Wu v Ling

LEEMING JA: I have had the considerable advantage of reading the judgment of Bergin CJ in Eq in draft. I agree with her Honour that Ms Wu’s appeal should be dismissed and Mr Ling’s cross-appeal allowed. I do not regard any of what follows as inconsistent with her Honour’s reasons, with which I agree. I add the following by way of amplification of the principal point argued in this Court, namely, whether the primary judge erred in relieving Ms Wu from some of her contractual obligations under the second, third, fourth and fifth loans made by Mr Ling to her.

I do not repeat the detailed analyses of the evidence given by the primary judge and Bergin CJ in Eq. The essential findings of fact are that Ms Wu was an experienced and astute businesswoman of considerable wealth. Mr Ling lent $350,000 in February 2009 to Ms Wu, for a period of 12 months, with an interest rate of 9% per annum (rising to 11% in the event of default), secured over real property. Ms Wu made no repayments of that loan in 2009 or 2010.

The loans from Mr Ling to Ms Wu in respect of which the primary judge granted relief were as follows:

No repayments, whether of principal or interest, were made by Ms Wu between May and October 2010 in respect of any of the four short term loans.

In each case, it was Ms Wu who approached Mr Ling for further loans. The second loan agreement was drafted by Ms Wu’s solicitor. The third, fourth and fifth loan agreements appear to have been drafted by Ms Wu. They were executed in her accountant’s office and were witnessed by her accountant.

The primary judge found that at least by the time of the fifth loan, Mr Ling believed that Ms Wu was being defrauded. The trial proceeded on the basis that Ms Wu believed, wrongly, that she stood to make $16,000,000 if only she could provide further funds in the short term. There was no challenge to the finding that ultimately the entirety of the money borrowed by Ms Wu was lost to a Nigerian scam, although the evidence at trial was very slight.

Equitable intervention in a case such as this is based upon “a precise examination of the particular facts” and “a scrutiny of the exact relations established between the parties”, as the unanimous decisions of the High Court in Jenyns v Public Curator (Q) (1953) 90 CLR 113; [1953] HCA 2 at 118–119 and Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; [2013] HCA 25 at [18] confirm. The point of saying so in Jenyns was the inappropriateness of a jury determining issues of fact involved in a claim of unconscionable conduct, the question being evaluative rather than binary. The point of present relevance is that one should not expect to find a bright line separating circumstances which place an impugned transaction inside or outside the reach of equitable principle. Lord Selborne rejected the notion that there was an “indispensable condition of equitable relief” in Earl of Aylesford v Morris (1873) LR 8 Ch App 484 at 491. That is consistent with the more modern formulations emphasising the potential width of the jurisdiction, including Fullagar J’s statement in Blomley v Ryan (1956) 99 CLR 362 at 405 that the circumstances are “of great variety and can hardly be satisfactorily classified”. The same point has been made in relation to the width of the statutory jurisdiction to relieve against unconscionable conduct: see (for example) Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 at [291]–[293] (Allsop P, Bathurst CJ and Campbell JA agreeing) and PT Ltd v Spuds Surf Chatswood Pty Ltd [2013] NSWCA 446 at [93]–[106] (Sackville AJA, with whom McColl JA and I agreed).

Thus, the absence of immoral or dishonest motives is not sufficient to preclude equitable intervention: Johnson v Smith [2010] NSWCA 306 at [5] and [98]–[102]; Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199; [2015] FCAFC 50 at [305]. Nor is it necessary to establish that the defendant actively sought to procure the assent of the other party: Bridgewater v Leahy (1998) 194 CLR 457; [1998] HCA 66 at [76]; Hart v O’Connor [1985] AC 1000 at 1024.

Prima facie, a loan made at a high interest rate to a borrower whom the lender believes is being defrauded would not seem to stand clearly outside the scope of the equitable jurisdiction. So stated, the circumstances are not far removed from Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, where Deane J said at 478 that the bank through its officer Mr Virgo “simply closed his eyes to the vulnerability of Mr and Mrs Amadio and the disability which adversely affected them” when their son procured them to execute a mortgage securing his company’s indebtedness. However, notwithstanding the width of the jurisdiction, the following circumstances combine to make the present appeal a case where relief is not available.

First, the High Court in Kakavas at [17] reiterated and confirmed Lord Hardwicke’s formulation in Earl of Chesterfield v Janssen (1751) 2 Ves Sen 125 at 155–156; 28 ER 82 at 100 of that species of equitable fraud which prevents a party “taking surreptitious advantage of the weakness or necessity of another”. Just as the High Court said in Kakavas at [25] that there was nothing “surreptitious” about Crown’s conduct, so too here there was nothing surreptitious about Mr Ling’s conduct.

Secondly, people do foolish things. Knowledge or belief of a plaintiff’s foolishness alone is not sufficient to affect the defendant’s conscience. The point of Louth v Diprose (1992) 175 CLR 621 was not that the plaintiff (Mr Diprose) had made an imprudent gift because of his infatuation with the defendant (Ms Louth), but that she had unconscientiously manipulated him, creating a false sense of crisis. For that reason, Mason CJ said that Ms Louth’s conduct was unconscionable in that it was dishonest and was calculated to induce, and in fact induced, Mr Diprose to enter into an improvident transaction: at 626. Likewise, Deane J emphasised that Mr Diprose’s special disability arose “not merely from [his] infatuation. It extended to the extraordinary vulnerability of [Mr Diprose] in the false ‘atmosphere of crisis’” manufactured by Ms Louth with a threatened eviction from her home and suicide: at 638. Thus Deane J (with whose reasons Dawson, Gaudron and McHugh JJ agreed) observed at 638 that:

Here, the fact that Ms Wu as it turns out was very foolish in believing in the success of her Nigerian investment is not sufficient.

Thirdly, in Kakavas at [18] the High Court cited the passage from Louth v Diprose reproduced above to explain the principle on which equitable intervention was based. The Court said at [117] that “the concern which engages the principle is to prevent victimisation of the weaker party by the stronger”. The Court returned at the conclusion of its reasons at [161] to the notion of victimisation:

Victimisation in this context is no narrow concept. I do not understand those references to the need to identify “victimisation” to qualify the breadth of what was said of the same term in the same context in Bridgewater v Leahy (to which reference was made in Kakavas at [14] and [22]). Indeed, the additional references to “exploitation” in the passage from Kakavas reproduced above tend to confirm the breadth of the notion underlying the principle. In Bridgewater, the minority (Gleeson CJ and Callinan J) framed as “the essence of the appellants’ claim” whether the elderly uncle was a “victimised party” (at [35], citing a passage in the reasons of McTiernan J in Blomley v Ryan (1956) 99 CLR 362 at 386). The majority (Gaudron, Gummow and Kirby JJ) explained at [76] that:

But even on that broad understanding of victimisation, there was in the present case no element of victimisation of Ms Wu by Mr Ling. There was neither active extortion nor passive acceptance of a benefit by Mr Ling. To the contrary, the unchallenged findings of primary fact were that he counselled her against, and she begged him to provide, the loans. Ms Wu was commercially sophisticated and had the benefit of independent professional advice from her personal solicitor and accountant.

True it is that Ms Wu may be taken to have been victimised and exploited by her Nigerian business partner, something which Mr Ling came to believe no later than when the fifth loan was made. In some cases, that might suffice to sustain equitable relief. But in the present case, Ms Wu’s commercial sophistication, receipt of independent advice and the absence of any taking advantage by Mr Ling combine to place the present facts outside the scope of equitable intervention. Just as was noted in Kakavas at [28], it is necessary to have regard to an individual’s privacy and autonomy. Ms Wu wanted short term finance, and was prepared to pay high interest rates, because she believed she could make a large amount of money. Some weight must be given to her choice. Many entrepreneurs are prepared to take large risks to achieve large rewards. The fact that many such ventures will fail does not make lending to them unconscionable. Nor does the fact that the lender more correctly appreciated the riskiness of the venture than the borrower.

The primary judge found that Ms Wu did not accept the suggestion from Mr Ling that her business partner was defrauding her. It turned out that Mr Ling’s assessment was correct. But I do not see anything unconscientious in permitting Mr Ling to enforce bargains struck between her and him merely because he believed, as it turns out correctly, that her judgment was not sound.

Finally, I turn to the “proof of a predatory state of mind” to which the High Court referred in Kakavas at [161], recalling what Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ had said in Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315; [2003] HCA 57 at [23]:

There is nothing in the findings of fact to support the conclusion that Mr Ling’s conduct, or state of mind, was predatory or malign. Again, Ms Wu’s commercial sophistication and receipt of independent advice are important here. The very high interest rates do not, in the circumstances of this case, support that conclusion. The rates were high because the term was short and there had been no earlier repayments. The very large amount of interest which is now due is attributable to Ms Wu’s failure to repay the amounts lent for many years.

I agree with the orders proposed by Bergin CJ in Eq.

PAYNE JA: I have had the privilege of reading the decision of Bergin CJ in Eq in draft. I agree with her Honour's reasons and the orders she proposes. I also agree with the additional remarks of Leeming JA.

BERGIN CJ in EQ: The appellant/cross respondent, Yan Wu (the appellant), borrowed $670,000 from the respondent/cross appellant, Albert Ling (the respondent), in accordance with five loan agreements over the period February 2009 to October 2010. The appellant did not repay the loans and the respondent brought proceedings in the Common Law Division for possession of a property that secured one of the loans and for the entry of judgment for the amounts outstanding under the loan agreements.

The appellant defended the proceedings until the first day of the trial (which took place on 13, 14 and 15 October 2014) on the basis that the loan agreements should be set aside under the Contracts Review Act 1980 (the CRA). The appellant also claimed that the interest components of the loan agreements should be set aside under the CRA and/or on the grounds that such provisions were unconscionable. The appellant also claimed that the default interest provision in the first loan agreement was a penalty. In opening the appellant’s case at trial, counsel informed the primary judge (Button J) that the appellant was not “resisting the payment of capital” (Black 7 W–Y), leaving only the issues in relation to the interest components of the loans for determination.

Judgment was delivered on 30 June 2015: Ling v Pan Pac Investments Pty Ltd; Ling v Wu [2015] NSWSC 850 (the Judgment). The primary judge held that the CRA did not apply; that the interest component in the first loan was not a penalty; that the interest components in each of the other loans should be set aside on the ground that the respondent had acted unconscionably towards the appellant; and that the respondent was entitled to a rate of interest of 20% per annum on each of the second to fifth loans (Red 61 [116]–[119]). There was a hearing in respect of costs and further interest on 8 October 2015. Judgment was delivered on 20 October 2015: Ling v Pan Pac Investments Pty Ltd; Ling v Wu (No 3) [2015] NSWSC 1550 (the Costs Judgment). The primary judge ordered the respondent to pay 75% of the appellant’s costs of the proceedings.

On 25 February 2016 the appellant filed a Notice of Appeal. On 7 September 2016 the respondent filed a Notice of Cross-Appeal.

The appeal and cross-appeal were heard on 28 September 2016. Mr SA Wells, of counsel, appeared for the appellant and Mr WG Muddle SC, leading Mr A Djurdjevic, of counsel, appeared for the respondent.

The appellant arrived in Australia from China in 1988. Although the dates are unclear, there is no issue that she met the respondent at the Cambridge College at which she was studying English and thereafter, they had an affair. There was some dispute at trial about the length of that relationship, however, it appears it had concluded by the time the appellant moved into the nurses’ unit at Prince Henry Hospital whilst completing a bridging course to become a Registered Nurse (Blue 172). It would appear that this was by no later than 1991 (Blue 191).

In 1991 the appellant advised the respondent that she wished to purchase a home unit in Mortdale but needed money for the deposit. The respondent loaned the appellant $12,000 without interest and the appellant repaid the respondent promptly.

It is apparent that there was no further contact between the appellant and the respondent between 1991 and 2009 except for some Christmas cards from the respondent to the appellant (in 1993 and 1994) and an invitation to the appellant’s wedding to Mr Terry Wormleaton on 29 November 1992 at Darling Harbour and thereafter at a restaurant in Glebe. There was an issue about the appellant’s marital status at trial as the appellant claimed that she was single and “never married” (Blue 191).

In 1993 the appellant established what she described as a “multicultural aged care business” which she claimed received “no recognition from any funding bodies” (Blue 172). It is apparent that the appellant continued to operate this business at least up until 2013.

On 1 June 2008 the Corporate Affairs Commission, Abuja-Nigeria, issued a Certificate of Registration of the business name “J & D Enterprise Nigeria Limited”. That Certificate identified the general nature of the business of that company as “import, export, general commerce” with a principal place of business in Abuja (Blue 223).

On 18 July 2008 the appellant, as director of “J & D Enterprise Ltd”, wrote to the manager of “GT Bank” requesting a withdrawal of US$2.52 million from the J & D Enterprise Ltd account. That letter included the following (Blue 224):

In February 2009 the appellant telephoned the respondent and informed him that she wished to borrow some money. She said that she was “in the oil trading business” with a “good partner”, was “buying oil from Nigeria” and would make “$16 million net” on the deal for which she needed some finance. The appellant asked the respondent whether he could lend her $300,000. The respondent claimed that the following conversation then took place (Blue 3):

Later that day the appellant provided an unsigned draft Statutory Declaration to the respondent with a note “Albert pls see this draft Yan 5/2/09” (Blue 21). That draft document was in the following terms (Blue 21):

After reading the draft Statutory Declaration the respondent advised the appellant that he wanted “9% per annum interest” and “the whole of the interest for the 12 month period to be paid in advance” (Blue 4). The respondent claimed that the following conversation then took place (Blue 4):

On 6 February 2009 the appellant produced a further draft document for the respondent in which the relevant changes were made. During a discussion about that document the respondent informed the appellant that if she were to repay the monies in 12 months there was no problem with the interest rate. However he informed her that if she did not repay the money, the interest rate would increase from 9% to 11% and would be compounded. To that suggestion the appellant said that it would be “okay”, because she would be “making a lot of money” (Blue 5).

The respondent’s solicitor, Mr Solomon, prepared the loan and security documentation and forwarded them to the appellant’s email address. The letter that Mr Solomon wrote to the appellant included the following (Blue 58):

Mr Solomon gave affidavit evidence that on 11 February 2009 he received an email from the appellant in the following terms (Blue 69):

Mr Solomon recollected that the appellant attended his office in the late afternoon of 11 February 2009 at which time she informed him that she was not liable for the payment of stamp duty on the security documents because the security was over a residential property. Mr Solomon expressed doubt about the accuracy of her statement, because the purpose of the loan was not for the acquisition of residential real estate or the refinancing of a residential mortgage. The appellant provided the executed documents to Mr Solomon on 11 February 2009.

The Loan Agreement provided for the loan of a principal sum of $350,000 for one year repayable on 11 February 2010. The interest rates fixed under the Agreement were recorded as follows (Blue 23):

The Agreement provided that if the appellant repaid the whole of the principal sum prior to the date for repayment, she would not be entitled to a rebate of the prepaid interest. It also included the following (Blue 23):

The security for the loan was a registered mortgage over the appellant’s Mortdale property. The appellant also signed the mortgage documents and a declaration that the credit to be provided was to be applied “wholly or predominantly for business or investment purposes (or for both purposes)” (Blue 27). The appellant also signed an acknowledgement that prior to signing the security documents she had the opportunity to obtain independent financial and legal advice (Blue 28). It was not in issue that the appellant did not take up that opportunity. The respondent advanced the loan monies to the appellant by depositing the vast majority into the appellant’s account styled “Auscare Corporation Pty Limited”, a company apparently associated with the appellant’s aged care business.

There was no further communication between the appellant and the respondent until about 6 February 2010, when the respondent telephoned her asking when he could expect repayment. The appellant advised the respondent that the “deal” was “not yet complete” but that it would be very soon. The respondent claimed that when he reminded the appellant that the penalty rate of interest would apply she responded “no problem” (Blue 7). The respondent did not speak to the appellant again until May 2010.

In May 2010 the appellant telephoned the respondent and informed him that the “deal is done” but that she needed $50,000 for a “very short time” to pay “some duty”. The respondent claimed that the following conversation then took place (Blue 7):

After this conversation the appellant arranged for the respondent to attend the offices of Lawside Lawyers at Burwood. Prior to meeting with that solicitor, Geoffrey Wong, the respondent received from the appellant a copy of the following document signed by the appellant (Blue 29):

At the meeting between the appellant, the respondent and Mr Wong, the appellant asked Mr Wong how much it would cost to register the mortgage over the property. After Mr Wong advised the appellant that it would cost about two to three thousand dollars, the appellant asked whether there were any alternatives. Mr Wong then suggested that the respondent could lodge a caveat which would cost the appellant only about $800. The appellant suggested that this was “better”, and Mr Wong asked the respondent whether he was prepared to have a caveat over the property instead of a mortgage. Mr Wong advised the respondent that a caveat was not “as strong as” a mortgage, but it was probably “good enough” in the circumstances. The respondent asked what would happen if he did not receive the money “on time” and Mr Wong advised him that he would be paid interest at the “penalty rate” and would have the security of the caveat over the appellant’s property. The respondent then agreed to those terms.

Mr Wong then prepared a Loan Agreement between the appellant and the respondent and read through it with them at his office. The appellant and the respondent signed that Agreement which included the following (Blue 31–33):

The Agreement also provided for the respondent to lodge a caveat over the appellant’s Croydon property at any time after the date of the agreement (Blue 33 cl 7). The respondent acknowledged that the Croydon property was registered in the name of Pan Pac Investment Pty Limited (Pan Pac) and it was noted that the appellant was the sole shareholder of Pan Pac (Blue 34 cl 7). It was also noted that if the Principal Sum was not repaid by 31 December 2010, the respondent was entitled to commence legal proceedings to recover the outstanding amounts without further notice (Blue 34 cl 8). It was also recorded that both parties had been afforded the “right” to obtain independent legal and financial advice prior to signing the agreement and that if they chose not to do so, they waived their right to do so (Blue 34 cl 9).

There were no further dealings between the appellant and the respondent until August 2010 when the appellant telephoned the respondent and advised that she needed $65,000 “very urgently” to pay for “customs duty” before she could receive her shipment. The respondent advised the appellant that he did not have any money and that she already owed him “so much money”. The appellant assured the respondent that he would get his money but that she had to go through all “these channels” before she could get the shipment. The appellant advised the respondent that he would be paid back within “one month”. The respondent said that he would have to borrow money to assist the appellant and asked her whether she was willing to pay an interest rate of 10% per month. The appellant advised that she was “more than happy to pay” that rate and that she needed the money in two days. The respondent informed the appellant that he needed a “written request”.

On 31 August 2010 the appellant provided the respondent with a document that was in the following terms (Blue 37):

The respondent telephoned the appellant and informed her that he had been able to raise the money but he would need the documents to be prepared by his solicitor. The appellant informed the respondent that she did not have time to see a solicitor and that she would give him the title deeds to one of her properties as security because it was “just as good as a solicitor” and that he could sell the property if she did not repay the loan. A plan was then made for the appellant and the respondent to meet at the appellant’s accountant’s office in Strathfield. At this meeting the respondent observed the appellant sign the document extracted above in front of her accountant, who witnessed her signature. The appellant then handed the respondent the Certificate of Title to the Croydon property and in exchange, the respondent handed over a cheque in the sum of $65,000.

Early in September 2010 the appellant telephoned the respondent again and asked to borrow a further $115,000 to cover “customs duty”. Once again the appellant informed the respondent that she needed the money “very urgently” and that it was a “very big deal”. The appellant said that she would have no trouble paying the money back and that the interest rate of 10% per month was “okay”. The respondent managed to raise the money and telephoned the appellant to ask if she had prepared the relevant loan document. The appellant advised the respondent that she had done so and once again asked him to meet her at her accountant’s office.

The document that was signed by the appellant in her accountant’s office in the respondent’s presence was in the following terms (Blue 38):

The next time the respondent heard from the appellant was in October 2010 when the following conversation took place (Blue 13):

The respondent claimed that at this stage the appellant commenced crying and the conversation continued as follows (Blue 13):

Some days later the respondent advised the appellant that he was able to raise $90,000 but it would once again be at an interest rate of 10% per month. The appellant advised the respondent that she would repay the monies by the end of November 2010 and that she would prepare a document that made clear that he could sell the Mortdale and Croydon properties if the loans were not repaid. She assured him that the monies that she owed him would be “easily” repaid out of the profits that she would receive from the deal because she was going to make $16 million (Blue 14).

An arrangement was made to meet at the appellant’s accountant’s office on 12 October 2010. On that occasion, the following document was executed by the appellant and witnessed by her accountant (Blue 39):

The appellant made only two repayments to the respondent: $29,700 on 29 April 2011; and $4,000 on 1 June 2011.

The respondent commenced the proceedings on 19 September 2012.

The appellant did not make any further repayments to the respondent until 2015, after the Judgment was delivered, but before the Costs Judgment was delivered. Four payments were made: $50,000 on 14 September 2015; $56,645.64 on 6 October 2015; $65,000 on 7 October 2015; and $56,300 on 8 October 2015. The appellant has repaid $293,145.64 of the total of the principal amount of $670,000 that was advanced to her by the respondent.

At trial the respondent relied upon his own affidavits both affirmed on 11 October 2013. He also relied upon the affidavit of his solicitor, Meyer Solomon, sworn on 15 October 2013. The appellant relied upon her affidavit affirmed on 23 September 2013. The appellant and the respondent were cross-examined. Mr Solomon was not cross-examined.

The appellant made many allegations against the respondent in her affidavit. These included that he knew that she was in extreme hardship and still expected her to pay him “exorbitant interest” (Blue 173 U–W); and that he was in breach of ASIC requirements in providing “credit activities” (Blue 177 Q–Z).

In her oral evidence, the appellant made a new claim that the respondent informed her that the interest component in respect of the loans was a “formality” and that she understood that the respondent never intended to recover any interest on the loans from her (Black 137 W–138 E).

During her cross-examination the appellant was shown the wedding invitation referred to earlier (at [29]). The appellant agreed that the invitation had been sent to the respondent and that it was necessary to RSVP to Mr Wormleaton’s address. The appellant denied that she was ever married to Mr Wormleaton (Black 109 X) and gave the following evidence in cross-examination (Black 111–115):

The appellant was also cross-examined about the Loan Agreement and other documents prepared by the respondent’s solicitor, Mr Solomon, in respect of the first loan. She gave the following evidence (Black 151):

The appellant was then asked about the documentation in relation to the second loan and gave the following evidence (Black 153):

The appellant was cross-examined about her conversations with Mr Wong, her solicitor from Lawside Lawyers, at the time of the second loan and she gave the following evidence (Black 154):

The respondent was cross-examined in respect of his knowledge or suspicion that the appellant was the victim of a scam. He gave the following evidence in cross-examination (Black 60):

Whilst the respondent was giving evidence during the first day of hearing, he had some notes with him in the witness box. Senior Counsel for the appellant called for those notes and the booklet that was produced was marked MFI 4. On the second day of the trial the respondent was cross-examined as follows (Black 61–62):

The respondent agreed that by the time of the third loan, he was concerned that something could be going wrong with the oil transaction (Black 70 N). He gave the following evidence in cross-examination in this regard (Black 71):

The respondent accepted that in respect of the third loan, the appellant needed the funds “extremely urgently”; she was “desperate for finance”; and that she was relying upon him (Black 73 F–K).

The respondent agreed that by the time he made the fifth loan to the appellant, he suspected that the oil business she was involved in was a scam. He agreed that the only reason he advanced the $90,000 was because by that stage he still regarded himself as having sufficient security in the event that the appellant received no money from the oil transaction (Black 76 K–O).

The primary judge identified the issues for determination as: (1) whether the appellant should pay the respondent any interest on the loans; (2) if so at what rate; (3) whether the CRA applied to the transactions; and (4) whether any interest component should be disallowed on the basis that it was an unlawful penalty (Red 42 [14]).

The primary judge did not accept the appellant’s claim that the respondent had told her that if the oil business did not succeed she would not be required to pay any interest on the loans. In this regard the primary judge made the following findings (Red 48):

The primary judge also dealt with the appellant’s explanation in respect of the wedding invitation as follows (Red 49):

The primary judge recorded that he had substantial concerns about the appellant’s credibility and had approached any assertion that she made that was not against her own interest, or accepted by the respondent, or corroborated by documents or other surrounding evidence, with caution (Red 49 [60]). The primary judge reached the same conclusion in respect of the credibility of the respondent (Red 50 [61]).

The primary judge found that the appellant was a highly experienced businesswoman who had found significant success in the aged care industry and had built up an impressive property portfolio. The primary judge was also satisfied that when the appellant entered into the loan arrangements with the respondent, she was by no means naïve with regard to financial matters. His Honour’s use of the expression “quite the contrary” implies a satisfaction that the appellant was very experienced in these matters (Red 50 [64]). However, the primary judge accepted that the appellant had sought romantic companionship on the internet and that things had eventually spiralled “out of control”. His Honour concluded that by the time of the first loan, the appellant was “thoroughly unable to see what would have been apparent to a fully informed, objective onlooker: that she had been dragged into a deception, and every sum of money that she advanced was simply making things worse” (Red 50–51 [65]).

The primary judge was satisfied that the respondent was a very astute business person and that from the outset he seriously doubted the wisdom of the appellant’s putative investment in oil fields in Nigeria (Red 51 [66]). His Honour was satisfied that from the “first moment” that the appellant informed the respondent of her aim to make a profit in the order of $16 million, “alarm bells were ringing” in the respondent’s mind (Red 51 [67]). The primary judge found (Red 51):

In dealing with the question of unconscionability his Honour referred to the relevant authorities (Red 54–56 [89]–[94]) and said (Red 56):

The primary judge found that at the time of the first loan the respondent suspected that the appellant was “at the least, out of her depth” (Red 56 [96]). His Honour was also satisfied that the respondent suspected that the appellant was “making a serious error of judgment”; and that there was “some possibility” that the appellant “was being defrauded, and was misguided in her belief that she would profit to the tune of $16 million” (Red 56 [96]). However, the primary judge recorded that he did not find that at “the initial stage” the respondent actually knew of, believed in or shut his eyes to the fact that the appellant was in a position of special disadvantage (Red 56 [97]). His Honour did not consider that at the stage of the first loan the respondent had taken advantage of “the special disadvantage” of the appellant because the 9% per annum rate of interest was “eminently reasonable” (Red 56 [98]).

In those circumstances, the primary judge did not interfere with the default rate of interest of 11% in the first loan (Red 57 [99]).

The primary judge then dealt with the events from the time of the second loan, noting that the interest rate had jumped from 9% per annum to 60% per annum; that the first loan had not been repaid; that the respondent had a chance to reflect on the whole situation; and that the demeanour and presentation of the appellant was more desperate when she spoke of things being “very urgent” (Red 57 [100]). His Honour then found:

The primary judge rejected the appellant’s submission that he should disallow the interest rate on default with regard to the first loan on the basis that it was a penalty. His Honour considered that the increase in the rate of interest from 9% to 11% was a reasonable reflection of the respondent’s enforcement and other costs in the event of default, and a reasonable pre-estimate of the cost of being kept out of his money, as indeed he had been for years (Red 59 [108]–[109]).

The primary judge also concluded that the CRA did not apply to the circumstances of the case (Red 59–61 [110]–[115]).

The primary judge recorded his conclusions as follows (Red 61):

The primary judge indicated in the Judgment that unless notification was given that should alter the position with regard to the question of costs before the next hearing, it was appropriate that on the next occasion, when Short Minutes were to be filed with the Court, an order would be made that the respondent pay 75% of the appellant’s costs of the proceedings.

In dealing with the question of costs in the Costs Judgment the primary judge referred to the efforts made by the respondent to recover the outstanding amounts, including offers of compromise (Red 67.7 [19]). His Honour also referred to the respondent’s submission that he had been the real victor at the substantive hearing because on the first day the appellant had accepted liability for repayment of the principal; the appellant had never disavowed the claim that she need not pay any interest; the first loan was not the subject of interference by the Court; and the only issue upon which the respondent failed was the issue of the quantum of interest (Red 67.7 [20]). The respondent submitted that the appellant should pay his costs because he succeeded in the litigation. The primary judge said (Red 67.8):

The appellant appeals from the Judgment on the grounds that: (1) in respect of the second to fifth loans the primary judge erred: (a) in allowing any interest on those loans; (b) in allowing interest of 20%, “rather than a much reduced rate”; and (c) in reducing the rate of interest from the date of default, rather than the date of the loan; and (2) in respect of the first loan the primary judge erred: (a) in failing to set aside the interest component of that loan; and (b) in failing to find that the default interest rate constituted a penalty (Red 70).

The respondent appeals from the Judgment on the grounds that the primary judge erred: (1) in finding that the appellant was under a relevant disadvantage in the circumstances surrounding the entry into the second to fifth loan agreements; (2) in granting relief to the appellant in the circumstance of the finding that the appellant had not been under any misapprehension since 2011, yet had refused to repay even the principal under any loan; and (3) in failing to consider and allow annual compounding of unpaid interest at the rate of interest allowed. The respondent also appeals from the Costs Judgment on the ground that the primary judge erred in ordering the respondent to pay 75% of the appellant’s costs (Red 74).

It is appropriate to first determine the respondent’s contention that the primary judge erred in finding that the appellant was under a special disadvantage because if that finding was erroneous, there was no jurisdiction for the Court to intervene and the appellant’s grounds of appeal (1)(a) to (c) and the respondent’s grounds (2) and (3) fall away.

The respondent submitted that there was no sound basis for finding that the appellant was suffering from a special disadvantage. The respondent also submitted that, in any event, the disadvantage identified by the primary judge related to her dealings with a third party, the fraudster in Nigeria. It was also submitted that the primary judge did not find, and could not have found, that the appellant was unable to make worthwhile decisions as to her own interests in relation to her dealings with the respondent.

The relevant findings in respect of the appellant’s special disadvantage made by the primary judge were:

The primary judge recorded that he did not find that at the time of the first loan “Mr Ling actually knew of, or believed in, or shut his eyes to, the fact that Ms Wu was in a position of special disadvantage” (Red 56 [97]). This finding is a combination of matters of fact and the legal concept of “special disadvantage”. However, it is clear that the primary judge intended to convey that he was not satisfied that the respondent knew of, believed in, or shut his eyes to the appellant’s lack of knowledge that she was being defrauded.

The respondent contended that there was no finding that the appellant was at a special disadvantage vis-à-vis the respondent. This contention cannot be sustained. The primary judge found that the appellant’s special disadvantage was that she could not see that she was being defrauded. The primary judge did find that this was a special disadvantage vis-à-vis the respondent because she did not know she was being defrauded, whereas the respondent believed the appellant was being defrauded and was wilfully blind to that situation (Red 57 [101]).

In the cases in which relief has been sought on the basis of unconscionable conduct, the special disability or disadvantage has been identified as an inability of the individual to look after their own interests by reason of some attribute of age and lack of understanding of language: Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; failing intellect and/or drunkenness: Blomley v Ryan (1956) 99 CLR 362; infatuation and dependence: Louth v Diprose (1992) 175 CLR 621; and special dependence: Bridgewater v Leahy (1998) 194 CLR 457. The circumstances affecting a party which may induce a court of equity to set aside a transaction are varied and cannot be satisfactorily classified: Blomley v Ryan per Fullagar J at 405. In Blomley v Ryan Kitto J said at 415:

Kitto J referred to a number of cases in respect of the “well-known head of equity” that were all examples of what might (with caution) be referred to as “constitutional” disadvantages (Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51 per Gleeson CJ at 63–64 [9]–[11]) such as mental weakness: Longmate v Ledger (1860) 2 Giff. 157; 66 E.R. 67; sickness: Clark v Malpas (1862) 31 Beav. 80; 54 E.R. 1067; and age, infirmity and ignorance: Baker v Monk (1864) 33 Beav. 419; 55 E.R. 430; Fry v Lane (1889) 40 Ch D 312.

There were no such attributes in the appellant. To the contrary, as referred to above, the primary judge found that the appellant was a highly experienced businesswoman who had achieved significant success in establishing and operating her own business; had built an impressive property portfolio; and was experienced in financial matters. There was nothing in the appellant’s make-up (or constitution) that was wanting or that could be described as a disadvantage, let alone a special disadvantage. Rather, it was the situation or position in which the appellant had placed herself through her investment activities, in what she thought was the Nigerian oil business with the man she described as her “fiancé”, that the primary judge found as the basis of the appellant’s special disadvantage. She was being duped or defrauded.

In Commercial Bank of Australia Ltd v Amadio Mason J referred to the passages of the judgments of Fullagar J and Kitto J in Blomley v Ryan, referred to above, and said at 462:

Mason J also said at 467:

The respondent did not challenge the primary judge’s finding that the appellant “was thoroughly unable to see what would have been apparent to a fully informed, objective onlooker” (Red 50–51). However the respondent submitted that this was a hindsight view of what had in fact occurred, that is, that the appellant had been duped and defrauded by a third party. The respondent also submitted that although by definition, a person who is duped has failed to understand or know what was happening, this does not mean that the person is under a special disability or disadvantage in respect of dealings, other than with the person who is defrauding them. The respondent emphasised that the primary judge did not make a finding that the appellant was under a disability from the outset of her dealings with the respondent.

The appellant voluntarily engaged in a risky overseas investment and the respondent submitted that in those circumstances, she should not be able to call upon equitable principles to be redeemed “from the coming home of risks inherent in the business”: Kakavas v Crown Melbourne Limited (2013) 250 CLR 392 at 401–402 [20].

In Kakavas v Crown Melbourne Limited, the appellant, Mr Kakavas, contended that Crown had exploited his inability (by reason of his pathological urge to gamble) to make worthwhile decisions in his own interests while actually engaging in gambling. Mr Kakavas’ position as a “problem gambler” was not sufficient to obtain relief because it was held that he made a choice to expose himself to loss by choosing to enter the casino. The Court said (at 402 [22]):

The Court observed that once attention was directed to Mr Kakavas’ gambling enthusiasm while at the tables in the casino as the occasion “on which his special disadvantage was in play”, it became difficult to see a good reason to single him out as a person suffering from a “special” disadvantage by reason of his relationship with Crown (at 406–407 [38]). The Court referred to the observations made by Mandie JA in the Court of Appeal with approval, including the following (at 407 [38]):

The respondent submitted that the primary judge did not find that the appellant was rendered incapable of making worthwhile decisions in her own interest in respect of her dealings with the respondent (as opposed to the fraudster), and in particular, in respect of the negotiation of the rate of interest. It is true that the primary judge did not make such a finding. The relevant finding was limited to the differing perceptions. The appellant could not perceive the fraud, whereas the respondent could perceive it.

The appellant was advised to obtain independent legal advice and was repeatedly warned to be careful. The second loan agreement was prepared by the appellant’s solicitor, Mr Wong. The third to fifth loan agreements were apparently prepared with the assistance of, or at the least were witnessed by, the appellant’s accountant.

The respondent knew that the appellant had arranged for a solicitor to prepare the second loan agreement and that the appellant’s accountant was in some way involved in respect of the third to fifth loan agreements. There is no issue that the respondent warned the appellant to “be careful”, signalling to her the prospect that without such care she may be taken advantage of by the people in the supposed oil business in Nigeria. The respondent went so far as to ask the appellant in relation to the fifth loan whether she was being “cheated”. Notwithstanding these warnings and questions, the appellant effectively assured the respondent that her judgment about the oil business was sound.

The appellant’s lack of awareness or knowledge that she was being defrauded was obviously material to the making of a judgment about her own best interests. If she had known that the supposed oil business was a scam, she could have made an informed decision not to seek any further loans to make further “investment”. In Turner v Windever [2005] NSWCA 73 the appellant “did not know of something material to her making a judgment as to her best interests” (at [68]). Giles JA (with whom Santow JA (writing separately and agreeing with the outcome) and Bryson JA agreed) said:

Giles JA accepted that relief “may” be available in circumstances where the relevant unawareness has been induced by misrepresentation or other misleading conduct. However, the relevant conduct is that of the party the subject of the claim of unconscionability; not some other person. As the respondent submitted, a person who is duped or scammed is intrinsically unaware of the reality. That is because the fraud is perpetrated on an unwitting or unknowing person. The appellant was effectively warned by the respondent that this may be the position, but decided that her judgment about the people with whom she was dealing was sound, when it was not. The appellant in this case fits within what Giles JA described in Turner v Windever as a person who is able to make a judgment, but fails to make a sound one. She could still make a judgment (as unsound as it was) about whether she borrowed money at a particular rate of interest to continue to pay it to the fraudster.

I am not satisfied that the position in which the appellant found herself was a special disadvantage vis-à-vis the respondent. I am satisfied that the primary judge fell into error in finding that the appellant was suffering a special disadvantage in her dealings with the respondent.

Even on the basis that the appellant was suffering from a special disadvantage, it was necessary for the primary judge to decide whether the respondent’s conduct amounted to taking “unconscientious” advantage of the appellant.

The primary judge focused on the rate of interest after the appellant failed to repay the short term loans to reach his conclusion that the respondent’s conduct was unconscionable. The reason the rate of interest increased was, of course, the appellant’s failure to repay the loans. It was the appellant who approached the respondent to obtain the loans in circumstances where, at least on one occasion, the respondent had to borrow the money to provide it to the appellant. That conduct can hardly be described, and was not described, as “predatory”. Rather, it was conduct that allowed the appellant to obtain the funds to pursue her investment in a business that she regarded as one that would bring her large profits.

The respondent accepted that there was a significant jump in the interest rates between the base rate of interest in the first loan and the interest rates in the second to fifth loans. However, it was submitted that the circumstances warranted such interest rates. The appellant was in default in respect of previous loans at the time of entering into each new loan and the subsequent loans were for a term of only one month. The primary judge did not find that the provisions of the loan agreements or that the rates of interest (5% and 7% for the second loan and 10% for the third to fifth loans) for the term of the loans were unconscionable. Rather, it was only the effect during the period in which the appellant failed to repay the loans that was found to be unconscionable.

The appellant, with the assistance of her solicitor (for the second loan) and her accountant (for the third to fifth loans), agreed to a regime that she knew would impose a very high interest rate if she did not repay the loans within the agreed timeframe. The appellant agreed that the respondent could sell the properties should she not be in a position to repay the loans. The appellant could have avoided the higher rate of interest by either refinancing to pay out the loans provided to her by the respondent or selling one or other of the properties.

As has already been said, the appellant repaid only $33,700 in four years.

I am satisfied that the primary judge fell into error in concluding that the respondent’s conduct was unconscionable in the circumstances. Accordingly, there was no jurisdiction to interfere with the interest rates in the loan agreements.

I am satisfied that the respondent’s first ground of appeal that the primary judge fell into error in finding that the appellant was under a special disadvantage in the circumstances surrounding the entry into the second to fifth loan agreements is made out. In those circumstances, it is unnecessary to consider the other grounds, except the contention in relation to the primary judge’s conclusion that the default interest rate on the first loan was not a penalty.

The relevant clause in the first loan agreement relating to the appellant’s contention that the primary judge fell into error in concluding that the default interest rate on the first loan was not a penalty was in the following terms:

The parties accept that the primary judge was correct to rely upon White J’s analysis in Bay Bon Investments Pty Ltd v Selvarajah [2008] NSWSC 1251 at [47] as the distillation of the applicable principle. The parties also accepted that the correctness of this approach was not affected by Paciocco v Australia & New Zealand Banking Group Ltd (2016) 90 ALJR 835; [2016] HCA 28. The appellant’s contention is that the primary judge did not apply the applicable principle correctly.

The primary judge dealt with the appellant’s claim as follows (Red 59):

The respondent submitted that there was no basis for the primary judge to find that a 2% higher rate was not a genuine pre-estimate of the losses which might arise from the respondent being kept out of his money. The appellant promised to repay the respondent all five loans in 2010. The respondent emphasised that in 2016, those loans are still outstanding but for the amount referred to earlier. The first loan was for an agreed term of one year. It has now been outstanding for more than six years.

The respondent also submitted that there was no evidence or submission made to the primary judge that a 2% increase was not a genuine pre-estimate of the loss which the respondent might suffer (if being kept out of his money, he had to obtain finance from elsewhere, or miss other profitable opportunities) and of the portion of his legal fees which might not be recovered on taxation.

There was no basis upon which the primary judge could have found that the only purpose of the default interest rate was to punish the appellant: Paciocco v Australia & New Zealand Banking Group Ltd per Gageler J at [165]. The primary judge analysed the facts and was correct in his application of the principle to the facts.

I am not satisfied that the primary judge fell into error in concluding that the default interest on the first loan was not a penalty.

For those reasons I propose that the appeal be dismissed, the cross-appeal be allowed and the orders made by the primary judge in respect of the interest rate of the second to fifth loans and the costs orders be set aside.

The judgment entered by the primary judge in the orders made on 25 November 2015 was in the amount of $1,261,642.13. This amount included the principal amount and interest calculated at 20% per annum on the second to fifth loans. Those orders also provided that the judgment took effect from 20 August 2015. It is appropriate to set the judgment aside and enter judgment for the principal amount and interest at the contractual rates to take effect from 20 August 2015. In the circumstances, an order for costs following the event should be made in the respondent’s favour.

The formal orders that I propose are: