Supreme Court New South Wales Medium Neutral Citation: Ledinh Sovereign Super Pty Ltd v CT Stone Pty Ltd [2023] NSWSC 1079 Hearing dates: 5 & 6 September 2023 Date of orders: 15 September 2023 Decision date: 15 September 2023 Jurisdiction: Common Law Before: Davies J Decision: The plaintiff should bring in short minutes of order to reflect these reasons. Catchwords: CONTRACTS – unjust contracts – Contracts Review Act 1980 (NSW) – where defendants borrowed from lender of last resort – three-month loan with 72% per interest compounding monthly after default – whether asset based lending was unjust - where defendants were experienced mortgagors – where defendants admitted they did not read any documents they signed – where defendants advised by solicitor - whether charging interest at 72% interest per annum compounding monthly is unjust – lenders of last resort ordinarily charge considerably higher interest rates – where matter of paying higher interest was sufficiently brought to defendants' attention – high rate of interest is not itself unconscionable or unjust – asset based lending not unjust - combination of high default rate and monthly compounding makes the contract unjust – held clauses providing for compounding or capitalising of interest be deleted CONSUMER LAW – unconscionable conduct – in connection with financial services – whether delay in commencing proceedings in circumstances where simple interest was accruing at 72% per annum constitutes unconscionable conduct – Australian Securities and Investments Commission Act 2001 (Cth) – nothing to suggest plaintiff deliberately delayed proceedings – where defendants asked for time to repay – where promises were made by the defendants to repay after sale of other properties but no repayment was made – where defendants knew interest was high and ought to have known interest would be accruing – held in all the circumstances delay was not unconscionable Legislation Cited: Australian Consumer Law ss 21, 22, 232, 237 Australian Securities and Investments Commission Act 2001 (Cth) ss 12CA, 12CC Contracts Review Act 1980 (NSW) s 9 Corporations Act 2001 (Cth) Real Property Act 1900 (NSW) ss 57, 138 Cases Cited: Attorney General of New South Wales v World Best Holdings Limited & Ors (2003) 63 NSWLR 557; [2003] NSWCA 261 Australian Competition and Consumer Commission v Geowash Pty Ltd (subject to a deed of company arrangement) (No 3) [2019] FCA 72; (2019) 360 ALR 441 Commonwealth Bank v Lee (1996) 22 ACSR 574 Driat Pty Ltd v Thomas [2012] NSWSC 683 Guardian Mortgages v Miller [2004] NSWSC 1236 Haiqin Lu v Qindi Shen; Weiren Jin v Qindi Shen [2018] NSWSC 560 Hill Foundation Pty Ltd v 131 MVR Pty Ltd [2022] NSWSC 520 Mailman v Challenge Bank Ltd (1991) 5 BPR 11,721 Mastronardo & Anor v Commonwealth Bank of Australia Ltd [2018] NSWCA 13 Mizzi v Reliance Financial Services Pty Ltd & Ors [2007] NSWSC 37 Oxygen Funding Solutions Pty Ltd v Dick-Telfar [2020] NSWSC 582 Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41; (2006) 14 BPR 26, 639 Silvestro v S R Factors Pty Ltd []2010] NSWCA 74 Stubbings v Jams 2 Pty Ltd [2022] HCA 6; (2022) 96 ALJR 271 Takemura v National Australia Bank Ltd [2003] NSWSC 339 Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165; [2004] HCA 52 Westpac Banking Corporation v Kingsland (1991) 26 NSWLR 700 Texts Cited: B Edgeworth, Butt's Land Law (7th ed, 2017, Lawbook Co) Category: Principal judgment Parties: Ledinh Sovereign Super Pty Ltd (Plaintiff/Cross-Defendant) CT Stone Pty Ltd (First Defendant) Thuc Tran Huynh (Second Defendant/Cross-Claimant) Chau Quach (Third Defendant/ Cross-Claimant) Westpac Banking Corporation (Fourth Defendant) Representation: Counsel: P Newton SC & T Buterin (Plaintiff/Cross-Defendant) D Allen (First, Second & Third Defendants/Cross-Claimants) Submitting appearance (Fourth Defendant) Solicitors: Anne McDonald & Associates (Plaintiff/Cross-Defendant) Edmond Khoury Solicitors (First, Second & Third Defendants/Cross-Claimants) Westpac Banking Corporation (Fourth Defendant) File Number(s): 2022/270143 Publication restriction: Nil Judgment 1. Thuc Tran Huynh and Chau Quach (the second and third defendants respectively) are the registered proprietors of a property in Laurina Avenue, Fairfield East. In August 2018 the first defendant, CT Stone Pty Ltd, of which the second and third defendants were the sole directors and shareholders, borrowed $140,000.00 from the plaintiff. The three defendants executed a mortgage to the plaintiff on 16 August 2018 which provided for repayment of the amount borrowed on 16 November 2018. 2. The money has not been repaid, and the plaintiff now seeks possession of the property and judgment for the amount owing against each of the defendants. The fourth defendant, Westpac Banking Corporation, was joined to the proceedings only because it was the first mortgagee of the land. It has filed a submitting appearance. 3. The plaintiff claims that the mortgage consisted of two schedules, Schedule A and Schedule B, which were said to be schedules to a document called "Ayoub Lawyers 2017 Memorandum" ("the Memorandum"), and the Memorandum itself. The Memorandum contained the terms and conditions of the mortgage. 4. By their defence, all three defendants dispute that the Memorandum formed part of the mortgage. They also assert that the mortgage was given only by the first defendant and that the mortgage does not have any operative terms. 5. In a cross-claim the second and third defendants assert that the conduct of the plaintiff was unconscionable and that the contract was unjust within the meaning of the Contracts Review Act 1980 (NSW). They seek orders under ss 232 and 237 of the Australian Consumer Law. Unless otherwise stated, any reference in this judgment to "the defendants" is a reference to the second and third defendants. The defendants' background 1. The second defendant left school at the end of year 12 in Vietnam in 1996. She came to Australia in about 2000. She studied English for one year and then worked as a salesperson in a fish market at Cabramatta for about ten years until 2010. She appears to have ceased work when their children were born, but in 2015 she returned to work at the first defendant which is a stonemason business. The third defendant said in his affidavit that his wife did "all the office work", but in her oral evidence she denied that and said that she only did "a little bit". She said that her husband dealt with orders and billing. 2. The third defendant left school at the end of year five in Vietnam and came to Australia when he was 11 years old. He did one year of intensive English in year six and started school in year seven. He studied Engineering at Wollongong University, graduating in 2001. He worked as a planning engineer for ten years at Crane Copper. 3. In about 2014 or 2015 he left Crane Copper to work in a stonemason business with his brother-in-law. Eventually that business, being the first defendant, became his and his wife's. 4. The third defendant had apparently bought the Laurina Avenue property in his own name before he and the second defendant were married. After they were married he transferred the property into their joint names, and they gave a mortgage to the Commonwealth Bank to pay out a mortgage the third defendant had on the property. 5. What became clear from the cross-examination of the defendants is that they were very experienced in relation to mortgages. Since 2001, when the third defendant first purchased the Laurina Avenue property in his own name, he and his wife have purchased and mortgaged that property and three others, being properties at Lals Parade Fairfield East, Canterbury Road Revesby and a property at Seville Street Fairfield East. Not only were mortgages obtained on these properties, but from time to time the mortgages were discharged and new mortgages given over the various parcels of land. The reason for this was explained by the third defendant in his evidence: So usually when you've got equity, you probably refinance and get the equity out, and try to do something different. In other words, as an existing property increased in value, it would be re-mortgaged so that the extra funds could be used as a deposit or part deposit on another parcel of land. 1. For example, in 2012 the defendants discharged the mortgage to the Commonwealth Bank and re-mortgaged it to Suncorp-Metway in order to buy Lals Parade as an investment property. Then in 2014, Laurina Avenue was refinanced with Westpac, and part of that loan was used to purchase the property at Canterbury Road, Revesby. In 2017 a further refinancing enabled the defendants to purchase the property in Seville St, Fairfield East. 2. The evidence discloses that, in addition to the original mortgage given by the third defendant when he purchased Laurina Avenue, the defendants have mortgaged the various properties on some 13 occasions, to banks or mainline lenders. Further, in 2016 the defendants, as directors of CT Stone, obtained an overdraft from the Commonwealth Bank. The defendants' guaranteed the overdraft. They, subsequently, entered into two equitable mortgages to, what appear to be, lenders of last resort, before the present mortgage was signed. 3. It is also of significance that, on no occasion except in relation to the present loan did they defendants engage a solicitor in respect of any of the loans and mortgages. In each case brokers arranged the loans, the defendants signed the mortgages in the presence of the brokers, and they did not obtain any advice from a solicitor in respect of the mortgages. Obtaining the loan 1. The Seville St property appears to have been bought partly with funds accumulated by re-mortgaging other properties and partly with the assistance of a loan in the amount of $780,000. The defendants demolished the house at Seville Street and were in the process of building a new home on the land. However, they needed funds to finish it, and it was in those circumstances that they came to borrow $140,000 from the plaintiff. 2. As mentioned, the evidence also disclosed that, on two occasions early in 2018, the defendants entered into short-term loans from two lenders of last resort, Azura Management Services Pty Ltd and Mr Thi Lai Bui, in order to obtain extra funds to complete the building of Seville St, in the way they later did with the plaintiff. They had been unable to borrow from banks and mainline lenders because the building work was not completed. 3. They had previously been introduced to a broker, Henry Tran, who had found them some finance earlier in 2018 (from Azura Management Services), also for the purpose of completing the building. In August 2018 Mr Tran found finance of $140,000 for them with the plaintiff. They paid fees to Mr Tran of $3,500. Mr Tran advised the second defendant, who appears to have organised the loan on behalf of the defendants, to find a solicitor so that the lender (the plaintiff) could send the documentation to their solicitor. In fact, the solicitors for the plaintiff sent the documents directly to the defendants, and the second defendant took them along to the conference with the solicitor. 4. The second defendant said that it was their intention to repay $100,000 to the plaintiff quickly. However, the building of the house cost a further $500,000. Further, the business conducted by the first defendant was severely impacted by the COVID-19 pandemic. 5. The defendants contacted a solicitor, Mr Ke Toai Le, who agreed to review the documents and witness the signatures of the defendants. 6. Both the defendants say that they visited Mr Le at his office. In their affidavits they said that they could only recall that he said to them: The power of attorney is a very powerful document, it gives them the power to sell your house if you don't pay. 1. The second defendant said in her affidavit that Mr Le never told them anything about the interest they would have to pay and she did not understand that it was 72% interest per annum. She said that the mortgage interest rate was never explained to her and she had no idea what compounding interest was. She said she "did not really understand" that the mortgage was only for four months (in fact it was for three months). She said that she recalled signing a lot of documents at the solicitor's office, but the effect of the documents was never explained to her. 2. The third defendant said in his affidavit that he went to the office of Mr Le with his wife and was there for about five minutes. He said the personal guarantee was never explained to him, and he was never asked to provide a statement of income and expenditure nor any tax return. 3. The evidence given by the defendants in court differed considerably from what appeared in their affidavits. In their oral evidence they admitted that the solicitor gave them far more information than their affidavits suggested. It was ultimately conceded by Mr Allen of counsel for the defendants that they knew the period of the loan, that it had to be repaid in three months, that if they did not do so the plaintiff could sell their house and that they had to pay interest on the loan. 4. The third defendant gave evidence, which I accept, that the solicitor said that there was a high interest rate, and that it was "something like" 4% to 6%. 5. I thought that both defendants gave frank and honest evidence. Both of them admitted that they did not read any of the documents that they signed on this or any other occasion, and the third defendant admitted that he knew he was bound by what was contained in the documents he signed. The only aspect of the third defendant's evidence which I do not accept is that the meeting with Mr Le took only five to ten minutes. In that regard, I do not think he was being dishonest, but his recollection was faulty. 6. The evidence of the defendants was that the second defendant handed the bundle of documents (the third defendant thought it might have been about 20 pages) to Mr Le who proceeded to look through them and read them. Mr Le then asked for items of identification from them. He photocopied those. He then explained things to them from the documents and asked them to sign the documents. Each of the defendants signed about 12 documents. Mr Le signed certificates as their legal adviser, and also witnessed their signatures on the documents they signed. According to a file note of Mr Le, the whole exercise took three hours. Whether that is so, it is certainly the case that what actually took place at the conference with him must have taken considerably longer than the five to ten minutes remembered by the third defendant. 7. I do not think care was taken in the preparation of the defendants' affidavits, and I think the likelihood is that neither of the defendants read those affidavits, or read them carefully, before they signed them. One indication of the lack of care and the unlikelihood that the defendants read the affidavits is that the address of their property was repeatedly referred to as "Laurence Avenue" rather than "Laurina Avenue". That error occurred four times in the second defendant's affidavit and once in the third defendant's affidavit, and the third defendant said in his affidavit that he had read the contents of his wife's affidavit. It is difficult to believe that if proper instructions had been taken from the defendants the affidavits would have been as sparse as they were, given the way the cross-claim was pleaded, nor that they would have included some of the statements made in them. Documents executed by the defendants 1. On 16 August 2018, Ayoub Lawyers sent a letter to the defendants enclosing the following documents: 1. Mortgage(s) with Ayoub Lawyers Memorandum 2018. 2. Schedules A & B. 3. Cheque directions. 4. Authority and directions. 5. Borrower's ancillary documents. 6. Guarantor's ancillary documents. 7. Letter of consent. The letter went on to provide instructions about the execution of the documents and also listed a number of further documents that needed to be provided. The reference to the Memorandum being dated 2018 was said to be a typographical error; it should have said 2017. 1. Each of the second and third defendants signed documents including a Declaration by Borrower which relevantly provided: I… DO SOLEMNLY AND SINCERELY DECLARE AS FOLLOWS: 1. I am • An officer of the borrower. • An officer of the grantor of the security interest. • A person involved in the management of the borrower. • A person involved in the management of the grantor of a security interest named in certain loan and security documents in favour of: Ledinh Sovereign Super Pty Ltd (proposed lender) relating to property XX Laurina Avenue, Fairfield East. 2. I have received independent legal advice regarding the loan and security documents referred to in paragraph 1. 3. After receiving the advice as: • An officer of the borrower. • A person involved in the management of the borrower the borrower has signed the following documents: … (a) Mortgage(s) with Ayoub Lawyers Memorandum 2018 [sic]. (b) Schedule A & B. (c) Borrower's and guarantor's ancillary documents. 1. Each of the second and third defendants also signed a Declaration by Guarantor which relevantly provided: I… DO SOLEMNLY AND SINCERELY DECLARE AS FOLLOWS: 1. I am • An officer of, or: • An (sic) person involved in the management of - the Third Party Mortgagor - the Surety Mortgagor - the Indemnifier for the Borrower - the Grantor of a security interest - the Guarantor named in certain loan and security documents between CT Stone Pty Ltd and Ledinh Sovereign Super Pty Ltd relating to property XX Laurina Avenue, Fairfield East. 2. I have received independent legal advice regarding the loan and security documents referred to in paragraph 1. 3. After receiving that advice I have freely and voluntarily signed the following documents: (a) Mortgage(s) with Ayoub Lawyers Memorandum 2018 [sic]. (b) Schedule A & B. (c) Borrower's and guarantor's ancillary documents. 1. Each of the second and third defendants signed a document headed "Debtor's Advice Declaration" which relevantly provided: I am the company officer of the debtor having agreed to enter into this mortgage HEREBY ACKNOWLEDGE that – 1. I understand the terms of this mortgage (mortgage) and my liability both financial and legal thereunder. 2. The mortgage has been freely and voluntarily executed by me and without undue influence or pressure from any third party. 3. I have had the opportunity of obtaining and did obtain legal advice from an independent Australian Legal Practitioner prior to executing the Mortgage as to the legal effect of the mortgage and my obligations under it. 4. It is on the basis of: (a) statements contained; (i) this mortgage; and (ii) in this declaration; and (b) my entering into this Mortgage that the lender has agreed at my request and direction to enter into this Mortgage and to advance the Debtor the Principal Amount and that I am aware that the lender relies on the truth of the statements contained in this declaration and in this Memorandum in entering into this Mortgage. 1. A certificate was provided by Mr Le in respect of each of those declarations which relevantly said: I, the Australian Legal Practitioner named above do hereby certify: 1. … 2. I have explained to the signatory the nature and the effect of the mortgage to be executed by him/her and each of its terms and the legal effect of the mortgage and its terms. 3. That the signatory told me that he/she had: (a) read and understood the effect of the mortgage and its terms; and (b) understood the financial risks to him/her of signing the mortgage. 1. Each of the second and third defendants also executed a document entitled "Guarantor's Advice Declaration" which relevantly provided: I am the guarantor having agreed to guarantee the performance of the debtor pursuant to the mortgage HEREBY ACKNOWLEDGE that – 1. I understand the terms of the Guarantee referred to in the Mortgage (Guarantee) and my liability both financial and legal thereunder. 2. The guarantee has been freely and voluntarily executed by me and without undue influence or pressure from any third party. 3. I have had the opportunity of obtaining and did obtain legal advice from an independent Australian Legal Practitioner prior to executing the guarantee as to the legal effect of the guarantee and my obligations under it. [There was a similar clause to clause 4 of the Debtor's Advice Declaration]. 1. Mr Le also provided certificates in relation to the execution of the guarantees in similar form to those in relation to the Debtor's Declarations. 2. The second and third defendants, in their capacity as directors of the first defendant, signed minutes of meeting and resolution of directors. The document noted that the mortgage was tabled at the meeting of the directors and that the reason why the borrower had sought the advance from the lender was: To complete the building of XX Seville Street, Fairfield East, NSW, 2165. 1. The various Declarations and Certificates by the legal practitioner constituted Schedules D to G to the Memorandum as cl 1.1 makes clear. The mortgage 1. The mortgage signed by the defendants contained title reference 323/1038622. It incorrectly referred to the mortgagor as "CT Stone Pty Ltd ACN 602 558 903". The registered proprietors of the land were the second and third defendants. 2. The mortgage went on to say: The mortgagor mortgages the estate and/or interest in land specified in this mortgage to the mortgagee as security for the debt or liability described in the terms and conditions set out or referred to in this mortgage, and covenants with the mortgagee to comply with those terms and conditions. Terms and Conditions of this Mortgage (a) Document Reference (b) Additional terms and conditions Schedule A Borrower: CT Stone Pty Ltd ACN 602 558 903 … Commencement Date: 16/08/2018 … Debtor(s): CT Stone Pty Ltd ACN 602 558 903, Thuc Tran Huynh and Chau Quach … Final Repayment Date: On the same day which is 3 months after the Commencement Date. Guarantor: Thuc Tran Huynh and Chau Quach … Higher rate of interest: 6% per month … Lower rate of interest: 4% per month Mortgagors: means the Debtors Prepaid interest: 3 month's (sic) interest in the amount of $15,000.00 has been prepaid and deducted from the principal amount. Principal amount: $140,000.00 Specified Interest Regime: Interest Regime A (clause 5.11) 1. Schedule A repeated much of what has been set out above from the mortgage including, relevantly, the reference to Specified Interest Regime. Schedule B set out the various fees and charges. Each of the Schedules contained a footnote saying that they were the respective Schedules A and B to the Ayoub Lawyers 2017 Memorandum. 2. Under clause 3.1 of the Memorandum the debtor covenanted to pay the secured money to the lender. Similarly, under clause 28.5 the guarantors agreed to guarantee to the lender and indemnify the lender as to the payment by the debtor of the Secured Money. Secured Money was defined in clause 1.1 to include the principal amount and any interest and fees. 3. Clause 5.11 provided: If the Specified Interest Regime applicable to this Mortgage is Interest Regime A: (a) and, the Debtor fails to pay Interest to the Lender monthly in advance on the Date for the Payment of Interest; (b) and, the Debtor fails to pay Interest on the Date for the Payment of Interest, then: (i) the Debtor shall be liable to pay Interest on the Outstanding Interest at the Higher Interest Rate compounding monthly on the Date for the Payment of Interest until the Outstanding Interest is paid in full; and (ii) the Interest on the Outstanding Interest compounded on the basis specified in paragraph (i) above shall become part of the Secured Money as soon as it compounds. (c) Interest once accrued for a month shall be payable for the whole of the month and shall not be refundable or adjustable after the Date for the Payment of Interest. Registration of the mortgage 1. The mortgage as signed by the defendants was registered on 13 September 2019 and was given dealing number AP532585. 2. On the day before the hearing was due to commence the plaintiff, by notice of motion, sought leave to amend its statement of claim seeking: (a) a declaration that the defendants mortgaged their estate in the property as security for the principal amount of $140,000 together with interest, fees and costs payable under the mortgage dated 16 August 2018, Schedules A and B and the Ayoub Lawyers 2017 Memorandum; and (b) an order pursuant to section 138 of the Real Property Act 1900 (NSW) that mortgage AP532585 recorded in the folio of the register be amended by deleting reference to memorandum Q860000 and by recording reference to Schedules A and B and the Ayoub Lawyers 2017 Memorandum. In the alternative to an order under section 138, the plaintiffs sought a declaration that the property was charged with an equitable mortgage securing the same principal sum and other monies and was subject to Schedules A and B and the Memorandum. 3. The reason for the application was that the mortgage registered through the PEXA Exchange Online Lodgement Property and Settlement Platform identified the mortgagors (correctly) as the second and third defendants, although in the mortgage signed by them CT Stone was said to be the mortgagor. Further, instead of making reference to Schedules A and B and the Memorandum, the registered mortgage purported to incorporate the terms of memorandum Q860000. 4. The explanation for how the registered mortgage differed from the mortgage signed and executed by the defendants was set out in an affidavit of the partner supervising the solicitor acting for the plaintiff in relation to the registration of the mortgage. The PEXA registration platform is conducted entirely online and the solicitor's affidavit makes clear that wrong entries were made during the online registration process. In relation to the purported incorporation of memorandum Q860000, that appears to have been because a default setting resulted in that memorandum being incorporated under the heading "Document Reference". In fact, Schedules A and B and the 2017 Ayoub Memorandum should have been entered. 5. The error in relation to the identity of the mortgagors arose from the form of the original mortgage submitted by the solicitors acting on the transaction to the second and third defendants. As noted earlier, the mortgagor should have been identified as the second and third defendants and not the first defendant. The second and third defendants were identified in Registered Mortgage AP532585 correctly because they were the registered proprietors of the land in respect of the land title reference. 6. To rectify this problem of the discrepancy between the mortgage as signed and the mortgage as registered, and the errors in the mortgage as signed, the plaintiff lodged for registration a mortgage which varied the mortgage that had been registered. This further mortgage correctly named the first and second defendants as mortgagors, omitted reference to memorandum Q860000, and included under the heading "(b) Additional terms and conditions" the words "See Annexure for Terms and Conditions", and under the heading "ATTACHMENT" the words "See attached Terms and Conditions". Schedule A, Schedule B and the Memorandum were attached. 7. On the morning of the second day of the hearing Mr Newton of Senior Counsel for the plaintiff informed me that the newly lodged mortgage had been registered and given dealing number AT403743, and the previously registered mortgage had been discharged. The claims of the parties 1. The plaintiff's claim was straightforward. The plaintiff claimed that the defendants borrowed the money, provided a mortgage to secure its repayment, and failed to repay the principal or interest apart from a small amount of interest by way of pre-payment and shortly after default. The plaintiff claimed that the amount outstanding to it as at 4 September 2023 was $1,366,719.42, and tendered a Certificate pursuant to cl 24 of the Memorandum, which was, confusingly, headed "Lender's Certificate (prima facie evidence)" but provided that "The Lender may rely on a Lender's certificate as conclusive evidence…". 2. The defence of all three defendants contained only three substantive defences: (1) that the Memorandum was not included in the documents sent to the defendants before they saw Mr Le; (2) that the mortgage had no operative terms; and (3) that interest claimed at the higher rate was a penalty and unenforceable. Defence (2) fell away when the newly lodged mortgage was registered, Defences (3) was not pursued, and defence (1) was only faintly argued. As I understand what was put in relation to that defence, it formed part of the cross-claim made pursuant to the Contracts Review Act 1980 (NSW). It will be dealt with when the cross-claim is discussed. 3. The cross-claim was pleaded widely, asserting that the defendants were at a Special Disadvantage, that the conduct of the cross-defendant was unconscientious because the cross-defendant was on notice that the cross-claimants were under the Special Disadvantage, that the plaintiff was wilfully blind to a number of matters, and that in those circumstances the making of the contract was unjust within the meaning of the Contracts Review Act. It was also alleged that the conduct was unconscionable within the meaning of s 21 of the Australian Consumer Law on the basis that the plaintiff's conduct was designed to increase the liability of all of the defendants pursuant to what was said to be an Asset Lend. That Asset Lend was defined in this way in the cross-claim: The Cross-Defendant the rationale (sic) in lending money to CT Stone was that it would sell the Property and the Cross-Claimants real property in order to realise a profit at the expense and to the detriment of the Cross-Claimants which was not commensurate with the risk being undertaken by the Cross-Defendant. 1. It was further asserted that in order to maximise the profit from that Asset Lend and as part of the Asset Lend, the cross-defendant knew in August 2018 that it would not immediately upon breach sell the property but instead would allow interest to accrue. 2. The cross-claim asserted that Mr Le did not provide Competent Advice, which was said to be the following: a. The loan was repayable in three months; b. Interest would accrue at 6% per month after the due date for payment which was 16 November 2018; c. Interest would compound monthly, and this meant interest would be payable on each interest payment not made, which would exponentially increase the debt; d. The Cross-Defendant would sell both the Property and the Seville Street property; e. That the Cross-Defendant was making an Asset Lend. 1. The cross-claim asserted that had they been given the Competent Advice they would not have accepted the offer. 2. Finally, the cross-claim asserted that it was unconscionable within the meaning of s 21 of the Australian Consumer Law that the plaintiff waited until September 2022 to commence proceedings against them. 3. As a result of evidence given and evidence which was not given by the defendants, the case ultimately put forward on the cross-claim was considerably narrowed. First, charging interest at the rate of 72% compounding monthly was said to be arbitrary, not commensurate with the risk to the plaintiff, was a punishment, and would result in potential profit at the unreasonable expense of the defendants. In that regard, s 9(d) of the Contracts Review Act was said to be engaged because the term of the contract charging that rate of interest was said not to be reasonably necessary for the protection of the legitimate interests of the plaintiff. 4. Secondly, the defendants asserted that the plaintiff was indifferent to their ability to refinance the loan when they were in the desperate situation of having to seek the loan because of a cost blowout in the building work at the property on Seville Street. In that regard, the defendants claimed that the plaintiff did not explicitly bring the interest clause in the Memorandum to the attention of the defendants by not indicating that the higher rate was the rate that would be charged, by not indicating what the annual rate was (as opposed to the monthly rate), and did not indicate that interest was compounded. Those matters were said to engage paragraphs (g) and (i) of s 9 of the Contracts Review Act, which concern the intelligibility of the language of the contract, and the extent to which the legal and practical effects of the term were accurately explained by any person to the defendants and whether the defendants understood those provisions. 5. The asserted failure of the plaintiff to provide a copy of the Memorandum to the defendants appears to be relevant to the question of whether the defendants were aware of the clauses in the Memorandum which dealt with the interest regime. 6. Thirdly, and separately from the first two matters, the defendants submitted that the delay in seeking to enforce the mortgage by commencing proceedings was itself unconscionable because of the amount of interest compounded at a rate of 72% per annum. Was the contract unjust? 1. I do not accept the submission of the defendants that the Memorandum was not included with the documents forwarded by Ayoub Lawyers to the second defendant. There is no positive evidence, whether in the nature of evidence from the defendants or from anything noted at the time by Mr Le, that the Memorandum was not included. The third defendant said that he did not read any of the documents he signed, and did not see the second defendant read any of them. He said further that her facility with English was such that she could not have read them. The defendants appear to rely on an inference from the surrounding circumstances that it was not included. What those circumstances were was never made clear. 2. On the other hand, the letter sent by Ayoub Lawyers to the defendants on 16 August 2018 said that the Memorandum was enclosed with the mortgage; it was the first of seven matters listed in the letter. Secondly, the fact that the various Declarations and Certificates along with Schedules A and B were all Schedules to the Memorandum is further support for the conclusion that the Memorandum was sent. Thirdly, what is contained in exhibit LND-1 to the affidavit of Long Ngoc Dinh, the director of the plaintiff, are copies of the signed documents received by the plaintiff or Ayoub Lawyers from Mr Le or the defendants. That bundle of documents includes the Memorandum. 3. Further, each of the second and third defendants signed a statutory declaration in the terms set out at [28] above acknowledging that they had signed the mortgage with the Memorandum. Whilst it may be accepted that the defendants did not, as they said, read what they signed, the fact that they signed documents acknowledging that the Memorandum was amongst the documents they signed means that the evidentiary onus is on them to show that the Memorandum was not amongst the papers, when they have made the allegation. They have not discharged that onus. 4. The fact that the Memorandum was sent, does not mean, of itself, that the defendants' complaints regarding the interest issue must be decided against them. However, the starting point is that, subject to beneficial statutory provisions such as are relied upon by the defendants, they would be bound by what they signed (Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165; [2004] HCA 52 at [47]), as the third defendant acknowledged a number of times in his evidence. 5. The complaint about the rate of interest fails. Mr Le told them about the rates of interest, as the third defendant accepted. The defendants needed this loan to assist them in finishing the building work. Despite the pleading in the cross-claim that, had they been given Competent Advice (see at [52] above) they would not have accepted the plaintiff's offer, neither defendant gave evidence to that effect, and there is no reason to infer it in the circumstances of their need for money. It is also clear that both defendants confidently expected that they would be able to refinance at the end of the three months. 6. Further, the fact that interest was charged at these very high rates is not, of itself, unconscionable or unjust. In Mizzi v Reliance Financial Services Pty Ltd [2007] NSWSC 37 Brereton J (as his Honour then was) said at [42]: …Although the interest rate charged by Reliance was high relative to bank rates, it was not when compared to the rates which the court often sees charged by lenders of last resort;… 1. In Takemura v National Australia Bank Ltd [2003] NSWSC 339 the issue was whether the court would order specific performance of agreements where the rates of interest were 60% and 72% per annum. Young CJ in Eq said: [21] In Barrett v Hartley (1866) LR 2 Eq 789, 795, Stuart VC said: It is an observation of some importance now that the usury laws are repealed, that one effect of such repeal was to bring into operation, to a greater extent than formerly, another branch of the jurisdiction of this Court which existed long before them – I mean, that the principle of the Court which prevented any oppressive bargain, or any advantage exacted from a man under grievous necessity and want of money, from prevailing against him. [22] The situations where equity has exercised this power are said to fall into four categories; see Waldock on Mortgages 2nd ed (Stevens & Sons, London, 1950) pp 192 and following, which has found its way in a different form into Cousins Law of Mortgages 1st ed (Sweet & Maxwell, London, 1989) pp 311 and following. The four classes are: (1) Where the mortgagee stands in a fiduciary relation to the mortgagor; (2) Mortgages of reversionary interests and expectancies; (3) Where the mortgagee has unconscionably exploited the necessitous circumstances of the mortgagor to extort from his exorbitant terms for the loan; and (4) Where the court is given jurisdiction by statute to reopen extortionate credit arrangements. [23] It is the third of these categories that may be relevant in the present case. [24] It is usually not sufficient to show that a mortgage falls into the third class to show that the interest rate was much higher than one might expect. What must be shown is that there is unconscionable pressure on the mortgagor to enter into the arrangement. A mortgage given by a business person at a very high rate of interest, if that mortgage was freely and voluntarily given, will not be able to be attacked. 1. In Guardian Mortgages v Miller [2004] NSWSC 1236 the interest rates in the loan agreement were 14.5% per month or 174% per annum reducible to 12% per month or 144% per annum. The borrower asserted that the requirement to pay interest at those rates was unconscionable and constituted an unjust provision. Wood CJ at CL said: [104] The interest rate, although admittedly high, does not constitute of itself an unconscionable or unjust provision, in a case such as the present involving a commercial loan, where there was no unconscionable pressure, placed on the Defendant by the Plaintiff, to enter into the transaction. [105] In any event the Court is not in a position to determine whether the rate charged was, or was not, one which fell within the range for commercial bridging or short term loans, since no evidence was called by the Defendant in relation to this aspect of the case. That the rate was in excess of the commercial rate was in fact rejected by Mr Benn, in cross-examination. While it may be possible, in a general way to take judicial notice of prevailing interest rates, for example from credit and store card interest charges, as was suggested in Cityland & Property (Holdings) v Dabrah [1967] 2 All ER 629 and in Asia Pacific International Pty Ltd v Dalrymple (2000) 2 Qd R 229, I am not in a position to determine the prevailing rate for short term bridging loans secured by second mortgage. 1. In Driat Pty Ltd v Thomas [2012] NSWSC 683 the interest rate charged on a three month loan was 36% per annum reducible to 30.85%. It was claimed that those rates made the contract unjust. Windeyer J said at [26]: The interest rate on the Point Piper loan was, of course, very high, but it was only for a three month period. It was a second mortgage, and experience is that interest rates on such short term loans are often high. There was, of course, no difficulty about ability to make the interest payments payable under the loan as they were paid in advance. That means in this case that unless there were default in payment on the due date there could not be any default for failure to make payments during the term of the mortgage. 1. The complaint that the rate was arbitrary does not point to unconscionability or unjustness. Whilst it may be accepted that banks and mainline lenders ordinarily tether their rates to the rate set by the Reserve Bank, that is not the case with last resort lenders. Lenders of last resort almost always face considerably higher risks in lending, for the obvious reason that prospective borrowers have been refused loans from banks and other ordinary lenders. The price for the borrower of being a much higher risk, having less security or needing a speedy loan so that full investigations cannot be made by the lender, is that interest rates are set at a considerably higher level. 2. However, it is not the case that the lender must demonstrate that the interest rate charged is somehow commensurate with the risk to the lender. In any event, there is nothing but inference in this case to show that the interest rate was not commensurate with the risk. It may be accepted that the rates are very high but they are within the range of rates charged in the cases referred to above and in relation to very many other loans made by lenders of last resort as come before this Court, as Brereton J said in Mizzi. 3. Contrary to the submission on behalf of the defendants that Mr Dinh said "it was a punishment", Mr Dinh's evidence was only that he thought his solicitor advised him of the interest rate "so they [were] going to pay back after three months". In other words, the high interest rate might have been an incentive, and even a powerful incentive, to ensure that the loan was repaid within three months. Mr Dinh repeatedly denied that he expected that the loan would not be repaid within three months and that he wanted it not to be repaid in that time so that he could receive the benefit of the higher interest. He said: I only want the money go – money to be paid back after three months. So the mortgage document should be met to make sure after the three months they going to pay me back. That's all. I accept his evidence in that regard. 1. Nor was Mr Dinh indifferent to the defendants' ability to refinance the loan. He gave this evidence: Q. Did you turn your mind to the viability of the proposition that the house could be refinanced within three months? A. I rely on the - I rely on - on - I rely on because they got a few house, that's what I know, they got a few house, they refinance 100,000. I think so not a problem with them. Q. What houses did you know that Thuc and Chau owned as of August 2018? A. I think 32 Laurina, the one with the - the security. The second one is the one in Fairfield somewhere. That's it. Q. Did you obtain valuations for either of the two properties? A. No. Q. Did you ask to see any documents showing the ability of Thuc and Chau to repay the money after three months without a refinance? A. I don't get it. Q. You'd agree that Ledinh Sovereign Super is a lender of last resort? A. I still don't understand your question. Q. You assume that the loan to CT Stone was for three months with interest for three months being $15,000, and thereafter interest accruing at 72% per annum compounding monthly, did it cross your mind as to how that particular loan was going to be refinanced in three months? A. That's the time of the - that's a time of the lend - the money will lend, so he - so he have the loan for 500,000 over the security of it on 100,000. So I don't think that's a problem to refinance with them. Q. You'd agree that that $500,000 loan you're talking about was at [sic] first registered mortgage to‑‑ A. Yes, Westpac. Q. ‑‑a bank? A. Yes. Q. You'd agree that if Thuc and Chau were able to obtain finance for a bank for an extra $140,000 they were best served by obtaining that refinance without obtaining a loan from Ledinh Sovereign Super? A. I'm not sure about it. I rely on the ‑ I rely all the document [sic] from my solicitor to make sure the money going to be paid back after three months. 1. I infer from that evidence and Mr Dinh's other evidence that he wanted the loan to be repaid within three months that he had turned his mind to the defendants' exit strategy which involved there being sufficient equity in the property after taking into account the loan from Westpac, together with their ownership of another property, and he believed that they would be able to refinance in that time, as did they. 2. It is true that, in the letter from Ayoub lawyers, nothing was expressly said about the interest provisions. However, both on the second page of the mortgage and again in Schedule A, the last item in the list read: Specified Interest Regime Interest Regime A (clause 5.11) In circumstances where the plaintiff was insisting that documents be executed before a solicitor, including provision for certificates from that solicitor that he had, explained to the signatory the nature and the effect of the Mortgage to be executed by him/her and each of its terms and the legal effect of the Mortgage and its terms, I do not consider that the plaintiff was obliged to include specific reference to the interest provisions in the Declarations which the defendants were obliged to sign and swear, as submitted by counsel for the defendants. 1. I do not mean to suggest by that conclusion that the mere interposition of a solicitor meant that the contract was not unjust. Putting to one side the question of compounding the interest (which will be dealt with later), the defendants were experienced mortgagors who were very likely to have known the difference between the two rates of interest specified in the mortgage. Moreover, where cl 5.11 was identified in two separate places in the parts of the mortgage containing the essential information, the matter of paying the higher rate was sufficiently drawn to their attention, even if they did not have a solicitor acting. The fact that they did have a solicitor simply reinforces that conclusion. 2. Nor does the requirement in the Memorandum that the Higher Rate of Interest was to be payable unless the Lower Rate was specified by the plaintiff (cl 5.3) amount to a penalty. In Oxygen Funding Solutions Pty Ltd v Dick-Telfar [2020] NSWSC 582, Adamson J (as her Honour then was) said at [80]: However, courts have consistently held that, as long as the provisions for the lower and higher rates of interest are drafted in such a way as to make clear that the lower rate is payable by way of a discount, or reward, for timely payment and the higher rate is the rate otherwise applicable, the rate does not amount to a penalty and the lender's conduct is not unconscionable. Thus, it is irrelevant that 10% cannot possibly be a genuine pre-estimate of the plaintiffs' loss if the payment at 4% is not made on time since this is not the test. While trial judges and intermediate courts have railed against the consequences of this distinction, which is to immunise the result of a drafting device from scrutiny on the basis of equitable principles relating to penalties and unconscionability, it has been said, time and again, that the principle is too well established to be disturbed other than at the highest level, by the High Court or by Parliament: Kellas-Sharpe at [2]-[4] (Margaret McMurdo P), [32]-[49] (Gotterson JA) and [57]-[60] (Fryberg J). 1. However, I consider that the combination of the very high default rate of interest and the monthly compounding of that interest makes the contract unjust. The combination is unconscionable. In Haiqin Lu v Qindi Shen; Weiren Jin v Qindi Shen [2018] NSWSC 560, McDougall J said: [114] Save for one matter, the conclusions that I have reached on the second issue mean that the third issue should be resolved in favour of the plaintiffs. That one matter relates to the interest rate specified in the deeds. I asked Mr Ashhurst to put submissions as to how an interest rate of 18% per annum compounding on daily rests could be anything other than unconscionable. The effect of application of that rate would be to increase the amounts owed up to 30 April 2018 (calculating from 25 August 2006, being 28 days after the letter of demand, and also the date used in the plaintiffs' Summons) to: (1) $4,095,679 ($500,600 in principal and $3,595,079 in interest) in the case of Haiqin; and (2) $1,898,118 ($232,000 in principal and $1,666,118 in interest) in the case of Weiren. [115] Mr Ashhurst responded to that invitation by stating that his clients would not seek compound interest. Mr Condon accepted that this effectively resolved the issue of unconscionability to the extent that it involved the charging of compound interest. He did not submit that the default rate of 18% per annum was of itself unconscionable. Nor did the defendants plead that it constituted a penalty, as that concept was explained in cases such as Andrews v Australia and New Zealand Banking Group Ltd and Paciocco v Australia and New Zealand Banking Group Ltd. . [116] I conclude that it is not unconscionable for the plaintiffs to enforce the deeds, on the basis that they do not seek compound interest. (citations omitted) 1. I accept that in Haiqin the interest was compounded daily whereas in the present case it is compounded monthly. That might have been acceptable if the rate itself had not been so high. It cannot be the case that such a provision is reasonably necessary for the protection of the legitimate interests of the plaintiff. The point is most clearly illustrated by the amount of the interest claimed in the lender's Certificate of $1,118,978.30 on a principal sum of $140,000, particularly when, after deduction of prepaid interest and fees, the defendants received $120,000. 2. Accordingly, the contract constituted by the mortgage must be varied to the extent that those parts of it, particularly cl 5, which provide for the compounding or capitalising of interest should be deleted. 3. I note in passing, but without any reliance on it for the conclusion I have reached as to unjustness, that in various demands made by the plaintiff, only simple interest at the higher rate has been claimed. Delay in commencing proceedings 1. The loan was due to be repaid on 16 November 2018. 2. On 7 February 2019 the plaintiff's solicitor, Mr Ayoub, sent an email to Mr Le. The email referred to a telephone conversation the two solicitors had had that day. The email noted that Mr Le had acted for all of the defendants in connection with the mortgage documents, that the mortgage was executed on 16 August 2018 for a period of three months, that the three month period expired on 15 November 2018 and that the clients had yet to repay the money. The email said that the plaintiff had issued letters of demand but there had been a failure to reply to those letters. The email said that if full payment was not received of the loan, interest and legal fees by close of business on Friday, 8 February 2019, Mr Ayoub was instructed to commence proceedings. 3. Subsequently, Ms Penelope Cable, solicitor of Hunt & Hunt, came to act for the plaintiff. Ms Cable sent an email to the defendants on 8 May, noting that on 26 April 2019 they had forwarded to Mr Ayoub an email advising that they were in the process of selling both their properties so that the plaintiff could be repaid. It was apparent that Ms Cable had copies of the front pages of contracts for sale of the properties at Lals Parade and Canterbury Road, Revesby signed by the defendants. Ms Cable advised that, following the expiry of a notice under s 57(2)(b) of the Real Property Act forwarded to the defendants on 15 April 2019, the plaintiff would take such further and other action as it deemed appropriate to recover the monies outstanding to it. 4. The third defendant responded to that email the following day saying that he was in the process of refinancing through Pepper Money and was waiting for a valuation. There was in evidence a conditional approval from Pepper Money dated 8 May 2019 in an amount of $1,480,000, and it was a settlement condition by Pepper Money that the plaintiff be paid out in the sum of $179,430.60 from the loan proceeds. The third defendant said he was eager to pay back the plaintiff. 5. The third defendant gave evidence that they only obtained a loan from Pepper Money for a much lower figure because the valuation of the security offered came in at a lower figure also. There was no evidence, however, that any money received from Pepper Money was used to repay the plaintiff. 6. On 12 June 2019 the third defendant sent an email to Mr Dinh, the director of the plaintiff. The email apologised for the delay in payment and said that the defendants had been trying every avenue to sort out the problem. It noted that $11,000 had been paid in interest to the end of January 2019, and acknowledged that interest was owed for February through to June of 2019. The email asked if the defendants could pay that interest, and then asked if Mr Dinh would give them about three months to sort out the balance of the loan. 7. On 26 June 2019 Ms Cable sent an email to the third defendant saying that her instructions were to proceed and that a statement of claim would be filed the next day. The third defendant responded asking Ms Cable to wait until the defendants' solicitor got back to her. 8. On 1 July 2019 Harish Prasad & Associates, Solicitors, acting for the defendants, wrote to Ms Cable seeking a period of three months to pay the debt owed to the plaintiff. The letter said that the defendants were in the process of selling a property in Vietnam which would release sufficient funds to discharge the debt to the plaintiff. In those circumstances they sought an extension of time until 30 September 2019. 9. On 12 September 2019 a statutory demand under the Corporations Act 2001 (Cth) was served on the first defendant. The amount demanded was calculated on the basis of simple interest at 6% per month, with credit being given for two payments of $11,000.00 by the defendants in December 2018 and $10,000 in July 2019. 10. The amount claimed was not paid, and nothing appears to have happened until a further letter was sent by Ms Cable at Hunt & Hunt on 7 October 2020. The amount claimed also seemed to be confined to the principal sum, simple interest and legal costs incurred by the plaintiff, with the demand totalling $338,190. 11. In the meantime, on 13 September 2019, the mortgage was registered. 12. There was then a lengthy period of almost 18 months when nothing appears to have happened until on 2 March 2022 a letter was sent by Ms Cable enclosing another s 57(2)(b) Notice. Interest had risen in the meantime from $172,200 in October 2020 to $309,440. The plaintiff, on this occasion, claimed $494,160 which included increased legal costs. 13. The statement of claim was served on 9 September 2022. Defences were filed on 15 October 2022, but it was not until 3 April 2023 that a cross-claim was filed. 14. The defendants asserted that the delay from the time of default until the commencement of the proceedings was unconscionable within s 21 of the Australian Consumer Law. 15. Mr Dinh was asked in cross-examination why it was that the plaintiff did not take proceedings once the mortgage was registered on 13 September 2019. Mr Dinh said: So I after they email me I gave them some extension and - and my lawyer after few months they - they get - they send me the contract of sale for the house, for one or two house, I don't - one or two house. That's why I wait when they settle the house they going to pay me back. And then couple of months COVID happen, all the Court - all the Court and everything close and that's why this been long as this. 1. It was not true, of course, that the Court closed during the COVID-19 pandemic. Even if that was Mr Dinh's belief (and I generally found him to be an honest witness) it cannot provide a satisfactory reason for no action being taken when it is clear that the plaintiff was represented by lawyers throughout the period. The letter referred to above of 7 October 2020 from Ms Cable to the defendants is an indication that some steps, albeit slow, were being taken in relation to the recovery of the loan. 2. There is no other explanation from the plaintiff or any of their lawyers about why nothing was done to commence proceedings until 9 September 2022. 3. Both parties, in accordance with leave given at the conclusion of the hearing, provided brief written submissions addressing the issue of asserted unconscionability relating to the delay in commencing proceedings by the plaintiff. Both parties accepted that unconscionability could be considered in relation to the enforcement of the contract. In my view, that is a correct understanding of the width of s 12CA of the Australian Securities and Investments Commission Act 2001 (Cth) (the "ASIC Act"), which is concerned with such conduct "in relation to financial services": Mastronardo & Anor v Commonwealth Bank of Australia Ltd [2018] NSWCA 136 at [9]. 4. In Stubbings v Jams 2 Pty Ltd [2022] HCA 6; (2022) 96 ALJR 271, a case concerning unconscionability under the ASIC Act, the joint judgment of Kiefel CJ, Keane & Gleeson JJ said: [39] In Commercial Bank of Australia Ltd v Amadio, this Court held that unconscionability involves: a relationship that places one party at a "special disadvantage" vis-à-vis the other; knowledge of that special disadvantage by the stronger party; and unconscientious exploitation by the stronger party of the weaker party's disadvantage. But these considerations should not be understood as if they were to be addressed separately as if they were separate elements of a cause of action in tort. As Dixon CJ, McTiernan and Kitto JJ said in Jenyns v Public Curator (Qld), in a passage approved by this Court in Kakavas and Thorne v Kennedy, the application of the equitable principles relating to unconscionable conduct: calls for a precise examination of the particular facts, a scrutiny of the exact relations established between the parties and a consideration of the mental capacities, processes and idiosyncrasies of the [vulnerable party]. Such cases do not depend upon legal categories susceptible of clear definition and giving rise to definite issues of fact readily formulated which, when found, automatically determine the validity of the disposition. Indeed no better illustration could be found of Lord Stowell's generalisation concerning the administration of equity: 'A court of law works its way to short issues, and confines its views to them. A court of equity takes a more comprehensive view, and looks to every connected circumstance that ought to influence its determination upon the real justice of the case'. (citation omitted) Special disadvantage [40] In this field of discourse, "special disadvantage" means something that "seriously affects the ability of the innocent party to make a judgment as to his [or her] own best interests". While the factors relevant to an assessment of special disadvantage have not been exhaustively listed, Fullagar J in Blomley v Ryan considered that special disadvantage may be inferred from "poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary". No particular factor is decisive, and it is usually a combination of circumstances that establishes an entitlement to equitable relief. (citations omitted) 1. In Attorney General of New South Wales v World Best Holdings Limited & Ors (2003) 63 NSWLR 557; [2003] NSWCA 261, Spigelman CJ said: [120] Unconscionability is a well-established but narrow principle in equitable doctrine. It has been applied over the centuries with considerable restraint and in a manner which is consistent with the maintenance of the basic principles of freedom of contract. It is not a principle of what "fairness" or "justice" or "good conscience" requires in the particular circumstances of the case. … [121] The Ministerial Second Reading speech, quoted above, indicates a similar concern to distinguish what is unconscionable from what is merely unfair or unjust. Even if the concept of unconscionability in s62B of the Retail Leases Act is not confined by equitable doctrine, as the decisions under s51AC of the Trade Practices Act suggest, restraint in decision-making remains appropriate. Unconscionability is a concept which requires a high level of moral obloquy. If it were to be applied as if it were equivalent to what was "fair" or "just", it could transform commercial relationships in a manner which the Minister expressly stated was not the intention of the legislation. The principle of "unconscionability" would not be a doctrine of occasional application, when the circumstances are highly unethical, it would be transformed into the first and easiest port of call when any dispute about a retail lease arises. 1. In a similar vein, Colvin J said in Australian Competition and Consumer Commission v Geowash Pty Ltd (subject to a deed of company arrangement) (No 3) [2019] FCA 72; (2019) 360 ALR 441: [662] However, unconscionability is not the mere breach of accepted standards of commercial behaviour. Section 21 [of the Australian Consumer Law] does not have the consequence that any breach of the norms underpinning commercial laws or those expressed in codes of conduct or prevailing business standards becomes a contravention of the ACL. Nor is it the case that any conduct that involves an element of hardship or unfairness to the other party is unconscionable. Rather, unconscionable conduct is characterised by a substantial departure from that which is generally acceptable commercial behaviour. It is a departure which is so plainly or obviously contrary to the behaviour to be expected of those acting in good commercial conscience that it is offensive. So, at general law, an element of hardship or unfairness in the terms of a transaction or in the manner of its performance is an insufficient basis to set aside a contract on the basis of unconscionability: Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315 at [26]. [663] The requirement that the conduct be plainly or obviously outside the behaviour expected of those acting with good commercial conscience arises because unconscionability is a term that is reserved for more extreme cases of breach of a moral or normative standard. There is no real basis upon which it might be justified or defended. However, the use of words such as 'a high level of moral obloquy' to describe such behaviour is to be avoided because it takes the inquiry away from an assessment of what is required by good commercial conscience (in the context of the commercial law and standards of business behaviour generally observed at the time) and directs attention to an evaluation of whether the conduct is shameful or is to be denigrated or severely censured. Conduct may be unconscionable without inviting vilification or severe condemnation. It is conduct that would be understood to be clearly wrong by a person of good business conscience. It is not necessary that, in addition, it be conduct of a kind that would lead to disgrace and eternal damnation unless absolved. 1. Of course, where unconscionability under a statute is relied on, it is always necessary to have regard to matters which the statute stipulates. In the present matter, those matters are to be found in s 12CC of the ASIC Act. Although counsel for the defendants did not specify which of the matters in s 12CC were relevant to the determination of unconscionability in the present matter, he made reference to the matter of "good faith" in s 22 of the ACL. 2. Where I have already determined that the contract between the parties (constituted by the mortgage) is to be varied by deleting the provisions which enable the compounding of interest, the issue of unconscionability from the delay must be determined on the basis of the contract as amended. The issue is, therefore, whether it is unconscionable for the plaintiff to have delayed in instituting the proceedings where interest was being charged on a simple basis at the rate of 72% per annum. 3. The pleading in the amended cross-claim concerning this claim is as follows: 45 The Cross-Defendant took no steps to enforce the Mortgage to maximise the profit from the Asset Lend (the Conduct). 46. The Conduct was unconscionable within the meaning of section 21 of the Australian Consumer Law in that the Conduct was engaged in, in order to increase the liability of CT Stone and the Cross-Claimants pursuant to the Asset Lend. 47. To the extent that the Cross-Defendant has a contractual right to realise the Property at its discretion, waiting until September 2022 was an unconscientious reliance on that right. 48. As a consequence of the contravention of section 21 of the Australian Consumer Law, the Cross-Claimants are likely to suffer loss and damage within the meaning of section 237 of the Australian Consumer Law in that their liability under the Guarantee is going to be greater than what it ought to be and would have been if the Cross-Defendant had enforced the Mortgage in December 2018. 1. It may be observed that the "Asset Lend" was alleged to have come about because it was earlier asserted that the plaintiff was wilfully blind to whether the defendants could repay the money without realising or refinancing the property. 2. Asset lending is not, per se, unconscionable. In Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41; (2006) 14 BPR 26, 639, Basten JA at [128]-[131] said only that it may be unjust. In Stubbings, Steward J said at [113] that the system of asset-based lending in that case could have been attractive to financially distressed borrowers who were not eligible to obtain a loan in the ordinary way. 3. It would be quite unrealistic in the present case, and in cases like it, to suggest that this loan would have been paid off in any way other than by sale or, far more likely, refinancing. Where interest for the term of the loan is paid upfront, an enquiry about whether the borrower had sufficient income to service the loan would be pointless. At best, such an enquiry would only be relevant, at the margins, to consider the likelihood of the proposed exit strategy coming to pass. 4. In the present case, I have set out at [71] and [72] above Mr Dinh's consideration about the likelihood of the refinancing, about which the defendants were confident. The plaintiff was not wilfully blind to the defendants' ability to refinance. There is nothing in the evidence to suggest that the plaintiff acted or failed to act "to maximise the profit" or the delay was "in order to increase the liability of" the defendants. 5. When it is clear that the defendants were taking steps to refinance the loan, where two amounts by way of interest were paid in December 2018 and July 2019, and where the defendants had asked the plaintiff for an extension until 30 September 2019, it cannot be concluded, in the first instance, that the plaintiff behaved unconscionably before 30 September 2019. 6. As far as the period after 30 September 2019 is concerned, if proceedings had been commenced shortly after that time, and the plaintiff had obtained judgment for possession of the land, the plaintiff would not have been under an obligation to take immediate steps to sell the land: Westpac Banking Corporation v Kingsland (1991) 26 NSWLR 700 at 705; Mailman v Challenge Bank Ltd (1991) 5 BPR 11,721 at 11,727–11,728; Commonwealth Bank v Lee (1996) 22 ACSR 574 at 578 ; see also B Edgeworth, Butt's Land Law (7th ed, 2017, Lawbook Co) at 764 [11.1330]; Hill Foundation Pty Ltd v 131 MVR Pty Ltd [2022] NSWSC 520 at [9]. 7. As I mentioned earlier, counsel for the defendants made reference to "good faith" in s 22 of the ACL. Similarly, s 12CC(1)(l) requires consideration of "the extent to which the supplier and the service recipient acted in good faith". 8. Any suggestion of a lack of good faith falters when the following matters are considered: (a) cl 25 of the Memorandum provided that a failure or delay to exercise a power, right or remedy did not operate as a waiver. That clause is not unjust in itself; (b) as noted above, a mortgagee does not have an obligation to sell immediately, or at any time in particular; (c) no payments were made by the defendants after July 2019 where they knew that they had been in default for some eight months; (d) promises were made by the defendants to repay after the sale of other properties, but no repayment was made despite the sale of at least two of those properties; (e) when proceedings were commenced, they were defended with no acknowledgment that at least the principal sum had to be repaid and, very, likely some interest to compensate the plaintiff for being kept out of its money. 1. In Silvestro v S R Factors Pty Ltd [2010] NSWCA 74, Young JA (with whom Macfarlan JA and Sackville AJA agreed) said at [22]: …[T]here will be cases where people have capriciously exercised their legal contractual rights contrary, for instance, to the franchise code of conduct where the court may intervene: cf Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR 41-703 (an unsuccessful case), and there may be cases where mortgagees unconscionably exercise their legal rights. However, generally speaking, if a defence in contract law lies to the alleged unconscientious person's claim, then there is no call to resort to ss 51AA or 51AC of the Trade Practices Act 1974 (Cth). 1. Here, cl 25 of the Memorandum effectively permitted delay in commencing proceedings, quite apart from the general law principle concerning a mortgagee's right described at [109] above. 2. What the defendants knew, as I have found, was that interest on this loan was "very high", at 6% per month. They must be taken to know that interest at that rate would be mounting throughout the period they failed to repay the loan. The delay could have benefited them if they had been about to obtain refinance, but there is no evidence of any activity on their part after about September 2019. It seems that they sold the properties in Lals Parade and Canterbury Road in 2019 or later but they appear to have favoured other lenders by repaying Azua Management from a loan from Pepper Money, and by selling Lals Parade to Mr Bui's wife. Knowing that the amount was outstanding and increasing, they made no effort to reduce the indebtedness or repay it. Nor did they inform the plaintiff or its solicitor wat they were doing in relation to the money owing. Rather, it seems that they simply hope d the matter would go away. 3. The defendants were not at any special disadvantage, in that circumstances were not such that the defendants' ability to make a judgment as to their best interests were seriously affected: Stubbings at [40]. 4. I do not consider in all the circumstances that the delay on the plaintiff's part to commence the proceedings was unconscionable. Conclusion 1. The plaintiff is entitled to judgment for possession of the Laurina Avenue property. The plaintiff is also entitled to judgment for a sum comprising the principal sum of $140,000, simple interest at the default rate of 6% per month, and costs and expenses. 2. Although the cross-claimants were successful in relation to the part of the mortgage allowing the compounding of interest, the plaintiff was successful in its claim for possession and a substantial sum for interest. In those circumstances, the defendants should pay the plaintiff's costs of the proceedings. 3. The plaintiff should bring in short minutes of order to reflect these reasons. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 September 2023