliation (“reconciliation 3”) which included Mr Moini’s contribution of funds towards the rent of the Snap Fitness gym at Surry Hills. [37] The updated contributions were recorded as follows: “Kate: $944,380 (42.27%), Babak: $619,616 (27.74%) and Kon: $670,000 (29.99%)”. [38] Included in “Kate’s” contribution was the money borrowed from Yakiti and secured by mortgage.

23. [38]

    At 4:13pm, Mr Henley asked Ms MacDonald, Mr Moini and Mr Prin to make arrangements for the funds to be made available as a matter of urgency. Mr Moini replied at 4:16pm and recommended that Mr Henley “wait to see if Kate’s money has cleared by tomorrow am”. [39] Mr Moini further advised that “as it stands, Kon and I have deposited $345k more than Kate.” [40] Ms MacDonald replied to the email chain and stated that it is likely she will have $300,000 clearing “hopefully tomorrow more likely Monday”. [41] Again, Ms MacDonald did not dispute the suggestion that she needed to contribute further funds. She gave evidence that she was “very ill” and “wasn’t drafting very long emails at that point in time. It was the day before I went to hospital and didn’t come out for six weeks”. [42]

24. [39]

    The next day, 4 November 2016, Ms MacDonald was admitted to hospital. [43] Notwithstanding her hospitalisation, Ms MacDonald notified the parties that she had “no cleared funds as of yet”. [44]

25. [40]

    On 5 November 2016, Mr Moini sent an email to Ms MacDonald, Mr Henley and Mr Prin:

26. [41]

    At 1:03pm, Mr Prin replied to the email chain in the following terms:

27. [42]

    During cross examination, Mr Prin agreed that there was no suggestion from him to Ms MacDonald in the above email “that she need concern herself with anything beyond getting well speedily”. [47]

28. [43]

    On 8 November 2016, Mr Moini sent an email to his solicitor advising that the additional payment of $121,000 which was advanced for the Surry Hills rent “may” be converted to equity. Shortly after this, at 2:47pm, Mr Moini sent Ms MacDonald a text message advising that the significant contributions made by the parties to the Henley Group were at risk of being dissipated:

29. [44]

    The text message from Mr Moini to Ms MacDonald at 2:47pm was the last record of correspondence or communication between the pair until 23 December 2016 after Ms MacDonald was discharged from hospital. [49]

30. [45]

    Ms Macdonald gave evidence that she did not communicate with Mr Moini on 8 November 2016 because she “had an infliximab infusion, which is similar to chemotherapy; and was not in a position to be responding to text messages or calls”. [50]

31. [46]

    However, telecommunication records indicate that Ms MacDonald and Mr Henley remained in regular contact. [51] Between 8 and 10 November 2016, there were around 10 calls between Ms MacDonald and Mr Henley ranging from 1 minute to almost 20 minutes in duration. An example is at 3:38pm on 8 November 2016 when the pair participated in a 12 minute ‘phone call. [52] Ms MacDonald, in cross examination, gave the following evidence regarding the content of that telephone call:

32. [47]

    At around 8:00pm, Ms MacDonald and Mr Henley spoke on the ‘phone for a further 20 minutes. Ms Macdonald gave evidence that she did not discuss the proposed takeover and that on 8 November 2016 she:

33. [48]

    The evidence of Mr Henley and Ms MacDonald of the content and extent of this communication is discussed in more detail below at [138]-[143].

34. [49]

    On 11 November 2016 Mr Moini sent an email to Mr Henley as follows:

35. [50]

    Two days later, on 13 November 2016, Mr Moini sent an email to Mr Henley in the following terms:

36. [51]

    On 14 November 2016, Mr Moini sent the following email to Mr Henley:

37. [52]

    On or about 15 November 2016, a new company was created, All About Fitness Gym and Health Clubs Pty Ltd (“All About Fitness”), the shareholders of which were Yakiti and a company directed by Mr Prin. [58]

38. [53]

    Ms MacDonald remained in hospital until around 13 December 2016 and gave evidence that, once cleared, the $300,000 remained in a family account. [59] At no point did Ms MacDonald notify the others that the funds had cleared. Rather, she said that:

39. [54]

    Mr Moini, Mr Henley and Mr Prin remained in contact and discussed alternative options to save the Snap Fitness gyms. Ms Macdonald was not involved in these negotiations and the proposals did not include her. Those alternative options, which included Mr Henley, never eventuated and on 19 December 2016 Mr Moini emailed him in the following terms:

40. [55]

    At 10:55pm, Mr Henley replied to the email:

41. [56]

    On 20 December 2016, Mr Moini, Mr Prin and Mr Henley met. Allegations were raised against Mr Henley regarding his conduct and dealings with the Henley Group of Companies. Mr Henley refused to sign a number of documents that were handed to him at the meeting. [63] Shortly after, Mr Henley and Ms MacDonald attended Surry Hills Police Station to make a police report. [64] There is no evidence that the police took any action and it is not a matter of relevance other than to show that Mr Henley was aggrieved.

42. [57]

    On 20 December 2016, Mr Henley lost control of the Henley Group of companies and access to his business bank accounts. [65] He made an urgent application to regain access to those bank accounts. [66] By 2 February 2017, the nine Snap Fitness franchise agreements issued to the Henley Group were terminated. New agreements were issued to All About Fitness. [67]

43. [58]

    The plaintiff and cross-defendants contend that the October Agreement, as pleaded by Ms MacDonald, “was never concluded between the parties and never constituted a binding and enforceable contract”. [68] Ms Macdonald submitted that if the contract was not concluded on 31 October 2016, it was certainly concluded by 3 November 2016 when the third reconciliation was circulated. [69]

Legal principles

1. [59]

   The question of whether the parties intended to be contractually bound is determined objectively. The relevant principles and authorities were summarised by Campbell J in Winter v Nemeth [2018] NSWSC 644 at [56]-[60]:

2. [60]

   In Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603; [2007] NSWCA 65, Campbell JA made the following observations regarding the notion of “objective intention” at [264]:

3. [61]

   Parts of the evidence tendered in the hearing related to things that were said and done after 3 November 2016. Post-contractual conduct and admissions are admissible for the purpose of determining whether or not a legally binding contract was formed. [70] However, they cannot be used to determine the construction or terms of a contract, other than in established circumstances. [71]

4. [62]

   In Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; [1982] HCA 24, Mason J (as he then was) held at 352:

5. [63]

   One circumstance where post contractual conduct or the “actual intention” of the parties may be admissible in construing the terms of a contract was contemplated:

6. [64]

   In Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61, Heydon JA said at 164 [26]:

7. [65]

   The first, and most significant, dispute in the present case is whether Ms MacDonald, Mr Moini and Mr Prin entered into a legally binding agreement in late October 2016 or in the days thereafter. Post-contractual conduct is admissible in determining that issue. [73] I have considered whether the conduct of the parties, and the correspondence between them, after the October meetings was consistent with having reached a final and binding agreement.

8. [66]

   The defendant submitted that the “conventional” offer and acceptance analysis may “not work” in the circumstances of this case. [74] Specifically, it was submitted that although it may be difficult to identify the precise moment that an offer was made and accepted by the parties, a contract was nevertheless concluded by 3 November 2016 when the necessary reconciliations were carried out. [75]

9. [67]

   In some cases, the traditional offer and acceptance analysis may not be sufficient to determine the question of whether a contract has been formed. In Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153, Heydon JA (as his Honour then was) stated at 177 [71]:

10. [68]

    Heydon JA also provided examples of circumstances where the traditional offer and acceptance analysis has limited utility. His Honour contemplated “contracts between numerous parties, or even two parties, negotiated at meetings but not assented to until each party executes counterparts.” [76]

11. [69]

    Counsel for Ms MacDonald cited Curnow Consulting Pty Ltd v JPD Media and Design Pty Ltd t/a Durie Design [2017] NSWSC 1171. Slattery J summarised the relevant principles concerning offer and acceptance at [234] – [237]:

12. [70]

    In John Holland Pty Limited v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451, Hammerschlag J warned against placing too much reliance on the spoken words of the parties. His Honour said at [94]:

Were the essential elements of a contract established?

1. [71]

   Ms MacDonald contends that a contract was concluded on the terms contained in her email of 31 October 2016 although it may have “crystallised” later when the third reconciliation was circulated on 3 November 2016. [79]

2. [72]

   Those terms were detailed as follows in the pleadings:

3. [73]

   The existence of a contract to that effect is not supported by the evidence. The parties had not, with any degree of finality, reached agreement on fundamental terms of the contract including their respective share allocations. It is also not clear that any agreement had been reached as to the status of the mortgages between Ms MacDonald and Yakiti under any purported contract. Considering all of the communications between the parties, I am not satisfied that a reasonable person, viewing the evidence objectively, would believe that a concluded bargain or agreement was reached between Ms MacDonald, Mr Moini and Mr Prin. At times, there appeared to be an intention on the part of the parties to reach an agreement, but that agreement was never reached.

4. [74]

   Ms MacDonald asserts that the parties agreed to an equal allocation of shares in the new company that would be established to purchase the Snap Fitness gyms. Mr Moini gave evidence that a split of 33% was not finally determined and that the parties discussed the possibility of Ms Macdonald having a 50% allocation, leaving Mr Prin and Mr Moini with 25% each.

5. [75]

   In submitting that an agreement had been reached, Ms MacDonald relied on the meeting of 31 October 2016 and subsequent email correspondence. She submits that the “only discussion that was had at the meeting on 31 October was that each of Mr Prin, Mr Moini and Ms MacDonald would be issued 33% in this new company”. [81]

6. [76]

   Ms MacDonald referred to Mr Moini’s email of 3 November 2016, which specified urgent matters that needed attention, including relevantly “agreeing on split of shares across all gyms (we had previously talked about 33% to each party), but to be finalised)”. [82]

7. [77]

   On the other hand, parts of her evidence suggested that she did not understand the basis of this share allocation and that the final split was yet to be determined. She said she “didn’t understand at the time the percentages and additional contributions [from her] Babak was talking about as I couldn’t rationalise how they added to the amount he stated.” [83]

8. [78]

   She said the parties:

9. [79]

   Ms MacDonald argued that an email from Mr Moini to Mr Henley and Mr Prin on 12 November 2016 (after she was excluded from the further dealings) was a post-contractual admission of a concluded share allocation because it made reference to Ms MacDonald’s “33% share”. [85] The email included:

10. [80]

    Mr Moini gave evidence about this email:

11. [81]

    The evidence on this issue is contradictory. The reconciliations upon which Ms MacDonald places such reliance, particularly when considered in conjunction with the requirement that she was to contribute a further $330,000 suggests that Mr Moini’s recollections that the share allocation was to be 50:25:25 is correct. [88] On the other hand, there is also evidence (set out above) supporting the suggestion of an equal (that is, 33:33:33) share allocation.

12. [82]

    Ms MacDonald referred to another email from Mr Moini to Mr Henley on 13 November 2016 which stated “Jake … I believe Kon and I have an agreement re each of us holding 33% each, with me managing the overall strategy (over and above you as well).” [89] Mr Moini gave evidence that “there was no Kate at this point. Kate had not come through with her money” and maintained that following their initial conversation, the parties orally discussed a share allocation of 50:25:25 in favour of Ms Macdonald. [90] Mr Moini relies on email correspondence to support his recollection of the conversation. It is not a case where there was no corroborative evidence of the conversation. [91] He relied on Ms MacDonald’s email of 31 October 2016 which stated “with our contributions balanced on any gym sale, that distribution of the sale price should be Kon/Babak $1.00 / KM $1.00 to ensure that we are repaid at the same time in equal proportions”. [92] He also relies on his email of 3 November 2016 which indicated that he and Mr Prin had to date contributed $345,000 more than Ms MacDonald. [93] This is consistent, in a mathematical sense, with Mr Moini’s evidence that the parties later agreed to give Ms MacDonald a greater share in the new company. However, the email of 3 November 2016 also pointed towards an equal allocation of shares: “(we had previously talked about 33% to each party), but to be finalised)”. [94]

13. [83]

    Mr Prin gave evidence that “the way I understood it at the time, there was a couple of scenarios, and, again, I’ve got to refresh my memory, but the proposal was that she was going to come in at 50%.” [95]

14. [84]

    Ms MacDonald relied on Mr Moini’s “preferred” approach to doing business to support the existence of a term conferring equal allocation. Mr Moini gave evidence that he believes in an “alignment of interests” [96] between the parties with whom he invests and that “as a general rule, I prefer to have equal ownership across entities to align interest.” [97] However, while this may have been Mr Moini’s preferred practice, it is not conclusive of the agreement (if any) reached by the parties in the present case. In any event, the question of formation of the contract must be considered objectively rather than by reference to the subjective belief of the parties.

15. [85]

    I am not satisfied that the parties had reached any concluded agreement about the share allocation in the new company. In fact, I am positively satisfied that they had not. They were still negotiating. They were still in discussions about the extent of their respective contributions, how those contributions were to be treated and, in the light of those matters, what the share allocation in any new entity would be.

16. [86]

    The share allocation was an issue of such significance to the arrangement that the failure of the parties to reach agreement on the issue suggests strongly that the parties had not entered a legally binding contract.

17. [87]

    In Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600; [1982] HCA 53, Gibbs CJ, Murphy and Wilson JJ held that:

18. [88]

    It is true that in some cases “the parties may intend to be bound forthwith even though there are further terms still to be agreed or some further formality to be fulfilled” and that the failure to reach agreement on all such terms does not invalidate the contract. [99] It is also true that not all important terms are essential in the relevant sense, and that there is ambiguity around what constitutes an essential term. [100] Past cases provide some examples of things that have been considered to constitute an essential term in the particular circumstances of those cases. [101] However, the question of whether a term is essential to the formation of a binding contract depends on the facts of the individual case and is not strictly defined.

19. [89]

    Again, the question is not determined by reference to the subjective understanding of the parties. In G Scammell & Nephew Ltd v Ouston [1941] AC 251, Lord Russell concluded that no contract had come into existence because the parties had not agreed upon essential terms “notwithstanding that they may have thought otherwise”. [102] His Lordship’s judgment was considered and applied by Williams J in O'Brien v Dawson (1942) 66 CLR 18; [1942] HCA 8. [103]

20. [90]

    The failure of the parties to reach a concluded decision on the allocation of shares in the entity intended to acquire the Snap Fitness businesses is a strong indicator that a legally binding contract had not been formed in the days following the meeting on 31 October 2016.

21. [91]

    Another unresolved issue surrounding the October Agreement, which was closely related to share allocation, was the requirement that Ms MacDonald provide further funds. Putting aside the issue of share allocation, Ms MacDonald’s email of 31 October 2016 acknowledged that she was to make further contributions to the Henley Group. [104] In spite of the urgency of the situation and her representation that the money from her aunt would “clear”, Ms Macdonald did not fulfil this obligation. [105]

22. [92]

    Her failure to transfer the $330,000, as promised, is relevant to her claim in two ways. It is relevant to the plaintiff’s argument that she failed to comply with a condition precedent of the contract in contemplation. But, more importantly, it is relevant to the antecedent issue of whether her conduct is consistent with there having been a concluded contract at all.

23. [93]

    From as early as 31 October 2016, Ms MacDonald told the cross-defendants’ that she would “start the process of obtaining my funds tomorrow morning so they should be cleared by the end of the week.” [106] At 11:16am on 3 November 2016 Mr Moini asked Ms MacDonald for an update “on where you are at with obtaining funds and when they will be accessible”. [107] A few minutes later, at 11:19am, Mr Moini said he was happy to meet with Mr Prin and Ms MacDonald as soon as she advised them “of monies received from her aunty” and Mr Prin undertook the reconciliation. [108] It is significant that Mr Moini indicated that he was “happy to meet” once Ms MacDonald advised of the status of her further contribution but made no offer to continue to negotiate until that advice was received. [109]

24. [94]

    At 3:51pm, Mr Henley made a request for urgent funds and at 3:52pm, Mr Moini asked Ms MacDonald whether she could “pay these once your money is cleared tomorrow.” [110]

25. [95]

    At 3:59pm, Ms MacDonald indicated that it was more likely that the funds would clear on “Monday or over the weekend” and that she would keep checking for them. [111] At 4:16pm, after receiving an email from Mr Henley, Mr Moini recommended that he wait to see when Ms MacDonald’s funds cleared. [112]

26. [96]

    Although there is no dispute that Ms MacDonald was ill during this time, there is no evidence that she questioned or disputed the requirement to provide further funds to the Henley Group. Ms MacDonald gave evidence that she “didn’t understand at the time the percentages and additional contributions [from her] Babak was talking about as I couldn’t rationalise how they added to the amount he stated”. [113] While her subjective intention or understanding does not determine whether a contract was formed, the confusion around the issue of what further contributions were to be made suggests that no concluded agreement had been reached.

27. [97]

    As noted above, Ms MacDonald gave evidence that the parties “agreed to formalise the percentages later I thought I could work through it to understand his figures in my own time when I was feeling better. To date I still do not believe his numbers add up” [114] and that she did not understand “how Babak’s calculations equated to the amounts we had to contribute and as Kon was supporting what Babak said I wanted to end the meeting so I could go away and form my own understanding when I was feeling better”. [115]

28. [98]

    In spite of this, there is no evidence that Ms MacDonald communicated any concern that the numbers didn’t add up, that the share allocation should be adjusted accordingly, or that she should be under no obligation to contribute the further $330,000. In circulating reconciliation 2, Ms MacDonald removed the loans from Yakiti from Mr Moini’s side of the ledger with no mention of any concern about any discrepancy. Rather, she made several promises to make a further contribution when the funds from her aunt arrived. For example, at 3:34pm on 3 November 2019, Ms MacDonald sent an email to Mr Moini, Mr Prin and Mr Henley saying that her cheque was “deposited this afternoon with an express clearance”. [116]

29. [99]

    This issue will be further considered under the cross-defendant’s alternative submission that, even if contractual relations had been formed, Ms MacDonald breached a condition precedent of the agreement.

30. [100]

    Ms MacDonald pleaded that a term of the October Agreement was that her obligations under the Yakiti loan agreements would be extinguished. She referred to an email from Mr Moini to his solicitor, following the meeting on 31 October 2016, in which Mr Moini made an inquiry as to the (then) current balance of the loans. Presumably, reliance on this email was designed to support an inference that Mr Moini had in his mind the extinguishment of those obligations. The email included the following:

31. [101]

    Contrary to this position, in circulating reconciliation 2 on 3 November 2016, Ms MacDonald removed the loans from Mr Moini’s side of the ledger. That is, she removed them from Mr Moini’s contribution but included them in her own. [118] Counsel acknowledged that this contradicted the suggestion that the loans were to be subsumed or extinguished and submitted:

32. [102]

    Pursuant to s 65 of the Real Property Act 1900 (NSW), the obligations attached to a registered mortgage will only be wholly or partially discharged upon execution in the approved form. [120]

33. [103]

    There is no evidence to suggest that the parties took any formal steps, or discussed taking such steps, to give effect to a term of the agreement whereby the registered mortgages would be discharged.

34. [104]

    I am not satisfied that any legally binding contract, as pleaded or otherwise, had been entered between Ms MacDonald, Mr Moini and Mr Prin. Viewing the evidence objectively, a reasonable person in the position of the parties would not conclude that the parties to the cross-claim had formed a binding contract to the effect that the assets would be transferred to a new entity, 33.3% of the shares would be issued to Ms MacDonald, Mr Moini and Mr Prin and that Ms MacDonald would be released from her obligations under the Yakiti mortgages. The parties had not reached a concluded bargain and had not finalised terms essential to the existence of such a contract.

35. [105]

    In view of this conclusion, it is not necessary to determine the cross-defendants’ submission that Ms MacDonald provided no real consideration, except insofar as it impacts on the cross-claimant’s suggestion that the cross-defendants received double satisfaction, that is seek to recover the loan money and interest twice.

Failure of Ms Macdonald to fulfil a condition precedent of the putative agreement

1. [106]

   The cross-defendants submitted, in the alternative and against the possibility that the Court held that a binding contract had in fact been entered, that Ms MacDonald’s failure to contribute further funds constituted a breach of a condition precedent to the agreement. The alternative submission was that the failure of the defendant to fulfil her obligations under the condition precedent would relieve the cross-defendants of the obligation of performing their side of the agreement.

2. [107]

   Given the precarious position of the Henley Group, the requests by the other parties for Ms MacDonald to make the further funds available, and the promises by her to contribute those funds, I am satisfied that her additional contribution was a condition precedent that needed to be performed before any further contractual obligations were enlivened. It seems likely (although it is not necessary to decide the issue) that the further funds would have been used to pay urgent debts that may otherwise have compromised the takeover.

3. [108]

   Accordingly, because Ms MacDonald failed to satisfy the condition precedent of making the additional $330,000 contribution, the cross-defendants were not obliged to fulfil any of their supposed obligations under the asserted agreement or contract.

Conclusion as to claim for breach of contract.

1. [109]

   For those reasons, the claim by Ms MacDonald for damages for breach of contract fails.

2. [110]

   Ms MacDonald submits that the decision of the parties to abandon the October Agreement, to proceed without her in what was described as the “hostile takeover” of the nine Snap Fitness gyms, and then to enforce the mortgages in favour of Yakiti amounted to unconscionable conduct. She relies on her illness as a special disability in pursuing this alternative claim. The cross-claim pleaded and sought relief pursuant to ss 12CA and 12CB of the ASIC Act. The provisions provide as follows:

Do ss 12CA and 12CB apply to the legal relations between the parties?

1. [111]

   The provisions only operate where the unconscionable conduct is “in relation to financial services” or “in connection with” the supply, possible supply, acquisition or possible acquisition of financial services. The cross-defendants accept that the provisions apply to the enforcement of the mortgage but submit they are inapplicable to the claim for a 33% shareholding in the new entity. [121] It is necessary to consider the meaning of “financial services” and the scope of the expression “in relation to” or “in connection with” financial services.

2. [112]

   Section 12BAB of the ASIC Act defines “financial services” (largely irrelevantly for present purposes) in the following way:

3. [113]

   Section 12BAB (1AA) relevantly provides that for the purposes of Part 2 Division 2 of the ASIC Act, a financial product is a financial service. Section 12BAA defines a financial product as follows:

4. [114]

   For the purposes of s 12BAA (7)(k), the Australian Securities and Investments Commission Regulations 2001 (Cth) defines a “credit facility” as follows:

5. [115]

   Ms MacDonald submits that the financial services in this case are the “loans between the Henley Group of Companies with each of the parties in this case, Ms Macdonald, Mr Moini, Yakiti and Mr Prin, and also the loans in relation to Ms Macdonald and Yakiti”. [122] She further submits that although “Mr Prin and Mr Moini deny that they loaned each other money”, the documentary evidence indicates that there were loans between the parties irrespective of whether there was any written loan agreement. [123]

6. [116]

   Mr Moini gave the following evidence:

7. [117]

   Mr Prin gave evidence that there was no loan between himself and Mr Moini because there was no written loan agreement. Rather, he and Mr Moini agreed to “offset” one another’s contributions but that this did not constitute a loan. [125] However, the whole of the evidence satisfies me that there were loans between the two and in particular loans from Mr Moini to Mr Prin.

8. [118]

   The cross-defendants submit that “the failure to provide Ms MacDonald with a 33% shareholding has no relevant or sufficient connection with any financial services or the provision or acquisition of financial services.” [126] The basis of this submission is that the alleged entitlement arises (as pleaded) from the October Agreement. That agreement, so the submission goes, was not in connection with any financial services. Any such services – by way of example, the loans from Yakiti to Ms MacDonald and the loans from the latter to the failing Henley Group – long pre-dated the October Agreement. However, the cross-defendants concede that “the enforcement of loan agreements does fall within the scope of the ASIC Act”. [127]

9. [119]

   I accept Ms MacDonald’s submission that the provisions apply to the transactions between the parties in around October and November 2016. The transactions were clearly in trade or commerce and the loan agreements between the parties and to the Henley Group constituted “financial services” which, pursuant to 12BAB(1AA), encompass “financial products”. See also the inclusion of “credit facility” within the meaning of financial product in s 12BAA(7)(k). The objective of the negotiations between the parties in around October 2016 was to reconcile their various loans and come up with some solution whereby, in effect, those loans were converted to equity in the Henley Group, the Snap Fitness gyms or some new entity created to take over the gyms. Accordingly, those negotiations were (at least) “in connection with” or “in relation to” financial services according to the various definitions within the ASIC Act.

The claim pursuant to s 12CA

1. [120]

   In Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; [1983] HCA 14, Deane J (with whom Wilson J agreed) reviewed the authorities relating to unconscionable conduct and said at 474:

2. [121]

   Deane J went on to explain that the nature of special disability cannot readily be catalogued:

3. [122]

   Mason J (as he then was) came to similar conclusions, holding at 461:

4. [123]

   Mason J held that the party need not have actual knowledge of their superior bargaining power:

5. [124]

   See also, for example, Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51; [2003] HCA 18 at [7]-[13] (Gleeson CJ), [37]-[46], [55] (Gummow and Hayne JJ).

6. [125]

   To succeed in her claim under s 12CA, Ms MacDonald must establish that she suffered a special disability at the relevant time which prevented her from making a worthwhile judgment in her own best interest, that the cross-claimants had knowledge (or a reasonable person would have had knowledge) of her special disadvantage and took unfair or unconscientious advantage of the opportunity. If Ms MacDonald establishes a special disadvantage, the onus is on the cross-defendants’ to establish that they did not act unconscionably in failing to complete the October Agreement and in excluding Ms MacDonald from the deal, and/or that enforcing the mortgages was “fair, just and reasonable”. [130]

7. [126]

   The operation of the “unwritten law” in respect of unconscionable conduct is not limited to any particular circumstance of special disability, such as that in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; [1983] HCA 14. [131] In Amadio, Mason J (as he then was) observed that “it goes almost without saying that it is impossible to describe definitively all the situations in which relief will be granted on the ground of unconscionable conduct.” [132]

8. [127]

   In Marsden v DCL Developments Pty Ltd (Receivers and Managers appointed) [2016] NSWSC 823, McCallum J (as her Honour then was) said at [22]-[23]:

9. [128]

   The basis of Ms MacDonald’s claim that she was under a special disadvantage was that she was very ill between 14 October 2016 and 23 December 2016 and thus unable to protect her own interests. [133] She gave evidence of the nature of her illness in her affidavit and referred to it on a number of occasions (sometimes non-responsively) when she was cross-examined. Her evidence was not challenged. When an attempt was made to tender medical records establishing the illness, a concession was made that the fact of her illness and hospitalisation was not in dispute. [134]

10. [129]

    The pleadings set out the detail of Ms MacDonald’s state of well-being as well as the various medical procedures she underwent during the relevant period:

11. [130]

    Ms MacDonald’s affidavit of 9 March 2018 provides the evidentiary basis of this part of the pleading. [136] As noted, this evidence was not disputed.

12. [131]

    There is little doubt that Ms MacDonald’s illness and hospitalisation compromised her ability to attend meetings during the relevant times. However, that does not establish by itself that she was at a special disadvantage in the relevant sense.

13. [132]

    In Blomley v Ryan (1956) 99 CLR 362, Kitto J explained at 415 that the equitable principle of unconscionability will apply:

14. [133]

    The cross-defendants did not strongly contest that Ms MacDonald was under a special disadvantage as result of her illness (albeit that this was “not admitted” in the defences to the cross-claim). [137] However, the defences to the cross-claim disputed the fact that any such disability was a “relevant disability for the purpose of giving rise to any entitlement on the part of the Cross-Claimant to seek the relief sought by her in these proceedings”. [138] The cross defendant also submitted in closing that “Ms MacDonald deliberately exaggerated her inability to communicate and obtain relevant information”. [139]

15. [134]

    At the time of the emails particularised in the cross-claim in support of the claim of unconscionable conduct, Ms MacDonald was in regular contact with Mr Henley. Some of the detail of this contact is set out at [46]-[47] above. Ms MacDonald’s evidence on this issue was unconvincing. [140] Initially, she denied having regular and frequent contact with Mr Henley at the relevant time. [141] Her evidence was contradicted by telephone records tendered as Ex C. [142]

16. [135]

    At 2:47pm on 8 November 2016, Mr Moini sent Ms MacDonald a text message saying:

17. [136]

    In spite of this, and her ability to communicate with others including Mr Henley, Ms MacDonald did not communicate with Mr Moini again until 23 December 2016:

18. [137]

    When pressed on this last answer, she confirmed her evidence that she was not capable of responding to messages and telephone calls on 8 November 2016. [145]

19. [138]

    Ms MacDonald was then taken to a bundle of telephone records. [146] These records showed that she was using her telephone for various purposes and that she had a number of relatively lengthy telephone calls with Mr Henley. She denied speaking about the business dealings or the outstanding $330,000 contribution:

20. [139]

    She later agreed that the record showed that the call to Mr Henley was at around 8:00pm and lasted for 20 minutes. [148] She maintained that they did not speak about the Henley Group, the arrangements with Mr Moini and Mr Prin or the outstanding contribution. [149]

21. [140]

    Ms MacDonald provided the following explanation: [150]

22. [141]

    There was further cross-examination concerning her communications with Mr Henley during this period:

23. [142]

    Towards the end of the cross-examination, Ms MacDonald conceded that she had asked Mr Henley about the business affairs of the Henley Group “from time to time”. [153] However, she claimed that Mr Henley would respond with “just focus on your health.” [154] By contrast, Mr Henley acknowledged that he spoke to Ms MacDonald about business matters but denied speaking to her about the possibility that she would not be part of the deal. [155] Mr Henley’s evidence was initially that he spoke to Ms MacDonald “probably four or five times” but after being confronted with the telephone records he conceded that he was speaking to her on a near daily basis. [156]

24. [143]

    The evidence of Mr Henley and Ms MacDonald on these issues was inconsistent, unconvincing and implausible.

25. [144]

    Because of her ability to communicate regularly with Mr Henley at the critical time, I have real misgivings on the issue of whether Ms MacDonald’s illness and hospitalisation placed her in a position of “special” disadvantage. However, in view of the seriousness of her medical condition, and the absence of any substantial submissions from the cross-defendants on the issue, I have proceeded on the basis that Ms MacDonald was suffering from, or under, a special disadvantage from the time she was admitted to hospital (that is, 4 November 2016).

26. [145]

    Accordingly, the onus shifts to the cross-defendants to show that they did not act unconscionably and that their subsequent conduct in proceeding with the takeover without Ms MacDonald and enforcing the mortgages, was “fair, just and reasonable”. [157]

27. [146]

    Mr Moini was aware of Ms MacDonald’s illness. On 18 October 2016, Ms MacDonald sent a text message to Mr Moini in the following terms:

28. [147]

    Mr Moini replied to Ms MacDonald’s text message in the following terms:

29. [148]

    Two days later, on 20 October 2016 at 6:07pm Mr Moini tried to call Ms MacDonald but she did not answer. He then sent her the following text message:

30. [149]

    Subsequent email correspondence supports the fact that both Mr Prin and Mr Moini were aware that Ms MacDonald was very ill and hospitalised. [161]

31. [150]

    However, it is not clear that the cross-defendants believed or were aware that Ms MacDonald was unable to communicate with them. As I have noted, the telephone records suggest that she was able to communicate and, given their business association, I do not accept her evidence that her conversations with Mr Henley did not encompass matters of business including what was happening with the Snap Fitness franchises and the Henley Group.

32. [151]

    Each of the parties had invested large sums of money into the Snap Fitness franchises. This was in the form of loans to Mr Henley or to the Henley Group or by payment of particular sums for rent or other expenses in order to keep the businesses afloat. Each was exposed to a greater or lesser extent. In Ms MacDonald’s case, a large amount of the money she lent to Mr Henley was borrowed from Yakiti Pty Ltd and secured by mortgage in favour of Yakiti. Mr Moini was the sole director, company secretary and sole shareholder of Yakiti. [162]

33. [152]

    There is nothing in the correspondence and emails leading up to the “October Agreement” that suggests that Yakiti was going to forgive the loans it had extended to Ms MacDonald. The fact that the money that was advanced to Mr Henley, after Ms MacDonald had borrowed it from Yakiti, was treated as a contribution by Ms Macdonald makes no sense unless it was assumed that she was going to repay the money (with interest) in accordance with the loan agreement. If it was intended that the loan was to be forgiven or otherwise converted to equity in the new entity, the contribution was surely one made by Yakiti and ought to have been placed in Mr Moini’s column in the ledger in the second and third reconciliations.

34. [153]

    Neither while Ms MacDonald was in hospital, nor at any other time, did Mr Moini do anything to suggest or imply that Yakiti would forgive the loans or forego its right to enforce the mortgages, irrespective of whether the money advanced was used to represent a contribution by Ms MacDonald or otherwise.

35. [154]

    The cross-defendants’ rely on a combination of circumstances to establish that they did not act unconscionably or take unfair advantage of Ms MacDonald in proceeding without her in the take over the Snap Fitness gyms and enforcing the Yakiti mortgages.

36. [155]

    Ms MacDonald points to the email at 11:06am on 5 November 2016, set out at [40] above, in which Mr Moini offered his support and spoke of the “high likelihood” of the group recovering their money. [163] She also relies on the email from Mr Prin at 1:03pm the same day, in which he wished her a speedy recovery. [164] She asserts that these were relevant representations supporting her assertion that the cross-defendants acted unconscionably.

37. [156]

    Ms MacDonald gave evidence:

38. [157]

    However, and against that, it was only the day before that Mr Moini was asking whether the $330,000 that Ms MacDonald was required to contribute had cleared. [166] Further, three days later Mr Moini sent the message expressing his grave concern “that the clubs will be closed very soon, and we'll lose our entire investment” and stressing that it was urgent that they chat. [167] He received no response and yet the evidence showed that Ms MacDonald was able to engage in a relatively lengthy conversation with Mr Henley later that night and was communicating with Mr Henley and others at length over the coming days.

39. [158]

    The cross-defendants set out the bases upon which they contend that their conduct was not unconscionable it their closing submissions:

40. [159]

    I accept the cross-defendants’ submissions that they did not act unconscionably in their dealings with Ms Macdonald notwithstanding that she was very ill at relevant times during the transactions.

41. [160]

    In reaching that conclusion, I have not disregarded the fact that some of the evidence suggested that Mr Moini is a serious and perhaps somewhat predatory business man. As he put it: “in many cases of business, one man’s failures can be another man’s gain.” [169] He also gave evidence that he wanted to “teach Mr Henley a lesson” [170] and adhered to what he described as the “Adam Smith School of Economics”. [171] Once relations with Mr Henley had broken down, Mr Moini’s correspondence was aggressive and threatening. Even so, at the time that the new deal and takeover was formulated the situation was urgent, the viability of the Snap Fitness gyms was on a “knife edge” and steps were required to ensure that their investments (by way of loans to the Henley Group or particular gyms) were not lost. [172] Mr Moini made Ms MacDonald aware of his concerns in his text message of 8 November 2016 at 2:47pm but received no response, in spite of Ms MacDonald’s proven ability to communicate with others – including Mr Henley – until 23 December 2016.

42. [161]

    This absence of communication must also be considered in the context of the repeated requests for Ms MacDonald to provide the $330,000 or to indicate when the funds would be cleared in the first few days of November 2016, as well as the absence of any final agreement as to when she would provide that money and how the share allocations and contributions would work. The cross-defendants’ conduct is to be evaluated in light of the precarious financial position of the Henley Group and the fact that almost immediate action was required to save the business.

43. [162]

    The submission now made, that the requirement that she contribute a further $330,000 was itself not fair, just and equitable cannot be sustained in view of her silence on that issue when the negotiations were taking place. It is doubtful that she was in a position of special disadvantage at that stage and was involved in the negotiations and made adjustments to the reconciliation schedule without mention of any question about the fairness of the proposal that she contribute the additional money. She made a number of representations at that time that the money was to clear in the next few days.

44. [163]

    Mr Moini gave evidence that Ms MacDonald had been involved in a “scheme to defraud investors” [173] whereby a single Snap Fitness franchise would be sold multiple times to different people. Mr Moini alleged that he saw correspondence from Ms Macdonald to the following effect:

45. [164]

    He claimed the emails would form part of a submission he intended to make to the Law Society in respect of Ms MacDonald’s conduct. [175] These assertions were made in cross-examination and were not adopted or repeated by Mr Moini’s barrister (Mr Bedrossian) who, in fact, apologised that the allegations were made. [176]

46. [165]

    These allegations are unfounded and unproved and I have not taken them into account other than in considering whether Mr Moini’s animosity towards Ms MacDonald and Mr Henley may have motivated him to act unconscionably. I am satisfied that it did not. Rather, he acted out of business necessity in urgent circumstances.

47. [166]

    The suggestion that Mr Moini may complain to the Law Society falls into a similar category of evidence to that concerning Mr Henley and Ms MacDonald attending the police station (see [56] above). It is of little, if any, relevance to the issues to be determined.

48. [167]

    I have disregarded both the assertion that Mr Moini intends to make some professional complaint against Ms MacDonald and the evidence that Ms MacDonald attended the Surry Hills Police Station.

49. [168]

    The cross-defendants have established that they did not act unconscionably and that the conduct engaged in was “fair, just and reasonable” in the circumstances of the case. Accordingly, the claim under s 12CA of the ASIC Act must fail. In reaching that conclusion, I have considered all of the circumstances but I am particularly persuaded by the urgency of the situation, the failure of Ms MacDonald to make the contribution of $330,000 in spite of repeated requests for her to do so, the urgent and unanswered text message of 8 November 2016, Ms MacDonald’s communication with Mr Henley later that day, and her failure to make any contact with Mr Moini or Mr Prin for many weeks. The urgency of the situation required Mr Moini and Mr Prin to take action or they would have lost the money that each had invested. I have also taken into account the fact that the October Agreement was not finalised although that is not a determinative factor in relation to the claim under the provisions of the ASIC Act.

50. [169]

    In all of the circumstances and taking into account all relevant considerations, the exclusion of Ms MacDonald from the takeover, and the enforcement of the mortgages despite having knowledge of her illness, was not unconscionable within the meaning of the unwritten law. [177]

The claim pursuant to s 12CB

1. [170]

   Pursuant to s 12CB, the impugned conduct must be “in connection with” financial services. In State of Western Australia v Ward (2002) 213 CLR 1; [2002] HCA 28, the High Court held that the word “connection” is ordinarily “one of wide import” and should be interpreted in light of the statutory context. [178] Sections 12BAA and 12BAB define financial services and financial product. Considering those provisions, and in view of the text and purpose of the ASIC Act read as a whole, I am satisfied that s 12CB potentially applies to the transactions.

2. [171]

   Section 12CC provides a non-exhaustive list of relevant considerations which the Court may have regard to in determining the s 12CB unconscionable conduct claim:

3. [172]

   Where relevant I have taken these matters into account. In particular, I have considered the relative bargaining power of the respective parties. It is true that Mr Moini was far better resourced than Ms MacDonald, but Ms MacDonald was a solicitor and she had worked in the Henley Group of Companies for a period of time and was aware of the strengths and weaknesses of the business subject of the take-over. Even allowing for Ms MacDonald’s illness, I do not find the relative bargaining power of the parties to be a matter of great moment. I do not find that any unfair tactics were employed by the cross-defendants – they were forced to act promptly and attempted to stress the urgency of the situation to Ms MacDonald in circumstances where she had failed to produce the $330,000 over the previous week and before she was admitted to hospital. Neither Mr Moini nor Mr Prin acted in bad faith.

4. [173]

   This is not a typical case where unconscionable conduct is alleged. There is no suggestion that Ms MacDonald did not understand the situation, in spite of her illness. There is no evidence that she was unable to understand any relevant documents or was subject to any undue influence or pressure under ss 12CC(1)(c) and (d). The unconscionability claim rests upon the plaintiff’s failure to include Ms MacDonald in the new company despite having knowledge of her illness, and their enforcement of the mortgages.

5. [174]

   Mr Moini’s text message of 8 November made it clear to Ms MacDonald that their investments in the Henley Group were at risk of being completely lost. Ms MacDonald had an opportunity to contact Mr Moini and Mr Prin upon receipt of this text message, if only to ask for more time or to confirm that she was still keen to be part of the deal. She failed to do so.

6. [175]

   Mr Moini gave evidence of discussions with the landlords of the nine Snap Fitness gyms:

7. [176]

   As it turned out, the leases with the Henley Group were terminated. The new group – All About Fitness – entered separate agreements with Lift Brands Australia Pty Ltd. In this regard, at least from a technical (perhaps pedantic) point of view, it is impossible to accept Ms MacDonald’s submission that the cross-defendants’ acted unconscionably in acquiring the “assets of the Henley Group of Companies, being the 9 Snap Fitness Gyms, for no further consideration beyond the loans that the cross defendants had already made to Jake Henley and the Henley Group of Companies.” [180] On one view there was nothing to acquire. However, this is not a critical matter in coming to the conclusion that I have.

8. [177]

   In the final analysis, the same considerations that led me to reject the claim under s 12CA apply to the claim under s 12CB. I need not repeat them. I am satisfied that Mr Prin and Mr Moini acted out of necessity and did not act unconscionably in doing so. I am not satisfied that the impugned conduct including the emails particularised in the pleadings were such that the plaintiff unconscionably excluded Ms MacDonald from the agreement or unconscionably enforced the mortgages. In coming to that conclusion I have taken into account circumstances including, but not limited to: Mr Moini’s text message of 8 November 2016 advising that the investments of the parties were at risk of being lost, the fact that there was no concluded contract arising from the October negotiations, the precarious financial position of the Snap Fitness franchises, the failure of Ms MacDonald to contribute the $330,000 as promised, her failure to communicate with the others including through Mr Henley with whom she was in frequent contact, and the desire of Mr Moini and Mr Prin to protect their investments.

9. [178]

   The claim under s 12CB of the ASIC Act also fails.

Double satisfaction

1. [179]

   The cross-claimant sought to rely on the principle of “double satisfaction” by suggesting that the cross-defendants acted unconscionably by being repaid for the money outstanding on the loan twice. At the risk of over-simplification, the argument was that Ms MacDonald invested the money acquired by the loans from Yakiti (Mr Moini’s company) in the Henley Group which controlled the Snap Fitness gyms. Therefore, so the argument went, when Mr Moini, Yakiti and Mr Prin took over the Snap Fitness gyms via the new entity, All About Fitness, they effectively obtained repayment of the Yakiti loan money. Reliance was placed on an offer to buy the gyms for an amount far exceeding the contributions of Mr Moini and Mr Prin. [181] Accordingly, it was unconscionable to seek repayment of the loans and to enforce the mortgages because to do so involved being repaid the loan money twice.

2. [180]

   There are two problems with this argument. The first arises on the pleadings. The second arises on the merits and evidence in the case.

3. [181]

   I have already referred to the almost entirely unsuccessful attempt before Davies J to amend the “fourth” further amended statement of cross-claim. [182] Part of the amendment that was sought was an amendment which would have added to 45A(c) the following words:

4. [182]

   This part of the application was refused by Davies J based on the “dilatory way the cross-claimant has conducted these proceedings” and because the proposed new sub-paragraphs raised “new factual issues”. [183]

5. [183]

   His Honour’s judgment was published on 18 December 2018. Two days later (20 December 2018) Ms MacDonald wrote to the solicitors for the other parties in the following terms:

6. [184]

   The letter was tendered in the course of submissions. [184] It was suggested that this letter put the cross-defendants’ on notice that the double satisfaction argument was to be pursued. In view of the decision two days earlier, this seems very doubtful.

7. [185]

   Subsequently, while submissions were part-heard, there was an exchange of emails between counsel. This was tendered in response to the tender of Ex 2. [185] Counsel for Ms MacDonald wrote:

8. [186]

   Counsel for the cross-defendants replied:

9. [187]

   Counsel for Ms Macdonald replied:

10. [188]

    If the cross-claimant’s position is correct, it is difficult to understand why it was necessary to seek to amend the pleadings to particularise specifically that “the first cross-defendant is in effect seeking double satisfaction of the loans”, as she did before Davies J. As noted, his Honour held that this raised a new factual issue and refused to allow the amendment.

11. [189]

    The cross-defendants argued that the cross-claimant ought not be permitted to pursue this “double satisfaction” submission in view of the ruling made by Davies J. It submitted:

12. [190]

    Counsel went on to identify the parts of the judgment of Davies J where he refused to allow the amendment before identifying further prejudice in terms of the way the case was conducted:

13. [191]

    Ms MacDonald submitted that there was no prejudice and maintained that the double satisfaction argument arose on the pleadings at least in two ways. First, because it is part of the “unwritten law” picked up by the provisions of the ASIC Act. Secondly, because the double satisfaction argument was implicit in the pleadings in paragraph 45 of the cross-claim where it was asserted:

14. [192]

    I very much doubt that the cross-claimant should be permitted to rely on this argument in view of the history of this litigation. I accept that there is some prejudice to the cross-defendants who have conducted their case on the basis that leave to amend to include the “double satisfaction” argument was refused. Even so, I propose to deal with the issue on its merit.

15. [193]

    The circumstances of the present case do not fit comfortably (if at all) within the factual or legal circumstances of the authorities to which I was taken. [188] This is not a straightforward case where a party seeking damages seeks to obtain compensation from two separate tortfeasors or parties.

16. [194]

    The initial loans to Ms MacDonald were from Yakiti Pty Ltd in the middle of 2016. The money was advanced and mortgages were dated 1 July 2016 and 3 August 3016. [189] Ms MacDonald had already advanced money “to Jake Henley to cover the operational costs of rent and equipment fees for the Snap Fitness gyms.” [190] She then borrowed $350,000 from Yakiti and entered the mortgage for the first loan. While the purpose of the loan was known to Mr Moini, there was no condition that the money advanced was to be invested with, or lent to, Mr Henley, the Henley Group or used to fund the expenses or capital of the Snap Fitness gyms. [191] On 1 July 2016, Ms MacDonald went to the bank with Mr Henley “to disburse the $350,000 on expenses for the Henley Group of Companies”. [192] Ms MacDonald’s account of what happened to the money, or what it was spent on, is set out in the Defendant/Cross-Claimant’s Statement of Facts. [193] Whether it still somehow formed part of the assets of the Henley Group of Companies, or the Snap Fitness Franchises when the Henley franchise agreements were terminated is not known. The same basic scenario applies to the second loan from Yakiti. [194]

17. [195]

    It was not until around 15 December 2016 that the new company – All About Fitness Gym and Health Clubs Pty Ltd – was established. [195] It was that company, according to the cross-claim – that “acquired the assets of the various companies within the Henley Group of Companies.” [196] Whether, by that stage, those assets included the loan money advanced by Ms MacDonald is not known.

18. [196]

    The cross-claimant relies on an offer dated 25 November 2016 to purchase the nine Snap Fitness gyms. This offer was made by Quadrant Private Equity and was in the sum of $6.5M. [197] This provides some evidence that the contributions made by Mr Moini and Mr Prin were significantly less than the value of the assets they acquired. However, it was a “Non-Binding Indicative Offer” and was conditional on a number of assumptions. One of those assumptions was that the assets were acquired on a cash and debt free sale. The cross-defendants relied on a list of debts and liabilities, contained in an email from Tri Nguyen dated 4 January 2017, that came to an amount in excess of $18M. [198] I have treated that list with considerable scepticism. The cross-claimant submitted that this estimate of the debt was plainly erroneous and included, for example, rent that had since been paid and outstanding franchise fees that had been “negotiated down to $250,000” from something like $400,000. [199] The cross-claimant submitted that “these gyms are worth at least in the order of $4 million”. [200]

19. [197]

    The dispute over the amount of the debts and liabilities is indicative of the difficulties in making a reasoned assessment of the value of the assets that All About Fitness acquired. Further, the conditional nature of the Non-Binding Indicative Offer made by Quadrant Private Equity means that it provides a valuation of the gyms that is of very little probative value. [201] The cross-claimant referred to a decision of the New South Wales Court of Appeal that establishes an offer may provide some evidence of the value of an asset. [202] However, the offer in that case was of a very different nature. The offer made by Quadrant was conditional on a number of imponderable and disputed circumstances.

20. [198]

    Another glitch surrounding Quadrant’s Non-Binding Indicative Offer was that they hoped to re-brand the gyms whereas the Snap Fitness parent company in the United States would not permit rebranding. [203]

21. [199]

    Further, and importantly on the issue of whether he acted unconscionably, Mr Moini wrote to Quadrant Private Equity on 23 November 2016 in the following terms:

22. [200]

    On the evidence, it is impossible to conclude that the plaintiff and cross-defendants acted other than in good conscience in their dealings in the matter. The circumstances do not allow any finding that they twice received (or sought to receive) return of the money owed on the loan agreements.

23. [201]

    Assuming that the cross-claimant should be permitted to rely on the “double satisfaction” argument in spite of the issue concerning the pleadings, that argument fails on the evidence and on the merits.

24. [202]

    For the foregoing reasons I make the following findings which will be reflected in the orders to be made in due course:

    1. (1)

       The plaintiff is entitled to succeed on its statement of claim.

    2. (2)

       The cross-claim will be dismissed.

    3. (3)

       The plaintiff is entitled to possession of the two parcels of land referred to in the statement of claim and to an order for leave to issue the writs of possession.

    4. (4)

       The plaintiff is entitled to recover the debts under the two loan agreements together with interest in accordance with the loan agreement until the date of judgment and thereafter in accordance with s 100 of the Civil Procedure Act 2005 (NSW).

    5. (5)

       The defendant/cross-claimant is to pay the costs of the plaintiff and cross-defendants.

    6. (6)

       Direct that the plaintiff is to file short minutes of order reflecting those findings and supporting calculations within 7 days. If the defendant takes issue with any of the form of orders it should exercise liberty to apply within 3 working days of the draft orders being filed. In the absence of that, the Court will pronounce the orders at a time to be notified to the parties.