Zhong v Shield Resources Pty Ltd

1. [1]

   The plaintiff is a businessman resident in China. On 21 September 2018 he caused a sum of $1,151,645.06 to be advanced to the first defendant (“Shield Resources”) by way of loan for the purposes of that company’s business conducted in Australia. The plaintiff intended the loan to be for 12 months. It has not been repaid. The plaintiff commenced this action on 27 March 2020 to recover judgment against Shield Resources for the amount of the loan and accrued interest. He also claims relief against the second defendant, Ms Ying Guan, in respect of a charge over real property that she is alleged to have given as security for the company’s debt. The plaintiff claims damages against the third defendant, Mr Feng Ye, for alleged misleading and deceptive representations said to have been made in connection with the lending transaction.

2. [2]

   The principal debtor, Shield Resources, was legally represented in the proceedings until 21 November 2023. On that date leave was granted to the company’s former solicitors to cease to act. The current directors of the company, the third defendant and Ms Xuxu Li, were present in court on 21 November. They were informed by the Court that, for the hearing scheduled to commence on 4 December 2023, they would have to retain a new firm of solicitors promptly or, if the company wished to appear through a director, it would be necessary for a resolution to be passed appointing one of them for that purpose and for an affidavit to be filed attaching a copy of the resolution under seal. The Court was informed that the third defendant does not understand much English. The above explanation was translated for him by a Mandarin speaking solicitor who was present in court. Ms Xuxu Li understands English. Shield Resources did not retain a replacement solicitor nor undertake any of the steps necessary for it to be represented by a director. The company did not appear, by any person, at the hearing. The second and third defendants were represented by counsel.

3. [3]

   The plaintiff alleges that the loan was made pursuant to the terms of a deed dated 18 September 2018. That deed, in the English language, was executed by the following parties:

4. [4]

   The plaintiff claims a declaration that by the deed of loan on its proper construction the second defendant charged her residential real property at 49 Waterhouse Avenue, St Ives to secure the amount of Shield Resources’ debt and interest under the deed. In the alternative the plaintiff claims rectification of cl 6 of the deed by the addition of words such that it would create a charge. At earlier stages of the proceedings the plaintiff claimed that by the deed the second defendant gave a full personal guarantee of Shield Resources’ obligations, not limited to the value of the alleged security property. That claim was expressly abandoned during the course of the hearing.

5. [5]

   Since the statement of claim was filed the property at 49 Waterhouse Avenue, St Ives has been sold. The net proceeds after repayment of a mortgage debt were $753,200.62. That amount, representing the second defendant’s equity, was paid into Court on 6 January 2021. In June 2021 $100,000 was paid out to the second defendant and in April 2022 a further $145,400 was paid out. The second defendant has agreed with the plaintiff and given an undertaking to the Court that if it should be determined in these proceedings that the plaintiff was entitled to an equitable charge over the Waterhouse Avenue property then she will grant to the plaintiff a charge over 12 Gibran Place, St Ives, which she has acquired in her name. Her undertaking is to provide a replacement charge as security up to the limit of the sum that was originally held in Court. If it should be found that the plaintiff was entitled to an equitable charge over the Waterhouse Avenue property then it would also follow that the plaintiff would be entitled to receive the balance of the funds that are still held in Court.

6. [6]

   The deed of loan commences with a page headed “Details” on which there is a table of three rows, with the capacities of the respective parties listed in the left-hand column: Lender, Borrower and Guarantor. Against each of those capacities there appear full particulars of the parties’ respective names, addresses, telephone numbers and email addresses. The deed includes the following provisions, extracted so far as relevant. Errors of expression and of spelling are as in the original. Emphasis has been added:

Liability of Shield Resources

1. [7]

   Although Shield Resources did not appear at the final hearing, so that the Court received neither evidence nor submissions on its behalf, one of the arguments advanced by the second defendant would, if accepted, reduce the amount of Shield Resources’ liability. That argument should be considered first.

2. [8]

   The second defendant submitted that the plaintiff’s promise in the deed of loan to advance “the Principal Sum” of $2 million was an entire obligation. The purported acknowledgement in cl 2 of the deed, that the full amount was received on 18 September 2018, is clearly contrary to the facts and may be ignored. Only $1,151,645.06, being 57.6% of the Principal Sum, was received. The funds were not credited to Shield Resources’ bank account until 21 September 2018. It is the shortfall in amount rather than the delay that is relied upon by the second defendant. It is submitted that as the advance of $2 million was an entire obligation, the advance of a lesser sum constituted a total failure of consideration and that the counterparties to the deed are thereby relieved of their obligations. It is submitted that Shield Resources is therefore not obliged to pay interest at 12% per annum and the second defendant was not obliged to charge her property at Waterhouse Avenue, assuming that the deed otherwise requires that such a charge be given. The second defendant submits that Shield Resources’ only obligation is to repay the amount that it received plus interest up to judgment at the rates prescribed under the Uniform Civil Procedural Rules, by way of restitution.

3. [9]

   Mason CJ stated the principles upon which promises may be characterised as entire obligations and explained the consequences of such a characterisation in Baltic Shipping Company v Dillon (1993) 176 CLR 344; [1993] HCA 4 at p 350, as follows:

4. [10]

   In Baltic Shipping Company v Dillon the respondent had paid in advance for a sea voyage of 14 days, which ended after eight days when the vessel foundered after striking submerged rocks. The respondent sought to recover the entirety of the fare she had paid. Mason CJ said this:

5. [11]

   The obligation to which it is sought to apply those principles in the present case is the plaintiff’s obligation to lend $2 million dollars. The counter-performance required of Shield Resources was to pay interest at 12%. The counter-performance required of the second defendant was (as alleged by the plaintiff) that she charge her property. The plaintiff’s obligation to lend $2 million dollars is capable of being apportioned as a matter of fact. The other parties’ counter-performance is also capable of being apportioned. When the plaintiff advanced only $1.15 million, Shield Resources’ counter obligation could be adjusted so that it should pay interest at 12% on that lesser sum and, assuming that the second defendant contracted to charge her property, her counter obligation would become the provision of a charge for the reduced loan amount.

6. [12]

   However, notwithstanding that an obligation is amenable to apportionment in fact, the question whether it is to be characterised as entire is to be determined by reference to the common intention of the parties, ascertained by objective assessment of the words used in their contract, understood in the context of the surrounding circumstances known to the parties: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462, [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179, [40].

7. [13]

   Submissions were made on the second defendant’s behalf regarding circumstances surrounding the execution of the deed of loan, said to have been known to both parties, in an endeavour to support the view that the parties must be taken to have mutually intended that anything less than an advance of the full $2 million would be a total failure of consideration. Reference was made to evidence said to demonstrate the parties’ common understanding of what the loan funds were to be used for and that any lesser amount would frustrate Shield Resources’ commercial plans. It was argued that both parties would have been aware that charging the second defendant’s property for an amount less than $2 million would sterilise it as a security and preclude further borrowing against the property, so that Shield Resources would be unable raise from another source the shortfall in the funds provided by the plaintiff.

8. [14]

   I am not satisfied that the parties had a common understanding of the matters relied upon by the second defendant as summarised in the preceding paragraph. The words of the deed, understood in the context of such surrounding circumstances as were known to both parties, cannot reasonably be read as an agreement that the advance of $2 million should be an entire obligation, such that if less than the full amount were to be provided it could be treated by Shield Resources as no loan at all and a total failure of consideration from the plaintiff. The plaintiff has deposed, and I accept, that he was told the loan was required to pay a bond to the government of South Australia as a prerequisite to the exploitation of resources of some kind. The evidence would not enable me to make an affirmative finding on the balance of probabilities that an advance of anything less than the full $2 million would be useless to Shield Resources. The fact that the company accepted and utilised the lesser sum of $1.15 million suggests otherwise.

9. [15]

   Independently of that conclusion and assuming that the advance of the full $2 million was an entire obligation, so that provision of only 57.6% of that sum was a breach of a condition precedent to the operation of the deed of loan, Shield Resources did not elect to treat that breach as repudiation and did not purport to bring the deed to an end. The company’s acceptance and use of the lesser sum put Shield Resources in a position analogous to that of the respondent in Baltic Shipping Company v Dillon, who had paid in advance and then accepted part of the ship operator’s performance of its obligations. The High Court held that the respondent could not recover her entire fare on the basis of total failure of consideration, even assuming that the promise of a 14 day cruise was properly characterised as an entire obligation. Shield Resources has similarly retained the advantage of the plaintiff’s part performance. In those circumstances, if the lending obligation was entire that cannot avail Shield Resources to escape its counter obligations under the deed. The company must pay interest at the agreed rate and it must fulfil all other aspects of its contract, in proportion to the amount that was in fact advanced.

10. [16]

    That view of Shield Resources’ position is further supported by the joint judgment of Dean and Dawson JJ in Baltic Shipping Company v Dillon. The following extracts from the judgment are relevant:

11. [17]

    It follows from my conclusion at [15] above that there will be judgment for the plaintiff against Shield Resources for $1,151,645.06 plus interest calculated in accordance with cl 3 of the deed of loan at 12% per annum from 21 September 2018.

Circumstances in which the deed of loan was executed

1. [18]

   The circumstances in which the deed of loan was executed are material to construing disputed aspects of its construction, principally whether it includes a charge in favour of the plaintiff over the second defendant’s property at Waterhouse Avenue, St Ives. The surrounding circumstances are also relevant to the plaintiff’s claim for rectification and to his allegation that the third defendant made misleading and deceptive representations.

2. [19]

   I accept the plaintiff’s evidence on this subject, as referred to in the following summary of events. In August and September 2018 the plaintiff conducted business in the United States of America and in China, trading in agricultural and timber products. He had not up to that time conducted any business in Australia. Mr Dao Gao, also domiciled in China and otherwise known as Johnson, was a nephew of a business associate of the plaintiff. On either 2 or 3 August 2018 Mr Gao introduced the plaintiff to Mr Xiansi Qian, also known as Robin, in a telephone call. Mr Qian lives in Sydney and was Shield Resources’ accountant. At the time of this initial call the plaintiff and Mr Gao were either in China or the United States and Mr Qian was in Australia. This and all other oral communications involving the plaintiff were in Mandarin, as he does not speak any English. There is no evidence of anything said in this initial phone conversation beyond the introduction.

3. [20]

   The plaintiff next spoke with the third defendant, again by telephone, on the morning of 10 September 2018, to the following effect:

4. [21]

   The third defendant did not request a lawyer to draft a loan agreement. I accept his affidavit evidence that Mr Qian prepared a draft for which he “utilised a template agreement he located online and amended it”. The initial draft was prepared by 16 September 2018 and was sent to Mr Gao on that date, for the plaintiff’s consideration.

5. [22]

   According to the third defendant’s affidavit of 8 March 2021 no lawyers were engaged in preparing the deed at any stage and neither Shield Resources nor the second defendant received legal advice upon it. I readily accept that evidence. The deed as executed is defectively worded in significant and obvious respects and has features that are inconsistent with it having been settled by a person competent in the applicable law of New South Wales.

6. [23]

   Despite having lived and worked in Australia for 20 years prior to the subject transaction, the third defendant’s command of English is, by his own admission, “poor”. He deposed to the following, as at 8 March 2021:

7. [24]

   According to the plaintiff, Mr Dao Gao passed on to him the draft loan agreement received from Shield Resources on 16 September 2018. There is no evidence about Mr Dao Gao’s command of written or spoken English but he purported to have some understanding of the draft, because he told the plaintiff:

8. [25]

   In oral evidence the plaintiff said that the draft he received on 16 September 2018 was in English and that “I request to provide a Chinese version to me”. He did not say that this request was directed to anyone at Shield Resources. He said that he asked Mr Dao Gao to translate the draft for him. Although the plaintiff did not give evidence of whether Mr Dao Gao complied, I infer that he must have provided at least an oral translation of the 16 September draft. I infer that the plaintiff would not have proceeded further without at least that.

9. [26]

   Electronic records of a messaging application show that on 18 September 2018 the plaintiff received the final form of the deed of loan signed by the third defendant on behalf of Shield Resources as Borrower and by the second defendant as Guarantor. By the same means the plaintiff also received at that time a copy of the second defendant’s passport and a copy of her certificate of marriage to the third defendant. The plaintiff gave oral evidence that before he counter-signed the deed he had it explained to him in Mandarin, either by his nephew or by Mr Dao Gao, and that “I remember looking at the Chinese version clause by clause”. Nothing was said in any of his three affidavits about a “Chinese version” of the deed.

10. [27]

    The third defendant deposed, and I accept, that before executing the deed of loan and causing it to be sent to the plaintiff on 18 September 2018, he read through a Mandarin version that had been prepared by Mr Qian “informally”. I infer that that translation was forwarded to the plaintiff at about the time when the deed of loan, signed by the third defendant on behalf of Shield Resources and by the second defendant, was sent to him. Mr Qian’s Mandarin translation was identified in the third defendant’s affidavits. The plaintiff, in re-examination, identified that translation as “the Chinese version” that he had examined “clause by clause” before signing the English language deed.

11. [28]

    The plaintiff exhibited to an affidavit affirmed on 23 September 2020 a title search of the Waterhouse Avenue property. The search is date stamped 22 September 2020 and clearly could not have been seen by the plaintiff at the time he signed the deed of loan two years earlier. He said that he had seen “the title of certificate”, not the search, at some time before September 2020 but he did not say whether he had seen it prior to signing the deed on 18 September 2018. No document was tendered or identified by the description “title of certificate”. The plaintiff said he understood that the document he saw in relation to the Waterhouse Avenue property was proof of ownership and proof that there was no mortgage. As the “title of certificate” referred to by the plaintiff was not tendered and as the date on which he saw it was not established, I am not able to find that any of the defendants provided to him, prior to execution on 18 September 2018, any document that purported to show the state of title to the property.

12. [29]

    The plaintiff gave the following evidence in cross-examination when questioned about his understanding of security over real property under New South Wales law:

13. [30]

    In oral evidence the plaintiff said that at the time of executing the deed of loan he was open to considering an investment in Shield Resources if opportunities should present in the future with “great returns and low risk or controlled risk”. He said that such possibilities were not discussed between himself and the third defendant or anyone else on behalf of Shield Resources prior to or at the time of signing the deed. I accept that evidence.

14. [31]

    The third defendant deposed in his affidavit of 8 March 2021 that he had meetings with the plaintiff in China in “late September 2018” and that the plaintiff met with him in South Australia in October 2018. He deposed that discussions on those occasions concerned the possibility of the plaintiff investing capital in Shield Resources. He did not suggest in the affidavit of 8 March 2021 that, before the execution of the deed, he had discussed with the plaintiff a substantial capital investment.

15. [32]

    In a subsequent affidavit of 26 May 2022 the third defendant deposed that on an unspecified date “prior to the Loan Agreement being signed” there was discussion of an investment of “$30,000,000 into Shield for 40% of the company”. He deposed that on the unspecified occasion referred to the plaintiff said the following:

16. [33]

    The third defendant gave the following evidence in cross-examination:

17. [34]

    A later passage of the third defendant’s cross-examination was to similar effect as follows:

18. [35]

    I do not accept any of the third defendant’s evidence as referred to in the three paragraphs above. The plaintiff denies that he intended or ever said to the third defendant that the money advanced in September 2018 would not be “a real loan”. I do not accept that prior to execution of the deed there was any discussion of the plaintiff investing capital of “hundreds of millions, thousands of millions” or even $30 million in Shield Resources. The second paragraph of cl 2 of the deed refers to conversion of the loan amount into a “further capital investment” but that does not substantiate that there was discussion on that subject to the effect asserted by the third defendant in his second affidavit and in his oral evidence. The last two sentences of the second paragraph of cl 2 of the deed are incoherent and essentially meaningless.

19. [36]

    It may well be that the plaintiff’s agreement to lend $2 million, entered into with considerable haste and lack of due diligence, had the purpose from his point of view of showing good faith and demonstrating his access to capital. It may be that the lending transaction was entered into in those circumstances to encourage the third defendant to offer capital investment opportunities to the plaintiff in the future. None of that is inconsistent with the money advanced on 18 September 2018 having been a loan, which the plaintiff intended should be secured by real property.

20. [37]

    The second defendant deposed to the following circumstances in which she executed the deed of loan as Guarantor:

21. [38]

    The second defendant deposed that, at the time of signing, Mr Qian “said similar words” to her, to the effect “We have no choice”. All conversations between the three were in Mandarin.

22. [39]

    In his affidavit of 26 May 2022 the third defendant supported his wife’s account of the circumstances in which she signed the deed. He deposed to words spoken by himself at that time in similar terms to those recounted by the second defendant. He deposed that he said this to her:

23. [40]

    The second defendant deposed that in reliance upon those statements she understood when she signed the document that it was not a real loan but simply something that the plaintiff needed “for his purposes overseas so that he would invest in Shield’s South Australia project”. She deposed that from the statements made by the third defendant and Mr Qian she felt “pressured to sign the loan agreement”, that she did not know that signing it could have the effect that the plaintiff could lodge a caveat over her Waterhouse Avenue property and that she did not at the time know what a caveat was or how it would operate.

24. [41]

    I am not satisfied that the third defendant misrepresented to his wife that the transaction was “not a real loan” or that the deed was not intended by the plaintiff or by Shield Resources to take effect according to its terms. The second defendant understands written and spoken English and she speaks the language. In giving oral evidence she was assisted by an interpreter, mainly to aid the Court’s understanding of her quite strong accent, but she exhibited competent understanding and expression in English. The second defendant has carried on for some years her own business of exporting baby formula products to China. In 2018 she was engaged in business on her own account, through a company that she controlled. The second defendant presented in the witness box as intelligent, articulate, capable and self-possessed. I do not accept that her husband or Mr Qian would have attempted to misrepresent to her, in spoken Mandarin, the nature and effect of the English language deed of loan that they presented for her signature. I do not accept that the second defendant would have believed a representation from either of them that this was “not a real loan”, if such a representation was made. I do not accept that she would have been induced to sign the deed by such a statement.

25. [42]

    I am satisfied that the second defendant knew she was signing a formal agreement for a loan from the plaintiff to Shield Resources and that she was doing so in the capacity of a guarantor. She gave oral evidence that she only read the first page of the document on which the capacities of the parties were set out and the page on which she placed her signature. I have no reason to doubt that. However, I find that by signing with that degree of knowledge of the document she intended to assume the obligation of guaranteeing repayment of the loan to the plaintiff. That finding is also supported by her evidence that her husband told her, “You need to sign as a guarantor of the loan”. The second defendant’s intention in that respect is of no consequence because the plaintiff does not allege that he intended to obtain from her a full personal guarantee. As earlier mentioned, the plaintiff does not claim that the second defendant came under such obligation, either as a matter of construction of the deed or pursuant to any claim for rectification.

26. [43]

    On the other hand, I am not satisfied that the second defendant believed the deed of loan contained any promise by her to charge her land at Waterhouse Avenue with the debt. For reasons that will become apparent from my construction of cll 2 and 6(a) of the deed, I do not consider that even if she had read the whole document carefully it would follow that she must be taken to have intended, by signing, to create a charge. In cross-examination of the second defendant on this point, counsel for the plaintiff pressed her concerning the words that I have highlighted in par 22 of her affidavit, namely, that she was told by her husband that the purpose of the deed of loan was “to secure [the plaintiff’s] future investment in Shield’s business”.

27. [44]

    I am satisfied that in providing that English translation of what the third defendant said to her in Mandarin, the second defendant used the verb “to secure” in the sense of to ensure or to encourage, referring to future investment by the plaintiff. She did not mean to attribute to her husband a statement that the purpose of the deed of loan was to provide real property security for the future investment. It would not have made sense for the third defendant to have spoken of real property security for an investment by the plaintiff of a capital nature, as opposed to debt funding. Further, when the deed of loan was signed, any capital investment by the plaintiff lay in the future, as the third defendant said. He would not have been suggesting that the deed of loan was intended immediately to provide real property security for an injection of capital that had not yet occurred.

Construction of the deed with respect to a real property charge

1. [45]

   The first paragraph of cl 2 of the deed of loan, quoted at [6] above, contains no words of charge by the registered proprietor of Waterhouse Avenue, namely, the second defendant as Guarantor. That paragraph contains purported promises by the Borrower, Shield Resources, only. If the clause had been expressed as an agreement by the Guarantor that the “Loan under this Deed gives the Lender a caveatable interest” and that the Guarantor “will not oppose the Lender lodging a caveat over the property”, then a point of construction would arise as to whether those words carry the implication of creation of such estate or interest in the property as would support the lodgement of a caveat. In Taleb v National Australia Bank Ltd (2011) 82 NSWLR 489; [2011] NSWSC 1562 Bryson AJ held as follows at [60]:

2. [46]

   That statement was approved by the Court of Appeal in Aged Care Services Pty Ltd v Kanning Services Pty Ltd (2013) 86 NSWLR 174; [2013] NSWCA 393 at [82]-[83] (Gleeson JA, Meagher and Leeming J JA agreeing) and by the Court in Ta Lee Investment Pty Ltd v Antonios [2019] NSWCA 24 at [98]. The difficulty for the plaintiff is that one never reaches the point of construction referred to in those authorities unless it is first determined that the opening paragraph of cl 2 should be construed as if the Guarantor, rather than the Borrower, agreed that the loan “gives the Lender a caveatable interest” and undertakes not to “oppose the Lender lodging a caveat”.

3. [47]

   The principle of construction to be applied is as stated by Campbell JA (Mason P agreeing) in Ryledar Pty Ltd & Anor v Euphoric Pty Ltd [2007] NSWCA 65 at [262]:

4. [48]

   In support of construing cl 2 as agreement by the Guarantor to “a caveatable interest” and to “the Lender lodging a caveat”, the plaintiff relies upon the circumstance that the “Property” is defined in the deed and the definition expressly states that it is “owned by the Guarantor”. Further, there is no personal guarantee clause in the document. It is submitted that those two features in combination suggest that the only reason for the second defendant being a party to the deed, described as Guarantor, must be for her to pledge the Property in some manner. The plaintiff also relies upon cl 6(a), whereby both the Borrower and the Guarantor represent and warrant that “there is nothing to prevent the lodging of a second mortgage over the property”. The plaintiff submits that this implies there must be an existing equitable charge and, hence, cl 6(a) is an acknowledgement of an equitable interest created by the Guarantor by the grant of a charge under the deed.

5. [49]

   The deed is so poorly drafted that it does not contain, in express terms, any promise at all by the second defendant. As between her and the plaintiff I find the document intractably equivocal as to any obligation that she may have intended to assume and that the plaintiff may have intended to receive from her. Because she is named as Guarantor, a reasonable person reading the deed could conclude that the second defendant intended to give a personal guarantee – but that the intended promise to that effect was inadvertently not written. Alternatively, the document could be read as indicating that she intended to agree that a caveatable interest was created by way of guarantee security and that a caveat could be lodged by the plaintiff – but that cl 2 inadvertently provided for the Borrower to make promises in that respect, rather than herself. The words of the contract combined with the surrounding circumstances, of which both the second defendant and the plaintiff had knowledge, provide no sufficient basis for choosing between those alternatives or for construing cl 2 according to either of them.

6. [50]

   Shield Resources, the Borrower, was not the registered proprietor of Waterhouse Avenue. That is expressly recognised in the definition of “Property” at cl 1.1(e). In those circumstances it might be suggested that where cl 2 provides that “the Borrower this day agrees … that such Loan under this Deed gives the Lender a caveatable interest in the Property and the Borrower will not oppose the Lender lodging a caveat over the property”, the word “Borrower” is so obviously a mistake that the Court could correct it by interpretation. There are close limits upon rectification by construction, as such an approach has sometimes been described. In Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In liquidation) (2019) 99 NSWLR 317; [2019] NSWCA 11 Leeming JA explained the principles as follows (some citations omitted):

7. [51]

   Neither of the two essential conditions for rectification by construction is satisfied in this case. It is of little utility that the Borrower, not being the registered proprietor, should agree about the creation of a caveatable interest and the lodgement of a caveat but it is not absurd or inherently contradictory or manifestly inconsistent with some other part of the deed. Nor is it self-evident that, objectively, all parties and in particular the Guarantor must have agreed that she would be the party making those promises. Certainly, the second defendant was the only person who could have conferred any benefit upon the plaintiff by agreeing that a caveatable interest would be created and that she would permit a caveat to be lodged. However, whether she intended to agree depends upon whether there can be found in the deed sufficiently clear words that express or imply such an intention. In my view there are not. It is one thing to “rectify by construction” a manifest absurdity, on the face of a contractual document, in an ancillary promise or machinery provision. It is quite another thing to import by this process an entire substantive obligation of a party, which otherwise is not found to be expressed or necessarily intended in the instrument as signed.

8. [52]

   I am unable to construe the deed in the manner for which the plaintiff contends as regards the obligations of the second defendant. By executing the instrument she did not become contractually bound to charge her property at Waterhouse Avenue in favour of the plaintiff.

The claim for rectification to provide for a real property charge

1. [53]

   In par 6 of the relief sought in the Further Amended Statement of claim the plaintiff seeks rectification of the deed of loan in the following respects:

2. [54]

   The plaintiff’s objective might also be achieved if cl 2 could be rectified by inserting the words “the Guarantor agrees that” immediately before the words that have been highlighted at the end of the first paragraph of cl 2 in the quotation of that clause at [6] above. Rectification in that respect was not sought but, even if it had been, it would encounter the deficiency of proof of mutual intention as considered in the following paragraphs.

3. [55]

   Campbell JA’s judgment in Ryledar Pty Ltd & Anor v Euphoric Pty Ltd sets out the principles that govern the remedy of rectification, as follows:

4. [56]

   The evidence referred to at [19]-[29] above satisfies me that the plaintiff intended he should receive under the deed security over the Waterhouse Avenue property by way of charge. However, I am not satisfied on the balance of probabilities that the second defendant had any such intention. Her account of conversations with the third defendant and Mr Qian, on affidavit and in oral evidence, did not include any intimation to her from either of them that the property was to be charged. The plaintiff was not in a position to adduce evidence of a conversation to that effect or to put to the second defendant or to the third defendant the terms of such a conversation. If the second defendant knew that the Waterhouse Avenue property was referred to in the deed, it would not follow that she intended to give a charge over the land. She gave evidence that she was unaware that her husband had supplied copies of her passport and marriage certificate to the plaintiff. Even if she had known of that circumstance it would not support an inference that she agreed her property should stand as guarantee security. The plaintiff’s case for rectification of the deed in this respect is not made out.

Rejected tender of a re-translation of the Mandarin version of the deed

1. [57]

   At [27] above reference has been made to a Mandarin version of the deed of loan, prepared by Mr Qian and provided to the third defendant and the plaintiff. It has been mentioned that the plaintiff said he read the Mandarin version, clause by clause, before signing the English language document. In re-examination of the plaintiff his counsel sought to adduce evidence that it was the plaintiff’s subjective understanding that the deed provided for a charge over the Waterhouse Avenue property. That re-examination was disallowed. The plaintiff’s subjective understanding of the document would have been irrelevant to its construction. It could have been relevant to the plaintiff’s claim for rectification but his evidence on affidavit and in cross-examination made it abundantly clear that he intended for a charge to be created in his favour. Evidence of how he understood the deed was not necessary to establish that point. The deficiency in the plaintiff’s case for rectification is the absence of proof of a matching intention on the part of the second defendant.

2. [58]

   On Friday, 1 December 2023, immediately before commencement of the final hearing, the plaintiff obtained from Ms Ana Zhao a re-translation of the Mandarin version of the deed back into English. The plaintiff sought to tender that document with a view to establishing that the Mandarin version was not faithful to the English text and that, in so far as the plaintiff relied upon the Mandarin version, he would have been misled as to what he was agreeing to. By this means it appears the plaintiff intended to discount or qualify conclusions that the Court might otherwise draw from the terms of the deed as written in English concerning the plaintiff’s subjective intentions in signing the document.

3. [59]

   I rejected the tender of Ms Zhao’s re-translation. It was produced after the proceedings had been on foot for four years and when the final hearing was in its second day. I considered it unfairly prejudicial to the other parties to put them in a position of having to assess the accuracy of the re-translation and its potential impact on the case at such a late stage. Further, the only effect of the evidence could have been to establish that the plaintiff’s subjective understanding of the English language deed was different from its true meaning, by reason of him having relied upon the Mandarin version, which Ms Zhao’s evidence would show was inaccurate. For reasons given above, the only aspect of the plaintiff’s subjective understanding that could have had any significance in the case was his belief that the deed provided for a charge, so far as that could support his case for rectification. Deployment of Ms Zhao’s re-translation for that purpose would have been superfluous.

Discharge of guarantee security by change to transaction between principals

1. [60]

   The second defendant’s counsel submits that if, contrary to the view that I have taken, the deed of loan should be construed as providing a guarantee charge over the Waterhouse Avenue property, then the principle in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549; [1987] HCA 15 would entitle the second defendant to be discharged from honouring that obligation because of a material change in the transaction between the Lender and Borrower, which was effected without reference to or consent from herself as Guarantor. The material change is said to been the advance of only $1.15 million instead of $2 million. On 2 October 2018 Mr Qian sent to the plaintiff an electronic message, either email or WeChat, requesting on behalf of Shield Resources that the balance of the $2 million be transmitted. That did not occur. There is no evidence as to why not. The relevant fact is that the plaintiff failed to advance the full sum, despite the Borrower’s request for it.

2. [61]

   In Ankar Pty Ltd v National Westminster Finance (Australia) Ltd at 557 Mason ACJ, Wilson, Brennan and Dawson JJ referred to:

3. [62]

   Their Honours cited Holme v Brunskill (1877) 3 QBD 495 and Croydon Gas Company v Dickinson (1876) 2 CPD 46 51 and continued as follows (at 559):

4. [63]

   At 560 their Honours noted the different position under United States law, where a surety for reward “must show some injury before it will be absolved from the contract … and then it will be discharged pro tanto to the extent of the damage or prejudice it suffers”.

5. [64]

   I accept the submission on behalf of the second defendant that, if she promised under the deed to provide guarantee security by way of a charge over her property, then the principle in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd would be applicable, just as it would be applicable if she gave a general personal guarantee. It is submitted on her behalf that the plaintiff’s advance of only $1.15 million had the potential to affect her exposure adversely, for example if the reduced loan should prove insufficient to maintain liquidity of Shield Resources, or insufficient to complete some critical transaction, and if the company should fail, in circumstances where it might have been able to continue trading if it had received the further $850,000 and used it for working capital, or applied it to completion of a particular transaction.

6. [65]

   The plaintiff submits that a reduced exposure of the guarantee security is inherently favourable to the guarantor, so that the principle Ankar Pty Ltd v National Westminster Finance (Australia) Ltd is not engaged. He further submits that the suggested possible adverse effect upon Shield resources of a shortfall in the amount of the advance is speculative in the absence of evidence to establish the company’s balance sheet position and/or its dealings with third parties at relevant dates. I do not accept the plaintiff’s submissions in either respect. As to the first part, if a portion of a guaranteed loan is repaid by the principal debtor after the whole sum has initially been advanced, it may be that this could only be of benefit to the guarantor. The position appears to be different where a significant part of the loan, in this case 42.4%, is never provided to the borrower. In that situation, the possibility of detriment to the guarantor may arise in the manner articulated by the second defendant’s counsel.

7. [66]

   As to the second part of the plaintiff’s submission, Ankar Pty Ltd v National Westminster Finance (Australia) Ltd holds that, where a change in relations between the principal debtor and creditor is not inherently incapable of causing detriment to the guarantor’s interests, the burden lies upon the principal creditor to establish there has been no adverse impact. That understanding of the decision is confirmed by the judgment of Meagher JA in Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 24 NSWLR 370 at 405C, as follows:

8. [67]

   The plaintiff has not discharged that onus. If, contrary to my conclusions, the deed contained a promise by the second defendant to charge her property as security for the loan, or should be rectified to incorporate such a promise, in my view she was discharged from that obligation.

Conclusions on the plaintiff’s case against the second defendant

1. [68]

   For the above reasons, the plaintiff’s claims against the second defendant fail and judgment will be entered in her favour. The second defendant’s defence claims relief pursuant to s 7 of the Contracts Review Act 1980 (NSW). She has also pleaded that she was a volunteer with respect to the deed of loan, that she did not understand “the purport of effect” of the transaction and that the plaintiff failed to take steps to explain the deed to her or to ascertain whether an independent and disinterested person had explained it to her. The second defendant relies upon principles stated by the High Court in Yerkey v Jones (1939) 63 CLR 649; [1939] HCA 3 and Garcia v National Australia Bank Ltd 194 (1998) 194 CLR 395; [1998] HCA 48.

2. [69]

   The pleading of these defences resulted in extensive cross-examination of the second defendant in an endeavour to show that she was not a volunteer but in fact was significantly financially concerned in the success of Shield Resources and stood to benefit from the lending transaction. To the same end, the plaintiff tendered a substantial volume of documentary evidence, additional to what was otherwise relevant to his case. I do not propose to resolve the factual issues that were contested under the Contracts Review Act and Yerkey v Jones defences. To do so would extend this judgment significantly and cause further delay in delivering the Court’s decision.

3. [70]

   A cross-claim was filed on behalf of Shield Resources and the second defendant. It is not necessary to determine Shield Resources’ cross-claim because the company did not appear at the hearing to prosecute it. So far as the second defendant is concerned, the cross-claim mirrors her defensive claim under the Contracts Review Act and otherwise repeats paragraphs of her defence. In view of my decision on other aspects of the case, I find it appropriate simply to dismiss the cross-claim.

The plaintiff’s representation case against the third defendant

1. [71]

   The plaintiff has pleaded a number of representations by the defendants or one or more of them that are said to have been misleading and deceptive, in trade or commerce, in breach of s 18 of the Australian Consumer Law (Cth).

2. [72]

   In par 18A of the Further Amended Statement of Claim it is alleged that the defendants represented to the plaintiff that (a) that the third defendant would ask the second defendant to provide a charge over real property held in her name, as security for the proposed loan of $2 million and (b) that the security that could be provided in that manner was and would be worth approximately $3 million. I accept, on the basis of the plaintiff’s evidence quoted from his affidavit at [20] above, that statements to the effect pleaded in par 18A were made by the third defendant and, through him, by Shield Resources. Although this allegation is made against all defendants, there were no such representations by the second defendant. It is pointless for the plaintiff to rely upon representations by Shield Resources because the only possible damages arising from misleading and deceptive conduct on its part would be the amount of the loan and interest. The plaintiff is entitled to judgment for those amounts on the basis of the deed.

3. [73]

   The first of the above representations is not actionable against the third defendant. I assume it should be treated as a representation concerning a future matter and that it was misleading and deceptive because the third defendant did not intend to ask his wife to provide a charge of her property. I do not accept that this representation could have caused the plaintiff any damage. The only way damage could have arisen would be if the plaintiff relied upon what he was told and entered into the deed of loan on the faith of it. The plaintiff is an experienced and apparently successful businessman. It is an unacceptable proposition that he would have agreed to lend $2 million on the faith of a representation by the borrower that went no further than a statement of his intention to ask his wife to put up her house as security. She might say no.

4. [74]

   The second representation may have been made without reasonable grounds. When the Waterhouse Avenue property was subsequently sold it realised less than $3 million. I do not accept that the plaintiff relied upon the representation in deciding to make the loan. The plaintiff did not seek an objective and independent valuation of the property, nor did he ascertain the amount of debt that was already secured over the title. The lack of due diligence that characterised the transaction is consistent with the plaintiff having wished to effect the loan with great speed, being satisfied with the unquantified security that he expected to obtain, as a gesture of good faith. I infer that that is why he entered into the deed of loan, without reliance upon the representation as to the value of the security.

5. [75]

   Further, the plaintiff cannot demonstrate that he suffered any damage as a result of relying upon a representation as to the value of the security in circumstances where it is not a shortfall in value that has left his loan unsecured but, rather, a failure to obtain an effective promise from the Guarantor, the second defendant, that she would charge her property.

6. [76]

   In par 18B of the Further Amended Statement of Claim the plaintiff alleges that the defendants made misleading and deceptive representations to him to the following effect:

7. [77]

   Those representations are said to have been made by all defendants by the submission of the draft deed on 16 September 2018, by the provision of copies of the second defendant’s passport and marriage certificate and by forwarding the executed deed to the plaintiff on 18 September 2018. The draft deed of 16 September 2018 has not been tendered. There is no basis upon which I could find that it conveyed any representations by anybody. I do not find that representations as alleged in par 18B were conveyed to the plaintiff by the provision of the second defendant’s passport and marriage certificate. In my view the submission of the executed deed on 18 September 2018 is incapable of being characterised as the making of representations. It was an offer to enter into an agreement on the terms contained therein.

8. [78]

   In par 18CC of the Further Amended Statement of claim it is alleged that if the third defendant misrepresented to the second defendant that the provision of funds by the plaintiff was “not a real loan”, in order to procure her execution of the deed, then that conduct was misleading and deceptive and caused loss to the plaintiff. I have earlier stated that I am not satisfied any such representation was made or, if it was, that the second defendant was induced by it to enter into the deed of loan. Further, any loss suffered by the plaintiff as a result of not having a charge over the Waterhouse Avenue property has resulted from the inadequate and ineffectual terms of the deed of loan and/or from the absence of any intention on the part of the second defendant that could have supported rectification and/or from the discharge of any obligation of the second defendant to charge her property arising from the plaintiff’s failure to advance the full $2 million.

9. [79]

   The plaintiff has not made out a case against any defendant based upon misleading and deceptive conduct. The only causes of action pleaded against the third defendant are those based upon the alleged misrepresentations. I find that the plaintiff’s case in that respect is unsubstantiated. There will be judgment for the third defendant.

Orders

1. [80]

   The following orders will be entered:

   1. (1)

      Judgment for the plaintiff against the first defendant for $1,151,645.06 plus interest on the said sum at the rate of 12% per annum from 21 September 2018 to the date of this judgment.

   2. (2)

      Judgment for the second defendant against the plaintiff.

   3. (3)

      Judgment for the third defendant against the plaintiff.

   4. (4)

      The cross-claim by the first and second defendants against the plaintiff is dismissed.

   5. (5)

      The first defendant is to pay the plaintiff’s costs of the proceedings.

   6. (6)

      The plaintiff is to pay the costs of the proceedings of the second and third defendants.