Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Wu v Ling [2016] NSWCA 322 Hearing dates: 28 September 2016 Date of orders: 24 November 2016 Decision date: 24 November 2016 Before: Leeming JA at [1] Payne JA at [21] Bergin CJ in Eq at [22] Decision: Appeal dismissed. Cross-appeal allowed. Catchwords: EQUITY – where appellant being defrauded by a third party – where respondent believed appellant being defrauded – where appellant warned by respondent – whether appellant (borrower) was at a special disadvantage in her dealings with the respondent (lender) – whether interest rates on short term loans unconscionable. PENALTY – whether default interest rate a penalty. Legislation Cited: Contracts Review Act 1980 Cases Cited: Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51; [2003] HCA 18 Baker v Monk (1864) 33 Beav. 419 Bay Bon Investments Pty Ltd v Selvarajah [2008] NSWSC 1251 Blomley v Ryan (1956) 99 CLR 362; [1956] HCA 81 Bridgewater v Leahy (1998) 194 CLR 457; [1998] HCA 66 Clark v Malpas (1862) 31 Beav. 80 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; [1983] HCA 14 Earl of Aylesford v Morris (1873) LR 8 Ch App 484 Earl of Chesterfield v Janssen (1751) 2 Ves Sen 125 Fry v Lane (1889) 40 Ch D 312 Hart v O'Connor [1985] AC 1000 Jenyns v Public Curator (Q) (1953) 90 CLR 113; [1953] HCA 2 Johnson v Smith [2010] NSWCA 306 Kakavas v Crown Melbourne Limited (2013) 250 CLR 392; [2013] HCA 25 Ling v Pan Pac Investments Pty Ltd; Ling v Wu [2015] NSWSC 850 Ling v Pan Pac Investments Pty Ltd; Ling v Wu (No 3) [2015] NSWSC 1550 Longmate v Ledger (1860) 2 Giff. 157 Louth v Diprose (1992) 175 CLR 621; [1992] HCA 61 Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199; [2015] FCAFC 50 Paciocco v Australia & New Zealand Banking Group Ltd (2016) 90 ALJR 835; [2016] HCA 28 PT Ltd v Spuds Surf Chatswood Pty Ltd [2013] NSWCA 446 Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315; [2003] HCA 57 Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 Turner v Windever [2005] NSWCA 73 Category: Principal judgment Parties: Yan Wu (appellant/cross respondent) Albert Ling (respondent/cross appellant) Representation: Counsel: SA Wells (appellant/cross respondent) WG Muddle SC/A Djurdjevic (respondent/cross appellant) Solicitors: Breene and Breene (appellant/cross respondent) Solomon Tudehope (respondent/cross appellant) File Number(s): 2015/374448 Publication restriction: Nil Decision under appeal Court or tribunal: Supreme Court of NSW Jurisdiction: Common Law Citation: [2015] NSWSC 850 [2015] NSWSC 1550 Date of Decision: 30 June 2015 20 October 2015 Before: Button J File Number(s): 2012/292029; 2013/224583 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Decisions under appeal Judgment 1. LEEMING JA: I have had the considerable advantage of reading the judgment of Bergin CJ in Eq in draft. I agree with her Honour that Ms Wu's appeal should be dismissed and Mr Ling's cross-appeal allowed. I do not regard any of what follows as inconsistent with her Honour's reasons, with which I agree. I add the following by way of amplification of the principal point argued in this Court, namely, whether the primary judge erred in relieving Ms Wu from some of her contractual obligations under the second, third, fourth and fifth loans made by Mr Ling to her. 2. I do not repeat the detailed analyses of the evidence given by the primary judge and Bergin CJ in Eq. The essential findings of fact are that Ms Wu was an experienced and astute businesswoman of considerable wealth. Mr Ling lent $350,000 in February 2009 to Ms Wu, for a period of 12 months, with an interest rate of 9% per annum (rising to 11% in the event of default), secured over real property. Ms Wu made no repayments of that loan in 2009 or 2010. 3. The loans from Mr Ling to Ms Wu in respect of which the primary judge granted relief were as follows: 1. in late May 2010, $50,000 for five weeks at 5% per month; 2. in late August 2010, $65,000 for one month at 10% per month; 3. in mid September 2010, $115,000 for two months at 10% per month; and 4. in mid October 2010, $90,000 for seven weeks at 10% per month. 1. No repayments, whether of principal or interest, were made by Ms Wu between May and October 2010 in respect of any of the four short term loans. 2. In each case, it was Ms Wu who approached Mr Ling for further loans. The second loan agreement was drafted by Ms Wu's solicitor. The third, fourth and fifth loan agreements appear to have been drafted by Ms Wu. They were executed in her accountant's office and were witnessed by her accountant. 3. The primary judge found that at least by the time of the fifth loan, Mr Ling believed that Ms Wu was being defrauded. The trial proceeded on the basis that Ms Wu believed, wrongly, that she stood to make $16,000,000 if only she could provide further funds in the short term. There was no challenge to the finding that ultimately the entirety of the money borrowed by Ms Wu was lost to a Nigerian scam, although the evidence at trial was very slight. 4. Equitable intervention in a case such as this is based upon "a precise examination of the particular facts" and "a scrutiny of the exact relations established between the parties", as the unanimous decisions of the High Court in Jenyns v Public Curator (Q) (1953) 90 CLR 113; [1953] HCA 2 at 118–119 and Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; [2013] HCA 25 at [18] confirm. The point of saying so in Jenyns was the inappropriateness of a jury determining issues of fact involved in a claim of unconscionable conduct, the question being evaluative rather than binary. The point of present relevance is 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. Lord Selborne rejected the notion that there was an "indispensable condition of equitable relief" in Earl of Aylesford v Morris (1873) LR 8 Ch App 484 at 491. That is consistent with the more modern formulations emphasising the potential width of the jurisdiction, including Fullagar J's statement in Blomley v Ryan (1956) 99 CLR 362 at 405 that the circumstances are "of great variety and can hardly be satisfactorily classified". The same point has been made in relation to the width of the statutory jurisdiction to relieve against unconscionable conduct: see (for example) Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 at [291]–[293] (Allsop P, Bathurst CJ and Campbell JA agreeing) and PT Ltd v Spuds Surf Chatswood Pty Ltd [2013] NSWCA 446 at [93]–[106] (Sackville AJA, with whom McColl JA and I agreed). 5. Thus, the absence of immoral or dishonest motives is not sufficient to preclude equitable intervention: Johnson v Smith [2010] NSWCA 306 at [5] and [98]–[102]; Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199; [2015] FCAFC 50 at [305]. Nor is it necessary to establish that the defendant actively sought to procure the assent of the other party: Bridgewater v Leahy (1998) 194 CLR 457; [1998] HCA 66 at [76]; Hart v O'Connor [1985] AC 1000 at 1024. 6. Prima facie, a loan made at a high interest rate to a borrower whom the lender believes is being defrauded would not seem to stand clearly outside the scope of the equitable jurisdiction. So stated, the circumstances are not far removed from Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, where Deane J said at 478 that the bank through its officer Mr Virgo "simply closed his eyes to the vulnerability of Mr and Mrs Amadio and the disability which adversely affected them" when their son procured them to execute a mortgage securing his company's indebtedness. However, notwithstanding the width of the jurisdiction, the following circumstances combine to make the present appeal a case where relief is not available. 7. First, the High Court in Kakavas at [17] reiterated and confirmed Lord Hardwicke's formulation in Earl of Chesterfield v Janssen (1751) 2 Ves Sen 125 at 155–156; 28 ER 82 at 100 of that species of equitable fraud which prevents a party "taking surreptitious advantage of the weakness or necessity of another". Just as the High Court said in Kakavas at [25] that there was nothing "surreptitious" about Crown's conduct, so too here there was nothing surreptitious about Mr Ling's conduct. 8. Secondly, people do foolish things. Knowledge or belief of a plaintiff's foolishness alone is not sufficient to affect the defendant's conscience. The point of Louth v Diprose (1992) 175 CLR 621 was not that the plaintiff (Mr Diprose) had made an imprudent gift because of his infatuation with the defendant (Ms Louth), but that she had unconscientiously manipulated him, creating a false sense of crisis. For that reason, Mason CJ said that Ms Louth's conduct was unconscionable in that it was dishonest and was calculated to induce, and in fact induced, Mr Diprose to enter into an improvident transaction: at 626. Likewise, Deane J emphasised that Mr Diprose's special disability arose "not merely from [his] infatuation. It extended to the extraordinary vulnerability of [Mr Diprose] in the false 'atmosphere of crisis'" manufactured by Ms Louth with a threatened eviction from her home and suicide: at 638. Thus Deane J (with whose reasons Dawson, Gaudron and McHugh JJ agreed) observed at 638 that: "The intervention of equity is not merely to relieve the plaintiff from the consequences of his own foolishness. It is to prevent his victimization." 1. Here, the fact that Ms Wu as it turns out was very foolish in believing in the success of her Nigerian investment is not sufficient. 2. Thirdly, in Kakavas at [18] the High Court cited the passage from Louth v Diprose reproduced above to explain the principle on which equitable intervention was based. The Court said at [117] that "the concern which engages the principle is to prevent victimisation of the weaker party by the stronger". The Court returned at the conclusion of its reasons at [161] to the notion of victimisation: "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." 1. Victimisation in this context is no narrow concept. I do not understand those references to the need to identify "victimisation" to qualify the breadth of what was said of the same term in the same context in Bridgewater v Leahy (to which reference was made in Kakavas at [14] and [22]). Indeed, the additional references to "exploitation" in the passage from Kakavas reproduced above tend to confirm the breadth of the notion underlying the principle. In Bridgewater, the minority (Gleeson CJ and Callinan J) framed as "the essence of the appellants' claim" whether the elderly uncle was a "victimised party" (at [35], citing a passage in the reasons of McTiernan J in Blomley v Ryan (1956) 99 CLR 362 at 386). The majority (Gaudron, Gummow and Kirby JJ) explained at [76] that: "It also should be noted that in Hart v O'Connor, an appeal from New Zealand, the Privy Council described unconscionable conduct which provided a basis for equitable relief as 'victimisation, which can consist either of the active extortion of a benefit or the passive acceptance of a benefit in unconscionable circumstances'." [Original emphasis, citations omitted.] 1. But even on that broad understanding of victimisation, there was in the present case no element of victimisation of Ms Wu by Mr Ling. There was neither active extortion nor passive acceptance of a benefit by Mr Ling. To the contrary, the unchallenged findings of primary fact were that he counselled her against, and she begged him to provide, the loans. Ms Wu was commercially sophisticated and had the benefit of independent professional advice from her personal solicitor and accountant. 2. True it is that Ms Wu may be taken to have been victimised and exploited by her Nigerian business partner, something which Mr Ling came to believe no later than when the fifth loan was made. In some cases, that might suffice to sustain equitable relief. But in the present case, Ms Wu's commercial sophistication, receipt of independent advice and the absence of any taking advantage by Mr Ling combine to place the present facts outside the scope of equitable intervention. Just as was noted in Kakavas at [28], it is necessary to have regard to an individual's privacy and autonomy. Ms Wu wanted short term finance, and was prepared to pay high interest rates, because she believed she could make a large amount of money. Some weight must be given to her choice. Many entrepreneurs are prepared to take large risks to achieve large rewards. The fact that many such ventures will fail does not make lending to them unconscionable. Nor does the fact that the lender more correctly appreciated the riskiness of the venture than the borrower. 3. The primary judge found that Ms Wu did not accept the suggestion from Mr Ling that her business partner was defrauding her. It turned out that Mr Ling's assessment was correct. But I do not see anything unconscientious in permitting Mr Ling to enforce bargains struck between her and him merely because he believed, as it turns out correctly, that her judgment was not sound. 4. Finally, I turn to the "proof of a predatory state of mind" to which the High Court referred in Kakavas at [161], recalling what Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ had said in Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315; [2003] HCA 57 at [23]: "the governing equitable principle in this field is concerned with the production by malign means of an intention to act." 1. There is nothing in the findings of fact to support the conclusion that Mr Ling's conduct, or state of mind, was predatory or malign. Again, Ms Wu's commercial sophistication and receipt of independent advice are important here. The very high interest rates do not, in the circumstances of this case, support that conclusion. The rates were high because the term was short and there had been no earlier repayments. The very large amount of interest which is now due is attributable to Ms Wu's failure to repay the amounts lent for many years. 2. I agree with the orders proposed by Bergin CJ in Eq. 3. PAYNE JA: I have had the privilege of reading the decision of Bergin CJ in Eq in draft. I agree with her Honour's reasons and the orders she proposes. I also agree with the additional remarks of Leeming JA. 4. BERGIN CJ in EQ: The appellant/cross respondent, Yan Wu (the appellant), borrowed $670,000 from the respondent/cross appellant, Albert Ling (the respondent), in accordance with five loan agreements over the period February 2009 to October 2010. The appellant did not repay the loans and the respondent brought proceedings in the Common Law Division for possession of a property that secured one of the loans and for the entry of judgment for the amounts outstanding under the loan agreements. 5. The appellant defended the proceedings until the first day of the trial (which took place on 13, 14 and 15 October 2014) on the basis that the loan agreements should be set aside under the Contracts Review Act 1980 (the CRA). The appellant also claimed that the interest components of the loan agreements should be set aside under the CRA and/or on the grounds that such provisions were unconscionable. The appellant also claimed that the default interest provision in the first loan agreement was a penalty. In opening the appellant's case at trial, counsel informed the primary judge (Button J) that the appellant was not "resisting the payment of capital" (Black 7 W–Y), leaving only the issues in relation to the interest components of the loans for determination. 6. Judgment was delivered on 30 June 2015: Ling v Pan Pac Investments Pty Ltd; Ling v Wu [2015] NSWSC 850 (the Judgment). The primary judge held that the CRA did not apply; that the interest component in the first loan was not a penalty; that the interest components in each of the other loans should be set aside on the ground that the respondent had acted unconscionably towards the appellant; and that the respondent was entitled to a rate of interest of 20% per annum on each of the second to fifth loans (Red 61 [116]–[119]). There was a hearing in respect of costs and further interest on 8 October 2015. Judgment was delivered on 20 October 2015: Ling v Pan Pac Investments Pty Ltd; Ling v Wu (No 3) [2015] NSWSC 1550 (the Costs Judgment). The primary judge ordered the respondent to pay 75% of the appellant's costs of the proceedings. 7. On 25 February 2016 the appellant filed a Notice of Appeal. On 7 September 2016 the respondent filed a Notice of Cross-Appeal. 8. The appeal and cross-appeal were heard on 28 September 2016. Mr SA Wells, of counsel, appeared for the appellant and Mr WG Muddle SC, leading Mr A Djurdjevic, of counsel, appeared for the respondent. Background 1. The appellant arrived in Australia from China in 1988. Although the dates are unclear, there is no issue that she met the respondent at the Cambridge College at which she was studying English and thereafter, they had an affair. There was some dispute at trial about the length of that relationship, however, it appears it had concluded by the time the appellant moved into the nurses' unit at Prince Henry Hospital whilst completing a bridging course to become a Registered Nurse (Blue 172). It would appear that this was by no later than 1991 (Blue 191). 2. In 1991 the appellant advised the respondent that she wished to purchase a home unit in Mortdale but needed money for the deposit. The respondent loaned the appellant $12,000 without interest and the appellant repaid the respondent promptly. 3. It is apparent that there was no further contact between the appellant and the respondent between 1991 and 2009 except for some Christmas cards from the respondent to the appellant (in 1993 and 1994) and an invitation to the appellant's wedding to Mr Terry Wormleaton on 29 November 1992 at Darling Harbour and thereafter at a restaurant in Glebe. There was an issue about the appellant's marital status at trial as the appellant claimed that she was single and "never married" (Blue 191). 4. In 1993 the appellant established what she described as a "multicultural aged care business" which she claimed received "no recognition from any funding bodies" (Blue 172). It is apparent that the appellant continued to operate this business at least up until 2013. 5. On 1 June 2008 the Corporate Affairs Commission, Abuja-Nigeria, issued a Certificate of Registration of the business name "J & D Enterprise Nigeria Limited". That Certificate identified the general nature of the business of that company as "import, export, general commerce" with a principal place of business in Abuja (Blue 223). 6. On 18 July 2008 the appellant, as director of "J & D Enterprise Ltd", wrote to the manager of "GT Bank" requesting a withdrawal of US$2.52 million from the J & D Enterprise Ltd account. That letter included the following (Blue 224): The money should be given as a bank cheque addressed to Mr Oluwadeji Arokpelumi. Daniel Oscar Davids will be picking up this bank cheque in person today. First Loan 1. In February 2009 the appellant telephoned the respondent and informed him that she wished to borrow some money. She said that she was "in the oil trading business" with a "good partner", was "buying oil from Nigeria" and would make "$16 million net" on the deal for which she needed some finance. The appellant asked the respondent whether he could lend her $300,000. The respondent claimed that the following conversation then took place (Blue 3): Respondent: That is a big sum of money. Can you trust your partner? Appellant: He is my fiancé. We have been going out for the last 3 years. I know him well and I can trust him. He has very good connections in Nigeria. Respondent: I can lend you the money but I will need security. Appellant: I can give you a mortgage over two properties. Respondent: Ok. Set out your proposal for me in a document. 1. Later that day the appellant provided an unsigned draft Statutory Declaration to the respondent with a note "Albert pls see this draft Yan 5/2/09" (Blue 21). That draft document was in the following terms (Blue 21): I, Yan Wu, of [address] do hereby solemnly declare and affirm that I borrow $300,000 Australian dollars from Mr Albert Ling. Mr Ling will be directly transferring the amount to the following account: [appellant's personal bank account] To secure this borrowing, I, Yan Wu, will give following 2 property titles to Mr Ling: ● [property at Mortdale], 2 bedroom unit worth at $350,000 ● [property at Strathfield], 2 bedroom unit worth at $360,000 The terms and conditions of paying $300,000 will be: 1. Pay 8% interest per annum calculated monthly. 2. Borrowing period is 3-12 months. 3. Nil proceeding or application fee or establishment fee. 4. If pay off the whole amount is less than 3 months. The minimum interest must be charged is $6,000.00. 5. When the whole amount is paid off. Mr Ling will return the property titles back to Yan Wu within 3 days. 6. Signing of this statutory declaration will be done after the money is transferred, and above 2 property titles is given to Mr Ling. 7. In an event if I, Yan Wu, can not pay off $300,000 plus interest at the end of 12 months. Mr Ling will sell above 2 properties and recover the loss. 1. After reading the draft Statutory Declaration the respondent advised the appellant that he wanted "9% per annum interest" and "the whole of the interest for the 12 month period to be paid in advance" (Blue 4). The respondent claimed that the following conversation then took place (Blue 4): Appellant: But I need the whole of the $300,000. I have not sufficient money to pay you the interest immediately. Respondent: I see that the Mortdale property is valued at $350,000. I'm prepared to offer you $350,000. Appellant: Ok that's good. Respondent: I don't need to tie both your properties up. I only need your Mortdale property as security. Appellant: Thank you. Respondent: I will have to go to a solicitor. Appellant: But I need the money quickly. Respondent: I understand, but I think it is best that I see my solicitor. Appellant: But they are very expensive. Respondent: If you want the money, this is how it has to be done and you will have to meet the legal fees and pay the stamp duty. Send me another document that sets out the interest rate and the amount you will pay in advance. Appellant: Ok. 1. On 6 February 2009 the appellant produced a further draft document for the respondent in which the relevant changes were made. During a discussion about that document the respondent informed the appellant that if she were to repay the monies in 12 months there was no problem with the interest rate. However he informed her that if she did not repay the money, the interest rate would increase from 9% to 11% and would be compounded. To that suggestion the appellant said that it would be "okay", because she would be "making a lot of money" (Blue 5). 2. The respondent's solicitor, Mr Solomon, prepared the loan and security documentation and forwarded them to the appellant's email address. The letter that Mr Solomon wrote to the appellant included the following (Blue 58): Should the above enclosures meet with your approval, we strongly recommend that you attend to your Solicitor with regard to the attestation of same and thereafter return the following: [documents described]. 1. Mr Solomon gave affidavit evidence that on 11 February 2009 he received an email from the appellant in the following terms (Blue 69): i got files from mr. solomon yesterday, i spoke to ling who is suppose to come and make the payment, pls let me know when you wish me to come and sign the documents, or i can sign the document at home with my other witness and drop off to your office. 1. Mr Solomon recollected that the appellant attended his office in the late afternoon of 11 February 2009 at which time she informed him that she was not liable for the payment of stamp duty on the security documents because the security was over a residential property. Mr Solomon expressed doubt about the accuracy of her statement, because the purpose of the loan was not for the acquisition of residential real estate or the refinancing of a residential mortgage. The appellant provided the executed documents to Mr Solomon on 11 February 2009. 2. The Loan Agreement provided for the loan of a principal sum of $350,000 for one year repayable on 11 February 2010. The interest rates fixed under the Agreement were recorded as follows (Blue 23): 11.00% (Higher Rate) 9.00% (Lower Rate) One (1) year's interest at the lower rate, in advance equivalent to $31,500.00. 1. The Agreement provided that if the appellant repaid the whole of the principal sum prior to the date for repayment, she would not be entitled to a rebate of the prepaid interest. It also included the following (Blue 23): Upon the Borrower's default in repaying the principal sum on the due date interest shall accrue at the higher rate. On each and every month after the due date the interest accrued shall be capitalised with the principal sum. 1. The security for the loan was a registered mortgage over the appellant's Mortdale property. The appellant also signed the mortgage documents and a declaration that the credit to be provided was to be applied "wholly or predominantly for business or investment purposes (or for both purposes)" (Blue 27). The appellant also signed an acknowledgement that prior to signing the security documents she had the opportunity to obtain independent financial and legal advice (Blue 28). It was not in issue that the appellant did not take up that opportunity. The respondent advanced the loan monies to the appellant by depositing the vast majority into the appellant's account styled "Auscare Corporation Pty Limited", a company apparently associated with the appellant's aged care business. 2. There was no further communication between the appellant and the respondent until about 6 February 2010, when the respondent telephoned her asking when he could expect repayment. The appellant advised the respondent that the "deal" was "not yet complete" but that it would be very soon. The respondent claimed that when he reminded the appellant that the penalty rate of interest would apply she responded "no problem" (Blue 7). The respondent did not speak to the appellant again until May 2010. Second Loan 1. In May 2010 the appellant telephoned the respondent and informed him that the "deal is done" but that she needed $50,000 for a "very short time" to pay "some duty". The respondent claimed that the following conversation then took place (Blue 7): Respondent: I will charge 5% per month. Appellant: That's fine. Even if it were 10% per month it would be okay as I only need the money for such a short time. Respondent: What property are you going to use as security? Appellant: I have a property at Croydon. I can give you that as security. Respondent: Okay. I want to do the loan properly. It has got to be done through a solicitor. Appellant: Why, they are too expensive? Respondent: I am sorry, this is my usual practise and I want the loan to proceed this way. Appellant: I know a solicitor at Burwood. I have known him for many years. Respondent: Okay, we can use him. 1. After this conversation the appellant arranged for the respondent to attend the offices of Lawside Lawyers at Burwood. Prior to meeting with that solicitor, Geoffrey Wong, the respondent received from the appellant a copy of the following document signed by the appellant (Blue 29): Attn: Lawside Lawyers Tuesday, 25 May 2010 Re: Lending $50,000AUD from Albert Ling Dear Sir/Madam I would like to borrow $50,000AUD from my friend Mr Albert Ling till 30th June 2010. I agreed to the interest of 5% till 30th June 2010, then 7% interest rate each month till I pay off the total amount. I need the cash to pay for customs fees for my merchandises as the transaction must be proceeded within 2-3 days. In return, I would like to mortgage my home at [address] Croydon. The value of my home is worth $1.65 Millions. Thanks for your assistance in the matter. 1. At the meeting between the appellant, the respondent and Mr Wong, the appellant asked Mr Wong how much it would cost to register the mortgage over the property. After Mr Wong advised the appellant that it would cost about two to three thousand dollars, the appellant asked whether there were any alternatives. Mr Wong then suggested that the respondent could lodge a caveat which would cost the appellant only about $800. The appellant suggested that this was "better", and Mr Wong asked the respondent whether he was prepared to have a caveat over the property instead of a mortgage. Mr Wong advised the respondent that a caveat was not "as strong as" a mortgage, but it was probably "good enough" in the circumstances. The respondent asked what would happen if he did not receive the money "on time" and Mr Wong advised him that he would be paid interest at the "penalty rate" and would have the security of the caveat over the appellant's property. The respondent then agreed to those terms. 2. Mr Wong then prepared a Loan Agreement between the appellant and the respondent and read through it with them at his office. The appellant and the respondent signed that Agreement which included the following (Blue 31–33): RECITALS A. The Borrower requires borrowing for commercial purpose due to urgent circumstances and the Lender is able to lend a sum of $50,000.00 (herein after noted as "The Principal Sum"). … IT IS AGREED 1. In consideration of The Principal Sum this day advanced by the Lender to the Borrower, the receipt of which is hereby acknowledged by the Borrower, the Borrower agree they shall repay The Principal Sum by 30 June 2010 from the day of this agreement. 2. The Principal Sum shall be repaid to the Lender by the Borrower at the end of this Agreement. 3. The Lender and Borrower agree and acknowledge that an interest of 5% per month will be payable on this Principal Sum, calculated daily and payable monthly from the date of this agreement till the day when the outstanding amount is repaid to the Lender. 4. In the event that the sum is not fully repaid (together with the interest) by 30 June 2010, the Lender is entitled to an interest of 7% per month for the portion of the Principal Sum that remains unpaid, from 01 July 2010. 1. The Agreement also provided for the respondent to lodge a caveat over the appellant's Croydon property at any time after the date of the agreement (Blue 33 cl 7). The respondent acknowledged that the Croydon property was registered in the name of Pan Pac Investment Pty Limited (Pan Pac) and it was noted that the appellant was the sole shareholder of Pan Pac (Blue 34 cl 7). It was also noted that if the Principal Sum was not repaid by 31 December 2010, the respondent was entitled to commence legal proceedings to recover the outstanding amounts without further notice (Blue 34 cl 8). It was also recorded that both parties had been afforded the "right" to obtain independent legal and financial advice prior to signing the agreement and that if they chose not to do so, they waived their right to do so (Blue 34 cl 9). Third Loan 1. There were no further dealings between the appellant and the respondent until August 2010 when the appellant telephoned the respondent and advised that she needed $65,000 "very urgently" to pay for "customs duty" before she could receive her shipment. The respondent advised the appellant that he did not have any money and that she already owed him "so much money". The appellant assured the respondent that he would get his money but that she had to go through all "these channels" before she could get the shipment. The appellant advised the respondent that he would be paid back within "one month". The respondent said that he would have to borrow money to assist the appellant and asked her whether she was willing to pay an interest rate of 10% per month. The appellant advised that she was "more than happy to pay" that rate and that she needed the money in two days. The respondent informed the appellant that he needed a "written request". 2. On 31 August 2010 the appellant provided the respondent with a document that was in the following terms (Blue 37): TO WHOM IT MAY CONCERN I, Yan Wu, of [address] Strathfield, N.S.W. solemnly declared: I hereby signed an agreement with Mr Ling and Partners to borrow $65,000 (sixty-five thousand dollars) for commercial purpose only at a interest rate of 10% (ten per cent) per month until the principle and interest are paid. I urgently need this monies very quickly, and gave two days short notice and Expect to pay back the $65,000 plus interest in one month without failed. If I defaulted, Mr Ling can exercise the power of Mortgagee Sale and auction off the property, known as [address] Croydon, N.S.W. to pay the debts due to him and his partners. 1. The respondent telephoned the appellant and informed her that he had been able to raise the money but he would need the documents to be prepared by his solicitor. The appellant informed the respondent that she did not have time to see a solicitor and that she would give him the title deeds to one of her properties as security because it was "just as good as a solicitor" and that he could sell the property if she did not repay the loan. A plan was then made for the appellant and the respondent to meet at the appellant's accountant's office in Strathfield. At this meeting the respondent observed the appellant sign the document extracted above in front of her accountant, who witnessed her signature. The appellant then handed the respondent the Certificate of Title to the Croydon property and in exchange, the respondent handed over a cheque in the sum of $65,000. Fourth Loan 1. Early in September 2010 the appellant telephoned the respondent again and asked to borrow a further $115,000 to cover "customs duty". Once again the appellant informed the respondent that she needed the money "very urgently" and that it was a "very big deal". The appellant said that she would have no trouble paying the money back and that the interest rate of 10% per month was "okay". The respondent managed to raise the money and telephoned the appellant to ask if she had prepared the relevant loan document. The appellant advised the respondent that she had done so and once again asked him to meet her at her accountant's office. 2. The document that was signed by the appellant in her accountant's office in the respondent's presence was in the following terms (Blue 38): To whom it may concern I, Yan Wu, of [address] Strathfield N.S.W, solemnly declared: I hereby signed an agreement with Mr Albert Ling and partners to borrow $115,000 (one hundred fifteen thousand dollars), for commercial purpose only at an interest rate of 10% (ten per cent) per month until the principle and interest are paid. I urgently need this monies very quickly, and gave two days short notice and expect to pay back the sum of $115,000 plus interest within two months without fail. If I defaulted, Mr Albert Ling can exercise the power of mortgagee sale and auction off the property known as [address] Croydon NSW to pay the debts due to him and his partners. On the settlement of the four loans, between A Ling and Yan Wu, I will be paid all the legal costs in the relation to the discharge of mortgage at Mortdale and the removal of the caveat at Croydon. Fifth Loan 1. The next time the respondent heard from the appellant was in October 2010 when the following conversation took place (Blue 13): Appellant: Mr Ling, I am sorry I have to approach you again and ask for more money. The customs people need another $90,000. Respondent: This sounds very strange. Do you know what you are doing? Are you being cheated? Appellant: I have done business with my fiancé before. I can completely trust him. If he tells me Customs needs more money I believe him. I don't understand why it happens like this and I don't understand their problems. But I trust my fiancé. I have already invested millions of dollars in this deal. I can't let it go now. Respondent: I am getting very worried. I have not received any repayments yet. Appellant: You'll be paid. I am going to make a lot of money. Respondent: But what if you don't? I don't think I can raise the money. 1. The respondent claimed that at this stage the appellant commenced crying and the conversation continued as follows (Blue 13): Appellant: We have been friends for more than 20 years. If you don't help me I will lose millions which I've already invested on this deal. Please help me I beg you. All the money I have borrowed can easily be repaid out of the sale out of the Mortdale and Croydon properties. You are completely covered. I beg you, please loan me the money. Respondent: Stop crying. I will see what I can do. 1. Some days later the respondent advised the appellant that he was able to raise $90,000 but it would once again be at an interest rate of 10% per month. The appellant advised the respondent that she would repay the monies by the end of November 2010 and that she would prepare a document that made clear that he could sell the Mortdale and Croydon properties if the loans were not repaid. She assured him that the monies that she owed him would be "easily" repaid out of the profits that she would receive from the deal because she was going to make $16 million (Blue 14). 2. An arrangement was made to meet at the appellant's accountant's office on 12 October 2010. On that occasion, the following document was executed by the appellant and witnessed by her accountant (Blue 39): I hereby signed an agreement with Mr Albert Ling and partners to borrow $90,000 (ninety thousand dollars) for commercial purpose only at an interest rate of 10% (ten per cent) per month until the principal and the interest are paid. I urgently need this monies very quickly, and gave only two days notice and expect to pay back the sum of $90,000 plus interest of $15,900 on 30/11/2010. If the above sum are not paid on due date, the same interest rate of 10% per month will apply till settlement. I further like to confirm the other previous loan with Mr Ling that carried 10% interest rate p.m. if not pay on promised due date also subject to 10% interest rate p.m. till settlement. Up till to day I together have five separated loans with Mr Ling, if I default, Mr Ling can exercise the power of mortgagee sale and sell off the properties known as: 1. [address] Mortdale 2. [address] Croydon to pay for the debts due to him. On the settlement of the loans (total five loans) I will pay all the legal costs in the relation to the discharge of the mortgage at Mortdale and the removal of the caveat at Croydon. I have received the amount of the loan monies $90,000.00 at to-day's date. 1. The appellant made only two repayments to the respondent: $29,700 on 29 April 2011; and $4,000 on 1 June 2011. 2. The respondent commenced the proceedings on 19 September 2012. 3. The appellant did not make any further repayments to the respondent until 2015, after the Judgment was delivered, but before the Costs Judgment was delivered. Four payments were made: $50,000 on 14 September 2015; $56,645.64 on 6 October 2015; $65,000 on 7 October 2015; and $56,300 on 8 October 2015. The appellant has repaid $293,145.64 of the total of the principal amount of $670,000 that was advanced to her by the respondent. The hearing 1. At trial the respondent relied upon his own affidavits both affirmed on 11 October 2013. He also relied upon the affidavit of his solicitor, Meyer Solomon, sworn on 15 October 2013. The appellant relied upon her affidavit affirmed on 23 September 2013. The appellant and the respondent were cross-examined. Mr Solomon was not cross-examined. 2. The appellant made many allegations against the respondent in her affidavit. These included that he knew that she was in extreme hardship and still expected her to pay him "exorbitant interest" (Blue 173 U–W); and that he was in breach of ASIC requirements in providing "credit activities" (Blue 177 Q–Z). 3. In her oral evidence, the appellant made a new claim that the respondent informed her that the interest component in respect of the loans was a "formality" and that she understood that the respondent never intended to recover any interest on the loans from her (Black 137 W–138 E). 4. During her cross-examination the appellant was shown the wedding invitation referred to earlier (at [29]). The appellant agreed that the invitation had been sent to the respondent and that it was necessary to RSVP to Mr Wormleaton's address. The appellant denied that she was ever married to Mr Wormleaton (Black 109 X) and gave the following evidence in cross-examination (Black 111–115): Q. You sent one to Mr Ling, didn't you? A. Yes. Q. And you got married on 29 November 1992, didn't you? A. No. Q. What happened? A. I used the card to tell Mr Ling to back off because he really pursued me hard. Q. You had an invitation especially printed -- A. Yes. Q. -- so that you could tell Mr Ling to back off? A. Yes. Q. What if he had accepted this invitation, what were you going to do then? A. I don't know. … Q. There's an address at the bottom of the invitation [address] Peakhurst? A. Yes. Q. Is that your address? A. No. Q. Whose address is that? A. Terry's address. Q. Terry's address? A. Yes. Q. If Mr Ling was going to respond to this, he would be responding to Terry Wormleaton at Peakhurst? A. Yes. … Q. If you were having a card printed up for the purpose of dissuading Mr Ling, why not just have it sent with Chinese characters? A. That was the idea at that time. I don't know why but I was told it was very nicely made and look really authentic. Q. Whose idea? A. My idea. Q. Make it look authentic? A. Yes. 1. The appellant was also cross-examined about the Loan Agreement and other documents prepared by the respondent's solicitor, Mr Solomon, in respect of the first loan. She gave the following evidence (Black 151): Q. Did you seek some advice concerning the documents relating to this loan? A. No. Q. You knew you could have sought advice? A. Yes, they asked me. Q. They asked you to seek advice? A. Yes, but we – me and Mr Ling just smiled, like in his office me and Mr Ling sit together and we just smile at Mr Solomon because we had a deal which I don't have to pay interest. That is the way that Mr Ling tried to secure his principal, I thought, yeah I did not -- … Q. I take it that you say that prior to you preparing this document [her statutory declaration referred to earlier] that you already had an arrangement with Mr Ling that he was only going to seek the principal, no interest, is that right? A. Yes. Q. And yet when you drafted your proposal for Mr Ling which is at page 21, you included an interest rate? A. He told me to put this information on. 1. The appellant was then asked about the documentation in relation to the second loan and gave the following evidence (Black 153): Q. So you prepared this document, is that right? A. Yes, he asked me to put these things on. Q. He asked you to put down the terms of the loan that you were prepared to agree to, didn't he? A. No, he asked me to put this on, I did not challenge his term and condition and interest rate because this is arrangement between us and I had no doubt that he had no doubt at that time that our – no doubt that he knew I would pay him back the principal, but as for this high interest, and I don't believe he would ever thought to sought this interest amount from me because he is my friend, I treat him as my rock and I know him for all these years and I borrow money many times from him, never have any interest. 1. The appellant was cross-examined about her conversations with Mr Wong, her solicitor from Lawside Lawyers, at the time of the second loan and she gave the following evidence (Black 154): Q. Did you tell Mr Wong at any stage that there was an arrangement between you and Mr Ling whereby no interest would be paid? A. No. Q. Did Mr Wong go through this document, the document he prepared, with you? A. Yes, he just quickly explained and we exchanged the money in the office actually, so just treat it as very usual simple transaction. He say he done this, he done that and we -- … Q. He explained the terms of the documents to you, is that right? A. Yes, I can't remember in detail, but he maybe. 1. The respondent was cross-examined in respect of his knowledge or suspicion that the appellant was the victim of a scam. He gave the following evidence in cross-examination (Black 60): Q. But you see, isn't it the fact that every time she asked you for a loan, you warned her? A. I wanted? Q. No, you warned her? A. Warn her not every time, no, only I think at loan 4 I say be "careful", you know, "Why do you, every couple of months you want more money?" She told me she have to pay the duty before the goods will released. Q. You see yesterday at transcript page 63 line 45 when I was asking you some questions about whether or not you thought it was a scam, you said: "Well, if it crossed my mind, I think later on four, you know she asked number 3, I say, what be careful, you know, and I don't think the second one, crossed my mind, she say she just pay for the duty." So yesterday you said that you warned her when she was asking for the third loan, is that right? A. Well, which loan when she asked me I say, you know, warn her, I don't remember, I don't remember when I ask her, but I did ask her once, I did, but when I couldn't remember. Q. Just once you asked her what? A. Well, be careful. Q. So, your evidence is that on one occasion you said to her "be careful"? A. Yeah. Q. So your evidence is that you didn't warn her or tell her to be careful every time that you advanced money? A. No, not every time, no. 1. Whilst the respondent was giving evidence during the first day of hearing, he had some notes with him in the witness box. Senior Counsel for the appellant called for those notes and the booklet that was produced was marked MFI 4. On the second day of the trial the respondent was cross-examined as follows (Black 61–62): Q. … Now Mr Ling, the MFI 4 which was the document you had with you in the witness box yesterday contains notes that were made by you, is that correct? A. Yes. Q. They contain notes that relate to this case? A. Yes. … Q. And it says "Every time she ask me for a loan, I always warn her". Do you see that? A. Yes. Q. That's your handwriting isn't it? A. Yes. … Q. So the fact, isn't it, now that I have shown you that note you accept that every time she asked you for a loan, you always warned her, that's the fact, isn't it? A. Could be, could be yes, because I can't remember very clearly, yes. Q. Well, just a minute. You say you can't remember very clearly but your own note says "Every time she ask me for a loan, I always warn her"? A. Well, could be, yes. Q. What do you mean "could be"? That's what you've written, isn't it? A. Yes. Q. That's the truth, isn't it? A. All right, is true, okay. 1. The respondent agreed that by the time of the third loan, he was concerned that something could be going wrong with the oil transaction (Black 70 N). He gave the following evidence in cross-examination in this regard (Black 71): Q. And that's because you thought that at that time that Ms Wu probably wouldn't be able to repay this loan for any oil transactions, didn't you? A. I'm concerned. I'm concerned, yes. Q. But the reason you advanced the $65,000 in the face of those concerns was because she was giving you good security? A. Yes. Q. You thought at the time you advanced it, that you may well have to use this security and sell the property at Croydon eventually, didn't you? A. If the business fail and she can't repay me, yes. 1. The respondent accepted that in respect of the third loan, the appellant needed the funds "extremely urgently"; she was "desperate for finance"; and that she was relying upon him (Black 73 F–K). 2. The respondent agreed that by the time he made the fifth loan to the appellant, he suspected that the oil business she was involved in was a scam. He agreed that the only reason he advanced the $90,000 was because by that stage he still regarded himself as having sufficient security in the event that the appellant received no money from the oil transaction (Black 76 K–O). The Judgment 1. The primary judge identified the issues for determination as: (1) whether the appellant should pay the respondent any interest on the loans; (2) if so at what rate; (3) whether the CRA applied to the transactions; and (4) whether any interest component should be disallowed on the basis that it was an unlawful penalty (Red 42 [14]). 2. The primary judge did not accept the appellant's claim that the respondent had told her that if the oil business did not succeed she would not be required to pay any interest on the loans. In this regard the primary judge made the following findings (Red 48): 52. First, I reject the assertion by Ms Wu that Mr Ling stated that she could repay the loans with no interest whatsoever unless her putative investments succeeded. I say that because, as I have discussed above, in the documents that Ms Wu prepared when she was acting for herself, she said nothing about that. And yet, if her assertion were correct, it surely would have formed the starting point of her resistance to the claim of Mr Ling. 53. Furthermore, my assessment of Mr Ling in the witness box is that he is a very astute businessman who would not have lent such large sums of money to a former lover who had become a mere acquaintance without substantial interest being charged. In saying that, I have not forgotten the undisputed position that Mr Ling had done exactly that for Ms Wu many years before; but that was in a rather different context. 54. Quite apart from the impression Mr Ling made on me in the witness box, the surrounding circumstances (such as preparation of documents, the involvement of a lawyer and so forth) are not consistent with transactions with regard to which no interest was to be payable. 55. As well as that, the proposition that Mr Ling would charge no rate of interest at all if the oil business did not succeed, but very high rates of interests (sic) if it did succeed, has a certain internal incoherence. 56. In short, I am not satisfied on the balance of probabilities that Mr Ling ever said that there would be any circumstances in which Ms Wu would not have to pay any interest on the loans. 1. The primary judge also dealt with the appellant's explanation in respect of the wedding invitation as follows (Red 49): 57. Secondly, I reject the explanation given by Ms Wu for the wedding invitation. I do not believe that she went to such remarkable lengths to divest herself of a former lover who was bothering her. Nor do I think that she can cogently explain why the invitation was not in Chinese alone, if that was its only purpose. 58. Although I suspect that the wedding invitation was in fact prepared to advance dishonestly the immigration position of Ms Wu, I am not satisfied of that on the balance of probabilities. I am unable to determine whether in truth she has ever been married. 1. The primary judge recorded that he had substantial concerns about the appellant's credibility and had approached any assertion that she made that was not against her own interest, or accepted by the respondent, or corroborated by documents or other surrounding evidence, with caution (Red 49 [60]). The primary judge reached the same conclusion in respect of the credibility of the respondent (Red 50 [61]). 2. The primary judge found that the appellant was a highly experienced businesswoman who had found significant success in the aged care industry and had built up an impressive property portfolio. The primary judge was also satisfied that when the appellant entered into the loan arrangements with the respondent, she was by no means naïve with regard to financial matters. His Honour's use of the expression "quite the contrary" implies a satisfaction that the appellant was very experienced in these matters (Red 50 [64]). However, the primary judge accepted that the appellant had sought romantic companionship on the internet and that things had eventually spiralled "out of control". His Honour concluded that by the time of the first loan, the appellant was "thoroughly unable to see what would have been apparent to a fully informed, objective onlooker: that she had been dragged into a deception, and every sum of money that she advanced was simply making things worse" (Red 50–51 [65]). 3. The primary judge was satisfied that the respondent was a very astute business person and that from the outset he seriously doubted the wisdom of the appellant's putative investment in oil fields in Nigeria (Red 51 [66]). His Honour was satisfied that from the "first moment" that the appellant informed the respondent of her aim to make a profit in the order of $16 million, "alarm bells were ringing" in the respondent's mind (Red 51 [67]). The primary judge found (Red 51): 68. Certainly by the time of the provision of the fifth loan, I consider that Mr Ling affirmatively believed that Ms Wu was being defrauded. That finding is based on a number of factors. 69. First, none of the money advanced had been repaid in a timely manner. 70. Secondly, Ms Wu was expressing the need for the money as being more and more urgent. 71. Thirdly, the time between the provision of one loan and the request for the next one was (generally) becoming shorter and shorter. 72. Fourthly and most importantly, not so much as $16,000 of profit had come into the hands of Ms Wu to the knowledge of Mr Ling, let alone $16 million. 1. In dealing with the question of unconscionability his Honour referred to the relevant authorities (Red 54–56 [89]–[94]) and said (Red 56): 95. In short, there was no dispute between the parties about the legal test that I need to apply to the facts as found by me. It is as follows. First, has the defendant (being the moving party in resistance to the loan contracts) satisfied me on the balance of probabilities with regard to any or all rates of interest attaching to the loans that the defendant was in a position of special disadvantage vis-à-vis the plaintiff? Secondly, if so, has she persuaded me that, because of that position of special disadvantage, the defendant was incapable of making decisions in her own best interests? Thirdly, if so, has she persuaded me that, at the time of any agreement about the interest rate, the plaintiff, either knowing of it or wilfully ignorant of the position of special disadvantage of the defendant, took advantage of it? 1. The primary judge found that at the time of the first loan the respondent suspected that the appellant was "at the least, out of her depth" (Red 56 [96]). His Honour was also satisfied that the respondent suspected that the appellant was "making a serious error of judgment"; and that there was "some possibility" that the appellant "was being defrauded, and was misguided in her belief that she would profit to the tune of $16 million" (Red 56 [96]). However, the primary judge recorded that he did not find that at "the initial stage" the respondent actually knew of, believed in or shut his eyes to the fact that the appellant was in a position of special disadvantage (Red 56 [97]). His Honour did not consider that at the stage of the first loan the respondent had taken advantage of "the special disadvantage" of the appellant because the 9% per annum rate of interest was "eminently reasonable" (Red 56 [98]). 2. In those circumstances, the primary judge did not interfere with the default rate of interest of 11% in the first loan (Red 57 [99]). 3. The primary judge then dealt with the events from the time of the second loan, noting that the interest rate had jumped from 9% per annum to 60% per annum; that the first loan had not been repaid; that the respondent had a chance to reflect on the whole situation; and that the demeanour and presentation of the appellant was more desperate when she spoke of things being "very urgent" (Red 57 [100]). His Honour then found: 101. I consider that the defendant has established that, at the time of the second loan and thereafter, she was suffering from a special disadvantage that meant she was incapable of protecting her own best interests; namely, her complete inability to see that she was in the process of being defrauded in a very damaging way. I also find that, by the time of the second loan, Mr Ling had come to believe that that was what was occurring or, at the very least, was deliberately shutting his eyes to the fact that that was what was occurring. The defendant was in a position of special disadvantage with regard to the plaintiff because she was blind to what was occurring whereas he was, at the least, wilfully blind to it. By charging a rate of interest of 60% per annum, I consider that Mr Ling took advantage of the debilitated position of the defendant. I consider that it would be unconscionable to permit Mr Ling to enforce that rate of interest against Ms Wu. That is because it would not be fair, just and reasonable for Mr Ling to have the benefit of that rate of interest. 102. Having said that, I have already rejected the proposition that at any stage Mr Ling agreed that there would be no interest charged if there were no profit made. I also reject the submission of senior counsel for the defendant that it would be appropriate for me [to] enter a judgment that reflects no interest at all, or only a nominal rate of interest. On the contrary, Mr Ling was granting a short term loan in a reasonably informal setting and in circumstances in which he was entitled to be protected by an interest rate far greater than the one that, for example, a bank would charge on a home loan. I consider that, seeking to enforce a loan that is conscionable from the perspective of both parties, interest should be charged at a rate of 20% per annum on the second loan. 103. I am of the same view with regard to the subsequent loans, for the same reasons. I consider that the defendant has established unconscionability with regard to the interest rate attaching to the third, fourth, and fifth loans. Indeed, the case for unconscionability becomes stronger with regard to each further loan, because I consider that Mr Ling came to see (or, at least, deliberately not see) more and more clearly what was happening. 104. In those circumstances, I have considered whether the rates of interest allowable on each subsequent loan should be reduced, in order to reflect the growing unconscionability of that state of affairs. But on reflection, I consider that so to order would be in the nature of a punishment of Mr Ling. That is not the purpose of the doctrine; rather, its purpose is merely relief from unconscionability. I consider that, instead, I should impose a rate of interest that it would not be unconscionable for Mr Ling to receive and for Ms Wu to pay. I consider that Mr Ling should have interest on the third loan at the rate of 20% per annum. 105. I take the same approach with regard to the fourth and fifth loans. Indeed, by the stage of the fifth and final loan, I consider that Mr Ling affirmatively believed that Ms Wu had been and was being defrauded; that she would never see any profits; and that she was in the process of losing a great deal of money. In those circumstances, it would again be unconscionable for Mr Ling to have, with regard to the fourth and fifth loans, interest greater than at the rate of 20% per annum. 106. In short, I do not consider that there was any unconscionable conduct on the part of Mr Ling with regard to the first loan. In contrast, in light of what he at least shut his eyes to, I consider that he behaved unconscionably, in all the circumstances, towards Ms Wu with regard to the second, third, fourth and fifth loans. The longer the situation pertained, and the clearer it became to Mr Ling that the defendant was incapable of protecting her own financial interests, the more unconscionable his conduct became. Nevertheless, I consider that there should be no further reduction in interest rates in order to reflect that growing unconscionability. The rate of interest payable on the second to fifth loans should be 20% per annum. 1. The primary judge rejected the appellant's submission that he should disallow the interest rate on default with regard to the first loan on the basis that it was a penalty. His Honour considered that the increase in the rate of interest from 9% to 11% was a reasonable reflection of the respondent's enforcement and other costs in the event of default, and a reasonable pre-estimate of the cost of being kept out of his money, as indeed he had been for years (Red 59 [108]–[109]). 2. The primary judge also concluded that the CRA did not apply to the circumstances of the case (Red 59–61 [110]–[115]). 3. The primary judge recorded his conclusions as follows (Red 61): 117. Mr Ling behaved unconscionably against Ms Wu with regard to the interest rates that were set with regard to the second to fifth loans, but not the first loan. 118. The interest rate on default of the first loan does not offend against the law against penalties. Accordingly, no aspect of the first loan will be the subject of interference by me, and my orders should reflect the rate on default of 11% per annum. 119. On the second, third, fourth and fifth loans, Mr Ling is entitled to a rate of interest of 20% from the date of default of each loan. 120. If I were wrong in my analysis of the principles of unconscionability, I would not permit Ms Wu to rely on the Act, due to the prohibition contained in section 6 thereof. The Costs Judgment 1. The primary judge indicated in the Judgment that unless notification was given that should alter the position with regard to the question of costs before the next hearing, it was appropriate that on the next occasion, when Short Minutes were to be filed with the Court, an order would be made that the respondent pay 75% of the appellant's costs of the proceedings. 2. In dealing with the question of costs in the Costs Judgment the primary judge referred to the efforts made by the respondent to recover the outstanding amounts, including offers of compromise (Red 67.7 [19]). His Honour also referred to the respondent's submission that he had been the real victor at the substantive hearing because on the first day the appellant had accepted liability for repayment of the principal; the appellant had never disavowed the claim that she need not pay any interest; the first loan was not the subject of interference by the Court; and the only issue upon which the respondent failed was the issue of the quantum of interest (Red 67.7 [20]). The respondent submitted that the appellant should pay his costs because he succeeded in the litigation. The primary judge said (Red 67.8): 21. Those submissions have force. Nevertheless, I do not propose to deviate from my foreshadowed course. That is so for the following reasons. 22. First, the particular offers to which I was invited were made in the context of longstanding efforts to settle the matter by negotiation on both sides. I consider that it would be artificial to pluck particular letters from the bulk of correspondence, and to give them determinative weight. 23. Furthermore, at the end of the recent hearing, counsel for Mr Ling did not gainsay the submission of senior counsel for Ms Wu that those offers complied neither with the requirements of r 20.26 of the Rules about offers of compromise, nor with the requirements of Calderbank v Calderbank [1975] 3 All ER 333. As I have said, his ultimate position was merely that those offers could feed into my discretion. 24. Nor did counsel gainsay the submission on behalf of Ms Wu that, in any event, as a matter of mathematics (and irrespective of the approach taken to the commencement date of interest after judgment) Ms Wu "did better" than those offers, by way of my substantive judgment. 25. Thirdly, it is true that Ms Wu did not maintain her stance about the repayment of principal. It is also true that I rejected the proposition that she should be required to repay no interest at all. 26. Nevertheless, to my mind, the central issue litigated between the parties at the substantive hearing was really the rate of interest that Ms Wu should pay on each of the five loans. 27. The position of Mr Ling through his counsel at the end of the hearing was that those interest rates should not be the subject of any interference by me. My judgment firmly rejected that proposition, and effected a very substantial reduction in the interest rates of four of the five loans. 28. In short, it is true that each party found success and failure on different issues litigated at the hearing. But I maintain the opinion that, although each had success to a degree, Ms Wu was the more successful of the two. Whilst I do not consider that Mr Ling should pay her costs in their entirety, I maintain the opinion that payment by him of 75% of Ms Wu appropriately reflects the measure of success enjoyed by the parties, and can be understood as costs following the event. That assessment should also be understood as being the result of my application of the principles in Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38] to the evidence placed before me about costs, when seen in light of my substantive judgment. Grounds of appeal 1. The appellant appeals from the Judgment on the grounds that: (1) in respect of the second to fifth loans the primary judge erred: (a) in allowing any interest on those loans; (b) in allowing interest of 20%, "rather than a much reduced rate"; and (c) in reducing the rate of interest from the date of default, rather than the date of the loan; and (2) in respect of the first loan the primary judge erred: (a) in failing to set aside the interest component of that loan; and (b) in failing to find that the default interest rate constituted a penalty (Red 70). 2. The respondent appeals from the Judgment on the grounds that the primary judge erred: (1) in finding that the appellant was under a relevant disadvantage in the circumstances surrounding the entry into the second to fifth loan agreements; (2) in granting relief to the appellant in the circumstance of the finding that the appellant had not been under any misapprehension since 2011, yet had refused to repay even the principal under any loan; and (3) in failing to consider and allow annual compounding of unpaid interest at the rate of interest allowed. The respondent also appeals from the Costs Judgment on the ground that the primary judge erred in ordering the respondent to pay 75% of the appellant's costs (Red 74). Relevant disadvantage 1. It is appropriate to first determine the respondent's contention that the primary judge erred in finding that the appellant was under a special disadvantage because if that finding was erroneous, there was no jurisdiction for the Court to intervene and the appellant's grounds of appeal (1)(a) to (c) and the respondent's grounds (2) and (3) fall away. 2. The respondent submitted that there was no sound basis for finding that the appellant was suffering from a special disadvantage. The respondent also submitted that, in any event, the disadvantage identified by the primary judge related to her dealings with a third party, the fraudster in Nigeria. It was also submitted that the primary judge did not find, and could not have found, that the appellant was unable to make worthwhile decisions as to her own interests in relation to her dealings with the respondent. 3. The relevant findings in respect of the appellant's special disadvantage made by the primary judge were: ● In 1993 the appellant started an aged care business that was very successful and by 2009, it employed 20 to 30 people (Red 43 [21]); ● Between 1996 and 2004 the appellant built up a substantial property portfolio and became a person of substantial means (Red 43 [22]); ● Whilst seeking romantic companionship on the internet, the appellant became acquainted with a man (allegedly a US citizen working in the "lucrative Nigerian oil industry") who persuaded her to invest over $5 million in a "supposed oil trading" business (Red 44 [25]); ● The appellant was the victim of an elaborate and ongoing fraud and lost the millions of dollars she had invested (Red 44 [26]); ● The appellant was a highly experienced businesswoman with a forceful and determined character (Red 50 [64]); ● Surprisingly, this experienced businesswoman had been thoroughly duped by a fraudster (Red 50 [65]); ● By the time of the first loan the appellant was thoroughly unable to see what would have been apparent to a fully informed objective onlooker: that she had been dragged into a deception, and every sum of money that she advanced was simply making things worse (Red 50–51 [65]); ● From an "early stage" the respondent "seriously doubted the wisdom" of the appellant's putative investment (Red 51 [66]); ● From the first moment that the appellant informed the respondent of the putative investment, alarm bells were ringing in the respondent's mind (Red 51 [67]); ● At the time of the first loan the respondent suspected that the appellant was out of her depth and also suspected that she was making a serious error of judgment (Red 56 [96]); ● At an early stage the respondent suspected there was some possibility that the appellant was being defrauded and that she was misguided in her belief that she would make $16 million profit (Red 56 [96]); ● At the time of every loan the respondent warned the appellant to "be careful" (Red 46 [36]); ● At the time of the second loan the appellant's demeanour was "more desperate" as she referred to things being "very urgent" (Red 57 [100]); ● From the time of the second loan the appellant was suffering from a special disadvantage that meant she was incapable of protecting her own interests. That special disadvantage was her complete inability to see that she was in the process of being defrauded in a very damaging way (Red 57 [101]); ● At the time of the third loan the respondent was "concerned" that something could be going wrong with the oil transaction and was also concerned whether the appellant could repay the loans from the transaction (Red 46 [40]); ● At the time of the fifth loan the respondent asked the appellant whether she was "being cheated" (Red 47 [45]); ● By the time of the fifth loan the respondent was "extremely worried" that the oil business was a scam; suspected it was not a legitimate business; and was concerned that it was "possible" that the appellant would lose the invested amounts "as a result of her being defrauded" (Red 47 [45]); ● By the time of the fifth loan the respondent affirmatively believed the appellant was being defrauded (Red 51 [68]); ● The appellant was at a special disadvantage vis-à-vis the respondent because she was blind to what was happening and the respondent was at least wilfully blind to it (Red 57 [101]); ● The respondent took advantage of the debilitated position of the appellant by charging a rate of interest of 60% per annum (Red 57 [101]). 1. The primary judge recorded that he did not find that at the time of the first loan "Mr Ling actually knew of, or believed in, or shut his eyes to, the fact that Ms Wu was in a position of special disadvantage" (Red 56 [97]). This finding is a combination of matters of fact and the legal concept of "special disadvantage". However, it is clear that the primary judge intended to convey that he was not satisfied that the respondent knew of, believed in, or shut his eyes to the appellant's lack of knowledge that she was being defrauded. 2. The respondent contended that there was no finding that the appellant was at a special disadvantage vis-à-vis the respondent. This contention cannot be sustained. The primary judge found that the appellant's special disadvantage was that she could not see that she was being defrauded. The primary judge did find that this was a special disadvantage vis-à-vis the respondent because she did not know she was being defrauded, whereas the respondent believed the appellant was being defrauded and was wilfully blind to that situation (Red 57 [101]). 3. In the cases in which relief has been sought on the basis of unconscionable conduct, the special disability or disadvantage has been identified as an inability of the individual to look after their own interests by reason of some attribute of age and lack of understanding of language: Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; failing intellect and/or drunkenness: Blomley v Ryan (1956) 99 CLR 362; infatuation and dependence: Louth v Diprose (1992) 175 CLR 621; and special dependence: Bridgewater v Leahy (1998) 194 CLR 457. The circumstances affecting a party which may induce a court of equity to set aside a transaction are varied and cannot be satisfactorily classified: Blomley v Ryan per Fullagar J at 405. In Blomley v Ryan Kitto J said at 415: This is a well-known head of equity. It applies whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands. 1. Kitto J referred to a number of cases in respect of the "well-known head of equity" that were all examples of what might (with caution) be referred to as "constitutional" disadvantages (Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51 per Gleeson CJ at 63–64 [9]–[11]) such as mental weakness: Longmate v Ledger (1860) 2 Giff. 157; 66 E.R. 67; sickness: Clark v Malpas (1862) 31 Beav. 80; 54 E.R. 1067; and age, infirmity and ignorance: Baker v Monk (1864) 33 Beav. 419; 55 E.R. 430; Fry v Lane (1889) 40 Ch D 312. 2. There were no such attributes in the appellant. To the contrary, as referred to above, the primary judge found that the appellant was a highly experienced businesswoman who had achieved significant success in establishing and operating her own business; had built an impressive property portfolio; and was experienced in financial matters. There was nothing in the appellant's make-up (or constitution) that was wanting or that could be described as a disadvantage, let alone a special disadvantage. Rather, it was the situation or position in which the appellant had placed herself through her investment activities, in what she thought was the Nigerian oil business with the man she described as her "fiancé", that the primary judge found as the basis of the appellant's special disadvantage. She was being duped or defrauded. 3. In Commercial Bank of Australia Ltd v Amadio Mason J referred to the passages of the judgments of Fullagar J and Kitto J in Blomley v Ryan, referred to above, and said at 462: It is not to be thought that relief will be granted only in the particular situations mentioned by their Honours. It is made plain enough, especially by Fullagar J., that the situations mentioned are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition or circumstance is placed at a special disadvantage vis-à-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word "disadvantage" by the adjective "special" in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party. 1. Mason J also said at 467: As we have seen, if A having actual knowledge that B occupies a situation of special disadvantage in relation to an intended transaction, so that B cannot make a judgment as to what is in his own interests, takes unfair advantage of his (A's) superior bargaining power or position by entering into that transaction, his conduct in so doing is unconscionable. And if, instead of having actual knowledge of that situation, A is aware of the possibility that that situation may exist or is aware of facts that would raise that possibility in the mind of any reasonable person, the result will be the same. 1. The respondent did not challenge the primary judge's finding that the appellant "was thoroughly unable to see what would have been apparent to a fully informed, objective onlooker" (Red 50–51). However the respondent submitted that this was a hindsight view of what had in fact occurred, that is, that the appellant had been duped and defrauded by a third party. The respondent also submitted that although by definition, a person who is duped has failed to understand or know what was happening, this does not mean that the person is under a special disability or disadvantage in respect of dealings, other than with the person who is defrauding them. The respondent emphasised that the primary judge did not make a finding that the appellant was under a disability from the outset of her dealings with the respondent. 2. The appellant voluntarily engaged in a risky overseas investment and the respondent submitted that in those circumstances, she should not be able to call upon equitable principles to be redeemed "from the coming home of risks inherent in the business": Kakavas v Crown Melbourne Limited (2013) 250 CLR 392 at 401–402 [20]. 3. In Kakavas v Crown Melbourne Limited, the appellant, Mr Kakavas, contended that Crown had exploited his inability (by reason of his pathological urge to gamble) to make worthwhile decisions in his own interests while actually engaging in gambling. Mr Kakavas' position as a "problem gambler" was not sufficient to obtain relief because it was held that he made a choice to expose himself to loss by choosing to enter the casino. The Court said (at 402 [22]): It is telling that the parties referred to no decided case in which the doctrine articulated by Mason J in Amadio [(1983) 151 CLR 447] has been successfully invoked by a plaintiff complaining of the net loss suffered on account of multiple transactions conducted over many months with a putative "predator". This circumstance does not mean that the Amadio principle cannot apply to multiple transactions, but it does highlight the practical difficulty which confronts the appellant in his claim that the transactions in which he engaged are fairly described as a case of victimisation. 1. The Court observed that once attention was directed to Mr Kakavas' gambling enthusiasm while at the tables in the casino as the occasion "on which his special disadvantage was in play", it became difficult to see a good reason to single him out as a person suffering from a "special" disadvantage by reason of his relationship with Crown (at 406–407 [38]). The Court referred to the observations made by Mandie JA in the Court of Appeal with approval, including the following (at 407 [38]): The special disability or disadvantage must be one that exists 'in dealing with the other party' and that puts the person at a disadvantage in dealing with that other party. 1. The respondent submitted that the primary judge did not find that the appellant was rendered incapable of making worthwhile decisions in her own interest in respect of her dealings with the respondent (as opposed to the fraudster), and in particular, in respect of the negotiation of the rate of interest. It is true that the primary judge did not make such a finding. The relevant finding was limited to the differing perceptions. The appellant could not perceive the fraud, whereas the respondent could perceive it. 2. The appellant was advised to obtain independent legal advice and was repeatedly warned to be careful. The second loan agreement was prepared by the appellant's solicitor, Mr Wong. The third to fifth loan agreements were apparently prepared with the assistance of, or at the least were witnessed by, the appellant's accountant. 3. The respondent knew that the appellant had arranged for a solicitor to prepare the second loan agreement and that the appellant's accountant was in some way involved in respect of the third to fifth loan agreements. There is no issue that the respondent warned the appellant to "be careful", signalling to her the prospect that without such care she may be taken advantage of by the people in the supposed oil business in Nigeria. The respondent went so far as to ask the appellant in relation to the fifth loan whether she was being "cheated". Notwithstanding these warnings and questions, the appellant effectively assured the respondent that her judgment about the oil business was sound. 4. The appellant's lack of awareness or knowledge that she was being defrauded was obviously material to the making of a judgment about her own best interests. If she had known that the supposed oil business was a scam, she could have made an informed decision not to seek any further loans to make further "investment". In Turner v Windever [2005] NSWCA 73 the appellant "did not know of something material to her making a judgment as to her best interests" (at [68]). Giles JA (with whom Santow JA (writing separately and agreeing with the outcome) and Bryson JA agreed) said: 72. Mere unawareness of a matter material to the interests of a party to a transaction is not a special disadvantage. That is a commonplace of commercial and other negotiations, and good conscience does not require the other party to guard against the party inadequately informing himself any more than it requires the forfeiture of a superior bargaining position (see Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51 at [10], [15]-[17], [56], [185]). 73. If the unawareness is due to a condition or circumstance of the kind to which Fullagar and Kitto JJ referred, equitable principles of unconscionability arise. If the unawareness is not for that reason, but is due to misrepresentation or statutory misleading or deceptive conduct or amounts to vitiating mistake under contractual principles, relief may be available, but these distinct principles are not swallowed up by an amorphous concept of unconscionability. As Gleeson CJ remarked in Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd at [7] — "In everyday speech, "unconscionable" may be merely an emphatic method of expressing disapproval of someone's behaviour, but its legal meaning is considerably more precise." 74. This remains the case if the unawareness is because the party has been badly advised. Notwithstanding the bad advice, the party may have the capacity to make a judgment as to his best interests. It may be a flawed judgment because the capacity is exercised upon incomplete knowledge or bad advice, but there is an important difference between a person under a condition or circumstance disabling him from making a sound judgment and a person who is able to make a judgment but fails to make a sound one. 1. Giles JA accepted that relief "may" be available in circumstances where the relevant unawareness has been induced by misrepresentation or other misleading conduct. However, the relevant conduct is that of the party the subject of the claim of unconscionability; not some other person. As the respondent submitted, a person who is duped or scammed is intrinsically unaware of the reality. That is because the fraud is perpetrated on an unwitting or unknowing person. The appellant was effectively warned by the respondent that this may be the position, but decided that her judgment about the people with whom she was dealing was sound, when it was not. The appellant in this case fits within what Giles JA described in Turner v Windever as a person who is able to make a judgment, but fails to make a sound one. She could still make a judgment (as unsound as it was) about whether she borrowed money at a particular rate of interest to continue to pay it to the fraudster. 2. I am not satisfied that the position in which the appellant found herself was a special disadvantage vis-à-vis the respondent. I am satisfied that the primary judge fell into error in finding that the appellant was suffering a special disadvantage in her dealings with the respondent. 3. Even on the basis that the appellant was suffering from a special disadvantage, it was necessary for the primary judge to decide whether the respondent's conduct amounted to taking "unconscientious" advantage of the appellant. 4. The primary judge focused on the rate of interest after the appellant failed to repay the short term loans to reach his conclusion that the respondent's conduct was unconscionable. The reason the rate of interest increased was, of course, the appellant's failure to repay the loans. It was the appellant who approached the respondent to obtain the loans in circumstances where, at least on one occasion, the respondent had to borrow the money to provide it to the appellant. That conduct can hardly be described, and was not described, as "predatory". Rather, it was conduct that allowed the appellant to obtain the funds to pursue her investment in a business that she regarded as one that would bring her large profits. 5. The respondent accepted that there was a significant jump in the interest rates between the base rate of interest in the first loan and the interest rates in the second to fifth loans. However, it was submitted that the circumstances warranted such interest rates. The appellant was in default in respect of previous loans at the time of entering into each new loan and the subsequent loans were for a term of only one month. The primary judge did not find that the provisions of the loan agreements or that the rates of interest (5% and 7% for the second loan and 10% for the third to fifth loans) for the term of the loans were unconscionable. Rather, it was only the effect during the period in which the appellant failed to repay the loans that was found to be unconscionable. 6. The appellant, with the assistance of her solicitor (for the second loan) and her accountant (for the third to fifth loans), agreed to a regime that she knew would impose a very high interest rate if she did not repay the loans within the agreed timeframe. The appellant agreed that the respondent could sell the properties should she not be in a position to repay the loans. The appellant could have avoided the higher rate of interest by either refinancing to pay out the loans provided to her by the respondent or selling one or other of the properties. 7. As has already been said, the appellant repaid only $33,700 in four years. 8. I am satisfied that the primary judge fell into error in concluding that the respondent's conduct was unconscionable in the circumstances. Accordingly, there was no jurisdiction to interfere with the interest rates in the loan agreements. 9. I am satisfied that the respondent's first ground of appeal that the primary judge fell into error in finding that the appellant was under a special disadvantage in the circumstances surrounding the entry into the second to fifth loan agreements is made out. In those circumstances, it is unnecessary to consider the other grounds, except the contention in relation to the primary judge's conclusion that the default interest rate on the first loan was not a penalty. A penalty 1. The relevant clause in the first loan agreement relating to the appellant's contention that the primary judge fell into error in concluding that the default interest rate on the first loan was not a penalty was in the following terms: Upon the Borrower's default in repaying the principal sum on the due date interest shall accrue at the higher rate. On each and every month after the due date the interest accrued shall be capitalised with the principal sum. 1. The parties accept that the primary judge was correct to rely upon White J's analysis in Bay Bon Investments Pty Ltd v Selvarajah [2008] NSWSC 1251 at [47] as the distillation of the applicable principle. The parties also accepted that the correctness of this approach was not affected by Paciocco v Australia & New Zealand Banking Group Ltd (2016) 90 ALJR 835; [2016] HCA 28. The appellant's contention is that the primary judge did not apply the applicable principle correctly. 2. The primary judge dealt with the appellant's claim as follows (Red 59): 108. I have already explained my determination that the interest rate with regard to the first loan was not unconscionable. I also consider that Mr Wu (sic) was entitled to charge a somewhat higher rate of interest in the circumstance of default on the first loan. After all, he was advancing a very large sum in unusual and informal circumstances. Applying the test that the parties agreed before me was apposite, I consider that the increase in the rate of interest from 9% to 11% is a reasonable reflection of his enforcement and other costs in the event of default, and a reasonable pre-estimate of the cost of him being kept out of his money, as indeed he has been for years. 109. It follows that I reject the submission that I should disallow the interest rate on default with regard to the first loan on the basis that it is a penalty. 1. The respondent submitted that there was no basis for the primary judge to find that a 2% higher rate was not a genuine pre-estimate of the losses which might arise from the respondent being kept out of his money. The appellant promised to repay the respondent all five loans in 2010. The respondent emphasised that in 2016, those loans are still outstanding but for the amount referred to earlier. The first loan was for an agreed term of one year. It has now been outstanding for more than six years. 2. The respondent also submitted that there was no evidence or submission made to the primary judge that a 2% increase was not a genuine pre-estimate of the loss which the respondent might suffer (if being kept out of his money, he had to obtain finance from elsewhere, or miss other profitable opportunities) and of the portion of his legal fees which might not be recovered on taxation. 3. There was no basis upon which the primary judge could have found that the only purpose of the default interest rate was to punish the appellant: Paciocco v Australia & New Zealand Banking Group Ltd per Gageler J at [165]. The primary judge analysed the facts and was correct in his application of the principle to the facts. 4. I am not satisfied that the primary judge fell into error in concluding that the default interest on the first loan was not a penalty. Conclusion 1. For those reasons I propose that the appeal be dismissed, the cross-appeal be allowed and the orders made by the primary judge in respect of the interest rate of the second to fifth loans and the costs orders be set aside. 2. The judgment entered by the primary judge in the orders made on 25 November 2015 was in the amount of $1,261,642.13. This amount included the principal amount and interest calculated at 20% per annum on the second to fifth loans. Those orders also provided that the judgment took effect from 20 August 2015. It is appropriate to set the judgment aside and enter judgment for the principal amount and interest at the contractual rates to take effect from 20 August 2015. In the circumstances, an order for costs following the event should be made in the respondent's favour. 3. The formal orders that I propose are: (1) The appeal is dismissed. (2) The cross-appeal is allowed. (3) The orders of the Court below made on 25 November 2015 are set aside. (4) Judgment will be entered for the cross-appellant for the principal amount and contractual interest on all loans up to 24 November 2016. (5) The parties are to agree on the calculation of the amount to be entered as judgment for the cross-appellant and provide that calculation in a Short Minute of Order delivered to the Chambers of the presiding judge by 9 December 2016. That order will be made in Chambers. (6) The appellant is to pay the respondent's cost of the appeal, the cross-appeal and the proceedings below. ********** 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: 24 November 2016