Howe v Kwok [2004] NSWSC 869

These proceedings concerned a deed of charge over certain properties given by the defendant to the plaintiff to secure a loan made by the plaintiff to a third party.

The plaintiff sought to enforce the security because the third party had failed to repay the loan. He sought a declaration that the defendant has relinquished his right, title and interest in the properties in favour of the plaintiff, and a declaration that the plaintiff was entitled to be registered as the proprietor of the properties. The plaintiff sought an order directing the lender of the properties to produce the title deeds for the properties so that the plaintiff may register transfers of the properties in his favour. Alternatively, he sought an order that the properties be sold by the Public Trustee and the proceeds accounted for in part by repayment to him of the loan and any other money to which he may be entitled.
The defendant Kwok sought to meet the plaintiff’s claim in two ways. First, he asserted that, on the true construction of the deed, the defendant’s obligation to secure the repayment of the loan did not continue beyond 90 days after the date of the deed. Secondly, the defendant had instituted a cross-claim against the plaintiff, seeking an order that certain operative clauses of the deed be set aside, or declared void, or varied, on the grounds, first, that it would be unconscionable for the plaintiff to rely upon them in the circumstances, and, secondly that, in terms of the Contracts Review Act 1980, those clauses were unjust in the circumstances relating to the deed at the time it was made.

The factual background

The defendant, Wood Yan Kwok (“Kwok”), is a stockbroker who has carried on business in Hong Kong for over 30 years. He has, since about July 2000, conducted a stockbroking business in Box Hill in Victoria through a company known as Tiffit Securities (Australia) Ltd (“Tiffit”). Tiffit is a wholly owned subsidiary of Tai Fat Securities (Australia) Pty Ltd (“Tai Fat”), of which Kwok is the major shareholder.

One of the shareholders in Tai Fat was Rocky Kan Ming Cheung (“Cheung”) who from time to time introduced clients to Tiffit. One of the persons so introduced was William Belloc Tien (“Tien”).

On 22 November 2000, Tiffit, as stockbroker on behalf of Tien, entered into a transaction to purchase shares in Timemac Solutions Ltd (TML”) on terms that required the transaction to be completed on 5 January 2001. Kwok described this transaction in his evidence as a “pre-arranged purchase”, ( “TML purchase”). Tien was not in a position to provide the funds to settle the TML purchase on the due date. In particular, one of the cheques that he had provided as a deposit had been dishonoured on presentation.

This state of affairs caused considerable concern to Kwok. He understood that, if Tiffit were to default in its obligations relating to the TML purchase, it would be subject to contractual and regulatory consequences. Tien was expecting the receipt from China of funds to cover the TML transaction, that those funds would arrive within one or two months, and that, in the meantime, he had organised a loan from the plaintiff, Paul Alexander Howe (“Howe”). The difficulty was the provision of security for the loan – Tien did not have any available assets that were acceptable to Howe as security, and Tiffit was not in a position to guarantee the loan. Kwok then agreed to furnish as security some property in Sydney that he owned. His evidence was that he made it clear to Tien and Cheung that the security was to be provided for not more than 90 days. Tien said that he would ask Teng Goh (“Goh”) a Melbourne solicitor of his acquaintance, to draw up some documents to record the transaction.

Dealing with the cross claim:

The representation made by Kwok at the airport as to the 90 day limitation of the security. There was a conflict in the evidence. Kwok’s evidence is that he made such a representation, but both Howe and Alcorn deny that it was made. After assessing the evidence, the Court held Kwok did not make any representation as to the 90 day limitation at the airport meeting.

Kwok’s command of English. It was asserted that Kwok was under a disadvantage in relation to the making of the loan deed at the airport meeting because English is not his native tongue. Kwoks held to have sufficient English. Inference drawn from a number of matters. Kwok had sworn his affidavit in the proceedings in English. He had written all his e-mails in the transaction in English. He acknowledged in cross-examination that he had had settlement discussions just prior to the hearing with his solicitor and counsel, without the benefit of an interpreter. He stated that his one academic qualification was a Master of Business Administration degree, obtained in English over two years by distance learning through the University of Western Sydney. He had established a business, Tiffit, in Victoria, he held property in Sydney, and his children were residing in Sydney. Although he stated he required the assistance of an interpreter to give oral evidence because he did not understand the complexities of the English language, giving evidence in a hearing in court is a quite different circumstance than meeting with business colleagues at the airport to sign documents.

Kwok’s lack of legal representation. Taking into account all the evidence, I find that Goh was not acting as Kwok’s solicitor. There is no direct evidence, nor is there any evidence from which an inference could be safely drawn, that Kwok received any legal advice as to the content or effect of the loan documents from any lawyer prior to his signing them.

Kwok’s understanding of the loan documents when he signed them. Court held it was
not prepared to infer, having regard to all the matters set out, that Kwok did not understand what he was signing.

In the defence to the amended statement of claim, claims of waiver and estoppel were raised on behalf of Kwok. Those claims were not fully argued, but, as they each depended upon a finding that Kwok made the representation as to the 90 day limitation at the airport meeting, those claims were rejected, given the finding that no such representation was then made.

The next aspect is the claim under the Contracts Review Act. Section 7 of that Act entitles the Court to grant relief (including refusing to enforce any of the provisions of a contract) where the Court finds that a contact or a provision of a contract has been unjust in the circumstances relating to the contract at the time it was made. Section 9(1) requires the Court, in determining whether a contract or a provision of a contract is unjust, to have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of compliance with the contract or in the event of non-compliance or contravention of its provisions. Section 9(2) contains a list of matters to which the Court shall have regard to the extent that they are relevant.

Public interest provisions on relied on however subsections of s 9(2) were:

Whether or not prior to or at the time the contract was made its provisions were the subject of negotiation: Found that the loan documents were the subject of negotiation prior to the time that they were made.

Whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract: Despite the degree of haste and the unusual setting for the airport meeting, Kwok was not prevented from negotiating had he so wanted.

Whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract: There was no suggestion that any of the conditions of the loan documents were unreasonably difficult to comply with and the Court rejected the clam that the loan deed contained provisions not reasonably necessary for the protection of the legitimate interests of Howe.

Where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed: The court held the meaning of the loan deed is tolerably plain, and I do not think that its language is unintelligible.

Whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act: There was no evidence to establish that Kwok received any independent legal advice in relation to the loan documents. This is a factor which went in his favour, however it must be considered in the light of all the circumstances. In particular, I am not satisfied that Kwok was deprived of any opportunity to seek legal advice had he so required.

The extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not the party understood the provisions and their effect: Again this matter was taken into account in Kwok’s favour, but it was not determinative having regard to all the circumstances.

In summary, Kwok was not entitled to relief under the Contracts Review Act.

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