Supreme Court New South Wales Medium Neutral Citation: Gemi 193 Pty Ltd v Zhu [2024] NSWSC 1113 Hearing dates: 11-15, 18 September, 4 October 2023 Date of orders: 30 August 2024 Decision date: 30 August 2024 Jurisdiction: Equity Before: Slattery J Decision: Defendant/cross claimant held to be in a position of special disadvantage in relation to the plaintiff. Defendant/cross claimant's secured guarantee may be set aside against the first cross-defendant. Second cross-defendant held not to have engaged in misleading and deceptive conduct. Final relief and costs reserved for further submissions. Catchwords: EQUITY — Unconscionable conduct — Special disability or disadvantage – other party's knowledge – whether unconscientious advantage taken – the plaintiff, a financier, loans a substantial sum to a special purpose corporate vehicle associated with the interests of the defendant's husband in relation to a property development – defendant provides a secured guarantee over her residence for the obligations of the corporate borrower to repay the loan – the loan to the corporate borrower covers temporary default interest and charges on other loans to parties and interests associated with the defendant's husband – the defendant executes the loan documents at the office of the defendant's husband in the presence of the solicitor for the defendant's husband – whether the defendant was in a position of special disadvantage in relation to the plaintiff lender at the time of giving a secured guarantee – whether the plaintiff took unconscientious advantage of the defendant in taking her secured guarantee – whether the defendant had independent legal advice – whether any legal advice that was available to the defendant overcame any special disadvantage that she had in giving her secured guarantee to support the loan transaction. CONSUMER LAW — Misleading or deceptive conduct – defendant cross claims alleging that a principal of the plaintiff, the second cross-defendant, engaged in misleading deceptive conduct which had the effect of inducing the defendant to provide a secured guarantee of the obligations of the corporate borrower – whether the principal of the plaintiff made the statements that the defendant alleges he made to her. Legislation Cited: Competition and Consumer Act 2010 (Cth), Schedule 2 (Australian Consumer Law), ss 4, 18, 20 Australian Securities and Investments Commission Act (2001) ss 12BB, 12BF, 12BA, 12CB, 12DA, 12GR Contracts Review Act 1980, s 7(1)(a)-(d), 9(2) Family Law Act 1975 (Cth) Personal Property Securities Act 2009 (Cth) Cases Cited: Alderton v Prudential Assurance Company Limited (1993) 41 FCR 435; FCA 164 Attorney-General (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557; [2005] NSWCA 261 Blomley v Ryan (1956) 99 CLR 362 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31; (1992) 110 ALR 608 Earl of Aylesford v Morris (1873) LR Ch App 484 Garcia v National Australia Bank Ltd [1998] HCA 48; 194 CLR 395 Hamilton v Watson (1845) 12 Cl & Fin 109; (1845) 8 ER 1339 Hume Plasterboard Pty Limited v Brilliant Interiors Pty Limited [2019] NSWSC 679 Jenkyns v Public Curator (Queensland) (1953) 90 CLR 113; [1953] HCA 2 Johnson v Smith [2010] NSWCA 306 Jones v Dunkel (1959) 101 CLR 298 Karavaz v Crown Melbourne Ltd (2013) 250 CLR 392; [2013] HCA 25 Kings North Trust Ltd v Bell (1986) 1 WLR 119 and Alderton v Prudential Assurance Company Limited (1993) 41 FCR 435; FCA 164 Ledinh Sovereign Super Pty Ltd v CT Stone Pty Ltd [2023] NSWSC 1079 Nitopi v Nitopi (2022) 109 NSWLR 390; [2022] NSWCA 162 North Shore Ventures Ltd v Ansteod Holdings Inc (2011) EWCA Civ 230; [2012] Ch 31 O'Brien v ANZ Bank (1871) 5 SASR 347 Paciocco v Australia and New Zealand Banking Group Limited (2015) 236 FCR 199; [2015] FCAFC 50 Perpetual Trustee Company Limited v Albert and Rose Khoshaba (2005) 14 BPR 26,639; [2006] NSWCA 41 Provident Capital Ltd v Papa (2013) 84 NSWLR 231 Radin v Commonwealth Bank of Australia (1998) FCA 1361 Thorne v Kennedy (2017) 263 CLR 85; [2017] HCA 49 Tonto Home Loans Australia Pty Ltd v Tavares; FirstMac Ltd v Di Benedetto; FirstMac Ltd v O'Donnell (2011) 15 BPR 29,699; [2011] NSWCA 389 West v AGC (Advances) Ltd & Ors (1986) 5 NSWLR 610 Westpac Banking Corporation v Robinson (1990) ASC 56-002 Wu v Ling [2016] NSWCA 322 Category: Principal judgment Parties: Plaintiff/Cross Defendant: GEMI 193 Pty Ltd (ACN 641 815 492) Second Cross Defendant: Justin Epstein First Defendant/Cross Claimant: Xian Zhu Second Defendant: Commonwealth Bank of Australia ACN 123 123 124 Representation: Counsel: Plaintiff/Cross Defendant: H. Somerville; L. Cooper-Hackman First Defendant/Cross Claimant: A. Zahra SC; J. C. Lee Solicitors: Plaintiff/First & Second Cross Defendants: Paul Nathan Reese, Summer Lawyers First Defendant/Cross Claimant: Amie Crichton, Crichton & Co Legal File Number(s): 2021/183050 Publication restriction: No Judgment 1. On 5 August 2020, Mrs Xian ('Juliana') Zhu, the defendant, executed a suite of documents in the presence of her former husband and his solicitor in which she gave a secured guarantee of the loan obligations of Fucrez Pty Ltd ('Fucrez'), to which Gemi 193 Pty Ltd ("G193"), the plaintiff, proposed to advance $1,095,315.19. The security she gave was over her residence in the Sydney suburb of Wahroonga. Fucrez defaulted soon afterwards on its obligations to G193. 2. G193 brings these proceedings against Mrs Zhu on her guarantee to recover its loan, and to realise its security. Mrs Zhu has cross-claimed seeking to set aside the guarantee on the grounds of unconscionability at general law, under the Contracts Review Act 1980, under the Australian Consumer Law ss 4 and 18 and the Australian Securities and Investments Commission Act [2001] ss12BB and 12BA. Mrs Zhu alleges that the first cross-defendant, G193 engaged in misleading or deceptive conduct as well as unconscionable conduct in procuring her guarantee. Her Cross-Claim also joins as second cross-defendant, a principal of G193, Mr Justin Epstein. She alleges he was knowingly concerned in G193's alleged misleading and deceptive conduct as the alleged author of misleading statements made to Mrs Zhu. 3. Mrs Zhu's Wahroonga residence has been sold and a part of the proceeds of sale are now kept in a controlled monies account. G193 claims the whole of those monies, a sum of approximately $1.8 million. The total claim it brings against Mrs Zhu on an unsecured basis is significantly larger. The first mortgagor of the Wahroonga property, the Commonwealth Bank of Australia ("CBA") was originally joined to G193's claim as a second defendant. But proceedings against the CBA are now concluded and Mrs Zhu is referred to here as 'the defendant'. 4. The principal contest in the proceeding is whether Mrs Zhu was in a position of special disadvantage with respect to G193 at the time she executed the guarantee and the security documents on 5 August 2020, by reason of her circumstances including G193's failure to disclose to her certain alleged risks associated with Fucrez's capacity to repay the funds advanced to it and by reason of alleged misleading conduct by Mr Epstein when acting on behalf of G193. 5. The proceedings were heard on 11-15 ;18 September 2024 and 4 October 2023. Mr H. Somerville leading Ms L. Cooper-Hackman, instructed by Summer Lawyers, appeared for Gemi 193 and Mr Epstein. Mr A. Zahra SC leading Mr J. C. Lee, instructed by Crichton & Co Legal, appeared for Mrs Zhu. The proceedings were efficiently conducted by the legal representatives on all sides to isolate the real issues in dispute and the Court was much assisted by the parties' submissions. 6. Many of the Court's findings depend upon the Court's assessment of the credibility of each of the principal witnesses, Mrs Zhu, her husband Mr Peter Zhu, and Mr Epstein. Brief general observations about their credibility are set out initially before a narrative of the Court's findings commences. Credibility of the parties and witnesses 1. Mrs Julianna Zhu. Mrs Zhu was married to Mr Zhu for approximately 15 years. Mrs Zhu spoke good English, although with a strong accent. She came across to the Court as alert, cautious and self-possessed, except in one respect which will be discussed below. At the time of the trial, she was working in a form of employment which was probably below her true intellectual attainments: she was a stock-taker in a suburban IGA retail store. 2. English is Mrs Zhu's second language. She pointed out several times during her evidence that she struggled to understand some of the questions put to her. In the Court's assessment her confusion at these questions was unfeigned and caused her a genuine need to seek clarification of what was being put to her. 3. Mrs Zhu was fundamentally trusting of family members and of people that family members told her she could trust. Her approach to complex legal documents was to put her faith in what trusted advisers told her about them. Despite her separation and divorce from Mr Zhu she still trusted and was much influenced by her ex-husband and her former mother-in-law. She believed throughout the subject transaction that her husband and her mother-in-law had her interests at heart. 4. Mrs Zhu has a limited capacity to read English. For example, when she was asked to read part of a document in the courtroom, she would do so slowly and deliberately to herself to reinforce gradually her own understanding of the document before her. 5. Mrs Zhu seems to think, and she gave evidence, in what might be called a "narrative" way. When responding to questions she would go through the logic of her decision-making process by retelling the story leading to her conclusion to reinforce the sequence of events she recalled and the logic of her decisions. Once this feature of her evidence is understood she displayed a good memory and was generally able to give an account of past events in detail, fleshing out her picture of those events from her redirection as she was questioned. 6. Her evidence was mostly reliable and gave an accurate picture of the events in which she was involved, except in one respect. Her account of her conversation with Mr Epstein outside the Commonwealth Bank of Australia in Martin Place, Sydney, was not compelling and the Court doubts she gave a fully accurate narrative of those events. 7. An aspect of Mrs Zhu's character was nevertheless fundamental to her outlook on the transactions in which she was involved with her husband, Mr Zhu. A central driving force in her life is ensuring the wellbeing, success and advancement in life of her and Mr Zhu's son, Alex. She was ready to defend him from any threat or disadvantage and ready to provide every opportunity or benefit for him that she could. She was constantly focused on his best interests with an intensity that was quite evident in the manner and frequency of her speaking about him. 8. The Court infers that the well-being of Alex was behind several of the transactions in which she was involved in these proceedings. When it came to Alex's welfare, Mrs Zhu was completely malleable by Mr Zhu. Framing a proposal as advantageous to Alex would make Mrs Zhu highly receptive to it. Putting Alex first came in many ways, large and small. One cameo example illustrates this well: when they flew to the United States from Australia together for his studies, she insisted that her son fly business class while she flew economy. 9. An additional background burden for Mrs Zhu was that she underwent operations for cancer which overlapped with the events the subject of these proceedings. She was sensitive about her cancer diagnosis and cried spontaneously when asked questions about it. 10. Mr Peter Zhu. Mrs Zhu's former husband, Mr Zhu is an experienced businessman. He is streetwise, and commercially astute. He was careful in listening to the cross-examiner's questions and answering those questions to what he perceived were to his advantage. He was adept at discerning what was to his financial advantage. 11. Mr Zhu was reasonably frank in admitting he had made mistakes at times, although very reluctant to admit that he ever engaged in any underhand or tricky conduct. But Mr Zhu was not forthcoming about several inconvenient issues and was often content to take refuge in the answer "I can't recall", when the Court suspected that his lack of recollection was simply inconvenient. 12. Mr Zhu was an energetic storyteller in his answers. He wanted to put the whole picture - his way - before the Court. He more than once needed to be confined in answering questions. This habit tended to confirm one aspect of his character: his strong sense of self belief, which tended to distort his recollections. 13. Mr Zhu is obsessed by being perceived as a success in the business of making money. He is adept in the nuances of English, although it is his third language. 14. But Mr Zhu's evidence rang true when he was speaking about his relationship with his former wife, Mrs Zhu. It accorded strongly with the Court's perception both of their relationship and her willingness to subsume her own interests completely to those of her son, and to Mr Zhu if that would be to her son's advantage. Mr Zhu described their relationship as "we help each other." He confirmed that she was devoted to their son. Mr Zhu's evidence vividly described events during his relationship with Mrs Zhu which showed she had personality traits that were very dependent upon promoting the well-being of her son. 15. But comparing the evidence of husband-and-wife, generally where Mr and Mrs Zhu's evidence diverges, the Court prefers Mrs Zhu's evidence as more reliable. 16. Mr Justin Epstein. Mr Epstein is the principal of G193. Mr Epstein was practical, unsentimental, and focused on financial incentives. He does not make any financial move without calculating its advantages and disadvantages. His evidence was generally reliable. Although his outlook was coloured by misplaced suspicion that Mrs Zhu was deriving financial benefits from Mr Zhu for her involvement in the Fucrez loan transaction. 17. Mr Epstein was often credible in his account of contested events except for his account of the disputed conversation with Mrs Zhu outside the CBA building in Martin Place on 11 August 2024. But Mr Epstein is personally interested in the outcome of these proceedings. Some of his evidence was damaging to his credibility. Examples are as follows: his false denial that he and Mr Walker had a close personal and business relationship; his statement that he believed Mr Zhu had engaged in fraud in relation to the sale of The Gosford site but at other times refusing to be drawn on Mr Zhu's lack of credibility and yet in other cases describing Mr Zhu's behaviour as "bizarre"; his inability to accept that explain its weaknesses refusal to accept that there were termination dates on Gemi's loans in these proceedings, saying they were subject to extensions; and finally, placing a $100 wager with Mr Fleming on The Gosford defaulting to Gemi. 18. The following is a narrative of the relevant history. This narrative represents the Court's findings on the matters covered, except to the extent that the context indicates that only the parties' allegations are being recorded in these reasons. For reasons of economy this narrative does not always include reference to versions of the facts that have been rejected. Mrs Zhu, Her Wahroonga Home, and a Development in Gosford Mr and Mrs Zhu – Family Life and Residence 1. Mrs Zhu was born in Shanghai in the People's Republic of China (the PRC) in August 1964 and was aged 59 the time of the trial. She was employed in her early years in a car dealership in Shanghai. She and Mr Peter Zhu met in about 1979 in the PRC through Mr Zhu's younger brother. They became a couple in the 1990s. Mrs Zhu migrated to Australia in 1996, the year they married in Shanghai. Thereafter they travelled back to the PRC from time to time. 2. Mrs Zhu learned English upon her arrival here in Australia. She brought her English language skills to the "adequate" level. She had reasonable day-to-day knowledge of English. Her conversations with Mr Zhu were held in a combination of mandarin, Shanghainese (a local dialect of Wu Chinese spoken in the Shanghai region) and English. The combination varied depending upon whether other language speakers were present. 3. Not long after her arrival in Australia, in 1997 Mrs Zhu took a course taught in Engish in migration law at the University of New South Wales. Then she worked as a licensed migration agent in Sydney for four years assisting students with migration services. 4. In 2001, Mrs Zhu became pregnant with their son, Alex. She returned to the PRC and Alex was born there in 2002. Mrs Zhu came back to Australia with Alex, in 2003. But she and Mr Zhu separated that same year. They finalised their divorce in 2007. The property settlement between them under the provisions of the Family Law Act 1975 required Mr Zhu to pay Mrs Zhu the sum of $1.5 Million dollars, which was documented as a loan to be paid later. Mrs Zhu did not remarry. Since her separation from Mr Zhu she raised Alex on her own. Mrs Zhu remained on friendly terms with Mr Zhu after the divorce, particularly in relation to matters concerning Alex's welfare and advancement in life. 5. Mrs Zhu continued to try and improve her education and knowledge. Between 2003 and 2008 she studied at a TAFE college and completed an advanced diploma of accounting. But she was unemployed for approximately 12 months after completing the TAFE accounting course. So, in 2007 she began working as a stockbrokers dealer's assistant. She worked in this role until about 2017. She gained some knowledge of the stock market and traded her own shares. But her personal attitude towards investing was conservative. She purchased Australian bank shares in her own name for their consistent franked dividend income and was not a speculator. 6. After Mrs Zhu's divorce she lived in an apartment in Double Bay until about 2007. Mr Zhu informally contributed money to pay for her and Alex's expenses in the Double Bay apartment. Between 2007 and early 2015 Mrs Zhu and Alex lived in another apartment in Darling Point. Mr Zhu supported them from time to time with living expenses there and an allowance for Alex. 7. Alex was enrolled to commence private schooling in the upper North Shore. Mrs Zhu wanted to live closer to the school, so Mr Zhu and a family friend helped her to look for a home in the area. Eventually they found the Wahroonga property, which she liked. 8. Mrs Zhu purchased the Wahroonga property as sole registered proprietor, in February 2014 for $2.6 million. To fund the purchase she borrowed $2.08 million from the CBA, applied the proceeds of the sale of a house in the PRC, and received from Mr Zhu about 15% of the purchase price and an amount to cover stamp duty. The amounts Mr Zhu paid were in partial satisfaction of the $1.5 million loan owing to Ms Zhu from the property settlement upon their divorce. 9. In 2009, Mrs Zhu was diagnosed with cancer, for which she received surgical treatment. She underwent further cancer surgery in 2013. In 2019, just before the Covid-19 pandemic, Mrs Zhu received yet a further cancer diagnosis, but her condition was not treated until March 2021. 10. Alex graduated from school in 2018. In 2019 he was accepted to study at the Stern School of Business in New York University. He moved to New York in 2020 to commence his studies. 11. Mrs Zhu was then on her own. In about April 2020 Mr Zhu invited her to re-enter the workforce with a job working in his construction company, NPH Group Pty Ltd (NPH), assisting with payroll duties, utilising her accounting qualifications. Initially she worked from home because of the Covid lockdowns but she later worked at NPH's offices in Bligh Street in the Sydney CBD. 12. Through this employment by about July 2020, she had become aware that Mr Zhu and NPH were heavily involved in developing a mixed use and residential commercial development site in Mann Street Gosford known as "the Archibald" and referred to in these reasons as "the Mann Street project" as the context requires. 13. Ms Zhu's knowledge of the Mann Street project was patchy. She overheard Mr Zhu speaking on the phone about it and came to understood that NPH was to be involved in the construction of the Mann Street project. But the Court accepts that she had no accounting or managerial or decision-making involvement in NPH in relation to the Mann Street project. But Mrs Zhu did find out that Mr Zhu had a business partner in the Mann Street project, Mr Greg Walker, who she met at the offices of NPH from time to time. 14. With this background about Mrs Zhu, the focus now turns to the plaintiff and its lending practices. Gemi Investments Pty Ltd, Its Principals and Its Subsidiaries 1. Gemi 193 is one of the many numbered subsidiaries of a holding and operational entity, known as Gemi Investments Pty Ltd ("Gemi Investments"), a financial firm which organises and matches syndicates of private lenders with lending opportunities, principally associated with property investments. Gemi Investments was incorporated in 2018. 2. The business model of Gemi Investments involves setting up a numbered subsidiary of itself as a special purpose vehicle for each new loan it syndicates. Several Gemi Investments numbered subsidiaries advanced the loans which are the subject of these proceedings which culminated in the disputed advance by G193 to Fucrez. All the loans in issue were associated with the Mann Street project. 3. Three co-principals and directors of Gemi Investments, Mr Justin Epstein, Mr Michael Cooper, and Mr George Fleming organised and raised loan capital for Gemi Investments to fund property developments. One of them would often become a director of the numbered Gemi Investments subsidiary making a loan advance – usually the director who was most closely involved with promoting the loan advance. This triumvirate operated as something of a functional blend of a loose financial partnership and a credit committee of a financial institution. As the business records and email traffic in this case show, these co-principals often debated amongst themselves the merits or otherwise of making or calling in loans made by the numbered subsidiaries. Their views often diverged about whether advances should be made to borrowers and whether and when defaulting advances should be called in. 4. It is sometimes necessary to identify the plaintiff or some other subsidiary of Gemi Investments, or Gemi Investments itself, as the corporate actor to whom the Court is referring in these reasons. But often it is not and where the identity of the member of the Gemi Investments corporate structure is not significant, these reasons simply refer to members of the Gemi Group generally, as "Gemi". Background to the Gosford Project and Fucrez 1. The G193 loan transaction came at the end of a series of advances made by Gemi Investments subsidiaries to fund the Mann Street project by The Gosford Pty Ltd ("The Gosford"), a developer on the Central Coast of New South Wales. Ms Zhu had no direct involvement in any of these advances which commenced in April 2019. She only became involved in July 2020, not long after she commenced work at NPH. In April 2019, Gemi Investments arranged an advance of $15.5 million to The Gosford for it to fund The Gosford's acquisition of the Mann Street project land. 2. Mr Peter Walker was a director and principal of The Gosford and instigator of the Mann Street project, among many property development projects in which he was involved. Mrs Zhu's husband, Mr Peter Zhu was also commercially associated with the project. Mr Zhu had begun discussing the Mann Street project with Mr Walker in mid-2018. Mr Walker set up The Gosford to acquire the Mann Street project site from its then registered proprietor, G3 Assets Holdings Pty Ltd ("G3"). Mr Zhu incorporated NPH to undertake the construction work for the Mann Street project. Some evidence estimates the gross value of the building contract proposed to be offered to NPH for the Mann Street project was as high as $185 million. 3. Mr Zhu was neither a party to nor guarantor of the original loan from Gemi to The Gosford in April 2019. But Mr Walker and one of his companies, Macarthur Seniors Living Pty Ltd, and various other individuals became guarantors of the April 2019 loan. 4. Mr Zhu had been made bankrupt in 2011. His bankruptcy was annulled by Court order in October 2022. Mr Zhu's business practices had a measure of calculated opacity that attracted notice. He often used the alias 'Thomas Cardinal' in financial dealings. 5. Mr Zhu also had held an interest in the vendor of the Mann Street property, G3, through an intermediate corporate entity. On 28 November 2018, The Gosford entered a put option with G3 in relation to the Mann Street property, granting The Gosford, or its nominee, the right for a period of 140 days to purchase the Mann Street property for $26.5 million. 6. Mr Keith Snell was Mr Walker's co-principal and a director of The Gosford. He was involved in the decision-making in relation to The Gosford in the transactions regarded here prior to his death in July 2020. 7. It is now necessary to survey the accumulating transactions between Gemi Investments and its various subsidiaries and The Gosford and Mr Walker's interests over the 15 month period between April 2019 and August 2020 before Mrs Zhu was approached and she and her Wahroonga property became involved. This 15-month period shows much about the accumulating knowledge of Gemi Investments and its various subsidiaries about the refinancing of the Mann Street project before Mrs Zhu became involved. The First Gosford Loan – April 2019 1. Time was tight for The Gosford in early April 2019 to fund the acquisition of the Mann Street property. The 140-day expiry of The Gosford's option with G3 on 28 November 2018 meant that funding to facilitate the purchase needed to be found no later than 17 April 2019. 2. Gemi Investments advanced the April 2019 loan to The Gosford as the borrower. The guarantors were Mr Walker, Mr Snell, and companies associated with them, L & M Property Pty Ltd, BSC Professional Services Pty Ltd, The Shed Group Pty Ltd, Forest Apartments Pty Ltd, Macarthur Seniors Living Pty Ltd and MPG Property Holdings Pty Ltd. The lenders named under the April 2019 agreement were a series of individuals of the syndicate from whom Gemi Investments sourced the funding. 3. The purpose of the first Gosford loan agreement expressed in the loan documents was that the principal sum borrowed of $15.9 million would enable payment of the initial tranche of the purchase price for the Mann Street property. The advance was for six months with repayment required by 16 October 2019. 4. Soon after the April 2019 loan agreement was made The Gosford exercised its option and acquired the Mann Street property. On 1 May 2019 The Gosford settled the purchase of the site. But the development of the Mann Street site would take much longer and there was no prospect of a return on The Gosford's investment in the short term. Therefore, a refinance was required by October 2019. 5. A term of the April 2019 loan agreement was that Gemi Investments would be granted a mortgage over several properties Mr Snell owned or controlled to secure his guarantee of The Gosford's obligations. It was also a term of the April 2019 loan agreement that a caveat over the title of the Mann Street property be removed within 14 days. 6. The April 2019 loan went into default as soon as the loan documents were signed due to The Gosford's failure to pay interest that was due on the date of the agreement. The project site was undeveloped and had no cash flow. The Gosford did not make interest payments on the first loan and its indebtedness began to grow. The First Refinance – April to October 2019 1. After The Gosford acquired the Mann Street project site, it remained undeveloped. The Gosford had only raised some of the initial funds for its acquisition not for its later development. The Gosford set about raising funds during the life of the April 2019 loan. 2. Mr Walker was active as The Gosford's principal in seeking further advances from lenders. He repeatedly approached Gemi Investments between April and October 2019 seeking further funding. Mr Walker represented to Mr Epstein and the other Gemi Investments principals, Mr Fleming, and Mr Cooper, that he could obtain refinancing with other lenders but that in the meantime he needed further advances from Gemi Investments. Mr Fleming soon became cynical about the promises that Mr Walker was making to him and Mr Epstein about refinancing Gemi's loan to The Gosford. 3. In September 2019, Mr Walker began looking towards Integrated Securities Funds Management Ltd ("Integrated Securities") to assist him in procuring a refinancing of the April 2019 loan. Mr Walker represented to the principals of Gemi Investments that he could obtain finance from Integrated Securities through to October 2019 and beyond. But as the expiry of the April 2019 loan loomed Mr Walker made a more concrete approach. On 1 October 2019, he emailed one of the co-principals of Gemi Investments, Mr Cooper, referring to his attempts to obtain finance with another entity, Credit Solutions Ltd ("Credit Solutions"), but indicated there was difficulty with the prospective financing as follows: "To further complicate matters [Credit Solutions] may not have all the funds required to settle the land being circa $26 million until mid-November but are working towards the end of October." 1. Mr Walker concluded this email by requesting Gemi Investments to provide a further $7 million and to extend the April 2019 loan facility for a further two months. Mr Cooper responded to Mr Walker's 1 October 2019 email. Mr Epstein became aware of this request. The Gosford did not ultimately source further funding from Credit Solutions. 2. The Gosford defaulted on repayment of the principal of $15.9 million that was due on 16 October 2019 under the April 2019 loan agreement, and remained in default whilst further refinancing was negotiated. 3. In early November 2019, Mr Walker promised Mr Cooper that The Gosford was close to finalising a refinance "within 10 days" but Mr Walker was not able to arrange this new funding. On 14 November 2019, Mr Walker asked Mr Cooper and Mr Fleming for Gemi Investments to advance $28 million to it, including the refinance of the existing April 2019 loan. This additional amount was said to be needed to cover the existing debt refinancing and to provide a further tranche of the purchase price of $7 million that was due from The Gosford to the vendor of the Mann Street property and to provide short-term working capital. Gemi Investments began to look at this proposal but was not initially contemplating advancing as much as $28 million. The December 2019 Loan Agreements 1. In December 2019 Gemi Investments decided to advance $22.3 million to The Gosford in short-term funding repayable by 15 March 2020. The loan was preceded by Gemi Investments following its usual commercial course of issuing an investment memorandum to potential loan investors. The investment memorandum gave a profile of the proposed lending to potential investors without mentioning The Gosford's default on the April 2019 loan agreement. 2. Further funds were forthcoming. On 11 December 2019, Gemi Investments created a special purpose vehicle, Gemi 143 Pty Ltd ("G143"), to advance $22.3 million to The Gosford. This amount of funds was calculated to cover the repayment of the capital due on the April 2019 loan. But even excluding accrued default interest the advance of $22.3 million only provided a further $6.4 million ($22.3 million minus $15.9 million) towards repayment of the balance of the purchase price on the acquisition of the Mann Street property. Contractual default to G3 therefore looked likely. 3. The structure of the December 2019 loan agreement from G143 was like the April 2019 loan agreement. G143 was the lender and The Gosford the borrower. But individual investors funded G143, which in turn advanced the funds to The Gosford. The same group of guarantors that guaranteed The Gosford's obligations under the April 2019 loan also guaranteed The Gosford's obligations under the December 2019 loan from G143. 4. But despite this funding through G143 there was still a shortfall in the balance of the purchase price payable by The Gosford to G3 for the title to the Mann Street property. So Mr Walker negotiated an additional advance, which was agreed in parallel with the December 2019 loan agreement. 5. On 11 December 2019 Gemi Investments formed another special-purpose subsidiary, Gemi 144 Pty Ltd ("G144") to enter this parallel loan agreement with The Gosford and the same guarantors to record terms for the advancing of an additional sum of $6.2 million to The Gosford, with repayment required by 16 March 2020, the day after repayment was due on the $22.3 million December loan agreement with G143. 6. Although the combined $22.3 million and $6.2 million December 2019 loan agreements exceeded the initial request of $28 million, they were still insufficient to do more than meet the purchase price for the acquisition of the Mann Street property and provide some working capital. They did not fund developing the site. 7. Whether the $7 million Mr Walker had indicated was all that was needed to repay G3, is doubtful. By 23 December 2019, Mr Walker was on the lookout for further funds. He emailed Gemi Investments (Mr Hamish Tweedy, the Head of Credit) that day seeking further funding to assist with the acquisition of the Mann Street property. The January 2020 Loan Agreement 1. Mr Walker's renewed December 2019 approaches to Gemi Investments for further funds were successful. On 13 January 2020, The Gosford borrowed an additional sum of $3,818,302 from another special purpose vehicle, Gemi 149 Pty Ltd ("G149"). The same guarantors stood behind The Gosford, guaranteeing its repayment obligations to G149 on this advance. Repayment was required at the same time as the $6.2 million December 2019 loan agreement, namely 16 March 2020. The February 2020 Loan Variation 1. Not long after finalisation of the January 2020 loan agreement, Mr Walker requested more near-term funding for The Gosford. Mr Walker communicated with the principals of Gemi Investments, Mr Epstein, Mr Fleming, and Mr Cooper on 28 January 2020, seeking additional funding and taking issue with the fees and charges that were being applied to the existing advances from the various Gemi entities. 2. The principals of Gemi Investments responded positively. Gemi set up yet another special purpose vehicle, Gemi 158 Pty Ltd ("G158") to make a further advance of principal to The Gosford by varying the January 2020 loan agreement. The new advances were formalised on 5 February 2020 with the Deed of Variation of Loan Agreement made on the one side by G149 (the original January 2020 lender) and G158 (the new lender), with The Gosford as borrower and the same guarantors as before. The February 2020 loan variation extended the January 2020 loan agreement by lending an additional $356,860.27 to The Gosford but retained the same repayment date of 16 March 2020 that was provided for in the January 2020 loan agreement. 3. After the deduction of fees and charges, G158 advanced $320,000 under the February 2020 loan variation on 7 February 2028, with the balance being applied to prepaid interest and to Gemi Investments' fees and charges. This brought the total additional amount advanced in January and February 2022 to $4,175,162.27 (being $3,818,302 plus $356,860.27). 4. By this time, in addition to the original April 2019 advance by Gemi Investments, another four special-purpose vehicles, G143, G144, G149 and G158, had been involved in making advances to The Gosford. Default – 16 March 2020 1. The Gosford had now accumulated substantial repayment obligations which were all due on 16 March 2020. It faced combined repayment obligations of $32,675,162.30, being the sum of the amounts due: on each of the two December 2019 loan agreements ($22 .3 million and $6.2 million); the January loan agreement (of $3,818,302); and the February 2020 loan variation ($356,860.27). The Gosford was unable to meet these obligations. This is not surprising. As the Covid-19 pandemic was starting to impact Australia, economic activity went into freefall and The Gosford did not have development finance. 2. Between 11 and 13 March 2020, Mr Walker sought an extension of all the existing loan facilities. Mr Epstein was the principal dealing with Mr Walker on behalf of all the Gemi entities on this request. Through Mr Epstein Gemi indicated that another extension of the facilities would be granted to The Gosford up to 11 May 2020. But Mr Epstein stipulated that the extension to 11 May 2020 would be on terms that The Gosford would pay interest, fees and charges totalling $1,383,956.73 well before that date, namely by the earlier date 20 March 2020. 3. This loan structure is itself a significant indicator of Gemi's diminished regard for the reliability of Mr Walker's promises and its doubts about the prospects of The Gosford avoiding future default as the pandemic unfolded. Gemi was stipulating in the second week of March 2020 for a loan extension to the second week of May 2020 but only on the basis that hefty fees were paid upfront in the third week of March 2020. The March 2020 Loan Variation on 19 March 2020 the G143, G149, G158 and G144 1. Formal variation to the existing loan arrangements was made on 19 March 2020, with the same borrowers and guarantors, and the existing special-purpose lending vehicles. The variation extended each of these loan agreements to a new due date of 11 May 2020, with a requirement to pay additional fees and charges, legal costs and expenses, as follows: 1. G143 – $1,023,203.42 plus lender's legal costs and expenses; 2. G149 and G158 – $218,618.75 plus lender's legal costs and expenses; and, 3. G144 – $321,827.95 plus lender's legal costs and expenses. 1. Each of the March 2020 loan variations required these additional fees and charges to be paid by the following day, 20 March 2020. Once again, The Gosford failed to make that payment and the loans fell back into default. 2. An attempt was made on 24 March 2020 to rectify part of the default. On that date, Macarthur Projects Pty Ltd ("Macarthur Projects"), the corporate vehicle associated with Mr Walker, paid $600,000 to Gemi Investments, apparently in satisfaction of The Gosford's obligations under the March 2020 loan variation. But The Gosford continued in default in relation to the balance of $783,956.73 (being $1,383,956.73 - $600,000). 3. By this time the extent of The Gosford's default and Mr Walker's unfulfilled promises of refinance, were causing increasing tension within Gemi. This was revealed from email correspondence between Mr Fleming and Mr Walker on 24 March 2020. Mr Fleming indicated that he expected Mr Walker to pay $697,000, not the $600,000 lump sum that he had paid. To appease his Gemi partners, Mr Fleming personally underwrote the $97,000 shortfall from The Gosford. 4. But Mr Fleming was not happy with Mr Walker. He communicated back to Mr Walker that he had accepted the $600,000 "much to the anger of my partners" and was concerned that "I am now liable for 97K if you do not pay the balance of $697,000 and 97,000K by the 20th of April". Mr Fleming concluded, "can you please ensure that this will be paid by this date to avoid the penalties being backdated and me having to pay the 90K". 5. Mr Walker's promises about potential refinancing continued. On 31 March 2020 he informed Mr Fleming in an email that the potential refinancer Integrated Securities "are keen to fund the project". This email was copied to Mr Epstein, Mr Cooper, and others at Gemi. By this time, internal email evidence shows that the principals at Gemi were losing faith in Mr Walker's promises of refinancing, in the face of the continuing default by The Gosford. 6. The rising dissension within Gemi was evident from the internal correspondence among its principals. On 9 April 2020 Mr Cooper emailed his co-principals, Mr Epstein and Mr Fleming stating: I guess we need to understand exactly where Greg [Walker] is on Interest for April. We cannot agree to an end of month date – we need to have a date that allows some inevitable "Greg Walker" spin and slippage…I have the default notices ready to go today and think we should issue next week (Wednesday) for him missing the agreed interest payment date, even if you agree a new date with him. Issuing puts him on the clock and allows us to make whatever decisions we need to past (sic) as close to the expiry of 11th May as possible. We'll also engage and motivate Keith [Mr Snell] given he will also be served the notices." 1. This email reflected a sharp debate then taking place within Gemi about whether to issue default notices to bring the issue with Mr Walker to a head. Mr Cooper's hawkish recommendation to issue default notices was not adopted by his co-principals. Mr Epstein was an advocate for extending further time to Walker rather than putting him and his project into default and Mr Fleming went along with Mr Epstein. Gemi's Risk Containment Strategy 1. The stand-off between Mr Epstein and Mr Cooper seemed to produce an internal compromise of sorts. Until the end of March 2020, all the advances to The Gosford had added to Gemi's financial exposure to The Gosford and to Mr Walker's various entities. Late in March 2020 Gemi had reached an inflection point and began to limit its risk. This appeared to be partly driven by a reluctance on the part of Mr Epstein and Mr Cooper to pursue the seven guarantors who had continued to assume risk as sureties for The Gosford. Whether those guarantors had associations with any of the co-principals is unclear. But Gemi's internal correspondence indicates a reluctance to triggered default action and call upon these sureties. 2. In April 2020, with further default appearing likely as 11 May approached in the absence of major project financing, Mr Epstein began to cast about for new security to buttress The Gosford's mounting obligations to Gemi. Mr Epstein approached Mr Zhu for security, aware of his interest as a proposed construction contractor to the development of the Mann Street property. 3. Mr Epstein's approach to Mr Zhu was well targeted. Mr Zhu was committed to the Mann Street development in several ways. He had already guaranteed a loan to Mr Walker of $1 million. He had also paid $1.1 million in commission to Mr Walker as an earnest of Mr Walker's commitment to appoint NPH, Mr Zhu's company, to construct the Mann Street project. Thus, Mr Zhu had two financial incentives to keep Mr Walker solvent one negative and one positive. 4. Two people emerged as potential security providers, both related to Mr Zhu. The first was his 21-year-old daughter, Ms Jia Yi (Chloe) Zhu and the second was his wife Mrs Juliana Zhu, the defendant. Ms Chloe Zhu owned a property in Rocky Point in North Queensland and Mrs Juliana Zhu, the defendant, owned her residence in Wahroonga. Although the extended loans fell due on 11 May, further instalments of interest and fees were due on 20 April 2020. But these were not paid. After that default the request for more security became more urgent. 5. Urgent negotiations between Mr Walker, Mr Zhu, and the principals of Gemi to take new security commenced. On 23 April 2020, Mr Fleming emailed his co-principals, Mr Epstein and Mr Cooper, together with a Mr Tweedy, identifying that Mr Zhu was a new source of security and stating: "Peter Zhu has a property in Cairns…[Mr Zhu] has agreed to put it up as security and he and Greg Walker will personally guarantee. According to Greg, Peter does not borrow money and has only agreed to this on the basis that IS [Integrated Securities] have negotiated an exit not only for this loan but our loan on Gosford. According to Greg, Elizabeth from IS has secured a lender that will take us out by the 11th of May and term sheet will be provide[d] by tomorrow." 1. This wrongly assumes that Mr Zhu was the owner of the Rocky Point property. A similar mistake was to occur later with the Wahroonga property. Once again, Mr Walker was promising a refinance orchestrated by Integrated Securities, against a background of failing to deliver on that promise in the past. There is little credible evidence of the Gemi principals seeking contact with Integrated Securities directly to clarify whether Mr Walker's promises were realistic. There is no direct evidence of Integrated Securities offering alternative finance at this time. 2. But the offer was still tempting to Gemi. On 24 April 2020, Mr Fleming emailed Mr Walker seeking personal financial information about Mr Zhu and the assets that he had available to offer security. One of these was the Rocky Point property. This property was not in Mr Zhu's name, but Mr Zhu had represented to Gemi on 30 April 2020 that it was his property. The 30 April 2020 document also referred to Mrs Zhu's Wahroonga property, again, without identifying that it was in Mrs Juliana Zhu's name, rather than Mr Zhu's names. The true facts behind Mr Zhu's misrepresentations of ownership of these two properties were soon to come to the notice of Gemi's principals. This must have alerted them to Mr Zhu's propensity to misrepresent facts for his own convenience. 3. Tension was rising among Gemi's principals. Mr Fleming emailed Mr Epstein and Mr Cooper on 30 April 2020 under the subject heading "Greg Walker", complaining about the difficulties that Gemi was now facing on this loan. Mr Cooper once again recommended the issue of a default notice. Mr Walker began threatening court action to set aside some of the loan agreements based on Gemi's alleged unconscionable interest rates and charges. Mr Fleming spoke directly to Mr Walker about this and reported to his co-principals as follows: "I had a long talk with Greg. He has spoken to his lawyers and said that if we put him in default then they will go to court as they believe our rates are [unconscionable]. This could be another court case which we do not want. I know it is a threat but at this time we cannot go through another fight. He tells me the QS will be with IS [Integrated Securities] on Monday and from there it will take long to get a term sheet done. Guys, I know there is a [principal Ellie] involved. Rather than going down this path I am prepared to lend them the money irrespective of the valuation. We have an appraisal by a prominent agent with a comparative sale of a property with a mile. We have personal guarantees of Peter Zhu, we are so close to getting this done a think for $$400k let's not fuck it up. I know I'm very pragmatic and take more chances than you guys but we are up to our neck in this and we should do anything we can to help…" 1. This is not a picture of a smooth path towards refinancing. This email shows a sense of desperation on the part of Gemi and recommends a course of action to prevent destructive legal action. Mr Epstein gave evidence that at various times from May to August that he was confident from Mr Walker that a refinance would occur. But the Court does not accept any of that evidence of confidence in the face of the threatening conduct of Mr Walker of which this is an example. Such conduct would have undermined the confidence of any reasonable businessperson in Mr Epstein's position and many more examples of this were to come. 2. The same day Mr Fleming followed through with his proposal to give a further indulgence to Mr Walker and his development by offering a term sheet proposal for further Gemi finance. Although Mr Walker signed the term sheet characteristically, he did so making unilateral changes to it to suit himself before sending it back to Mr Fleming. This led to a blowup between Mr Fleming and Mr Walker the following day. Mr Fleming wrote to Mr Walker on 1 May 2020, expressing his overt displeasure that Mr Walker had crossed out parts of the term sheet and stating clearly to him that the term sheet reflected "the conditions that we are lending you the money, not what you think is reasonable". Mr Fleming then stated his position, clearly reflecting the fractures within the Gemi co-principals, "I am bending over backwards to try and help you in pushing my partners to try and get this over the line." This was followed by an expression of anger about a threat that Mr Walker had made to take Gemi to court. The email concluded with an invitation to discussion. 3. A consensus was ultimately reached. The consensus involved another advance taking Ms Chloe Zhu's Rocky Point property as security and then an advance taking Mrs Zhu's Wahroonga property as security. The circumstances in which each of these loans were negotiated shows Gemi was alert the risk of further default on its existing advances and not confident that any refinance of The Gosford's obligations was in prospect. Chloe Zhu and Her Rocky Point Property 1. Mr Fleming pushed the idea of a further loan secured over Ms Chloe Zhu's property and sought to persuade his co-principals of the merits of such a loan on what was curiously described as a "standalone" basis. But far from being standalone the context for Ms Zhu's Rocky Point property being offered as security was all that had gone before. 2. Mr Fleming's proposal was premised on the Rocky Point property being valued at $4 million and Gemi lending at a loan to valuation ratio of 60%, allowing an advance of $2.4 million. According to Mr Fleming this advance could then be disbursed as follows: 1. interest at 16.5% to 2 months ($66,000); 2. loan fees of $52,000; 3. payment to Mr Greg Walker of $400,000; 4. two interest payments to Gemi Investments for the month of April totalling $650,000; and, 5. a further $135,000 payable to one of the Gemi entities, leaving a balance of $1,096,000 which would then be applied in reduction of the loan to The Gosford. 1. Mr Walker's proposal was to use the Rocky Point property as security to reduce the amount owing by The Gosford to Gemi Investments and the other Gemi entities and to pay a substantial sum to Mr Walker. It is difficult to understand why Mr Walker would be favoured in this way, but it was not the only transaction sweetener he was to receive in the course of these dealings. Such remuneration to Mr Walker was one signpost that Gemi was taking a favourable view of a man whose threatening conduct reasonable deserved nothing more than commercial sceptism. 2. Mr Fleming's email seemed to persuade his co-investors. On the same day, 5 May 2020, Gemi Investments issued a term sheet to Mr Walker and Mr Zhu for a new advance of $2.25 million, this time to Macarthur Projects, secured over the Rocky Point property. The term sheet provided that $1.85 million of the advance would be allocated to interest payments and satisfaction of the various loans to The Gosford and that $401,460 would be advanced back to Macarthur Projects, as the vehicle to deliver it to Mr Walker. 3. The term sheet was entered into on 12 May 2020. The new loan (the Rocky Point loan) was based upon the security of the Rocky Point property and was advanced by Gemi 184 Pty Ltd ("G184") with Macarthur Projects as borrower and Mr Walker and Ms Chloe Zhu as the guarantors. The loan of $2.52 million was payable on or before 4 July 2020. The paperwork prior to execution of the 12 May 2020 Rocky Point loan agreement shows no evidence that anyone at Gemi was aware that Ms Chloe Zhu, and not Mr Zhu, was the registered proprietor of the Rocky Point property. Mr Walker Fails to Secure a Refinance – May to July 2020 1. Whatever Mr Walker was doing to secure a refinance of The Gosford's obligations to the Gemi entities, it continued to be unsuccessful. If Mr Walker's emails to be co-principals are be believed, he was continuing to seek a refinance through Integrated Securities on behalf of The Gosford. He updated Mr Epstein and Gemi from time to time between May and July 2020. 2. But Mr Epstein was a realist: he understood that The Gosford had failed to refinance its indebtedness by mid-July 2020. Despite his oral evidence to the contrary the Court infers he regarded a refinancing as unlikely. Mr Epstein says he had some contact with the potential refinancers. But such oral evidence is unsupported by the kind of detailed documentary evidence that would be likely to exist if Mr Epstein's evidence on this issue were true. 3. Unsurprisingly, the May 2020 Rocky Point loan went into default on its new due date of 4 July 2020. Once again, Gemi had the option of issuing default notices but, once again, Mr Epstein withdrew from the precipice and began to look around for more security. Mrs Zhu and the Fucrez Loan 1. The Wahroonga property owned by Mrs Zhu now came into focus. Mr Zhu did not approach Mrs Zhu about offering the Wahroonga property as security for a Gemi advance until late July 2020. But leading up to that approach Mr Zhu had been involved in intensive discussions about the possibility of using Mrs Zhu's property as security to surmount the funding impasse which had been reached by July 2020. 2. On 15 July 2010, Mr Fleming emailed Mr Cooper and Mr Epstein proposing that they meet with Mr Walker and Mr Zhu to confirm "that Peter [Mr Zhu] is prepared to lend a further $1.3m to cover interest". Mr Fleming also reminded his correspondents that they needed to get an update from Mr Walker and Mr Zhu about the refinancing. Mr Fleming reflected upon Mr Zhu's probable commitment to the development by The Gosford, stating: "I would also like to understand Peter's involvement and commitment to The Gosford project. He has invested $2.5m and if invests another $1.3m it would appear that he is committed. He is obviously very shrewd and has probably worked Greg out and must be thinking that there is a better way forward. We should also alert them to the fact that there will be a rollover fee and penalty interest." 1. Mr Fleming's judgment about Mr Zhu being "shrewd" would have been shared by all the Gemi co-principals who dealt with him. Though a bankrupt, Mr Zhu was managing indirectly some very substantial businesses. 2. At the same time Mr Walker was corresponding with Mr Epstein about the position of one of the guarantors of the various Gemi loans, Mr Snell. Gemi had placed caveats on several properties in support of Mr Snell's personal guarantees. Mr Walker was now applying pressure to Mr Epstein to remove Gemi's caveats over Mr Snell's properties. A curious feature of this case is that Gemi has not yet sought to call on the late Mr Snell's guarantee, or to realise the securities supporting Mr Snell's guarantees. 3. The principals at Gemi were now clearly focused on whether refinance would be available to The Gosford for the Mann Street project. One of the potential financiers mentioned was PAG. Gemi was starting to become aware of alarming misinformation from Mr Walker about the refinancing from PAG. On 20 July 2020, Mr Fleming emailed Mr Epstein and Mr Cooper referencing their discussions about PAG and stated: "Andrew spoke to PAG and they indicated they never made an offer on this deal…Justin your prediction that they [Elizabeth and Simon] never intended to settle this was probably correct." 1. Mr Fleming's internal musings with his fellow principals clearly disclose his growing disquiet about Mr Walker's reliability and lack of realism. On 27 July 2020, Mr Fleming emailed Mr Cooper and Mr Walker saying: "I am not trying to be negative but like every deal he [Mr Walker] is so positive it is going to happen but it never does. How is he going to pay the interest for this month? What about Rocky Point. Is it still on track for Peter to pay the interest and repayment of debt?" 1. In the face of correspondence such as this, the Court does not accept Mr Epstein's bland generalities that he believed at this time a refinance was likely. 2. The first written evidence connecting the Wahroonga property with Gemi is an email that Mr Walker sent to Mr Epstein on 27 July 2020, with a link to the Wahroonga property. This is very late. Mrs Zhu signed her mortgage only 10 days later. Mr Walker's email represented that the Wahroonga property may be worth as much as $6 million from offers recently received and that there was a $1.7 million first mortgage over the property to the Commonwealth Bank of Australia ("CBA"). Mr Walker then continued in this email as follows: "I have said Rocky Point and $814K got Gosford interests secured by caveat over the property this week will go a long way to helping us buy time and goodwill to get the main tasks done. Agree? 1. This email makes clear Mr Walker's then attitude: that the objective of the Rocky Point loan and potential taking of security over the Wahroonga property were "helping us to buy time and goodwill to get the main task done." But not long before Mrs Zhu mortgaged the Wahroonga property, Mr Walker is not is not naming a definite refinance prospect. 2. Mr Epstein was keen to investigate what he had just learned from Mr Walker about the Wahroonga property. Having done quick property searches of his own, he replied a few minutes later, indicating that he had an estimated value of $4 million from CoreLogic for the Wahroonga property and that if the valuation came in at $4 million, that he thought Gemi "could take it at $2.6m with a caveat and sit behind CBA". 3. Mr Epstein was concerned that Gemi still did not have a valuation for the Rocky Point property and was uncertain who was the owner of the Wahroonga property. Having put his counterproposal to Mr Walker in the quick response email, Mr Epstein then forwarded his exchange with Mr Walker to his co-principals, Mr Cooper and Mr Fleming, with a clear assessment as to what he thought would happen next: "The idea is this will cover interest for Rocky Point and Gosford (plus fees) and we will [shore] up Rocky Point security (a little)." 1. Mrs Zhu submits with some force that these email exchanges demonstrate that Mr Epstein on behalf of Gemi, and Mr Walker, were to obtain further security to provide time and to partially cover the growing gap between available assets and the interest generated debt accruing over them to Gemi. Curiously, the correspondence also confirms that a valuation had not been obtained over the Rocky Point property. This is probably why it was necessary to "shore up" that security with the addition of the Wahroonga property. 2. This day, 27 July 2020, became further crowded with communications alluding to what would become the Fucrez loan. Mr Walker replied to Mr Epstein's email at 2:49pm. He explained to Mr Epstein that Mrs Zhu owned the property but that "Peter has full control" of it. This was some notice to Mr Epstein that the relationship of control or influence that existed between Mr Zhu and his former spouse Mrs Zhu. But just what the nature of that control was unclear. 3. Mr Epstein replied apparently taking at face value Mr Walker's statement about Mr Zhu's control, seeking information from Mr Walker, "has he agreed? If yes, I'll get a valuation done". Mr Walker continued to correspond on the basis that Mr Zhu was indeed in control of the property stating 2:53pm, "Peter has agreed to allow the caveat over this property – tack on the 2k to the bill and instruct." 4. Mr Epstein now had enough information to prepare a term sheet. At 4:44pm he emailed a draft term sheet to Mr Walker. This term sheet was structured to place Mrs Zhu as guarantor of a further advance to Mr Walker's company, Macarthur Projects. Only now did Mr Zhu raise with Mrs Zhu using the Wahroonga property as additional security for the Gemi advances. Mr Zhu Raises the Issue with Mrs Zhu – Late July 2020 1. Mrs Zhu's evidence is accepted that it was only in late July 2020 that Mr Zhu first introduced her to the possibility of committing her Wahroonga property to assist the financing of the Mann Street project. Taking advantage of her presence at the offices of NPH, Mr Zhu had the following conversation with her. Mr Zhu: "The Gosford company is behind on its interest payments to its funding company. Greg is a very good friend with Justin from the funding company, and he will arrange a refinance very soon, but they need to pay overdue interest of about $1 million before they can refinance. I was thinking of asking your help. Can your property be used as a guarantor for the overdue interest? It will help in Gemi paying the $1 million overdue interest. They would put a caveat on your property, but it will only be for a couple of months, and after that they are getting another refinance and they will remove the caveat. Mrs Zhu: Why do you need to use my property? What about Greg? I can't pay that back. Mr Zhu: Greg's property has another caveat and needs more documents and time to refinance his property. You don't need to pay anything; Greg will arrange for the refinance straight away. Mrs Zhu: My house is for our son's US university studies, for the next 10 years through to his doctorate. You must make sure they will refinance and remove the caveat in three months. Mr Zhu: Of course, you can talk to Greg when he comes to the office. Mrs Zhu: Okay. I will also want to speak to the lender. 1. There is much to support this conversation occurring. Ms Zhu followed up what she said. She insisted upon meetings with both Mr Walker and "the lender", which ended up being a meeting with Mr Epstein. Prior to July 2020 Mrs Zhu had no dealings either with Gemi and had never met Mr Epstein. She had not involved in any property development with Mr Zhu or Mr Walker. It was logical therefore that she would seek to meet Mr Walker and the lender about what she perceived as a request essentially for a no risk favour. 2. What Mr Zhu said to his former wife was misleading. Its more deceptive elements were the representation that a refinance would be happening "very soon". There was no basis for him saying this. The statement that there was "$1 million overdue interest" was a substantial oversimplification, giving the wrong impression of a simple overdue interest payment when in fact there had been multiple defaults and the security was to cover the latest instalment of accumulating default interest. The statement that "Greg's property has another caveat and needs more documents and time to refinance his property", suggests that Mr Walker had the equity to support the current interest payments and future refinancing but cannot do so because of a timing issue with the documentation, a suggestion that has no basis in the evidence. And "you don't need to pay anything" implies there was no risk, which was incorrect given history of default on these related loans and the documents that she was to be induced to sign. 3. Mr Zhu clearly represented to Mrs Zhu on this occasion that a caveat would be temporarily placed on the title to the property for a few months and that a refinance would occur within three months and that the caveat would then be removed from the Wahroonga property. 4. Mr Zhu omitted many facts from his discussion with his wife. Indeed, he told her very little. His overall purpose was to keep her comfortable with the transaction as one involving little risk to her, whilst benefiting his interests. As his overall object was to reassure her, he did not tell her anything about the risk that she was facing. His strong propensity was to withhold information from her. There were only the two of them at this conversation and she says he told her very little. Had he told her more she was unlikely to have proceeded. 5. The other issue is Mrs Zhu's consent. The newcomer unfamiliar with Mrs Zhu's personality might think that Mr Zhu was seeking her consent to what he was proposing, as if that is something that he had to bargain for from her. But because of the relationship of influence between Mr and Mrs Zhu described earlier in these reasons, the Court does not readily infer that her consent was provided in circumstances where she thought she had much choice. This is because a subtext in all her dealings with Mr Zhu was that she need to maintain his general goodwill, for the benefit of their son, Alex. 6. Mr Zhu was motivated to keep the Mann Street project viable for the sake of NPH's future revenue. Mr Zhu did not tell Mrs Zhu of the fear he held that Mr Walker would not be able to service the interest payments on the Rocky Point loan to Macarthur Projects, which Ms Chloe Zhu had guaranteed. Mrs Zhu said she knew nothing of these things and the Court accepts that evidence. Mrs Zhu's knowledge of The Gosford's financial obligations about the Mann Street project was limited. She knew from what Mr Zhu had told her that there was overdue interest on The Gosford project, but she believed it was a simple case of being about one or two months behind and that Mr Zhu needed security to cover a temporary deficiency in interest payments for another two to three months until completion of a probable refinance. 7. Mrs Zhu feared that the Wahroonga property might be sold. She had ambitions for their son Alex to study in the United States and become an academic. She was committed to the idea of supporting him in that role as a central part of what she must do in life. This is why she said to Mr Zhu, that the refinance must occur within three months and the caveat be removed in that period. Mr Zhu reassured her that she would not have any personal liability and that the refinance would be arranged quickly. But Mrs Zhu was still somewhat suspicious and wanted more reassurance. She asked to speak to Mr Walker and to someone from Gemi about the transaction. Mr Walker Discusses the Proposal with Mrs Zhu – late July 2020 1. The meeting Mrs Zhu requested was arranged between Mrs Zhu and Mr Walker at the offices of NPH only a few days after she had spoken to Mr Zhu. Mr Walker compounded Mr Zhu's misrepresentations to Mrs Zhu at this meeting, which led to her signing the term sheet Gemi had prepared which he then presented to her. Mrs Zhu's version of this conversation which is substantially supported by Mr Zhu was in the following terms. Mrs Zhu: Greg, my house is my only asset for my son's US studies. I am unable to pay anything. I am happy to help, but I have no ability to pay anything back and I can't lose the property. You must promise they will refinance and remove the caveat. Mr Walker: I have been doing all my business with Gemi for many years and I am a very close friend with Justin. They are very reliable, we can refinance the Gosford site in three months, but the titles of my properties are already too complicated. After we pay GEMI about $1 million worth of overdue interest, they will refinance to us and remove your caveat; you won't have to pay anything. Mrs Zhu: Okay fine. I have to meet the lender though before I sign. Mr Walker: They need to prepare the documents. They will do that if you signed the first term sheet with the details of the loan. This is not a legal binding document. 1. Something is missing from both this conversation, and the previous conversation with Mr Zhu, that is important. In neither conversation did Mrs Zhu ask either Mr Zhu or Mr Walker for any concrete or direct financial benefit in exchange for mortgaging the Wahroonga property. Gemi sought to make a case that she did receive financial benefits from this transaction. Mrs Zhu was moderately commercially astute. When Mr Zhu first approached her with this proposal, she asked questions about the risk involved in what was being requested of her. She was also astute enough, to have bargained for a financial benefit, had that been part of the scheme of offering the Wahroonga property as security for Gemi's advances. But the absence of any conversation about financial benefits to Mrs Zhu at the outset strongly supports a case that she saw her involvement as doing a personal favour for her ex-husband in a general family context which did not expose her to financial risk. 2. Another notable feature of this conversation was that Ms Walker repeated Mr Zhu's statements that this transaction in substance involved no risk to her because the Mann Street project would be refinanced within three months. Mrs Zhu said she relied upon these statements made by Mr Zhu and Mr Walker and the Court accepts that she did. She signed the term sheet shortly after the statements were made. The statements contained assurances that overcame some initial hesitation on her part. And the statements gave plausible reasons for her to commit. 3. This conversation led to Mrs Zhu signing the term sheet. The signing is dealt with in the next section of these reasons. Mr Walker has Mrs Zhu Sign the Term Sheet – late July 2020 1. Mr Epstein prepared the term sheet and emailed it to Mr Walker, not to Mrs Zhu. He was prepared to entrust Mr Walker and whoever Mr Walker then appointed, to place the document in Mrs Zhu's hands and obtain her signature. It is clear from Mr Epstein's 4:44pm email on 27 July that he assumed that Mr Walker would arrange Mrs Zhu to sign the document, either directly or indirectly. 2. Approximately 20 hours later Mr Epstein received the signed term sheet back from Mr Walker. The return email at 12:03pm on 28 July 2020 from Mr Walker did not explain to Mr Epstein how he had procured Mrs Zhu's signature on the term sheet. But to anyone in Mr Epstein's position, the likely course of events was obvious and could readily be inferred: Mr Walker took the term sheet to Mrs Zhu to have it signed. This clearly put Mr Epstein and Gemi on notice that Mr Walker (and possibly also Mr Zhu) would be the conduits through whom the term sheet would be signed. Mr Epstein put the term sheet in Mr Walker's hands and was apparently content – subject to whatever legal advice she might receive – for him to characterise the transaction to Mrs Zhu on Gemi's behalf. But Mr Epstein also had reason to believe from the way that the Wahroonga property had been introduced into the mix of security, that Mr Zhu would also be involved in informing Mrs Zhu about the reasons for and risks of this borrowing and utilising his background knowledge about the Mann Street project. He also knew Mr Walker and Mr Zhu were both very committed to the Mann Street project, and this proposed advance proceeding. 3. Given what Mr Epstein knew of Mr Walker's and Mr Zhu's characters he had reason to believe it was unlikely that Mr Walker would tell Mrs Zhu much about the financial history of The Gosford, or about its multiple defaults to various Gemi entities, its multiple failed attempts at refinancing and the apparent probability of further default in the absence of a clearly identifiable refinancing exit strategy. Mr Epstein was never told that she knew about these things. 4. In fact, Mrs Zhu had only rudimentary knowledge about The Gosford and the Mann Street project. She worked for a period in July 2020 at NPH and overheard her husband speaking about the project. She met Mr Walker at NPH's offices when he was there for meetings with Mr Zhu. But her contact with Mr Walker was no more than the exchange of superficial pleasantries. 5. Either late on 27 or early on 28 July 2020, Mr Walker and Mrs Zhu met and discussed the proposed loan and he took the opportunity to have her sign the term sheet for the loan. Mr Walker gave Mrs Zhu the Gemi term sheet and asked her to sign it, reassuring her (falsely when its terms were examined) that it was not legally binding. Mrs Zhu told Mr Walker that she wanted to speak to the lender. 6. Mr Walker agreed within days not to proceed with the exact loan proposal described in this term sheet. But the loan structure that did proceed was identical but for the name of the borrower. Despite that change this preliminary conduct made possible by Mr Epstein putting the term sheet into Mr Walker's hands had a significant influence on Mrs Zhu's willingness to proceed with this transaction. 7. The term sheet Mrs Zhu signed is dated in typescript 27 July 2020, but it is not clear that it was signed that day by Mrs Zhu. Her signature on the last page is not independently dated. The term sheet was expressed in the form of a written letter of offer which appears on its face to be legally binding. "The following is our offer to provide finance subject to the terms and conditions set out in this letter. Once executed, the terms will be incorporated into the Loan Agreement and other security documents." 1. Acceptance of the offer in the term sheet was open only until 3.00 pm on 28 July 2020 and "if not accepted by that time will lapse". If the offer were accepted the term sheet provided that several fees stipulated in the term sheet became immediately payable within a month, whether the borrower proceeded: a commitment fee of $2200, a line fee of $24,144.88, legal fees of $5,500 and interest on the principal for a one-month period was immediately payable – probably an amount of $21,906.32 (being $1,095,315.90 x 24% ÷ 12). 2. Mrs Zhu seemed quite unaware that she had incurred fees totalling $53,751.20 by signing the term sheet. But not only that, the borrower and the guarantor committed to charge the Wahroonga property for the above fees and "any other loss incurred by the Lender in the event that the borrower does not proceed with the loan after acceptance of the Offer by the Borrower". And the borrower acknowledged the lender was entitled to lodge a caveat over the Wahroonga property to enforce the charge. 3. Mrs Zhu was given assurances by Mr Walker that were contrary to the form of the term sheet that she was signing that day. Initially she said to him that she could not sign the term sheet until she had met with someone from Gemi, because she wanted to confirm that at the end of the three months Gemi would promise to remove the caveat from the property. Mr Walker assured her that if she signed the term sheet "nothing would be done" until she had spoken with a representative of Gemi which could be arranged at any time. As a result of Mr Walker's statements to this effect, and to the effect that "this is a standard document and you do not need to read it" that she ultimately agreed to sign the term sheet without reading it. But there was a clear tension between the terms of the term sheet, which appeared to be immediately operative and Mr Walker's representation to her. She relied upon the representation, unaware that it contradicted the form of the written terms sheet and that she was then creating a security interest in her home. 4. Other features of the term sheet are noteworthy. 1. The "Lender" was defined as "Gemi Nominees Pty Ltd or its nominee. 2. The "Borrower" was defined as "Macarthur Projects Pty Ltd", the company controlled by Mr Walker. 3. The guarantors were defined as "[Mrs Zhu] in addition to any directors of the Borrower or any parent companies of the Borrower". That would have made Mr Walker a guarantor. But the identity of the borrower was soon to be changed. 4. The "Security Requirements" were: a caveat over the Wahroonga property, the borrower to use best endeavours to convert the security to a registered second mortgage over the Wahroonga property; a guarantee and indemnity provided by "each of the Guarantors"; and a second ranking PPSR security over the Borrower; and the purpose of the security requirements were described as "the [Wahroonga] property to support Rocky Point facility". 5. The facility amount comprised available funds of $1 million plus a line fee of $24,144.88, prepaid interest of $65,849.67, legal fees and legal fees and disbursements of $5500, totalling 1,000,090 $1,095,315.90. 6. The "Term" of the facility was three months but if the loan was not repaid prior to the expiration of the "term" 2.2% of the principal outstanding was payable (being at least $22,000) as an" Extension Fee". 1. Based in part upon her Chinese heritage, Mrs Zhu said that she regarded the concept of having trust in connection with the person you are doing business with to be very important and that this was a matter she considered when deciding whether to proceed with signing the term sheet. She knew that the Mann Street project existed, and that Mr Zhu and Mr Walker were involved in it and she trusted what they said to her, so she signed the term sheet. 2. Later on 28 July Mr Walker and Mr Zhu confirmed that Mr Hedges would be acting for Mr Zhu on the forthcoming transaction. The Investor Memorandum – 28 July 2020 1. Mrs Zhu seeks to support her case about her dealings with Gemi by drawing upon Gemi's dealings with its own investors about this loan. She argues that not only did Gemi withhold information from her, but the Court could be more confident that it did because Gemi withheld information from its own investors. 2. On 28 July 2020, Gemi issued an Investor Memorandum to potential investors in relation to what as about to become the Fucrez loan. The Investor Memorandum was misleading in several ways. It described the borrower as Macarthur projects, and the purpose of the loan as "for working capital". The real purpose of the loan was to cover the interest for the Rocky Point loan and bolster the Rocky Point security. 3. The Investor Memorandum also did not set out the prior defaults of The Gosford in relation to the various Gemi loans back to April 2019, the growing disquiet of the Gemi principals about Mr Walker's statements and, their general loss of confidence in the probability of refinancing, or the debate that had occurred within Gemi about issuing default notices. There is considerable force in Mrs Zhu's contention that if Gemi was prepared to keep its own investors in the dark, it would hardly have hesitated to assume that Mrs Zhu was left ignorant about the same matters. The Plan for Fucrez to become the Borrower – 31 July to 3 August 2020 1. Mr Epstein's iPhone text messages with Mr Walker were downloaded and made available in evidence. They reveal a remarkable joint plan between Mr Walker and Mr Epstein to substitute Fucrez for Macarthur Projects as the borrower on the advance from G193 to overcome Mrs Zhu's objections to signing documents associated with a mortgage of the Wahroonga property that said she had been independently advised. Contrary to Mr Epstein's plausible denial of a close relationship with Mr Walker, the text messages show a relaxed and close informal relationship between the two, who commenced their discussions about this loan over a joint lunch at a restaurant on Friday 31 July 2020. 2. On the afternoon of Saturday, 1 August 2020, their text message exchanges show that Mr Walker was conscious of the commercial pressure upon him about The Gosford, and that he is facing deadlines and is looking for Mr Walker's help. 3. On Sunday, 2 August 2020 at 4:39pm, Mr Walker reports to Mr Epstein about a problem with settling the translation in accordance with the term sheet that had just been signed by Mrs Zhu. He writes to Mr Epstein: "Xhi zhu [a misspelling of Xian Zhu] doesn't want to have to get the independent legal docs signed. These people are quite weird about some shit. She will sign the mortgage/caveat docs though and Peter and I will guarantee the loan. Wahrongah [meaning Wahroonga]. Can we live with this?" 1. Mr Walker's dismissive assessment to Mr Epstein that "these people are quite weird" about "some shit" - like obtaining independent legal advice - did not appear to alert Mr Epstein to the need to look at this transaction a little more closely to see whether "these people" might need independent legal advice to achieve an enforceable transaction for G193. 2. Mrs Zhu had declared she is not prepared to certify that she has received independent legal advice in relation to a loan to Macarthur Projects. She did not apparently remember this part of the history in her evidence, but it seems clear this is what must have happened. She was reluctant to sign part of the transaction documents being discussed with her that declared she had been independently advised in relation to a loan to Macarthur Projects. This attitude is consistent with the enquiring attitude that she had showed in her dealings with Mr Walker and she would show about a week later in her direct dealings with Mr Epstein. 3. Mr Epstein responded cautiously. He was sceptical that the transaction could proceed without Mrs Zhu being certified back to G193 as having obtained independent legal advice. He was right. He replied to Mr Walker expressing his misgivings as follows at 4:41pm: "I don't think it works because she is providing the security. If they don't take the legal advice, it can't be enforced. I'll check first thing in the morning." 1. Mr Epstein was going to take legal advice about the position. He correctly surmised that without a certificate provided to G193 that Mrs Zhu had obtained independent legal advice about an advance to Macarthur Projects there was a real risk that the securities could not be enforced. 2. But Mr Walker had an idea. At 4:42pm he texted back explaining Mrs Zhu's reluctance and rather boldly suggested that Gemi might be able to put a caveat on the Wahroonga property based upon the term sheet that had already been executed. In one sense his suggestion was well-founded: but for his representation that it was not legally binding, on paper the term sheet was enforceable as creating a security against her. His text message said the following: "Please do. She's had a bad experience of the past apparent[ly]. Can u do a search of title and slap the caveat on with the docs signed? It's only two weeks? Until we all settle?" 1. The expression "with the docs signed" appears to refer to the term sheet which provides an interest like a charge in favour of Macarthur. But it had been presented to Mrs Zhu by Mr Walker and would have involved making the advance to Macarthur Projects. Mr Epstein does not commit and leaves the subject on the afternoon of Sunday, 2 August, offering to "check if there is a way around it". 2. On Monday morning, 3 August 2020, between 8:30am and 9:00am, Mr Epstein and Mr Walker arranged again to have lunch at a restaurant at 12 noon. Then in a series of text message exchanges between 9:12am and 9:22am Mr Epstein proposed a way G193 might be able to take the Wahroonga property as security despite Mrs Zhu's misgivings about certifying she had received independent legal advice about providing that security. 3. The following text messages were exchanged within that timeframe: Mr Epstein: "We need the owner of Wahroonga to be appointed as a director of the borrower. Can you do this?" Mr Walker: "Who's the borrower." Mr Epstein: "Macarthur Projects. She can go on then off shortly after." Mr Walker: "Let me see." Mr Walker: "So what she has to do is be a director of MacArthur Projects. That's the borrower. And u guys slap a caveat over that property." 1. Mr Epstein had obtained legal advice and seems to be under the impression that appointing Mrs Zhu as a director of Macarthur Projects will give her a sufficient apparent interest in that company that she may not need independent legal advice other than on behalf of the company. He was proposing a superficial solution to Mrs Zhu's reluctance to provide a certificate of independent advice (because she did not want independent advice perhaps because any such advice would not be independent anyway) and that he was aware the problem did not meet the real substance of her concern: that she needed her own independent legal advice for her secured guarantee to be enforceable. 2. His artificial solution was to make her a temporary director of Macarthur Projects, the proposed borrower company in which both from the known background and the text messages themselves it was clear that Mr Epstein did not believe she had any obvious financial interest. He said in cross-examination that he took legal advice because he thought Mrs Zhu did not "want to take independent legal advice" and he was told by his lawyer that this was the solution: which seems to be in substance to merge her interests with those of the borrower. And the These exchanges make it clear that she must have in substance appeared to Mr Epstein be no more than a third-party security provider. 3. Mr Walker remained hesitant about Mrs Zhu becoming a director of his company, Macarthur Projects. About an hour later, Mr Walker proposed a different course leading to the following exchange between the pair: Mr Walker: "Can we change the company has borrower. I am director. She will come on as well." Mr Epstein: "Sure. What name?" Mr Walker: "Fucrez Pty Ltd care of Beazley's office. 37/650 George Street Sydney 2000 ACN 637597249 She is being added by Beazley today." Mr Walker: "All [good]. Beazley has corporate key. I'm getting letter of consent from her over the next hour or two. See you at 12:15. Running 15 late. Mr Epstein: "No problem." 1. Mr Beazley was Mr Walker's solicitor. Mr Epstein was content for Mr Walker, who Mr Epstein was aware was keen to promote this advance, to create an artificial structure to maintain the enforceability of Mrs Zhu's secured guarantee, despite her reluctance to certify she had been independently advised about this transaction. Mr Epstein must have been aware from this exchange that Mrs Zhu's refusal in receiving independent advice or to certify that she done so about her separate interests was being muted so that G193 could take her mortgage security over her Wahroonga property. 2. This text message exchange between Mr Epstein and Mr Walker (leaving aside what must have been discussed between the pair at lunch) meant that Mr Epstein was aware that in order for this transaction to proceed Mr Walker would be persuading Mrs Zhu to become a director of a newly created shelf company, Fucrez, in which she had no existing commercial or financial stake, in order to make it appear that she was not a provider of third-party security to support the enforceability of this advance. 3. Such an arrangement could only succeed if Mrs Zhu and the lawyers advising her were not aware of and did not alert her that this was the reason for the substitution of Fucrez for Macarthur Projects. An alternative possible hypothesis was that she was going along with this scheme for the loan advance to proceed. But neither her evidence nor the circumstances support such a conclusion. 4. And importantly these exchanges expressly alerted Mr Epstein through the legal advice he obtained, that Mrs Zhu should be legally advised by her own solicitor as a third-party mortgagor. Mrs Zhu Becomes a Director of Fucrez – 3 August 2020 1. Mrs Zhu became a director of Fucrez on 3 August 2020. She was unaware of Mr Epstein is and Mr Walker's text message exchanges on the morning of 3 August 2020 and never had a clear understanding of why she was being asked to become a director of this new company about which she knew nothing. 2. She says and the Court accepts that soon after she signed the term sheet, she says Mr Walker (in Mr Zhu's presence) raised with her that she needed to become a director of Fucrez in the following conversation. Mr Walker: Juliana, you need to become a director of the company that is getting the money. It will just be for a few weeks. Mrs Zhu: Why do I have to do this? Mr Walker: Because you are going to be a guarantor and for the money to be paid to the company. 1. This conversation occurred shortly after the text message exchanges about Fucrez between Mr Walker and Mr Epstein on the morning of 3 August 2020. Mr Walker's statement was a bland explanation of why Mrs Zhu needed to become a director of Fucrez. It did not explain why a standalone company such as Fucrez needed to be substituted for Macarthur projects as the named borrower in the term sheet, nor why she needed to become a director of this new borrowing entity. It said nothing about Mr Walker's and Mr Epstein's text message agreement. But Mrs Zhu accepted all this without further enquiry, indicating that her level of trust in Mr Walker and Mr Zhu displaced any need for her to inquire further about this matter. 2. Mrs Zhu never understood why she became a director of Fucrez, other than that it would facilitate the borrowing that Mr Zhu and Mr Walker desired to take place. Indeed, she never really appreciated that she had signed a term sheet, naming Macarthur projects as the borrower, and that the borrowing entity was being charged. Mrs Zhu was never a shareholder of Fucrez. She was not aware of ever having made any business decision for Fucrez, as a director of Fucrez. She was a mere temporary passenger in the board and financial affairs of Fucrez. And only three weeks later, on 24 August 2020, for reasons which were no more transparent to her than the reasons why she was invited to join the board, she was asked to resign her directorship, which she did without hesitation. Signing the Fucrez Loan Documents – 5 August 2020 1. The parties arranged for Mrs Zhu to sign the final Fucrez loan transaction documents on 5 August 2020 at the offices of NPH, where she was working. Mr Zhu's solicitor, Mr Stephen Hedges, appears to have brought the documents to NPH for Mrs Zhu's signature. Mrs Zhu had known Mr Hedges for many years. She had met him through Mr Zhu. Mr Zhu asked her to attend a meeting with Mr Hedges, who previously prepared a power of attorney for Alex. Mrs Zhu thought that given Mr Hedges' prior relationship with Mr Zhu that he was there to protect her interests in this transaction. 2. According to Mrs Zhu's recollection, which the Court accepts, the following conversation occurred between Mr Zhu, Mrs Zhu, and Mr Hedges, before Mrs Zhu signed the documents. Mr Zhu: These are the documents you need to sign for the loan so that the refinance in the guarantee can be processed. Stephen is here to witness your signature on the documents. These have to be signed otherwise the loan can't be processed." Mrs Zhu: I want to make sure they remove the caveat and the maximum amount of the loan is $1.09 million. Mr Hedges: Yes, there is no need to pay interest. The loan amount of $1.09 million includes interest. It is only for three months and after that they will refinance and remove the caveat. 1. She then signed the documents at the places Mr Hedges directed her to sign. Mr Hedges witnessed her signature. She did not receive a copy of the documents that she had signed. She says, and the Court accepts, that the meeting took about 10 minutes. She says and the Court accepts that there was no discussion with her of the detail of the documents that she had signed. In a 10-minute meeting such discussion was not feasible. 2. Mrs Zhu had a good memory of this occasion. Mr Hedges was not called as a witness in the proceedings. The Transaction Documents – 5 August 2020 1. Under the transaction documents Mrs Zhu executed G193 as the lender and the term sheet was varied so Fucrez became the borrower. The loan was for the previously agreed term sheet principal sum of $1,095,315.90 and was repayable on 1 November 2020. The guarantors of the advance were Mr Walker, Mrs Zhu and Mrs Chloe Zhu. 2. The following loan documents were executed. Only a few of them need to be mentioned here. All the documents Mrs Zhu signed that day are dated 5 August 2020 and one consistent with the term sheet apart from the identity of the borrower. 3. Mrs Zhu signed a statutory declaration entitled "Declaration by Third Party Mortgagor, Guarantor, Surety Mortgage or Indemnifier for the Borrower/Grantor of a Security Interest" in which she stated she was the guarantor named in the loan security documents with Fucrez. For convenience this will be described in these reasons as the "third-party declaration". She declared that she had "received independent legal advice" regarding the loan security documents referred to and that after receiving that advice I have freely and voluntarily signed the following documents", namely, the Loan Agreement, the Certificate of No Independent Financial Advice and the Guarantee and Indemnity. 4. To the extent that the certificate describes Mr Hedges' advice as "independent" in the third-party declaration, in the sense of being advice for Mrs Zhu herself, it is not accurate. Mr Hedges was retained by Mr Zhu and the borrower Fucrez, not Mrs Zhu. His advice was not independent of the borrower. It was, however, independent of the lender. 5. Mrs Zhu also signed a statutory declaration entitled "Declaration by Borrower/Grantor of a Security Interest (Corporation)". For convenience this is described as the "borrower declaration" in these reasons. The borrower declaration also declared that both directors of Fucrez, Mr Walker and Mrs Zhu had "received independent legal advice regarding the same loan and security documents as the third-party declaration. In fact, she was given no legal advice by Mr Hedges as Mrs Zhu says. The short time of the conference made that impossible. 6. Mr Hedges witnessed all these documents, including these declarations. Mrs Zhu says that is all he did. There is no certificate or statutory declaration signed by him or given to G193, indicating that he gave any legal advice in relation to this transaction to Mrs Zhu. The documentation is consistent with Mr Hedges being involved to organise the documents and witness the signature of the parties on the basis that he assumed that the parties were receiving legal advice elsewhere. Indeed, the letter that he sent back on 4 August 2020 to Mr Garth Andrews of Tolz Lawyers acting G193 reporting on his progress in relation to the signing, talked about persons "signing" the documents. At no stage does he indicate in this correspondence that he gave any advice to the signatories and he was not asked to certify that he had given advice to any of the signatories. This will 7. Mrs Zhu signed, jointly with Mr Walker, a certificate of solvency of Fucrez, declaring that as at the date of the declaration Fucrez was "solvent unable to pay all its debts as and when they became due and payable". She in fact had no idea whether Fucrez was solvent or not. She was not familiar with its financial affairs. 8. Then Mrs Zhu signed the main transaction documents, the Loan Agreement, the Guarantee and Indemnity, the General Security Deed and an authority and direction, all witnessed by Mr Hedges. 9. As to the Loan Agreement, it named G193 as the lender, Fucrez as the borrower and Mr Walker, Mrs Zhu and Mr Zhu as the guarantors. It provided for the advance of a loan facility of $1,095,315.90 together with various fees and interest charges and other terms including outlined in the term sheet. It provided for a termination date three months after the interest commencement date of 1 August 2020. The loan provided for an agreed interest rate of 34% up to the due date but after the due date interest may be added to the facility at such intervals as the lender determines payable of discharge discharged. If payment occurred on the due date interest would be calculated at the rate of 24%, otherwise it would continue at 34% together with default fees of 2.2% upon the occurrence of various types of default. 10. As to the Guarantee and Indemnity, Mrs Zhu executed this document as guarantor by which she guaranteed the obligations of Fucrez, as debtor to G193 as creditor under the Loan Agreement. The Guarantee and Indemnity contained a statement by Mrs Zhu (clause 25) acknowledging that she was not induced to enter their agreement by "any statement representation or warranty by or for the creditor", that she "as Guarantor is a director of the Debtor", Fucrez, that as Guarantor she "has obtained independent legal advice in relation to this deed and all documents relating to the guaranteed money" and that she as Guarantor "has a direct or indirect interest in the issued capital of the Debtor. She did not have independent legal advice in the sense that she a lawyer advising her in respect of her separate legal interests. 11. As to the General Security Deed, it was made between G193 as the secured party and Fucrez as the Grantor and granted a security interest in the collateral being the personal property of Fucrez for the purposes of the Personal Property Securities Act 2009 (Cth). Mrs Zhu also executed mortgage of the Wahroonga property to G193 as mortgagee, although it mistakenly referred to securing a borrowing by Macarthur projects rather than Fucrez. 12. Mrs Zhu also signed a "Certificate of No Financial Advice", in which she certify that she had "a full understanding of all the documents evidencing this transaction and the associated risks and liabilities taken on by the borrower company and security providers when entering into this transaction." She also certified that she had "full knowledge of the overall transaction and had been given the opportunity to read the documents." She did not have a full understanding of the documents she was signing and did not have full knowledge of the overall transaction. 13. Mrs Zhu signed several other statutory declarations, powers of attorney, authorities and other machinery documents that do not need separate analysis. A Snapshot of Mr Epstein's and G193's Outlook on 5 August 2020 1. Pausing in the chronology, Mr Epstein's knowledge about Mrs Zhu's role this transaction should be examined. Quite apart from his text messages with Mr Walker on 3 August 2020 stood above, Mr Epstein could infer much about her role from the course of events up to this point, from things that had not happened and from the structures that were created to give effect to this transaction. 2. Mr Epstein must either have known or strongly suspected Mrs Zhu was not a principal and had no financial stake in the Gosford or the Mann Street property. If she did have a financial stake, she was latecomer. Mrs Zhu had not previously been involved in any negotiations with Mr Epstein from April 2019 concerning the refinancing of the Mann Street project. Mrs Zhu had not been represented to Mr Epstein by Mr Walker or Mr Zhu as having a financial stake in The Gosford or the Mann Street project. He had strong reason to believe from this history that she did not have any such financial interest. He could only have thought otherwise, if her sudden late arrival, how she had bought in, and what her interest was, were all adequately explained to him. 3. Mr Epstein also had reason to believe Mr Zhu had personal influence over Mrs Zhu. He knew little about their marriage, their property settlement on divorce, or her personality. But Mr Epstein is likely to have known Mrs Zhu was working for Mr Zhu's company, NPH, and that she still had a relationship of financial dependence upon him notwithstanding their divorce. 4. Mr Epstein also knew that the Wahroonga property was Mrs Zhu's residence and was not a core asset owned by The Gosford or was integral to the development of the site of the Mann Street project. If Mrs Zhu did not have demonstrable financial interest in The Gosford, or the Mann Street project, Mr Epstein had reason to believe that the Wahroonga property was being offered as a third-party security as result of Mr Zhu's influence over Mrs Zhu. 5. This was reinforced by several matters. In his email of 27 July when Mr Walker had revealed, as indicated above, that the Wahroonga property was in the name of Mrs Zhu, he had also informed Mr Epstein that "[t]he property is in the name of Xian Zhu however Peter has full control". Mr Epstein had direct information from Mr Walker that Mr Zhu had controlling influence over Mrs Zhu in relation to the Wahroonga property in her name. Also, Mr Zhu had only first mentioned Mrs Zhu to Mr Epstein very late, when other sources of security available to Mr Walker and Mr Zhu had been exhausted and when another property owned by a person over whom Mr Zhu is likely to have influence, Ms Chloe Zhu his daughter, was offered as additional security for the Rocky Point loan. 6. Mr Epstein had just witnessed the sudden substitution of a special purpose vehicle, Fucrez, as the borrower with this advance. The term sheet signed by Mrs Zhu only a week earlier, had named Macarthur Projects as the borrower. Mrs Zhu never had financial interest in Macarthur Projects that was disclosed to Mr Epstein, and he would have inferred from his dealings with Mr Walker that Mrs Zhu was a third-party mortgagor to that borrower. 7. Why was Mr Epstein willing to participate in G193 making a loan advance to Fucrez? All the previous loan advances had been to The Gosford except for the Rocky Point loan which was an advance to Macarthur Projects. There was no obvious commercial advantage to G193 in lending to a company with nominal capital such as Fucrez rather than The Gosford or Macarthur Projects. 8. Leaving aside for a moment what is known about the text message exchanges between Mr Walker and Mr Epstein on the morning of 3 August 2020 the true relationship between this new entity and Mrs Zhu was unknown to Mr Epstein, apart from the fact that Mrs Zhu was a director of this new entity, Fucrez. If Mrs Zhu had a financial interest in Fucrez, apart from that interest being less than a week old, it was sufficiently uncertain that it had not yet matured into a shareholding but only this recent directorship. This structure and history bespeaks unexplained artificiality, which anyone as commercially astute as Mr Epstein must have appreciated. 9. There is no satisfactory evidence to explain why Mr Epstein thought that Fucrez needed to be used as the borrowing entity other than the agreement with Mr Walker that is recorded in the text messages. Mr Epstein knew that Mrs Zhu was probably only a third-party mortgagor in relation to this advance. He also knew that unless she was advice independently of the borrower, the mortgage securities may not be enforceable against her. 10. Finally, after Mr Epstein agreed that he was told that Mr Hedges was acting Mr Zhu and that Mr Hedges was the only solicitor involved with Mrs Zhu's execution of the document, cross examining counsel suggested to Mr Epstein that he knew that Mr Hedges was not providing independent legal advice to Ms Zhu, to which he answered "I don't agree". The Court then queried that answer and asked him to explain why he did not agree. He then gave the following answer. "Because a lawyer is entitled to have more than one client. So, when I referred to who is acting for Mr Zhu, it's – it's like when it was put to me [about] the Gemi group Group, Mr Zhu represented the asset and so Mr Hedges was acting for that party and Mr Hedges is a lawyer who has obligations and it turns out Peter Sue wasn't counterparty in these documents, so how could he not be acting for her." 1. This answer was not convincing. Mr Epstein seems to be saying that if Mr Zhu was not a counterparty – and he was not a, presumably because he was bankrupt – Mr Hedges must have been acting Mrs Zhu. But Mr Hedges' role was unclear and at the least he could have been acting for the borrower, Fucrez, whose interests were different from Mrs Zhu's. 2. The answer was not convincing for another reason. Mr Zhu wrote to Mr Epstein on 28 July 20, 2020 saying to him "Hi Justin, It is Stephen Hedges act for me on this…". Mr Zhu was claiming that Mr Hedges was acting for him, and not for Mrs Zhu. Mr Epstein now knew that directly and thereafter he never sought to expressly inquire whether any lawyer was acting separately Mrs Zhu. A Conversation with Mr Epstein – 11 August 2020 1. A little time after signing these documents, Mrs Zhu said to Mr Walker and Mr Zhu that she wanted confirmation from Gemi before they could proceed. Mr Walker offered to arrange for her to meet Mr Epstein from Gemi. The meeting coincided with something that Gemi needed anyway – confirmation of the then outstanding balance of the first mortgage over the Wahroonga property to CBA. Mrs Zhu had provided only a screenshot from her mobile phone of the balance of the CBA mortgage, but this was not acceptable to Gemi. For the settlement of the Fucrez loan transaction Mr Epstein needed a precise figure for the amount outstanding on the CBA first mortgage over the Wahroonga property. 2. Mrs Zhu wanted to meet Mr Epstein rather than simply provide a copy of the CBA documentation to Gemi. She had said to Mr Walker and Mr Zhu previously that it was important for her to meet the lender directly to receive an assurance about the removal of the caveat. That purpose was on her mind when she met Mr Epstein at the CBA Martin Place branch. 3. She says that she wanted to meet the lender because although she wanted to assist Mr Zhu, she was concerned about agreeing to the loan because she believed the Wahroonga property was her only asset. She did not want to risk losing it, because she saw it as the principal resource available to her to fund her son's university studies in the United States. The Court accepts that she had long harboured the ambition for Alex to study the United States and to become an academic there and that the Wahroonga property was the only asset she had which would allow her to fund this career choice for her son. 4. But the Court does not accept that Mrs Zhu was the principal instigator of this meeting, or that it unfolded entirely the way that she says. The contemporaneous text messages (Exhibit 4) between Mr Epstein and Mr Walker imply that this meeting was organised spontaneously because Mr Epstein needed urgently to solve an obstacle at the CBA, which was declining to give a document to Mrs Zhu confirming the then current balance of her mortgage. And Mr Epstein needed this to settle the Fucrez loan transaction later that day. 5. They met at the Commonwealth Bank Australia branch at 48 Martin Place in Sydney. What was said in this conversation and where it took place is strongly contested between Mr Epstein on the one side and Mrs Zhu and Mr Zhu on the other. Three locations for the disputed conversation were in contest: an alleged meeting outside before going into the CBA branch; alleged conversation while they were waiting at the teller in the banking chamber; and an alleged discussion outside afterwards. There is little in common between the competing versions as to what happened at any of these locations. 6. First, there is a dispute as to whether the group met outside before going into the banking chamber. The Court accepts Mrs Zhu's evidence that she and Mr Zhu walked up to Martin Place from NPH's offices about the middle of the day, 12 August 2020. She says they waited outside for Mr Epstein and when Mr Epstein arrived, she was introduced to him, and a conversation took place to the following effect: Mr Zhu: This is Justin from Gemi, the funding company, Justin, this is Juliana. Mrs Zhu: Nice to meet you. Mr Epstein: Nice to meet you, Juliana. Mrs Zhu: I do not have the ability to pay any loan back, and I will need to sell the property for my son's overseas studies. Mr Epstein: You don't need to pay anything; this loan includes 3 months interest. This loan is to pay the overdue interest relating to the development at the Gosford site. Once they have paid the overdue interest, I can refinance them within 3 months. We have done all the work for the development at the Gosford site and Gemi is a large financing company. Mrs Zhu: When can you remove the caveat? Mr Epstein: In about 3 months. It's just until the refinance is approved. I put the caveat on, of course I can remove it at any time. Mrs Zhu: Can I have that all in writing or an email? You know I just don't have the ability to pay back, and I need to sell this house for my son's overseas studies. Mr Epstein: Trust me. I am a financial licence holder, and Peter is here as witness. A verbal agreement is just the same as a contract. Mrs Zhu: Why do I have to sign all the documents then? Mr Epstein: Because you are the owner of the property. We need it for our file if we are ever reviewed or audited. All the documents you have are the standard documents that everyone signs like when a bank lends you money. 1. Mr Zhu largely supports his wife's version of the conversation outside the bank, which he says was in the following terms: Mr Zhu: Juliana, this is Justin from the lender. Justin, Juliana is willing to help Greg, but there should be no risk for her and she shouldn't have to pay anything. Mrs Zhu: Justin, I cannot pay any loan back. I need the money from the property to pay for my son's university studies. Mr Epstein: You won't need to pay anything. The loan covers 3 months' interest and is to cover the overdue interest on Greg's Gosford project. I can then organise the refinance within 3 months. We have done a lot of work with Greg and on this project. Mrs Zhu: When will you remove the caveat? Mr Epstein: In about 3 months once the refinance is approved. I put the caveat on, I can remove it at any time. Mrs Zhu: Can I have this in writing? Mr Epstein: You can trust me. Peter is here as a witness as well. Mrs Zhu: Why then did I have to sign all the documents? Mr Epstein: Because you own the property, and we need it for our file if we are audited. 1. Mr Epstein denies this alleged conversation took place. He says there was no conversation between himself, Mr Zhu and Mrs Zhu outside the CBA Branch before they went to speak to a teller in the banking chamber. He says that when he met them, they were already inside the CBA Branch and Mrs Zhu was standing at the teller's desk. 2. All the parties were cross-examined about this part of the conversation. The Court is not confident in Mrs Zhu and Mr Zhu's version. The contemporaneous text messages suggest that Mr Epstein was called down to the CBA at short notice because Ms Zhu and Mr Zhu were having trouble getting the information they need from the bank teller and that they were probably waiting inside for him. 3. And as to the content of the conversation, Mr Epstein is too commercially astute, and careful to be noncommittal, to say exactly what was attributed to him in this conversation about Mr Walker arranging the finance, about assuring her the caveat would only be there for "a couple of months", about him being a "licence holder", or about removing the caveat "at any time". But throughout the encounter that day Mr Zhu undoubtedly emphasised that she was a single mother and that she needed the Wahroonga property for her and her son. She undoubtedly made it clear to Mr Epstein, with the same determination she expressed in the witness box, that it was her property and not that of her ex-husband and that she wanted the caveat removed at the end of the three months. To the extent that Mr Epstein had ever previously been under the impression that she was a nominee holder this property Mrs Zhu completely disabused him of that notion that day. This conflicted with what he had been told by Mr Walker that Mr Zhu controlled the Wahroonga property. 4. Secondly there is a dispute about what happened next inside the banking chamber. Mrs Zhu says that she and Mr Epstein and Mr Zhu then went into the branch and were waiting together in a queue to speak with a bank teller when a further conversation took place to the following effect: Mrs Zhu: Do you know that I am a single mother? This house is the only asset I have for my son to study in the US. Mr Epstein: You don't have worry about it. 1. Mrs Zhu says that when they reached the bank teller at the front of the queue, she asked for a copy of an account statement for her mortgage with the CBA and then after obtaining it she, Mr Epstein and Mr Zhu then left the bank. 2. Mr Zhu agrees that they then all went into the bank and then queued up to see a teller. He recalls the following three-way conversation occurring between himself, Mrs Zhu and Mr Epstein as follows: Mrs Zhu: I am a single mother and the money from the property is for my son. You have to make sure I don't have to pay anything. Mr Zhu: Justin, you know she is purely just helping the project. You can't let her have any risk. Mr Epstein: No, no, no. Mr Zhu: It really is just for convenience. Juliana has signed the documents, but you need to confirm this. Mr Epstein: No problems. There is no risk. 1. Parts of this conversation are very likely to have taken place. Mrs Zhu said during her evidence several times that she was a single mother and that she needed the money from the property "for my son". That was her strong motivating ambition, which she probably conveyed to Mr Epstein. 2. The Court does not accept Mr Zhu's account that he said to Mr Epstein "she is purely just helping the project". But he did not have to explain this to Mr Epstein. For the many reasons indicated above, her subsidiary role as someone who did not have any financial stake in the success of The Gosford, or the Mann Street project was obvious to Mr Epstein anyway. 3. Mr Zhu is unlikely to have said to Mr Epstein "[y]ou can't let her have any risk". And even if it had been said Mr Epstein was a sufficiently hardheaded businessman that he would not have responded in any reassuring way to downplay risk. He knew from the history to date there was an appreciable risk that a refinancing would not occur. He would have been noncommittal in response to such a statement from Mr Zhu. 4. Mr Epstein says that no conversations occurred between himself and Mr Zhu and Mrs Zhu except for an exchange of introductions inside the CBA Branch, and that apart from a brief introduction, he did not speak to either Mrs Zhu or Mr Zhu in the branch. He says the only person with whom he had a conversation was the CBA bank teller when she provided information about Mrs Zhu's loan with the CBA. This is implausible. The Court does not accept that the trio mostly stood at the teller's desk together in awkward silence, before receiving the CBA account statement. Mrs Zhu had a message to deliver and would have filled that silence. 5. Thirdly, there is a contest as to whether a conversation took place outside the CBA branch afterwards. Mrs Zhu says that she had another brief conversation with Mr Epstein as they were waiting to cross Castlereagh Street at the pedestrian traffic lights, as follows: Mrs Zhu: You have to promise me. You said that no written promise was required, that an oral agreement is the same thing. Mr Epstein: Don't worry, I have a long-term relationship with Greg. Don't worry, it is my credibility. 1. Mr Zhu's version of what happened outside is slightly different. He says that after Mrs Zhu was served by the teller at the bank, they all left together and the three of them had a further conversation in which Mrs Zhu and Mr Epstein said the following to each other: Mrs Zhu: You need to promise me there is no risk. Mr Epstein: You won't need to worry about anything. I'm organising lots of funds for Greg, this is just another one of them. You don't need to pay anything. Once the refinance is done, which we are also looking after, you will get released and the caveat will be removed. 1. Mr Epstein does recall that "there was polite small talk between ourselves as we left the branch" but he denies with "absolute certainty" words attributed to him by Mrs Zhu and Mr Zhu. Moreover, he says that he did not say anything to Mrs Zhu about the limits of her obligations under the guarantee or make any verbal agreement with her or say anything to that general effect. Mr Epstein is most unlikely to have said anything like "there is no risk". But it is likely that Mrs Zhu used this opportunity to ask for an assurance that there was "no risk", although she did not get that assurance. She had signed the documents six days before and Mr Epstein did not have to promise her anything. Moreover, despite his protestations to the contrary, Mr Epstein had little confidence in Mr Walker's prospects of gaining a refinance and he would not have overstated those prospects to Mrs Zhu. On neither view of this conversation did Mrs Zhu express interest in the refinancing of The Gosford or the success of the Mann Street project. 2. This contested conversation was the foundation of the positive misleading and deceptive conduct case against Mr Epstein. But the Court concludes that Mr Epstein did not say anything positive that would ground such a case. But he did receive very clear knowledge from these communications with Mrs Zhu from what was said and from what was not said: that the Wahroonga property was hers, and was not under her ex-husband's control; that she needed it her own purposes; and that she had no identifiable commercial interest in The Gosford or the Mann Street project and was in every sense a provider of only third-party security for the Fucrez loan. Settlement of the Transaction and Making the Advance – 11 – 14 August 2020 1. Mr Epstein could not finalise the Fucrez loan transaction until he had Mrs Zhu's CBA statement, which he only obtained in the morning of Tuesday, 11 August 2020. The text message evidence suggests that settlement of the transaction occurred that same afternoon. 2. But the approved funds were not advanced and received on behalf of Fucrez until Friday, 14 August 2020. At one point Mrs Zhu put in issue whether the advance exactly been made and received. In response G193 tended the bank statements that showed that Gemi (Gemi Nominees Pty Limited) advanced the funds in several tranches that conformed with the Fucrez loan agreement that were received on behalf the borrower on 14 August 2020. 3. Thus, although the Fucrez loan transaction documents were signed before the 11 August conversation at the CBA in Martin Place, G193 only committed to the advance after that conversation. The conversation made clearer to Mr Epstein that the advance might well create a transaction in which Mrs Zhu's third-party security interest might be avoidable. G193 was obligated to proceed with the advance given that the document had been signed. But the CBA conversation 11 August led to no communication or enquiry by Mr Epstein. It can be inferred from this that nothing that Mr Epstein later that day was new information to him. Had it been new information might be expected that he would have sought to clarify Mrs Zhu's position before the advance was made to ensure that she was independently advised. Mrs Zhu Resigns from Fucrez – 24 August 2020 1. Mr Zhu asked Mrs Zhu to resign as a director of Fucrez on or about 24 August 2020. Mr Zhu initiated what was a quite simple conversation about her resignation. She offered no resistance to leaving a role that had never been explained to her and that she had never understood. Mr Zhu: The loan has been paid to Fucrez for the overdue interest, and you do not need to be a director of Fucrez anymore. Mrs Zhu: OK Mr Zhu: You will need to sign documents resigning [from Fucrez]. 1. Soon afterwards Mrs Zhu signed the necessary forms effecting her resignation as a director, which were lodged with ASIC. Neither in this conversation nor any subsequent conversation did Mr Zhu explain to her why she had been a director, what her role was to be at Fucrez, or why she had to resign. 2. But her easy resignation upon request shows how uncommitted she was to Fucrez, her high level of trust in her husband, and her lack of understanding of the whole transaction. Her outlook upon being made a director as she said had always been, "I'm happy to help them if they're not cheating me." Expiry of the Facility and Default – after 1 November 2020 1. The facility expired on 1 November 2020 and the principal was not repaid. Mr Walker and Mr Zhu did not arrange refinancing. All the facilities went into default. But Mrs Zhu was largely kept not uninformed of this. From November 2020 she had regular conversations with Mr Zhu and Mr Walker asking them, "when will the caveat be removed? I need it to be removed. I do not have the ability to pay anything, and I need to sell the property to fund Alex's US university studies." 1. Mrs Zhu received regular reassurances from Mr Zhu and Mr Walker that "it will be removed soon". But none of Mr Zhu's and Mr Walker's promises came to pass and the issue of the sale of the Wahroonga property was eventually overtaken by events. Facing a further cancer diagnosis, in March 2021 Mrs Zhu decided to sell the Wahroonga property. This fitted with her overall plan to sell the property after Alex finished school to support his move overseas to study. Her cancer diagnosis pressed the decision upon her more urgently. 2. Mrs Zhu advertised the property for sale seeking reassurances from Mr Zhu that the caveat could be removed, and he said it could be "anytime". She received a buyer for the Wahroonga property but could not settle because of the caveat. These proceedings were commenced as a result, to see if that sale could be completed. A compromise was reached allowing completion of the sale of the basis that $1.8 million was paid into a solicitor's trust account to await the outcome of these proceedings. Mrs Zhu's Character and Business Acumen 1. In social circumstances and within her family, the Court assesses Mrs Zhu as generally passive, not inviting or demanding an explanation from people such as her former husband. Rather she is trusting of people who she believes are acting in interests. If someone such as her husband does not explain a financial transaction to her, she accepts that without question. She was asked why she did not ask questions of him about the Mann Street project and the transaction documents she was signing and at times she seemed mystified by the questions. Questioning her husband does not come easily to her. 2. Mrs Zhu decides who she trusts as her guide in life. If she is dealing with people who she thinks are acting in her or her son's interests she is content to proceed without necessarily understanding financial transactions in which she is involved. She is content to be told what she needs to know by people who she believes have her best interests at heart. She trusted her husband to explain to her details of a transaction and to emphasise if there is any risk associated with her providing her signature. 3. Despite her divorce from Mr Zhu, Mrs Zhu still trusted him. Mrs Zhu had a surprisingly generous attitude towards Mr Zhu, a man who had left her after they had had a child together. She often said in evidence to explain her lack of sophistication, "I'm a single mother", which was both a strong and genuine self-assessment and signal to others and lack of resources of her protective nature. 4. Mrs Zhu was the first generation of her Chinese family in Australia. She had no senior family member from Shanghai in Australia to consult about financial transactions apart from her husband and his family. After her divorce she continued to trust Mr Zhu's mother, her former mother-in-law. For example, she said that she did not read the loan document, the subject of these proceedings because she had been told that Mr Zhu's mother had done so, and she believed she would not cheat her. She had a view, passed down to her from her family, so it seems, that a promise from family is "the gold of the gods". 5. With confidence and directness, among many far less direct answers, Mr Zhu denied that Mrs Zhu was involved in any management activity on behalf of Fucrez. His evidence was compelling and was supported by Mrs Zhu's apparent incomprehension about Fucrez's business. Mrs Zhu's evidence showed that the relationship between Mr and Mrs Zhu was unequal and that he was able to manipulate her devotion to her son simply by threatening to control cash flows that might be applied for their son's benefit. She would do anything that would keep her in favour with her former husband who was a source of funds for his son. The $1.5 million loan agreement in their divorce property settlement exemplifies perspective of their post marriage relationship. It only seems to work to Mr Zhu's advantage perpetuating Mrs Zhu's financial dependence upon him. 6. Mr Zhu accurately said, "my wife is not a businesswoman in property development." He explained that Mrs Zhu does have an accounting diploma, but she has no practical experience in accounting, and she was performing accounting work for him in NPH. Mr Zhu is accepted when he described his wife as not capable of understanding the economics of The Gosford development. Mrs Zhu's Outlook on The Gosford project and on Fucrez 1. Mrs Zhu was firmly challenged in a lengthy cross-examination based on her financial transactions and financial relationships with Mr Zhu and other persons. But upon closer analysis none of these are transactions demonstrate that she had either the financial sophistication or financial interests that would undermine the story that she advanced to the Court. 2. Mrs Zhu had provided financial assistance to Mr Zhu in previous years using the Wahroonga property. In 2019 she had allowed the caveat to be placed on the Wahroonga Property to secure a loan of approximately $400,000. But she derived no financial benefit from this and had agreed to allow the caveat to be lodged because she had received an assurance from Mr Zhu's mother, Mrs Zhu's former mother-in-law, and Alex's grandmother, that Mrs Zhu would be looked after if she proceeded to allow the Wahroonga property to be used for lodging a caveat. And after a few months the caveat was removed and that was the end of the transaction with no adverse consequences for Mrs Zhu. This does not demonstrate that Mr Zhu would always have allowed the Wahroonga property to be admitted as a caveat. But she was always cautious and received no financial benefit from this transaction. 3. Mrs Zhu was cross-examined about whether her divorce occurred and whether property settlement in which Mr Zhu agreed to pay her $1.5 million was real but none of this challenge succeeded. She demonstrated under cross-examination that she was receiving wages working for IGA in a suburban supermarket. 4. She was further cross-examined about an investment property in Shanghai, a home loan application to the CBA, and her affidavit sworn on the application to annul Mr Zhu's bankruptcy. None of this damaged her credibility or showed she had undisclosed financial interests. 5. Mrs Zhu was cross-examined about lending $150,000 to Menangle Pty Ltd for which she was repaid $160,000 but her evidence is accepted that this was simple assistance she gave Mr Zhu to give him some temporary help with his business cash flow. 6. Mrs Zhu was cross examined at some length about the $1.5 million property settlement by way of a loan to her. The Deed of Loan dated 26 February 2007 was a genuine document creating a debt due to her from her former husband. She said Mr Zhu commenced to repay the $1.5m and completed repayment by about 2021. The Deed of Loan genuine and accounted for the substantial payments Mr Zhu made to her from 2014 which he purchased the Wahroonga property (about $500,000) through until about 2019, and then other smaller payments through until 2021. None of these payments showed that Mrs Zhu was receiving any more from her former husband than her just legal entitlements under her family law settlement. 7. Mrs Zhu received cash deposits in her bank account, which she explained were payments from a Ms Cindy Liu in relation to a loan transaction. There was no linkage between these payments and Mr Zhu. Moreover, they were made in 2023 after the proceedings commenced whilst Mrs Zhu was working at IGA (see at T423.23-37) but there was no basis for that and the attempt failed completely. 8. Importantly for present purposes none of this cross examination established that Mrs Zhu was receiving any financial benefits from Mr Zhu that might be rewards for her investing in his business projects. Mrs Zhu gave consistent and reliable evidence in answer to these challenges. Legal Principles, Submissions and Analysis 1. Mrs Zhu's Amended Statement of Cross Claim pleads relief under various different heads. These are the following: 1. Unconscionable conduct is pleaded at general law and in contravention of the Australian Consumer Law, s 20 and/or the Australian Securities and Investments Commission Act 2001 (Cth), s 12CB (ASIC Act) being unconscionable conduct in connection with the supply of financial services; 2. Relief under the Contracts Review Act 1980 (CRA) on the grounds that the contract constituted by the Fucrez loan and Mrs Zhu's secured guarantee of that obligation was unfair or unjust and liable to be avoided within the meaning of the CRA together with a claim for cognate relief for unfairness under ASIC Act, s 12BF; and 3. relief for misleading deceptive conduct for various alleged positive representations and other alleged misrepresentation by silence or for nondisclosure under ASIC Act, s 12DA and Australian Consumer Law, s 18. 1. If these remedies are established, Mrs Zhu claims in her Amended Statement of Cross Claim a range of consequential remedies including removal of the caveat from the Wahroonga property, damages, and declarations that the Fucrez loan agreement and related documents are void insofar as they concern Mrs Zhu. These remedies are not established Mrs Zhu raises an argument that G193 is charging a sufficiently high rate of interest to be a penalty which can be voided. 2. There is a degree of overlap between these claimed remedies. But for efficiency of analysis, it is convenient to deal with the remedies in this order. Mrs Zhu's claim is successful against G193 in relation to the first two claims for relief and aspects of the third claim. Mrs Zhu's success on both of the first two claims for relief means that it is not necessary for the Court to consider the success or failure of the cross-claim on all of the alternative ways that Mr Zhu's third claim is put, namely in misleading deceptive conduct. Some aspects of this claim are considered to the extent that they are related to the first two claims for relief. Unconscionable Conduct – Legal Principles 1. The applicable legal principles in relation to Mrs Zhu's claim of unconscionable conduct may be shortly stated. The elements required for a court to conclude that unconscionable conduct has occurred were extracted in summary form from Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 461-462 and other cases decided in the High Court and restated in Thorne v Kennedy (2017) 263 CLR 85; [2017] HCA 49, at [38] (Kiefel CJ, Bell, Gageler, Keane and Edelman JJ) as follows (omitting case references): "A conclusion of unconscionable conduct requires the innocent party to be subject to a special disadvantage "which seriously affects the ability of the innocent party to make a judgment as to [the innocent party's] own best interests". The other party must also unconscientiously take advantage of that special disadvantage. This has been variously described as requiring "victimisation", "unconscientious conduct", or "exploitation". Before there can be a finding of unconscientious taking of advantage, it is also generally necessary that the other party knew or ought to have known of the existence and effect of the special disadvantage." 1. More recently the necessary elements of unconscionable conduct were summarised in Nitopi v Nitopi (2022) 109 NSWLR 390; [2022] NSWCA 162 at [147] (per Ward P, with whom Bell CJ and White JA agreed): "What is clear is that, once the requisite elements of a special disadvantage, knowledge of that special disadvantage and improvidence of the transaction are established, there is at least an evidentiary onus on the stronger party to show that the transaction was fair, just and reasonable or it may more readily be concluded that the improvident transaction was procured by the unconscientious taking of advantage of that special disadvantage." 1. Other general statements of legal principle should be noted. Unconscionability is a concept that is applied with considerable restraint, going beyond what is 'fair' or 'just' to circumstances which are highly unethical: Attorney General (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557; [2005] NSWCA 261, at [120] – [121] per Spigelman CJ. 2. There are many statements to similar effect. One such comprehensive statement is that of Allsop P (with whom Bathurst CJ and Campbell JA agreed) in Tonto Home Loans Australia Pty Ltd v Tavares; FirstMac Ltd v Di Benedetto; FirstMac Ltd v O'Donnell (2011) 15 BPR 29,699; [2011] NSWCA 389 at [291], which also discusses how the concept of unfairness and unconscionability under the CRA may be differentiated from unconscionability at general law: "Aspects of the content of the word "unconscionable" include the following: the conduct must demonstrate a high level of moral obloquy on the part of the person said to have acted unconscionably: Attorney General of New South Wales v World Best Holdings Ltd [2005] NSWCA 261; 63 NSWLR 557 at 583 [121]; the conduct must be irreconcilable with what is right or reasonable: Australian Securities and Investments Commission v National Exchange Pty Ltd [2005] FCAFC 226; 148 FCR 132 at 140 [30]; Australian Competition and Consumer Commission v Samton Holdings Pty Ltd [2002] FCA 62; 117 FCR 301 at 316-317 [44]; Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 262; factors similar to those that are relevant to the [Contracts Review Act] are relevant: Spina v Permanent Custodians Ltd [2009] NSWCA 206 at [124]; the concept of unconscionable in this context is wider than the general law and the provisions are intended to build on and not be constrained by cases at general law and equity: National Exchange at 140 [30]; the statutory provisions focus on the conduct of the person said to have acted unconscionably: National Exchange at 143 [44]. It is neither possible nor desirable to provide a comprehensive definition. The range of conduct is wide and can include bullying and thuggish behaviour, undue pressure, and unfair tactics, taking advantage of vulnerability or lack of understanding, trickery, or misleading conduct. A finding requires an examination of all the circumstances." 1. Other authorities also speak to the great variety of circumstances in which equitable intervention to relieve against unconscionable conduct is available and the need for close scrutiny of the exact relationships established between the parties: Jenkyns v Public Curator (Queensland) (1953) 90 CLR 113; [1953] HCA 2 at 118-119 and Karavaz v Crown Melbourne Ltd (2013) 250 CLR 392; [2013] HCA 25 at [18] and Wu v Ling [2016] NSWCA 322 at [8] per Leeming JA. In Wu v Ling Leeming JA explained (at [7]) that one should not expect to find a bright line separating circumstances which place an impugned transaction inside or outside the reach of equitable principle. Leeming JA cited Lord Selborne's rejection of the notion that there is an "indispensable condition of equitable relief": Earl of Aylesford v Morris (1873) LR Ch App 484, at 491 and referring to Fullagar J's statement in Blomley v Ryan (1956) 99 CLR 362, at 405, that the circumstances in which equitable relief will be granted "are a great variety and can hardly be satisfactorily classified". 2. But this also means, as Leeming JA further explained in Wu v Ling (at [8]) that the absence of proof of immoral or dishonest motives is not sufficient to preclude equitable intervention: cf Johnson v Smith [2010] NSWCA 306 at [5] and [98] – [102]; and Paciocco v Australia and New Zealand Banking Group Limited (2015) 236 FCR 199; [2015] FCAFC 50 at [305]. Gemi's Overarching Submission on The Unconscionable Conduct Claim 1. Gemi submits that this is not a case of a vulnerable guarantor deceived by an imperious lender. Rather Gemi submits that Mrs Zhu voluntarily signed the guarantee, without any duress or undue influence in play with the simple objective of helping her ex-husband, as she had done on many previous occasions. Gemi submits she well understood the effect of the transaction. And it submits that she benefited from the transaction: as the financial affairs of Mr and Mrs Zhu were intermingled long after their divorce, with very substantial funds passing between their bank accounts over the relevant period. Gemi submits that the Court should conclude that it was to Mrs Zhu's advantage for The Gosford Project to succeed, and by implication that she was aware of that advantage to her and she was in not in a position of special disadvantage in relation to G193. 2. On this claim for relief, these reasons adopt the structure set out in Nitopi v Nitopi, analysing the issues in relation to Mrs Zhu's claim to be in a position of special disadvantage, G193's knowledge of that special disadvantage, or put another way, G193's conscience, and the improvidence of the transaction. Was Mrs Zhu in a position of special disadvantage? 1. Mrs Zhu's case that she was in a position of special disadvantage when she executed the guarantee and indemnity and mortgage for the Fucrez loan, and Gemi's contest over that issue centred upon four broad areas of claimed disadvantage: (a) her financial acumen and business experience, (b) the effect of any legal advice upon her, (c) whether she was truly a third-party guarantor and whether she benefited financially from the transaction and (d) the effect upon her of the various matters said to have been positively represented to her or not disclosed to her. 2. (a) Mrs Zhu's financial acumen and business experience. Gemi's case is that Mrs Zhu has considerable financial knowledge and sophistication and that she has downplayed these qualities. Gemi submits she is well educated including through qualifications she attained by learning and studying in English. Gemi's submission refers to Mrs Zhu's advanced diploma in accounting, her studies in migration law, her bookkeeping qualifications, including a recent MYOB course, and her experience in share trading and/or stockbroking. Gemi also submits that Mrs Zhu has gained extensive experience in financial matters not only through her vocational experience in a car dealership in the PRC and in a stockbroking office in Australia but through her interaction with Mr Zhu and his various business enterprises over two decades. 3. The practical effect of some of Mrs Zhu's qualifications are overstated in Gemi's case. Mrs Zhu does have accounting qualifications and has worked in a stockbroking firm and does have some facility with share investments. A sales position in a car dealership, accounting and migration law qualifications and a junior position in a stockbroking firm are not necessarily a sound basis to infer any more than moderate financial sophistication. 4. She did not speak in evidence in a manner which even indirectly conveyed significant financial sophistication. The Court was not of the view that she was suppressing her financial sophistication in the way she gave evidence during an extensive penetrating and well-resourced cross examination by experienced counsel. Rather what came across was a person with a moderate level of financial sophistication in certain areas. A curious feature of this case is that if she has substantial financial sophistication and can deploy to her advantage the qualifications that Gemi has identified, her current supermarket employment clearly underutilises such skills and clashes with the picture Gemi is painting. Mrs Zhu has been in this supermarket job for some time and did not show signs of having taken the job to conceal her deeper financial capability. 5. Gemi's cross examination of Mrs Zhu's financial dealings discussed earlier in these reasons did not alter the Court's assessment of her financial acumen expressed here. Chief among Gemi's contentions is its case that Mrs Zhu has considerable experience in undertaking transactions of a similar character to the transaction which is in issue in this proceeding. By pledging her real property assets, from time to time, as security for business loans for Mr Peter Zhu's property development enterprises. But she did not receive any credential benefit from the transactions where this occurred, which have been discussed above. 6. Finally, Gemi submitted that Mrs Zhu's own case concerning the assurances that she sought showed a degree of inherent financial sophistication on her part. "107. As a final point, Ms Zhu's reliance in her case on the Risk Representations connotes an appreciation of the inherent financial risk that attends a commercial transaction of the type that Ms Zhu now seeks to set aside. This is particularly so in circumstances where Ms Zhu asserts that she did not read the transaction documents, nor receive any advice in respect of them, yet she plainly understood the essential elements of the transaction, because she says that she sought assurances regarding those elements (for example, she understood that a caveat would be lodged on title of her property, and she understood that in the ordinary course a lender may cause a secured property to be sold to repay a secured debt)." 1. This submission over embellishes Mrs Zhu's commercial knowledge. She had been involved in the purchase of the Wahroonga property and had allowed it to be mortgaged for her husband's purposes previously and she understood what a mortgage and the caveat were. However, knowledge of these concepts implies little more than that she had the experience over approximately six years of being the registered proprietor of Torrens title property. And her previously consenting to the Wahroonga property being used as security for Mr Zhu's borrowings is something of a two-edged sword for Gemi's case. Mrs Zhu's prior commitment of the Wahroonga property had apparently been trouble-free and would tend to reduce her perception of risk in relation to the Fucrez transactions. 2. Gemi's submission that Mrs Zhu is "anything but a financially vulnerable person" oversimplifies a far more nuanced picture. Gemi has established that Mrs Zhu had a moderate level of financial sophistication. But whatever sophistication she had, it did not equip her to make a realistic commercial assessment of the risk of refinancing the Mann Street project – evidenced by the fact neither on her evidence, Mr Walker's evidence and Mr Zhu's evidence did she ask them any penetrating questions about the then history to date of the refinancing of the Mann Street project, the identity of any potential refinancers, or about Mr Walker's or Mr Zhu's recent dealings with refinancers. These are the questions that a commercially sophisticated person would ask. And are commercially sophisticated person would ask for a substantial fee to be such risk. Mrs Zhu did none of these things. 3. (b) The effect of any legal advice upon Mrs Zhu. Gemi submits that Mrs Zhu complains that she did not receive proper legal advice but that the complaint is unclear in part because what occurred when Mrs Zhu met with Mr Hedges is opaque. Gemi submits that there was substantive discussion between Mrs Zhu and Mr Hedges as to the nature of the transaction, irrespective whether there was a formal retainer between Mrs Zhu and Mr Hedges. 4. Gemi submits that Mrs Zhu's evidence about this legal advice is unsatisfactory in several ways. Mr Zhu was present but paid little attention to what was discussed during this meeting could not give an account of it. Mrs Zhu did not call Mr Hedges to give an account of what advice he gave to her. And Mrs Zhu's own evidence on the subject was vague but seemed to imply that Mr Hedges gave some legal advice to Mrs Zhu. 5. Gemi submits that this nebulous evidence is to be contrasted with the precision of the solemn statutory declaration Mrs Zhu made that she had received independent legal advice from Mr Hedges. Gemi submits Mrs Zhu had sufficient language and commercial skills to understand the nature of the statutory declaration that she was giving and clearly appreciated that it was a serious document. 6. This submission overlooks the fact that Mr Hedges was the solicitor acting for the borrower, Fucrez. The interests of Fucrez and Mrs Zhu were separate. And were potentially, if not actually, in conflict with one another. Fucrez needed the loan from G193, which would not be approved without Mrs Zhu providing her secured guarantee. Unless Mrs Zhu had an interest in Fucrez or would otherwise derive some tangible personal benefit from the transaction proceeding, it was not in her interests to give a secured guarantee, thereby raising the conflict. As a result, Mr Hedges' advice to Mrs Zhu could not be independent. 7. Ordinarily for a solicitor acting for a borrower in Mr Hedges' position, to ensure that Mrs Zhu received independent legal advice would require him to cease to act for the borrower and only to act for her, or to refer her to another solicitor for advice. The evidence does not disclose that either of these things happened. The available evidence indicates that Mr Hedges continued to act for Fucrez by having the transaction documents executed on behalf of Fucrez and remitted to the lawyers for G193. 8. There was some debate as to whether a Jones v Dunkel (1959) 101 CLR 298 inference should be drawn against Mrs Zhu for failing to call Mr Hedges and that his evidence would not have assisted her case. The drawing of such an inference is weakened by the fact that Mr Hedges was acting for Fucrez, rather than for her. But notwithstanding that, even if a Jones v Dunkel inference should be drawn against her from his unexplained absence as a witness in her case, the Court still accepts her evidence which is consistent with the known available facts, that there was not another solicitor acting for her independently of Fucrez and that he did not give her legal advice. And the Court is not persuaded that she had an interest in Fucrez that would warrant her not being treated as a third-party security provider in relation to this transaction. 9. Mrs Zhu said under cross-examination that she could not read the transaction documents with Mr Hedges because she did not have her glasses with her. Gemi submits that this evidence was absent from her affidavit and should not be accepted. But there was nothing improbable about this evidence. It was the kind of additional detail that showed she was drawing upon genuine memories in her evidence including about this meeting with Mr Hedges. 10. Gemi's submission that Mrs Zhu either received independent legal advice as her contemporaneous statutory declaration stated, or that she swore a false statutory declaration, is too simplistic and is not accepted. The better explanation for her swearing the statutory declaration is that the expression "independent legal advice" contained an ambiguity that she did not appreciate at the time: namely whether this expression meant advice that was independent of G193, or independent of Fucrez and G193. The advice was probably the former but not the latter. 11. Finally, two other Gemi submissions on the issue of legal advice should be addressed. Gemi submits "there is no suggestion that Mrs Zhu was put under any pressure such that she did not have an opportunity to obtain legal advice". This submission does not engage with Mrs Zhu's true personal circumstances in this transaction. Time pressure was an issue: she was only asked to give the Wahroonga property as security about a week after (without her knowledge) Mr Zhu had offered the property to Gemi, she was asked to sign a term sheet within a week and the need for a refinance was pressing, due to the looming expiry of the existing facility. Familial pressure was an issue: she had a self-sacrificing weakness for wanting Mr Zhu to view her role in his life favourably, so that their son would continue to benefit. Despite whatever opportunity she had to obtain legal advice, she did not have sufficient self-insight into this transaction to understand that her interests on the one side, and those of Fucrez and Mr Zhu on the other side were sufficiently different that she needed to grasp the opportunity to get legal advice for herself alone. 12. Gemi further submits that if the Court finds that Ms Zhu did in fact receive a form of legal advice, the adequacy or otherwise of such advice is not a matter for which the Gemi and Mr Epstein can be held liable: Provident Capital Ltd v Papa (2013) 84 NSWLR 231, at 234; [2013] NSWCA 36 at [7], per Allsop P (Provident Capital). But Allsop P's statement in Provident Capital that it would be unjust to visit upon a lender the inadequacies of a guarantor's solicitor was made in the context of a guarantor having independent legal advice directed to her own sole interests but that independent advice being substandard. But the answer to this is that Mrs Zhu did not have legal advice directed to her own separate interests. 13. (c) Was Mrs Zhu a third-party guarantor for a beneficiary of the Fucrez loan? The narrative of facts above sets out Court's narrative findings that Mrs Zhu had no interest in Fucrez, Macarthur Projects, The Gosford or the Mann Street project. No serious attempt was made in G193's case to define what interest she held in any of these entities or projects for the understandable reason no such interest could be established. And as indicated in the narrative of findings above Mrs Zhu did not claim or seek to protect such a financial interest for herself in her interactions with any of the main players in these proceedings. 14. The only suggestion of a possible indirect benefit here is that Mr Zhu was still slightly indebted to Mrs Zhu as at August 2020. It would perhaps have very indirectly been in her interests for him to make a profit on The Gosford Development to pay her back. But the case law has a clear answer to this suggestion. In Garcia v National Australia Bank Ltd [1998] HCA 48; 194 CLR 395, a party was held to be a volunteer to a similar transaction, even though she was a director and shareholder of the relevant borrowing entity in circumstances where there was no evidence she gained any direct benefit from the underlying transaction: see also Hume Plasterboard Pty Limited v Brilliant Interiors Pty Limited [2019] NSWSC 679 at [169]. 15. (d) Positive representations to and nondisclosures from Mrs Zhu. This aspect of Mrs Zhu's unconscionability case overlaps with (a) her positive misleading and deceptive conduct claim based upon Mr Epstein's alleged statements at the CBA on 11 August and with (b) her nondisclosure case in respect of matters of which she claims to have been unaware and that G193 should have disclosed to her before her entry into the Fucrez transaction. 16. Mrs Zhu's positive misrepresentation case fails, because her account of the conversation with Mr Epstein at the CBA in Martin Place on 11 August 2020 is not accepted. As to the nondisclosure case, this contest are discussed below. Unconscionable Conduct – Gemi's Conscience 1. Gemi says that Gemi did not take advantage of Mrs Zhu's position by acting in the transaction in the knowledge that she was in a position of special disadvantage. This requires examination of the transaction from Gemi's perspective. This has already mostly been done above under the heading "A Snapshot of Mr Epstein's and G193's Outlook on 5 August 2020". 2. Perhaps the clearest evidence that Mr Epstein (and consequently G193) was aware of Mrs Zhu's position of special disadvantage was his participation with Mr Walker in a scheme to restructure the loan by substituting Fucrez for Macarthur Projects in the manner described earlier in these reasons under the heading "The Plan for Fucrez to become the Borrower – 31 July to 3 August 2020". 3. On this subject Gemi first submits that the Court would be comfortably satisfied that Mr Epstein (personally and on behalf of Gemi) genuinely believed that a refinance of the Gemi loans to The Gosford was real and was likely to come about within a reasonable time. 4. This submission is not persuasive. Mr Epstein's evidence does not satisfy the Court that he thought in July 2020 that there was any realistic prospect of refinancing the Mann Street project. The timing is important. Mr Epstein's state of mind should be assessed at the time shortly before Mrs Zhu guarantees the Fucrez loan. By that time there had been a mounting accumulation of unfulfilled promises of refinancing from Mr Walker at each of the multiple extensions of time or variations after the first failure to repay the principal loan in October 2019. Mr Epstein's statements that he had a belief in a refinancing are not compelling and are undermined by the debates between the Gemi co-principals about putting Mr Walker's and Mr Zhu's Mann Street project into default. 5. Secondly, Gemi submits that Mr Epstein and Gemi acted responsibly by engaging their own legal representatives to manage this transaction including by providing a suite of documents for execution by Mrs Zhu and the other parties to the transaction. Gemi submits that it was entitled to rely upon the statutory declarations within this suite of documents that its legal representatives had drafted for Mrs Zhu to execute. Gemi submits these statutory declarations provided assurance to Gemi that Mrs Zhu had taken appropriate legal and financial advice to protect her own interests. 6. This argument is not persuasive. The statutory declarations Mrs Zhu made did not qualify as evidence that she had received independent advice directed to protecting her own independent interests as a guarantor that was sufficient to displace the notice that Gemi had that she may be executing the transaction documents in a position of special disadvantage. 7. Judicial statements made in the UK and Australia have long warned that where the circumstances show a borrower could be expected to have influence over a third-party mortgagor that the lender should, for its own protection, insist that the third party has independent advice: cf Kings North Trust Ltd v Bell (1986) 1 WLR 119 and Alderton v Prudential Assurance Company Limited (1993) 41 FCR 435; FCA 164 [41]–[45], [51]. As a result, it has been a not uncommon precaution among established financial institutions to prevent avoidance of the securities provided to them by third-party guarantors, for the financial institutions to arrange to send transaction documents directly to a legal practitioner retained solely to advise the third-party mortgagor separately from the borrower. And for the legal practitioner after requesting and obtaining all necessary information and advising the third-party mortgagor, to certify directly to the financial institution that the necessary independent advice has been given in the separate interests of the third-party mortgagor. 8. Such course is particularly called for in this case because there was the evidence discussed in the narrative of findings in these reasons and that it was available to Mr Epstein that in different ways both Mr Walker and Mr Zhu had potential for exerting considerable influence over Mrs Zhu given their strong motivation for the Fucrez loan to proceed. This influence was strong in the case of Mr Zhu because of the relationship between himself and Mrs Zhu. And it was strong in the case of Mr Walker because Mr Epstein had armed him with the term sheet for her to sign after he explained to her the primary structure of the transaction before a lawyer became involved. 9. If Gemi had wanted to protect itself from a contention that it had taken unconscientious advantage of Mrs Zhu and to ensure that if she was in a position of special disadvantage that she was not exploited, it could readily have taken such precautions. The course that Gemi took fell short of receiving assurance that Mrs Zhu was not in a position of special disadvantage and that Gemi was not taking advantage of her position. 10. The statutory declarations Gemi organised from Mrs Zhu did not come from legal practitioners. A statutory declaration or certificate from a legal practitioner were likely to be based on an accurate understanding of what "independent" legal advice meant in these circumstances. A declaration by a third-party guarantor in a position of special disadvantage that they had received "independent" legal advice risks compounding any disadvantage by merely reproducing the guarantor's misunderstandings about whether "independent" advice was being received. 11. Here, Gemi had reason to believe that Mrs Zhu had not received independent legal advice that was separate from the advice given to the borrower, Fucrez. Gemi's lawyers had provided the documents to Mr Hedges who was the solicitor for Fucrez and Mr Zhu, rather than to a lawyer who Gemi knew had been specifically retained by Mrs Zhu. Gemi had no evidence that any legal practitioner other than Mr Hedges had advised Mrs Zhu and her own declaration of having received "independent" advice was insufficient to show that she had been so advised. 12. Thirdly, Gemi submits that Mr Epstein's evidence and the objective documentary evidence shows that this was only a short-term arrangement to facilitate attempts by Mr Zhu and Mr Walker to bring the Mann Street project to fruition, a project which upon completion some valuations indicated might have a market value of as much as $380 million. Mr Epstein says he communicated to Mrs Zhu "We're a short-term lender. We're not a long-term solution" and that was his belief about the nature of the transaction. 13. Nor is this contention persuasive. Describing Gemi as a "short-term lender" was apt to give the impression that a refinancing of the Mann Street project would inevitably be successful and that the G193 advance to Fucrez would have no long-term financial consequences for Mrs Zhu. But Gemi's knowledge of Mr Walker's history of multiple unfulfilled refinancing promises showed knowledge on his part of the tangible risk that this would not turn out to be a short-term lending. Unconscionable Conduct – the Improvidence of the Transaction 1. On the established facts, this transaction was wholly improvident for Mrs Zhu. She derived no direct or indirect benefit from the transaction. Such inchoate benefit as she might derive by staying in Mr Zhu's favour by transaction was illusory, because he could change his mind about that at any time. She placed at risk the single substantial asset that she had won for herself after considerable effort in the property settlement following her divorce. She had limited employment prospects at her age and had several cancer treatments which made her future employment and income prospects uncertain. Moreover, the transaction was at a high rate of interest because of the risk associated with it but she bore the risk of the cost of that high interest without any prospect of a return. Unconscionable Conduct – Relief 1. Mrs Zhu qualifies for relief at general law on the grounds of G193's unconscionable conduct to set aside the Fucrez loan. The Court invites submissions of the parties about the precise form of relief. It is not necessary to consider statutory forms of unconscionable conduct as it is already available at general law. The Contracts Review Act 1980 and ASIC Act s 12BF Claims 1. Mrs Zhu seeks under Contracts Review Act 1980 ("CRA), s 7(1)(a)-(d) on the basis that the transaction documents, and specifically the mortgage she executed over the Wahroonga property are "a contract or a provision of a contract" which were "unjust in the circumstances relating to the contract at the time it was made". Such that, for the purpose of avoiding "as far as practicable an unjust consequence or result" the Court ought to refuse to enforce all or any of its provisions, declaring it void or varying it in whole or in part." The expression "unjust" is defined in CRA to include "unconscionable, harsh or oppressive and injustice shall be construed and corresponding matter." 2. In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court "shall have regard to the public interest and to all the circumstances of the case" including consequences or results arising in the event of compliance or non-compliance with provisions of the contract: CRA, s 9(1). 3. The applicable law may be shortly stated. In Provident Capital Ltd v Papa (2013) 84 NSWLR 231, at 234; [2013] NSWCA 36 at [7], (Provident Capital), in a passage part of which was cited by Gemi in support of its case, per Allsop P gave a useful overview of the approach to be taken in applying CRA, ss 4, 7 and 9: "The broad evaluation of unjustness under the Contracts Review Act 1980 s 4, s 7 and s 9 involves the normative evaluation of the totality of relevant circumstances. Inevitably mines may differ as to the conclusions about such questions. Also, it is often not fruitful to compare other cases with the particular circumstances at hand, lest one be deflected from an appropriate overall assessment by focus on particular aspects relevant to any such comparison. Central to the normative evaluation is the recognition that there is a need for the protection of some people in some circumstances, who are not able fully to protect their own interests against factors that may cause injustice. That vulnerability may come from one or more of many circumstances, such as lack of education or of intelligence, from gullibility, from the predation of fraud and greed, and also sometimes from loyalty and love. The characterisation of a contract as unjust and the sheeting home to the other contracting party of the consequences of its unjustness may be a difficult evaluative exercise. At its heart, however, is the recognition of the inadequacy of one party to protect her or his interests in the circumstances. Here, there was no predation. There was no behaviour in which Provident Capital Ltd sought to take advantage of Mrs Papa. Her son may have sought to do so, but his exchanges with his mother can be seen as blandishments born of his own optimism. Mrs Papa had a solicitor whose advice was inadequate. It would, in my view, be unjust to visit the blandishments of the son and the inadequacy of fulfilment of retainer by the solicitor on the lender. That conclusion involves a consideration of all the matters referred to by Macfarlan JA, including the fact that Mrs Papa was a capable and intelligent woman, who was in no way misled by the lender in entering into the transaction… 1. A case brought under the CRA involves a three stage process - the making of findings of primary fact where these are disputed, the formation of an evaluative judgment as to whether or not the contract is unjust, and why, and then, if necessary, the exercise of the Court's discretionary power to grant relief and determine its extent: Perpetual Trustee Company Limited v Albert and Rose Khoshaba (2005) 14 BPR 26,639; [2006] NSWCA 41, at [99] (Handley and Basten JJA); 2. The reasons of McHugh JA in the majority in West v AGC (Advances) Ltd & Ors (1986) 5 NSWLR 610 (West), at 621 emphasise that it is "the contract or its provisions which must be unjust" rather than the transaction. This McHugh JA said (at [621E]–[621G]): "If a defendant has not been engaged in conduct depriving the claimant of a real or informed choice to enter into a contract and the terms of the contract are reasonable as between the parties, I do not see how that contract can be considered unjust simply because it was not in the interest of the claimant to make the contract or because she had no independent advice. … [U]nder this act a contract will not be unjust as against a party unless the contract or one of its provisions is the product of unfair conduct on his part either in the terms which he has imposed or in the means which he has employed to make the contract." 1. The parties were in contest as to whether CRA, s 6 (2) restricts Mrs Zhu from a grant of relief. It provides that "[a] person may not be granted relief under this CRA in relation to a contract so far as the contract was entered into in the course of or for the purpose of a trade, business or profession carried on by the person or proposed to be carried on by the person". Certain businesses that are not relevant to the present case are excepted from this prohibition. 2. The question whether the CRA, s 6 (2) prohibition is enlivened here is to be determined by the same issues that arise in the Court's consideration of whether Mrs Zhu is a true third-party mortgagor, or whether she has an interest in the business of Fucrez or more widely in The Gosford or in the Mann Street project. The Court has found that she is a true third-party mortgagor and does not have any interest in the business of Fucrez or more widely The Gosford or the Mann Street projects. 3. Although the CRA, s 9(1) matters to be considered by the Court are at large, only a limited number of the specific matters to which the Court should have regard under the CRA, s 9(2) are of present relevance to Mrs Zhu's part in the Fucrez loan. These are the following: (a) material inequality of bargaining power of the parties, (f) the relative economic circumstances educational background and literacy of Mrs Zhu, (h) without independent legal or other expert advice was obtained by the party seeking relief under the Act, (i) the extent to which provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act and whether or not that party understood their provisions and their effect, and (j) whether any unfair pressure or unfair tactics were exerted on or used against the party seeking relief under the Act. 4. As to matters (a) and (f), these have been discussed above in relation to Mrs Zhu's unconscionable conduct claim. As to (h), (i), and (j) Mrs Zhu did not have her own legal advice and Mr Epstein proceeded to structure the transaction along with Mr Walker so the transactions are to be signed without her having her own separate legal advice, which she had apparently refused and would otherwise have been an obstacle to the transaction taking place at all. A denial of her obtaining independent legal advice was embedded in the structure of the transaction which in the Court's view qualifies it as an unjust contract within the CRA. This was a fundamentally unjust and unfair aspect of the contract she signed and therefore CRA relief is attracted. 5. The form of the CRA relief to be granted can be the subject of submissions. Unfair Contracts – ASIC Act s 12BF(1), 1. Mrs Zhu also seeks relief under ASIC Act, s 12BF(1) which allows the Court to avoid a "term that is unfair" in "a consumer contract or small-business contract" which is a standard form contract or a contract for a financial product or the supply of financial services. 2. Mrs Zhu has difficulty in propounding this claim. Her circumstances and those of the transaction do not qualify under either of the gateway definitions of a "small-business contract" or a "consumer contract". ASIC Act, s 12BF(3) defines "consumer contract" as a contract "at least one of the parties to which is an individual whose acquisition of what is supplied under the contract is wholly or predominantly an acquisition for personal, domestic or household use or consumption". None of the transaction documents signed by Mrs Zhu for the Fucrez loan qualify as an acquisition for any of those purposes. 3. And ASIC Act, s 12BF(4) defines "small-business contract" is one of which at least one party to the contract "is a business that employs fewer than 20 persons" and the upfront price payable under the contract does not exceed $300,000 or where the upfront price does not exceed $1 million and the contract is the duration of more than 12 months. This is not obviously applicable to the circumstances of this case. Misleading and Deceptive Conduct – the Positive and Negative Claims 1. Mrs Zhu's positive misleading and deceptive conduct case based on Mr Epstein's statements on 11 August 2020 is not made out because the Court does not accept that he made the positive statements attributed to him. 2. But Mrs Zhu's representation by silence case faces another obstacle. Mrs Zhu does not have much difficulty in showing that there are many things that Mr Epstein knew that Mrs Zhu did not know immediately before entry into the Fucrez loan transaction. Some of these he readily admitted and others are not controversial for example: that The Gosford had defaulted multiple times in respect of its obligations to pay interest under The Gosford loans; that The Gosford was indebted to various Gemi companies for an amount in excess of $30 million; that The Gosford and Mr Walker had been unable or unwilling to make payments sufficient to meet the arrears then owing under the various The Gosford loans; that The Rocky Point loan was already in default, that an amount of at least $2.52 million was owing and that, having regard to the value of the Rocky Point Property, the principal security was probably not sufficient to repay that loan; and the personal guarantees given by Ms Chloe Zhu and Mr Walker were probably of little real value; that Mr Zhu had a personal interest in further time being provided by Gemi to extend the loan facilities to The Gosford loan facilities; and, that both Mr Zhu and Mr Walker wanted the Fucrez loan to go ahead and they both would benefit financially if the loan proceeded. Several other undisclosed factors pleaded and relied upon in Ms Zhu's case. 3. And G193 also knew or probably knew other relevant matters such as the following. Mr Zhu was an undischarged bankrupt. Ms Chloe Zhu was a young woman with no or substantially no income. Fucrez had a share capital of $2 and no substantial assets. 4. But the question is whether Mr Epstein or G193 were required by the circumstances to disclose these and other matters to Mrs Zhu. Unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it will be disclosed, it is difficult to see how mere silence could support the inference that the fact does not exist: Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31; (1992) 110 ALR 608. There is well-established authority in relation to the relationship of debtor, creditor and guarantor that generally absolves creditors from having any duty to disclose a range of matters to a guarantor. These matters include any unusual transactions and the level of existing borrower's indebtedness (O'Brien v ANZ Bank (1871) 5 SASR 347), borrower default (Hamilton v Watson (1845) 12 Cl & Fin 109; (1845) 8 ER 1339), whether notices of demand have been served (Westpac Banking Corporation v Robinson (1990) ASC 56-002, at 59,035.), whether criminal activity is suspected (North Shore Ventures Ltd v Ansteod Holdings Inc (2011) EWCA Civ 230; [2012] Ch 31. ) and the credit worthiness of the borrower (Radin v Commonwealth Bank of Australia (1998) FCA 1361). 5. In the Court's view, it is difficult to see what takes this case out of the legal rules that ordinarily apply to disclosure by creditors to guarantors. Mrs Zhu's nondisclosure case cannot succeed for this reason. Other Issues – Apportionment, Penalties and Costs 1. Gemi submits in its written submission that were the Court to find that either Mr Epstein or G193 engaged in unconscionable or misleading or deceptive conduct, the concurrent wrongdoer provisions are invoked: ASIC Act, s 12GR. 2. Gemi further submits in its written submission that in considering the degree of apportionment, the relative culpability of the Cross-Defendants and those other persons identified as concurrent wrongdoers must be analysed. This is an impressionistic task which calls for a broad exercise of discretion. 3. Gemi has identified the potential concurrent wrongdoers as Mr Hedges, Mr Zhu and Mr Walker. Gemi acknowledged in its written submissions that given the multitude of unresolved factual controversies, which include matters traversing the conduct of each of the alleged concurrent wrongdoers, it is difficult to provide a meaningful attribution of culpability. 4. Gemi submits that if the Court finds that Mr Hedges failed to provide adequate legal advice, it is likely that a substantial portion of damages would be apportioned to his alleged conduct. But the Court has not made detailed findings about Mr Hedges' conduct in part because of difficulty in ascertaining what assumptions he may have made about whether Mrs Zhu had a business interest in Fucrez whether he assumed he was acting both for Mrs Zhu and Fucrez 5. Gemi also submits that if Mrs Zhu makes out her case, then the Court might take the view that she was primarily misled by Mr Zhu and Mr Walker and the culpability of G193, and Mr Epstein was minimal. But the misleading and deceptive conduct case against Mr Epstein has now failed and the roles of Mr Zhu and Mr Walker are now the subject of findings. 6. There is the potential for the parties being denied procedural fairness if they do not each have an opportunity to put submissions about any questions of apportionment once these reasons have been published to the parties and they have had the opportunity to examine the Court's factual findings about the conduct and liability of the parties and the conduct of various witnesses. 7. If the parties still wish to put submissions in relation to apportionment issues, then they will be directed to consult and agree upon and appropriate timetable for that purpose when the matter is listed again for directions in accordance with the orders made today. 8. In her cross-claim, Mrs Zhu challenged the recovery against her on the basis that the interest rate charged in the Fucrez loan documentation constituting the overall transaction was a penalty. There was a contest between the parties as to which of them bore the onus of establishing that a high rate of interest being charged was punitive. The relevant law is conveniently discussed in cases such as Ledinh Sovereign Super Pty Ltd v CT Stone Pty Ltd [2023] NSWSC 1079 ("Ledinh"), which established among other things that even high rates of interest do not constitute an unconscionable or unjust provision and it is necessary for positive evidence to be adduced as to whether the rate charged falls outside the prevailing rate for short-term bridging loans secured by second mortgage: cf the discussion of the law by Davies J in Ledinh. 9. But given the conclusion to which the Court has come, setting aside the transaction documents signed by Mrs Zhu in support of the Fucrez loan it is no longer necessary to consider this question. But it should be observed that the high agreed interest rate of 34% on Fucrez is some indicator of the risk associated with that advance. 10. As to the question of costs, the failure of Mrs Zhu's misleading and deceptive conduct case against Mr Epstein and the success of her case against G193 means that the parties may wish to put submissions in relation to a special costs order to accommodate this combination of results. They should set a program of submissions for this purpose in conjunction with any submissions about apportionment issues. 11. For these reasons Court makes the following orders and directions: 1. ORDER otherwise that the parties bring in short minutes of order to give effect to these reasons. 2. DIRECT the parties to agree upon a timetable of submissions in respect of possible apportionment and costs. 3. ADJOURN the proceedings for further directions to 9:30am on 3 October 2024. 4. COSTS are reserved. 5. GRANT liberty to apply. ********** Amendments 03 September 2024 - Amendment made to record of counsel's appearance at [5] and on the coversheet. 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: 03 September 2024