Supreme Court New South Wales Medium Neutral Citation: Australia and New Zealand Banking Group Ltd v Donnelly [2013] NSWSC 1760 Hearing dates: 11, 12, 13 & 15 November 2013; written submissions 22 November 2013 Decision date: 29 November 2013 Jurisdiction: Common Law Before: Stevenson J Decision: Bank entitled to judgment for debt and possession of property Catchwords: BANKING AND FINANCE - banker and customer - dual currency loan facility - whether Bank unlawfully converted facility currency REAL PROPERTY - claim for possession - default judgment for possession already entered against one joint tenant EQUITY - whether loan facility invalid due to unconscionable conduct - documents signed at "urging and direction" - risks inherent not adequately explained - lack of independent financial or legal advice - misrepresentations EQUITY - whether Bank estopped from relying on facility currency conversion Legislation Cited: Contracts Review Act 1980 Conveyancing Act 1919 Cases Cited: Attorney General of New South Wales v World Best Holdings Ltd [2005] NSWCA 261; (2005) 63 NSWLR 557 Bateman v Hunt [1904] 2 KB 530 Cameron v Qantas Airways Ltd (1995) 55 FCR 147 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 Kakavas v Crown Melbourne Ltd [2013] HCA 25; (2013) 298 ALR 35 Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315 United States Surgical Corp v Hospital Products International Pty Ltd [1982] 2 NSWLR 766 Van Den Heuvel v Perpetual Trustees Victoria Ltd [2010] NSWCA 171; (2010) 15 BPR 28,647s Watson v Foxman (1995) 49 NSWLR 315 Wright v Gibbons (1949) 78 CLR 313 Texts Cited: M Davies, A S Bell and P L G Brereton, Nygh's Conflict of Laws in Australia, 9th ed (2014) Category: Principal judgment Parties: Australia and New Zealand Banking Group Limited (first plaintiff) ANZ Asia Limited (second plaintiff) Jason Luke Donnelly (first defendant) Fiona Marie-Therese Donnelly (second defendant) Representation: Counsel: A J McInerney SC with O R Jones (first and second plaintiffs) K J Ryan (second defendant) Solicitors: Gadens Lawyers (first and second plaintiffs) File Number(s): SC 2011/305340 Publication restriction: Nil Judgment Introduction 1Australia and New Zealand Banking Group Ltd ("the Bank") and ANZ Asia Ltd bring these proceedings against Mr and Mrs Donnelly to: (a)recover a debt they contend is due; and (b)obtain possession of a property at Bardwell Valley ("the Property") the subject of a mortgage ("the Mortgage") granted by Mr and Mrs Donnelly to the Bank. 2Mr Donnelly has not defended the proceedings. The Bank obtained default judgment for debt and for possession against Mr Donnelly on 6 December 2011. 3In April 2008 Mr and Mrs Donnelly, who were then living in Macau, noticed a newspaper advertisement published in Hong Kong by ANZ Asia offering multicurrency loan facilities (in either AUD or HKD) to Australian expatriates. 4On 12 June 2008 ANZ Asia agreed to provide Mr and Mrs Donnelly with a Dual Currency Residential Property Loan facility ("the Facility") for an amount not exceeding AUD712,500, or its equivalent in HKD. 5The Facility is governed by the laws of Hong Kong. No evidence was adduced before me as to the laws of Hong Kong so far as they affect the issues in these proceedings. It was common ground that in those circumstances I should apply the law of the forum: M Davies, A S Bell and P L G Brereton, Nygh's Conflict of Laws in Australia, 9th ed (2014) at [17.37]; United States Surgical Corp v Hospital Products International Pty Ltd [1982] 2 NSWLR 766 at 798. 6On 14 July 2008 Mr and Mrs Donnelly executed the Mortgage. Mrs Donnelly makes no challenge to the Mortgage. 7On 22 August 2008 the Bank advanced AUD600,000 drawn down in HKD at an exchange rate of 6.84176; the amount drawn down was HKD4,000,105,056. 8The bulk of the funds so drawn down was used to discharge the amounts owing by Mr and Mrs Donnelly to the National Australia Bank Ltd and to discharge a mortgage the NAB then had over the Property. The balance of AUD93,452.99 was paid into an account maintained by Mrs Donnelly at St George Bank Ltd. 9Very shortly after the funds were drawn down, the AUD fell sharply against the HKD. That had a sudden, adverse, effect on the ratio between the loan and the value of the Property (the "Loan Value Ratio", or "LVR"). 10Because of those matters, on 18 December 2008, ANZ Asia exercised its right under the Facility to convert it to AUD. 11In March 2009 Mr and Mrs Donnelly separated. Mrs Donnelly returned to Australia to live at the Property with their four children. 12On 4 May 2011 ANZ Asia assigned its interest under the Facility to the Bank. Although there was dispute about this, it is clear that Mrs Donnelly was given notice of that assignment. 13The Facility expired in the ordinary course on 22 August 2013. Thus issues that hitherto arose as to whether or not there had been a default under the Facility are no longer relevant. On any view of the matter, such amount as is owing under the Facility is now payable. Mrs Donnelly and her representation 14In her first affidavit (sworn on 27 July 2012) Mrs Donnelly described her occupation as "Student/Teacher's Aide/Home Duties". Mrs Donnelly recently qualified as a school teacher, having obtained a Bachelor of Teaching and Bachelor of Arts. 15When giving her evidence, she struck me as an intelligent, articulate woman. She was, for perfectly understandable reasons, clearly troubled about the circumstances that have led to these proceedings and the proceedings themselves. She gave her evidence with dignity, notwithstanding a probing and, at times, robust cross-examination. She became visibly distressed on a number of occasions during the cross-examination. 16I do not believe she gave any evidence that she did not believe to be true. However, her deep involvement in the events with which these proceedings are concerned, and appreciation of the possible consequences of the proceedings, have the result that I must bear in mind the familiar words of McClelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 319: "... human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience." 17Mrs Donnelly has not retained solicitors. 18Throughout the proceedings Mr Kevin Ryan of counsel has represented her. 19At the outset of the hearing before me, Mr Ryan informed me that Mrs Donnelly is his daughter. Mrs Donnelly's defence 20In her defence, Mrs Donnelly relies upon two matters. 21First, she alleges that the Facility was "unconscionable and invalid" and that she "was not bound by the Facility" as it was "signed by her as a result of unconscionable conduct". 22In that regard, Mrs Donnelly pleads that the monies advanced under the Facility "are to be treated as monies received" by Mrs Donnelly "in HKD to be repaid in HKD at Hong Kong interest rates". 23Thus, Mrs Donnelly accepts that she is liable to repay the monies advanced under the Facility, albeit "in HKD at Hong Kong interest rates". 24The matters relied upon to constitute the asserted unconscionability are that: (a)the Facility documents (comprising a "Facility Letter" and the Bank's "Standard Terms and Conditions") were signed at the "urging and direction" of Mr Nicholas Stuart, the person at the Bank with whom Mr and Mrs Donnelly dealt; (b)the "risks inherent" in the Facility were "not addressed or explained" by Mr Stuart, particularly in respect of any impact there might be on the LVR "as a result of deterioration by the AUD as against the HKD"; (c)"no independent financial or legal advice was offered or able to be accessed" before the signing of the Facility; (d)an indemnity that Mrs Donnelly signed was not the subject of any "explanation as to its meaning or relevance; (e)Mr Stuart "misrepresented" to Mrs Donnelly that the HKD currency of the loan could only be changed at her request or with her consent and did not inform her that the Facility Letter "which she was directed to sign contained a power to the lender to unilaterally convert the currency to AUD in the event that the LVR exceeded 75% and additional security was not made available" by Mrs Donnelly. 25As to the matter in [24(d)], the Bank does not in these proceedings rely on the "indemnity" to which Mrs Donnelly's pleading refers. For that reason, I am unable to understand its relevance. In his final written submissions, Mr Ryan devoted 16 paragraphs over four pages to the issue, contending that the manner in which the indemnity had been disclosed in the proceedings by the Bank, and described by some witnesses, bespoke a "vein of collusion and deceit running through" the Bank's case. I reject that submission. I find the indemnity to be irrelevant to the issues I must decide. 26Second, Mrs Donnelly alleges that, in consideration of a payment of USD20,000 by Mr and Mrs Donnelly to the Bank, the Bank agreed in November 2008 "that the loan currency would remain as HKD and that the 'LVR would be reduced back to, or close to, 75%'" under a payment plan over 12 months. 27Mrs Donnelly alleges that the Bank "unlawfully converted" the Facility from HKD to AUD in December 2008 without her knowledge or consent and in breach of that agreement. 28Alternatively, Mrs Donnelly alleges that the Bank is "estopped from relying on the purported loan currency conversion in December 2008" because of the alleged agreement. 29Mrs Donnelly alleges that by reason of the Bank's failure to abide by the alleged agreement she lost an opportunity to extend the Facility because of the "peremptory rejection" by the Bank of an attempt by Mr and Mrs Donnelly to enter into negotiations in January 2011 to settle the matter. 30At one stage in the proceedings, Mrs Donnelly brought a cross-claim against the Bank alleging misleading or deceptive conduct and bringing a claim under the Contracts Review Act 1980. The Bank brought an application to strike out that cross-claim following which the cross-claim was withdrawn. The Facility 31The Facility was comprised by a "Facility Letter" which recited that it was to be read in conjunction with the Bank's "Standard Terms and Conditions". 32The Facility Letter described the "Facility Amount" as follows: "A Dual Currency Residential Property Loan facility... for the total amount not exceeding AUD712,500... only or its equivalent in Hong Kong Dollars". 33The Facility was expressed to be repayable on demand. Otherwise the term of the loan was 60 months from the date of the first draw down; that is, in the events that happened, on 22 August 2008. 34The Facility provided that the LVR was 75 per cent of the Bank's valuation of the Property and that: (a)if the LVR exceeded 75 per cent the Bank could demand that Mr and Mrs Donnelly deposit an amount sufficient to cure that excess; (b)if the LVR exceeded 85 per cent the Bank could, at its absolute discretion, immediately convert the loan into any currency it saw fit to eliminate its foreign exchange risks. 35The Facility Letter contained the following "Risk Disclosure Statement", on each of pages one, two and seven. They were printed in italics and within an emphatic "block", thus: Risk Disclosure Statement The fluctuations in foreign currencies and the values relative to each other will have an impact on the repayment of the Facility. It will also have an impact on the value of the investments or assets of the Borrower and/or Security Provider for which this Facility is taken. The Borrower and/or Security Provider are requested to consider such risks carefully and seek independent advice. 36The Facility Letter concluded with a section headed "Acceptance by the Borrower(s)" which stated: "By signing below, I/we hereby: ... (d) acknowledge that I am/we are aware of the exchange risk inherent in the use of the Facility and that I/we have, or will take whatever advice I/we may consider necessary to ensure that we understand the potential consequences to me/us of that exchange risk. I have not relied on any advice or opinion provided or advised by the Bank in regard to this specific transaction; and (e) I/we acknowledge having received a copy of this Facility Letter..." 37Both Mr and Mrs Donnelly signed that acknowledgment as well as initialling at the foot of each page of the Facility Letter and the Standard Terms and Conditions. The Mortgage 38Mr and Mrs Donnelly executed the Mortgage on 14 July 2008. 39The terms of the Mortgage are such that it stands as security for the Bank for monies owing to it by Mr and Mrs Donnelly, or either of them. 40As I have said, Mrs Donnelly does not challenge the Mortgage. What is at stake in these proceedings? 41As Mrs Donnelly does not challenge the Mortgage, and as the Bank has judgment against Mr Donnelly for debt and possession, it follows that, on any view of the matter, the Bank is entitled to possession of the Property, and is entitled to recover from the proceeds of its sale the amount due to it by Mr Donnelly. 42This is because a secured creditor of one joint tenant may execute against that joint tenant's aliquot share (see, for example, Wright v Gibbons (1949) 78 CLR 313 at 331 per Dixon J and Van Den Heuvel v Perpetual Trustees Victoria Ltd [2010] NSWCA 171; (2010) 15 BPR 28,647 at [25] per Hodgson JA and [148] - [170] per Young JA). 43The Bank has a judgment in debt and for possession against Mr Donnelly. The Bank is thus entitled to possession as against Mrs Donnelly in order that it can exercise its right to sell the Property to recover, from Mr Donnelly's aliquot share in the Property, the money he owes the Bank under the judgment. 44Further, as I have said, Mrs Donnelly's pleadings show that she accepts that the amount advanced under the Facility must be repaid, albeit "in HKD at Hong Kong interest rates". 45Mrs Donnelly's principal complaint is that the Bank "unilaterally converted" the loan from HKD to AUD in December 2008 following the sharp drop in the value of the AUD against the HKD which occurred almost immediately after draw down. 46The substance of Mrs Donnelly's complaint is revealed by the exchange that I had with Mr Ryan during final submissions: "Q. Do you say that the Bank 'should have' left the facility in Hong Kong dollars - that is, not brought it onshore, as it were - until the facility expired in... the August just gone? Is that your case? A: Yes, your Honour." 47The Bank has adduced evidence (in the form of certificates under the Mortgage) of the amount of principal and interest it contends to be due (assuming its entitlement to convert the Facility to AUD in December 2008) and the amount that would be due if the loan had remained in HKD until its expiry in August 2013. 48That evidence reveals the difference between the parties is as follows: (1)on the Bank's case: * principal loan balance AUD729,768.30; * accrued interest AUD140,116.15; * total AUD869,884.45; (2)on Mrs Donnelly's case: * principal loan balance AUD571,615.35; * accrued interest AUD3805.56; * total AUD575,420.91. 49The difference between those two figures is AUD294,463.54. That is, in substance, what divides the parties. 50I should add that, in either event, the Bank contends that it is entitled to recover "legal fees incurred" of AUD243,899.29 (as at 22 October 2013). The basis for that contention was not developed in argument. I will invite submissions from both parties on that question after resolution of other issues. The assignment issue 51Mr Ryan put in issue whether there had been an assignment by ANZ Asia to the Bank of its entitlements under the Facility and whether Mrs Donnelly had notice of that assignment. 52I am satisfied that the Bank has established both these matters. 53By a Deed of Assignment of 4 May 2011 ANZ Asia assigned to the Bank "absolutely all its rights, title, benefits and interests" in the Facility. 54The Bank gave notice of the assignment to Mr and Mrs Donnelly on 18 February 2011 by a letter sent to them at their Macau address. That was the last address of Mr and Mrs Donnelly known to the Bank. By reason of cl 17(b) of the Standard Terms and Conditions the Bank was entitled to send notices to that address. 55In fact, Mrs Donnelly had by then moved from Macau back to Sydney. 56Mrs Donnelly was given further notice of the assignment by letters sent to her by the Bank's solicitors on 1 November 2011 and 20 March 2012. 57Mr Ryan submitted that those subsequent notices were not effective because they were given after the Bank had commenced these proceedings and after Mrs Donnelly had pleaded her defence to the proceedings. 58I do not accept that submission. As Mr McInerney SC, who appeared with Mr Jones for the Bank, submitted, a notice of assignment can be given at any time. Whether given under s 12 of the Conveyancing Act 1919 or in equity, such notice will have the effect of binding the debtor or obligor, and, by reason of s 12, passing the legal title of the debt or legal chose in action to the assignee. I accept Mr McInerney's submission that there is no reason, in principle, or in the words of the statute, why a cognate notice or successive notices cannot be given under s 12. All the section requires for legal title to pass is that express notice of the assignment in writing be given to the debtor or obligor: see Bateman v Hunt [1904] 2 KB 530 at 538 per Collins MR, Stirling and Mathew LJJ. Events leading to execution of the Facility Letter 59On 7 April 2008 Mr Donnelly sent an email to Mr Stuart: "I was given your name as someone to talk about home loans in regards to transferring and purchasing. I am currently looking at purchasing a property here [in Macau] and one that I am interested in has just come onto the market. If you are able to help me please feel free to call me, my Macau number is below." 60Mr Stuart replied on the same day: "In regards to your refinance of your properties in Australia, we are able to offer you our Expat Mortgage loan facility, or multi currency loan, in either AUD or HKD. In regards to your new purchase in Macau, we cannot take security over Macau property and you would need to approach a local lender who can assist you with this service. The benefits of a multi currency loan include both interest savings & possible currency gains although it is important to be cautious & informed as movements in exchange rates can be both rapid and severe, whereas the security for the loan, your property, is generally stable and not easily disposable. In order to gain a better understanding of ANZ's Expat Mortgage facility I am happy to meet with you to discuss the product in more detail. At the meeting I will provide you with a clear working example on how the facility operates along with demonstrating strategies that can assist you in managing/reducing the risks. The strategies will allow you to react to any shifts in currency movements by providing you with the ability to choose desirable entry/exit points. The attached documents include an application form, a list of the required supporting documents & a product information sheet that includes today's interest rates for HKD & AUD." (emphasis added) 61The attached "product information sheet" was entitled "ANZ Expat Mortgages" and was headed "Thinking of purchasing or refinancing a property in Australia or New Zealand?". 62The document set out some features of the Bank's "expat" loans. It made no mention of exchange rate movements. 63Mr Donnelly sent Mrs Donnelly, by email, a copy of Mr Stuart's email. 64In Mrs Donnelly's affidavit of 27 July 2012 (the first of six affidavits that Mrs Donnelly swore in the proceedings) she said that she "now" saw the reference in Mr Stuart's email to "rapid and severe movements in exchange rates". 65However, in cross-examination, Mrs Donnelly agreed that she read the relevant paragraphs of Mr Stuart's email at the time she received a copy of it from Mr Donnelly on 7 April 2008. 66Mr and Mrs Donnelly accepted Mr Stuart's invitation to meet "to discuss the product in more detail". 67The meeting took place on or about 13 May 2008 at the Crown Casino in Macau (where Mr Donnelly worked). The Macau meeting 68In Mr Stuart's email of 7 April 2008, Mr Stuart said that if Mr and Mrs Donnelly met with him he would provide "a clear working example on how the facility operates along with demonstrating strategies that can assist you in managing/reducing the risks". Mr Stuart said that his usual practice in that regard was to conduct what he described as an "FX Analysis" using a pro forma template in the form of an excel spreadsheet. I will describe that document more fully below. 69There was controversy before me as to what happened in this regard. Mrs Donnelly's evidence 70In Mrs Donnelly's 27 July 2012 affidavit, she said that, at the 13 May 2008 meeting (which Mrs Donnelly then stated took place on 10 April 2008) Mr Stuart said words to the effect: "[Y]ou need to borrow in Hong Kong dollars because the interest rate is very low compared with Australia and our ANZ Financial Market Forecast is that the Australia dollar exchange rate will skyrocket". and: "[I]t is a dual currency loan and you can elect to move between the currencies whenever you wish to take advantage of currency changes and reduce your loan balance". 71Mrs Donnelly said that: "[T]here was no reference whatsoever to any effect resulting from the movement of exchange rates on the LVR or the need to switch from HKD to Australian dollars". 72In a later affidavit (in reply to that of Mr Stuart) she denied Mr Stuart produced or used an "FX Analysis". Mrs Donnelly said that Mr Stuart: "... did not discuss the issue of risk at all and in particular did not refer to any strategy to avoid risk by way of 'Forward Exchange Contracts'". 73Mrs Donnelly said that Mr Stuart: "[D]id not bring to the meeting or complete an FX Analysis and did not leave such an analysis at the conclusion of the meeting." 74During Mrs Donnelly's evidence in chief, Mr Ryan asked Mrs Donnelly whether Mr Stuart had said anything beyond the matters mentioned in Mrs Donnelly's affidavits. Mrs Donnelly said that there were "minor details" of the conversation that had not been mentioned. 75Over Mr McInerney's objection, I permitted Mrs Donnelly to give that further evidence. I asked Mrs Donnelly what else she wanted to say about the meeting. 76Mrs Donnelly then gave the following evidence: "A. Mr Stuart, mentioned other Australian ex pats that were living in Macau that were customers of his, and then we turned to the issue of borrowing from ANZ and we told Mr Stuart that we were interested in refinancing our Sydney home and also purchasing a unit in Potts Point because our oldest daughter had begun school there and she was only 13 and I wanted to spend some time with her. And so then Mr Stuart asked us some questions about our home in Sydney; how much it was worth. We told him it was worth about $950,000. He asked us what interest rate we were paying, who we were with; we were with - NAB was the answer, and we told him the interest rate; I can't exactly remember what it was but somewhere around 7%, and then he told us that the interest rate in Hong Kong was really low, I can't remember exactly what he said but it was about two and a half percent or so. And then he did some calculations and he - first of all he told us what sort of funds we could borrow, which was around 750,000, and then he did some calculations and he wrote some things down on some paper and told us that we could save a lot of interest by borrowing in Hong Kong. And he did a calculation and it was a really big amount; it was something like $40,000 a year. And then-- Q. Are those calculations based on some hypothetical figure or based upon what you told him you and your husband had borrowed from the NAB? A. No, this was - well, I suppose this was based on the borrowing, the equivalent through ANZ in Hong Kong, I suppose, to come up with that sort of figure, I assume. He was punching in the numbers and telling us so I assume that that's how he calculated it. Q. Punching in the numbers to what? A. He had a calculator. So he came up with this fantastic interest saving and then he did some other calculations showing us how we could make currency gains; he was talking about the rising Australian dollar and he was saying - well, he showed us a brochure; it was certainly an ANZ glossy brochure and it backed up what he was saying; that the Australian dollar was going to skyrocket, he said. And he said that he'd be able to make currency gains, he did some further calculations showing how we could reduce our loan balance, and these were big amounts that he was coming out with. And he was saying that you can borrow in Australian dollars or Hong Kong dollars but he was recommending to us to borrow in Hong Kong dollars because we would make these savings. And I suppose that was the general topic of the conversation at the meeting." (emphasis added) 77In the passage I have set out of Mrs Donnelly's evidence in chief, and during cross-examination, Mrs Donnelly accepted that at the 13 May 2008 meeting: (a)she and Mr Donnelly had informed Mr Stuart that the Property was worth in the order of $950,000; (b)she and Mr Donnelly had informed Mr Stuart that they were paying something in the order of 7 per cent interest on their existing loan with the NAB; (c)Mr Stuart had mentioned that interest under a HKD loan would be in the order of 2.5 per cent; (d)Mr Stuart performed calculations during the course of the meeting; (e)Mr Stuart used a calculator into which he was "punching" some numbers; (f)Mr Stuart suggested that, on one scenario, Mr and Mrs Donnelly could "save around $40,000 a year"; (g)something was said which led Mrs Donnelly to understand that she and Mr Donnelly could borrow up to 75 per cent of the value of the Property; and (h)Mrs Donnelly said that she understood that the Hong Kong dollar was worth less than the Australian dollar and that she knew that "one multiplied the loan amount in Australian dollars by the exchange rate to get the amount in Hong Kong dollars". 78Mrs Donnelly described the piece of paper on which Mr Stuart was "writing things down" as "just some sort of note pad". She said she did not recall it being a pro forma document. 79Mrs Donnelly said she was certain that Mr Stuart did not give her or Mr Donnelly the piece of paper. Mr Stuart's evidence 80Mr Stuart's evidence was based in part on his recollection of the occasion, and in part on what he described as his practice. 81Mr Stuart said he recalled that the meeting took place early in the morning, and that it was one of his first appointments for the day. He said he met Mr and Mrs Donnelly in a "café bar" and could recall "how empty the casino floor was" and that "basically I believe we were the only ones there". 82Mr Stuart said that he took Mr and Mrs Donnelly through the FX Analysis. 83He agreed he had a calculator and agreed that he "wrote some things down on some paper" and said that the "some paper" was the pro forma "FX Analysis" document. 84Mr Stuart said he no longer had the document upon which he wrote at this meeting, but that it was in the form of the document marked Annexure A to these reasons. 85Mr Stuart said the figures in that version of the FX Analysis were "hypothetical" and "relate to another prospective loan applicant" and would, normally, be "populated" by input by keystroke to the excel spreadsheet. He said that the format of the document he used at the Macau meeting was the same, and that he "populated" it manually using information obtained from Mr and Mrs Donnelly. 86Mr Stuart said: "It was my practice to use the FX Analysis at every meeting with prospective loan applicants whilst explaining the features of the expat mortgage facility to them. I used the FX Analysis tool to provide a written and visual demonstration in front of the prospective loan applicants on the potential interest savings as well as how foreign exchange movements had a direct impact on the expat mortgage facility and risks associated with the foreign exchange movements... I populated the FX Analysis either prior to the meeting on my computer or during the meeting. If I did so during the meeting, it was my practice to write the amounts into the FX Analysis by hand and perform the calculations using a calculator. It was my practice to leave a copy of the FX Analysis with the prospective loan applicants at the conclusion of the meeting for their further consideration." 87Mr Stuart denied that he made any recommendation as to whether Mrs Donnelly should borrow in HKD or AUD and denied saying that the AUD would "skyrocket". 88He said: "I say that, during my meeting with Mr and Mrs Donnelly at the Crown Casino in Macau, I took Mr and Mrs Donnelly through the FX Analysis tool whilst explaining the features of the expat mortgage facility to them. In doing so, I informed Mr and Mrs Donnelly in substance that if they chose to borrow in HKD: (a) The loan principal balance would reduce if the AUD appreciates against HKD; (b) The loan principal balance would increase if the AUD depreciates against HKD; (c) The LVR would change in the event of currency fluctuations impacting (a) and (b) above; (d) If the AUD depreciates against HKD, then the LVR could exceed the maximum allowable limit of 75%; (e) If the LVR reaches 80%, the bank can request extra security in the form of cash, cash security or property security to reduce the LVR back to 75%; (f) If the LVR reaches 85%, the bank is within its rights to convert the loan back to AUD at its absolute discretion and then request the LVR be reduced to 75% via extra security in the form of cash, cash security or property security; (g) There were five strategies to reduce risk of the exchange rate exposure as listed in the FX Analysis document... including reduction of the loan balance and currency switching." 89Mr Stuart said he left with Mr and Mrs Donnelly the pro forma FX Analysis document "populated" by him during the meeting. What happened at the Macau meeting? 90As Mr McInerney pointed out, Mrs Donnelly's description of the meeting is, to a certain extent, consistent with Mr Stuart's evidence as to his usual practice. Some of the matters that Mrs Donnelly recalled (set out at [77] above) were consistent with Mr Stuart having performed the FX Analysis that he described. 91It is clear from Mrs Donnelly's evidence about Mr Stuart performing calculations, "punching" numbers into his calculator and writing things on "some paper", that he gave some kind of explanation to Mr and Mrs Donnelly about the manner in which the proposed facility would operate. 92In his email of 7 April 2008, Mr Stuart had said that he would "provide you with a clear working example on how the facility operates" and it appears to me to be likely that he took some steps to follow his usual practice. 93There is, however, one aspect of Mr Stuart's evidence that I find to be inconsistent with the objective circumstances. 94He was adamant that he did not tell Mr and Mrs Donnelly that the AUD would "skyrocket". In my opinion, it is probable that Mr Stuart did say something to this effect. I have reached that conclusion because, several weeks later, on 2 June 2008 Mr Stuart sent to Mr and Mrs Donnelly an email headed: "FX Idea - It's time for the Parity Party (again)". 95The email attached a document prepared by the "ANZ - in-house economist team" which was in the following terms: "ANZ's Views - AUD to shoot past Parity before the end of this year * We have raised our forecast for the Australian dollar against the US dollar and other major currencies, with the AUD forecast to rise to AUD/USD 1.04 by the end of this year, up from around AUD/USD0.9600 at present. ... AUD will become one of the highest yielding currencies in the OECD by the end of this year. * Our fair value model suggests a strong rise of the A$ past parity with the USD.... With the financial markets having settled down, the rise of the AUD yield advantage against the USD will prove a compelling story, in our view." (emphasis in original) 96In my opinion, that email (especially its prediction that the AUD would "shoot past" parity before the end of the year) points to the probability that Mr Stuart did say to Mr and Mrs Donnelly something to the effect that, in the Bank's view, the AUD was about to "skyrocket". 97I also found convincing Mrs Donnelly's evidence that Mr Stuart did not leave with her (or Mr Donnelly) the "paper" on which he was writing at the meeting. Mr Stuart's contrary evidence was, I find, based on his usual practice, rather than actual recollection. I find that Mr Stuart did not leave any document with Mr and Mrs Donnelly. 98Nonetheless, I am satisfied that Mr Stuart gave an explanation, along the lines of the FX Analysis template, of the manner in which the Facility would operate. 99In particular, I am satisfied that Mr Stuart said something to the effect that if the LVR exceeded 85 per cent, the Bank could convert the loan to AUD. 100I am fortified in coming to that conclusion by Mrs Donnelly's email responses (later in 2008) to Mr Stuart's warnings that, following the sharp depreciation of the AUD against the HKD after the Facility was drawn down, the Bank was likely to take that course. In those email responses, Mrs Donnelly did not once protest that she had not been warned of the Bank's entitlement to take this course once the LVR exceeded 85 per cent. The conclusion to which I have come is that this must be because she had, in fact, been so warned by Mr Stuart. I deal with this in detail later in these reasons. 101The extent to which the explanation given by Mr Stuart at the Macau meeting brought home to Mrs Donnelly the risks associated with foreign currency borrowing is a matter to which I will return. The sign up 102I have mentioned that Mr and Mrs Donnelly were seeking refinance of their indebtedness to the NAB. They were also seeking finance in relation to a proposed purchase of a company title unit in Potts Point. Mr and Mrs Donnelly, together with Mr Ryan, had on 7 May 2008 entered into a contract to purchase the shares that would give them the right to occupy that property. The solicitor acting on the purchase was Mr Andrew O'Brien from O'Brien Lawyers in Sydney. 103On 10 June 2008 Mr Stuart sent an email to Mr Donnelly: "We are having no luck with this at all. Our credit team has informed me that they won't do Company Title borrowing... With multi currency lending we cannot lend to Tax residents in [Australia]... any loan would be a very complicated loan for us... basically making it nearly impossible and definitely not something that can happen quickly. I'm very sorry but we cannot do this loan. Happy to proceed with the [refinance], please see attached a copy of your Letter of Offer along with our standard terms and conditions". 104Mr Stuart attached to this email the Facility Letter and a copy of the Bank's Standard Terms and Conditions. 105On 11 June 2008 Mr Donnelly forwarded Mr Stuart's 10 June 2008 email (including the attachments) to Mrs Donnelly. 106Mrs Donnelly "scanned" the first, second and part of the third page of the Facility Letter. Mrs Donnelly said that she "definitely [scanned] the first page" of the Facility Letter and "got the information out of the first page". 107The first of the three (identical) "Risk Disclosure Statements" was at the foot of the first page of the Facility Letter. 108Mrs Donnelly said that her "eyes may have glanced onto that because it was on that first page, but I did not read that". 109The Risk Disclosure Statement was in emphatic terms. It was, as I have mentioned, written in italics and contained within a prominent box at the foot of the first page of the Facility Letter (as well as on the second and seventh pages of the Letter). 110Such was the prominence of the Risk Disclosure Statement that I am not able to accept that Mrs Donnelly paid it no attention. At the very least she must have seen that it was an emphatic statement by the Bank of the "risk" associated with the particular form of facility on offer. 111Mrs Donnelly did not seek any legal advice about the Bank documents, although she had available to her three potential sources of advice, namely: (1)her father, Mr Ryan; (2)her brother, Mr Stephen Ryan, who ultimately witnessed Mr and Mrs Donnelly's signatures on the Mortgage; and (3)Mr O'Brien, the solicitor acting for Mrs Donnelly (as well as Mr Donnelly and Mr Ryan) on the purchase of the Potts Point unit (and with whom Mrs Donnelly was in email communication on both 11 and 12 June 2008). 112Thus, and contrary to her pleaded case (see [24(c)] above), independent legal advice concerning the Facility was "able to be accessed" by Mrs Donnelly. 113On 12 June 2008 Mrs Donnelly (and Mr Donnelly) met Mr Stuart in his office in Hong Kong and signed the Facility Letter. 114Mr Stuart did not suggest that he gave Mr or Mrs Donnelly any further advice about the Facility on this occasion. His evidence was that he simply said to Mr and Mrs Donnelly "do you have questions about any of the documents?" and that they both said words to the effect "no". 115Mrs Donnelly's evidence in relation to this meeting was to the same effect. 116 She added: " I... said 'so we can change - it's right, isn't it, that we can change the currency whenever we want?' And he said, 'yes'. And I said, 'right, okay'. And so he just showed us where to sign." 117Mrs Donnelly said that she "just wanted to make sure that we could change it back to Australian dollars whenever we wanted". 118Mrs Donnelly said that Mr Stuart confirmed that she and Mr Donnelly had this right but did not warn them that, if the exchange rate moved such that the LVR increased beyond 85 per cent, the Bank could make a unilateral decision about the currency of the loan. 119I am satisfied that Mr Stuart gave Mrs Donnelly no such warning on the occasion of the 12 June 2008 sign up. 120However, as I have set out above, I am satisfied that Mr Stuart did explain this to Mrs Donnelly at the Macau meeting in the course of conducting his "FX Analysis" (see [99] above). Mrs Donnelly's understanding of the Facility 121In all these circumstances, I am satisfied that when Mrs Donnelly signed the Facility Letter, she: (a)knew that the AUD could appreciate against the HKD; (b)knew that the AUD could depreciate against the HKD; and (c)wanted the power to be able to convert the currency back to AUD if, at that point in time, it suited her to do so in order to achieve currency gains. 122Ultimately, Mrs Donnelly explained her understanding of the Facility as follows: "Q. You understood that, having taken the loan out in Hong Kong dollars, if the Australian dollar rose, that the loan amount you would owe subsequently in Australian dollars would reduce? A. Yes, yes. Q. And you also knew, didn't you, that if the Australian dollar went down, compared to the loan amount in Hong Kong dollars initially drawn down, that the amount you would owe under the loan would increase? A. Well, it wasn't really pointed out. But I just understood that it just stayed there. You know, you didn't benefit from it. But the real point was that if it went up, you could make these gains. Q. But you also knew that if it went down, there would be losses, didn't you? A. No. Q. Your evidence about that is simply false, Mrs Donnelly, isn't it? A. No, it's not. It's not. I just thought that it just stayed there. It was just a loan account. You know, you didn't - you just left it and it corrected or, you know - there was no explanation of that." 123As Mrs Donnelly knew that: (1)the AUD could appreciate or depreciate against the HKD; and (2)if the AUD appreciated against the HKD , "you could make gains" and that the amount "you would owe subsequently in Australian dollars would reduce"; she must have been able to appreciate, had she turned her mind to it, that the opposite would be the case if the AUD depreciated against the HKD. 124The fact that Mrs Donnelly was anxious to know that she and Mr Donnelly could convert the currency of the loan to AUD also shows that she appreciated that currency movements could affect the borrowers' overall exposure to the Bank. 125As I have said, Mrs Donnelly struck me as an intelligent, articulate woman. Although it was not clear from the evidence whether she had her current tertiary qualifications at the time of her dealings with Mr Stuart, she was clearly then capable of acquiring them and, in my view, capable of appreciating the logical consequences of the aspects of HKD borrowing that she agrees she did understand (as I have set out at [123] above). 126I am, however, not prepared to disbelieve the evidence Mrs Donnelly gave, as set out at [122] above. I am prepared to accept that this evidence reflects the extent to which Mrs Donnelly had thought through the implications of borrowing in HKD. I thus accept she had an imperfect understanding of the Facility and that whatever Mr Stuart said to her at the Macau meeting had not been sufficient to prevent this result. 127However, for the reasons that I explain below, it does not follow that Mrs Donnelly is entitled to the relief she seeks. Events after the sign up 128On 27 June 2008 Mr Stuart's assistant, Ms Lily Sarangdhar sent Mr and Mrs Donnelly the Mortgage for execution. 129On 14 July 2008 Mr and Mrs Donnelly executed the Mortgage. Their signatures were witnessed by Mrs Donnelly's brother, Mr Stephen Ryan, a solicitor. 130As I have mentioned, Mrs Donnelly does not challenge the Mortgage. 131On 20 August 2008 Ms Sarangdhar sent an email to Mrs Donnelly saying: "I've just heard from my securities centre today that refinance has been booked for the 22.08.08. We should have a payout figure [from NAB] either later this afternoon, or more likely, tomorrow. I will let you know once the payout figure has been advised. I've received the signed drawdown advice but please let me know what currency you wish to drawdown (AUD/HKD/USD). I will need to call you to book the FX once the payout figure has been advised." 132Mrs Donnelly replied: "We would like to draw down in Australian dollars". 133Ms Sarangdhar replied: "Just to confirm, if you drawdown the loan in AUD, you will be subject to AUD interest rates". 134Mrs Donnelly then gave instructions that the loan should be drawn down in Hong Kong dollars. 135On 25 August 2008 Ms Sarangdhar wrote to Mr and Mrs Donnelly to "confirm the drawdown of your loan in HKD at the exchange rate of 6.84176, value for 22 August 2008". 136The loan was used to pay the NAB AUD505,019.01 and to pay AUD93,452.99 into Mrs Donnelly's account at St George Bank (to be used to finalise the purchase of the Potts Point property). Events after draw down 137Almost immediately after the draw down, the AUD weakened substantially against the HKD. 138On 12 September 2008, and again on 19 September 2008, Mr Craig Burgess, "Head of Private Bank", North Asia for ANZ, wrote to Mr and Mrs Donnelly: "We would like to draw your attention to the recent deterioration of your security value as a result of a weakening AUD against the currency of your loan outstanding i.e. HKD4,105,056.00. Conversely the strengthening of your loan currency, currently denominated in HKD, also aggravated the situation... You may select one of the following options: - (1) provide additional security in the form of pledged cash deposit of an amount not less than AUD82,000.00 or its equivalent in HKD... (2) reduce your loan outstanding by an additional amount of AUD61,000 or its equivalent in HKD... (3) immediately provide other security acceptable to us for this purpose". 139On 26 September 2008 Mrs Donnelly wrote to Mr Stuart: "Jason is currently in Sydney and not contactable this afternoon, and as this is a large amount, I would need to discuss this with him so that we carefully choose one of the three options that ANZ has offered. Would you please clarify option 3 and let us know what types of security are acceptable." 140Despite the dramatic turn of events represented by the sudden weakening of the AUD, Mrs Donnelly did not, in this email, make any complaint of the kind now made in these proceedings. 141On 13 October 2008 Mr Burgess sent Mr and Mrs Donnelly a similar letter to those of 12 and 19 September 2008. 142On 20 October 2008 Mr Stuart sent an email to Mr and Mrs Donnelly: "I have tried to call your mobile but cannot seem to get through. Below is a snapshot of your loan that includes your current LVR and the amount required to reduce the loan back to the approved limit of 75%. These figures are based on the current AUD/HKD exchange rate of 5.4. As the loan is well above the closeout level the bank can at its discretion close out the loan (i.e. convert back to AUD). In order to avoid this from happening we will require urgent top up to the loan, either cash or another form of security (property)." (emphasis added) 143The "snapshot of your loan" to which Mr Stuart referred showed that, because of the deterioration in the value of the AUD against the HKD, the LVR of the loan was 95.02 per cent (compared to the approved LVR of 75 per cent). 144By now the sale of the company title unit at Potts Point to Mr and Mrs Donnelly and Mr Ryan had completed. Evidently, between 20 and 22 October 2008 Mrs Donnelly suggested to Mr Stuart that the Bank accept the company title unit as further security. 145Thus, on 22 October 2008 Mr Stuart wrote to Mrs Donnelly: "Our credit team has confirmed that they will make a special acceptation [sic] in this case and will be able to proceed with taking the company title property as security. Your father [that is Mr Ryan] would need to guarantee the loan as he has shares in the company. We can take a 65% LVR against the property, the resulting effect on the LVR would be 68%, well under the 75% approval limit as per below... Please advise if you are happy to proceed with us taking security over this property." 146On 23 October 2008 Mrs Donnelly replied: "Unfortunately, my father is unable to act as guarantor so this will not be an option for us. As we discussed in our phone conversation on Tuesday [21 October 2008], we will deposit cash to bring the loan back to 85% as soon as Jason gets out of hospital and back to Macau, ie in the week beginning 3rd November." 147Mr Donnelly had been involved in a motorcycle accident and was in hospital. 148In her email of 23 October 2008, Mrs Donnelly explained why she and Mr Donnelly proposed to "deposit cash" to bring the loan back under the under 85 per cent LVR (rather than provide additional security over the Potts Point unit). 149Although Mr Stuart stated in his 20 October 2008 email that, because of the LVR, "the bank can at its discretion close out the loan (i.e. convert back to AUD)", Mrs Donnelly did not protest that Mr Stuart had not warned her of this possibility. Rather, Mrs Donnelly negotiated with Mr Stuart about the provision of further security (first, the Potts Point unit, and then a cash deposit) to solve the problem. I find that conduct to be inconsistent with the contention Mrs Donnelly now makes that she was not warned by Mr Stuart of the Bank's entitlement to close out the loan once the LVR exceeded 85 per cent. 150The next day, 24 October 2008, Mr Stuart wrote to Mrs Donnelly: "I understand that Jason needs to forward the request to transfer funds from the Macau bank and that he is currently in hospital in Australia and won't be back in Macau until Nov 3. This information along with the request not to close out the loan will be forwarded to our credit team. Due to the AUD volatility and the current LVR they may not approve the request and automatically convert the loan back to AUD to prevent a [sic] further downside. I may not be able to prevent this from happening. I will contact you later this afternoon to advise of credits [sic] decision." (emphasis added) 151By this email, Mr Stuart made clear to Mrs Donnelly that he was not the person within the Bank who would make a decision as to whether or not to "close out the loan" and that that decision would be made by the Bank's "credit team", notwithstanding such recommendation as Mr Stuart might make. 152Mr Ryan submitted that, because the Bank had permitted Mr Stuart to be its only point of contact with Mr and Mrs Donnelly, it was not entitled to assert that Mr Stuart lacked authority to finally determine whether the Facility should be converted to AUD. The basis for that submission was not developed and I do not accept it. At all relevant times, Mr Stuart made very clear to Mrs Donnelly that he was not the final decision maker on this issue, and I see no reason to doubt the truth of what he told Mrs Donnelly in this regard. 153Mrs Donnelly replied to Mr Stuart's email of 24 October 2008 the same day: "I am hoping that Jason will be back in Macau earlier than November 3 and he would therefore be able to transfer the funds sooner. Could you please let me know what else I need to do to prevent the loan being converted to AUD before we are able to transfer those funds. Would a hospital letter assist?" 154Again, although confronted with Mr Stuart's clear warning that the Bank's "credit team" might "close out the loan" and convert it to AUD, Mrs Donnelly made no complaint to Mr Stuart about events earlier in the year. In particular, she did not complain that Mr Stuart had not warned her and Mr Donnelly that the Bank had this power in the event of adverse developments concerning the LVR. 155Mr Stuart replied, later in the day: "I understand this is a difficult situation for you, I will convey this to our credit team and hope they can give you another week. I will let you know later this afternoon." 156On 10 November 2008 Mr Stuart wrote to Mr Donnelly: "Details below include a snapshot of your loan [which showed that the LVR was 96.64 per cent] based on the current exchange rate of 5.31. The amount required to 'top up' the loan in order to get the LVR back to the approved limit of 75 per cent is AUD$163,080.23. We understand that it may not be possible to make this payment in one lump sum so we are willing to work with you to create a plan over then next 12 months. We will require an initial payment first before working with you to create a plan. It is important to get the LVR back to 85% which is the 'closeout' level (will require a payment of AUD$93k) or least back under 90% (will require a payment of AUD$54k) so I can then approach our credit team will a payment plan based on either of the 2 scenarios listed below. 1 - Convert the loan back to AUD. As the AUD is still very volatile you may want to consider a conversion back to AUD to prevent any further downside. We can then discuss a payment plan over 12 months to reduce to LVR back to, or close to, 75%. 2 - Leave HKD HKD interest rates have reduced back to normal levels which helps with loan servicing but also means you are still exposed to any AUD falls. If you choose to stay in HKD we will still need to discuss a payment plan over 12 months to reduce the LVR back to, or close to, 75%." 157Mrs Donnelly said, in her first affidavit that: "We went to Hong Kong on the same day and met Mr Stuart at his office at about 5.30pm and immediately I said to him 'we definitely want to leave the loan in Hong Kong dollars. We'll be destroyed if we move it to Australian dollars because we have four kids' and Jason said 'I can pay you USD$20,000 immediately and the rest over 12 months'. Mr Stuart agreed to this and within a few days, Jason deposited USD$20,000". (emphasis added) 158Mrs Donnelly relied on this evidence as establishing the "agreement" for which she contended in her pleadings (see [26] above). 159As I will discuss, the objective circumstances show that no such agreement was reached between Mr and Mrs Donnelly and the Bank. 160In cross-examination, Mrs Donnelly agreed that the discussion at [157] did not take place at a meeting at Mr Stuart's Hong Kong office but was, rather, in a telephone call. Mrs Donnelly said that the telephone call was between Mr Donnelly and Mr Stuart, on a hand held phone. She agreed she did not hear Mr Stuart's voice but said that it was "obvious" that he had "agreed". I do not accept that Mrs Donnelly said to Mr Stuart the words set out at [157]. It is clear from her evidence that the telephone conversation took place between Mr Donnelly and Mr Stuart and that Mrs Donnelly heard only one side of the conversation. It is, in any event, clear that no agreement of the kind she alleges was reached. 161Around this time, there was a discussion about Mr and Mrs Donnelly depositing USD20,000 to their account as, on 11 November 2008, Mr Stuart sent the following email to Mr and Mrs Donnelly: "Please see attached USD remittance details for payment of the USD$20k. Also attached is a statement of financial position, please complete pages 4 - 9. Please scan/email or fax this form back to me when completed. HKD 4,105,056.00 @ 2.5% = approx HKD$8,500 a [month]. Using the above HKD interest payment, can you also advise how much you are able to commit to paying as an extra principal repayment every month until the LVR is back to the approved limit of 75%? Fiona mentioned that you have funds of AUD$80k in a Macau bank? We are able to hold funds on deposit that can be pledged as security instead of a principal reduction, so these funds can be held by ANZ in any currency, still earn some interest and help reduce your LVR. Please contact me if you have questions or would like to discuss your options in more detail." 162On 11 November 2008 Mr Stuart created a diary note: "Call from Jason. Jason has responded to my email. He has returned to Macau after the motorbike accident that saw him hospitalised for 5 weeks in Macau, HK and Aus... Jason wants to stay in HKD and we discuss [sic] a payment plan option over 12 months. He will transfer USD$20k today provide updated A&L and also commit to an amount to pay every month - this will be forwarded to credit when received". 163On 14 November 2008 Mr Stuart made the following further diary note: "Update. LVR. Borrower will complete a financial needs analysis form over the weekend and will return that on Monday [17 November 2008] along with a set amount of how much extra they can pay every month to reduce the LVR. There are a number of issues with this one and I need more time to collate info from the borrowers before submitting a new [proposal]. He has spent the last 4 mths in hospital and is trying to get back on his feet and sort out his finances". 164Mr and Mrs Donnelly sent the Bank USD20,000 on 18 November 2008. 165The Bank accepted that sum without reservation or comment. However, that fact must be considered in the context to which I have referred. 166On 21 November 2008 Mr Stuart made a further diary note: "Update. Jason is still gathering information together to make a submission to credit. USD$20k was applied to the acct today as a principal reduction. Jason is happy to go to P&I from next month to help reduce the principal further but does not have any further lump sums available right now as these have covered his medical bills". 167This note suggests that Mr Donnelly was still "gathering information" in order to complete the "statement of financial position" that Mr Stuart requested from Mr and Mrs Donnelly under cover of his email of 11 November 2008. It is common ground that that document was never returned to the Bank. 168On 2 December 2008 Mr Burgess from the Bank sent Mr and Mrs Donnelly a letter to a similar effect to those of 12 and 19 September 2008 and 13 October 2008. 169The letter was headed "Loan to Security Ratio Maintenance - Clawback" and stated that Mr and Mrs Donnelly could select one of the following options: (a)provide additional security not less than AUD245,020.99 or its HKD equivalent by 9 December 2008 (b)reduce the loan by AUD220,518.89 or its equivalent in HKD by 9 December 2008; (c)provide other forms of security "acceptable to us for this purpose"; or (d)"voluntarily convert your loan to AUD at the current prevailing market rates". 170The letter concluded: "Should you not complete the abovementioned action by 9 December 2008, as there is a breach in the loan to security of 85%, the Bank may exercise its rights and remedies against you, including but not limited to, converting the loan into the currency in which the asset is held, pursuant to our agreed terms and conditions". 171In her first affidavit, Mrs Donnelly claimed that, after receipt of that letter she had a telephone call with Mr Stuart. She said: "On 4/12/08 I phoned Mr Stuart and I said to him words to the effect 'I will not agree to converting the loan to AUD because I chose HKD on your advice that I could choose the loan currency at all times and I am not agreeing to a conversion now.' I also said to him words to the effect 'You agreed with us on 10/11/08 when we spoke to you in Hong Kong that if we paid you USD$20,000 you would agree to a plan over the next 12 months to pay the rest of the money and we have paid that money to you so why are you still talking conversion to AUD?' He replied with words to the effect 'your payment of USD$20,000 has been received and that looks good. I don't know what has happened to the payment plan but I'll find out and let you know'." (emphasis added) 172I am not able to accept Mrs Donnelly's evidence about this conversation. It is clear from the documentary record that Mr Stuart did not, on 10 November 2008, "agree to a plan over the next 12 months to pay the rest of the money". 173Mr Stuart made clear in his email to Mrs Donnelly of 24 October 2008 (see [150] above) that such a decision was not his to make. 174Further, his diary note of 8 December 2008, the accuracy of which was not challenged (and in any event I have no reason to doubt), recorded: "Spoke with Jason. He cannot meet the funds required on the LVR letter and is aware that the acct will be closed out - told him AUD has gone back up to around 5.1. It may be best to convert now rather than wed morning [10 December 2008] - he will discuss with Fiona and call back for a conversion." (emphasis added) 175That note makes clear that Mr Donnelly did not consider any agreement existed with the Bank of the kind now alleged by Mrs Donnelly. 176On 9 December 2008 Mr Stuart recorded in his diary: "Jason & Fiona will come into our office 17.30 today 09/12 - told them I cannot stop the conversion back to AUD - will discuss payment options going forward - Jason is still on sick leave and not back at work after motorbike accident which nearly claimed his life." 177Mrs Donnelly's account, in her third affidavit, of that meeting was as follows: "I refer to... our meeting with Nicholas Stuart on 9/12/08 and say that when Mr Stuart raised the issue of an 'updated statement of financial position' at that meeting [Mr Donnelly] said words to the effect 'I've just come out of hospital and I can't get my records together and my scanner isn't working and I can't get that statement together yet' and Mr Stuart said words to the effect 'you can go ahead and put in your proposal and we'll deal with that as we go along'." (emphasis added) 178Mrs Donnelly's recollection of the meeting makes clear that, contrary to her earlier evidence, there was no "agreement" in place between Mr and Mrs Donnelly and the Bank. 179Mr Stuart's diary note of 9 December 2008 satisfies me that, at the meeting, he told Mr and Mrs Donnelly that he could not "stop the conversion back to AUD". 180In the early hours of 10 December 2008 (3.29am) Mrs Donnelly sent an email to Mr Stuart in the following terms: "Thanks for meeting with us earlier this evening to discuss a plan to get the LVR on our loan back to an acceptable level. Obviously the LVR is way beyond the level that was agreed to in our loan contract and we hope that we can work together to bring it back into line. As the LVR has become so high, I think it is in the best interest of both parties for the loan to remain in HKD at least for the short term (next 3 months) in the hope that the AUD returns to a reasonable level and also so that we can make some regular, as well as lump sum, payments so as to bring the LVR down. On our current income/expenditure (as per our ANZ loan application) we would be unable to service the loan if it were to be converted to AUD at this time, and certainly we would be unable to reduce the LVR. Our plan to reduce the LVR on HKD loan is as follows: 1. an initial lump sum payment of $20,000 USD (already paid on 18th November 2008). 2. monthly payments of $500 AUD which we would pay each time we make our monthly interest repayment. 3. further lump sum payments. We are currently awaiting reimbursement for medical expenses incurred while Jason was in hospital in Hong Kong which is approx. $100,000AUD. In addition, Jason is awaiting a commission payment. 4. We gave a current civil action legal case running in Macau and our lawyers, ARB Lawyers, are confident that a substantial compensation settlement will be reached. We anticipate that this may be within the next 12 months. When we receive this payment, we undertake to make a further lump sum payment to reduce the LVR to 75% or less. As discussed, would you keep us up to date with our loan, especially LVR and currency values so that we can monitor the situation. Email is best. This information will enable us to act quickly to convert, should the loan reach a reasonable LVR. As you are aware, Jason has been in and out of hospitals in Macau, Hong Kong and Sydney over the last few months and it has been a terrible time for us. The problems with our ANZ loan could not have come at a worse time for us. Fortunately though, Jason has now made a full recovery and therefore we are now in a position to follow our suggested payment plan and get our loan back on track. I will forward a copy of Dr Fung's letter in a separate email, for your records." 181Once again, Mrs Donnelly made no complaint to Mr Stuart about his conduct earlier in the year. 182In one of her later affidavits Mrs Donnelly said: "I did not make a complaint because I believed that my proposal to reduce the LVR over a 12 month plan made on 10/12/08 was still being considered...". 183I am satisfied that, by the time Mrs Donnelly sent her early morning email on 10 December 2008, Mr Stuart had told her (and Mr Donnelly) that he could not "stop the conversion back to AUD". 184Nonetheless, on 10 December 2008, after he received Mrs Donnelly's email, Mr Stuart sent a submission to the Bank's Credit Assessment Team attaching Mrs Donnelly's email and concluding: "Due to the unusual scenario around this case and the borrowers [sic] commitment to work with the bank to resolve the LVR issue I recommend that we allow 3 months to work with them to try and resolve the issue. They are very aware that any further depreciation in the AUD will make the situation worse." 185Despite Mr Stuart's recommendation, on 16 December 2008 Mr Kiew from the Credit Assessment Team informed him that the "[r]equest has been declined". 186Accordingly, on 18 December 2008 Mr Stuart sent Mrs Donnelly an email saying: "As discussed with Jason, I have exhausted all options and our credit team will close the loan out back to AUD today". Did the Bank engage in unconscionable conduct? 187A transaction will be unconscionable in equity if: "... the party seeking to enforce the transaction has taken unfair advantage of his own superior bargaining power, or of the position of disadvantage in which the other party was placed". (Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 459 per Gibbs CJ). 188A transaction will only be set aside as being unconscionable if: (1)the party burdened by the transaction was under a position of special disadvantage or disability (including, but not limited to, "poverty or need of any kind, sickness, age, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary": Blomley v Ryan (1956) 99 CLR 362 at 405 per Fullagar J); and (2)"the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party": Amadio at 462 per Mason J. 189Equity will only intervene to relieve a party from the consequences of a business transaction on the grounds of unconscionable conduct where there is evidence of conduct or behaviour which points to a "high level of moral obloquy" (Attorney General of New South Wales v World Best Holdings Ltd [2005] NSWCA 261; (2005) 63 NSWLR 557 at [121] per Spigelman CJ) or which is "clearly unfair or unreasonable" (Cameron v Qantas Airways Ltd (1995) 55 FCR 147 at 179 per Beaumont J). 190In Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at [26], Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ said that it was wrong: "... to speak of 'unconscionable conduct' [as suggesting] ... that sufficient foundation for the existence of the necessary 'equity' to interfere in relationships established by... the law of contract, is supplied by an element of hardship or unfairness in the terms of the transaction in question, or in the manner of its performance." 191Recently, the High Court of Australia stated in Kakavas v Crown Melbourne Ltd [2013] HCA 25; (2013) 298 ALR 35 at [20]: "... equitable intervention does not relieve a plaintiff from the consequences of improvident transactions conducted in the ordinary and undistinguished course of a lawful business. A plaintiff who voluntarily engages in risky business has never been able to call upon equitable principles to be redeemed from the coming home of risks inherent in the business. The plaintiff must be able to point to conduct on the part of the defendant, beyond the ordinary conduct of the business, which makes it just to require the defendant to restore the plaintiff to his or her previous position." 192The Court also said (Kakavas at [117]): "The absence of a reasonable equality of bargaining power by reason of the special disability of one party to a transaction, while not decisive, is important given that the concern which engages the principle [to relieve against an unconscionable dealing] is to prevent victimisation of the weaker party by the stronger." And (at [161]): "Equitable intervention to deprive a party of the benefit of its bargain on the basis that it was procured by unfair exploitation of the weakness of the other party requires proof of a predatory state of mind. Heedlessness of, or indifference to, the best interests of the other party is not sufficient for this purpose. The principle is not engaged by mere inadvertence, or even indifference, to the circumstances of the other party to an arm's length commercial transaction. Inadvertence, or indifference, falls short of the victimisation or exploitation with which the principle is concerned." 193Mr Ryan submitted that Mrs Donnelly was in a position of special disadvantage as she was "totally unsophisticated in the area of dual currency loans" and: "... this resulted in the absence of any reasonable degree of equality between the parties. Because of this absence of equality, it was plainly visible to Mr Stuart by the time of the signing (or he deliberately closed his eyes to it) and it became unfair and unconscionable for Mr Stuart to proceed further without at least ensuring that [Mrs Donnelly] had a real opportunity to receive appropriate independent advice". (emphasis in original) 194It is true that Mrs Donnelly did not, so far as the evidence reveals, have any prior experience with "dual currency loans". 195However, she saw the warning in Mr Stuart's 7 April 2008 email (see [60] above) that "movements in exchange rates can be rapid and severe" and must have noticed the Risk Disclosure Statements in the Facility Letter (see [110] above). She also heard Mr Stuart's FX Analysis at the Macau meeting (see [98] and [99] above). 196Nonetheless, as I have found (see [126] above), she did not fully understand the nature of the Facility. 197As for the particular matters Mrs Donnelly has pleaded as amounting to unconscionable conduct (see [24] above): (1)I do not accept that Mrs Donnelly signed the Facility Letter at the "urging or direction" of Mr Stuart, although I do accept that Mr Stuart told her (as the Bank's "in house economist team" evidently believed) that the AUD would "skyrocket" and "shoot past parity before the end of the year"; (2)I do not accept that the "risks inherent" in the Facility were not "addressed or explained" to Mrs Donnelly, although I do accept that such explanation as Mr Stuart gave as to how the Facility would operate in the event of currency fluctuations did not bring home to Mrs Donnelly the full implications of foreign currency borrowing; (3)I do not accept that independent legal advice was not available; Mrs Donnelly could have sought advice from her father, Mr Ryan, or her brother, the solicitor Mr Stephen Ryan, or Mr O'Brien, the solicitor acting for her in relation to the Potts Point purchase (to be funded in part from the advance under the Facility) at the time she signed the Facility Letter; (4)the Risk Disclosure Statement contained a request that Mr and Mrs Donnelly seek independent advice, although Mr Stuart did not suggest he said anything to that effect to Mrs Donnelly; (5)I do not accept that Mr Stuart either misrepresented to Mrs Donnelly that the currency of the Facility could only be changed with her consent or failed to warn her that the Bank could unilaterally convert the Facility to AUD if the LVR exceeded 85 per cent. 198Mr Stuart, and thus the Bank, could have done more to explain to Mrs Donnelly the risks associated with dual currency borrowing. Mr Stuart's statement that the AUD would "skyrocket", and the Bank's statement that the AUD would "shoot past parity" may well have caused both Mr and Mrs Donnelly to give less consideration to the possible risks associated with dual currency borrowing than they might otherwise have done. And the sudden drop, almost immediately after draw down of the Facility, in the value of the AUD against the HKD and the Bank's decision to override Mr Stuart's recommendation that it defer converting the loan to AUD and allow Mr and Mrs Donnelly time to get the LVR below 75 per cent certainly show "an element of hardship" in the transaction (see Tanwar Enterprises as cited at [190] above). 199However, I am not able to conclude that, even in those circumstances, Mrs Donnelly was in a position of special disadvantage sufficient to warrant the intervention of equity. 200And even if I was of that opinion, I see nothing in the evidence to suggest that Mr Stuart, and thus the Bank, did know, or should reasonably have known, of such a position of disadvantage. 201Mr Stuart was not cross-examined at all in respect of his state of mind at the time Mr and Mrs Donnelly signed the Facility Letter on 12 June 2008. My attention has not been taken to any evidence from which I could conclude Mr Stuart knew, or should reasonably have known, that Mrs Donnelly did not understand the nature of the Facility. 202I accept Mr McInerney's submission that, in the circumstances, Mr Stuart was entitled to proceed on the basis that Mr and Mrs Donnelly did not have any questions about the Facility Letter or the Bank's Standard Terms and Conditions, and to act on the representation made by each of them (made by signing the acknowledgment referred to at [36] above) that they were aware "of the exchange risk inherent in the use of the Facility" and that they had, or would, take all necessary advice. 203The Bank did not engage in "predatory" behaviour (see Kakavas as cited at [191] above) or "moral obloquy" (see Attorney General of NSW v World Best Holdings Ltd as cited at [189] above) or any other conduct that would justify the conclusion that it acted unconscionably. 204I find that this aspect of Mrs Donnelly's defence fails. Was there an agreement that the loan would remain in HKD? 205For the reasons I have set out at [157] to [178] above, my conclusion is that the answer to this question is "No". 206Thus, this aspect of Mrs Donnelly's defence also fails. Conclusion 207The Bank is entitled to the relief it seeks. 208I will hear argument about the costs issue referred to at [50] above. ********** Annexure A 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: 29 November 2013