Huijuan Zhou was a former friend whom Yi Fen Gu had helped after she retired form her job as a cleaner. By January 2024, Zhou already owed Gu substantial unsecured sums. Zhou also owed Qiaofen Ji about $250,000 and wanted a further $250,000.
Ji would not advance more money without security. Her solicitors prepared a facility agreement and mortgage over Gu’s home in Campsie in Sydney. The documents imposed the repayment obligations on Gu – who was not receiving the loan – with interest set at 1.5% or 2% a month depending on the circumstances of default.
At a dinner arranged the night before Gu was asked to sign the documents, Ji asked Zhou what equity would remain after the sale of her Wahroonga home. Zhou said $2.6 million even though the property was already encumbered and subject to a caveat. Ji was aware of those very relevant circumstances but did not reveal that information to Gu.
Gu had repeatedly refused to give security.
It emerged though that Zhou pressured Gu to sign and said she faced going to jail if she did not help. Gu agreed only after Zhou signed a separate document that she understood would make Zhou responsible for the secured debt and interest.
That document was insufficient to protect Gu in the way she believed it would. It did not refer to the facility agreement, its interest, or any security. When Gu later read the facility agreement, she realised it covered $500,000, not merely the $250,000 further advance she had understood Zhou urgently needed.
At about 2 am, she asked Zhou to reduce the maximum amount. Zhou promised to fix it, but the agreement was never amended.
Ji signed the next morning and the further funds were paid to Zhou. Gu received no funds under the facility agreement. When Zhou did not repay, Ji sued to enforce the mortgage and take possession of Gu’s home.
Gu sought relief in the NSW Supreme Court to have the agreement voided by reason of Zhou’s undue influence.
Justice Monika Schmidt preferred Gu’s evidence where it conflicted with Ji’s. She agreed that Gu had been subjected to actual undue influence, and that Ji was involved in the circumstances that produced it.
The Court held that equitable and statutory unconscionability were established, as was misleading or deceptive conduct. Ji had helped induce Gu to enter the transaction while withholding what she knew about the risk and the doubtful equity position.
The Court also found the facility agreement and mortgage unjust under the NSW Contracts Review Act because their terms were unconscionable, harsh and oppressive in circumstances known to Ji.
Judgment was entered for Gu and she was relieved of the obligation to repay the loan.
