MacDonald v Yakiti Pty Ltd & Ors

1. [1]

   MACFARLAN JA: I have had the advantage of reading the judgment of White JA in draft. I agree with his Honour that Ms MacDonald’s appeal should be dismissed with costs because, like his Honour, I do not consider that Ms MacDonald established that she suffered loss as a result of the alleged contraventions of ss 12CA and 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) (“the ASIC Act”). For the reasons that follow, I do not however, with respect, agree with his Honour that Ms MacDonald did not establish that such contraventions occurred.

Unconscionable conduct

1. [2]

   I gratefully adopt White JA’s description of the facts and circumstances of this appeal but particularly emphasise the following matters which are relevant to my conclusion that the respondents engaged in unconscionable conduct for the purposes of ss 12CA and 12CB of the ASIC Act. Except where otherwise indicated, references given are to paragraphs of White JA’s judgment.

2. [3]

   Ms MacDonald became seriously ill in October 2016 and was admitted to hospital on 19 October 2016 and discharged on 24 October 2016 (the primary judge gave somewhat different dates for that admission but that is of no present relevance). Ms MacDonald was readmitted on Friday 4 November 2016 and discharged on 13 December 2016 ([43]). She said that during the latter admission she had two surgeries and a series of complications ([149]).

3. [4]

   The primary judge’s unchallenged finding was to the effect that during the latter admission, as a result of her illness, Ms MacDonald laboured under a special disadvantage of the nature described in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; [1983] HCA 14 at [461]-[462] that “seriously affected her ability to make a judgment as to her own best interests” ([197]). The primary judge accepted that in these circumstances “the onus shifted to the respondents 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’” ([189]).

4. [5]

   On Monday 31 October 2016, between Ms MacDonald’s two hospital admissions, Ms MacDonald, Mr Moini, Mr Henley and, possibly, Mr Prin agreed (although, as it was subsequently held, not in a legally binding fashion) to establish a new entity to acquire the assets of the Henley Group, that shareholdings in the new company would reflect monetary contribution made by the venturers and that Ms MacDonald would provide a further $330,000 to keep the businesses afloat ([45], [46]). These matters were reflected in Ms MacDonald’s email to Mr Moini of 31 October headed “Summary of Meeting”, to which Mr Moini added his comments by an email in response that was copied to Mr Henley and Mr Prin ([71]). Further communications ensued between these venturers (who clearly included Mr Prin) over the following days, including a message from Ms MacDonald late on Thursday 3 November stating “300K hopefully tomorrow more likely Monday” ([92]).

5. [6]

   A meeting between them was planned for 1pm on Friday 4 November but on that day Ms MacDonald emailed at 11.54am stating that she had been “held up at St Vincent’s waiting for test results” ([95]). As it transpired, she was not able to attend the 1pm meeting and was admitted to hospital that day, where she remained for almost 6 weeks. In response to her email of Saturday 5 November advising that she had been admitted to hospital, Mr Moini replied on the same day as follows:

6. [7]

   Mr Moini’s email reassured Ms MacDonald as to the strength of her relations with the other venturers and as to the enterprise’s financial position. The impression given by his email that Ms MacDonald was securely ensconced in the enterprise was emphasised by the email’s heading of “Summary of Meeting”. This heading derived from the first email in the string, which summarised the meeting of 31 October at which the enterprise proposal had been formulated.

7. [8]

   The reassurances to Ms MacDonald at the beginning of her second hospital admission were fortified by Mr Prin’s response to Ms MacDonald (copied to Mr Moini and Mr Henley) sent about two hours after Mr Moini’s email and adding to the string of which Mr Moini’s email formed part. Mr Prin wished Ms MacDonald “all the best” and described Mr Moini as an “amazing business strategist”. It implicitly adopted Mr Moini’s reassurances.

8. [9]

   In my view the conduct of three of the venturers (Messrs Moini, Prin and Henley) in agreeing in the following week, without Ms MacDonald’s knowledge, to exclude her from participation in the enterprise was totally inconsistent with the impression Mr Moini’s 5 November email created as to the relations between them. Ms MacDonald’s evidence of her reaction to Mr Moini’s 5 November email was in my view entirely rational:

9. [10]

   On Tuesday 8 November Mr Moini sent Ms MacDonald a text message expressing concern about the venturers’ investment and saying that it was “urgent we have a chat” ([100]). Ms MacDonald did not reply because, according to her evidence, she was not in a position to do so in light of her health ([101]). Mr Henley, with whom Ms MacDonald had been associated in business for some time, appears to have told Mr Moini on 8 November that Ms MacDonald had “requested him (Mr Henley) to ask Mr Moini and Mr Prin not to contact her as she was in hospital and did not want to talk to anyone” ([105]). Ms MacDonald was in regular contact with Mr Henley by phone between 8 and 10 November but according to Ms MacDonald these calls concerned her health, not matters of business ([102]).

10. [11]

    Mr Moini was thus aware that Mr Henley was in contact with Ms MacDonald. This would not have been surprising to Mr Moini as he knew that Ms MacDonald had for some time worked as the general counsel of the Henley Group of companies ([21]). There was in evidence an email sent on 13 November 2016 by Mr Moini to Mr Henley, and copied to Mr Prin, indicating that Mr Moini expected Mr Henley to “manage the Kate situation with respect to no shares being assigned to her” (see [114] below). In simply indicating that Mr Moini thought that Mr Henley would, in some undefined manner, “manage” Ms MacDonald, this email in my view fell well short of demonstrating that Mr Moini and Mr Prin did not take unconscientious advantage of Ms MacDonald’s special disadvantage, as I conclude below in [15] that they did.

11. [12]

    On Friday 11 November Mr Moini sent an email to Mr Henley (copied to Mr Prin), and not to Ms MacDonald, identifying a number of different possible courses of action for the venturers, none of which involved Ms MacDonald. Each of the options was inconsistent with the discussions previously had with Ms MacDonald ([106]-[111]).

12. [13]

    Email communications on Sunday 13 November between Messrs Moini, Henley and Prin make it clear that by this time they had agreed that they would hold shares in the new company, to the exclusion of Ms MacDonald ([112]-[114]).

13. [14]

    It was not until after Ms MacDonald’s discharge from hospital on 13 December, a month later, that “she learned [through Mr Henley] that she had been cut out of the deal and that she would not be issued with shares in the new company” ([120]).

14. [15]

    By the conduct that I have described, Mr Moini and Mr Prin in my view took unconscientious advantage of the special disadvantage under which Ms MacDonald laboured during her second admission to hospital. (As Mr Henley was not a party to the proceedings, it is unnecessary to express a view about his conduct.) Adopting Gageler J’s description in Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1; [2019] HCA 18 at [92] of the conduct proscribed by s 12CB, the conduct of Mr Moini and Mr Prin was “so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience”. For that reason that conduct in my view contravened both s 12CA and s 12CB of the ASIC Act. As that conclusion is not determinative of the present appeal, it is unnecessary to discuss other expositions of the required standards, such as those to which reference is made in Gooley v NSW Rural Assistance Authority [2020] NSWCA 156 at [36].

15. [16]

    As I have already indicated, and regrettably for Ms MacDonald, she did not however prove that she suffered any loss as a result of the respondents’ unconscionable conduct. I will not repeat what White JA has said in this regard save to emphasise that Ms MacDonald’s case was, as his Honour indicates, that “had she been given an appropriate shareholding in the new companies that succeeded to the businesses of the Henley Group she could have used the profits to repay her loans to Yakiti” ([42]). For the reasons given by White JA, the proposition that Ms MacDonald suffered loss of this character was in essence merely speculative.

16. [17]

    WHITE JA: In July 2016 the appellant, Ms Kate MacDonald, borrowed $353,000 from the first respondent, Yakiti Pty Ltd (“Yakiti”) secured by an unregistered mortgage over properties owned by Ms MacDonald in Cowper Wharf Road, Woolloomooloo and Lincoln Crescent, Woolloomooloo. The loan was repayable by 1 January 2017 and carried interest at 15% per annum compounded daily.

17. [18]

    In August 2016, Ms MacDonald borrowed a further sum of $103,300 from Yakiti that was also secured by an unregistered mortgage over the Cowper Wharf property.

18. [19]

    Ms MacDonald used the money she had borrowed from Yakiti to provide unsecured loans to companies associated with a Mr Jake Henley.

19. [20]

    Ms MacDonald had worked as a paralegal with a firm of solicitors called Baron Associates from 2004 and as a lawyer with that firm from 2009. She left that firm in March 2015. After some months working in her partner’s real estate agency, she began working for Mr Henley and his company from September 2015. She worked as “General counsel of the Henley Group of Companies” (“the Henley Group”). Ms MacDonald deposed that when she first started working for Mr Henley in September 2015 companies in the Henley Group conducted eight gymnasiums (that traded under the name Snap Fitness Gyms), three cafes and a construction company.

20. [21]

    From February 2016 to October 2016, at the request of Mr Henley she lent money to him or his companies to cover rent and operational costs including lease equipment fees and franchise fees for the Snap Fitness Gyms. The monies Ms MacDonald lent that were not borrowed from Yakiti were obtained from her mother.

21. [22]

    As well as $350,000 she lent on 1 July 2016 and $100,000 she lent on 3 August 2016 from monies borrowed from Yakiti, Ms MacDonald lent Mr Henley or his companies a little under $500,000. She deposed that the total amount of the loans she made between 9 February and 11 October 2016 to Mr Henley was $944,380.

22. [23]

    Mr Henley urged Ms MacDonald to borrow money from the second respondent, Mr Babak Moini. Mr Moini was the sole director of Yakiti. He had engaged one of the corporate entities controlled by Mr Henley to fit out a number of cafes which he and Yakiti controlled. Mr Moini was introduced to Ms MacDonald in about November 2015 and was told by Mr Henley that she was a solicitor and general counsel for the Henley Group. When Ms MacDonald asked Mr Henley why he did not borrow the money from Mr Moini, Mr Henley told her that Mr Moini would want security and that she had assets and equity.

23. [24]

    Mr Henley told Ms MacDonald that if she could not borrow money from Mr Moini then the landlords would take possession and equipment would be repossessed and she would lose all her money.

24. [25]

    Ms MacDonald does not allege that she was induced to enter into the loan agreements and mortgages with Yakiti by any pressure or misrepresentation on the part of Mr Moini. Nor does she complain that the terms of her loans from Yakiti were unfair.

25. [26]

    Ms MacDonald was unable to recover her loans to Mr Henley or to the companies in the Henley Group. She defaulted on her loans from Yakiti.

26. [27]

    In June 2017 Yakiti commenced proceedings against Ms MacDonald. It sought judgment for the debts owing under the loan agreements and orders for possession of the lands subject to the mortgages and leave to issue writs of possession.

27. [28]

    Ms MacDonald defended the claim on the basis that on or about 31 October 2016, she, Mr Henley, Mr Moini and a Mr Kon Prin entered into an agreement, the terms of which were that she, Mr Moini and Mr Prin would together establish a new company that would purchase the assets and businesses of five companies in the Henley Group (Gym and Tonic Health Clubs Pty Ltd, Snap Fitness Zetland Pty Ltd, The Henley Group Pty Ltd, Snap Fitness Surry Hills Pty Ltd and Seedz Investments Pty Ltd).

28. [29]

    Between 10 November 2015 and about 22 April 2016 Mr Prin had advanced $690,873 to companies in the Henley Group to acquire interests in the Zetland, Double Bay and Bondi Junction gyms. Mr Moini had also advanced monies to companies in the Henley Group.

29. [30]

    Ms MacDonald alleged that it was a term of the agreement that she, Mr Moini and Mr Prin would be issued with shares in the new company as a proportion of the loans that each of them had made to Mr Henley and the Henley Group of companies, that the monies lent by Yakiti to her would be treated as a financial contribution by Mr Moini in his personal capacity and on behalf of Yakiti to the Henley Group of companies, and that Yakiti would release Ms MacDonald from all claims Yakiti had against her in respect of the monies lent by Yakiti to her. She alleged that it was a term of the agreement made on or about 31 October 2016 that a deed of extinguishment of debt would be entered into between her and Yakiti in respect to the monies lent to her and that a deed of extinguishment of debt would be entered in to by Mr Prin, Mr Moini, Yakiti and Ms MacDonald on the one hand and Mr Henley and the Henley Group companies on the other hand.

30. [31]

    The primary Judge found that no concluded agreement as alleged by Ms MacDonald was made (J [104]). There is no appeal from that finding.

31. [32]

    By cross-claim, Ms MacDonald also sought relief under s 12GM(7) of the Australian Securities and Investments Commission Act 2001 (Cth). Sub-sections 12GM(1), (2) and (7) provide for orders that may be made if it be found that a person has contravened a provision of Division 2 of Part 2 of that Act. Ms MacDonald alleged that Yakiti had contravened ss 12CA and 12CB (contained in Division 2 of Part 2 of the Act) relating to unconscionable conduct in trade or commerce relating to financial services (s 12CA), or the supply, or possible supply, or acquisition, or possible acquisition, of financial services to or from a person (s 12CB).

32. [33]

    Section 12CA provides:

33. [34]

    Section 12CB provides:

34. [35]

    Section 12CC specifies matters to which the court may have regard for the purpose of determining whether a person has contravened s 12CB in connection with the supply or possible supply of financial services to another person.

35. [36]

    The primary judge found that the impugned conduct said to have been unconscionable was engaged in in connection with the supply of financial services in trade or commerce (J [115]-[119], [170]). That conclusion is not challenged.

36. [37]

    Section 12CA does not extend the principles of unconscionable conduct beyond those recognised by a court of equity sitting in its equitable jurisdiction. The provision creates a statutory prohibition on such conduct which can be enforced by ASIC and makes available statutory remedies that are available in addition to equitable relief (Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1 at [82]; [2019] HCA 18). In Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51; [2003] HCA 18 Gummow and Hayne JJ said (at [55]) that in the case of a plaintiff seeking relief in respect of conduct claimed to be unconscionable within the meaning of the unwritten law, the special disadvantage under which the plaintiff laboured must seriously affect his or her ability to make a judgment as to his or her best interests. It is not enough that the plaintiff is in a greatly inferior bargaining position (at [55] and [56]) (see also per Gleeson CJ at [11]). The plaintiff must also demonstrate that the defendant took unconscientious advantage of the plaintiff’s disabling condition (at [55], [14]).

37. [38]

    Similarly in relation to s 12CB in Australian Securities and Investments Commission v Kobelt, Kiefel CJ and Bell J said:

38. [39]

    In that case Gageler J said that s 12CB proscribes “…conduct that is so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience.” (at [92]).

39. [40]

    Keane J said:

40. [41]

    As explained in more detail below, in October 2016 there were discussions between Mr Henley, Ms MacDonald, Mr Moini and Mr Prin with a view to the establishment of a new company which would acquire the business and assets of companies in the Henley Group in which Ms MacDonald would have a shareholding. Although Ms MacDonald had alleged that an agreement had been reached in that regard and that it was a term of that agreement that her debt to Yakiti would be extinguished, it was conceded at trial that the evidence did not establish any agreement that her loans from Yakiti would be extinguished (J [101], [103]).

41. [42]

    Ms MacDonald’s case, as pressed on appeal, was that she, Mr Moini, Mr Prin and Mr Henley proposed that a company to be formed would acquire the assets and businesses of the companies in the Henley Group, that Mr Moini was instrumental in achieving that objective, that had she been given an appropriate shareholding in the new companies that succeeded to the businesses of the Henley Group she could have used the profits to repay her loans to Yakiti, but that, unconscionably, Mr Moini excluded her from participation in the new company.

42. [43]

    Ms MacDonald became seriously ill in October 2016 which, she said, placed her in a position of special disadvantage. She was admitted to hospital on 19 October 2016 and was discharged on 24 October 2016. She was readmitted on 4 November 2016 and not discharged until 13 December. She was discharged to her parents’ home and for at least a week was incapable still of looking after herself. Whilst she was in hospital during her second admission, and then unknown to her, Mr Moini cut her out of the proposed deal.

43. [44]

    There was no dispute that by the end of October 2016 the operation of at least some of the gym businesses was on a knife’s edge and that landlords were threatening to take possession.

44. [45]

    On 31 October 2016 Ms MacDonald, Mr Henley and Mr Moini met to discuss the fate of the Henley Group. (Ms MacDonald deposed that Mr Prin also attended the meeting but he denied it. At trial it was conceded that Mr Prin did not attend (J [26])). The matters discussed at the meeting traversed three topics. The first was the need to establish a new entity to take on the assets of the Henley Group in order for Mr Prin, Mr Moini and Ms MacDonald to have an interest in all of the gyms or to take the assets out of the reach of creditors. The second was how much capital or loans each had contributed for the purpose of calculating equity interests in the new company. The third was how immediate debts of the Henley Group were to be satisfied.

45. [46]

    Discussions at the meeting on 31 October 2016 included that Ms MacDonald would pay a further $330,000 to keep the businesses afloat. She did not make that payment.

46. [47]

    It can be inferred from the events that happened and from his evidence that at least Mr Moini appreciated that the goodwill of the businesses could be acquired by dealing directly with the lessors of premises and equipment, and with the franchisor of the gymnasium businesses, to persuade them to terminate the leases and franchise agreements for non-payment of rent and franchise fees when the Henley Group companies ran out of cash, and by persuading them to execute leases and new franchise agreements in favour of the new company.

47. [48]

    Ms MacDonald did not give evidence as to how she understood the business and assets of the Henley Group of companies would be acquired. Nor did she give evidence as to whether she expected that as a shareholder of the proposed new company she would be required to provide ongoing financial support proportionate to her shareholding.

48. [49]

    In relation to Ms MacDonald’s contention that Yakiti through Mr Moini, or Mr Moini, himself had breached s 12CA of the ASIC Act, the primary judge concluded:

49. [50]

    The primary judge relied on the same considerations in rejecting the claim under s 12CB. His Honour said:

50. [51]

    Before addressing primary judge’s reasons and the grounds of appeal, it is necessary to outline in more detail the dealings between Ms MacDonald, Mr Henley, Mr Moini and Mr Prin from October 2016.

51. [52]

    The background to those dealings was that Mr Prin, Mr Moini (through Yakiti) and Ms MacDonald had all provided monies to Mr Henley or his companies. Mr Prin deposed that he had agreed to “invest” money in the Henley Group of companies with a view to opening a Snap Gym franchise in Zetland. He transferred $370,830 to an account operated by a company in the Henley Group in November 2015. Snap Fitness Zetland Pty Ltd was incorporated on 18 January 2016. He paid a further $20,000 in February 2016 with a view to the setting up of another Snap Fitness Gym franchise in Rosebery and advanced $300,000 to Seedz Investments Pty Ltd on or about 22 April 2016. The total amounts paid by Mr Prin thus totalled $690,873. He said that in respect of what he called a payment of [Transcript says] $350,000 he was led to believe that he had bought a 50% share in the Zetland gym. He consulted Mr Moini about the investment. Mr Moini said Mr Prin also purchased an interest in the Snap Fitness Bondi Junction and Double Bay Gymnasiums).

52. [53]

    Mr Moini deposed that by 26 May 2016 he had advanced loans totalling $400,000 to Mr Henley (presumably through Yakiti).

53. [54]

    At noted above Ms MacDonald deposed that she lent Mr Henley $944,380 between 9 February and 11 October 2016. She deposed to having made loans as follows:

54. [55]

    Although Ms MacDonald deposed that the monies set out above were lent to Mr Henley, in cross-examination she said that she considered that Gym and Tonic Health Clubs Pty Ltd was primarily the party who owed her the monies advanced because most of the money was paid on its behalf. She said that some payments were made on behalf of “various entities” and it would be hard to distinguish who owed precisely how much. In cross-examination she denied that she gave any money to Mr Henley personally.

55. [56]

    Ms MacDonald said that it was obvious to her by June 2016 that she would have to continue to fund the operational costs of the gymnasiums. By late October 2016 she knew that the Henley Group of companies were in a very difficult financial position.

56. [57]

    By email dated 17 October 2016, Ms MacDonald proposed that through a special purpose vehicle she would acquire Mr Prin’s interest in the Zetland, Double Bay and Bondi Junction gymnasiums. That proposal did not proceed.

57. [58]

    On 26 October 2016 Ms MacDonald, Mr Henley and Mr Moini met to discuss the future of the Henley Group. It was proposed that the contributions made by the various parties to the Henley Group would be reconciled and converted to equity (J [24]).

58. [59]

    That evening Mr Moini sent an email to his solicitor, Ms Lambrini Dranganoudis and to Ms MacDonald, Mr Prin and Mr Henley saying:

59. [60]

    On 28 October Ms Macdonald sent an email to Mr Moini copied to Mr Henley enclosing a schedule of expenses and debts for the various gyms. These totalled $533,469.39. Ms MacDonald stated that the:

60. [61]

    Ms MacDonald said the attached schedule was for discussion on that day with herself, Mr Henley and Mr Moini. It does not appear that there was a meeting that day. Ultimately the three met on 31 October 2016. As noted above Ms MacDonald deposed that Mr Prin was also in attendance at that meeting but the primary judge noted that it was ultimately implicitly conceded by Ms MacDonald’s counsel that Mr Prin was not at the meeting (J [26]). Given that there is no appeal from the primary judge’s finding that no concluded agreement was reached at this meeting, nothing turns on whether or not Mr Prin was present.

61. [62]

    Ms MacDonald deposed that at the meeting on 31 October 2016 she proposed that everyone convert their loans to equity and that they take a more active approach in running the businesses with Mr Henley. She proposed that although Mr Henley could stay involved, she, Mr Moini and Mr Prin would need to take control of the decision-making. She proposed that Mr Henley sell the businesses to “our entity” which would hold “our equity”. This would be done in consideration of the extinguishment of the debts owed to them. She deposed saying “if we are converting our loans to equity we need to do it now”. This was at least in part because her debts to Yakiti matured in December. She deposed that Mr Moini agreed and said that once the gyms were transferred to a new entity “we can gear them up for a sale”. Mr Moini said that a reconciliation was required to determine how much money the three of them had put in.

62. [63]

    Mr Moini’s version of what was said at the meeting about this was not substantially different. He deposed that Ms MacDonald said:

63. [64]

    Mr Moini deposed that he said that the businesses were not worth anything and then continued:

64. [65]

    There was further discussion as to what advances or payments each party had made for the benefit of the Henley Group which would be treated as a capital or loan contribution for the purposes of a conversion of debts to equity. There was a conflict in the evidence of Ms MacDonald and Mr Moini as to whether the loans Yakiti had made to Ms MacDonald should be treated as a contribution by her (as Mr Moini deposed was said) or whether they should be treated as a contribution by Mr Moini (as Ms MacDonald deposed).

65. [66]

    Ms MacDonald deposed that Mr Moini’s first proposal was that he preferred that each party (Moini, Prin and MacDonald) have an equal share in the new company and that if some parties needed to put in more money to even the contributions then that should be done. This is consistent with Mr Moini’s evidence referred to at [64] above.

66. [67]

    However according to Mr Moini later in the meeting, after Ms MacDonald had said that she had advanced about $1 million including the monies that Mr Moini had lent her, Mr Moini said:

67. [68]

    This is consistent with an email Ms MacDonald sent on the evening of 31 October quoted below, at [71].

68. [69]

    A further issue discussed at the meeting was how the immediate debts the Henley Group owed were to be paid. Ms MacDonald deposed that Mr Henley said that the Surry Hills rent needed to be paid “now” and said that “if you three are taking over the businesses you need to pay this.” Ms MacDonald deposed that Mr Moini said that “you need to put in the most money so you should pay the rent”. She said it would take her a few days to get the money and that she could not pay it that day. Mr Henley said that if it were not paid that day the landlord might lock them out. Mr Moini offered to lend Ms MacDonald the rent on the same terms as before until she could get access to her funds.

69. [70]

    Mr Moini’s evidence of what was said on this topic was to the same effect..

70. [71]

    At 4.20pm on 31 October 2016 Ms MacDonald sent an email to Mr Moini summarising her understanding of what had been agreed. Mr Moini replied by returning Ms MacDonald’s email with his inserted comments. That email is set out below with the unhighlighted texts representing Ms MacDonald’s email sent at 4.20pm. Mr Moini’s reply of 4.35pm is in bold:

71. [72]

    At this time Mr Moini and Ms MacDonald were in substantial agreement that she would advance a further $330,000 and that he and Mr Prin would need to contribute approximately $220,000 on the basis that when the contributions were balanced, Ms MacDonald would own 50% of the shares in the company to be established to acquire the assets and businesses of the gyms.

72. [73]

    This was rational but not exact. Ms MacDonald had lent $944,380. A further $330,000 advance would bring her loans to $1,274,380. Mr Prin had advanced $690,873. Mr Moini had advanced $400,000. If Mr Prin and Mr Moini contributed $220,000 that would bring their combined advances to $1,310,873; a ratio to Ms MacDonald’s advances of approximately 51:49.

73. [74]

    Ms MacDonald’s and Mr Moini’s evidence differed on how the gyms’ businesses and assets would be acquired. According to Ms MacDonald, she envisaged a sale of the businesses by Mr Henley to the new vehicle to be established. Mr Henley’s motivation for effecting such a sale is not clear except for the possibility that he would in due course be offered an interest in the new purchaser. Mr Moini’s evidence was that he said that they would need to “start approaching the landlords and equipment lessors to bring the assets across.”

74. [75]

    Ms MacDonald made an affidavit in response to Mr Moini’s affidavit. She did not dispute that Mr Moini said those words.

75. [76]

    On the afternoon of 31 October Mr Moini asked his solicitor to advise him of the total amount of the loans including interest that were outstanding as of that day from each of Mr Henley and Ms MacDonald. Ms Dranganoudis provided her calculation that evening. She calculated that the total amount due from Mr Henley was $425,849.32 and that the total amount then owed by Ms MacDonald was $479,351.04. This correspondence was copied to Mr Henley and Ms MacDonald.

76. [77]

    Also on 31 October 2016 Mr Moini or Yakiti paid the Surry Hills rent of $121,000. On 31 October 2016 at 10.04pm Mr Moini advised Ms Dranganoudis that he had “transferred 121k on behalf of Kate today. If she does not repay within the week, she will sign the paperwork to add this to her loan.”

77. [78]

    On 1 November 2016 Ms MacDonald met with Mr Prin to carry out a “reconciliation of contributions”.

78. [79]

    Mr Moini deposed that on that day Ms MacDonald rang him and informed him that a further $51,000 was needed urgently to pay outstanding rent and legal fees from Mr Henley who was involved in Supreme Court proceedings with other persons including Mr Tri Nguyen and Mr Hong Jie Huang. He deposed that Ms MacDonald said:

79. [80]

    On 1 November 2016 Ms MacDonald sent an email to Mr Moini saying:

80. [81]

    Mr Moini arranged for the payment of $35,000 that day.

81. [82]

    The Henley Group was facing litigation on more than one front. On 3 November 2016 Mr Henley sent an email to Mr Moini and Ms MacDonald and Mr Prin advising that:

82. [83]

    At 11.19am on 3 November 2016 Mr Moini replied to Mr Henley, Ms MacDonald and Mr Prin saying:

83. [84]

    At 2.58pm on 3 November 2016 Mr Prin emailed Ms MacDonald, Mr Henley and Mr Moini with a purported reconciliation of contributions from each of himself, Ms MacDonald and Mr Moini. In his reconciliation the loans from Yakiti to Ms MacDonald were treated as contributions from both Mr Moini and Ms MacDonald.

84. [85]

    Later that afternoon, at 3.34pm, Ms MacDonald replied to the same recipients with an amended reconciliation which removed Yakiti’s loans to her as a contribution from Mr Moini. Her calculation was that she had contributed $944,380, Mr Moini had contributed $463,616 and Mr Prin had contributed $670,000. Thus their contributions were in proportions of 45.45% (MacDonald), 22.31% (Moini) and 32.24% (Prin).

85. [86]

    Ms MacDonald said: “[my] cheque was deposited this afternoon with an express clearance”. This was a reference to the cheque that Ms MacDonald had advised she was obtaining from her aunt. It was placed for clearance to her bank account, not into an account of any company in the Henley Group. At 3:59pm on 3 November Ms MacDonald advised Mr Moini, Mr Henley and Mr Prin that:

86. [87]

    At 3.51pm on 3 November 2016 Mr Henley sent an email to each of Mr Moini, Ms MacDonald and Mr Prin saying:

87. [88]

    At 4:04pm on 3 November 2016 Mr Prin provided a third reconciliation attached to an email addressed to Mr Moini, Mr Henley and Ms MacDonald. The changes from Ms MacDonald’s earlier reconciliation were to add as Mr Moini’s contributions the payments he had made for legal fees of $35,000 and Surry Hills rent of $121,000 increasing Mr Moini’s contributions to $619,616 and changing the parties’ respective proportions of contributions to Macdonald 42.7%; Moini 27.74%; and Prin 29.99%.

88. [89]

    Mr Moini appears to have accepted those figures. By an email of 4:16pm to Mr Henley, Ms MacDonald and Mr Prin he wrote:

89. [90]

    Mr Henley replied at 4:19pm:

90. [91]

    At 4:29pm Mr Moini wrote: “Over to Kate to advise how much money she has clearing (hopefully by tomorrow) and then we can figure out [plan] of attack.”

91. [92]

    Ms MacDonald wrote at 4:33pm on 3 November: “$300K hopefully tomorrow more likely Monday.”

92. [93]

    On 4 November 2016 Ms MacDonald sent an email to Mr Moini, Mr Henley and Mr Prin stating:

93. [94]

    Mr Moini replied: “Kate … in the meantime can you check as to whether you have cleared funds?”

94. [95]

    Arrangements were made for the four individuals to meet at 1pm that day. But at 11:54am Ms MacDonald sent an email stating: “I’ve been held up at St Vincent’s waiting for test results. Just flagging I may not be ready by 1pm.”

95. [96]

    Ms MacDonald was not able to attend the meeting on 4 November. She was admitted to hospital that day. On Saturday 5 November 2016 she sent an email advising that she had been readmitted into hospital and said “I should know more on Monday as to when I should be discharged”.

96. [97]

    Mr Moini replied:

97. [98]

    Ms MacDonald replied two minutes later thanking Mr Moini for his “kind words”.

98. [99]

    From 4 November 2016 Ms MacDonald was treated in hospital with infliximab infusions to which her body did not respond. She underwent major surgery on 12 November 2016 and was not discharged until 13 December 2016.

99. [100]

    On 8 November 2016 at 2:47pm Mr Moini sent a text message to Ms MacDonald in these terms: “Kate … Can you talk? I’m worried the clubs will be closed very soon and we’ll lose our entire investment. It’s urgent we have a chat.”

100. [101]

     Ms MacDonald did not reply to this message. Ms MacDonald said that she was not in a position to respond to Mr Moini’s text message or to respond to calls because she had had an infliximab infusion which was similar to chemotherapy.

101. [102]

     The primary judge noted that Ms MacDonald was in regular contact by telephone with Mr Henley between 8 and 10 November 2016 including phone calls of 12 and 20 minutes. Ms MacDonald said that these calls were about her health and not about matters of business (J [46]-[47], [138]-[142]).

102. [103]

     The primary judge found Ms MacDonald’s (and Mr Henley’s) evidence about these matters to be inconsistent, unconvincing and implausible (J [143]). Nonetheless the primary judge accepted that:

103. [104]

     The respondents do not challenge that finding. Ms MacDonald says it does not go far enough.

104. [105]

     Mr Moini deposed that on 8 November 2016 he was told by Mr Henley that Ms MacDonald had requested him (Mr Henley) to ask Mr Moini and Mr Prin not to contact her as she was in hospital and did not want to talk to anyone. Mr Henley made an affidavit in response to Mr Moini’s affidavit but did not contradict this statement. The primary judge made no finding as to this evidence, but it was unchallenged.

105. [106]

     On Friday 11 November 2016 Mr Moini sent an email to Mr Henley and Mr Prin the subject of which was “[p]ayments to be made over the weekend or Sunday”. Mr Moini wrote:

106. [107]

     Although this email does not refer to Ms MacDonald, it suggests arrangements that are inconsistent with those that had previously been discussed with Ms MacDonald. It contemplates that Mr Henley’s shares may be transferred to Mr Prin and Mr Moini, although the proposal discussed with Ms MacDonald did not contemplate the transfer of Mr Henley’s shares but rather the transfer of assets.

107. [108]

     The proposal that Mr Prin might acquire the Zetland gym in lieu of his contribution of $660,000 was inconsistent with the proposal discussed with Ms MacDonald.

108. [109]

     The proposal that Mr Prin “stay in for the 2/3rds with me and we match each other dollar for dollar in our investment…Jake then transfers all shares to us early next week” is unclear. On one view it could be a proposal that Mr Moini and Mr Prin acquire “two thirds” of the new business with nothing being said as to who should own the other one third. This would be consistent with Mr Moini’s not putting in more money than Mr Prin. On the other hand he contemplates that Mr Henley would transfer “all shares to us early next week” which leaves unanswered who would hold the other one-third share.

109. [110]

     The third option was that both Mr Prin and Mr Moini walk away from their investment meaning that the whole thing would collapse.

110. [111]

     Whatever might have been intended by this email, it excluded Ms MacDonald.

111. [112]

     At this time Mr Moini was holding out to Mr Henley that Mr Henley might retain a one-third interest. At 1:23pm on Sunday 13 November 2016 Mr Moini sent an email to Mr Henley and Mr Prin stating “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).”

112. [113]

     On 12 November 2016 Mr Moini sent an email to Mr Henley and Mr Prin stating:

113. [114]

     On 13 November 2016 Mr Moini wrote to Mr Henley saying:

114. [115]

     On 13 November 2016 Mr Prin sent a revised reconciliation to Mr Moini that referred only to their contributions to the Henley Group. The changes to Mr Prin’s earlier reconciliation recorded an additional payment of $33,000 by Mr Prin on 11 November 2016 for Bondi Junction rent and additional payments totalling $102,475.94 from Mr Moini for rent, equipment, finance payments and legal fees.

115. [116]

     Consistently with Mr Moini’s email of 12 November 2016, Mr Moini sent an email on 14 November 2016 to Mr Henley stating: “Jake … As cruel as this may read, I believe we need to cease Kate’s salary”

116. [117]

     On 17 November 2017 Ms Dranganoudis reported to Mr Moini and Mr Prin on searches she had undertaken that revealed that there were winding up applications then pending against Gym and Tonic Health Clubs Pty Ltd. One had been commenced by Hoang Tri Nguyen and Hong Jie Huang on 16 May 2016. Another winding up application had been commenced by XTON Group P/L on 1 September 2016. A third had been commenced by a franchisor Lift Brands (Australia) Pty Ltd on 25 October 2016. She reported that there were six default judgments against Gym and Tonics Health Clubs Pty Ltd totalling approximately $95,022. A search of The Henley Group Pty Ltd revealed a pending winding up application by Hoang Tri Nguyen and Hong Jie Huang and six default judgments against that company totalling approximately $115,543.

117. [118]

     Ms Dranganoudis cautioned Mr Moini and Mr Prin against any further advances to Mr Henley or payments to be made on his behalf.

118. [119]

     By this time Ms MacDonald had been cut out of the deal. She did not know that. Mr Henley did not then tell her that she would not be issued with any shares in accordance with her proposal or her discussions with Mr Moini and Mr Prin and Mr Henley. She was in hospital recovering from major surgery. She had not paid the $330,000 she had said she would pay by Monday 7 November 2016.

119. [120]

     It was not until after Ms MacDonald’s discharge from hospital on 13 December 2016 that she learned that she had been cut out of the deal and that she would not be issued with shares in the new company. She was told this by Mr Henley.

120. [121]

     On 25 November 2016 Ms MacDonald was provided by Mr Henley via email with a copy of a letter from a company called Quadrant Private Equity Pty Ltd (“Quadrant”) dated 25 November 2016. The letter was addressed to Mr Henley and was described as a “Non-Binding Indicative Offer to acquire nine Snap Fitness Gyms”. The letter was signed by a Mr Jonathon Pearce described as a “partner” of Quadrant and Director of “Fitness and Lifestyle Group”. The letter stated that Quadrant had been established in 1996 and managed various funds. Mr Pearce stated that:

121. [122]

     The Non-Binding Indicative Offer of $6.5 million was said to be based on assumptions that included a “cash and debt-free sale”. He said any “debt-like liabilities, including tax liabilities or other debt-like items transferred in the transaction, will be reduced from the Enterprise Value”. The offer was based upon Quadrant’s having a four week period of exclusivity to complete due diligence and the provision of an undertaking that none of the Snap Fitness Gyms of any of its assets would be sold to any other party. The offer was said to be subject not only to transaction documents being approved but was also subject to FLG Board approval and “satisfaction and agreement of the items per ‘valuation and assumptions’”.

122. [123]

     Mr Henley deposed that he was hoping the sale to Quadrant of the gym and café businesses would go through and that they would all, including Ms MacDonald, receive a share of the proceeds of sale of those businesses. Ms MacDonald deposed that Mr Henley telephoned her with reference to Quadrant’s letter and said that she should be happy that she got involved as a third of what was being offered would be hers.

123. [124]

     Quadrant’s offer had come about because Mr Moini sent an email to Mr Henley and to Mr Pearce suggesting a meeting the following week as to whether the nine Snap gyms were of any interest to Quadrant. Mr Henley provided information about the businesses and the number of members of each gym to Quadrant. On 23 November 2016 Mr Moini sent an email to Mr Pearce stating that he needed to transfer ownership of Snap Gyms “into my entity (and one other entity) and need to gauge degree of interest from Quadrant re these sites. I won’t proceed with the transfer if you believe there’s a (good) chance you'll pick these up.”

124. [125]

     Quadrant’s letter of 25 November 2016 was sent by email by Mr Pearce to Mr Henley and Mr Moini. Later that day, Mr Pearce advised Mr Moini and Mr Henley that he had received a telephone call from the headquarters of Snap Fitness in the United States advising that Snap would not consent to selling the business to a competitor (Quadrant) that did not intend to run as a Snap franchise. Mr Pearce said that he believed that Snap would seek to enforce whatever rights they had to block any such transaction or take legal action. The Quadrant offer did not proceed.

125. [126]

     Mr Moini deposed that two entities were established for the purpose of entering into franchise agreements and to be the “trading entity”. On 15 December 2016 All About Fitness Gym and Health Clubs Pty Ltd was incorporated. Its initial directors were Mr Prin and Mr Moini. According to the company search 50% of the shares were held by a company called 616470896 Bellevue Hill Holdings Pty Ltd and the remaining 50% by Yakiti. On 9 May 2017 a small shareholding (less than 0.01%) was transferred from Yakiti to Mr Hong Jie Huang. Mr Huang became a director on 19 December 2016.

126. [127]

     On 16 December 2016 a company called Go For Gold Gyms and Fitness Centres Pty Ltd was incorporated. Mr Moini, Mr Prin and Mr Huang were its directors. Its shares were held by All About Fitness Gym and Health Clubs Pty Ltd. Subsequently, on 17 July 2017 a company called Saffron Services Pty Ltd was incorporated with its initial directors being Mr Prin and Mr Moini. The shares were equally held by Yakiti and by 616470896 Bellevue Hill Holdings Pty Ltd. I infer that the later company was a company owned or controlled by Mr Prin.

127. [128]

     Mr Moini deposed that:

128. [129]

     On 13 December 2016 Mr Moini sent an email to the chief legal officer of Life Brands Inc, Ms Alison McElroy (copied to Mr Henley) that he had an agreement with Mr Henley to purchase all of the gyms. He advised Ms McElroy that his aim was for a “swift turnaround in all matters” and he was prepared to transfer $210,000 on that day to a trust account with the monies to be released upon transfer of the gyms. Ms McElroy responded on 15 December 2016 asking for details of Mr Moini’s proposed company that “is to become the franchisee” and provided details of the account into which the $210,000 could be paid. She advised that Lift Brands and Snap Fitness would not suspend pending legal actions in respect of their enforcement of franchise agreements or outstanding payments.

129. [130]

     On 16 December 2016 Mr Moini was in email correspondence with a Mr Peter Taunton, the president and chief-executive officer of Lift Brands Inc (which controlled the franchisor). Mr Taunton advised him that he would provide Mr Moini’s “group an opportunity to step in with relatively minimal dollars and slow our legal process allowing your Newco time to transition all of the clubs at a profit to other franchisees in our system.”

130. [131]

     On 15 December 2016 Mr Moini paid $210,000 for unpaid franchise fees.

131. [132]

     On Monday 19 December 2016 Mr Moini sent an email to Mr Henley at 5:25pm (copied to Mr Prin) stating as follows:

132. [133]

     Mr Henley replied that evening complaining about the tone and content of the email. He said Mr Moini had no authority to sell his businesses without his authority. Mr Moini replied at 11:14pm:

133. [134]

     In the early hours of 20 December 2016 Ms McElroy sent an email to, amongst others, Mr Henley, Mr Moini and Mr Prin stating as follows:

134. [135]

     Later that morning Mr Moini replied stating that the only step required to complete the process was Mr Henley’s consent to the assignment of leases and that he was meeting with Mr Henley at 1:30pm local time. He said that if, for any reason, Mr Henley chose not to assign leases he would speak to Ms McElroy about an alternative strategy.

135. [136]

     Mr Henley deposed that he attended a meeting with Mr Moini at about 1pm on 20 December 2016 and that Mr Prin was in attendance. He deposed that Mr Moini said: “Jake there has been discussions over the past few days with a new potential purchaser. You will find out who he is shortly.” Two or three minutes later Jie Huang arrived carrying resolutions and share transfers for the transfer of Mr Henley’s shares in the Henley Group of companies to Jie Huang and Tri Nguyen. He deposed that that Jie handed the documents to him and words to the following effect were said:

136. [137]

     Mr Henley deposed that he picked up the documents and walked away without signing them but nonetheless his shares were purportedly transferred to Mr Jie Huang and Mr Tri Nguyen later that day.

137. [138]

     On 20 December 2016 at 6:19pm Mr Moini wrote to Ms McElroy and to Mr Philip Colman at Lift Brands as follows:

138. [139]

     Earlier on the same day Mr Moini wrote to Mr Henley’s lawyer, Mr Sean O’Donnell of HWL Ebsworth as follows:

139. [140]

     It was common ground that the gym membership fees were paid to the franchisor who remitted the franchisee’s share of the fees to the franchisee.

140. [141]

     On 22 December 2016 Mr Tri Nguyen sent an email to what can be inferred to be Gym and Tonic Health Clubs Pty Ltd’s landlord of its gym at Double Bay. The email was copied to, amongst others, Mr Moini, Mr Prin, Mr Jie Huang and various persons associated with the franchisor. Mr Nguyen wrote:

141. [142]

     On 22 December 2016 Mr Henley brought proceedings in the Equity Division naming Huang Tri Nguyen and Hong Jie Huang and the companies in the Henley Group of companies as defendants. On 22 December 2016 Slattery J made an order up to 5pm on 23 December 2016 restraining the defendants from dealing with the assets of the companies in the group, appointing directors or removing directors, or authorising, directing or requesting Ezidebit Pty Ltd to change the payee or recipients of payments due to be made to the Henley Group of companies. On 23 December 2016 those orders were extended until further order. A detailed regime was laid down to enable Mr Henley to represent the companies to the exclusion of Mr Jie Huang for limited purposes.

142. [143]

     On 22 December 2016 Mr Moini advised Ms McElroy that Mr Henley had made an urgent application to court to have himself reinstated as director and to have Mr Jie Huang removed. He reported that his preferred approach was to ask the court to appoint a liquidator and this could bring the matter to finality within a few weeks.

143. [144]

     Gym and Tonic Health Clubs Pty Ltd was wound up and a liquidator appointed on 6 February 2017. On 24 February 2017 the Henley Group Pty Ltd was wound up and a liquidator appointed. TVH Enterprises (Australia) Pty Ltd was the lessee and franchisee of the Snap Fitness CBD premises. It was placed into liquidation on 24 May 2017. The various leases were not assigned to the new companies. The existing leases were terminated.

144. [145]

     In cross-examination Mr Moini rejected the suggestion that by 19 December 2016 he had decided that he was no longer going to involve Mr Henley in the orderly transfer of assets from the Henley Group of companies to a new company because he no longer thought he needed Mr Henley’s assistance. Mr Moini said that he never needed Mr Henley’s assistance. He denied that he had arranged for Mr Henley to be removed as director without his consent. He said that he was advised by Tri Nguyen and Jie Huang that they were in the process of removing Mr Henley as director of his companies.

145. [146]

     Mr Moini said that he was equal shareholders with Tri Nguyen in the company All About Fitness and his relationship with Tri was that they were in a relationship of equal stature. However Mr Moini also said that Jie Huang was a 25% shareholder for a period of time in the new entities setup, being All About Fitness and Go for Gold.

146. [147]

     By 2 February 2017 the nine Snap Fitness franchise agreements issued to the Henley Group were terminated and new agreements were issued to All About Fitness (J [57]).

147. [148]

     Meanwhile, on 12 December 2016 Ms Dranganoudis had written to Mr Moini asking whether it was in order for her to make contact with Ms MacDonald with a view to making arrangements for the repayment of the loans from Yakiti. She advised that whilst the loans were not yet due, given the time of year that they would fall due, it would be prudent to start those conversations.

148. [149]

     Mr Moini asked Ms Dranganoudis to proceed. On the same day Ms Dranganoudis advised Mr Moini that she had left Ms MacDonald a voicemail message and had sent her a text. Later that day again Ms Dranganoudis sent an email to Mr Moini as follows:

149. [150]

     Mr Moini replied:

150. [151]

     Ms Dranganoudis deposed that in the course of her telephone conversation on 12 December 2016 Ms MacDonald, after describing her illness, loss of weight and the need for further surgery said the following in response to Ms Dranganoudis’ inquiry as to what she was doing to repay the loans:

151. [152]

     That afternoon Ms Dranganoudis sent an email to Mr Moini reporting on her conversation with Ms MacDonald to similar effect to the conversation she deposed to (at [151] above).

152. [153]

     Ms MacDonald did not accept that the conversation was in those terms. She deposed as follows:

153. [154]

     The primary judge did not feel called upon to decide whose version of these events should be believed but Ms Dranganoudis’ email to Mr Moini of 12 December 2016 is a contemporaneous corroboration of Ms Dranganoudis’ version.

154. [155]

     On 14 December 2016 Ms Dranganoudis wrote to Mr Moini advising as follows:

155. [156]

     Mr Moini instructed Ms Dranganoudis to proceed accordingly.

156. [157]

     It can be inferred that Ms Dranganoudis did write to Ms MacDonald as she foreshadowed she would do in her email to Mr Moini of 14 December 2016 asking Ms MacDonald to send an email from the NAB advising on the status of an application for refinance. Neither Ms Dranganoudis nor Ms MacDonald refer to such a letter in their affidavits but one of Ms MacDonald’s allegations of unconscionable conduct was that on 14 December 2016 Yakiti:

157. [158]

     The cross-claim referred to this communication as having been sent in an email from Ms Dranganoudis to Ms MacDonald at 4:04pm on 14 December 2016. That email is not included in the appeal book.

158. [159]

     Ms MacDonald submitted both below and on appeal that, having made the loans to Ms MacDonald knowing that she intended to and did on-lend the monies to the Henley Group, Mr Moini then moved to deprive the Henley Group of all of its assets and to interrupt its cashflow so as to procure the termination of the old franchise agreements and leases so that new ones could be granted to the new company All About Fitness.

159. [160]

     However the “tearing down” of the businesses of the Henley Group (to use Mr Moini’s words) was not part of the unconscionable conduct pleaded against him and Yakiti.

Grounds of appeal

1. [161]

   Ms MacDonald appealed only from the primary judge’s finding that the respondents did not engage in unconscionable conduct.

2. [162]

   The substantive grounds of appeal were as follows:

3. [163]

   The remaining grounds of appeal were that the primary judge erred in granting leave for the issue of a writ for possession of the mortgaged properties, that his Honour erred in finding that Yakiti was entitled to succeed on its statement of claim, and erred in ordering that Ms MacDonald pay costs. Those alleged errors might follow if, but only if, the substantive grounds of appeal succeed.

Ground 1

1. [164]

   It was not part of Ms MacDonald’s pleaded case that Mr Moini removed Mr Henley as a director of the Henley companies, nor that his removal brought the leases into default (appeal ground 1(a)). The primary judge made no finding that Mr Moini caused Mr Henley to be purportedly removed as a director and he denied having done so (see para [145] above). In any event, the orders made on 23 December 2016 effectively restored Mr Henley to his position as a director of the companies.

2. [165]

   On 14 December 2018 Ms MacDonald had sought leave to file a fourth further amended cross-claim to include an allegation that:

3. [166]

   Ms MacDonald also sought leave to amend her cross-claim to add the following two sub-paragraphs to paragraph 45(c):

4. [167]

   On 18 December 2018 Davies J refused leave for those amendments (Yakiti Pty Ltd v MacDonald (No 2) [2018] NSWSC 1970 at [15](b) and [27]-[29]).

5. [168]

   There is no appeal from that refusal.

6. [169]

   Ground 1 of the notice of appeal seeks to advance the same grounds which Ms MacDonald had been refused leave to raise.

7. [170]

   The primary judge dealt with the pleading issue (J [181]-[192]) and recorded that in correspondence on 21 December 2018, three days after Davies J’s judgment of 18 December 2018, Ms MacDonald wrote to the solicitors for the other parties asserting that her argument that Yakiti received satisfaction for the loans that Yakiti made to her by reason of the manner in which All About Fitness Gym and Health Clubs Pty Ltd obtained the assets of the Henley Group of companies implicitly arose on the pleadings and there was no need for the amendment that had been proposed but rejected (J [185]).

8. [171]

   That submission should have been rejected. Unconscionable conduct in the acquisition of the goodwill of the gym businesses was not pleaded.

9. [172]

   The primary judge doubted that Ms MacDonald should be permitted to rely on the argument in light of the history of the litigation and accepted that there was some prejudice to the cross-defendants who had conducted their case on the basis that leave to amend to include the “double satisfaction” arguments had been refused (J [192]). Nonetheless the primary judge dealt with the argument on its merits. His Honour held that Yakiti or Mr Moini did not obtain double satisfaction. The money Ms MacDonald borrowed from Yakiti was used to pay expenses of the Henley Group of companies and there was no evidence that the money she borrowed from Yakiti formed part of the assets of the Henley Group of companies or the Snap Fitness Group of companies (J [194]).

10. [173]

    The primary judge recorded that it was not until around 15 December 2016 that the new company, All About Fitness Gym and Health Clubs Pty Ltd was established. His Honour said that according to the cross-claim that company acquired the assets of the companies within the Henley Group but whether by that stage those assets included the loan money advanced by Ms MacDonald was unknown (J [195]).

11. [174]

    The primary judge might have added that All About Fitness Gym and Health Clubs Pty Ltd did not acquire the assets of the Henley Group of companies except the goodwill attaching to the businesses of those companies. That goodwill was not purchased from the Henley Group of companies. On any view, Yakiti did not obtain repayment of its loan through All About Fitness Gym and Health Clubs Pty Ltd.

12. [175]

    We were referred to no evidence that established that Yakiti effectively received “satisfaction for a value greater than the amount owed to it (by Ms MacDonald)”. Mr Moini exhibited to his affidavit of 25 October 2018 a valuation report relating to the value of All About Fitness Gym and Health Clubs Pty Ltd, Go for Gold Gyms and Centres Pty Ltd and Saffron Services Pty Ltd. He deposed (and this was apparently not objected to) that the report valued the gym business at no value or at negligible value. The valuation was not included in the appeal book and was not referred to in submissions. Mr Moini deposed that in 2017 four of the gyms had been closed down.

13. [176]

    Further, as to ground 1(a), there was no evidence that the respondents removed assets of the Henley companies, nor that Yakiti or Mr Moini removed Mr Henley as a director. Nor was there evidence that it was the removal of Mr Henley as director or removal of assets of the companies that brought the leases into default. The leases were in default because the companies did not have the cash to pay outstanding rent and Mr Moini withheld any further financial support.

14. [177]

    As to appeal ground 1(b) for the reasons above Yakiti did not receive “double satisfaction”. If the value of its interests in the new companies was greater than the amount owed by Ms MacDonald, that did not discharge Ms MacDonald’s debt. As to the second part of ground 1(b) (that the primary judge failed to give weight to the actions of the respondents that removed the abilities of the companies to repay Ms MacDonald) that ground is not open to Ms MacDonald as it was not pleaded. In any event, Ms MacDonald has not established that any part of the unsecured loan would have been recoverable if Mr Moini had not involved himself.

Ground 2

1. [178]

   Ground 2 is relevant to whether Ms MacDonald has established that she suffered any loss as a result of the respondents’ alleged unconscionable conduct and is dealt with below after ground 3.

Ground 3(a)

1. [179]

   Ground 3(a) is that the primary judge ought to have found that Ms MacDonald suffered under a special disadvantage by at least 14 October 2016 rather than, as his Honour found, from 4 November 2016.

2. [180]

   There was no dispute at trial in relation to Ms MacDonald’s evidence as to her medical condition and her admission to hospital in October. But that evidence did not establish that she was under a significant disadvantage at the relevant times by reason of her illness. As recorded at [57] above, Ms MacDonald had sent an email to Ms Dranganoudis on 17 October 2016 proposing a mechanism for the acquisition of Mr Prin’s interest in the Zetland, Double Bay and Bondi Junction gyms. The email was articulate and inconsistent with Ms MacDonald’s then having been under any special disadvantage. She wrote:

3. [181]

   As noted above at [57] the proposal did not proceed. Instead Ms MacDonald attended meetings on 26 and 31 October 2016 referred to in detail above and corresponded with Mr Moini and others as set out above in terms that demonstrate that she was then under no relevant disadvantage.

4. [182]

   In cross-examination Ms MacDonald said that at the meeting on 31 October 2016 she could not understand why Mr Moini and Mr Prin wanted her to put in more money when her contributions exceeded those of both Mr Prin and Mr Moini. She said that she was so unwell at the time she needed time to go away and think about it and she felt as if they were taking her for a ride. She felt she was being bamboozled.

5. [183]

   In fact as appears from Mr Moini’s evidence referred to at [67] above and Ms MacDonald’s email of 31 October 2016 quoted at [71], the discussions that Ms MacDonald should contribute a further $330,000 and that Mr Prin and Moini should contribute a further $220,000 each in order to equalise their contributions was rational on the basis that Ms MacDonald, as she then proposed, should have a 50% interest in the new company to be established and that Mr Prin and Mr Moini between them should have the other 50% interest.

6. [184]

   In any event, Ms MacDonald was able to protect her own interests. She did not make the further advance of $330,000. She said that she was relieved that from when she was admitted to hospital on 4 November 2016, none of Mr Henley, Mr Moini or Mr Prin mentioned that money because she was not certain that it was the correct amount of money that she should be putting in. She said that she needed time to work out why she should put in more money when she had already contributed more money than Mr Moini and Mr Prin, but did not get that opportunity because she was in hospital.

7. [185]

   Ms MacDonald may well have been naïve in thinking that she could recover value for her loans. She may also have been naïve in agreeing with Mr Moini that his advances of $121,000 and $35,000 to the Henley companies should be added to her secured loans from Yakiti (paras [69], [70], [71], [76]-[80]).

8. [186]

   Mr Moini had not sought to take advantage of that naïvety. He did not sue Ms Macdonald for the recovery of those advances and proffered an undertaking to the court that he would not do so. In any event, it was not submitted that any such naïvety as distinct from Ms MacDonald’s medical issues, amounted to the suffering of a special disadvantage.

9. [187]

   For these reasons I reject ground 3(a).

Ground 3(b)

1. [188]

   Ground 3(b) of the notice of appeal states that the particular irrelevant factors that Ms Macdonald says the primary judge took into account, and the particular relevant factors which she contends the primary judge failed to take into account, were those identified in her written submissions.

2. [189]

   Ms MacDonald submitted that although the primary judge found that the onus shifted to the respondents 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” (J [145] citing Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, 474-479; [1983] HCA 14), his Honour erred by basing his judgment on his adverse view of Ms MacDonald’s credit, rather than considering matters that affected Mr Moini’s conscience.

3. [190]

   Ms MacDonald submitted that the parties owed each other limited duties of a fiduciary or quasi-fiduciary kind in relation to the negotiations (citing United Dominions Corporation v Brian Pty Ltd (1984) 157 CLR 1 at 12 and Gibson Motorsport Merchandise Pty Ltd v Forbes (2006) 149 FCR 569 at [76];. She acknowledged that the question of whether the parties owed fiduciary duties to each other was not strictly relevant. Ms MacDonald did not plead or submit at trial that the relationship between Mr Moini, Mr Prin and her was fiduciary. Ms MacDonald acknowledged that the question was whether Mr Moini had discharged the onus put on him to show that the respondents had not acted unconscionably and that his conduct was “fair, just and reasonable” in the circumstances. Ms MacDonald submitted:

4. [191]

   The primary judge’s conclusions in relation to Ms MacDonald’s contention that Yakiti through Mr Moini had breached s 12CA and 12CB of the ASIC Act are quoted above at paras [49] and [50].

5. [192]

   The primary judge found that both Mr Prin and Mr Moini were aware that Ms MacDonald was very ill and hospitalised (J [149]). His Honour said it was not clear whether they believed or were aware if Ms MacDonald was able to communicate with them (J [150]).

6. [193]

   As noted above there was uncontradicted evidence from Mr Moini that he had been told by Mr Henley that Ms MacDonald preferred to communicate with Mr Henley, which she clearly did.

7. [194]

   The primary judge observed that neither while Ms MacDonald was at hospital, nor at any other time, did Mr Moini do anything to suggest or imply that Yakiti would forgive the loans to her or forgo his rights to enforce the mortgages (J [153]). As to Mr Moini’s email of 5 November 2016 quoted at [97] above, and an email from Mr Prin on the same day in which he wished her a speedy recovery, the primary judge said:

8. [195]

   In concluding that the respondents did not act unconscionably in their dealings with Ms MacDonald the primary judge said:

9. [196]

   The primary judge considered that Mr Moini felt animosity towards Ms MacDonald. In his oral evidence he accused her of helping Mr Henley defraud investors by selling a single Snap Fitness franchise or an interest therein at multiple times to different people (J [163] and [164]). However his Honour said that whilst this may have provided motivation for Mr Moini to act unconscionably he did not so act (J [165]). The primary judge then reached the conclusions quoted earlier.

10. [197]

    It may be taken from the primary judge’s unchallenged finding that Ms MacDonald laboured under a special disadvantage within the meaning of Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; [1983] HCA 14 that during her hospitalisation in November and December her illness seriously affected her ability to make a judgement as to her own best interests. That is what “special disadvantage” means in this area of discourse. Nonetheless the primary judge also found that there was no suggestion that Ms MacDonald did not understand the situation in spite of her illness and no evidence that she was unable to understand any relevant documents (J [173]).

11. [198]

    The primary judge found that Mr Moini did not employ unfair tactics but was forced to act promptly and attempted to stress the urgency of the situation to Ms MacDonald when she had failed to produce the $330,000 that she had agreed to provide before she was admitted to hospital (J [172]). His Honour found that Mr Moini acted out of business necessity in urgent circumstances (J [165]).

12. [199]

    As to the particulars of ground 3(b), we were not referred to any cross examination of Mr Moini or any submission made on behalf of Ms MacDonald that Mr Moini should have been aware from the tenor of Ms MacDonald’s communications that she reposed confidence, trust and faith in him. Assuming that to be so, it does not follow that Mr Moini was required in conscience to honour that confidence, trust or faith.

13. [200]

    Ms MacDonald submitted that she brought to Mr Moini the proposed opportunity of saving their investments by extracting assets of the Henley Group by means of a debt to equity swap constructed so as to resist any future liquidator.

14. [201]

    Mr Moini did not exploit that proposal. There was no debt for equity swap. Nor was that proposed by Ms MacDonald. She proposed a transfer of assets from the Henley companies to a new company to be established in return for forgiveness of unsecured debt. It might be doubted that that would be effective against a liquidator given the other unsecured liabilities of the Henley companies. Prima facie, the transaction would be liable to be avoided by a liquidator as a voidable preference or an uncommercial transaction. In any event, Mr Moini did not exploit Ms MacDonald’s proposal.

15. [202]

    Mr Moini’s email of 5 November 2016 (at para [97] above) was reassuring in tone. But there is no evidence, and Ms MacDonald did not run a case on the basis, that she altered her position to her detriment in the expectation that she could rely on Mr Moini to save her from the consequences of her loans to the Henley Group of companies.

16. [203]

    Ms MacDonald submitted that Mr Moini did not ask her directly for the $330,000 at any time that she was in hospital and did not tell her “… that he had changed his mind and was planning on taking the opportunity for himself, Mr Prin and Mr Henley”. That is true. What would have happened had he done so? Ms MacDonald was in no position to take steps to recover her loan given her illness. In any event, the Henley companies were insolvent. Ms MacDonald does not submit that she could have swapped her loan for shares in the Henley companies (a debt for equity swap). That would have been a foolish step given the financial position of the Henley companies. She does not submit that she could have persuaded Mr Henley to transfer the assets or business of the companies to her in consideration of the extinguishment of her debt. Any such step would have been doomed to fail given the Henley companies’ inability to pay rent and franchise fees or to repay other debts.

17. [204]

    Had Mr Moini pressed her to pay the $330,000 she had agreed to pay, and had she done so, the likelihood is that she would have lost that money as well.

18. [205]

    In any event, Mr Moini’s uncontradicted evidence was that he was told by Mr Henley that Ms MacDonald did not wish to speak to him and that she was communicating through Mr Henley. He asked Mr Henley to tell Ms MacDonald that they were moving on without her. This was not unconscionable.

19. [206]

    During the hearing of the appeal an issue was raised as to whether the primary judge’s finding that the urgency of the situation required Mr Moini and Mr Prin to take action that did not include Ms MacDonald being involved in the new company was erroneous. In my view it was not. The correspondence in October and November referred to above demonstrates the urgency of the position. Mr Moini’s affidavit perhaps gave a false impression that matters were not as urgent as suggested by the correspondence. He deposed that after 5 November 2016 the businesses required additional capital and he set out a list of payments he made through Yakiti commencing with a payment on 3 December 2016. In fact, in addition to the payments of $121,000 and $35,000 made on 31 October 2016, Mr Prin and Mr Moini made further payments of $33,000 and $102,475.94 referred to in Mr Prin’s email of 13 November 2016 (at para [99] above). Urgency was clearly demonstrated. Ms MacDonald’s illness as known to Mr Moini effectively precluded her from further involvement at a critical juncture.

20. [207]

    For these reasons I also reject ground 3(b).

Ground 2

1. [208]

   By her cross-claim Ms MacDonald sought the following relief for the alleged contraventions of ss 12CA and 12CB:

2. [209]

   Section 12GM(7) describes orders that may be made pursuant to s 12GM(1) or (2). Section 12GM relevantly provides:

3. [210]

   Section 12GM(2) provides:

4. [211]

   Orders may be made under s 12GM(7) if the plaintiff “has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in contravention of a provision of this Division”. It was necessary for Ms MacDonald to show that she suffered loss of damage “by” the conduct of Yakiti and Mr Moini that was alleged to be unconscionable, and further, to quantify that loss or damage.

5. [212]

   Ms MacDonald did not show that the loan or any part of it would have been recoverable if the conduct she impugned had not been engaged in (to employ the tort measure of damages: Gates v City Mutual Life Assurance Society Limited (1986) 160 CLR 1 at 13; [1986] HCA 3. She submitted that the unconscionable conduct was “… not dealing [her] into one third of the new company, All About Fitness, and the value of that company at the time that she should have been brought into it, which is shortly after 2 February 2017”.

6. [213]

   That would be an appropriate measure of damages in contract if there were an enforceable promise that Ms MacDonald would receive a one third interest in the company to be formed. There was no such contract. I doubt that that would be an appropriate measure of damages under s 12GM. But it is not necessary to decide that question. Assuming, without deciding, that if Ms MacDonald established that Mr Moini had contravened s 12CA or 12CB she would have been entitled to damages on the basis pressed on appeal, she did not establish that she would be entitled to any damages.

7. [214]

   Ms MacDonald pleaded her claim to loss and damages as being the “loss of a chance to have a 33% share in New Company which had assets valued at $6.5 million dollars in November 2016 or the value of 22% of New Company as at 15 December 2016.” (She claimed further damages for legal fees in resisting proceedings for enforcement of the loan agreements and for the amount of any judgment debt entered against her, but that claim depended upon her establishing an agreement for the release of her debt which was rejected and is not the subject of appeal).

8. [215]

   I accept that the companies formed by Mr Moini and Mr Prin succeeded to, and in that sense acquired, the goodwill of the businesses formerly carried on by the Henley Group of companies. Ms MacDonald relied upon Quadrant’s offer of 25 November 2016 to seek to establish that the business of the Henley companies had a value of $6.5 million dollars or net assets valued at approximately $4.65 million dollars. The primary judge said:

9. [216]

   I see no error in that reasoning. Contrary to ground 2 in the amended notice of appeal the primary judge did not find that the businesses had no value. Rather he found that the value of those businesses had not been proved.

10. [217]

    Mr McGrath who appeared for Ms MacDonald appeared to accept this. He submitted that the matter ought to be remitted for further hearing on the question of damages.

11. [218]

    But no order had been made for issues of liability and damages to be determined separately. The trial was on all issues. It was incumbent on Ms MacDonald to establish what would have been the value of a one-third interest in the companies established by Mr Moini and Mr Prin (if that were the appropriate measure of damages) and then to establish what discount should be applied to determine the value of the loss of a chance of acquiring that interest. In the latter respect, there is a real issue as to whether Ms MacDonald needed to establish that she could have and would have been willing to contribute her share of future operational expenses.

12. [219]

    If it be assumed that Ms MacDonald would have been entitled to damages for the loss of a chance of obtaining a one-third interest (or some other proportionate interest) in the new company or companies that succeeded to the businesses of the Henley Group, the evidence was incapable of establishing the quantum of such damages.

13. [220]

    Accordingly, even if Ms MacDonald had established a contravention of ss 12CA or 12CB of the ASIC Act, her claim was rightly dismissed.

14. [221]

    For these reasons I propose that the appeal be dismissed with costs.

15. [222]

    McCALLUM JA: I have had the benefit of considering in draft the judgments of White JA and Macfarlan JA. I agree with Macfarlan JA, for the reasons his Honour has stated, that the respondents’ conduct was unconscionable. As his Honour has explained, Ms MacDonald was given to believe at the time of her second admission to hospital that her position in the enterprise was secure. She gave evidence that she was very sick at that time. She said she was “grateful” that nobody asked her about the money while she was in hospital and that she “thought they were doing the right thing” because they were her “friends”. Within a week, without warning or notice to her, her friend Mr Moini was proposing cutting her out of the deal. His email of 11 November 2016 was sent the day before Ms MacDonald underwent major emergency surgery following the failure of alternative treatment. However, I also agree with both White JA and Macfarlan JA, for the reasons stated by their Honours, that, unfortunately for Ms MacDonald, no loss was proved and the appeal must accordingly be dismissed.