Supreme Court New South Wales Medium Neutral Citation: Zhong v Shield Resources Pty Ltd [2023] NSWSC 1611 Hearing dates: 4-8 December 2023 Date of orders: 18 December 2023 Decision date: 18 December 2023 Jurisdiction: Common Law Before: Fagan J Decision: 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 Judgment for the second defendant against the plaintiff. 3 Judgment for the third defendant against the plaintiff. 4 The cross-claim by the first and second defendants against the plaintiff is dismissed. 5 The first defendant is to pay the plaintiff's costs of the proceedings. 6 The plaintiff's to pay the costs of the proceedings of the second and third defendants. Catchwords: CONTRACT — breach — total failure of consideration — agreement for loan of a specified amount — whether entire contract — whether obligations of borrower under agreement unenforceable where part only of loan amount advanced REAL PROPERTY — whether contract contained agreement of a registered proprietor and that a caveat may be lodged — whether implied creation of a caveatable interest in land INSURANCE — rectification — loan agreement — whether mutual intention of parties creates a separate charge over real property GUARANTEE AND INDEMNITY — circumstances in which surety discharged — where creditor advanced less than the full amount to be loaned under the agreement that was guaranteed — whether the principle of Ankar Pty Ltd v National Westminster Finance applied — onus on principal creditor to prove that change of lending arrangement with borrower was not detrimental to guarantor Legislation Cited: Australian Consumer Law (Cth) Contracts Review Act 1980 (NSW) Cases Cited: Aged Care Services Pty Ltd v Kanning Services Pty Ltd (2013) 86 NSWLR 174; [2013] NSWCA 393 Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549; [1987] HCA 15 Baltic Shipping Company v Dillon (1993) 176 CLR 344; [1993] HCA 4 Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 24 NSWLR 370 Croydon Gas Company v Dickinson (1876) 2 CPD 46 51 Garcia v National Australia Bank Ltd (1998) 194 CLR 395; [1998] HCA 48 Holme v Brunskill (1877) 3 QBD 495 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 Ryledar Pty Ltd & Anor v Euphoric Pty Ltd [2007] NSWCA 65 Ta Lee Investment Pty Ltd v Antonios (2019) 19 BPR 39153; [2019] NSWCA 24 Taleb v National Australia Bank Ltd (2011) 82 NSWLR 489 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Yerkey v Jones (1939) 63 CLR 649; [1939] HCA 3 Category: Principal judgment Parties: Yuping Zhong (plaintiff) Shield Resources Pty Ltd (first defendant) Ying Guan (second defendant) Feng Ye (third defendant) Representation: Counsel: SJ Burchett (plaintiff) SA Lawrence (second defendant) D Parish (third defendant) Solicitors: Juris Cor Legal (plaintiff) JC Legal (second defendant) GOH Lawyers (third defendant) File Number(s): 2020/95833 Publication restriction: No JUDGMENT 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. 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. 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: The plaintiff as Lender. Shield Resources as Borrower. Shield Resources' sole director at the time was the third defendant, who signed on behalf of the company. The second defendant, as Guarantor. She is and was at the time married to the third defendant. 1. 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. 2. 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. 3. 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: INTRODUCTION A. The Borrower has requested the Lender to lender to the Borrower the sum of AUD$2,000,000 for the purpose of a Business Investment ("the Principal Sum"). B. The Lender has agreed to advance to the Borrower the Principal Sum upon having the repayment of the Principal Sum with interest secured in the following manner. IT IS AGREED 1. INTERPRETATION 1.1 In this Deed, unless otherwise indicated by the context: (e) Property means the unit owned by the Guarantor at 49 Waterhouse Ave, St Ives NSW 2075 ("the property"). 2. LOAN AND REPAYMENT In consideration of the Principal Sum on the date of this Deed advanced by the Lender to the Borrower, the receipt of which the Borrower acknowledges, the Borrower this day agrees that the Borrower is liable to repay both the Principal Sum (or so much of the Principal Sum is remains unpaid) on the 17 September 2019 ("the Due Date") and 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 minimum term of the Deed are at least twelve months (12 months). During the term, the Principle Sum will be entitled to convert into the further capital investment by the due date. Therefore, the Deed would be withdrawal on the consent of both parties. 3. INTEREST The Borrower will pay to the Lender simple interest on the Principal Sum or on so much of the Principal Sum is for the time being remains unpaid and upon any judgment or order in which this all the preceding clause may become merged at the rate of twelve per cent (12%) per Annum calculated daily and payable monthly at months end during the term of this Deed until the Principal Sum is fully repaid and satisfied, the first of such interest payments computed from the date of this Deed to be made on the first day of the month after the date of the Deed. 6. BORROWER AND GUARANTOR'S REPRESENTATIONS AND WARRANTIES The Borrower and Guarantor represents and warrants to the Lender that: (a) Charge: there is nothing to prevent the lodging of a second mortgage over the Property by the Lender if required, subject to the requirements of the First Mortgagee, and the Borrower consents to such a charge being lodged over the Property at his expense until such time as the loan is repaid under the terms of this Deed. 7. UNDERTAKINGS AND AGREEMENTS For as long as the Principal Sum remains outstanding under this Deed to the Lender, the Borrower undertakes with the Lender as follows: (a) Further assurances: to execute and do, at the expense of the Borrower, all assurances and other things as are reasonably required or requested at any time and from time to time by the Lender for giving effect to, and the full benefit of, the covenants contained or implied in this Deed or to protect the Lenders rights, powers and remedies under this Deed; … (e) Further mortgage: to not further mortgage or income by the Property beyond the first mortgage on the loan under this Deed without the Lenders prior written agreement which may be withheld at the Lenders reasonable discretion. 13. GOVERNING LAW AND JURISDICTION 13.1. This Deed is governed by the laws of New South Wales. 13.2. Each party irrevocably submits to the non-exclusive jurisdiction of the courts of New South Wales. 14. FURTHER ASSURANCE Each party will from time to time do all things (including executing documents) necessary or desirable to give full effect to this Deed. Liability of Shield Resources 1. 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. The second defendant's entire obligation argument 1. 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. 2. 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: [10] An entire contract or, perhaps more accurately, an entire obligation is one in which the consideration for the payment of money or for the rendering of some other counter-performance is entire and indivisible. In Steele v Tardiani [1946] HCA 21; (1946) 72 CLR 386, at p 401, Dixon J. cited the general proposition stated in EV. Williams' Notes to Saunders (6th ed. (1845), vol.1: Pordage v Cole (1669) 1 Wms Saund 319, at p 320;85 ER 449, at p 453): "Where the consideration for the payment of money is entire and indivisible, as where the benefit expected by the defendant under the agreement is to result from the enjoyment of every part of the consideration jointly, so that the money payable is neither apportioned by the contract, nor capable of being apportioned by a jury, no action is maintainable, if any part of the consideration has failed; for, being entire, by failing partially, it fails altogether." [11] The concept of an entire contract is material when a court is called upon to decide whether complete performance by one party is a condition precedent to the other's liability to pay the stipulated price or to render an agreed counter-performance [citations omitted]. (Emphasis added). 1. 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: [11] … If this were a case in which the appellant sought to enforce a promise to pay the cruise fare at the conclusion of the voyage the concept would have a part to play; then, if the appellant's obligations were entire, on the facts as I have stated them, the appellant's incomplete performance of its obligations would not entitle it to recover. [12] When, however, an innocent party seeks to recover money paid in advance under a contract in expectation of the entire performance by the contract-breaker of its obligations under the contract and the contract-breaker renders an incomplete performance, in general, the innocent party cannot recover unless there has been a total failure of consideration [citations omitted]. If the incomplete performance results in the innocent party receiving and retaining any substantial part of the benefit expected under the contract, there will not be a total failure of consideration. 1. 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. 2. 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]. 3. 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. Shield Resources affirmed the loan deed by acceptance of part of the loan 1. 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. 2. 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. 3. 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: [5] The learned trial judge and the majority of the Court of Appeal held that [the respondent] was entitled to a refund of the whole fare. The money had, in their Honours' view, been paid under a contract of passage which was an entire contract. It had been paid for an indivisible consideration which had wholly failed. … [Their Honours] thought that there was a good analogy between the present case and Sir George Jessel MR's well known example in In re Hall and Barker (1878) 9 Ch D 538, at p 545: "[I]f a shoemaker agrees to make a pair of shoes, he cannot offer you one shoe, and ask you to pay one half the price". [6] The fact that the promised consideration under a contract is "entire" or "entire and indivisible" (see, eg, Steele v Tardiani [1946] HCA 21; (1946) 72 CLR 386, at p 401) will, subject to any applicable provision of the contract, prevent recovery, in an action in contract, of part of the promised purchase price in circumstances where there has been a failure to provide part of that consideration. In such a case, the purchase price represents the contractual quid pro quo for the whole of the promised indivisible consideration and the promisee is not, in the absence of any applicable provision in the contract, under a contractual obligation to accept or pay for part only thereof. If, in such a case, the promisee accepts the benefit of part only of the consideration, any enforceable obligation to pay for it must arise from some new contract or from the operation of principles of unjust enrichment in the particular circumstances. … [10] It is arguable that the promised consideration of the pleasure cruise was severable in the sense that, subject to the obligation to transport passengers back to Sydney, the fare could be apportioned or allocated on a day by day basis. As has been seen, however, the view that has prevailed in the courts below is that the consideration was entire and indivisible and it may be assumed, for the purposes of this appeal, that that view is correct. … Again, the fact that the consideration was entire and indivisible will prima facie entitle the promisee to reject a tender of only part of the consideration (see, eg, Giles v Edwards [1797] Eng R 392; (1797) 7 TR 181 (101 ER 920)) and may, depending upon the circumstances, support a conclusion that part only of the consideration, if provided, was worthless and, for the purposes of the law of unjust enrichment, no consideration at all (see, eg, Heywood v Wellers [1975] EWCA Civ 11; [1976] QB 446, at pp 458-459). Ordinarily, however, an entire and indivisible consideration will not wholly fail if part of it is tendered and accepted. If, for example, the customer of Sir George Jessel's shoemaker, having paid in advance, had accepted one shoe and worn it with a matching shoe from another pair, it could not be said that the consideration for the prepayment had wholly failed. On the other hand, if the customer, having paid in advance, had refused to accept the tender of a single shoe on the ground that the agreed consideration of a pair of shoes was entire and indivisible, the money which he had paid would have been recoverable for a total failure of consideration. (Emphasis added). 1. 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. 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. Pre-execution conversations; preparation and execution of the deed 1. 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. 2. The plaintiff next spoke with the third defendant, again by telephone, on the morning of 10 September 2018, to the following effect: Mr Ye My company is currently dealing with the South Australian government with respect to an exploitation agreement. If the deal is completed, my company would be able to exploit forest resources. The government requires a bond of $2 million from us, so we are currently looking for a lender, who would be willing to lend my company $2 million. Plaintiff What is the interest-rate your company would like to offer? Mr Ye 12% annually. Plaintiff The interest-rate is acceptable. I need a real property as security for the loan. Mr Ye I can ask my wife to provide a property under her name as security. The property is worth about 3 million. Plaintiff I will also require the parties to sign a loan agreement. Mr Ye Sure. I can ask a lawyer to draft a loan agreement and provide it to you. Plaintiff I am currently in America; you can send the loan agreement to Johnson [Mr Gao]. Mr Ye Sure. I will ask my accountant, Robin [Mr Qian] to send a draft loan agreement to Johnson [Mr Gao]. 1. 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. 2. 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. 3. 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: 15. I am barely able to converse in English. 16. I can only read and write a few words in English. 17. I usually speak in Mandarin and usually read and write in Mandarin. 18. It is my usual practice to have other people who work with me in the Shield group assist me with speaking, reading or writing English, when that is necessary. 1. 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: It includes a property security clause in it. 1. 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. 2. 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. 3. 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. 4. 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. 5. The plaintiff gave the following evidence in cross-examination when questioned about his understanding of security over real property under New South Wales law: Q. What did you mean as real property as security for the loan [referring to the conversation quoted at [20] above]? A. INTERPRETER: Just in case this loan will not be returned, I need this property to repay the loan. Q. What sort of a transaction did you understand was a real property as security, as it were? A. INTERPRETER: Because there will be guarantors who will sign who will agree to use the property as a security. Q. What do you mean by, "guarantors"? A. INTERPRETER: That refers to the owner of the property. Q. Had you ever loaned money in Australia before for a real property as security for a loan? A. INTERPRETER: No. Q. Had you ever loaned money anywhere outside China with a real property as security for a loan? A. INTERPRETER: No. Q. Had you ever loaned money to anybody outside China with guarantors for the debt? A. INTERPRETER: No. Q. Did you obtain any legal advice in Australia about obtaining guarantors, and/or obtaining real property security? A. INTERPRETER: No. Q. Did you know what a caveat was at the time you had this conversation at paragraph 5? A. INTERPRETER: Don't know. Q. Did you know what a caveat was at the time you signed the agreement on or about 18 September 2018? A. INTERPRETER: By caveat, I think it's written clearly in the loan agreement which says that if the loan has not been fully repaid, then the property cannot be traded. Q. What I'm asking you is, at the time you signed that document, did you know what a caveat was? A. INTERPRETER: My only understanding is that the money has to be paid, and without my permission the property cannot be sold. Q. Not quite my question. At the time you signed the agreement on 18 September 2018, did you know what a caveat was? A. INTERPRETER: What does "caveat" mean? Q. That's answered my question, thank you. The third defendant's assertion that this was "not a real loan" 1. 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. 2. 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. 3. 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: We need something signed, just for our own requirements, so we can proceed with investing in Shield, but don't worry about it, is only paperwork and doesn't mean anything. I will pay $2,000,000 as a sign of good faith to show I am sincere about investing in Shield. 1. The third defendant gave the following evidence in cross-examination: A INTERPRETER: Because in this document this document was made purely just to satisfy the condition that Mr Zhong raised, that he requests that there is a property [referring to the Waterhouse Avenue real estate, defined as "the property" in cl 1(e)] to be put in there as a kind of formality, because he was really pushy. Q He was pushy that there be a property securing the loan; is that right? A INTERPRETER: No, it's not. It was not a real loan. It was only just a formality. … A INTERPRETER: Because that 2 million was paid as a form of a good face, because he was going to invest hundreds of millions, thousands of millions, so if you regard 2 million as a loan, me and him, we'd never met each other. We don't even know each other. Under what kind of circumstance that he would have lent $2 million to me? … Q What was the purpose of there being a condition that there is a property in there [referring to identification of the Waterhouse Avenue property in the deed of loan]? A INTERPRETER: Just to secure the investment opportunity, because there are a lot of people intend to invest at the time. … Q When you said that Mr Zhong had insisted that there be a condition that there is a property in the loan agreement, what did you understand he required in relation to that property? A INTERPRETER: So he will have a peace of mind. Q The only way he would have a peace of mind would be if the property was available to be sold to pay back the loan. Isn't that right? A. INTERPRETER: That's no. Q How else could he get peace of mind by there being a property in the loan agreement? [Exchange with interpreter, clarifying]. A INTERPRETER: To put a property in there was only just to give some confidence. He knew that we have large resources to pay as using the share resources or the other share company to pay back the two million dollars, and to put a property in there was only just to give him some confidence. Q And confidence in getting the money back. Is that right? A INTERPRETER: Yes. Q The only way he would get confidence that he would get the money back from having the property in the loan agreement, was if it was charged with repayment of the loan agreement. Isn't that right? A INTERPRETER: That's not. Q How else? A INTERPRETER: Because he was going to invest 30 million, and then that 2 million that he is going to pay can be well deducted from the total investment amount of 30 million. 1. A later passage of the third defendant's cross-examination was to similar effect as follows: Q. When you took the document to be signed by your wife, you knew that she would be signing as guarantor in relation to the availability of the property mentioned in the loan agreement to be sold to pay back the loan? A. INTERPRETER: No, it's not. … Q. What other reason could there be for her being in that agreement in those circumstances? A. INTERPRETER: Because that's not a real loan. It was only just a request from by the other party. We actually will use the Shield to pay for the repayment to make the repayment. The guarantee the guarantor we provided to him was only just to give him the confidence. Q. It was to give him confidence in relation to the availability of the property to be sold to pay back the loan? I think you've already said that; isn't that right? A. INTERPRETER: That's not. Q. You knew, didn't you, that in order to ensure that the property would be available to be sold to repay the loan if necessary, your wife had to be a party? A. INTERPRETER: That's not. Q. It was your intention when you signed the amendment that that would be the effect of the agreement? A. INTERPRETER: The 2 million was only regarded as a kind of express of interest, or the deposit of the total investment of 30 million, so if he had actually invested, so the 2 million would be deducted from the total amount of 30 million, so he only need to invest the balance of 28 million. If not, Shield would be liable to pay for the 2 million repayment. Q. If Shield didn't pay, then the guarantor's property could be used to pay back the loan. That's understood, isn't it? A. INTERPRETER: I didn't think of that to that point at the time. 1. 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. 2. 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. The second defendant's execution of the deed of loan 1. The second defendant deposed to the following circumstances in which she executed the deed of loan as Guarantor: 19 The first time I heard about [the plaintiff] was around 18 September 2018, when [the third defendant and Mr Qian] came to me with a copy of a written loan agreement in English … for the loan of money from the plaintiff to Shield. 20 I was not involved in any negotiations between Shield and [the plaintiff] and was not involved in the preparation or drafting of the Loan Agreement. 21 On the same day that I heard about [the plaintiff], [the third defendant and Mr Qian] showed me the Loan Agreement. I recall [the third defendant] saying to me words to the following effect: [Mr Ye]: Shield is in negotiations with [the plaintiff] for [the plaintiff] to become involved in Shield's project in South Australia. [The plaintiff] wants Shield to sign a loan agreement before he will invest in the project. You need to sign as a guarantor of the loan. 22 Following this, I recall [the third defendant] handed me the Loan Agreement and we had a conversation with words the following effect: Me: Has this agreement been prepared by lawyers? [Mr Ye]: No. Me: Why not? [Mr Ye]: We have no choice but to do as [the plaintiff] has requested. It is urgent. It is not a real loan. It is just to secure [the plaintiff's] future investment in Shield's business. We have no choice. If we do not sign then [the plaintiff] will not invest in Shield's business. Me: OK. (Emphasis added). 1. 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. 2. 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: "[The plaintiff] is interested in becoming a shareholder of Shield. Our working capital is running low, so his investment will be good for us with our South Australia project. He has shown good faith and sincerity. It isn't a real loan, but just some paperwork he says he needs, so we just need to sign now to secure his investment in Shield." (Emphasis added). The third defendant also deposed that Mr Qian was present and said: "Yes, we really need to just sign it. It is not a real loan though." 1. 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. 2. 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. 3. 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. 4. 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". 5. 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. 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]: In my view the meaning conveyed by a contractual document, including what is conveyed by implication, must be understood by addressing the terms and the whole terms of the document in question, and there is no principle or true principle establishing what implication must be drawn in all cases from authority to lodge a caveat in connection with an obligation to pay money. In my opinion Mahoney JA did not state such a principle in Troncone v Aliperti (1994) 6 BPR 13,291 and in my opinion there cannot be such a principle, because a principle of law of that kind would divert the court from addressing the terms of each document to discover what it means, by expression and by implication. 1. 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". 2. 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]: For the purpose of deciding whether a contract has been entered, or what construction it bears, the common intention that the court seeks to ascertain is what is sometimes called the "objective intention" of the parties. That is the intention that a reasonable person, with the knowledge of the words and actions of the parties communicated to each other, and the knowledge that the parties had of the surrounding circumstances, would conclude that the parties had, concerning the subject matter of the alleged contract: 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] [further citations omitted]. 1. 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. 2. 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. 3. 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): [6] At common law, if the error is clear, and it is also clear what a reasonable person would have understood the parties to have meant, then the mistake may be corrected as a matter of construction. This is old law. Lord St Leonards said in Wilson v Wilson (1854) 5 HL Cas 40 at 66-67; 10 ER 811 at 822: "Now it is a great mistake if it is supposed that even a Court of Law cannot correct a mistake, or error, on the face of an instrument: there is no magic in words. If you find a clear mistake, and it admits of no other construction, a Court of Law, as well as a Court of Equity, without impugning any doctrine about correcting those things which can only be shown by parol evidence to be mistakes - without, I say, going into those cases at all, both Courts of Law and of Equity may correct an obvious mistake on the face of an instrument without the slightest difficulty." […] [8] Two conditions are necessary in order to correct the contractual language in this manner: (a) that the literal meaning of the contractual words is an absurdity and (b) that it is self-evident what the objective intention is to be taken to have been: see Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 at [117]-[119], approving National Australia Bank Ltd v Clowes [2013] NSWCA 179; 8 BFRA 600, where it was stated at [34]: "Where both those elements are present ... ordinary processes of contractual construction displace an absurd literal meaning by a meaningful legal meaning." […] [10] The court must be satisfied of those matters to a high level of conviction. To use the language of Dixon CJ and Fullagar J in Fitzgerald v Masters (1956) 95 CLR 420 at 426-427; [1956] HCA 53, it must be "clearly necessary in order to avoid absurdity or inconsistency". As this Court said in Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSWCA 297 at [18], the test of absurdity is not easily satisfied. Any question of absurdity or inconsistency must be identified according to established principles, by reference to the text of the agreement as understood in its factual and legal context: Wyllie v Tarrison Pty Ltd [2007] NSWCA 184 at [46]; Newey v Westpac Banking Corporation [2014] NSWCA 319 at [85]. […] As Lord Hoffmann explained, the court does "not readily accept that people have made mistakes in formal documents": Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101; [2009] UKHL 38 at [23]. 1. 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. 2. 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. 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: a amending the phrase in clause 6(a) "the Borrower consents to such charge being lodged over the Property at his expense" to "the Guarantor consents to such charge being lodged over the Property at his expense"; b adding to clause 6(a) the words: "and the Guarantor hereby charges the Property with the repayment of the Principal Sum, interest and all other amounts payable by the Borrower to the Lender under this Deed" and c amending the phrase in the chapeau of clause 7 "the Borrower undertakes" to "the borrower and the Guarantor undertake". 1. 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. 2. 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: [259] It is now clearly established that what is necessary for rectification of a document is a common intention of the parties that continues to the time of execution of the document in question, but that an antecedent concluded contract is not needed: Slee v Warke (1949) 86 CLR 271 at 280-281 per Rich, Dixon and Williams JJ; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 at 350 per Mason J; Pukallus v Cameron (1982) 180 CLR 447 at 452 per Wilson J (with whom Gibbs CJ agreed), 456 per Brennan J; Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 at 336, 339 per Sheller JA (with whom Mahoney A-P and McLelland A-JA agreed). It is not sufficient to show that a written instrument does not represent the common intention of the parties – as well, it must be shown what their common intention was: Slee v Warke at 281. [267] By contrast [with the intention required for the purpose of deciding whether a contract has been entered and construing it], the type of intention that is relevant to rectification of a contract is the subjective intention – sometimes called the actual intention – of the parties. [268] In Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 346 Mason J said: "The implication of a term is to be compared, and at the same time contrasted, with rectification of the contract. In each case the problem is caused by a deficiency in the expression of the consensual agreement. A term which should have been included has been omitted. The difference is that with rectification the term which has been omitted and should have been included was actually agreed upon; with implication the term is one which it is presumed that the parties would have agreed upon had they turned their minds to it – it is not a term that they have actually agreed upon. Thus, in the case of the implied term the deficiency in the expression of the consensual agreement is caused by the failure of the parties to direct their minds to a particular eventuality and to make explicit provision for it. Rectification ensures that the contract gives effect to the parties' actual intention; the implication of a term is designed to give effect to the parties' presumed intention." (Emphasis added) 1. 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. 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. 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. 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. 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. In Ankar Pty Ltd v National Westminster Finance (Australia) Ltd at 557 Mason ACJ, Wilson, Brennan and Dawson JJ referred to: … the special principle, said to apply to a suretyship contract, that the surety's discharge from its obligations by the creditor's breach of that contract, so long at any rate as the breach materially prejudices the interests of the surety. At 558 their Honours then referred to the variety of ways in which the principle has been expressed in the authorities, the third of which was explained as follows: Then it has been said that any departure by the creditor from the suretyship contract "which is not obviously and without inquiry quite unsubstantial, will discharge the surety from liability, whether it injures him or not, for it constitutes an alteration in the surety's obligations" (Halsbury's Laws of England, 4th ed, vol 20 par 259). The final clause in the passage quoted from Halsbury indicates that this proposition is founded not so much on cases dealing with a breach of a term in the suretyship contract, as on cases in which conduct on the part of the creditor materially altered the surety's obligations. Such an alteration takes place when the creditor agrees to a variation of the principal contract or to an extension of time within which the debtor may comply with that contract. The creditor's agreement with the debtor thereby alters the nature of the surety's obligations without the surety's consent. 1. 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): These statements of the principle, like that of Blackburn J. in Polak v Everett (1876) 1 QBD 669, at p 674, indicate that the principle is the by-product, not so much of the general law of contract, as of the special relationship between creditor and surety arising out of the suretyship contract upon which equity fastened to protect the surety when the creditor's conduct affected the surety's liability: Holme v Brunskill, at p 505. According to the English cases, the principle applies so as to discharge the surety when conduct on the part of the creditor has the effect of altering the surety's rights, unless the alteration is unsubstantial and not prejudicial to the surety. The rule does not permit the courts to inquire into the effect of the alteration. The consequence is that, to hold the surety to its bargain, the creditor must show that the nature of the alteration can be beneficial to the surety only or that by its nature it cannot in any circumstances increase the surety's risk, eg, a reduction in the debtor's debt or in the interest payable by the surety. The mere possibility of detriment is enough to bring about the discharge of the surety. The foundation of the rule is that the creditor, by varying the principal contract or extending time, has altered the surety's rights without consulting it though the surety has an interest in the principal contract, and that the creditor cannot be permitted to do: see Rees v Berrington [1795] Eng R 4082; (1795) 2 Ves Jun 540; 30 ER 765. Thus the liability of the surety was seen to be strictissimi juris and the suretyship contract was construed strictly in his favour. 1. 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". 2. 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. 3. 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. 4. 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: Under the principles laid down by the High Court in Ankar's, the liability of a surety will be discharged by any variation in the principal agreement unless those seeking to enforce the guarantee can discharge the onus of proving either that the nature of the variations are beneficial to the surety or of their nature cannot in any circumstances increase its risk: see also Lombard Finance Ltd v Brookplain Trading Ltd [1991] 1 WLR 271; [1991] 2 All ER 762. 1. 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. 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. 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. 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. 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). Initial oral representation to plaintiff concerning real property security 1. 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. 2. 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. 3. 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. 4. 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. Representations to plaintiff by submission of draft and final deed 1. 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: 1. that the second defendant had agreed (i) to guarantee the loan and (ii) to provide the Waterhouse Avenue property as security; 2. that Shield Resources was entitled to charge the Waterhouse Avenue property and that there was nothing to prevent the lodgement of the caveat; 3. that the repayment of the loan would be secured by a charge over the property to the extent of at least $3 million and 4. that neither the first nor the second defendant "had any difficulty" complying with obligations under the deed to provide security for the loan. 1. 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. Representations by third defendant to second defendant – no damage to plaintiff 1. 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. Conclusion with respect to the misrepresentation case against the third defendant 1. 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. The following orders will be entered: 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. Judgment for the second defendant against the plaintiff. 3. Judgment for the third defendant against the plaintiff. 4. The cross-claim by the first and second defendants against the plaintiff is dismissed. 5. The first defendant is to pay the plaintiff's costs of the proceedings. 6. The plaintiff is to pay the costs of the proceedings of the second and third defendants. ********** 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: 17 April 2024